10-K405

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
	OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-10177

APPLICA INCORPORATED

(Exact name of Registrant as specified in its charter)

Florida	59-1028301
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
5980 Miami Lakes Drive, Miami Lakes, Florida (Address of principal executive offices)	33014 (Zip Code)

Registrant’s telephone number, including area code: (305) 362-2611

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange On Which Registered
Common Stock, $0.10 par value Common Stock Purchase Rights	New York Stock Exchange New York Stock Exchange

     Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o

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

     As of March 1, 2002, the aggregate market value of the voting stock (based on the closing price as reported by NYSE of $6.50) held by non-affiliates of the Registrant was approximately $127.1 million.^*

     As of March 1, 2002, there were 23,342,903 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

     The Registrant’s Definitive Proxy Statement for its 2002 Annual Meeting of Stockholders will be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this Form 10-K pursuant to General Instruction G(3) of the Form 10-K. Information from such Definitive Proxy Statement will be incorporated by reference into Part III, Items 10, 11, 12 and 13 hereof.

* Based on reported ownership of all directors and executive officers of the Registrant; this determination does not, however, constitute an admission of affiliated status for any of these individual shareholders.

TABLE OF CONTENTS

PART I
	Item 1. Business
Overview
Risk Factors
	Item 2. Properties
	Item 3. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
PART II
	Item 5. Market for the Registrant’s Common Stock and Related Stockholder Matters
	Item 6. Selected Financial Data
	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
	Item 8. Financial Statements and Supplementary Data
	Item 9. Changes In and Disagreements With Accountants On Accounting and Financial Disclosure
PART III
	Item 10. Directors and Executive Officers of the Registrant
	Item 11. Executive Compensation
	Item 12. Security Ownership of Certain Beneficial Owners and Management
	Item 13. Certain Relationships and Related Transactions
PART IV
	Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Signatures
EMPLOYMENT AGREEMENT W/ RAYMOND SO
CREDIT AGREEMENT
SECURITY AGREEMENT
SUBSIDIARIES
CONSENT OF EXPERTS AND COUNSEL

     As used in this Annual Report on Form 10-K, “we,” “our,” “us,” the “Company” and “Applica” refer to Applica Incorporated and its subsidiaries, unless the context otherwise requires.

     This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Such statements are indicated by words or phrases such as “anticipates,” “projects,” “management believes,” “Applica believes,” “intends,” “expects,” and similar words or phrases. Such forward-looking statements are subject to certain risks, uncertainties or assumptions and may be affected by certain other factors, including the specific factors set forth in “Risk Factors.” Should one or more of these risks, uncertainties or other factors materialize, or should underlying assumptions prove incorrect, actual results, performance, or achievements of Applica may vary materially from any future results, performance or achievements expressed or implied by such forward-looking statements. All subsequent written and oral forward-looking statements attributable to Applica or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements in this paragraph. Applica disclaims any obligation to publicly announce the results of any revisions to any of the forward-looking statements contained herein to reflect future events or developments.

PART I

Item 1. Business

Overview

     Applica Incorporated is a Florida corporation that was incorporated in 1963. Applica is a manufacturer, marketer and distributor of a broad range of branded and private-label small electric consumer goods. In 1998, Applica acquired the Black & Decker Household Products Group and became a leading supplier of brand name small household appliances in the United States. We also manufacture and distribute professional personal care products, home environment products and pet care products, including the LitterMaid® self-cleaning cat litter box. We manufacture and market products under licensed brand names, such as Black & Decker®, our own brand names, such as Windmere®, and other private-label brand names. Our customers include mass merchandisers, specialty retailers and appliance distributors primarily in North America, Latin America and the Caribbean.

     Applica operates manufacturing facilities in China and Mexico. In 2001, approximately 80% of the products sold by Applica were manufactured in such facilities. In addition, we manufacture products for other consumer products companies, which we refer to as contract manufacturing.

     During the fourth quarter of 2001, Applica adopted one business segment for financial reporting purposes. Previously, Applica had reported three business segments. See Note K “Business Segment and Geographic Area Information” to the Consolidated Financial Statements hereto for information regarding business segment data.

Business Strategy

     We have combined top brand names and a reputation for quality and innovation with our efficient, low-cost manufacturing capabilities. We expect to continue to achieve growth and increased profitability by pursuing the following strategies:

     Increase market share through new product introductions and brand development. The Black & Decker® brand name is one of the most recognized consumer brands in the world. We intend to continue to increase our market share by offering new product categories and new product segments under the Black & Decker® brand name, as well as other brand names. Brand development efforts include integrated and consistent communication that covers packaging, point of purchase materials, product design and advertising.

     We are also expanding our international presence in the Latin American and Canadian marketplaces through continued expansion of new products into the dual brand strategy of Windmere® and Black & Decker®. The Windmere® line is intended to capture the opening price point market and the Black & Decker® line is intended to focus on the mid-price point market. Additionally, we are exploring alternatives to expand our brands and products outside the western hemisphere.

     Leverage manufacturing capabilities. Our primary goal is to reduce operating costs and increase productivity in our manufacturing facilities, while producing high quality products. We intend to continue to:

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• use our manufacturing capabilities in China to make components for our Mexican manufacturing facility and for third party manufacturers;

• expand capabilities at our China facility by replicating the world class manufacturing techniques and processes used in our Mexican facility; and

• offer increased contract manufacturing, particularly for companies outside of our core product categories.

     Expand alliance potentials. We plan to continue to pursue strategic alliances that complement and expand our existing product lines and businesses and that further differentiate our products, and to accelerate our growth. The alliances can include brand development, product development or distribution alliances. We also intend to further develop the strategic alliance we entered into last year to fully capitalize on its potential.

     Integrate facilities and functions. We will continue to integrate our facilities and functions allowing us to target overhead reductions in order to create a more competitive cost structure.

     Improve supply chain and customer service functions. We will continue to improve working capital management by reducing inventory days-on-hand. Additionally, Applica is committed to providing the highest levels of order fulfillment and customer support. We understand that good customer service is critical to our business strategy and plan to continue to improve customer service capabilities in 2002.

     Seek other growth opportunities. We are searching for growth opportunities within and beyond our existing business.

Products and Product Development

     Applica primarily manufactures and distributes four categories of products: small household appliances, personal care products, pet products and home environment products. The following table sets forth the approximate amounts and percentages of Applica’s net sales by product category during the periods shown:

	2001					2000					1999
	(Dollars in thousands)
	Net		% of			Net		% of			Net		% of
	Sales(1)		Total			Sales(1)		Total			Sales(1)		Total
Small Household Appliances(2)	$	508,000		76	%	$	523,000		75	%	$	493,000		74	%
Professional Personal Care		61,000		9			58,000		8			51,000		8
Home Environment		34,000		6			35,000		5			39,000		5
Pet		32,000		5			25,000		4			24,000		4
Other Products (2)		31,000		4			54,000		8			60,000		9

(1)	Net sales numbers do not include contract manufacturing sales. For information regarding such sales, see “Contract Manufacturing” below.
(2)	Includes certain kitchen and retail personal care sales that Applica transitioned out of in 2000 and 2001.

     The small household appliance group includes food preparation, cooking, beverage and garment care products and constitutes our largest product category. Applica provides customers in the small household appliances market with a broad product line at introductory and mid-tier price points. Our products in this category include toaster ovens, toasters, hand-held irons, blenders, can openers, coffee grinders, coffee makers, electric knives, skillets, griddles, waffle makers, deep fryers, bag sealers, food choppers, food processors, mixers, popcorn poppers, rice cookers and steamers, sandwich makers and other similar products. We also distribute vacuum cleaners under the Black & Decker® brand in Latin America.

     The professional personal care group focuses mainly on product lines marketed under the Belson® brand and other private label brands, and includes hair dryers, curling irons, curling brushes, hairsetters, combs and brushes, shears and mirrors. The professional products are sold primarily to beauty salons and beauty supply stores. Applica also currently sells a small number of professional personal care products to drug stores and mass

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merchandisers. In addition, we supply electric and non-electric amenities to the lodging industry under the Jerdon® brand. The products include wall-mounted hair dryers, lighted makeup and shaving mirrors, pulsating shower heads and other similar products.

     Applica also manufactures and markets the LitterMaid® self-cleaning cat litter box. Because of the success of the LitterMaid® self cleaning cat box, we have introduced other products under this brand, including accessories such as the LitterMaid® privacy tent and replacement waste receptacles. These products are sold to mass merchandisers in our primary distribution channels and directly to consumers via direct response vehicles.

     Applica has historically participated in the home environment category, which includes seasonal products such as fans and heaters, under the Windmere® brand name. This participation was targeted primarily at the opening price point segment of the marketplace. In June 2001, Applica entered the mid-price point segment of the market by launching a full array of ceramic heaters and heater fans under the Black & Decker® brand. In addition, in January 2002, we launched a line of fans under the Black & Decker® brand. We intend to expand the Black & Decker® brand into additional areas of the home environment category.

     We also source and distribute other products, including microwaves, telephones, telephone answering machines, video products, radios, tape decks and CD players under the White-Westinghouse® brand in the U.S. and Canada.

     Applica has instituted a well-defined product development and improvement process focused on the perceived needs and demands of consumers. The product development process continues to be refined to provide “speed-to-market” with solid design, quality and function characteristics. Applica launched over 90 new products in 2001 and 100 new products in 2000. New products are those that require a new mold, have a new feature or those that have not been in our product line previously. Adding new features or providing a “fresh” look to existing products either through design upgrades or creative packaging is a necessity for maintaining consumer preferences and protecting existing retail shelf space. Some of the new products launched in 2001 include the Gizmo™ can opener, the Chill Buster™ heater fan, the Heat Xtreme™ ceramic heater and the FryMate™ deep fryer. New products launched in 2000 include the Smart-Brew™ coffeemaker line, the ProBlend™ blender line, the PowerPro™ mixer line and the Quick ‘n Easy™ food processor line.

Brands

     As part of the acquisition of the Black & Decker Household Products Group, Applica licensed the Black & Decker® brand for use in marketing small household appliances in North America, Central America, South America (excluding Brazil) and the Caribbean. In addition, Applica acquired certain Black & Decker sub-brands, including Toast R Oven™, ProFinish™ and Quick n’ Easy™, and licensed Spacemaker™ for under the cabinet kitchen appliances.

     The major portion of Applica’s revenue is generated through the sale of kitchen appliances, with the Black & Decker® brand representing approximately 63% of Applica’s total revenue in 2001, as compared to 60% in 2000. The Black & Decker® brand is firmly established as a market leader and has the number one United States dollar market share in the toaster oven and hand-held iron categories. In addition, the Black & Decker® brand had the leading dollar market shares with mass merchandisers in can openers, hand mixers, food steamers, electric knives, food choppers and citrus juicers. New products constituted 22.3% of our Black & Decker® sales in 2001 and 24.4% of the sales in 2000.

     Applica also participates in several small appliance categories such as cooking, food preparation, garment care and home environment under its Windmere® brand name, which are sold primarily in Latin America. We use this brand to exploit the high unit volume potential of the opening price point segments within these categories.

     Applica also manufactures and markets several products under the LitterMaid® brand. The flagship LitterMaid® branded product is the self-cleaning cat litter box. We have also introduced other products under this brand, including accessories. This product is sold through our primary distribution channels and directly to consumers via direct response vehicles such as infomercials.

     The professional personal care category is targeted specifically at the salon segment under the Belson® brand and other private label programs. In addition, Applica continues to focus on both appliances and personal care

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products that will be targeted to the hotel and hospitality industry through the continued distribution of the Jerdon® brand of products.

     In 1999, Applica acquired the right to market certain small electronic appliances under the White-Westinghouse® brand name. These products include telephones, telephone answering machines, microwaves, video cassette recorders, radios, tape decks and CD players. In June 2000, the Kmart Corporation exercised its option to terminate its long term supply contract with Applica for the sale of White-Westinghouse® consumer electronic products in the United States. The termination will be effective on June 30, 2002.

     Applica also has, and from time to time will enter into, licenses and other agreements that grant it the right to use other trademarks and trade names.

Strategic Alliances

     Applica continues to pursue strategic alliances to further differentiate our products and to accelerate our growth. Such alliances can include brand development, product development and/or distribution alliances. Our current alliance with The Black & Decker Corporation encompasses brand development. Applica has worked closely with The Black & Decker Corporation to ensure that the Black & Decker® brand representation is seamless to the consumer.

     In the fourth quarter of 2000, we entered into a joint product development relationship with a consumer products company to develop, manufacture, market and distribute new products into the mass market. We have entered into agreements related to two products and are in the process of reviewing other opportunities for joint product development with this company in household appliances categories. This relationship will be initially targeted to the Black & Decker® brand, but future expansion may assist in the development of new brands and wider categories for Applica. We anticipate that the first products developed pursuant to this alliance will be launched in the U.S. in the second half of 2003 and the second product will follow in 2004.

Raw Materials and Suppliers

     The raw materials used in the manufacture of our products are available from numerous suppliers in quantities sufficient to meet normal requirements. Applica’s primary raw materials include plastic resin, electrical components, corrugated cardboard for cartons, aluminum and copper. Factors that are largely beyond our control, such as movements in commodity prices for specific raw materials, may affect their cost. As an example, our products require a substantial amount of plastic. Because the primary resource used in manufactured plastics is petroleum, the cost and availability of plastic varies to a great extent with the price of petroleum, which rose significantly in 2000, but remained relatively stable in 2001. Because the majority of our raw materials are commodity based, they are available from at least two or more independent suppliers. Applica is not dependent upon any single foreign source for such materials, although the cost from alternative sources may be higher. We do not maintain long-term purchase contracts with our suppliers.

     Applica purchases approximately 20% of its finished products from outside suppliers, with no significant concentration with any one supplier. We do not maintain long-term purchase contracts with these suppliers.

Intellectual Property

     Applica manufactures products with features for which we have filed or obtained licenses for trademarks, patents and design registrations in the United States and in several foreign countries. Our right to these patents and trademarks is a significant part of our business and our ability to create demand for our products is dependent to a large extent on our ability to capitalize on them. We also rely on unpatented proprietary manufacturing methodologies in our Mexican and Chinese manufacturing facilities.

     As part of our acquisition of the Black & Decker Household Products Group in June 1998, we licensed the Black & Decker brand® in North America, Central America, South America (excluding Brazil) and the Caribbean for specific household appliances. The license was on a royalty-free basis for core product categories through June 2003. In July 2001, Applica and The Black & Decker Corporation entered into an extension of the trademark license agreement through December 31, 2006. Under the agreement as extended, Applica agreed to pay certain fees and guaranteed minimum royalty payments to The Black & Decker Corporation of $1.2 million in 2001, $2.0 million

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in 2002, $5.0 million in 2003 and $12.5 million in each year thereafter through 2006. Renewals of the license agreement, if mutually agreed upon, are for five-year periods. If Black & Decker does not agree to renew the license agreement, Applica has 18 months to transition out of the brand name. No minimum royalty payments will be due during such transition period. Additionally, Black & Decker will be prohibited from competing in core product lines for a period of five years from the date of the termination of the license agreement.

     Upon request, Black & Decker may elect to extend the license to use the Black & Decker® brand to certain additional products. Such additional products are subject to royalty payments. In 2000, Black & Decker agreed to extend the license to several new product categories, including heaters, fans and deep fryers.

     Applica owns the Littermaid® trademark for self-cleaning litter boxes and has extended the trademark for accessories such as a litterbox privacy tent and waste receptacles for use with the Littermaid® litter box. Applica owns one patent and has exclusive licenses to three other patents covering the Littermaid® litter box. The patents have been issued in the United States and a number of foreign countries.

     Additional important brand names that we own include Windmere®, Jerdon® and Belson®. The Windmere® brand is targeted to electric kitchen appliances and to home environment products at the opening price point segment. Jerdon®, and its sub-brand First Class®, and Belson® are targeted to the professional personal care and hospitality markets. In addition, we acquired certain Black & Decker® sub-brands, including Toast R Oven™, ProFinish™ and Quick n’ Easy™ and licensed Spacemaker™ for under the cabinet kitchen appliances.

     Applica has also licensed the White-Westinghouse® trademark for small electronic appliances, including telephones, telephone answering machines, video cassette recorders, radios, tape decks and CD players. Such license is exclusive in the United States and Canada and requires the payment of minimum royalties. The license agreement also contains minimum sales requirements, which if not met, may result in the termination of the license. Applica has the right to renew the license agreement on an annual basis through 2012 and has currently renewed it through December 2002. In the fourth quarter of 2000, we recorded a write down of an intangible asset of $3.2 million associated with Kmart Corporation’s decision to terminate its long-term supply contract for White-Westinghouse® electronic products. This write down was included in charges in 2000 because it is our intention not to re-market these products to another company. In the fourth quarter of 2001, we recorded an additional $1.2 million write down of the intangible asset relating to the voluntary bankruptcy of Kmart.

Private Label Manufacturing

     Applica offers a number of products in the small appliance, personal care and home environment categories for private label branding by retailers. Private label brands are those brands that are specific to a certain retailer. In addition, Applica is working with key retailers to supply product development and manufacturing expertise to the development of lines such as the Michael Graves™ line at Target, for which we have developed 11 products since 1998.

Manufacturing

     Applica operates manufacturing facilities in the People’s Republic of China and Mexico. Applica Durable Manufacturing Limited is Applica’s wholly owned Hong Kong subsidiary, with manufacturing operations located in Bao An County, Guangdong Province of the People’s Republic of China, which is approximately 60 miles northwest of central Hong Kong. The Chinese facilities include six manufacturing plants located within a six square mile radius, constituting approximately two million square feet of production capability. These facilities operate as a vertically integrated manufacturing operation, with the capacity and expertise to handle most phases of product manufacturing, from design to component manufacturing through final assembly. The Chinese factories use computer-aided design and manufacturing software and state-of-the-art mold making machinery to shorten the time between product conception and final production. By manufacturing a majority of their own parts and testing at several points in the manufacturing process, our Chinese facilities are better able to ensure consistent quality. This commitment to quality by our Chinese manufacturing operations has earned it ISO 9001 certification. The factories in China are operated under contracts with the local government.

     Applica Manufacturing, S. de R.L. de C.V., is Applica’s wholly owned Mexican manufacturing subsidiary, located in Queretaro, Mexico, which is approximately 150 miles northwest of Mexico City. The factory constitutes approximately 290,000 square feet of floor space and manufactures Black & Decker® branded products for

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distribution to both North America and Latin America. Its capabilities include product design and tool fabrication. The Mexican facility is also certified under ISO 9000 standards. This location primarily manufactures irons, blenders, coffee makers and toaster ovens.

Contract Manufacturing

     Durable also serves as a contract manufacturer for a range of small appliances, including toasters, steam irons, toaster ovens, can openers, blenders, hand mixers, waffle irons, vacuum cleaners and electric toothbrushes, which it sells primarily to small appliance companies and distributors in the United States, Canada and Europe. Our Mexican manufacturing facility initiated a contract manufacturing program in 2001.

     The approximate amounts of Applica’s net contract manufacturing sales during 2001, 2000 and 1999 were $61.4 million, $53.3 million and $51.4 million, respectively.

Customers

     Applica markets it products primarily through mass merchandisers, but also distributes to home improvement retailers, warehouse clubs, drug and grocery stores, department stores, television shopping channels, pet supply retailers, beauty supply stores, catalogers, independent distributors and military post exchange outlets, as well as through e-commerce websites. In 2001, Applica’s top three customers were Wal-Mart, Target and Kmart. These customers accounted for approximately 38%, 36% and 34% of net sales in 2001, 2000 and 1999, respectively. Wal-Mart was our only customer that accounted for more than 10% of net sales in 2001.

     In January 2002, Kmart Corporation and certain of its U.S. subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Kmart has indicated that it intends to reorganize on a fast-track basis and has targeted emergence from Chapter 11 in 2003. In 2001, Applica had sales of $49.4 million to Kmart Corporation and, as of the date of the bankruptcy filing, Applica had outstanding receivables of approximately $5.0 million.

     Additionally, in January 2002, Service Merchandise Company, Inc. announced that it would cease continuing business operations and file a plan of liquidation by September 2002. Service Merchandise filed bankruptcy in March 1999 but was unable to complete its planned business reorganization. In 2001, Applica had sales of $10.8 million to Service Merchandise. As of the date of the announcement, the outstanding receivables to Service Merchandise were immaterial.

Sales, Marketing and Distribution

     Applica’s products are sold principally by an internal sales staff. Each sales manager has primary coverage responsibility for certain retail accounts. We also use independent sales representatives in Central America and the Caribbean. Our marketing department is responsible for product and category analysis, pricing strategy, promotions, key cooperative partnerships and overall category development. We use media advertising, cooperative advertising and collateral materials to promote our products and develop brand awareness.

     In the United States, Canada, Mexico and South America, we distribute our line of consumer products nationwide to retailers, including mass merchandisers, department stores, drug chains, catalog stores and discount and variety stores.

     We market our professional salon appliances and hair care accessories to beauticians, barbers and stylists primarily through distributors in the United States. In addition, our professional personal care lines are sold primarily through professional beauty and barber retail stores in the U.S.

Backlog

     Applica’s backlog consists of commitments to order and orders for our products, which are typically subject to change and cancellation until shipment. Customer order patterns vary from year to year, largely because of annual differences in consumer acceptances of product lines, product availability, marketing strategies, inventory levels of retailers and differences in overall economic conditions. As a result, comparisons of backlog as of any date in a given year with backlog at the same date in a prior year are not necessarily indicative of sales for that entire given

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year. As of December 31, 2001, Applica had a backlog of approximately $40.4 million compared to $52.8 million as of December 31, 2000. We do not believe that the amount of backlog orders is a significant factor in our business.

Seasonality

     Our business is highly seasonal, with operating results varying from quarter to quarter. We have historically experienced higher revenues in the third and fourth quarters of the fiscal year, primarily due to increased demand by customers in late summer for “back-to-school” sales and in the fall for holiday sales. The majority of our sales occur from July through November.

Competition

     The sale of small electric consumer goods is characterized by intense competition. Competition is based on price and quality, as well as access to retail shelf space, product design, brand names, new product introduction and marketing support and distribution approaches. Applica competes with various domestic and international manufacturers and distributors, some of which have substantially greater financial and other resources than those of Applica. We believe that our future success will depend upon our ability to develop and produce reliable products that incorporate developments in technology and satisfy customer tastes with respect to style and design. It will also depend on our ability to market a broad offering of products in each category at competitive prices.

     Primary competitive brands in the household appliance market include Hamilton Beach/Procter Silex, Sunbeam, West Bend, Salton, Kitchen Aid, Cuisinart, Regal, Krups, Braun and Rival. Primary competitive brands in the professional personal care market include Conair, Helen of Troy and Remington and in the home environment market include Holmes, Patton, Pelonis, Honeywell, Duracraft, Bionaire and Lakewood.

Regulation

     As a manufacturer and distributor of consumer products, we are subject to the Consumer Products Safety Act, which empowers the Consumer Products Safety Commission to exclude from the market products that are found to be unsafe or hazardous. Under certain circumstances, the Consumer Products Safety Commission could require us to repurchase or recall one or more of our products. Laws regulating certain consumer products exist in some cities and states, as well as in other countries in which we sell our products. We believe that we are in material compliance with all of the laws and regulations applicable to us.

     In the United States, Canada, Latin America and Europe, most federal, state, provincial and local authorities require safety regulation certification prior to marketing electrical appliances in those jurisdictions. Within the United States, Underwriters Laboratory, Inc. (“UL”) is the most widely recognized certification body for electrical appliances. UL is an independent, not-for-profit corporation engaged in the testing of products for compliance with certain public safety standards. We endeavor to have our products designed to meet the certification requirements of, and to be certified in, each of the jurisdictions in which they are sold.

     Certain of the products sold by Applica in the United States are also subject to the Fair Packaging and Labeling Act. We believe that in addition to complying with the Fair Packaging and Labeling Act, we comply with the applicable rules and regulations of the Federal Trade Commission and other federal and state agencies with respect to the content of advertising and other trade practices.

Employees

     As of March 1, 2002, Applica had approximately 16,000 full-time employees, which included approximately 13,000 employed at Durable’s operations in Hong Kong and China, approximately 600 employed in North America and approximately 2,000 employed in Mexico and South America. From time to time, Applica also uses the services of seasonal employees.

     In connection with the acquisition of the Black & Decker Household Products Group, Applica Manufacturing, S. de R.L. de C.V., Applica’s Mexican manufacturing subsidiary, assumed the obligations of Black & Decker, S.A. de C.V. under a collective bargaining agreement with the Sindicato Unico de Trabajadores Black & Decker del Estado de Queretaro, C.T.M. (Single Workers Union of Black & Decker of the State of Queretaro,

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C.T.M.) covering approximately 1,500 employees at our manufacturing plant in Queretaro, Mexico. The wage provisions of this collective bargaining agreement were renegotiated in February 2002. To date, the union has not engaged in strikes or work stoppages against Applica. We believe that our relationships with both union and non-union employees continue to be good.

     Applica intends to close its offices in Shelton, Connecticut and to consolidate critical functions at the Miami Lakes location by July 2002. Certain back-office and supply chain functions in Canada and Latin America will also be consolidated. This consolidation will result in the reduction of approximately 80 employees worldwide.

Legal Structure

     Applica’s manufacturing operations are provided by two wholly owned subsidiaries: Applica Durable Manufacturing Limited (formerly Durable Electrical Metal Factory Limited) in Hong Kong and Applica Manufacturing, S. de R.L. de C.V. (formerly known as Household Products Limited de Mexico, S. de R.L. de C.V.) in Mexico. The distribution, sales, and marketing operations are primarily handled though our U.S. operating subsidiary, Applica Consumer Products, Inc. Applica also has separate entities providing distribution, sales and marketing operations in Canada, Puerto Rico, Mexico, Chile, Argentina, Venezuela and Colombia.

Risk Factors

     The risks below are not the only risks that we face. Additional risks that we do not yet know of or that we currently think are immaterial may also impair our business operations. If any of the events or circumstances described in the following risks actually occurs, our business, financial condition or results of operations could be materially adversely affected.

Uncertainties regarding the impact of the recent terrorist activities and the public’s confidence in general.

     The recent terrorist activities and the current war on terrorism have had an adverse effect on consumer confidence and spending patterns in the United States, which in turn had a significant impact on our performance. Unforeseen inventory adjustments or changes in purchasing patterns by consumers and major customers and the resultant impact on manufacturing volumes resulting from further terrorist attacks would have a material negative effect.

The Failure Of Our Growth Strategy Could Have A Material Adverse Effect on Our Business

     As part of our growth strategy, we plan to:

• increase our market share through new product introductions and brand development;

• leverage our manufacturing capabilities;

• expand our alliances;

• integrate our facilities and functions;

• improve our supply chain and customer service functions; and

• seek other growth opportunities.

We cannot assure you that our strategic objectives will be realized or, if realized, will result in increased revenue, profitability or market presence. Executing our strategy may also place a strain on our production, information systems and other resources. To manage growth effectively, we must maintain a high level of manufacturing quality and efficiency, continue to enhance our operational, financial and management systems, including our database management, inventory control and distribution systems, and expand, train and manage our employee base. We cannot assure you that we will be able to effectively manage our expansion in any one or more of these areas.

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If We Are Unable to Renew the Black & Decker® Trademark License Agreement, Our Business Could Be Adversely Affected

     As part of the acquisition of the Black & Decker Household Products Group, we licensed the Black & Decker® brand for use in marketing small household appliances in North America, Central America, South America (excluding Brazil) and the Caribbean. In July 2001, Applica and The Black & Decker Corporation entered into an extension of the trademark license agreement through December 31, 2006. Renewals, if mutually agreed upon, are for five-year periods and will require the payment of minimum royalties, which royalty rates have previously been negotiated. The major portion of our revenue is generated through the sale of Black & Decker® branded products, which represented approximately 63% of our total revenue in 2001 and 60% in 2000.

The Infringement or Loss of Our Proprietary Rights Could Have An Adverse Effect On Our Business

     We believe that our rights in owned and licensed names are a significant part of our business and that our ability to create demand for our products is dependent to a large extent on our ability to exploit these trademarks. There can be no assurance as to the breadth or degree of protection that these trademarks may afford us, or that we will be able to successfully exploit our trademarks in the future. The costs associated with protecting our intellectual property rights, including litigation costs, may be material. We also cannot be sure that we will be able to successfully assert our intellectual property rights or that these rights will not be invalidated, circumvented or challenged. Any inability to do so, particularly with respect to names in which we have made significant capital investments, or a successful intellectual property challenge or infringement proceeding against us, could have a material adverse effect on us. In addition, because our business strategy is heavily dependent upon the use of brand names, adverse publicity with respect to products that are not sold by us, but bear the same brand names, could have a material adverse effect on us.

     We also rely on unpatented proprietary manufacturing technology and there can be no assurance that others may not independently develop the same or similar technology or otherwise obtain access to our technology. If we are unable to maintain the proprietary nature of our technologies, our business, financial condition and results of operations could be materially adversely affected. Additionally, we manufacture our products with features for which we have filed or obtained licenses for patents and design registrations in the United States and in several foreign countries. With respect to our applications for patents, there can be no assurance that any patents will be obtained. If obtained, there can be no assurance that such patents will afford us commercially significant protection of our technologies or that we will have adequate resources to enforce our patents.

We Depend On Purchases From Several Large Customers and Any Significant Decline In These Purchases or Pressure From These Customers to Reduce Prices Could Have A Negative Effect On Our Business

     Due to the consolidation of the retail industry, our customer base has become relatively concentrated. Wal-Mart Stores, Inc., our largest single customer, accounted for approximately 24.3% of our 2001 net sales and approximately 21.4% of our 2000 net sales. Our top three customers accounted for approximately 38%, 36% and 34% of net sales in 2001, 2000 and 1999, respectively. Although we have long-established relationships with many of our customers, we do not have any long-term supply contracts and purchases are generally made using individual purchase orders. As a result, we must receive a continuous flow of new orders from our large, high-volume retail customers. However, we cannot assure you that we can continually meet the needs of our customers. In addition, failure to obtain anticipated orders or delays or cancellations of orders or significant pressure to reduce prices from key customers could have a material adverse effect on us.

Our Business is Very Sensitive to the Strength of the U.S. Retail Market and Weakness in This Market Could Adversely Effect Our Business

     The strength of the retail economy in the United States has a significant impact on our performance. Weakness in consumer confidence and poor financial performance by mass merchandisers, warehouse clubs, department stores or any of our other customers could have a material adverse effect on us.

     In addition, as a result of the desire of retailers to more closely manage inventory levels, there is a growing trend among retailers to make purchases on a “just-in-time” basis. This requires us to shorten our lead time for production in certain cases and more closely anticipate demand, which could in the future require the carrying of additional inventories.

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The Bankruptcy or Financial Difficulty of Any Major Retailer or Fluctuations in the Financial Condition of the Retail Industry Could Adversely Effect Our Business

     We sell our products to retailers, including mass merchandisers, department stores and wholesale clubs. The financial difficulties of retailers or the loss of, or a substantial decrease in, the volume of purchases by such retailers could have a material adverse effect on us. Additionally, a significant deterioration in the financial condition of the retail industry in general could have a material adverse effect on our sales and profitability.

     Recently, several larger retail chains have declared bankruptcy or liquidated, one of which was one of our significant customers. We continually monitor and evaluate the credit status of our customers and attempt to adjust sales terms as appropriate. Despite these efforts, a bankruptcy filing by a key customer could have a material adverse effect on us.

Our Business Can Be Adversely Effected by Fluctuations in Cost and Availability of Raw Materials and Components

     Raw materials and components constitute a significant portion of our cost of goods. Factors that are largely beyond our control, such as movements in commodity prices for the specific materials we require, may affect the future cost of raw materials and components. As an example, our products require a substantial amount of plastic. Because the primary resource used in manufactured plastics is petroleum, the cost and availability of plastic varies to a great extent with the price of petroleum, which rose significantly in 2000. In addition, any inability of our suppliers to timely deliver raw materials or components or any unanticipated changes in our suppliers could be disruptive and costly to us. Our ability to select reliable suppliers who provide timely deliveries of quality materials and components will impact our success in meeting customer demand. Any significant failure by us to obtain raw materials on a timely basis at an affordable cost or any significant delays or interruptions of supply, would have a material adverse effect on us.

Our Business Involves the Potential For Product Recalls and Product Liability Claims Against Us

     As a manufacturer and distributor of consumer products, we are subject to the Consumer Products Safety Act, which empowers the Consumer Products Safety Commission to exclude from the market products that are found to be unsafe or hazardous. Under certain circumstances, the Consumer Products Safety Commission could require us to repurchase or recall one or more of our products. Laws regulating certain consumer products exist in some cities and states, as well as in other countries in which we sell our products, and more restrictive laws and regulations may be adopted in the future. Any repurchase or recall of our products could be costly to us and could damage our reputation. If we were required to remove, or we voluntarily removed, our products from the market, our reputation could be tarnished and we might have large quantities of finished products that could not be sold.

     We also face exposure to product liability claims in the event that one of our products is alleged to have resulted in property damage, bodily injury or other adverse effects. Although we maintain product liability insurance in amounts that we believe are reasonable, we cannot assure you that we will be able to maintain such insurance on acceptable terms, if at all, in the future or that product liability claims will not exceed the amount of insurance coverage. Additionally, we do not maintain product recall insurance. As a result, we cannot assure you that product recalls or product liability claims will not have a material adverse effect on us.

     Finally, our results of operations are susceptible to adverse publicity regarding the quality or safety of our products. In particular, product recalls or product liability claims challenging the safety of our products may result in a decline in sales for a particular product. This could be true even if the claims themselves are ultimately settled for immaterial amounts. We cannot assure you that this type of adverse publicity will not occur or that product liability claims will not be made in the future.

We Operate A Significant Portion Of Our Business Outside Of The United States Which Subjects Us To Additional Risks

     We manufacture a significant number of the products we sell in China and Mexico and obtain a significant proportion of the raw materials used in the manufacturing of our products outside the United States. We also have certain products manufactured by contract manufacturers outside of the United States. In addition, our strategy

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includes increasing sales to customers outside of the United States, including Latin America. International operations are subject to risks including, among others:

• labor unrest;

• political instability;

• lack of developed infrastructure;

• longer payment cycles and greater difficulty in collecting accounts;

• restrictions on transfers of funds;

• import and export duties and quotas;

• domestic and international customs and tariffs;

• U.S. taxes on repatriated earnings;

• unexpected changes in regulatory environments;

• difficulty in complying with a variety of foreign laws;

• difficulty in obtaining distribution and support; and

• potentially adverse tax consequences.

     Labor in China and Mexico has historically been readily available at relatively low cost as compared to labor costs applicable in other nations. Both countries have experienced social, political and economic change in recent years. We cannot assure you that labor will continue to be available to us in China or Mexico at costs consistent with historical levels. A substantial increase in labor costs could have a material adverse effect on us. We could also be adversely affected by the imposition of austerity measures intended to reduce inflation, the inadequate development or maintenance of infrastructure or the unavailability of adequate power and water supplies, transportation, raw materials and parts, or a deterioration of the general political, economic or social environment in the foreign countries where we do business, particularly China, Hong Kong and Mexico. We cannot assure you that any of the foregoing factors will not have a material adverse effect on our ability to increase or maintain our international sales or importing activities, our financial condition or the results of our operations.

     Additionally, our six manufacturing facilities in China are operated under leases with the local government. If changing conditions in China result in the termination of one or more of the lease agreements by the local government, it could have a material adverse effect on our business.

Our Business Could Be Adversely Effected By Changes in Trade Relations With China

     China gained Permanent Normal Trade Relations (“PNTR”) with the United States when it acceded to the World Trade Organization, effective January 1, 2002. The United States imposes the lowest applicable tariffs on exports from PNTR countries to the United States. In order to maintain its WTO membership, China has agreed to several requirements, including the elimination of caps on foreign ownership of Chinese companies, lowering tariffs and publicizing its laws. No assurance can be given that China will meet these requirements and remain a member of the WTO, or that its PNTR trading status will be maintained. If China’s WTO membership is withdrawn or if PNTR status for goods produced in China were removed, there could be a substantial increase in tariffs imposed on goods of Chinese origin entering the United States, including those manufactured by us, which would adversely impact our sales.

Our Business Could Be Adversely Affected By Currency Fluctuations In Our International Operations

     While we transact business predominantly in U.S. dollars and most of our revenues are collected in U.S. dollars, a substantial portion of our costs, such as payroll, rent and indirect operational costs, are denominated in other currencies, such as Chinese renminbi, Hong Kong dollars and Mexican pesos. In addition, while a small portion of our revenues are collected in foreign currencies, such as Canadian dollars, a significant portion of the related cost of goods sold are denominated in U.S. dollars. Changes in the relation of these and other currencies to the U.S. dollar will affect our cost of goods sold and operating margins and could result in exchange losses. The impact of future exchange rate fluctuations on our results of operations cannot be accurately predicted. There can be no assurance that the dollar foreign exchange rates will be stable in the future or that fluctuations in financial markets will not have a material adverse effect on us.

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Our Business Could Be Adversely Effected By Retailer Inventory Management Or The Failure of Our Logistical Systems

     Changes in retailer inventory management strategies could make inventory management more difficult for us. Because of our significant reliance on our factory in China, our production lead times are relatively long. Therefore, we generally commit to production in advance of customer orders. If retailers significantly change their inventory management strategies or if they or we fail to forecast customer or consumer demand accurately, we may encounter difficulties in filling customer orders or in liquidating excess inventories, or may find that customers are canceling orders or returning products. Distribution difficulties may have an adverse effect on our business by increasing the amount of inventory and the cost of warehousing inventory. Any of these results could have a material adverse effect us.

     Additionally, our business operations are dependent on our logistical systems, which include our order management system and our computerized warehouse network. Any interruption in our logistical systems would impact our ability to procure our products from our factories and suppliers, transport them to our distribution facilities, store them and deliver them to our customers on time and in the correct amounts.

Our Future Success Requires Us To Develop New and Innovative Products On A Consistent Basis In Order To Increase Revenues And We May Not Be Able To Do So

     We believe that our future success will depend in part upon our ability to continue to make innovations in our existing products and to develop, manufacture and market new products. We cannot assure you that we will be successful in the introduction, marketing and manufacture of any new products or product innovations or that we will be able to develop and introduce in a timely manner innovations to our existing products that satisfy customer needs or achieve market acceptance.

We Rely Heavily On Our Manufacturing Facilities To Manufacture and Assemble Our Products. An Extended Interruption In The Operation Of Any Facility Could Have An Adverse Impact On Our Operating Results

     A substantial portion of our net sales are derived from products manufactured or assembled at our manufacturing facilities located in China and Mexico. These manufacturing facilities are subject to hazards that could result in material damage to any such facility. Any such damage to either facility, or prolonged interruption in the operations of either facility for repairs, labor disruption or other reasons, would have a material adverse effect on us.

We Are Subject To Several Production-Related Risks Which Could Jeopardize Our Ability To Realize Anticipated Sales And Profits

     To realize sales and operating profits at anticipated levels we must manufacture, source and deliver high quality products in a timely manner. Among others, the following factors can have a negative effect on our ability to do these things:

• labor difficulties;

• scheduling and transportation difficulties;

• management dislocation;

• substandard product quality, which can result in higher warranty, product liability and product recall costs;

• delays in development of quality new products;

• changes in laws and regulations, including changes in tax rates, accounting standards, environmental laws and occupational health and safety laws; and

• changes in the availability and costs of labor.

Our Operating Results Can Be Affected By Seasonality

     Our business is highly seasonal with operating results varying from quarter to quarter. We experience higher revenues in the third and fourth quarters of each fiscal year primarily due to increased demand by customers for our products in the late summer for “back-to-school” sales and in the fall for holiday sales. This seasonality has also

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resulted in additional interest expense to us during the third and fourth quarters of each fiscal year due to an increased need to borrow funds to maintain sufficient working capital to finance such increased demand.

We Compete With Other Large Companies That Produce Similar Products

     The markets for our products are highly competitive. We believe that competition is based upon several factors, including price, quality, access to retail shelf space, product features and enhancements, brand names, new product introductions, marketing support and distribution systems. We compete with established companies, a number of which have substantially greater facilities, personnel, financial and other resources than we have. We also compete with importers and foreign manufacturers of unbranded products. Some competitors may be willing to reduce prices and accept lower profit margins to compete with us. As a result of this competition, we could lose market share and sales. In addition, our industry has experienced some consolidation of existing manufacturers, each generating annual sales which are significantly higher than our own. We cannot assure you that we will be able to compete successfully against current and future sources of competition or that the competitive pressures we face will not adversely affect our profitability.

Our Debt Agreements Contain Covenants That Restrict Our Ability To Take Certain Actions

     Our credit facility and the indenture for our 10% notes impose restrictions that affect, among other things, our ability to incur debt, pay dividends, sell assets, create liens, make capital expenditures and investments, and otherwise enter into certain transactions outside the ordinary course of business. The credit facility also requires us to maintain a minimum borrowing base availability and meet certain financial tests. Our ability to continue to comply with these covenants and restrictions may be affected by events beyond our control. The breach of any of these covenants or restrictions would result in a default under the credit facility and the indenture, in which case the lenders could elect to declare all amounts borrowed thereunder, together with accrued interest, to be due and payable, foreclose on the assets securing the debt or cease to provide additional revolving loans or letters of credit, which could have a material adverse effect on our business.

Our Business Can Be Adversely Affected by Newly Acquired Businesses or Product Lines

     Applica may acquire partial or full ownership in businesses or may acquire rights to market and distribute particular products or lines of products. The acquisition of a business or of the rights to market specific products or use specific product names may involve a financial commitment by Applica. In case of an acquisition such commitments could be in the form of either cash or stock consideration. In the case of a new license such commitments are usually in the form of prepaid royalties and future minimum royalty payments. There is no guarantee that we will acquire businesses and develop products that will contribute positively to our earnings. Anticipated synergies may not materialize, cost savings may be less than expected, sales of products may not meet expectations, and acquired businesses may carry unexpected liabilities.

Government Regulations Could Adversely Impact Our Operations

     In the United States, Latin America, Canada and Europe, most federal, state, provincial and local authorities require Underwriters Laboratory, Inc. or other safety regulation certification prior to marketing electrical appliances in those jurisdictions. Most of our products have such certifications. However, there can be no assurance that our products will continue to meet such specifications. Many foreign, federal, state and local governments also have enacted laws and regulations that govern the labeling and packaging of products and limit the sale of product containing certain materials deemed to be environmentally sensitive. A determination that we are not in compliance with such rules and regulations could result in the imposition of fines or an award of damages to private litigants.

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Item 2. Properties

     The following table sets forth the principal operating facilities of Applica:

Location	Description	Area (Sq. Feet)
Miami Lakes, Florida	Headquarters, general administration, sales office, engineering offices, warehouse and distribution	140,000 Owned 40,000 Leased
Shelton, Connecticut	Sales office and product development laboratories	100,000 Leased
Man Fung, China	Manufacturing and distribution	238,000 Leased
Sai Po Yuen, China	Manufacturing and distribution	202,000 Leased
Man Cheung Po, China	Manufacturing and distribution	935,000 Leased
Pok Kong, China	Manufacturing and distribution	430,000 Leased
Sun Kiu, China	Manufacturing and distribution	305,000 Leased
Gong He, China	Manufacturing, distribution and warehouse	58,000 Leased
Queretaro, Mexico	Manufacturing, distribution, warehouse and office	290,000 Owned
Little Rock, Arkansas	Warehouse and distribution	780,000 Leased
Toronto, Canada	Canada headquarters, sales office and distribution	110,000 Leased
Hong Kong, China	Durable headquarters and general administration	40,000 Leased

     Durable’s facilities in China are operated under contracts with the local government.

     Applica also leases additional warehouse and office space and uses the services of public warehouses in the United States, Canada and Latin America pursuant to short-term contracts.

     Applica believes its current facilities are adequate to meet its needs in the foreseeable future. If necessary, we may, from time to time, acquire or lease additional facilities for warehousing and/or other activities.

     Applica will be closing its Shelton, Connecticut office in the third quarter of 2002.

Item 3. Legal Proceedings

     Shareholder Litigation. Applica is a defendant in Sherleigh Associates LLC and Sherleigh Associates Inc. Profit Sharing Plan, on their own behalf and on behalf of all others similarly situated v. Windmere-Durable Holdings, Inc., David M. Friedson and Nationsbanc Montgomery Securities LLC, 98-2273-CIV-LENARD which was filed in the United States District Court, Southern District of Florida on October 8, 1998.

     This matter is a class action complaint, which is the consolidation of eight separate class action complaints with substantially similar allegations filed in 1998. The complaint alleges violations of the federal securities laws (including Rule 10b-5 promulgated pursuant to the Securities Exchange Act of 1934, as amended) in connection with the acquisition by Applica of the Household Products Group of The Black & Decker Corporation. Among other things, the plaintiffs allege that Applica and certain of its directors and officers, along with its underwriters, NationsBanc Montgomery Securities LLC, provided false information in connection with a public offering of debt and equity securities. The plaintiffs seek, among other relief, to be declared a class, to be awarded compensatory damages, rescission rights, unspecified damages and attorneys’ fees and costs. The court has provisionally certified the class of plaintiffs who purchased Applica stock between May 12, 1998 and September 22, 1998.

     In connection with the Household Products Group acquisition, Applica also received two derivative demands from certain shareholders alleging breach of fiduciary duties by certain of our officers and directors. On November 29, 2001, a derivative action was filed in the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida. The Board of Directors appointed an independent committee of directors to review the derivative claims, which concluded that the allegations in the demand letters were without merit and that, therefore, the Board should not direct management to initiate litigation on Applica’s behalf or initiate such action itself.

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     In January 2002, Applica reached an agreement in principle to settle the securities class action litigation and the related derivative claims for approximately $11.0 million in cash. Applica took a charge of approximately $1.0 million in the fourth quarter of 2001 for expenses related to the litigation. All other amounts related to the settlement of the litigation are expected to be covered under Applica’s insurance policies. Under the terms of the settlement, all claims against Applica and all other defendants will be dismissed without any admission of liability or wrongdoing. Settlement is subject to final documentation and court approval. Failure of the court to approve the settlement could result in significant changes in estimated exposures. Details regarding the shareholder litigation settlement will be communicated to potential class members prior to final court approval.

     Salton Litigation. Applica is also a defendant in Salton, Inc. v Windmere-Durable Holdings, Inc. and Windmere Corporation, which was filed in the United States District Court, Northern District of Illinois.

     In January 2001, Salton, Inc. filed suit against Applica alleging breach of a non-competition agreement. In connection with the sale to Salton of Applica’s 50% interest in Salton, Salton issued a $15 million promissory note to Applica as part of the purchase price. Applica also entered into an agreement with Salton whereby Salton agreed to pay Applica 50% of its profits on the sales to Kmart Corporation of White-Westinghouse® electric kitchen appliances. Salton is alleging that Applica has breached the non-compete provision of such agreement. Salton is further alleging that, as the result of Applica’s actions, Kmart has ceased buying White-Westinghouse® products from Salton to Salton’s detriment. Discovery proceeding have been initiated and are ongoing.

     Salton is requesting compensatory and punitive damages, attorney’s fees and costs, and cancellation of the $15 million note. Salton has also purportedly terminated its agreement with Applica for the payment of 50% of the profits from its sale of White-Westinghouse® products to Kmart. Applica recorded approximately $5.7 million and $2.6 million of income under this agreement in 2000 and 1999, respectively. No amounts were recorded in 2001. We believe that the amount of ultimate liability in this matter, if any, is not likely to have a material effect on our business, financial condition or results of operations. However, as the outcome of litigation is difficult to predict, significant changes in the estimated exposures could occur.

     Toaster Recall. In February 2002, Applica Consumer Products, Inc., in cooperation with the U.S. Consumer Products Safety Commission, voluntarily recalled approximately 2.1 million Black & Decker® two-slice and four-slice toasters. The heating elements in these toasters can continue to operate after use, posing a potential fire hazard. Applica’s Canadian operating subsidiary, Applica Canada Corporation, is also recalling approximately 180,000 of these toasters in Canada. Management has charged operations with an estimated reserve of $13.4 million for these recalls and does not believe the ultimate liability will be materially different.

     Currently, no litigation has been filed in connection with property damage or bodily injury relating to the recalled toasters, however, several claims have been made. We believe that the amount of ultimate liability of these claims, if any, is not likely to have a material effect on our business, financial condition or results of operations. However, as the outcome of litigation is difficult to predict, significant changes in the estimated exposures could occur.

     Other Matters. Applica is subject to other legal proceedings, products liability claims and other claims that arise in the ordinary course of our business. In the opinion of management, the amount of ultimate liability, if any, in excess of applicable insurance coverage, is not likely to have a material effect on the financial condition, results of operations or liquidity of Applica. However, as the outcome of litigation or other claims is difficult to predict, significant changes in the estimated exposures could occur.

Item 4. Submission of Matters to a Vote of Security Holders

     No matters were submitted to a vote of Applica’s security holders during the fourth quarter of the year ended December 31, 2001.

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PART II

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

     Applica’s common stock, $0.10 par value, is listed for trading on the New York Stock Exchange under the symbol “APN.” The following tables set forth, for the periods indicated, the range of high and low closing prices for the common stock as reported on the New York Stock Exchange:

	Closing Price
	High		Low
2000
First quarter	$	19.38	$	14.19
Second quarter	$	16.38	$	11.31
Third quarter	$	11.63	$	6.13
Fourth quarter	$	5.69	$	3.13
2001
First quarter	$	7.65	$	4.63
Second quarter	$	9.59	$	6.05
Third quarter	$	11.30	$	7.48
Fourth quarter	$	9.45	$	6.40

     At March 1, 2002, there were approximately 950 holders of record of our common stock. The number of holders of record of the common stock includes nominees of various depository trust companies for an undeterminable number of individual stockholders.

     We are prohibited from declaring or paying cash dividends on our capital stock under the terms of our debt agreements. We did not pay any common stock dividends in 2001 or 2000, and we do not anticipate paying dividends in the foreseeable future. We intend to retain future earnings, if any, to finance the expansion of our operations and for general corporate purposes.

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Item 6. Selected Financial Data

     The selected financial data presented below is derived from our audited financial statements and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited financial statements and related notes thereto.

	2001			2000			1999			1998			1997
	(Dollars in thousands, except per share data)
Statement of Operations:
Net sales and other revenues	$	727,044		$	748,751		$	718,309		$	474,356		$	261,885
Equity in net earnings (loss) of joint ventures	$	(128	)	$	(777	)	$	(12,894	)	$	1,621		$	7,353
Earnings (loss) before income taxes	$	(24,292	)	$	(22,758	)	$	21,020		$	40,368		$	20,758
Income tax expense (benefit)	$	4,146		$	(1,542	)	$	4,177		$	11,616		$	923
Effective tax rate		(17.1	)%		6.8	%		19.9	%		28.7	%		4.5	%
Net earnings (loss)	$	(28,438	)(1)	$	(21,216	)(1)	$	16,843	(1)	$	28,752	(2)	$	19,835
Balance Sheet:
Working capital	$	228,124		$	276,981		$	263,315		$	267,434		$	106,078
Current ratio		3.0			3.3			3.1			3.0			2.4
Property, plant and equipment, net	$	82,337		$	78,200		$	75,983		$	76,077		$	37,199
Total assets	$	633,461		$	707,935		$	714,310		$	742,737		$	281,847
Long-term debt, deferred liabilities and minority interest and other long terms liabilities	$	225,726		$	260,147		$	243,807		$	287,306		$	17,144
Shareholders’ equity	$	293,939		$	324,474		$	343,397		$	324,018		$	190,821
Per Share Data:
Earnings (loss) per common share
- basic		($1.23	)(1)		($0.92	)(1)	$	0.75	(1)	$	1.43	(2)	$	1.12
Earnings (loss) per common share
- diluted		($1.23	)(1)		($0.92	)(1)	$	0.72	(1)	$	1.33	(2)	$	1.00
Cash dividends paid		—			—			—			—		$	0.10
Book value at year end	$	12.65		$	14.06		$	15.17		$	14.67		$	10.53
Return on average equity		(9.2	)%		(6.4	)%		5.1	%		11.2	%		11.1	%

(1)	For information regarding charges incurred for the years 2001, 2000 and 1999, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(2)	Includes a one-time, primarily non-cash repositioning charge of $17.2 million, of which $7.7 million is included in cost of goods sold. Also includes an after tax gain on the sale of Applica’s equity interest in Salton, Inc. of $27.5 million.

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

Overview

     Applica is a manufacturer, marketer and distributor of a broad range of branded and private-label small electric consumer goods. In 1998, Applica acquired the Black & Decker Household Products Group and became a leading supplier of brand name small household appliances in the United States. We also manufacture and distribute professional personal care products, home environment products and pet care products, including the LitterMaid® self-cleaning cat litter box. We manufacture and market products under licensed brand names, such as Black & Decker®, our own brand names, such as Windmere®, and other private-label brand names. Our customers include mass merchandisers, specialty retailers and appliance distributors primarily in North America, Latin America and the Caribbean.

     We operate manufacturing facilities in China and Mexico. In 2001, approximately 80% of the products sold by Applica were manufactured in such facilities. In addition, we manufacture products for other consumer products companies, which we refer to as contract manufacturing.

     During the fourth quarter of 2001, Applica began reporting its operations as one business segment. Previously, we had reported three business segments. The change to one business segment was made to conform to organizational changes we made in the management of our business to more effectively utilize and deploy our assets on a world-wide basis. Previously reported segment information for 2000 and 1999 has been restated to conform to year-end 2001 presentation.

Critical Accounting Policies

     Applica’s accounting policies are more fully described in Note A of Notes to Consolidated Financial Statements. As disclosed therein, the preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements.

     The most significant accounting estimates inherent in the preparation of Applica’s financial statements include estimates associated with management’s evaluation of the recoverability of goodwill as well as those used in the determination of liabilities related to warranty activity, litigation, product liability, product recall, taxation and repositioning. In addition, significant estimates form the bases for Applica’s reserves with respect to sales and pricing allowances, collectibility of accounts receivable, inventory valuations and certain benefits provided to current employees. Various assumptions and other factors underlie the determination of these significant estimates. The process of determining significant estimates is fact specific and takes into account factors such as historical experience, current and expected economic conditions, product mix, and in some cases, actuarial techniques. Applica constantly re-evaluates these significant factors and makes adjustments where facts and circumstances dictate.

     See “New Accounting Pronouncements” below for information regarding the effects of the adoption of SFAS 142, “Goodwill and Other Intangible Assets”, which could be material.

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Results of Operations

     The operating results of Applica expressed as a percentage of sales and other revenues are set forth in the table below:

			Year Ended December 31,
			2001			2000			1999
Net sales and other revenues				100.0	%		100.0	%		100.0	%
Cost of sales:
	Cost of goods sold			71.0			68.6			67.4
	Repositioning charges and other charges			1.8			4.0			—
		Gross profit		27.2			27.4			32.6
Selling, general and administrative expenses:
	Operating expenses			25.6			25.5			24.6
	Repositioning charges and other charges			2.1			0.5			(0.2	)
		Operating profit		(0.5	)		1.4			8.2
Other				(2.8	)		(3.8	)		(3.5	)
Loss on asset held for sale				—			(0.5	)		—
				(2.8	)		(4.3	)		(3.5	)
Equity in net earnings (loss) of joint ventures				0.0			(0.1	)		(1.8	)
		Earnings (loss) before taxes		(3.3	)		(3.0	)		2.9
Income tax expense (benefit)				0.6			(0.2	)		0.6
		Net earnings (loss)		(3.9	)%		(2.8	)%		2.3	%

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

     Sales and Other Revenues. Sales and other revenues for Applica decreased 2.9% to $727.0 million from $748.8 million for the year ended December 31, 2001. The change was primarily the result of a decrease of $40.1 million in sales of product categories that were exited in the fourth quarter of 2000, a decrease of $3.5 million in sales of electronic products and a $2.2 million decrease in Windmere® branded and other product sales. The decrease was primarily offset by a $8.5 million increase in sales of Black & Decker® branded products, an increase of $8.2 million in contract manufacturing sales and a $7.3 million increase in sales of Littermaid pet products. Sales to Wal-mart, our largest customer, accounted for 24.3% and 21.4% of total sales for the 2001 and 2000 periods, respectively.

     In January 2002, Kmart Corporation and certain of its U.S. subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Kmart Corporation is one of Applica’s top three customers. Kmart has indicated that it intends to reorganize on a fast-track basis and has targeted emergence from Chapter 11 in 2003. In 2001, Applica had sales of $49.4 million to Kmart Corporation and, as of the date of the bankruptcy filing, Applica had outstanding receivables of approximately $5.0 million. Additionally, in January 2002, Service Merchandise Company, Inc. announced that it would cease continuing business operations and file a plan of liquidation by September 2002. Service Merchandise filed bankruptcy in March 1999 but was unable to complete its planned business reorganization. In 2001, Applica had sales of $10.8 million to Service Merchandise. As of the date of the announcement, the outstanding receivables to Service Merchandise were immaterial.

     Cost of Sales – Repositioning and Other Charges. Applica Consumer Products, Inc., in cooperation with the U.S. Consumer Products Safety Commission, voluntarily recalled approximately 2.1 million Black & Decker® two-slice and four-slice toasters. Applica’s Canadian operating subsidiary, Applica Canada Corporation, is also recalling approximately 180,000 of these toasters in Canada. In connection therewith, Applica took a charge of $13.4 million relating to the estimated expenses of such recalls.

     In the fourth quarter of 2000, Applica entered into a relationship with a consumer packaged goods company to develop, manufacture and distribute new products. In conjunction with the development relationship, Applica expanded its existing manufacturing capacity, exited various non-strategic product lines, including certain retail personal care items, and re-allocated company resources. These activities resulted in charges totaling $34.1 million

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in the fourth quarter of 2000. These charges were primarily non-cash. Charges associated with the write down of inventory and other equipment totaled $30.1 million and have been recorded as cost of sales.

     Gross Profit Margin. Applica’s gross profit margin was 27.2% in 2001 as compared to 27.4% in 2000. Excluding the $13.4 million in recall charges recorded as cost of sales in 2001 and $30.1 million portion of repositioning charges recorded as cost of sales in 2000, Applica’s gross profit margin was 29.0% in 2001 as compared to 31.4% in 2000. The decrease in the gross profit margin was primarily the result of lower production at Applica’s manufacturing facilities, as Applica continued to reduce its inventory levels, along with higher raw material costs in the first quarter of 2001. Additionally, as a result of the slow economic environment, consumers purchased fewer higher-priced, higher-margin products and more lower-priced, lower-margin products during the year.

     Selling, General and Administrative Expenses.

     Operating Expenses. Operating expenses before repositioning and other charges for Applica decreased by $4.5 million, or 2.4%, in 2001 to $186.4 million. Such expenses as a percentage of sales remained flat in 2001 and 2000. In 2001, freight and distribution expenses decreased by $3.2 million as the result of our supply chain initiatives, which were implemented in the fourth quarter of 2000. Additionally, selling and other expenses decreased by $1.8 million as the result of the consolidation of our external and internal sales forces.

     Repositioning and Other Charges. In the fourth quarter of 2001, Applica took charges relating to several events in the aggregate amount of $14.8 million. These charges included $6.8 million relating to Applica’s decision to consolidate its Shelton, Connecticut office with the headquarters located in Miami Lakes, Florida, as well as certain back-office and supply chain functions in Canada and Latin America. In addition, $5.2 million of such charges related to Applica’s execution of a new four-year senior secured revolving credit facility and the write-off of fees and expenses associated with the terminated credit facility. Also included in the charge were $1.5 million relating to the devaluation of the Argentinean peso and $1.0 million related to the settlement of the shareholder class action litigation. In 2002, Applica expects to incur an additional $10.0 million in charges relating to its consolidation of facilities and functions.

     In addition to the $30.1 million charged to cost of sales in 2000, the fourth quarter repositioning charges included other primarily non-cash charges of $4.0 million, of which $3.2 million related to the write down of certain intangible assets associated with Kmart Corporation’s decision to terminate its long-term supply contract for White-Westinghouse® electronic products and Applica’s intention not to re-market these products to another company.

     Loss On Asset Held For Sale. In 2000, Applica determined to exit and sell substantially all of the assets of a non-strategic business and, as a result, recorded a loss of $3.6 million based on the expected realizable value of the asset. The business was sold in June 2001 and no additional gain or loss was recognized.

     Interest Expense. Interest expense decreased by $7.8 million, or 25.7%, to $22.5 million for 2001, as compared to $30.3 million for 2000. The decrease was the result of the reduction of debt levels throughout 2001 and lower interest rates.

     Taxes. Applica’s tax expense is based on an aggregation of the taxes on earnings of each of its foreign and domestic operations. In 2001 and 2000, it included additional U.S. taxes on repatriated foreign earnings in excess of the amounts that were otherwise taxable in the U.S. The earnings of subsidiaries in Canada, Mexico and Latin America (other than Chile) are generally taxed at rates comparable to or higher than 35%, the United States statutory rate. Income tax rates in Hong Kong and Chile range between 8% and 16%.

     In 2001, Applica had a tax expense of $4.1 million and an effective tax rate of 17.1%, compared to a tax benefit of $1.5 million and an effective tax rate of 6.8% in 2000. The tax expense resulted from taxes paid to foreign jurisdictions and additional U.S. taxes on repatriated foreign earnings in excess of the amounts otherwise taxable in the U.S. In 2001 and 2000, Applica repatriated $31.4 million and $16.3 million, respectively, from its foreign operations.

     In 2001, Applica decided that future earnings of certain of its foreign operations would not be reinvested but rather would be repatriated to the United States. In the foreseeable future, these earnings will be taxed based on

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U.S. statutory rates. No provision has been made for U.S. taxes on the remaining undistributed earnings of the foreign operations of approximately $169.0 million at December 31, 2001 and $182.9 at December 31, 2000, as it is anticipated that such earnings would be reinvested in their respective operations or in other foreign operations.

     Per Share Data. All common stock equivalents have been excluded from the per share calculations in 2001 as Applica incurred a net loss in the period and such inclusion would have been anti-dilutive.

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

     Sales and Other Revenues. Sales and other revenues increased by $30.4 million to $748.8 million in 2000, an increase of 4.2% over sales and other revenues for 1999. The change was primarily the result of a $32.9 million increase in sales of Black & Decker® branded products. Sales of other kitchen branded products (including private label products) increased by $7.8 million despite the elimination of the Fiesta®, Corning® and Campbells® brands. White-Westinghouse® related revenues increased by approximately $14.9 million in 2000, excluding $19.2 million of sales related to electronics inventory liquidated in conjunction with the purchase of the assets of Newtech Electronics Industries, Inc. in 1999. This increase was the result of sales of such products for a full year, as compared to six months in 1999 as a result of the June 1999 acquisition. Decreases in home environment and personal care product sales of $7.1 million and $2.2 million, respectively, also contributed to the net change. Sales to Wal-mart, our largest customer, accounted for 21.4% and 21.3% of total sales for the 2000 and 1999 periods, respectively.

     In June 2000, the Kmart Corporation exercised its option to terminate its long-term supply contract with Applica for the sale of consumer electronic products under the White-Westinghouse® brand in the United States. The termination will be effective on June 30, 2002. Sales and other revenues recorded from Kmart in connection with such contract for the years ended December 31, 2000 and 1999 were $13.1 million and $8.2 million, respectively. Under the terms of the agreement, Kmart’s minimum purchase requirements for the period July 1, 2001 through June 30, 2002 will be reduced to 25% of the original requirements for that period.

     Cost of Sales — Repositioning Charges. In the fourth quarter of 2000, Applica entered into a relationship with a consumer packaged goods company to develop, manufacture and distribute new products. In conjunction with the development relationship, Applica expanded its existing manufacturing capacity, exited various non-strategic product lines, including certain retail personal care items, and re-allocated company resources. These activities resulted in charges totaling $34.1 million in the fourth quarter of 2000. These charges were primarily non-cash. Charges associated with the write down of inventory and other equipment totaled $30.1 million and have been recorded as cost of sales.

     Gross Profit Margin. Applica’s gross profit margin was 27.4% in 2000 as compared to 32.6% in 1999. Excluding the $30.1 million portion of repositioning charges recorded as cost of goods sold in 2000, Applica’s gross profit margin was 31.4% in 2000. The decrease in the gross profit margin was the result of an increase in raw material costs, primarily oil-based plastic resins, and was partially offset by realized manufacturing cost synergies and productivity gains. Applica took steps to bring its inventory levels back in line by the end of the year 2000, including reducing production at its manufacturing facilities in China and Mexico in the fourth quarter. The reduction in overhead absorption resulting from the slowdown further contributed to the year’s decrease in gross profit margins.

     Selling, General and Administrative Expenses.

     Operating Expenses. Operating expenses increased by $13.9 million in 2000 and increased as a percentage of sales, to 25.5% from 24.6% in 1999. The dollar increase consisted primarily of increases in distribution, freight and distribution-related payroll costs. Additional warehousing and distribution expenses were incurred due to increased finished goods inventory levels and sales volume. Freight expenses increased reflecting the additional sales volume, increases in finished goods inventory and rate increases from the carriers, including fuel surcharges. Payroll expenses increased as a result of the increase in distribution personnel.

     Repositioning and Other Charges. In addition to amounts charged as cost of sales, the $34.1 million fourth quarter 2000 repositioning charges included other primarily non-cash charges of $4.0 million, of which $3.2 million related to the write down of certain intangible assets associated with Kmart Corporation’s decision to

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terminate its long-term supply contract for White-Westinghouse® electronic products and Applica’s intention not to re-market such products to another company.

     Applica did not exit one line of business in 1999 that had been included in the accrued repositioning costs at December 31, 1998. This resulted in a reversal of the prior year charge of $1.5 million in 1999.

     Loss On Asset Held For Sale. In 2000, Applica determined to exit and sell substantially all of the assets of a non-strategic business and, as a result, recorded a loss of $3.6 million based on the expected realizable value of the asset.

     Interest Expense. Interest expense increased by $3.2 million to $30.3 million in 2000. The increase was a result of additional borrowings under Applica’s senior credit facility to meet working capital requirements, primarily associated with the increase in finished goods inventory, as well as rising interest rates.

     Taxes. Applica’s tax expense is based on an aggregation of the taxes on earnings of each of its foreign and domestic operations. In 2000, it included additional U.S. taxes on repatriated foreign earnings in excess of the amounts that were otherwise taxable in the U.S. The earnings of subsidiaries in Canada, Mexico and Latin America (other than Chile) are generally taxed at rates comparable to or higher than 34%, the United States statutory rate. Income tax rates in Hong Kong and Chile range between 8% and 16%.

     In 2000, Applica had a tax benefit of $1.5 million and a rate of 6.8%, as compared to a tax expense of $4.2 million and a tax rate of 19.9% in 1999. The difference was primarily the result of (a) $16.3 million of foreign earnings repatriated to the United States in 2000, where the income is taxed at higher statutory rates (and the applicable tax credit rates are below those rates), and (b) the establishment of $4.5 million of tax valuation allowances related to certain U.S. foreign tax credits, contributions and state net operating loss carryforwards, which expire in five years or less. The valuation allowances were established in 2000, as management believed that it was more likely than not that these benefits would not be realized before they expired.

     Per Share Data. All common stock equivalents have been excluded from the per share calculations in 2000 as Applica incurred a net loss in the period and such inclusion would have been anti-dilutive.

Liquidity and Capital Resources

     At December 31, 2001, Applica’s working capital was $228.1 million, as compared to $277.0 million at December 31, 2000. At December 31, 2001 and 2000, Applica’s current ratio was 3.0 to 1 and 3.3 to 1, respectively, and its quick ratio was 1.8 to 1 and 1.7 to 1. The decrease in the current ratio primarily reflected decreases in inventory.

     Cash balances decreased by $1.1 million to $15.7 million for the year ended December 31, 2001. Cash balances increased by $3.1 million to $16.9 million for the year ended December 31, 2000.

     The net cash provided by operating activities, which totaled $87.9 million in 2001, as compared to net cash used in operating activities, which totaled $9.5 million in 2000, primarily reflected decreases in finished goods inventories.

     Cash used in investing activities totaled approximately $23.2 million for the period, as compared to $23.0 million for 2000, and consisted primarily of equipment at Applica’s manufacturing facilities and tooling for new products.

     Cash used in financing activities totaled approximately $65.8 million in the period, as compared to $35.7 million provided by financing activities in 2001, reflecting a decrease in borrowings used to meet working capital requirements, primarily the reduction of finished goods inventories.

     Certain of Applica’s foreign subsidiaries have approximately $39.5 million in trade finance lines of credit, payable on demand, which are secured by the subsidiaries’ tangible and intangible property, and in some cases, a guarantee by the parent company, Applica Incorporated. Outstanding borrowings by Applica’s Hong Kong subsidiaries are primarily in Hong Kong dollars.

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     Applica’s primary sources of liquidity are its cash flow from operations and borrowings under its credit facility. On December 28, 2001, Applica replaced its revolving credit and term debt facilities with a new $205 million four-year asset-based senior secured revolving credit facility. As of March 1, 2002, Applica was borrowing approximately $70.0 million under the facility and had approximately $47.8 million available for future cash borrowings. Advances under the facility are primarily based upon percentages of outstanding eligible accounts receivable and inventories. The credit facility includes a $10,000,000 sublimit for the issuance of letters of credit. All amounts outstanding under the credit facility are payable on December 28, 2005.

     At Applica’s option, interest accrues on the loans made under the credit facility at either:

• LIBOR (adjusted for any reserves), plus a specified margin which is determined by Applica’s leverage ratio and is currently set at 2.35% (4.22% at December 31, 2001); or

• the Base Rate (which is Bank of America’s prime rate), plus a specified margin, currently 0.35% (5.10% at December 31, 2001).

Swing loans up to $15.0 million bear interest at the Base Rate plus a specified margin, currently 0.35% (5.10% at December 31, 2001).

     In July 1998, Applica issued $130.0 million in Senior Subordinated Notes. The notes bear interest at a rate of 10%, payable semiannually and mature on July 31, 2008. The notes are general unsecured obligations of Applica Incorporated and rank subordinate in right of payment to all senior debt of Applica and rank pari passu in right of payment to all future subordinated indebtedness of Applica. The notes may be redeemed at the option of Applica, in whole or in part, on or after July 31, 2003 at various redemption prices. See Note F of the Consolidated Financial Statements for more detailed information regarding Applica’s borrowings.

     Applica’s aggregate capital expenditures for the year ended December 31, 2001 were $23.3 million, as compared to $23.6 million for 2000. Applica anticipates that the total capital expenditures for 2002 will be approximately $25.0 million, which includes the cost of equipment at our manufacturing facilities and tooling for new products. Applica plans to fund such capital expenditures from cash flow from operations and, if necessary, borrowings under its credit facility.

     At December 31, 2001, debt as a percent of total capitalization was 43.4%, as compared to 47.4% at December 31, 2000.

     Applica’s ability to make scheduled payments of principal of, or to pay the interest on, or to refinance, its indebtedness, or to fund planned capital expenditures, product research and development expenses and marketing expenses will depend on its future performance, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory, and international and United States domestic political factors and other factors that are beyond its control. Based upon the current level of operations and anticipated cost savings and revenue growth, management believes that cash flow from operations and available cash, together with available borrowings under its credit facility and other facilities, will be adequate to meet Applica’s future liquidity needs for at least the next several years. There can be no assurance that Applica’s business will generate sufficient cash flow from operations, that anticipated revenue growth and operating improvements will be realized or that future borrowings will be available under the credit facility in an amount sufficient to enable Applica to service its indebtedness, including the outstanding 10% notes, or to fund its other liquidity needs. In addition, there can be no assurance that Applica will be able to effect any needed refinancing on commercially reasonable terms or at all.

     For information regarding related party transactions, see Note M to the Consolidated Financial Statements. Management believes that its related party transactions are not material.

     Applica is also involved in certain ongoing litigation. See Item 3 — Legal Proceedings.

Currency Matters

     While we transact business predominantly in U.S. dollars and most of our revenues are collected in U.S. dollars, a substantial portion of our costs, such as payroll, rent and indirect operational costs, are denominated in other currencies, such as Chinese renminbi, Hong Kong dollars and Mexican pesos. In addition, while a small

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portion of our revenues are collected in foreign currencies, such as Canadian dollars, a significant portion of the related cost of goods sold are denominated in U.S. dollars. Changes in the relation of these and other currencies to the U.S. dollar will affect our cost of goods sold and operating margins and could result in exchange losses. The impact of future exchange rate fluctuations on our results of operations cannot be accurately predicted. There can be no assurance that the dollar foreign exchange rates will be stable in the future or that fluctuations in financial markets will not have a material adverse effect on our business, financial condition and results of operations.

     From time to time, Applica uses forward exchange contracts to reduce fluctuations in foreign currency cash flows related to third party raw materials and other operating purchases, as well as trade receivables. The purpose of Applica’s foreign currency management activity is to reduce the risk that cash flows from foreign currency denominated transactions may be adversely affected by changes in exchange rates.

     Applica Durable Manufacturing Limited, Applica’s Hong Kong subsidiary with manufacturing operations in China, uses the Hong Kong dollar as its functional currency. The Hong Kong dollar has historically been “pegged” to a fixed exchange rate vis-a-vis the U.S. dollar. If the Hong Kong dollar were to be significantly devalued against the U.S. dollar and the exchange rate allowed to fluctuate, Applica could experience significant changes in its currency translation account which would impact its future comprehensive income.

     Applica Manufacturing, S. de R.L. de C.V., Applica’s Mexican manufacturing subsidiary, uses the U.S. dollar as its functional currency. The operating expenses are primarily peso-denominated and the revenues derived from products manufactured at such facilities are primarily dollar-denominated. As a result, Applica is subject to fluctuations in the value of the peso. If the peso were to be significantly devalued against the U.S. dollar, Applica could experience significant charges or credits to earnings.

New Accounting Pronouncements

     In June 2001, the Financial Accounting Standards Board approved the issuance of SFAS No. 141, “Business Combinations” and SFAS 142, “Goodwill and Other Intangible Assets”. The new standards require that all business combinations initiated after June 30, 2001 must be accounted for under the purchase method. In addition, all intangible assets acquired that are obtained through contractual or legal right, or are capable of being separately sold, transferred, licensed, rented or exchanged must be recognized as an asset apart from goodwill. Goodwill and intangibles with indefinite lives will no longer be amortized, but will be subject to an annual assessment for impairment by applying a fair value based test. Applica will apply the provisions of SFAS No. 142 beginning on January 1, 2002. Application of the non-amortization provisions of SFAS No. 142 will result in an increase in net earnings of $5.0 million per year. During 2002, Applica will perform a transitional fair value based impairment test and if the fair value is less than the recorded value at January 1, 2002, Applica will record an impairment loss, if any, in the first quarter of 2002 as a cumulative effect of a change in accounting principle. Such impairment loss could be material.

     In November 2001, the Emerging Issues Task Force reached a consensus on EITF Issue 01-9 “Accounting for Consideration Given by a Vendor to a Customer including a Reseller of the Vendor's Products.” Also, in August 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.” SFAS No. 144 retained substantially all of the requirements of SFAS No. 121 while resolving certain implementation issues. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. Management believes that the impact of these pronouncements on Applica’s operations will not be material.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

     Applica is exposed to the impact of interest rate changes and foreign currency fluctuations. In the normal course of business, we employ established policies and procedures to manage our exposure to changes in interest rates and foreign currencies using a variety of financial instruments.

     Interest Rate Sensitivity. Our primary market risk exposure with respect to interest rates is changes in short and long-term interest rates in the United States. Certain of Applica’s debt arrangements represents floating rate debt and accordingly, we are subject to interest rate risk. Applica uses interest rate risk management contracts to reduce the impact of

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changes in interest rates on our floating rate debt. Our objectives in managing exposure to interest rate changes are to limit the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs. To achieve these objectives, we primarily use interest rate swaps to manage net exposure to interest rate changes related to Applica’s portfolio of borrowings. Applica maintains fixed rate debt as a percentage of its net debt between a minimum and maximum percentage, which is set by policy.

     The table below provides information regarding Applica’s derivative financial instruments and other financial instruments that are sensitive to changes in interest rates, including interest rate swaps and debt obligations. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. For interest rate swaps, the table presents notional amounts and weighted average interest rates by expected (contractual) maturity dates. Notional amounts are used to calculate the contractual payments expected to be exchanged under the contract. Weighted average variable rates are based on implied forward rates in the yield curve at the reporting date.

			At December 31, 2001
			Expected Maturity Date
																		There-					Fair
			2002			2003			2004			2005			2006			after			Total		Value(5)
			(Dollars in thousands)
Liabilities:
Long-Term Debt:
	Fixed Rate			—			—			—			—			—		$	130,000		$	130,000	$	128,700
	Average Interest Rate			—			—			—			—			—			10.0	%
	Variable Rate		$	1,693		$	1,662		$	1,662		$	90,709			—			—		$	95,726	$	95,726
	Average Interest Rate			(1	)		(1	)		(1	)		(2	)		—			—
Interest Rate Contracts:
Interest Rate Swaps:
	Pay Fixed (3):			—		$	59,000			—			—			—			—		$	59,000	$	(1,937	)
		Average Pay Rate		5.0	%		5.0	%		—			—			—			—
		Average Receive Rate		2.2	%		4.3	%		—			—			—			—
	Pay Floating (4):			—			—			—			—			—		$	80,000		$	80,000	$	31
		Average Pay Rate		2.3	%		4.7	%		5.9	%		6.3	%		6.5	%		6.6	%
		Average Receive Rate		5.8	%		5.8	%		5.8	%		5.8	%		5.8	%		5.8	%
Interest Rate Cap:
	7% Cap		$	60,000			—			—			—			—			—		$	60,000		—
	Maximum Pay Rate			7.0	%		—			—			—			—			—

(1)	The variable rate foreign indebtedness is set depending upon the interest period elected by Applica of 1, 2 or 3 months at a rate equivalent to the LIBOR rate plus an applicable margin of 85 basis points.
(2)	The variable rate revolving credit facility is set depending upon the interest period elected by Applica of 1, 2, 3 or 6 months at a rate equivalent to the LIBOR rate plus an applicable margin of 235 basis points or at a rate equivalent to the prime rate of interest plus an applicable margin of 35 basis points.
(3)	At December 31, 2001, Applica had an interest rate swap contract to pay a fixed-rate of interest of 5.045% and receive a variable-rate of interest of one-month LIBOR that matures on July 31, 2003.
(4)	At December 31, 2001, Applica had an interest rate swap contract to pay a variable-rate of interest of six-month LIBOR and receive a fixed-rate of interest of 5.84% that matures on July 31, 2008.
(5)	Fair values were determined based on broker quotes or quoted market prices or rates for the same or similar instruments.

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			At December 31, 2000
			Expected Maturity Date
																	There-					Fair
			2002			2003			2004			2005			2006		after			Total		Value(5)
			(Dollars in thousands)
Liabilities:
Long-Term Debt:
	Fixed Rate			—			—			—			—			—	$	130,000		$	130,000	$	110,500
	Average Interest Rate			—			—			—			—			—		10.0	%
	Variable Rate		$	18,842		$	22,842		$	47,757		$	59,548			—		—		$	148,989	$	148,989
	Average Interest Rate			(1	)		(1	)		(1	)		(1	)		—		—
Interest Rate Contracts:
Interest Rate Swaps:
	Pay Fixed (2):			—		$	20,000			—			—			—		—		$	20,000	$	(371	)
		Average Pay Rate		7.1	%		7.1	%		—			—			—		—
		Average Receive Rate		5.8	%		5.6	%		—			—			—		—
	Pay Floating:			—			—			—			—			—		—			—		—
		Average Pay Rate		—			—			—			—			—		—
		Average Receive Rate		—			—			—			—			—		—
Interest Rate Cap:
	7% Cap (2)			—		$	60,000			—			—			—		—		$	60,000		—
	Maximum Pay Rate			7.0	%		7.0	%		—			—			—		—

(1)	The variable rate revolving credit facility, Senior Secured Tranche A and Senior Secured Tranche B was set depending upon the interest period selected by Applica of 1, 2, 3 or 6 months at a rate equivalent to the LIBOR rate plus an applicable margin of 175 basis points (Revolver, Tranche A) or 275 basis points (Tranche B) or at a rate equivalent to the prime rate of interest plus an applicable margin of 75 basis points (Revolver, Tranche A) or 175 basis points (Tranche B).
(2)	At December 31, 2000, Applica had an interest rate swap contract to pay a fixed-rate of interest of 7.075 and receive a variable-rate of interest of three-month LIBOR that matures on July 1, 2002.
(3)	Fair values were determined based on broker quotes or quoted market prices or rates for the same or similar instruments.

     Exchange Rate Sensitivity. Our primary market risk exposure with respect to exchange rates is to changes in U.S. dollar/peso, U.S. dollar/renminbi, U.S. dollar/Hong Kong dollar and U.S. dollar/Canadian dollar exchange rates. Certain forecasted transactions could expose Applica to foreign currency risk. We purchase currency options as cash flow hedges of foreign currency forecasted transactions related to the purchase of third party raw material and other operating purchases. Our objective in managing exposure to foreign currency fluctuations is to reduce earnings and cash flow volatility in order to allow management to focus on core business issues and challenges. Accordingly, we enter into various contracts that change in value as foreign exchange rates change to protect the value of our existing foreign currency assets, liabilities, commitments and forecasted foreign currency revenues and expenses. Applica uses option strategies and forward contracts that provide for the sale of foreign currencies to hedge probable, but not firmly committed, expenditures. The principal currencies hedged are the Mexican peso, Chinese renminbi, Hong Kong dollar and Canadian dollar. By policy, Applica maintains hedge coverage between minimum and maximum percentages of its forecasted foreign exchange exposures for periods not to exceed eighteen months. The gains and losses on these contracts offset changes in the value of the related exposures.

     As discussed above, we are exposed to market risks arising from changes in foreign exchange rates. As of December 31, 2001, Applica has hedged a portion of its 2002 estimated foreign currency transactions using forward exchange contracts and purchased options. We use a sensitivity model to determine a potential change in the fair value of its foreign exchange financial instruments. The sensitivity model estimates the change in fair value based upon a favorable and unfavorable movement of 10% in the respective spot rate as of December 31, 2001. The sensitivity model is a risk analysis tool and does not purport to represent actual losses or gains in fair value that will be incurred by Applica. It should also be noted that the change in value represents the estimated change in the fair market value of the derivative. Because the derivatives hedge an underlying exposure, there would be a comparable and opposite change in value of the underlying exposure. The estimated potential change in fair value, calculated using the sensitivity model, is as follows:

-27-

		At December 31, 2001
				Change in Fair Value Due To
		Notional Hedge		Favorable 10%		Unfavorable 10%
		Amount in US Dollars		Movement in Spot		Movement in Spot
		(Dollars in thousands)
Mexican Peso		$	20,300	$	2,700	$	(1,700	)
Canadian Dollar			41,600		3,500		(3,900	)
Chinese Renminbi			14,200		1,100		(1,400	)
	Total Change in Fair Value			$	7,300	$	(7,000	)

     It is our policy to enter into foreign currency and interest rate transactions and other financial instruments only to the extent considered necessary to meet our objectives as stated above. We do not enter into these transactions for speculative purposes. See Note N of the Consolidated Financial Statements for more information regarding Applica’s financial instruments.

Item 8. Financial Statements and Supplementary Data

     See Schedules I and II hereto.

Item 9. Changes In and Disagreements With Accountants On Accounting and Financial Disclosure

     None.

-28-

PART III

Item 10. Directors and Executive Officers of the Registrant

     The executive officers of Applica are as follows:

NAME	AGE		OFFICE
David M. Friedson		46	Chairman of the Board and Chief Executive Officer
Harry D. Schulman		50	President, Chief Operating Officer and Secretary
Lai Kin		71	Director and Chairman of Applica Durable Manufacturing Limited
Albio Espinosa		46	Vice President — Worldwide Manufacturing, Applica Consumer Products, Inc.
Richard J. Gagliano		44	Senior Vice President – New Technology Business Development and Continuous Improvement, Applica Consumer Products, Inc.
Michael J. Michienzi		46	Senior Vice President – Global Business Development, of Applica Consumer Products, Inc.
Terry L. Polistina		38	Senior Vice President and Chief Financial Officer
Raymond So		52	Managing Director of Applica Durable Manufacturing Limited

     David M. Friedson has served as Chairman of the Board of Applica Incorporated since April 1996 and Chief Executive Officer since January 1987. From January 1985 to January 2001, Mr. Friedson served as President of Applica and from June 1976 to January 1985, Mr. Friedson held various other senior management positions.

     Harry D. Schulman has served as President of Applica Incorporated since January 2001 and Chief Operating Officer since November 1, 1998. Mr. Schulman has also served as Secretary since January 1999. From March 1990 to January 2001, Mr. Schulman served as Chief Financial Officer of Applica. From February 1998 until June 1998, he served as a Senior Vice President and from February 1993 until June 1998, Mr. Schulman served as Executive Vice President — Finance and Administration. Prior thereto, he held other senior finance positions with Applica.

     Lai Kin has been Chairman of Applica Durable Manufacturing Limited, Applica’s Chinese manufacturing subsidiary, since 1995. From 1973 to 1995, Mr. Lai was Managing Director of Durable. In addition, Mr. Lai has been Managing Director of Ourimbah Investment Ltd. since 1989. Ourimbah is a holding and investment company and owns approximately 8% of the outstanding common stock of Applica.

     Albio Espinosa is currently Vice President — Global Manufacturing of Applica Consumer Products, Inc. and served as the Managing Director of Applica Manufacturing, S. de R.L. de C.V., the Mexican manufacturing subsidiary, from 1994 to 2001. He joined Black & Decker in 1989 and served in several other capacities, including the Manufacturing Director and the Logistics and Purchasing Director.

     Richard J. Gagliano is currently Senior Vice President — New Technology Business Development and Continuous Improvement of Applica Consumer Products, Inc. and served as Senior Vice President, Manufacturing and Engineering from November 1998 to February. Prior to that time, he served as the Vice President, Operations, of the Household Products Group under The Black & Decker Corporation. He joined Black & Decker in 1994 and served in several senior management capacities for the Price Pfister division of The Black & Decker Corporation.

     Michael J. Michienzi is currently Senior Vice President – Global Business Development and served as President and General Manager, Sales and Marketing, of Applica Consumer Products, Inc. from May 1999 to February 2002. From January 1999 until December 1999, Mr. Michienzi also served as President of the Household

-29-

Products Group and from June 1998 until January 1999 he served as its Senior Vice President. From July 1994 to June 1998, Mr. Michienzi served as Vice President — Sales, Vice President — Sales and Supply Chain, and Vice President — Sales, Marketing and Supply Chain of the U.S. Household Products Group of Black & Decker (U.S.) Inc.

     Terry L. Polistina has served as Chief Financial Officer of Applica Incorporated since January 2001 and has served as a Senior Vice President since June 1998. Mr. Polistina served as Controller of Applica from December 1995 to June 1998 and prior thereto, he held other senior finance positions with Applica.

     Raymond So has served as Managing Director of Applica Durable Manufacturing Limited since February 1996. From February 1996 to June 1998, he served as a Senior Vice President of Applica. Prior thereto and beginning in 1986, Mr. So held various senior executive management positions with Durable.

     Information about the members of the Board of Directors of Applica is incorporated by reference to Applica’s Proxy Statement for its 2002 Annual Meeting of Shareholders under the captions “Election of Directors”.

Item 11. Executive Compensation

     Information about executive compensation is incorporated by reference to Applica’s Proxy Statement for its 2002 Annual Meeting of Shareholders under the captions “Executive Compensation” and “Certain Transactions”.

Item 12. Security Ownership of Certain Beneficial Owners and Management

     Information about security ownership of certain beneficial owners and management is incorporated by reference to Applica’s Proxy Statement for its 2002 Annual Meeting of Shareholders under the caption “Security Ownership”.

Item 13. Certain Relationships and Related Transactions

     Information about certain relationships and related transactions is incorporated by Reference to Applica’s Proxy Statement for its 2002 Annual Meeting of Shareholders under the captions “Executive Compensation” and “Certain Transactions”.

-30-

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)(1) Financial Statements

     The following consolidated financial statements of Applica Incorporated and its subsidiaries are included in Schedules I and II attached hereto:

     Report of Independent Certified Public Accountants

     Consolidated Balance Sheets as of December 31, 2001 and 2000

     Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999

     Consolidated Statement of Shareholders’ Equity for the three years ended December 31, 2001

     Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999

     Supplement Disclosures of Cash Flow Information

     Notes to Consolidated Financial Statements

(a)(2) Financial Statements Schedules

     Schedule II — Valuation and Qualifying Accounts — Years ended December 31, 2001, 2000 and 1999

     Individual financial statements of Applica have been omitted because consolidated financial statements have been presented, and all subsidiaries included in the consolidated financial statements are wholly owned. All other schedules have been omitted because the required information is not present or not present in amounts sufficient to require submission of the schedule or because the information required is included in the consolidated financial statements or the notes thereto.

(a)(3) Exhibits

Exhibit
Number	Description
3.1	Second Amended and Restated Articles of Incorporation filed with the Florida Secretary of State on May 10, 2000. Incorporated by reference to Applica’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000.
3.2	Second Amended and Restated Bylaws. Incorporated by reference to Applica’s Annual Report on Form 10-K for the year ended December 31, 2000.
4.1	Supplemental Indenture dated as of July 27, 1998, among Applica Incorporated, the Guarantors named therein and State Street Bank & Trust Company, as Trustee, relating to the issuance by Applica Incorporated of $130 million in 10% Senior Subordinated Notes due 2008. Incorporated by reference to Applica’s Form 8-K dated July 27, 1998.
4.2	Amended and Restated 1995 Common Stock Purchase Rights Agreement dated March 10, 1999 between American Stock Transfer and Trust Company and Applica Incorporated. Incorporated by reference to Applica’s Form 8-A/A Registration Statement filed with the Securities and Exchange Commission on April 8, 1999.
10.1*	Employment agreement dated June 18, 1999 between Applica Incorporated and David M. Friedson. Incorporated by reference to Applica’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999.

-31-

Exhibit
Number	Description
10.2*	Employment agreement dated August 2, 1999 between Applica Incorporated and Harry D. Schulman. Incorporated by reference to Applica’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1999.
10.3*	Employment Agreement dated July 1, 2000 between Applica Consumer Products, Inc. and Michael J. Michienzi . Incorporated by reference Applica’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000.
10.4*	Employment Agreement dated July 1, 2000 between Applica Consumer Products, Inc. and Richard J. Gagliano. Incorporated by reference Applica’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000.
10.5*	Employment Agreement dated July 1, 2000 between Applica Incorporated and Terry L. Polistina. Incorporated by reference Applica’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000.
10.6*	Consulting Agreement dated January 1, 1989 between Mr. Lai Kin and Applica Incorporated. Incorporated by reference to Applica’s Annual Report on Form 10-K for the year ended December 31, 1988.
10.7*	Employment Agreement dated as of January 27, 1983 between Belvin Friedson and Applica Incorporated. Incorporated by reference to Applica’s Annual Report on Form 10-K for the year ended December 31, 1982.
10.8*	First Amendment dated February 27, 1987 to Employment Agreement between Belvin Friedson and Applica Incorporated. Incorporated by reference to Applica’s Annual Report on Form 10-K for the year ended December 31, 1986.
10.9*	Second Amendment dated December 16, 1992 to Employment Agreement between Belvin Friedson and Applica Incorporated. Incorporated by reference to Applica’s Annual Report on Form 10-K for the year ended December 31, 1992.
10.10*	Employment Agreement dated as of November 20, 2001 between Raymond So and Applica Durable Manufacturing Limited. Filed herewith.
10.11*	1988 Director Stock Option Plan. Incorporated by reference to Applica’s Annual Report on Form 10-K for the year ended December 31, 1988.
10.12*	1992 Employees Incentive Stock Option Plan. Incorporated by reference to the Registration Statement on Form S-8 as filed with the Securities and Exchange Commission on May 12, 1998.
10.13*	1996 Stock Option Plan. Incorporated by reference to the Registration Statement on Form S-8 as filed with the Securities and Exchange Commission on May 12, 1998.
10.14*	1997 Cash Bonus Performance Plan for Executive Officers, as amended. Incorporated by reference to Applica’s Proxy Statements dated April 18, 1997 and April 10, 2000.
10.15*	1998 Stock Option Plan. Incorporated by reference to the Registration Statement on Form S-8 as filed with the Securities and Exchange Commission on September 3, 1999.
10.16*	2000 Stock Option Plan. Incorporated by reference to the Registration Statement on Form S-8 as filed with the Securities and Exchange Commission on June 23, 2000.

-32-

Exhibit
Number	Description
10.17*	2000 Employee Stock Purchase Plan. Incorporated by reference to the Registration Statement on Form S-8 as filed with the Securities and Exchange Commission on June 23, 2000.
10.18	Credit Agreement by and among Applica Incorporated, each of its subsidiaries party thereto, each of the lenders party thereto and Bank of America, N.A., as agent for the lenders, dated December 28, 2001. Filed herewith.
10.19	Security Agreement by and among Applica Incorporated, each of its subsidiaries party thereto and Bank of America, N.A., as agent for the lenders, dated December 28, 2001. Filed herewith.
21	Subsidiaries of the Registrant. Filed herewith.
23	Consents of experts and counsel. Filed herewith.

* These exhibits are management contracts or compensatory plans or arrangements.

(b) Reports on Form 8-K

     None.

-33-

Signatures

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

APPLICA INCORPORATED (Registrant)
By:	/s/ David M. Friedson David M. Friedson, Chairman and Chief Executive Officer
	Date: March 1, 2002

     Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.

By: /s/ David M. Friedson David M. Friedson, Chairman and Chief Executive Officer	DATE: March 1, 2002
By: /s/ Harry D. Schulman Harry D. Schulman, President, Chief Operating Officer and Secretary	DATE: March 1, 2002
By: /s/ Terry L. Polistina Terry L. Polistina, Chief Financial Officer and Senior Vice President	DATE: March 1, 2002
By: /s/ Frederick E. Fair Frederick E. Fair, Director	DATE: March 1, 2002
By: /s/ Jerald I. Rosen Jerald I. Rosen, Director	DATE: March 1, 2002
By: /s/ Paul K. Sugrue Paul K. Sugrue, Director	DATE: March 1, 2002
By: /s/ Lai Kin Lai Kin, Director	DATE: March 1, 2002
By: /s/ Raymond So Raymond So, Director	DATE: March 1, 2002
By: /s/ Leonard Glazer Leonard Glazer, Director	DATE: March 1, 2002
By: /s/ Barbara R. Garrett Barbara Friedson Garrett, Director	DATE: March 1, 2002
By: /s/ Felix S. Sabates Felix S. Sabates, Director	DATE: March 1, 2002

-34-

By: /s/ Arnold Thaler Arnold Thaler, Director	DATE: March 1, 2002
By: /s/ Thomas J. Kane Thomas J. Kane, Director	DATE: March 1, 2002
By: /s/ Susan J. Ganz Susan J. Ganz, Director	DATE: March 1, 2002
By: /s/ Desmond Lai Desmond Lai, Director	DATE: March 1, 2002
By: /s/ J. Maurice Hopkins	DATE: March 1, 2002
J. Maurice Hopkins, Director

-35-

SCHEDULE I

Applica Incorporated and Subsidiaries
Index to Financial Statements

Report of Independent Certified Public Accountants	F-2
Consolidated Balance Sheets as of December 31, 2001 and 2000	F-3
Consolidated Statements of Operations for the Years Ended December 31, 2001, 2000 and 1999	F-4
Consolidated Statement of Shareholders’ Equity for the Three Years Ended December 31, 2001	F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999	F-6 - F7
Supplemental Disclosures of Cash Flow Information	F-7
Notes to Consolidated Financial Statements	F-8 - F-29

F-1

REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS

Board of Directors and Shareholders
Applica Incorporated

     We have audited the accompanying consolidated balance sheets of Applica Incorporated and subsidiaries (the “Company”) as of December 31, 2001 and 2000, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 consolidated financial position of Applica Incorporated and subsidiaries at December 31, 2001 and 2000, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America.

     We have also audited Schedule II of Applica Incorporated and subsidiaries for each of the three years in the period ended December 31, 2001. In our opinion, this schedule presents fairly, in all material respects, the information required to be set forth therein.

/s/ Grant Thornton LLP
Miami, Florida
February 6, 2002

F-2

Applica Incorporated and Subsidiaries

CONSOLIDATED BALANCE SHEETS

Assets

					December 31,
					2001			2000
					(In thousands)
Current Assets:
	Cash and cash equivalents				$	15,743		$	16,857
	Accounts and other receivables, less allowances of $12,061 in 2001 and $8,049 in 2000					181,388			186,198
	Receivables from affiliates					3,531			3,281
	Inventories					103,716			160,820
	Prepaid expenses and other					13,204			17,277
	Refundable income taxes					689			1,207
	Future income tax benefits					23,649			14,655
				Total current assets		341,920			400,295
Investment in Joint Ventures						1,412			1,525
Property, Plant and Equipment – at cost, less accumulated depreciation of $100,961in 2001 and $82,770 in 2000						82,337			78,200
Future Income Tax Benefits, Non-Current						8,055			3,705
Intangible and Other Non-Current Assets						199,737			224,210
		Total Assets			$	633,461		$	707,935
Liabilities and Shareholders’ Equity
Current Liabilities:
	Notes and acceptances payable				$	—		$	13,494
	Current maturities of long-term debt					—			18,842
	Accounts payable					38,140			43,361
	Accrued expenses					66,971			47,103
	Current taxes payable					8,242			—
	Deferred income					443			514
			Total current liabilities			113,796			123,314
Long-Term Debt						225,726			260,147
Shareholders’ Equity:
	Common stock – authorized: 75,000 shares of $0.10 par value; issued and outstanding: 23,319 in 2001 and 23,080 in 2000					2,332			2,308
	Paid-in capital					154,049			152,591
	Retained earnings					145,028			173,466
	Notes receivable – officers					(1,496	)		(1,496	)
	Accumulated other comprehensive earnings (loss)					(5,974	)		(2,395	)
		Total shareholders’ equity				293,939			324,474
		Total liabilities and shareholders’ equity			$	633,461		$	707,935

The accompanying notes are an integral part of these statements.

F-3

Applica Incorporated and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

				Years Ended December 31,
				2001			2000			1999
				(In thousands, except per share data)
Net sales and other revenues				$	727,044		$	748,751		$	718,309
Cost of sales:
		Cost of goods sold			516,033			513,407			484,040
		Repositioning and other charges			13,418			30,083			—
					529,451			543,490			484,040
			Gross profit		197,593			205,261			234,269
Selling, general and administrative expenses:
		Operating expenses			186,410			190,939			177,016
		Repositioning and other charges			14,817			3,980			(1,506	)
					201,227			194,919			175,510
			Operating profit (loss)		(3,634	)		10,342			58,759
Other (income) expense:
		Interest expense			22,536			30,301			27,109
		Interest and other income			(2,006	)		(1,622	)		(2,264	)
		Loss on asset held for sale			—			3,644			—
					20,530			32,323			24,845
			Earnings (loss) before equity in net earnings (loss) of joint ventures and income taxes		(24,164	)		(21,981	)		33,914
Equity in net earnings (loss) of joint ventures					(128	)		(777	)		(12,894	)
			Earnings (loss) before income taxes		(24,292	)		(22,758	)		21,020
Income tax expense (benefit)					4,146			(1,542	)		4,177
			Net earnings (loss)	$	(28,438	)	$	(21,216	)	$	16,843
Per share data:
	Earnings (loss) per common share – basic			$	(1.23	)	$	(0.92	)	$	0.75
	Earnings (loss) per common share – diluted			$	(1.23	)	$	(0.92	)	$	0.72

The accompanying notes are an integral part of these statements.

F-4

Applica Incorporated and Subsidiaries

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

													Accumulated
										Note			Other
			Common		Paid-in		Retained			Receivable-			Comprehensive
			Stock		Capital		Earnings			Officer			Earnings (Loss)			Total
			(In thousands)
Balance at January 1, 1999			$	2,209	$	145,161	$	177,839		$	—		$	(1,191	)	$	324,018
Comprehensive earnings (loss):
	Net earnings			—		—		16,843			—			—			16,843
	Foreign currency translation adjustment			—		—		—			—			(410	)		(410	)
		Total comprehensive earnings(loss)															16,433
Exercise of stock options				34		2,217		—			—			—			2,251
Tax benefit resulting from exercise of stock options				—		599		—			—			—			599
Issuance of common stock				21		1,475		—			—			—			1,496
Note receivable – officer				—		—		—			(1,496	)		—			(1,496	)
Fair value of options to non-employees				—		96		—			—			—			96
Balance at December 31, 1999				2,264		149,548		194,682			(1,496	)		(1,601	)		343,397
Comprehensive earnings (loss):
	Net loss			—		—		(21,216	)		—			—			(21,216	)
	Foreign currency translation adjustment			—		—		—			—			(794	)		(794	)
		Total comprehensive earnings(loss)															(22,010	)
Exercise of stock options and issuance of common stock under employee stock purchase plan				44		2,293		—			—			—			2,337
Tax benefit resulting from exercise of stock options				—		633		—			—			—			633
Fair value of options to non-employees				—		117		—			—			—			117
Balance at December 31, 2000				2,308		152,591		173,466			(1,496	)		(2,395	)		324,474
Comprehensive earnings (loss):
	Net loss			—		—		(28,438	)		—			—			(28,438	)
	Foreign currency translation adjustment			—		—		—			—			(2,723	)		(2,723	)
	Net unrealized loss on derivatives designated as cash flow hedges			—		—		—			—			(856	)		(856	)
		Total comprehensive earnings(loss)															(32,017	)
Exercise of stock options and issuance of common stock under employee stock purchase plan				24		1,232		—			—			—			1,256
Tax benefit resulting from exercise of stock options				—		176		—			—			—			176
Fair value of options to non-employees				—		50		—			—			—			50
Balance at December 31, 2001			$	2,332	$	154,049	$	145,028		$	(1,496	)	$	(5,974	)	$	293,939

The accompanying notes are an integral part of this statement.

F-5

Applica Incorporated and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

					For the years ended December 31,
					2001			2000			1999
					(In thousands)
Cash flows from operating activities:
	Net earnings (loss)				$	(28,438	)	$	(21,216	)	$	16,843
	Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities:
		Depreciation of property, plant and equipment				19,123			18,897			17,987
		Amortization of intangible assets				19,941			19,355			16,969
		Repositioning and other charges				28,235			34,063			(1,506	)
		Loss on asset held for sale				—			3,644			—
		Gain on sale of subsidiary				—			—			(775	)
		Stock option tax benefits				176			633			599
		Net change in allowance for losses on accounts receivable				4,012			(711	)		1,394
		Consulting expense on fair value of non-employee stock options				50			117			96
		Write down of investment in Newtech Electronics Industries, Inc.				—			—			12,641
		Amortization of deferred income				(71	)		(307	)		(2,462	)
		Equity in (earnings) loss of joint ventures				128			777			287
		Changes in assets and liabilities:
			Accounts and other receivables			798			201			(12,512	)
			Inventories			55,204			(29,613	)		12,338
			Prepaid expenses			4,073			(7,898	)		1,247
			Accounts payable and accrued expenses			(6,448	)		(4,849	)		(32,126	)
			Current and deferred income taxes			(4,584	)		(12,629	)		342
			Other liabilities			—			(10,573	)		10,573
			Other assets			(4,287	)		562			6,111
				Net cash provided by (used in) operating activities		87,912			(9,547	)		48,046
Cash flows from investing activities:
	Proceeds from sale of subsidiary					—			—			350
	Additions to property, plant and equipment					(23,260	)		(23,582	)		(21,519	)
	Purchase of net assets					—			—			(15,059	)
	Distributions (investments) in joint ventures – net					(15	)		306			172
	Change in receivables from affiliates					72			252			2,143
				Net cash used in investing activities		(23,203	)		(23,024	)		(33,913	)

(Continued on next page.)

F-6

Applica Incorporated and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

			For the years ended December 31,
			2001			2000			1999
			(In thousands)
Cash flows from financing activities:
	Notes and acceptances		$	(13,494	)	$	12,596		$	898
	Proceeds from long-term debt			106,041			—			—
	Payments of long-term debt			(108,513	)		(12,842	)		(12,740	)
	Payment of debt costs			(1,906	)		(878	)		—
	Net (payments) borrowings under lines of credit			(48,885	)		34,673			(11,102	)
	Exercises of stock options and issuance of common stock under employee stock purchase plan			1,256			2,337			2,251
	Interest receivable from officer			(322	)		(226	)		(87	)
		Net cash provided by (used in) financing activities		(65,823	)		35,660			(20,780	)
Increase (decrease) in cash and cash equivalents				(1,114	)		3,089			(6,647	)
Cash and cash equivalents at beginning of year				16,857			13,768			20,415
Cash and cash equivalents at end of year			$	15,743		$	16,857		$	13,768

Supplemental Disclosures of Cash Flow Information:

		For the years ended December 31,
		2001		2000		1999
		(In thousands)
Cash paid during the year for:
	Interest	$	21,114	$	27,611	$	17,697
	Income taxes	$	8,489	$	13,028	$	8,339

     In April 1999, the Company issued 210,000 shares of its common stock to its Chairman and Chief Executive Officer in exchange for a promissory note in the principal amount of $1,496,350.

     In June 1999, the Company acquired certain assets from its 50% joint venture, Newtech Electronics Industries, Inc., for approximately $33 million, of which $15 million was paid in cash plus $18 million of assumed liabilities. In conjunction with this acquisition, the Company obtained the following assets (in thousands):

Intangible assets	$	15,007
Accounts receivable		8,081
Inventory		9,606
	$	32,694

The accompanying notes are an integral part of these statements.

F-7

NOTE A – SUMMARY OF ACCOUNTING POLICIES

     Applica Incorporated and its subsidiaries (collectively, the “Company”) are principally engaged in the manufacture, distribution and sale of a broad range of branded and private-label small electric consumer goods.

     In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements.

     The most significant accounting estimates inherent in the preparation of the Company’s financial statements include estimates associated with management’s evaluation of the recoverability of goodwill as well as those used in the determination of liabilities related to warranty activity, litigation, product liability, product recall, taxation and repositioning. In addition, significant estimates form the bases for the Company’s reserves with respect to sales and pricing allowances, collectibility of accounts receivable, inventory valuations and certain benefits provided to current employees. Various assumptions and other factors underlie the determination of these significant estimates. The process of determining significant estimates is fact specific and takes into account factors such as historical experience, current and expected economic conditions, product mix, and in some cases, actuarial techniques. The Company constantly re-evaluates these significant factors and makes adjustments where facts and circumstances dictate.

     A summary of the Company’s significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows.

     Principles of Consolidation

     The consolidated financial statements include the accounts of Applica Incorporated and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation.

     Foreign Currency Translation

     For subsidiaries where the local currency is the functional currency, assets and liabilities are translated into United States dollars at the exchange rate in effect at the end of the year. Revenues and expenses of these subsidiaries are translated at the average exchange rate during the year. The aggregate effect of translating the financial statements of these foreign subsidiaries is included in a separate component of shareholders’ equity entitled “Accumulated Other Comprehensive Earnings (Loss).” For countries where business is transacted predominantly in U.S. dollars or is deemed to be hyper-inflationary, the U.S. dollar is the functional currency and a combination of current and historical rates are used in translating assets, liabilities, revenues and expenses, and the related exchange adjustments are included in operations.

     Cash and Cash Equivalents

     The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. Cash balances at December 31, 2001 and 2000 include approximately $14.3 million and $12.5 million, respectively, held in foreign banks by the Company’s Hong Kong, Canadian and Latin American subsidiaries.

     Receivables from Affiliates

     Receivables from affiliates include accounts and notes receivable due from the Company’s joint venture partners and certain of the Company’s executive officers. Notes receivable are due upon demand or upon termination of the applicable employment contract, and bear interest at prevailing market interest rates.

F-8

     Inventories

     Inventories are stated at the lower of cost or market; cost is determined by the first-in, first-out method. Inventories are comprised of the following:

	2001		2000
	(In thousands)
Raw materials	$	4,264	$	7,257
Work in process		4,039		13,129
Finished goods		95,413		140,434
	$	103,716	$	160,820

     Revenue Recognition

     The Company recognizes sales and related cost of sales at the later of (a) the time of shipment or (b) when title passes to the customers, all significant contractual obligations have been satisfied and collection of the resulting receivable is reasonably assured. Net sales is comprised of gross sales less provisions for estimated customer returns, discounts, vendor payments and volume rebates.

     Property, Plant and Equipment

     Property, plant and equipment are recorded at cost. Depreciation and amortization are provided for in amounts sufficient to relate the cost of depreciable assets to their estimated operating service lives using accelerated and straight-line methods.

     Intangible Assets

     Intangible assets, consisting primarily of goodwill, are being amortized on a straight-line basis over periods ranging from 2.5 to 40 years. Intangible assets were approximately $264.2 million and $273.8 million at December 31, 2001 and 2000, respectively, and the related accumulated amortization was $62.6 million and $49.6 million, respectively.

     In the fourth quarter of 2000, the Company recorded a $3.2 million write-down of certain intangible assets associated with Kmart Corporation’s decision to terminate its long-term supply contract for White-Westinghouse® electronic products and the Company’s intention not to re-market such products to another company. In the fourth quarter of 2001, an additional write-down of $1.2 million was recorded as a result of a bankruptcy petition filed by Kmart Corporation. For additional information, see Note L.

     Long-Lived Assets

     Long-lived assets and certain identifiable intangible assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of such asset and eventual disposition. Measurement of an impairment loss for long-lived assets and certain identifiable intangible assets that management expects to hold and use is based on the fair value of the asset. Long-lived assets and certain identifiable intangible assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.

     Risk Management Contracts

     The Company designates its derivatives based upon criteria established by SFAS 133. For a derivative designated as a fair value hedge, the gain or loss is recognized in earnings in the period of change together with the offsetting loss or gain on the hedged item attributed to the risk being hedged. For a derivative designated as a cash flow hedge, the effective portion of the derivative’s gain or loss is initially reported as a component of accumulated other comprehensive earnings (loss) and subsequently reclassified into earnings when the hedged exposure affects earnings. The ineffective portion of the gain or loss is reported in earnings immediately.

F-9

     The Company uses derivatives to manage exposures to foreign currency and interest rate risk. The Company’s objectives for holding derivatives are to decrease the volatility of earnings and cash flows associated with changes in foreign currency and interest rates.

     The fair values of derivative instruments as of December 31, 2001 and changes in fair values during 2001 were not material. The adoption of SFAS 133 did not have a material impact on the Company’s operating results. During 2001, there were no significant gains or losses recognized in earnings for hedge ineffectiveness. The Company did not discontinue any hedges during 2001 because it was probable that the original forecasted transaction would not occur.

     In the normal course of business, the Company employs a variety of financial instruments to manage its exposure to fluctuations in interest and foreign currency exchange rates, including interest rate and currency swap agreements; forward and option contracts, and interest rate caps. The Company designates and assigns the financial instruments as hedges of forecasted transactions, specific assets, or specific liabilities. When hedged assets or liabilities are sold or extinguished or the forecasted transactions being hedged are no longer expected to occur, the Company recognizes the gain or loss on the designated hedging financial instrument.

     Option premiums and unrealized losses on forward contracts and the accrued differential for interest rate and currency swaps to be received under the agreements are recorded in the balance sheet as other assets. Unrealized gains on forward contracts and the accrued differential for interest rate swaps to be paid under the agreements are included in other liabilities. Realized gains and losses from hedges are classified in the income statement consistent with the accounting treatment of the item being hedged. The Company accrues the differential for interest rate swaps to be paid or received under the agreements as interest rates shift as adjustments to net interest expense over the lives of the swaps. Gains and losses on the termination of effective swap agreements, prior to their original maturity, are deferred and amortized to net interest expense over the remaining term of the underlying hedged transactions. The unamortized deferred balances are not material as of December 31, 2001.

     Cash flows from hedges are classified in the Consolidated Statements of Cash Flows under the same category as the cash flows from the related assets, liabilities or forecasted transactions (see Notes F and N hereto).

     Income Taxes

     During 2001 and 2000, the Company projected that a portion of the prior undistributed earnings of its foreign operations would be in excess of the funds needed to support its operations in the foreseeable future. As a result, the Company repatriated approximately $31.4 million and $16.3 million from its foreign operations in 2001 and 2000, respectively, resulting in an increase in the Company’s effective tax rate reflecting the cost of such repatriations as the income tax rate in the U.S. is higher than the tax rate in certain foreign jurisdictions. In 2001, the Company decided that future earnings of certain of its foreign operations would not be reinvested but rather would be repatriated to the United States. In the foreseeable future, these earnings will be taxed based on U.S. statutory rates. No provision has been made for U.S. taxes on the remaining undistributed earnings of the Company’s foreign subsidiaries of approximately $169.0 million at December 31, 2001 and $182.9 at December 31, 2000, as it is anticipated that such earnings would be reinvested in their respective operations or in other foreign operations.

     Deferred taxes have been provided on temporary differences in reporting transactions for financial accounting and tax purposes. The Company provides a valuation allowance against its deferred tax assets when it believes that it is more likely than not that the asset will not be realized.

     Advertising Costs

     Advertising costs are expensed as incurred and are included in selling, general and administrative expenses. Total advertising costs for the years ended December 31, 2001, 2000 and 1999 totaled approximately $27.3 million, $27.0 million and $27.4 million, respectively.

     Earnings (Loss) Per Share

     Basic net earnings per share equals net earnings divided by the weighted average shares outstanding during the year. The computation of diluted net earnings per share includes dilutive common stock equivalents in the weighted average shares outstanding. The reconciliation between the computations is as follows:

F-10

	Net Earnings			Basic		Basic			Diluted		Diluted
	(Loss)			Shares		EPS			Shares		EPS
	(In thousands, except per share data)
2001	$	(28,438	)		23,135	$	(1.23	)		23,135	$	(1.23	)
2000	$	(21,216	)		22,947	$	(0.92	)		22,947	$	(0.92	)
1999	$	16,843			22,367	$	0.75			23,325	$	0.72

     Included in diluted shares are common stock equivalents relating to options of 958,730 for 1999. Common stock equivalents have been excluded from the diluted per share calculations in 2001 and 2000, respectively, as the Company incurred a net loss in those years and their inclusion would have been anti-dilutive. Potential common stock equivalents at December 31, 2001 were 4,216,373 with exercise prices ranging from $3.63 to $31.69 per share.

     Loss on Sale of Asset

     In 2000, the Company decided to exit and sell substantially all of the assets of a non-strategic business and, as a result, recorded a loss of $3.6 million based on the expected realizable value of the assets. The business was sold in 2001 and no additional gain or loss was recognized.

     Repositioning and Other Charges

     2001.     In the fourth quarter of 2001, the Company recorded charges relating to several events in the aggregate amount of $14.8 million. These charges included $6.8 million relating to the Company’s decision to consolidate its Shelton, Connecticut office with the headquarters located in Miami Lakes, Florida, as well as certain back-office and supply chain functions in Canada and Latin America. This facilities consolidation should result in a reduction of approximately 80 employees worldwide. In addition, $5.2 million of such charges related to the write-off of fees and expenses of the Company’s terminated credit facility as the Company executed a new four-year senior secured revolving credit facility. Also included in the charge were $1.5 million relating to the devaluation of the Argentinean peso and $1.0 million related to the settlement of the shareholder class action litigation. As of December 31, 2001, no amounts had been charged against the accrual. In 2002, the Company expects to incur an additional $10.0 million in charges relating to its decision to consolidate facilities and functions.

     Additionally, in the fourth quarter of 2001, the Company received a dividend from its foreign operations of $31.4 million, which resulted in a $10.1 million tax expense for previously untaxed earnings.

     In February 2002, Applica Consumer Products, Inc., in cooperation with the U.S. Consumer Products Safety Commission, voluntarily recalled approximately 2.1 million Black & Decker® two-slice and four-slice toasters. The Company’s Canadian operating subsidiary, Applica Canada Corporation, is also recalling approximately 180,000 of these toasters in Canada. The Company took a charge to cost of sales of $13.4 million relating to the estimated expenses of such recalls. As of December 31, 2001, no amounts had been charged against the accrual.

     2000.     In the fourth quarter of 2000, the Company entered into an alliance with a consumer packaged goods company to develop, manufacture and distribute new products. In conjunction with the development arrangement, the Company expanded its existing manufacturing capacity, exited various non-strategic product lines, including certain retail personal care items, and re-allocated Company resources. These activities resulted in non-cash charges totaling $34.1 million in the fourth quarter of 2000. Charges associated with the writedown of low margin and non-strategic inventory items total approximately $30.1 million and were recorded as cost of sales. As of December 31, 2000, there were outstanding inventory reserves of approximately $8.7 million, related to these repositioning charges, which resulted from the write down of inventory to net realizable value. As of December 31, 2001, there were no outstanding inventory reserves. The remaining $4.0 million of repositioning charges was included in selling, general and administrative expenses, of which $3.2 million related to the write down of certain intangible assets associated with Kmart Corporation’s decision to terminate its long-term supply contract for White-Westinghouse® electronic products and the Company’s intention not to re-market such products to another company.

     Additionally, in the fourth quarter of 2000, the Company received a dividend from its foreign operations of $16.3 million, which resulted in a $4.9 million tax expense for previously untaxed earnings.

F-11

     1999.     The Company, in connection with its 1998 acquisition of the Black & Decker Household Products Group, incurred a repositioning charge totaling $17.2 million, of which $7.7 million was included in 1998 cost of goods sold. The charge was primarily non-cash and consisted of write-offs of inventory, goodwill and tooling associated with the Company’s decision to exit certain personal care and other non-core, low-margin products. Also included were costs associated with the integration of the acquisition. The Company did not exit one line of business that had been included in the accrued repositioning costs at December 31, 1998, resulting in a reversal of the prior year charge of $1.5 million in 1999.

     Recent Accounting Pronouncements

     In July 2001, the FASB issued Statement of Financial Accounting Standards No. 141, “Business Combinations” (“SFAS 141”) and Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). SFAS 141 requires all business combinations to be accounted for using the purchase method of accounting and is effective for all business combinations initiated after June 30, 2001. SFAS 142 requires goodwill to be tested for impairment under certain circumstances, and written off when impaired, rather than being amortized as previous standards required. SFAS 142 is effective for fiscal years beginning after December 15, 2001. SFAS 141 did not have an effect on the Company’s operating results or financial condition for the year ended December 31, 2001.

     The Company will apply the provisions of SFAS No. 142 beginning on January 1, 2002. Application of the non-amortization provisions of SFAS No. 142 will result in an increase in net earnings of $5.0 million per year. During 2002, the Company will perform a transitional fair value based impairment test and if the fair value is less than the recorded value at January 1, 2002, the Company will record an impairment loss, if any, in the first quarter of 2002 as a cumulative effect of a change in accounting principle. Such impairment loss could be material.

     In November 2001, the Emerging Issues Task Force reached a consensus on EITF Issue 01-9 “Accounting for Consideration Given by a Vendor to a Customer including a Reseller of the Vendor’s Products.” Also, in August 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.” SFAS No. 144 retained substantially all of the requirements of SFAS No. 121 while resolving certain implementation issues. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. Management believes the impact of these pronouncements on its operations, if any, will not be material.

NOTE B – INVESTMENT IN JOINT VENTURES

     Investment in joint ventures consists of the Company’s 50% interest in Anasazi Partners, L.P. and 50% interest in a Florida limited liability company, which are accounted for under the equity method.

     At December 31, 2001 and 2000, the Company’s investment in Anazazi Partners totaled approximately $1.4 million and $1.5 million, respectively. Loans to the partnership and its other equity partner totaled $1.8 million at December 31, 2001 and 2000 and are included in receivables from affiliates. The loans bear interest at rates from 8.5% to 9.0%, are collateralized by the other equity partner’s interest in the partnership and are payable upon demand. Anasazi’s investments include certain privately traded securities whose values have been estimated by the general partner in the absence of readily ascertainable market values. Fair value of these securities may differ significantly from the values that would have been used had a ready market for the securities existed.

     The Company’s investment in the limited liability company was not significant at December 31, 2001. However, the Company has agreed, if certain conditions are met, to fund up to $1.5 million to such joint venture, of which $143,000 had been funded at December 31, 2001. The limited liability company was incorporated in June 2001 to develop, market and distribute a small electric household appliance.

NOTE C – ACQUISITIONS

     In June 1999, the Company purchased substantially all of the assets of Newtech Electronics Industries, Inc., including inventory, accounts receivable, certain trademark licenses and other intangibles, as well as assumed certain specific liabilities relating to the business. Tangible net assets acquired totaled approximately $15.0 million. At such time, the Company owned a 50% interest in Newtech. In connection with the acquisition, the Company

F-12

wrote down its remaining investment in Newtech resulting in a one-time non-cash charge of $12.6 million. The charge was recorded as equity in net loss of joint ventures in the Company’s statement of operations. Under the terms of the acquisition agreement, the Company acquired the exclusive right and license to use the White-Westinghouse® trademark in North America for the design, manufacture, and sale of certain consumer electronic products and was assigned Newtech’s rights under the long-term supply contracts with the Kmart Corporation in the United States and Zellers in Canada.

     In June 2000, the Kmart Corporation exercised its option to terminate its long-term supply contract with the Company for the sale of consumer electronic products under the White-Westinghouse trademark in the United States. The termination will be effective on June 30, 2002. Under the terms of the agreement, Kmart’s minimum purchase requirements for the period July 1, 2001 through June 30, 2002 will be reduced to 25% of the original requirements for that period. In the fourth quarter of 2001, the Company recorded a write down of intangible assets (based upon estimated cash flows) of $1.2 million relating to the bankruptcy of Kmart. In the fourth quarter of 2000, the Company recorded a write down of intangible assets (based upon estimated cash flows) of $3.2 million relating to the Company’s intention to not re-market the White-Westinghouse products to another company. The write-downs were included in repositioning and other charges. See Note L – Concentration of Credit and Other Risks for information regarding the recent bankruptcy of Kmart Corporation.

NOTE D – PROPERTY, PLANT AND EQUIPMENT

     The following is a summary of property, plant and equipment:

			At December 31,
		Useful Lives	2001		2000
		(Dollars in thousands)
Building		15-50 years	$	14,668	$	14,668
Building improvements		8-31 years		2,574		2,529
Computer equipment		3-5 years		17,111		13,970
Furniture and equipment		3-8 years		124,787		110,280
Leasehold improvements		8 years		20,426		15,795
Land and land improvements		15-31 years*		3,732		3,728
	Total			183,298		160,970
Less accumulated depreciation				100,961		82,770
			$	82,337	$	78,200

* Improvements only

NOTE E – ACCRUED EXPENSES

     Accrued expenses are summarized as follows:

	For the Year ended December 31,
	2001		2000
	(In thousands)
Product recall	$	13,414	$	—
Salaries and bonuses		13,086		8,978
Promotions and advertising allowances		7,351		8,892
Warranty		3,689		3,392
Co-op advertising and volume rebates		3,297		3,407
Other		26,134		22,434
	$	66,971	$	47,103

F-13

NOTE F – BORROWINGS

     The Company’s borrowings, including interest rate swaps designated as hedges, are summarized below:

								Interest Rate Swaps (2)
					Stated							Effective			Swap
			Balance		Interest Rate (1)			Pay Float		Pay Fixed		Interest Rate (3)			Maturities
			(Dollars in thousands)
At December 31, 2001:
Revolving Credit Facility			$	90,709		5.1	%	$	—	$	59,000		6.6	%	July 2003
10% Senior Subordinated Notes				130,000		10.0	%		80,000				7.6	%	July 2008
Foreign Indebtedness				4,986		2.6	%		—		—		2.6	%
Other				31					—		—
	Total			225,726
Less current maturities				—
Total long-term debt			$	225,726				$	80,000	$	59,000
At December 31, 2000:
Revolving Credit Facility				34,673		8.2	%		—	$	20,000		8.5	%	July 2002
Senior Secured Tranche A				53,785		8.2	%		—		—		8.2	%
Senior Secured Tranche B				60,531		9.2	%		—		—		9.2	%
10% Senior Subordinated Notes				130,000		10.0	%		—		—		10.0	%
		Total		278,989					—	$	20,000
Less current maturities				18,842
Total long-term debt			$	260,147					—	$	20,000

(1)	The stated interest rate represents the coupon rate for the Subordinated Notes. For floating rate borrowings, interest rates are based upon the rates at December 31, 2001 and 2000; these rates are not necessarily an indication of future interest rates.
(2)	Amounts represent notional values of interest rate swaps.
(3)	The effective interest rate is the weighted average interest rate after taking into consideration the effect of interest rate swaps entered into with respect to certain of those borrowings as indicated in the “Pay Float” and “Pay Fixed” columns.

     Revolving Credit Facility

     On December 28, 2001, the Company replaced its current revolving credit and term debt facilities with a new $205 million four-year asset-based senior secured revolving credit facility (the “Credit Facility”). The Credit Facility includes a $10.0 million sublimit for the issuance of letters of credit. All amounts outstanding under the Credit Facility are payable on December 28, 2005.

     At the Company’s option, interest accrues on the loans made under the Credit Facility at either:

• LIBOR (adjusted for any reserves), plus a specified margin which is determined by the Company’s leverage ratio and is currently set at 2.35% (4.22% at December 31, 2001), or

• the Base Rate (which is Bank of America’s prime rate), plus a specified margin, currently 0.35% (5.10% at December 31, 2001).

Swing loans bear interest at the Base Rate, plus a specified margin, currently 0.35% (5.10% at December 31, 2001). The Company may at its option reduce the amount available under the Credit Facility to the extent such amounts are unused or prepaid in certain minimum amounts.

     The Credit Facility is collateralized by substantially all of the real and personal property, tangible and intangible, of the Company and its domestic subsidiaries, as well as a pledge of all of the stock of such domestic subsidiaries, a pledge of not less than 65% of the voting stock of each direct foreign subsidiary of the Company and each direct foreign subsidiary of each domestic subsidiary of the Company, and a pledge of all of the capital stock of any subsidiary of a subsidiary of the Company that is a borrower under the Credit Facility. The Credit Facility is guaranteed by all of the current, and will be guaranteed by all of the future, domestic subsidiaries of the Company.

F-14

     The Credit Facility contains a number of significant covenants that, among other things, restrict the ability of the Company to dispose of assets, incur additional indebtedness, prepay other indebtedness, pay dividends, repurchase or redeem capital stock, enter into certain investments or create new subsidiaries, enter into sale and lease-back transactions, make certain acquisitions, engage in mergers or consolidations, create liens, or engage in certain transactions with affiliates, and that otherwise restrict corporate and business activities. In addition, under the Credit Facility, the Company is required to comply with a minimum borrowing base availability and a maximum annual capital expenditure requirement.

     10% Senior Subordinated Notes Due 2008

     The Company issued $130.0 million in Senior Subordinated Notes in July 1998, which bear interest at a rate of 10%, are payable semiannually and mature on July 31, 2008. The Notes are general unsecured obligations of the Company and rank subordinate in right of payment to all senior debt of the Company and pari passu in right of payment to all future subordinated indebtedness of the Company. The Notes may be redeemed at the option of the Company, in whole or in part, on or after July 31, 2003 at various redemption prices.

     The indenture pursuant to which the Notes were issued contains certain covenants that, among other things, limit the ability of the Company to incur additional indebtedness and issue preferred stock, pay dividends or make other certain restricted payments, apply net proceeds from certain asset sales, or sell stock of subsidiaries.

     Foreign Indebtedness

     Certain of the Company’s foreign subsidiaries have approximately $39.5 million trade finance lines of credit, payable on demand, which are collateralized by the subsidiaries’ assets and in some cases, a guarantee of Applica Incorporated. At December 31, 2001 and 2000, the foreign subsidiaries were using approximately $7.3 million and $37.9 million, respectively, under these credit lines, of which $2.3 million and $17.8 million, respectively, was for trade financing. At December 31, 2000, $13.4 million of foreign indebtedness was classified as notes and acceptances. No foreign indebtedness was classified as notes and acceptances at December 31, 2001.

NOTE G – EMPLOYEE BENEFIT PLANS

     The Company has a 401(k) plan for its employees to which the Company makes discretionary contributions at rates dependent on the level of each employee’s contributions. Contributions made by the Company are limited to the maximum allowable for federal income tax purposes. The amounts charged to earnings for this plan during the years ended December 31, 2001, 2000 and 1999 totaled approximately $766,000, $761,000 and $675,000, respectively.

     The Company does not provide any health or other benefits to retirees, except for executive life insurance provided to Mr. Belvin Freidson, the founder of the Company.

NOTE H – INCOME TAXES

     Income tax expense (benefit) consists of the following:

		At December 31,
		2001			2000			1999
		(In thousands)
Current:
	Federal	$	—		$	—		$	(567	)
	Foreign		12,754			6,764			10,658
	State		—			—			48
			12,754			6,764			10,139
Deferred			(8,608	)		(8,306	)		(5,962	)
		$	4,146		$	(1,542	)	$	4,177

F-15

     The United States and foreign components of earnings (loss) before income taxes are as follows:

	For the Year ended December 31,
	2001			2000			1999
	(In thousands)
United States	$	(46,484	)	$	(52,210	)	$	(13,554	)
Foreign		22,192			29,452			34,574
	$	(24,292	)	$	(22,758	)	$	21,020

     The differences between the statutory rates and the tax rates computed on pre-tax profits are as follows:

	For the Year ended December 31,
	2001			2000			1999
Statutory rate		35.0	%		34.0	%		34.0	%
Foreign (income) loss not subject to tax		7.4			2.4			(1.5	)
Net tax rate differential on undistributed foreign earnings and change in estimated tax provision		(16.5	)		6.7			(22.6	)
Foreign earnings distributed to or taxable in the U.S		(69.0	)		(27.6	)		3.7
Effect of foreign tax credits		27.4			5.0			—
Equity in joint ventures (earnings) loss not subject to U.S. tax or already taxed		—			(0.6	)		5.6
State income tax benefits		1.8			3.6			3.2
Change in valuation allowance		—			(19.9	)		—
Other		(3.2	)		3.2			(2.5	)
		(17.1	)%		6.8	%		19.9	%

     The Internal Revenue Service has completed its examination of the Company’s U.S. tax returns for the years 1994 through 1998. One adjustment has been proposed, which, if sustained, would defer a deduction taken by the Company in 1995 until 1998 and would result in an interest charge net of the tax benefit of approximately $500,000. The Company believes its position is correct and is protesting the disallowance but had accrued for the related liability as of December 31, 2001. Management believes that adequate provision for taxes has been made for the years under examination and those not yet examined.

     The primary components of future income tax benefits (liabilities) were as follows:

		At December 31,
		2001			2000
		(In thousands)
Inventory differences		$	(1,636	)	$	217
Accrued expenses			25,285			14,438
	Total current assets		23,649			14,655
Net operating loss and other carryforwards			22,309			19,145
Fixed assets, depreciation and amortization			(16,425	)		(17,611	)
Deferred income (see Note M – Salton, Inc.)			2,171			2,171
	Net non-current assets		8,055			3,705
	Net deferred tax assets	$	31,704		$	18,360

     The tax benefits resulting from disqualifying dispositions of shares of common stock acquired pursuant to incentive stock options have been recorded as additions to paid-in capital in the amounts of $176,000 and $633,000 in 2001 and 2000, respectively.

     At December 31, 2001, the Company had net operating loss carryforwards (“NOLs”) of approximately $29.3 million for domestic federal income tax purposes and $4.5 million for foreign income tax purposes. The majority of the domestic NOLs have expiration dates commencing in 2019. The foreign NOLs are of various durations, some of which do not expire. The Company also has NOLs in numerous states that have a tax benefit of $2.2 million, after valuation allowances of $2.4 million in both 2001 and 2000, respectively. In addition, the

F-16

Company has U.S. foreign tax credits of $8.5 million, of which $1.9 million has been reserved as of December 31, 2001 and 2000. The Company has established valuation allowances against the state NOLs and U.S. tax credits as these benefits expire in five years or less, and it is more likely than not that the benefits will not be realized prior to expiration.

NOTE I – COMMITMENTS AND CONTINGENCIES

     Litigation

     Shareholder Litigation. Applica Incorporated is a defendant in Sherleigh Associates LLC and Sherleigh Associates Inc. Profit Sharing Plan, on their own behalf and on behalf of all others similarly situated v. Windmere-Durable Holdings, Inc., David M. Friedson and Nationsbanc Montgomery Securities LLC, 98-2273-CIV-LENARD which was filed in the United States District Court, Southern District of Florida on October 8, 1998.

     This matter is a class action complaint, which is the consolidation of eight separate class action complaints with substantially similar allegations filed in 1998. The complaint alleges violations of the federal securities laws (including Rule 10b-5 promulgated pursuant to the Securities Exchange Act of 1934, as amended) in connection with the acquisition by the Company of the Household Products Group of The Black & Decker Corporation. Among other things, the plaintiffs allege that the Company and certain of its directors and officers, along with its underwriters, NationsBanc Montgomery Securities LLC, provided false information in connection with a public offering of debt and equity securities. The plaintiffs seek, among other relief, to be declared a class, to be awarded compensatory damages, rescission rights, unspecified damages and attorneys’ fees and costs. The court has provisionally certified the class of plaintiffs who purchased Company stock between May 12, 1998 and September 22, 1998.

     In connection with the Household Products Group acquisition, the Company also received two derivative demands from certain shareholders alleging breach of fiduciary duties by certain of our officers and directors. On November 29, 2001, a derivative action was filed in the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida. The Board of Directors appointed an independent committee of directors to review the derivative claims, which concluded that the allegations in the demand letters were without merit and that, therefore, the Board should not direct management to initiate litigation on the Company’s behalf or initiate such action itself.

     In January 2002, the Company reached an agreement in principle to settle the securities class action litigation filed in 1998 against it and certain of its officers in the United States District Court for the Southern District of Florida and the related derivative claims for approximately $11.0 million in cash. The Company took a charge of approximately $1.0 million in the fourth quarter of 2001 for expenses related to the litigation, which is reflected as part of repositioning and other charges under selling, general and administrative expenses in the consolidated statement of operations. All other amounts related to the settlement of the litigation are expected to be covered under the Company’s insurance policies. Under the terms of the settlement, all claims against the Company and all other defendants will be dismissed without any admission of liability or wrongdoing. Settlement is subject to final documentation and court approval. Failure of the court to approve the settlement could result in significant changes in estimated exposures. Details regarding the shareholder litigation settlement will be communicated to potential class members prior to final court approval.

     Salton Litigation. The Company is also a defendant in Salton, Inc. v Windmere-Durable Holdings, Inc. and Windmere Corporation, which was filed in the United States District Court, Northern District of Illinois.

     In January 2001, Salton, Inc. filed suit against the Company alleging breach of a non-competition agreement. In connection with the sale to Salton of the Company’s 50% interest in Salton, Salton issued a $15 million promissory note to the Company as part of the purchase price. The Company also entered into an agreement with Salton whereby Salton agreed to pay the Company 50% of its profits on the sales to Kmart Corporation of White-Westinghouse® electric kitchen appliances. Salton is alleging that the Company has breached the non-compete provision of such agreement. Salton is further alleging that, as the result of the Company’s actions, Kmart has ceased buying White-Westinghouse® products from Salton to Salton’s detriment. Discovery procedures have been initiated and are ongoing.

F-17

     Salton is requesting compensatory and punitive damages, attorney’s fees and costs, and cancellation of the $15 million note. Salton has also purportedly terminated its agreement with the Company for the payment of 50% of the profits from its sale of White-Westinghouse® products to Kmart. The Company recorded approximately $5.7 million and $2.6 million of income under this agreement in 2000 and 1999, respectively. No income was recognized in 2001. Management believes that the amount of ultimate liability, if any, is not likely to have a material effect on the Company’s business, financial condition or results of operations. However, as the outcome of litigation is difficult to predict, significant changes in the estimated exposures could occur.

     Toaster Recall. In February 2002, Applica Consumer Products, Inc., in cooperation with the U.S. Consumer Products Safety Commission, voluntarily recalled approximately 2.1 million Black & Decker® two-slice and four-slice toasters. The heating elements in these toasters can continue to operate after use, posing a potential fire hazard. The Company’s Canadian operating subsidiary, Applica Canada Corporation, is also recalling approximately 180,000 of these toasters in Canada. Management has charged operations with an estimated reserve of $13.4 million for these recalls and does not believe the ultimate liability will be materially different.

     Currently, no litigation has been filed in connection with property damage or bodily injury relating to the recalled toasters, however, several claims have been made. We believe that the amount of ultimate liability of these claims, if any, is not likely to have a material effect on our business, financial condition or results of operations. However, as the outcome of litigation is difficult to predict, significant changes in the estimated exposures could occur.

     Other Matters. The Company is also subject to other legal proceedings, product liability claims and other claims that arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability, if any, in excess of applicable insurance coverage, is not likely to have a material effect on the financial condition, results of operations or liquidity of the Company. However, as the outcome of litigation or other legal claims is difficult to predict, significant changes in the estimated exposures could occur.

     Employment Agreements

     The Company has entered into employment agreements with several of its executive officers for periods ranging from two to five years. The agreements provide the employees with an option to terminate their agreements and receive lump sum payments of up to five years compensation if there is a change in control of the Company.

     Leases

     Future minimum payments under the Company’s non-cancelable long-term operating leases, are as follows:

	(In thousands)
2002	$	3,752
2003		3,752
2004		3,760
2005		3,489
2006		2,260
Thereafter		3,788
	$	20,801

     Rent expense for the years ended December 31, 2001, 2000 and 1999 totaled approximately $4.9 million, $4.8 million and $4.1 million, respectively.

     Durable’s facilities in China are operated under contracts with the local government, with terms between two and ten years.

     License Agreement

     The Company licenses the Black & Decker® brand for use in marketing products in North America, Central America, South America (excluding Brazil), and the Caribbean. In July 2001, the Company and The Black & Decker Corporation entered into an extension of the trademark license agreement through December 31, 2006. Under the agreement as extended, the Company agreed to pay certain fees and guaranteed minimum royalty payments to The Black & Decker Corporation of $1.2 million in 2001, $2.0 million in 2002, $5.0 million in 2003 and $12.5 million in each year thereafter through 2006. Renewals of the license agreement, if mutually agreed upon, are for five-year periods. If The Black & Decker Corporation does not agree to renew the license agreement, the Company has 18 months to transition out of the product line. No minimum royalty payments will be due during such transition period.

F-18

     Other

     In April 1994, the Company purchased from Ourimbah Investment, Limited (“Ourimbah”) the remaining 20% of the issued and outstanding capital stock of Applica Durable Manufacturing Limited (the “Purchased Shares”) which had not, prior to such purchase, been owned, directly or indirectly, by the Company. In connection with such purchase, the Company agreed to make an additional payment (based upon amounts received in connection with any such change in control) to Ourimbah for the Purchased Shares upon the occurrence of a change of control (as defined) of the Company on or before July 1, 2009. No change of control will be deemed to have occurred in connection with any transaction approved by a majority of the members of the Company’s Board of Directors.

NOTE J – SHAREHOLDERS’ EQUITY

     Stock Options

     The Company’s 1992 Stock Option Plan provides for granting of incentive options to acquire not more than 500,000 shares of common stock. This plan expired in December 2001.

     The Company’s 1996 Stock Option Plan provides for the granting of incentive stock options for employees and non-qualified stock options for employees, consultants and directors. The Company’s 1998 Stock Option Plan also provides for the granting of non-qualified stock options to employees, consultants and directors. A total of 850,000 shares and 2,100,000 shares of common stock have been reserved for issuance under the 1996 and 1998 stock option plans, respectively.

     In May 2000, the Company’s shareholders approved and ratified the 2000 Stock Option Plan. The 2000 plan provides for the granting of incentive stock options for employees and non-qualified stock options for employees, consultants and directors. A total of 1,000,000 shares have been reserved under the plan.

     The terms of stock options granted under the plans are determined by the Compensation Committee of the Board of Directors at the time of grant, including the exercise price, term and any restrictions on the exercisability of such option. The exercise price of all options granted under the plans equals the market price at the date of grant and no option is exercisable after the expiration of ten years from the date of grant. No compensation expense was recognized upon either the grant or exercise of these stock options.

     The Company has also granted non-qualified stock options, which are not under any plan.

     The Company’s net earnings (loss) and earnings (loss) per share would have been changed to the pro forma amounts indicated below had compensation cost for the stock option plans and non-qualified options issued to employees been determined based on the fair value of the options at the grant dates consistent with the method of SFAS 123:

		2001			2000			1999
		(In thousands, except per share data)
Net earnings (loss):
	As reported	$	(28,438	)	$	(21,216	)	$	16,843
	Pro forma	$	(33,113	)	$	(27,157	)	$	10,305
Basic earnings (loss) per share:
	As reported	$	(1.23	)	$	(0.92	)	$	0.75
	Pro forma	$	(1.43	)	$	(1.18	)	$	0.46
Diluted earnings (loss) per share:
	As reported	$	(1.23	)	$	(0.92	)	$	0.72
	Pro forma	$	(1.43	)	$	(1.18	)	$	0.44

     The above pro forma disclosures may not be representative of the effects on reported net earnings (loss) for future years as options vest over several years and the Company may continue to grant options to employees.

F-19

     Per the requirements of SFAS 123, the fair value of each option grant was estimated on the date of grant using the binomial option-pricing model with the following weighted-average assumptions used for grants in 2001, 2000 and 1999, respectively: dividend yield of 0% for all years; expected volatility ranging from 82.9% to 86.0% for 2001, 77.04% to 79.46% for 2000, and 74.99% to 78.86% for 1999; risk-free interest rates of 5.25% in 2001, 6.75% in 2000 and 6.5% in 1999; and expected holding periods of 4 years in 2001, 2000 and 1999.

     Information with respect to stock option activity is as follows:

	2001					2000					1999
				Weighted-					Weighted-					Weighted-
				Average					Average					Average
				Exercise					Exercise					Exercise
	Shares(000)			Price		Shares(000)			Price		Shares(000)			Price
Outstanding at beginning of year		4,343		$	12.46		4,088		$	11.70		4,165		$	11.78
Granted		177		$	7.76		842		$	4.87		472		$	8.92
Exercised		(128	)	$	6.27		(442	)	$	15.13		(339	)	$	6.65
Forfeited		(176	)	$	7.50		(145	)	$	9.64		(210	)	$	15.55
Outstanding at end of year		4,216		$	12.67		4,343		$	12.46		4,088		$	11.70
Options exercisable at end of year		3,546					2,776					1,723
Weighted-average fair value of options granted during the year	$	5.44				$	3.03				$	5.51

     The following information applies to options outstanding at December 31, 2001:

	Options Outstanding						Options Exercisable
			Weighted-
			Average		Weighted-				Weighted-
			Remaining		Average				Average
			Contractual		Exercise				Exercise
	Shares(000)		Life		Price		Shares(000)		Price
$3.63 - $6.25		782		4.5	$	3.741		710	$	3.703
$6.38 - $8.56		1,709		3.9	$	7.324		1,227	$	7.294
$9.85 - $12.45		223		3.0	$	11.371		133	$	11.483
$12.81 - $14.88		135		4.9	$	13.840		113	$	13.787
$16.25		5		4.0	$	16.306		1	$	16.464
$24.50		1,345		1.3	$	24.500		1,345	$	24.500
$31.69		17		6.4	$	31.688		17	$	31.688
		4,216						3,546

     Employee Stock Purchase Plan

     In May 2000, the Company’s shareholders authorized up to 500,000 shares of common stock for the 2000 Employee Stock Purchase Plan. Under the plan, eligible employees may elect to participate on January 1 or July 1 of each year (except in 2000, when the election date was August 1, 2000). Subject to certain limitations determined in accordance with calculations set forth in the plan, an eligible employee is granted a right to purchase shares of common stock (up to a maximum of 1,000 shares) on the last business day on or before each June 30 and December 31 of any year during which he or she is a participant. The option exercise price per share will be an amount equal to 85% of the lower of the market price on the first day of the offering period or the market price on the exercise date, unless the participant’s entry date is not the first day of the offering period, in which case the exercise price will be an amount equal to 85% of the lower of the market price of the common stock on the entry date or the market price on the exercise date. As of December 31, 2001 and 2000, 109,465 and 41,815 shares, respectively, of common stock had been issued under the plan.

F-20

     Common Stock Purchase Rights Plan

     In March 1995, the Company implemented a Common Stock Purchase Rights Plan and distributed one Right for each share of the Company’s common stock outstanding. In March 1999, the Company’s Board of Directors approved and adopted an amended and restated version of such plan. The Rights are not exercisable or transferable, apart from the Company’s common stock, until after a person or group acquires, or has the right to acquire, beneficial ownership of 15% or more of the Company’s common stock (which threshold may, under certain circumstances, be reduced to 10%) or announces a tender or exchange offer to acquire such percentage of the Company’s common stock. As amended in March 1999, each Right entitles the holder to purchase one share of common stock at an exercise price of $50.00 per share and contains provisions that entitle the holder in the event of specific transactions, to purchase common stock of the Company or any acquiring or surviving entity at one-half of market price as determined under the terms of the Rights Agreement. The Rights will expire in March 2005, unless previously exercised or redeemed at the option of the Company for $.00001 per Right.

NOTE K — BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION

     During the fourth quarter of 2001, the Company began reporting its operations as one business segment. Previously, the Company had reported three business segments. The change to one business segment was made to conform to organizational changes the Company made in the management of its business to more effectively utilize and deploy its assets on a world-wide basis.

     Previously reported segment information for 2000 and 1999 has been restated to conform to year-end 2001 presentation.

     Geographic Information

     The Company’s international operations are conducted primarily in Canada, Mexico, South and Central America, the Caribbean, Hong Kong and China. Other than the United States, the Company does not conduct business in any country in which its sales in that country exceed 10% of consolidated sales. The following table sets forth the composition of the Company’s sales between those in the United States and those in other locations for each year:

			2001			2000			1999
			(In thousands)
Revenues:
	United States operations		$	485,843		$	502,564		$	512,250
	International operations:
		Sales to unaffiliated customers		241,201			246,187			206,059
		Sales – intercompany		312,591			342,361			226,437
	Eliminations			(312,591	)		(342,361	)		(226,437	)
			$	727,044		$	748,751		$	718,309
Long-lived assets:
	United States operations		$	789,693		$	792,074
	International operations			170,868			142,662
	Eliminations			(669,020	)		(627,096	)
		Consolidated assets	$	291,541		$	307,640

     Intercompany sales are billed at negotiated prices established by the Company. All United States revenues are derived from sales to unaffiliated customers. Included in United States operations are certain sales derived from direct product shipments from Hong Kong to customers located in the United States.

NOTE L — CONCENTRATION OF CREDIT AND OTHER RISKS

     The Company sells on credit terms to a majority of its customers, most of which are U.S., Canadian and Latin American retailers and distributors located throughout those countries.

     Wal-Mart Corporation accounted for 24.3%, 21.4% and 21.3% of 2001, 2000 and 1999 sales, respectively.

     A majority of the Company’s revenue is generated from the sale of Black & Decker® branded products, which represented approximately 63%, 60% and 56% of consolidated sales in 2001, 2000 and 1999, respectively.

F-21

     The Company’s allowance for doubtful accounts is based on management’s estimates of the creditworthiness of its customers, and, in the opinion of management is believed to be set in an amount sufficient to respond to normal business conditions. Should such conditions deteriorate or any major credit customer default on its obligations to the Company, this allowance may need to be increased which may have an adverse impact upon the Company’s earnings.

     On January 22, 2002, Kmart Corporation, a significant customer of the Company, filed a petition for voluntary bankruptcy under Chapter 11 of the U.S. Bankruptcy Code. Accounts receivable from Kmart Corporation at December 31, 2001, which were uninsured and remained uncollected at January 22, 2002 amounted to approximately $5.0 million. Management has estimated the allowance for doubtful accounts required for the possible uncollectibility of this amount.

     The Company’s manufacturing operations are conducted and located abroad. The Company also sells its products to customers located in foreign jurisdictions, including Latin America, Canada and China. Prior to the acquisition of the Black & Decker Household Products Group, the majority of the Company’s products were manufactured by its Hong Kong based manufacturing subsidiary, Applica Durable Manufacturing Limited. In connection with the acquisition, the Company acquired additional manufacturing facilities in Queretaro, Mexico, a country in which the Company had not previously manufactured products. The geographical distances between China, the United States and Mexico create a number of logistical and communications challenges. Because the Company manufactures its products and conducts business in several foreign countries, the Company is affected by economic and political conditions in those countries, including fluctuations in the value of currency, increased duties, possible employee turnover, labor unrest, lack of developed infrastructure, longer payment cycles, greater difficulty in collecting accounts receivable, and the burdens and costs of compliance with a variety of foreign laws. Changes in policies by the United States or foreign governments resulting in, among other things, increased duties, higher taxation, currency conversion limitations, restrictions on the transfer of funds, limitations on imports or exports, or the expropriation of private enterprises could have a material adverse effect on the Company, its results of operations, prospects or debt service ability. The Company could also be adversely affected if the current policies encouraging foreign investment or foreign trade by its host countries were to be reversed.

     If the Company determines that it is necessary to relocate the Company’s manufacturing facilities from China or Mexico and is unable to do so, due to confiscation, expropriation, nationalization, embargoes, governmental restrictions or otherwise, the Company would incur substantial operating and capital losses, including losses resulting from business disruption and delays in production. In addition, as a result of a relocation of its manufacturing equipment and certain other assets, the Company would likely incur relatively higher manufacturing costs. A relocation could also adversely affect the Company’s revenues if the demand for the Company’s products currently manufactured in China and Mexico decreases due to a disruption in the production and delivery of such products or due to higher prices which might result from increased manufacturing costs. Furthermore, earnings could be adversely affected due to reduced sales and/or the Company’s inability to maintain its current margins on the products currently manufactured in China and Mexico.

     China gained Permanent Normal Trade Relations (“PNTR”) with the United States when it acceded to the World Trade Organization (“WTO”), effective January 1, 2002. The United States imposes the lowest applicable tariffs on exports from PNTR countries to the United States. In order to maintain its WTO membership, China has agreed to several requirements, including the elimination of caps on foreign ownership of Chinese companies, lowering tariffs and publicizing its laws. No assurance can be given that China will meet these requirements and remain a member of the WTO, or that its PNTR trading status will be maintained. If China’s WTO membership is withdrawn or if PNTR status for goods produced in China were removed, there could be a substantial increase in tariffs imposed on goods of Chinese origin entering the United States, including those manufactured by us, which would have a material adverse impact on our business, financial condition and results of operations.

     Applica Durable Manufacturing Limited is incorporated in Hong Kong and its executive sales offices and its senior executives are located or reside there. The Company also conducts significant trading activities through subsidiaries incorporated in Hong Kong, which may be influenced by the changing political situation in Hong Kong and by the general state of the Hong Kong economy. In July 1997, sovereignty over Hong Kong was transferred from the United Kingdom to China, and Hong Kong became a Special Administrative Region. There can be no assurance that the transfer of sovereignty over Hong Kong will not have a material adverse affect on the Company’s business, financial condition and results of operations.

F-22

     Applica Manufacturing, S. de R.L. de C.V., the Company’s Mexican manufacturing facility, is incorporated in Mexico. The Mexican government exercises significant influence over many aspects of the Mexican economy. Accordingly, the actions of the Mexican government concerning the economy could have a significant effect on private sector entities in general and the Company in particular. In addition, during the 1980s and 1990s, Mexico experienced periods of slow or negative growth, high inflation, significant devaluations of the peso and limited availability of foreign exchange. As a result of the Company’s reliance upon manufacturing facilities in Mexico, economic conditions in Mexico could adversely affect the Company’s business, financial condition and results of operations.

NOTE M – RELATED PARTY TRANSACTIONS

     The Company has used the services of Top Sales Company, Inc. (“Top Sales”), an independent sales representative, since 1978. A member of the Company’s Board of Directors was the sole shareholder and Chief Executive Officer of Top Sales until January 2001. The Company made commission and consulting payments to Top Sales of $2,521, $351,700 and $350,000 in 2001, 2000 and 1999, respectively. The Company also uses the services of TJK Sales, Inc. (“TJK”), an independent sales representative, the president of which is also a member of the Company’s Board of Directors. Commissions and consulting payments to TJK totaled $179,000, $199,000 and $342,000 in 2001, 2000 and 1999, respectively. The Company also reimburses Top Sales and TJK for out-of-pocket expenses.

     Included in receivables from affiliates at December 31, 2001 and 2000 are $1.8 million and $1.3 million, respectively, due from certain of the Company’s executive officers. Such amounts are due upon demand or upon termination of the applicable employment contract, and bear interest at the prevailing market rate.

     On April 14, 1999, the Company sold 210,000 shares of authorized Common Stock at the fair market value of $7.125 per share to its Chairman and Chief Executive Officer in exchange for a collateralized promissory note. The note is on a full recourse basis, with a maturity of three years from the date of purchase and bears interest at LIBOR plus 2.75% (4.62% at December 31, 2001). The amount due to the Company, including accrued interest, at December 31, 2001 and 2000 was $1.8 million and $1.7 million, respectively. In February 2002, the maturity date of such loan was extended until April 2005.

     Pursuant to his employment agreement, Belvin Friedson, the founder of the Company, agreed to provide advisory services to the Company subsequent to his resignation as Chief Executive Officer. In 2001, 2000 and 1999, Mr. Friedson received annual compensation from the Company of $375,000 under such agreement, which was executed in 1983. He also participated in the Company’s executive life insurance plan and had use of a Company car. Mr. Friedson is the father of David Friedson, the Company’s Chairman of the Board and Chief Executive Officer.

     In 2000, the Company was a tour sponsor for Ballet Folklorico de Mexico de Amalia Hernandez and paid approximately $188,000 in connection therewith. The Company received radio, print and television promotions in theater displays and in theater promotions as part of its sponsorship package. Adam Friedson, through his company, Friedson Enterprises, is a producer of such show. Adam Friedson is the brother of the Company’s Chairman and Chief Executive Officer. No payments were made to the Ballet Folklorico in 2001.

     Salton, Inc.

     In July 1998, the Company consummated the sale of its 6,535,072 shares of common stock of Salton, Inc. representing a 50% interest. The shares were sold for $12 per share in cash plus a $15.0 million subordinated promissory note. The note has a term of six and one-half years and bears interest at 4% per annum. The note is subject to offset of 5% of the total purchase price paid by Salton for product purchases made during the term of the note from the Company, and accordingly, the Company has deferred the gain related to this note. The note is also subject to cancellation in the event that Salton’s supply agreement with Kmart Corporation is terminated for any reason. See Note I – Commitments and Contingencies for information regarding the outstanding litigation with Salton, Inc.

F-23

NOTE N – FINANCIAL INSTRUMENTS

     Interest Rate Risk Management

     The Company is exposed to the impact of interest rate changes. The Company’s objective is to manage the impact of interest rate changes on earnings and cash flows and on the market value of its borrowings. The Company maintains fixed rate debt as a percentage of its net debt between a minimum and maximum percentage, which is set by policy.

     It is the Company’s policy to enter into interest rate risk management transactions only to the extent considered necessary to meet its objectives as set forth above. The Company does not enter into interest rate risk management transactions for speculative purposes.

     Significant interest rate risk management instruments held by the Company during 2001 and 2000 included pay-floating swaps, pay-fixed swaps and interest rate caps. The pay-floating swap effectively converts medium term obligations to LIBOR-rate indexed variable-rate instruments. Pay-fixed swaps effectively convert floating-rate obligations to fixed-rate instruments. Interest rate caps provide protection against rising interest rates. All swaps have maturity dates that mirror the maturity date of the underlying hedged transaction. At December 31, 2001 and 2000, the Company did not discontinue any hedges due to the probability that the original underlying forecasted transaction would not occur.

     The impact of interest rate risk management activities on income in 2001, 2000 and 1999 was not material.

     Foreign Exchange Risk Management

     The Company transacts business globally and is subject to risks associated with changing foreign exchange rates. The Company’s objective is to reduce earnings and cash flow volatility associated with foreign exchange rate changes to allow management to focus attention on core business issues and challenges. By policy, the Company maintains hedge coverage between minimum and maximum percentages of its forecasted foreign exchange exposures for periods not to exceed eighteen months. The gains and losses on these contracts offset changes in the value of the related exposures.

     It is the Company’s policy to enter into foreign currency transactions only to the extent considered necessary to meet its objectives as set forth above. The Company does not enter into foreign currency transactions for speculative purposes.

     The Company enters into various contracts that change in value as foreign exchange rates change to protect the value of its existing foreign currency assets and liabilities, commitments and forecasted foreign currency revenues. The Company uses option strategies and forward contracts that provide for the sale of foreign currencies to hedge forecasted revenues and expenses. The Company also uses forward contracts to hedge foreign currency assets and liabilities. While these hedging instruments are subject to fluctuations in value, such fluctuations are offset by changes in the value of the underlying exposures being hedged. The principal currencies hedged are the Mexican peso, Chinese renminbi, Hong Kong dollar and Canadian dollar.

     The impact of foreign exchange risk management activities on operating income in 2001, 2000 and 1999 was not material.

     Fair Value of Financial Instruments

     At December 31, 2001 and 2000, the Company’s financial instruments included cash, cash equivalents, receivables, accounts payable, borrowings and interest rate, forward and foreign exchange risk management contracts. At December 31, 2001 and 2000, the fair values of cash and cash equivalents, receivables and accounts payable approximated carrying values because of the short-term nature of these instruments. The estimated fair values of other financial instruments subject to fair value disclosures, determined based on broker quotes or quoted market prices or rates for the same or similar instruments, and the related carrying amounts are as follows:

F-24

		2001					2000
		Carrying					Carrying
		Amount/Notional					Amount/Notional
		Amount		Fair Value			Amount		Fair Value
		(In thousands)
Borrowings(1)		$	225,726	$	224,426		$	278,989	$	259,489
Risk management contracts(2):
	Foreign exchange forwards	$	15,583	$	(49	)		—		—
	Foreign exchange options	$	39,818	$	1,429			—		—
	Interest rate swaps	$	139,000	$	(1,906	)	$	20,000	$	(371	)
	Interest rate caps	$	60,000		—		$	60,000		—

(1)

The fair value of borrowings were approximated at carrying value, except for the Senior Subordinated Notes, which were valued at 99% and 85% at December 31, 2001 and 2000, respectively, based upon quoted market prices.

(2)

The fair value of risk management contracts were based upon quotes from outside parties. Fair value amounts change with market conditions and will be substantially offset by changes in the value of the related hedged transaction. A positive fair value represents the amount the Company would receive upon exiting the contracts and a negative fair value represents the amount the Company would pay upon exiting the contracts. The Company intends to hold all contracts to maturity, at which time the fair value will be zero.

     Credit Concentrations

     The Company continually monitors its positions with, and the credit quality of, the financial institutions that are counterparties to its financial instruments, and does not anticipate nonperformance by the counterparties. The Company would not have realized a material loss as of December 31, 2001 in the event of nonperformance by any one counterparty. The Company enters into transactions only with financial institution counterparties that have a credit rating of A or better. In addition, the Company limits the amount of investment credit exposure with any one institution. See Note L hereto for information regarding trade receivable credit concentration.

NOTE O – CONDENSED CONSOLIDATING FINANCIAL INFORMATION

     The Company’s domestic subsidiaries are guarantors of the Company’s Senior Subordinated Notes. The following condensed consolidating financial information presents the results of operations, financial position and cash flows of the Company (on a stand alone basis), the guarantor subsidiaries (on a combined basis), the non-guarantor subsidiaries (on a combined basis) and the eliminations necessary to arrive at the consolidated results of the Company. The results of operations and cash flows presented below assume that the guarantor subsidiaries were in place for all periods presented. The Company and Subsidiary Guarantors have accounted for investments in their respective subsidiaries on an unconsolidated basis using the equity method of accounting. The Subsidiary Guarantors are wholly-owned subsidiaries of the Company and have fully and unconditionally guaranteed the Notes on a joint and several basis. The Notes contain certain covenants which, among other things, restrict the ability of the Subsidiary Guarantors to make distributions to Applica Incorporated. The Company has not presented separate financial statements and other disclosures concerning the Subsidiary Guarantors and non-guarantor subsidiaries because it has determined they would not be material to investors.

     Effective December 31, 1999, the Company reorganized its corporate structure whereby certain guarantor subsidiaries were either merged with Applica Consumer Products, Inc. or other guarantor subsidiaries or were dissolved and whose assets were transferred to Applica Consumer Products, Inc.

F-25

		Year Ended December 31, 2001
		Applica						Non-
		Incorporated			Guarantors			Guarantors			Eliminations			Consolidated
		(In thousands)
Statement of Operations:
Sales and other revenues		$	—		$	528,932		$	511,039		$	(312,927	)	$	727,044
Cost of goods sold			—			387,187			441,773			(312,927	)		516,033
Cost of goods sold – reposition			—			—			13,418			—			13,418
	Gross profit		—			141,745			55,848			—			197,593
Operating (income) expenses			(1,563	)		154,387			32,982			604			186,410
Repositioning charge			—			14,288			529			—			14,817
	Operating profit (loss)		1,563			(26,930	)		22,337			(604	)		(3,634	)
Other (income) expense, net			20,927			(31,642	)		19,857			11,388			20,530
	Earnings (loss) before income taxes and equity in earnings (loss) of joint ventures		(19,364	)		4,712			2,480			(11,992	)		(24,164	)
Equity in earnings (loss) of joint ventures			—			(128	)		—			—			(128	)
Income taxes (benefit)			—			(2,010	)		14,793			(8,637	)		4,146
	Net earnings (loss)	$	(19,364	)	$	6,594		$	(12,313	)	$	(3,355	)	$	(28,438	)
Balance Sheet:
Cash		$	—		$	756		$	14,987		$	—		$	15,743
Accounts and other receivables			—			119,355			62,033			—			181,388
Receivables from affiliates			(100,418	)		72,734			31,215			—			3,531
Inventories			—			62,997			40,719			—			103,716
Other current assets			—			2,309			11,458			23,775			37,542
	Total current assets		(100,418	)		258,151			160,412			23,775			341,920
Investments			425,119			113,568			70,493			(607,768	)		1,412
Property, plant and equipment, net			—			17,937			64,400			—			82,337
Intangible assets			2,260			230,809			35,975			(61,252	)		207,792
	Total assets	$	326,961		$	620,465		$	331,280		$	(645,245	)	$	633,461
Notes and acceptances payable		$	—		$	—		$	—		$	—		$	—
Accounts payable and accrued expenses			1			43,954			61,156			—			105,111
Current maturities of long-term debt			—			—			—			—			—
Deferred income, current portion			—			443			—			—			443
Income taxes payable			—			(176	)		7,312			1,106			8,242
Other current liabilities			—			—			—			—			—
	Total current liabilities		1			44,221			68,468			1,106			113,796
Long-term debt			220,709			15,963			32,779			(43,725	)		225,726
Deferred income, less current portion			—			—			—			—			—
Deferred income taxes			—			22,388			1,727			(24,115	)		—
Other long-term liabilities			—			—			—			—			—
	Total liabilities		220,710			82,572			102,974			(66,734	)		339,522
Shareholders’ equity			106,251			537,893			228,306			(578,511	)		293,939
Total liabilities and shareholders’ equity		$	326,961		$	620,465		$	331,280		$	(645,245	)	$	633,461
Cash Flow Information:
Net cash provided by (used in) operating activities		$	(21,624	)	$	57,307		$	19,902		$	32,327		$	87,912
Net cash provided by (used in) investing activities			69,943			(73,445	)		(16,219	)		(3,482	)		(23,203	)
Net cash provided by (used in) financing activities			(48,327	)		12,548			(1,199	)		(28,845	)		(65,823	)
Cash at beginning			8			4,346			12,503			—			16,857
Cash at end			—			756			14,987			—			15,743

F-26

		Year Ended December 31, 2000
		Applica						Non-
		Incorporated			Guarantors			Guarantors			Eliminations			Consolidated
		(In thousands)
Statement of Operations:
Sales and other revenue		$	—		$	559,225		$	545,596		$	(356,070	)	$	748,751
Cost of goods sold			—			403,350			466,127			(356,070	)		513,407
Cost of goods sold – repositioning			—			16,894			13,189			—			30,083
	Gross profit		—			138,981			66,280			—			205,261
Operating (income) expenses			(703	)		156,190			37,852			(2,400	)		190,939
Repositioning charge			—			3,980			—			—			3,980
	Operating profit (loss)		703			(21,189	)		28,428			2,400			10,342
Other (income) expense, net			27,367			(15,722	)		17,000			34			28,679
Loss on assets held for sale			—			3,644			—			—			3,644
	Earnings (loss) before income taxes and equity in earnings (loss) of joint ventures		(26,664	)		(9,111	)		11,428			2,366			(21,981	)
Equity in earnings (loss) of joint ventures			(777	)		—			—			—			(777	)
Income taxes (benefit)			—			(1,706	)		7,967			(7,803	)		(1,542	)
	Net earnings (loss)	$	(27,441	)	$	(7,405	)	$	3,461		$	10,169		$	(21,216	)
Balance Sheet:
Cash		$	8		$	4,346		$	12,503			—		$	16,857
Accounts and other receivables			—			129,870			56,328			—			186,198
Receivables from affiliates			(30,607	)		94			33,794			—			3,281
Inventories			—			101,458			59,362			—			160,820
Other current assets			—			9,311			14,513			9,315			33,139
	Total current assets		(30,599	)		245,079			176,500			9,315			400,295
Investments			425,251			113,123			70,493			(607,342	)		1,525
Property, plant and equipment, net			—			17,577			60,623			—			78,200
Intangible assets			—			236,123			11,546			(19,754	)		227,915
	Total assets	$	394,652		$	611,902		$	319,162		$	(617,781	)	$	707,935
Notes and acceptances payable		$	—		$	9,765		$	3,729		$	—		$	13,494
Accounts payable and accrued expenses			1			53,773			36,690			—			90,464
Current maturities of long-term debt			18,842			—			—			—			18,842
Deferred income, current portion			—			514			—			—			514
Income taxes payable			—			5,066			1,346			(6,412	)		—
Other current liabilities			—			—			—			—			—
	Total current liabilities		18,843			69,118			41,765			(6,412	)		123,314
Long-term debt			253,475			3,114			16,022			(12,464	)		260,147
Deferred income, less current portion			—			—			—			—			—
Deferred income taxes			—			8,070			2,800			(10,870	)		—
	Total liabilities		272,318			80,302			60,587			(29,746	)		383,461
Shareholders’ equity			122,334			531,600			258,575			(588,035	)		324,474
Total liabilities and shareholders’ equity		$	394,652		$	611,902		$	319,162		$	(617,781	)	$	707,935
Cash Flow Information:
Net cash provided by (used in) operating activities		$	(27,441	)	$	(715,930	)	$	(2,109	)	$	735,933		$	(9,547	)
Net cash provided by (used in) investing activities			9,832			938,810			(9,309	)		(962,357	)		(23,024	)
Net cash provided by (used in ) financing activities			17,613			(222,473	)		14,096			226,424			35,660
Cash at beginning			4			3,939			9,825			—			13,768
Cash at end			8			4,346			12,503			—			16,857

F-27

		Year Ended December 31, 1999
		Applica						Non-
		Incorporated			Guarantors			Guarantors			Eliminations			Consolidated
		(In thousands)
Statement of Operations:
Sales and other revenue		$	—		$	560,037		$	392,350		$	(234,078	)	$	718,309
Cost of goods sold			—			388,634			329,190			(233,784	)		484,040
	Gross profit		—			171,403			63,160			(294	)		234,269
Operating (income) expenses			(379	)		150,092			26,861			442			177,016
Repositioning charge			—			(1,506	)		—			—			(1,506	)
Operating profit (loss)			379			22,817			36,299			(736	)		58,759
Other (income) expense, net			25,327			(3,993	)		3,203			308			24,845
	Earnings (loss) before income taxes and equity in earnings (loss) of joint ventures		(24,948	)		26,810			33,096			(1,044	)		33,914
Equity in earnings (loss) of joint ventures			(12,894	)		(13,486	)		—			13,486			(12,894	)
Income taxes (benefit)			—			(2,535	)		7,989			(1,277	)		4,177
	Net earnings (loss)	$	(37,842	)	$	15,859		$	25,107		$	13,719		$	16,843
Balance Sheet:
Cash		$	4		$	3,939		$	9,825		$	—		$	13,768
Accounts and other receivables			—			130,350			55,112			—			185,462
Receivables from affiliates			(21,858	)		(6,317	)		31,858			(150	)		3,533
Inventories			—			107,199			58,184			(1,677	)		163,706
Other current assets			—			21,316			8,047			(5,411	)		23,952
Total current assets			(21,854	)		256,487			163,026			(7,238	)		390,421
Investments			426,334			113,051			70,557			(607,334	)		2,608
Property, plant and equipment, net			—			14,443			61,540			—			75,983
Intangible assets			—			466,429			10,781			(231,912	)		245,298
	Total assets	$	404,480		$	850,410		$	305,904		$	(846,484	)	$	714,310
Notes and acceptances payable		$	—		$	—		$	898		$	—		$	898
Accounts payable and accrued expenses			1			60,351			39,007			631			99,990
Current maturities of long-term debt			12,842			—			745			—			13,587
Deferred income, current portion			—			585			—			—			585
Income taxes payable			—			(2,180	)		6,871			(3,218	)		1,473
Other current liabilities			—			10,573			—			—			10,573
	Total current liabilities		12,843			69,329			47,521			(2,587	)		127,106
Long-term debt			244,316			226,288			8,605			(235,638	)		243,571
Deferred income, less current portion			—			236			—			—			236
Deferred income taxes			—			16,253			2,966			(19,219	)		—
	Total liabilities		257,159			312,106			59,092			(257,444	)		370,913
Shareholders’ equity			147,321			538,304			246,812			(589,040	)		343,397
	Total liabilities and shareholders’ equity	$	404,480		$	850,410		$	305,904		$	(846,484	)	$	714,310
Cash Flow Information:
Net cash provided by (used in) operating activities		$	(24,355	)	$	174,724	)	$	5,419		$	(107,742	)	$	48,046
Net cash provided by (used in) investing activities			33,940			(103,246	)		(39,954	)		75,347			(33,913	)
Net cash provided by (used in) financing activities			(9,581	)		(70,622			27,028			32,395			(20,780	)
Cash at beginning			—			3,083			17,332			—			20,415
Cash at end			4			3,939			9,825			—			13,768

F-28

SUPPLEMENTAL FINANCIAL DATA

Quarterly Financial Data (Unaudited)

     The quarterly results for the years 2001 and 2000 are set forth in the following table:

										Diluted			Basic
							Net			Earnings			Earnings
							Earnings			(Loss) Per			(Loss) Per
			Sales		Gross Profit		(Loss)			Share			Share
			(In thousands, except per share data)
2001
	First quarter		$	151,821	$	40,424	$	(6,283	)	$	(0.27	)	$	(0.27	)
	Second quarter			161,664		47,667		(2,599	)		(0.11	)		(0.11	)
	Third quarter			203,201		62,056		8,537			0.35			0.37
	Fourth quarter			210,358		47,446		(28,093	)		(1.21	)(1)		(1.21	)
		Total	$	727,044	$	197,593	$	(28,438	)	$	(1.23	)(2)	$	(1.23	)
2000
	First quarter		$	146,691	$	44,414	$	(3,029	)	$	(0.13	)	$	(0.13	)
	Second quarter			171,411		52,180		(245	)		(0.01	)		(0.01	)
	Third quarter			199,397		66,748		8,299			0.35			0.36
	Fourth quarter			231,252		41,919		(26,241	)		(1.14	)(1)		(1.14	)
		Total	$	748,751	$	205,261	$	(21,216	)	$	(0.92	)(2)	$	(0.92	)

(1)	For information regarding charges incurred for the years 2001 and 2000, see Note A – Summary of Accounting Policies to the Consolidated Financial Statements hereto.
(2)	The sum of the quarters differ from the total for 2001 by $0.01 and for 2000 by $0.01 due to exclusion of anti-dilutive effect of stock options in earnings per share calculation in periods with losses.

F-29

SCHEDULE II

Applica Incorporated and Subsidiaries

VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)

		Balance at		Purchase			Charged to		Charged to						Balance at
		Beginning of		Price			Costs and		Other						End of
Description		Period		Reserves			Expenses		Accounts			Deductions			Period
Year ended December 31, 2001
Reserves deducted from assets to which they apply:
	Allowance for possible losses on accounts receivable	$	8,049		—		$	5,564		—			(1,552	)(2)		12,061
Year ended December 31, 2000
Reserves deducted from assets to which they apply:
	Allowance for possible losses on accounts receivable	$	8,761	$	(2,293	)	$	2,671	$	253	(1)	$	(1,343	)(2)	$	8,049
Year ended December 31, 1999
Reserves deducted from assets to which they apply:
	Allowance for possible losses on accounts receivable		7,367		(1,324	)		4,228		25	(1)		(1,535	)(2)		8,761

(1)	Recoveries of amounts previously written off against the reserve.
(2)	Write-off of accounts receivable against the reserve.

F-30 EX-10.10 3 g74020ex10-10.txt EMPLOYMENT AGREEMENT W/ RAYMOND SO EXHIBIT 10.10 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is executed this 20th day of November, 2001, by and between Applica Durable Manufacturing Limited, a Hong Kong corporation (the "Company"), and Raymond So, an individual residing in Hong Kong (the "Executive"). RECITALS: A. The Executive is currently employed as the Managing Director of the Company. B. The Executive possesses intimate knowledge of the business and affairs of the Company and its subsidiaries, their policies, methods and personnel. C. The Directors of the Company (the "Board") recognize that the Executive has contributed to the growth and success of the Company and its subsidiaries, and desires to assure the Company and its subsidiaries of the Executive's continued employment and to compensate him therefor. D. The Directors have determined that this Agreement will reinforce and encourage the Executive's continued attention and dedication to the Company and its subsidiaries and affiliates. E. The Executive is willing to make his services available to the Company on the terms and conditions hereinafter set forth. AGREEMENT Therefore, in consideration of the premises, mutual covenants and agreements of the parties contained herein, and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Company and the Executive hereby agree as follows: 1. Employment. Commencing on the Closing Date, the Company shall employ the Executive and the Executive shall accept employment by the Company, upon the terms and conditions set forth in this Agreement. 2. Term. The term of employment (the "Term") of this Agreement shall begin on the date hereof and shall terminate as provided herein. Except as otherwise provided in Sections 7, 8, 9, 10, 11 and 12 below, the Term shall be for a continuous three-year period commencing on this date and running for a period such that on each "Anniversary Date" (as defined below) an additional year automatically shall be added. At any time on or up to 30 days' prior to any Anniversary Date, either party may provide written notice to the other party of that party's intention not to extend the Term of this Agreement beyond the number of years then remaining in the Term, which shall always be three. Such written notice shall be deemed the notice to terminate this Agreement at the end of the three-year term then in effect. The "Anniversary Date," as used herein, shall be the first day of the second year of the Term and the first day of each subsequent year, including each year beyond the first three years of the Term. It is the intention of the parties that the Term as of each Anniversary Date automatically shall be three years, that three years' written notice shall be required to terminate this Agreement, except as otherwise provided in Sections 7, 8, 9, 10, 11 and 12 below, and that said written notice to terminate may only be given on an Anniversary Date. 3. Duties. The Executive will have such duties as are assigned or delegated to the Executive by the Board of Directors or Chief Executive Officer of Applica Incorporated, a Florida corporation and the parent corporation of the Company ("Applica"), and will initially serve as the Managing Director of the Company. The Executive will devote his entire business time, attention, skill, and energy exclusively to the business of the Company and its subsidiaries and affiliates, will use his best efforts to promote the success of the Company and its subsidiaries, and will cooperate fully with the Directors in the advancement of the best interests of the Company and its subsidiaries, as well as Applica. 4. Compensation. During the Term, the Company shall compensate Executive as follows: (a) Salary. The Company shall pay Executive an annual salary of US $450,000 (the "Annual Base Salary"), to be distributed in equal periodic installments according to the Company's customary payroll practices. (b) Annual Bonus. The Executive shall be entitled to receive incentive compensation (the "Incentive Compensation") for each year during the Term as set forth below: (i) Performance Bonus. At the beginning of each calendar year during the Term, the Chief Executive Officer of Applica shall establish target goals for (A) (1) earnings before interest, taxes, depreciation and amortization ("EBITDA") of the Company on a consolidated basis and Applica on a consolidated basis, (2) annual inventory levels for Applica and (3) customer service and (B) the Executive's personal performance (collectively, the "Performance Goals"). The Executive shall be entitled to an annual bonus (the "Performance Bonus") based 50% on the achievement of the Performance Goal set forth in (A) above and 50% on the achievement of the Performance Goal set forth in (B) above, it being understood that a pro rata Performance Bonus may be earned by the Executive as set forth below in any year in which either Performance Goal is met. Such Performance Bonus shall be equal to a percentage of his Annual Base Salary to be determined as follows:

AGGREGATE PERCENTAGE OF BONUS AS PERCENTAGE PERFORMANCE GOALS ACHIEVED OF ANNUAL BASE SALARY -------------------------------- --------------------- 75% - 79% (Threshold Performance) 20%

2 80% - 84% 23% 85% - 89% 26% 90% - 94% 29% 95% - 99% 32% 100% - 104% (Target Performance) 35% 105% - 109% 38% 110% - 114% 41% 115% - 119% 44% 120% - 124% 47% 125% and above (Maximum Performance) 50% (ii) Cumulative Synergy Bonus. If the Company achieves $45 million in certain cumulative synergies resulting from the integration of the Household Products business into Applica (the "Cumulative Synergy Goals") on or before December 31, 2001, the Company shall establish a bonus pool in an amount equal to 30% of the aggregate Annual Base Salaries of all employees entitled to a cumulative synergy bonus. Upon the achievement of the Cumulative Synergy Goals, the Employee shall be entitled to receive a one-time cash bonus (the "Cumulative Synergy Bonus") to be paid in the first quarter of 2002, if the Employee is employed with the Company. The amount of the Cumulative Synergy Bonus shall be determined in the sole discretion of the Board (or the Compensation Committee, as applicable). (iii) Special Bonus. From time to time during the Term, as determined by the Chief Executive Officer of Applica, the Executive shall be entitled to additional bonuses to be paid in cash, stock or otherwise. 5. Expense Reimbursement and Other Benefits. (a) Reimbursement of Expenses. During the term of Executive's employment hereunder, the Company, upon the submission of proper substantiation, including copies of all relevant invoices, receipts or other evidence reasonably requested by the Company, by the Executive, shall reimburse the Executive for all reasonable expenses actually paid or incurred by the Executive in the course of and pursuant to the business of the Company, including first class or business class air travel. (b) Executive Benefits. Executive shall participate in the Company's insurance plans (collectively, the "Welfare Benefits") and executive benefits and bonuses covering the Company's senior executive officers as are now or may in the future be in effect, subject to applicable eligibility requirements. (c) Stock Options. During the Term of this Agreement, the Executive shall be eligible to be granted options to acquire shares of the Common Stock of Applica under (and therefore subject to all terms and conditions of) Applica's stock option plans as then in effect, and all rules and regulations of the United States Securities and Exchange Commission applicable to stock option plans. Such options will contain such restrictions as required by the Board of Directors of Applica or the applicable committee of such Board charged with 3 administration of the stock option plan. The number of shares of Common Stock subject to the stock options shall be adjusted for any subsequent stock splits, stock dividends or similar recapitalizations of Applica's Common Stock which results in an increase or decrease of the number of shares of outstanding Common Stock. The number of options and terms and conditions of options shall be determined in the sole discretion of the Board of Directors of Applica, or applicable committee thereof, and shall be based on several factors, including the performance of the Company and Applica. (d) Automobile. During the Term, the Company shall provide Executive with an automobile or a monthly automobile allowance. (e) Vacation. During the Term, the Executive will be entitled to four weeks' paid vacation for each year. The Executive will also be entitled to the paid holidays and other paid leave set forth in the Company's policies. 6. Restrictions. (a) Non-Competition. During the Term and for a one year period after the termination of the Term for any reason, the Executive shall not, directly or indirectly, engage in or have any interest in any sole proprietorship, partnership, corporation or business or any other person or entity (whether as an Executive, officer, director, partner, agent, security holder, creditor, consultant or otherwise) that directly or indirectly (or through any affiliated entity) engages in competition with the Company (for this purpose, any business that engages in the manufacture or distribution of products similar to those products manufactured or distributed by the Company at the time of termination of the Agreement shall be deemed to be in competition with the Company); provided that such provision shall not apply to the Executive's ownership of Common Stock of Applica or the acquisition by the Executive, solely as an investment, of securities of any issuer that is registered under Section 12(b) or 12(g) of the United States Securities Exchange Act of 1934, as amended, and that are listed or admitted for trading on any United States national securities exchange or that are quoted on Nasdaq or any similar system or automated dissemination of quotations of securities prices in common use, so long as the Executive does not control, acquire a controlling interest in or become a member of a group which exercises direct or indirect control or, more than five percent of any class of capital stock of such corporation. (b) Nondisclosure. During the Term and after the termination of the Term for any reason, the Executive shall not at any time divulge, communicate, use to the detriment of the Company or for the benefit of any other person or persons, or misuse in any way, any Confidential Information (as hereinafter defined) pertaining to the business of the Company. Any Confidential Information or data now or hereafter acquired by the Executive with respect to the business of the Company shall be deemed a valuable, special and unique asset of the Company that is received by the Executive in confidence and as a fiduciary, and Executive shall remain a fiduciary to the Company with respect to all of such information. For purposes of this Agreement, "Confidential Information" means information disclosed to the Executive or known by the Executive as a consequence of or through his employment by the Company (including 4 information conceived, originated, discovered or developed by the Executive) prior to or after the date hereof, and not generally known, about the Company or its business. Confidential Information shall include, but not be limited to, any and all: (i) trade secrets and data concerning the past, current and planned business, strategy, operations and affairs of the Company, data, know-how, compositions, processes, designs, sketches, photographs, graphs, drawings, samples, inventions and ideas, past, current, and planned research and development, customer lists, client lists, agent lists, current and anticipated customer and client requirements, price lists, commission information, market studies, business plans, computer software and programs (including object code and source code), computer software and database technologies, systems, concepts, ideas, designs, methods and information relating directly or indirectly to the Company; (ii) information concerning the past, current and planned business, strategy, operations and affairs of the Company, which includes historical financial statements, financial projections and budgets, historical and projected income, capital spending budgets and plans, the names and backgrounds of key personnel, suppliers, distributors, manufacturers, customers and clients, and any and all information (iii) notes, analysis, compilations, studies, summaries, and other material prepared by or for the Company containing or based, in whole or in part, on any information included in the foregoing. Notwithstanding the foregoing, nothing herein shall be deemed to restrict the Executive from disclosing Confidential Information to the extent required by law; provided, however, that the Executive provides prior notice of such disclosure to the Company and provides the Company with a reasonable opportunity to prevent, limit or protect such disclosure. None of the foregoing obligations and restrictions apply to any Confidential Information that the Executive demonstrates was or became generally available to the public other than as a result of disclosure by the Executive. (c) Nonsolicitation of Executives and Clients. During the Term and for a one year period after the termination of the Term for any reason, the Executive shall not, directly or indirectly, for himself or for any other person, firm, corporation, partnership, association or other entity, other than in connection with the performance of Executive's duties under this Agreement, (a) employ or attempt to employ or enter into any contractual arrangement with any Executive or former Executive of the Company, unless such Executive or former Executive has not been employed by the Company for a period in excess of six months, (b) call on or solicit any of the actual or targeted prospective clients of the Company on behalf of any person or entity in connection with any business competitive with the business of the Company, and/or (c) make known the names and addresses of such clients or any information relating in any manner to the Company's trade or business relationships with such customers (unless the Executive can 5 demonstrate that such information was or became generally available to the public other than as a result of a disclosure by the Executive). (d) Ownership of Developments. All copyrights, patents, trade secrets, or other intellectual property rights associated with any ideas, concepts, techniques, inventions, processes, or works of authorship developed or created by Executive during the course of performing work for the Company or its customers (collectively, the "Work Product") shall belong exclusively to the Company and shall, to the extent possible, be considered a work made by the Executive for hire for the Company within the meaning of Title 17 of the United States Code. To the extent the Work Product may not be considered work made by the Executive for hire for the Company, the Executive agrees to assign, and automatically assign at the time of creation of the Work Product, without any requirement of further consideration, any right, title, or interest the Executive may have in such Work Product. Upon the request of the Company, the Executive shall take such further actions, including execution and delivery of instruments of conveyance, as may be appropriate to give full and proper effect to such assignment. (e) Books and Records. All books, records, and accounts relating in any manner to the customers of the Company, whether prepared by the Executive or otherwise coming into the Executive's possession, shall be the exclusive property of the Company and shall be returned immediately to the Company on termination of the Executive's employment hereunder or on the Company's request at any time. The Executive will not remove from the Company's premises any other proprietary or confidential document, agreement, record, notebook, plan, model, component, device, or computer software or code, whether embodied in a disk or in any other form (collectively, the "Proprietary Items"). The Executive recognizes that, as between the Company and the Executive, all of the Proprietary Items, whether or not developed by the Executive, are the exclusive property of the Company. Upon termination of this Agreement by either party, or upon the request of the Company during the term of this Agreement, the Executive will promptly return to the Company all of the Proprietary Items in the Executive's possession or subject to the Executive's control, and the Executive shall not retain any copies or other physical embodiment of any of the Proprietary Items. (f) Definition of Company. Solely for purposes of this Section 6, the term "Company" shall mean Applica, along with its current direct and indirect subsidiaries, any existing or future subsidiaries of Applica that are operating during the time periods described herein and any other entities that directly or indirectly, through one or more intermediaries, control, are controlled by or are under common control with Applica during the periods described herein. (g) Acknowledgment by Executive. The Executive acknowledges and confirms that (a) the restrictive covenants contained in this Section 6 are reasonably necessary to protect the legitimate business interests of the Company, and (b) the restrictions contained in this Section 6 (including without limitation the length of the term of the provisions of this Section 6) are not overbroad, overlong, or unfair and are not the result of overreaching, duress or coercion of any kind. The Executive further acknowledges and confirms that his full, uninhibited and faithful observance of each of the covenants contained in this Section 6 will not cause him any 6 undue hardship, financial or otherwise, and that enforcement of each of the covenants contained herein will not impair his ability to obtain employment commensurate with his abilities and on terms fully acceptable to him or otherwise to obtain income required for the comfortable support of him and his family and the satisfaction of the needs of his creditors. The Executive acknowledges and confirms that his special knowledge of the business of the Company is such as would cause the Company serious injury or loss if he were to use such ability and knowledge to the benefit of a competitor or were to compete with the Company in violation of the terms of this Section 6. The Executive further acknowledges that the restrictions contained in this Section 6 are intended to be, and shall be, for the benefit of and shall be enforceable by, the Company's successors and assigns. (h) Reformation by Court. In the event that a court of competent jurisdiction shall determine that any provision of this Section 6 is invalid or more restrictive than permitted under the governing law of such jurisdiction, then only as to enforcement of this Section 6 within the jurisdiction of such court, such provision shall be interpreted and enforced as if it provided for the maximum restriction permitted under such governing law. (i) Extension of Time. If the Executive shall be in violation of any provision of this Section 6, then each time limitation set forth in this Section 6 shall be extended for a period of time equal to the period of time during which such violation or violations occur. If the Company seeks injunctive relief from such violation in any court, then the covenants set forth in this Section 6 shall be extended for a period of time equal to the pendency of such proceeding including all appeals by the Executive. (j) Survival. The provisions of this Section 6 shall survive the termination of this Agreement, as applicable. (k) Injunctive Relief. The Executive acknowledges that the injury that would be suffered by the Company as a result of a breach of any provision of this Section 6 would be irreparable and that an award of monetary damages for such a breach would be an inadequate remedy. Consequently, the Executive consents to, and the Company will have the right (in addition to any other rights it may have) to request, the issuance of a temporary restraining order or a preliminary or permanent injunction to prohibit or restrain any breach or threatened breach or otherwise to specifically enforce any provision of this Section 6, or to maintain the status quo pending the outcome of any proceeding which may be initiated. The Company will not be obligated to post bond or other security in seeking such relief. 7. Death. The Term shall terminate upon the death of Executive and be of no further force or effect. Upon such termination, the Company will pay the Executive's estate a lump sum equal to the sum of (A) the Annual Base Salary at the date of termination multiplied by the number of years remaining in the Term, and (B) the product of the sum of the Performance Bonus for the prior year multiplied by the number of years remaining in the Term. 8. Disability. If during the Term Executive is unable to perform his services, by reason of illness or incapacity, for a period of 180 consecutive days or more, the Company may, 7 at its option, upon written notice to Executive, terminate the Term and his employment hereunder. If the Term is terminated as a result of the Executive's disability, the Company will pay the Executive (A) his Annual Base Salary at the date of termination for the period remaining in the Term to be distributed in periodic installments according to the Company's customary payroll practices, and (B) a lump sum equal to the product of the sum of the Performance Bonus for the prior year multiplied by the number of years remaining in the Term, to be paid at the time of such termination. The Company shall also continue to pay the premiums for the same or substantially similar Welfare Benefits for the remainder of the Term. Notwithstanding the foregoing, if the Executive shall find other employment during the period he is receiving payments pursuant to this Section 8, then the Executive shall promptly notify the Company in writing of the date and terms of such employment and the Company shall be entitled to reduce the amount payable to the Executive pursuant to this Section 8 during the period from the commencement of such other employment by the cash compensation received and to be received by the Executive for services rendered in connection with such other employment. 9. Termination for Cause. (a) The Company shall have the right to terminate the Term and the Executive's employment hereunder for Cause (as defined below). Upon any termination pursuant to this Section 9, the Company shall pay to the Executive any unpaid Annual Base Salary through the effective date of termination specified in such notice. The Company shall have no further liability hereunder (other than for reimbursement for reasonable business expenses incurred prior to the date of termination, subject, however, to the provisions of Section 5(a)). (b) For purposes hereof, the term "Cause" shall mean: (A) the willful and continued failure by the Executive to substantially perform his duties with the Company, other than any such failure resulting from his incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance by the Executive of a notice of termination for Good Reason (as defined in section 11 hereof), after a written demand for substantial performance is delivered to the Executive by the Directors of the Company, the Board of Directors of Applica or the Chief Executive Officer of Applica, which demand specifically identifies the manner in which the Executive has not substantially performed the Executive's duties, or (B) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Company or Applica, monetarily or otherwise. For purposes of this section, no act or failure to act on the part of the Executive shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that his action or omission was in the best interest of the Company or Applica. 10. Termination Without Cause. At any time the Company shall have the right to terminate the Term and the Executive's employment hereunder by written notice to the Executive. Upon any termination pursuant to this Section 10 (that is not a termination under any of Sections 7, 8, 11 or 12), the Company shall pay to the Executive a lump sum equal to the sum of (A) the Annual Base Salary at the date of termination multiplied by the number of years remaining in the Term, and (B) the product of the sum of the Performance Bonus for the prior 8 year multiplied by the number of years remaining in the Term. The Company shall also continue to pay the premiums for the same or substantially similar Welfare Benefits and the Executive shall be entitled to the other benefits set forth in Section 5(b), (d) and (e) for the remainder of the Term. Further, any Applica stock option granted to Executive shall be exercisable immediately and the Applica stock acquired pursuant to such exercise may be sold by Executive subject to no restrictions by the Company whatsoever (other than those imposed by United States federal and state securities laws). The Company shall have no further liability hereunder (other than for reimbursement for reasonable business expenses incurred prior to the date of termination, subject, however, to the provisions of Section 5(a)). The Executive shall be entitled to receive all severance payments and benefits hereunder regardless of any future employment undertaken by the Executive as long as he is in full compliance with the terms of this Agreement. 11. Termination by Executive. (a) The Executive shall at all times have the right, upon 60 days written notice to the Company, to terminate the Term and his employment hereunder. (b) Upon any termination pursuant to this Section 11 by the Executive without Good Reason (as defined below), the Company shall pay to the Executive any unpaid Annual Base Salary through the effective date of termination specified in such notice. The Company shall have no further liability hereunder (other than for reimbursement for reasonable business expenses incurred prior to the date of termination, subject, however, to the provisions of Section 5(a)). The Executive shall be entitled to receive all severance payments and benefits hereunder regardless of any future employment undertaken by the Executive as long as he is in full compliance with the terms of this Agreement. (c) Upon any termination pursuant to this Section 11 by the Executive for Good Reason, the Company shall pay to the Executive the same amounts that would have been payable by the Company to the Executive under Section 10 of this Agreement if the Executive's employment had been terminated by the Company without Cause. The Company shall have no further liability hereunder (other than for reimbursement for reasonable business expenses incurred prior to the date of termination, subject, however, to the provisions of Section 5(a)). (d) For purposes of this Agreement, "Good Reason" shall mean (i) the assignment to the Executive of any duties inconsistent in any material respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 3 of this Agreement, or any other action by the Company which results in a material diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) the relocation of the Executive to another location more than 50 miles from his current location without his consent, or (iii) any failure by the Company to comply with any of the material provisions of Section 4 of this Agreement, other than an 9 isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive. 12. Change in Control. (a) In the event that (i) a Change in Control (as defined in paragraph (b) of this Section 12) of Applica shall occur during the Term, and (ii) prior to the earlier of the expiration of the Term and one year after the date of the Change in Control, the Term and Executive's employment with the Company is terminated by the Company without Cause, as defined in Section 9(b) (and other than pursuant to Section 7 by reason of the Executive's death or Section 8 by reason of the Executive's disability) or the Executive terminates the Term and his employment for Good Reason, as defined in Section 11(d), the Company shall (1) pay to the Executive any unpaid Annual Base Salary through the effective date of termination, (2) pay to the Executive the Incentive Compensation, if any, not yet paid to the Executive for any year prior to such termination, at such time as the Incentive Compensation otherwise would have been payable to the Executive, (3) at the time of such termination, pay to the Executive a lump sum equal to the sum of (A) the Annual Base Salary at the date of termination multiplied by the number of years remaining in the Term, and (B) the product of the sum of the Performance Bonus for the prior year multiplied by the number of years remaining in the Term. The Company shall also continue to pay the premiums for the same or substantially similar Welfare Benefits for the number of years remaining in the Term. Further, any Applica stock option granted to Executive shall be exercisable immediately and the Applica stock acquired pursuant to such exercise may be sold by Executive subject to no restrictions by the Company whatsoever (other than those imposed by United States federal and state securities laws). The Company shall have no further liability hereunder (other than for reimbursement for reasonable business expenses incurred prior to the date of termination, subject, however, to the provisions of Section 5(a)). (b) For purposes of this Agreement, the term "Change in Control" shall mean: (i) Approval by the shareholders of Applica of (x) a reorganization, merger, consolidation or other form of corporate transaction or series of transactions, in each case, with respect to which persons who were the shareholders of Applica immediately prior to such reorganization, merger or consolidation or other transaction do not, immediately thereafter, own more than 50% of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated company's then outstanding voting securities, or (y) a liquidation or dissolution of Applica or (z) the sale of all or substantially all of the assets of Applica (unless such reorganization, merger, consolidation or other corporate transaction, liquidation, dissolution or sale is subsequently abandoned); or (ii) Individuals who, as of the date hereof, constitute the Board of Directors of Applica (as of the date hereof the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors of Applica, provided that any person becoming a director subsequent to the date hereof whose election, or nomination 10 for election by Applica's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the Directors of Applica, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the United States Securities Exchange Act) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or (iii) The acquisition (other than from Applica) by any person, entity or "group", within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act (excluding, for this purpose, Applica or its subsidiaries, or any Executive benefit plan of Applica or its subsidiaries) which acquires beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act), of 20% or more of either the then outstanding shares of the Applica's Common Stock or the combined voting power of Applica's then outstanding voting securities entitled to vote generally in the election of directors. (c) The payments made pursuant to paragraph (a) above shall be in lieu of any and all compensation due to Executive for the years that would otherwise be remaining in the Term. Upon receipt of said lump sum payment, this Agreement and all rights and duties of the parties shall be terminated, except as follows. In consideration for such lump sum payment and for the right to terminate under the conditions set forth above, Executive agrees to consult with the Company and Applica (or their successors), and their officers if requested to do so for a period of at least two years from the date of such termination. However, Executive shall be required to devote only such part of his time to such services as Executive believes reasonable in Executive's sole discretion, and the time and date such services are offered shall be determined by Executive so long as that time and date is within a reasonable period of time after the request. It is expressly agreed that the Company's and Applica's rights to avail itself of the advice and consultation services of Executive shall at all times be exercised in a reasonable manner, that adequate notice shall be given to Executive in such events, and that non-compliance with any such request by Executive for good reason, including, but not limited to, ill health or prior commitments, shall not constitute a breach or violation of this Agreement. Executive agrees that, except for reimbursement of all reasonable expenses incurred by him with respect to such consultation and advisory services, payable as such consultation and advisory services are rendered, he shall not be entitled to any further compensation. It is understood that in furnishing any advisory and consulting services provided herein, Executive shall not be an Executive of the Company or Applica but shall act in the capacity of independent contractor. 13. Waivers. It is understood that either party may waive the strict performance of any covenant or agreement made herein; however, any waiver made by a party hereto must be duly made in writing in order to be considered a waiver, and the waiver of one covenant or agreement shall not be considered a waiver of any other covenant or agreement unless specifically in writing as aforementioned. 11 14. Savings Provisions. The invalidity, in whole or in part, of any covenant or restriction, or any section, subsection, sentence, clause, phrase or word, or other provisions of this Agreement, as the same may be amended from time to time shall not affect the validity of the remaining portions thereof. 15. Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of Florida without giving effect to its choice of law provision. 16. Notices. If either party desires to give notice to the other in connection with any of the terms and provisions of this Agreement, said notice must be in writing and shall be deemed given when (a) delivered by hand (with written confirmation of receipt), (b) sent by facsimile (with written confirmation of receipt), provided that a copy is mailed by registered mail, return receipt requested, or (c) when received by the addressee, if sent by a nationally recognized overnight delivery service (receipt requested), in each case addressed to the party for whom it is intended as follows (or such other addresses as either party may designated by notice to the other party): If to the Company: Applica Durable Manufacturing Limited 5980 Miami Lakes Drive Miami, Lakes, Florida 33014 Attn: David M. Friedson If to Executive: At the most recent home address of Executive on the official records of the Company 17. Default. In the event either party defaults in the performance of its obligations under this Agreement, the non-defaulting party may, after giving 30 days notice to the defaulting party to provide a reasonable opportunity to cure such default, proceed to protect its rights by suit in equity, action at law, or, where specifically provided for herein, by arbitration, to enforce performance under this Agreement or to recover damages for breach thereof, including all costs and attorneys' fees, whether settled out of court, arbitrated, or tried (at both trial and appellate levels). 18. No Third Party Beneficiary. Nothing expressed or implied in this Agreement is intended, or shall be construed, to confer upon or give any person other than the Company, the parties hereto and their respective heirs, personal representatives, legal representatives, successors and assigns, any rights or remedies under or by reason of this Agreement. 19. Waiver of Jury Trial. ALL PARTIES KNOWINGLY WAIVE THEIR RIGHTS TO REQUEST A TRIAL BY JURY IN ANY LITIGATION IN ANY COURT OF LAW, TRIBUNAL OR LEGAL PROCEEDING INVOLVING THE PARTIES HERETO OR ANY DISPUTES ARISING OUT OF OR RELATED TO THIS AGREEMENT. [Signatures on following page.] 12 IN WITNESS WHEREOF, the Company, by its appropriate officer, signed this Agreement and Executive have signed this Agreement, as of the day and year first above written. APPLICA DURABLE MANUFACTURING LIMITED By: /s/ Harry D. Schulman --------------------- Name: Harry D. Schulman Its: Director EXECUTIVE /s/ Raymond So ---------------------- Raymond So 13 EX-10.18 4 g74020ex10-18.txt CREDIT AGREEMENT Exhibit 10.18 CREDIT AGREEMENT Dated as of December 28, 2001 Among THE FINANCIAL INSTITUTIONS NAMED HEREIN as the Lenders and BANK OF AMERICA, N.A. as the Agent and APPLICA INCORPORATED as the Borrower and ITS SUBSIDIARIES PARTY HERETO as Guarantors TABLE OF CONTENTS

Article Page - ------- ---- ARTICLE 1 LOANS AND LETTERS OF CREDIT........................................ 1 1.1 Total Facility................................................... 1 1.2 Revolving Loans.................................................. 2 1.3 Reserved......................................................... 5 1.4 Letters of Credit................................................ 5 1.5 Bank Products.................................................... 9 ARTICLE 2 INTEREST AND FEES.................................................. 9 2.1 Interest......................................................... 9 2.2 Continuation and Conversion Elections............................ 10 2.3 Maximum Interest Rate............................................ 11 2.4 Closing Fee and Arrangement Fee.................................. 11 2.5 Unused Line Fee.................................................. 11 2.6 Letter of Credit Fee............................................. 12 ARTICLE 3 PAYMENTS AND PREPAYMENTS........................................... 12 3.1 Revolving Loans.................................................. 12 3.2 Termination of Facility.......................................... 13 3.3 Optional Commitment Reductions................................... 13 3.4 Payments from Distributions or Loans from Subsidiaries........... 14 3.5 Payments from Asset Dispositions................................. 14 3.6 LIBOR Rate Loan Prepayments...................................... 14 3.7 Payments by the Borrower......................................... 14 3.8 Payments as Revolving Loans...................................... 15 3.9 Apportionment, Application and Reversal of Payments.............. 15 3.10 Indemnity for Returned Payments.................................. 16 3.11 Agent's and Lenders' Books and Records; Monthly Statements....... 16 ARTICLE 4 TAXES, YIELD PROTECTION AND ILLEGALITY............................. 16 4.1 Taxes............................................................ 16 4.2 Illegality....................................................... 18 4.3 Increased Costs and Reduction of Return.......................... 18 4.4 Funding Losses................................................... 19 4.5 Inability to Determine Rates..................................... 20 4.6 Certificates of Agent............................................ 20 4.7 Obligation to Mitigate........................................... 20 4.8 Survival......................................................... 21 ARTICLE 5 BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES.................. 21 5.1 Books and Records................................................ 21

i 5.2 Financial Information............................................ 21 5.3 Notices to the Lenders........................................... 25 5.4 Revisions or Updates to Schedules................................ 27 ARTICLE 6 GENERAL WARRANTIES AND REPRESENTATIONS............................. 28 6.1 Authorization, Validity, and Enforceability of this Agreement and the Loan Documents................................. 28 6.2 Validity and Priority of Security Interest....................... 28 6.3 Organization and Qualification................................... 28 6.4 [Reserved]....................................................... 29 6.5 Subsidiaries..................................................... 29 6.6 Financial Statements and Projections............................. 29 6.7 [Reserved]....................................................... 29 6.8 Solvency......................................................... 29 6.9 Debt............................................................. 30 6.10 Distributions.................................................... 30 6.11 Real Estate; Leases.............................................. 30 6.12 Proprietary Rights............................................... 30 6.13 Trade Names...................................................... 30 6.14 Litigation....................................................... 30 6.15 Labor Disputes................................................... 31 6.16 Environmental Laws............................................... 31 6.17 No Violation of Law.............................................. 32 6.18 No Default....................................................... 32 6.19 ERISA Compliance................................................. 32 6.20 Taxes............................................................ 33 6.21 Regulated Entities............................................... 33 6.22 Margin Regulations............................................... 33 6.23 Copyrights, Patents, Trademarks and Licenses, etc................ 33 6.24 Material Agreements.............................................. 34 6.25 Bank Accounts.................................................... 34 6.26 Governmental Authorization....................................... 34 6.27 Investment Property.............................................. 34 6.28 No Material Adverse Change....................................... 34 6.29 Full Disclosure.................................................. 35 6.30 Common Enterprise................................................ 35 ARTICLE 7 AFFIRMATIVE AND NEGATIVE COVENANTS................................. 35 7.1 Taxes and Other Obligations...................................... 35 7.2 Legal Existence and Good Standing................................ 36 7.3 Compliance with Law and Agreements; Maintenance of Licenses...... 36 7.4 Maintenance of Property; Inspection of Property.................. 36 7.5 Insurance........................................................ 37 7.6 Insurance and Condemnation Proceeds.............................. 37 7.7 Environmental Laws............................................... 38 ii 7.8 Compliance with ERISA............................................ 39 7.9 Mergers, Consolidations or Sales................................. 40 7.10 Distributions; Capital Change; Restricted Investments............ 40 7.11 Reserved......................................................... 40 7.12 Third Party Guaranties........................................... 41 7.13 Debt............................................................. 41 7.14 Prepayment....................................................... 41 7.15 Transactions with Affiliates..................................... 41 7.16 [Reserved]....................................................... 42 7.17 [Reserved]....................................................... 42 7.18 Loan Party Guaranties............................................ 42 7.19 [Reserved]....................................................... 42 7.20 Investment Banking and Finder's Fees............................. 42 7.21 Business Conducted............................................... 42 7.22 Liens............................................................ 42 7.23 Sale and Leaseback Transactions.................................. 43 7.24 New Subsidiaries................................................. 43 7.25 Fiscal Year...................................................... 43 7.26 Capital Expenditures............................................. 44 7.27 Minimum EBITDA................................................... 44 7.28 Minimum Availability............................................. 44 7.29 Use of Proceeds.................................................. 45 7.30 Changes to Senior Subordinated Debt Offering Documents........... 45 7.31 Closure of Bank Accounts......................................... 45 7.32 Intercompany Security Interest................................... 46 7.33 Applica Canada Blocked Account................................... 46 7.34 Further Assurances............................................... 46 ARTICLE 8 CONDITIONS OF LENDING.............................................. 46 8.1 Conditions Precedent to Making of Loans on the Closing Date...... 46 8.2 Conditions Precedent to Each Loan................................ 51 ARTICLE 9 DEFAULT; REMEDIES.................................................. 52 9.1 Events of Default................................................ 52 9.2 Remedies......................................................... 55 ARTICLE 10 TERM AND TERMINATION.............................................. 55 10.1 Term and Termination............................................. 55 ARTICLE 11 AMENDMENTS; WAIVERs; PARTICIPATIONS; ASSIGNMENTS; SUCCESSORS...... 56 11.1 Amendments and Waivers........................................... 56 11.2 Assignments; Participations...................................... 57 iii ARTICLE 12 THE AGENT......................................................... 60 12.1 Appointment and Authorization.................................... 60 12.2 Delegation of Duties............................................. 60 12.3 Liability of Agent............................................... 60 12.4 Reliance by Agent................................................ 61 12.5 Notice of Default................................................ 61 12.6 Credit Decision.................................................. 61 12.7 Indemnification.................................................. 62 12.8 Agent in Individual Capacity..................................... 62 12.9 Successor Agent.................................................. 63 12.10 Withholding Tax.................................................. 63 12.11 Collateral Matters............................................... 65 12.12 Restrictions on Actions by Lenders; Sharing of Payments.......... 66 12.13 Agency for Perfection............................................ 67 12.14 Payments by Agent to Lenders..................................... 67 12.15 Settlement....................................................... 67 12.16 Letters of Credit; Intra-Lender Issues........................... 71 12.17 Concerning the Collateral and the Related Loan Documents......... 73 12.18 Field Audit and Examination Reports; Disclaimer by Lenders....... 73 12.19 Relation Among Lenders........................................... 74 ARTICLE 13 MISCELLANEOUS..................................................... 74 13.1 No Waivers; Cumulative Remedies.................................. 74 13.2 Severability..................................................... 74 13.3 Governing Law; Choice of Forum; Service of Process............... 75 13.4 WAIVER OF JURY TRIAL............................................. 76 13.5 Survival of Representations and Warranties....................... 76 13.6 Other Security and Guaranties.................................... 76 13.7 Fees and Expenses................................................ 76 13.8 Notices.......................................................... 77 13.9 Waiver of Notices................................................ 78 13.10 Binding Effect................................................... 78 13.11 Indemnity of the Agent and the Lenders by the Borrower........... 78 13.12 [Reserved]....................................................... 79 13.13 Final Agreement.................................................. 79 13.14 Counterparts..................................................... 80 13.15 Captions......................................................... 80 13.16 Right of Setoff.................................................. 80 13.17 Confidentiality.................................................. 80 13.18 Conflicts with Other Loan Documents.............................. 82 13.19 Agency of the Borrower for Each Other Loan Party................. 82 13.20 Express Waivers By Loan Parties In Respect of Cross Guaranties and Cross Collateralization........................... 82 13.21 Judgment Currency................................................ 84 iv ANNEXES, EXHIBITS AND SCHEDULES ANNEX A - DEFINED TERMS EXHIBIT A - [Reserved] EXHIBIT B - BORROWING BASE CERTIFICATE EXHIBIT C - FINANCIAL STATEMENTS EXHIBIT D - NOTICE OF BORROWING EXHIBIT E - NOTICE OF CONTINUATION/CONVERSION EXHIBIT F - ASSIGNMENT AND ACCEPTANCE AGREEMENT EXHIBIT G - COLLATERAL ACCESS AGREEMENT EXHIBIT H - VENDOR LETTER SCHEDULE 1.1 - ASSIGNMENT AND ACCEPTANCE SCHEDULE 1.2 - COMMITMENTS SCHEDULE 6.3 - ORGANIZATION AND QUALIFICATIONS SCHEDULE 6.5 - SUBSIDIARIES AND AFFILIATES SCHEDULE 6.9 - DEBT SCHEDULE 6.11 - REAL ESTATE; LEASES SCHEDULE 6.12 - PROPRIETARY RIGHTS SCHEDULE 6.13 - TRADE NAMES SCHEDULE 6.14 - LITIGATION SCHEDULE 6.15 - LABOR DISPUTES SCHEDULE 6.16 - ENVIRONMENTAL LAW SCHEDULE 6.19 - ERISA COMPLIANCE SCHEDULE 6.24 - MATERIAL AGREEMENTS SCHEDULE 6.25 - BANK ACCOUNTS v SCHEDULE 6.27 - INVESTMENT PROPERTY SCHEDULE A-1 - PERMITTED LIENS SCHEDULE A-2 - RESTRICTED INVESTMENTS vi CREDIT AGREEMENT This Credit Agreement, dated as of December 28, 2001, (this "Agreement") among the financial institutions from time to time parties hereto (such financial institutions, together with their respective successors and assigns, are referred to hereinafter each individually as a "Lender" and collectively as the "Lenders"), BANK OF AMERICA, N.A. with an office at 600 Peachtree Street, Atlanta, Georgia 30308, as agent for the Lenders (in its capacity as agent, the "Agent"), and APPLICA INCORPORATED, a Florida corporation, and each of its Subsidiaries party hereto. W I T N E S S E T H: WHEREAS, the Loan Parties have requested the Lenders to make available to the Borrower a revolving line of credit for loans and letters of credit in an amount not to exceed $205,000,000, and which extensions of credit the Borrower will use for the purposes permitted by Section 7.29; WHEREAS, the Borrower, Agent, Bank and certain other financial institutions have entered into that certain Amended and Restated Credit Agreement dated as of August 7, 1998 (as theretofore amended, supplemented or restated from time to time, the "Original Credit Agreement"); and WHEREAS, the Lenders have agreed to make available to the Borrower a revolving credit facility upon the terms and conditions set forth in this Agreement; and WHEREAS, capitalized terms used in this Agreement and not otherwise defined herein shall have the meanings ascribed thereto in Annex A which is attached hereto and incorporated herein. The rules of construction contained in Annex A shall govern the interpretation of this Agreement, and all Annexes, Exhibits and Schedules attached hereto are incorporated herein by reference; NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth in this Agreement, and for good and valuable consideration, the receipt of which is hereby acknowledged, the Lenders, the Agent and the Loan Parties hereby agree as follows; ARTICLE 1 LOANS AND LETTERS OF CREDIT 1.1 Total Facility. Subject to all of the terms and conditions of this Agreement, the Lenders agree to make available a total credit facility of up to $205,000,000 (the "Total Facility") to the Borrower from time to time during the term of this Agreement. The Total Facility shall be composed of a revolving line of credit consisting of Revolving Loans and Letters of Credit and Credit Support as described in Section 1.2 and Section 1.4. 1.2 Revolving Loans. (a) Amounts. Subject to the satisfaction of the conditions precedent set forth in Article 8, each Lender severally, but not jointly, agrees, upon the Borrower's request from time to time on any Business Day during the period from and including the Closing Date to the Termination Date, to make revolving loans (the "Revolving Loans") to the Borrower in amounts not to exceed such Lender's Pro Rata Share of Availability, except for Non-Ratable Loans and Agent Advances. The Lenders, however, in their unanimous discretion, may elect to make Revolving Loans or issue or arrange to have issued Letters of Credit in excess of the Borrowing Base on one or more occasions, but if they do so, neither the Agent nor the Lenders shall be deemed thereby to have changed the limits of the Borrowing Base or to be obligated to exceed such limits on any other occasion. If any Borrowing would exceed Availability, the Lenders may refuse to make or may otherwise restrict the making of Revolving Loans as the Lenders determine until such excess has been eliminated, subject to the Agent's authority, in its sole discretion, to make Agent Advances pursuant to the terms of Section 1.2(i). (b) Procedure for Borrowing. (1) Each Borrowing shall be made upon the Borrower's irrevocable written notice or by facsimile transmission delivered to the Agent in the form of a notice of borrowing ("Notice of Borrowing"), which must be received by the Agent prior to (i) 12:00 noon (Atlanta, Georgia time) three Business Days prior to the requested Funding Date, in the case of LIBOR Rate Loans and (ii) 11:00 a.m. (Atlanta, Georgia time) on the requested Funding Date, in the case of Base Rate Loans, specifying: (A) the amount of the Borrowing, which in the case of a LIBOR Rate Loan must equal or exceed $2,500,000 (and increments of $500,000 in excess of such amount); (B) the requested Funding Date, which must be a Business Day; (C) whether the Revolving Loans requested are to be Base Rate Revolving Loans or LIBOR Revolving Loans (and if not specified, it shall be deemed a request for a Base Rate Revolving Loan); and (D) the duration of the Interest Period for LIBOR Revolving Loans (and if not specified, it shall be deemed a request for an Interest Period of one month); and 2 (E) whether the proceeds of such Borrowing are to be deposited to a Designated Account or sent by wire transfer to a third party, in which case the Borrower shall provide the Agent with wire transfer instructions satisfactory to the Agent; provided, however, that with respect to the Borrowing to be made on the Closing Date, such Borrowings will consist of Base Rate Revolving Loans only. (2) In lieu of delivering a Notice of Borrowing, (I) a Responsible Officer may give Agent telephonic notice of such request for advances to a Designated Account on or before the deadline set forth in clause (i) above and the Agent at all times shall be entitled to rely on such telephonic notice in making such Revolving Loans, regardless of whether any written confirmation is received, or (II) whenever a presentment or request for payment is made against a Designated Account in an amount greater than the then available balance therein, such presentment or request shall be deemed to be a request for a Base Rate Revolving Loan on the date of such presentment in an amount equal to the excess of such check or other presented payment item over the available balance therein. (3) The Borrower shall have no right to request a LIBOR Rate Loan while a Default or Event of Default has occurred and is continuing. (c) Reliance upon Authority. Prior to the Closing Date, the Borrower shall deliver to the Agent a notice setting forth an account ("Designated Account") to which the Agent is authorized by the Borrower to transfer the proceeds of the Revolving Loans requested hereunder. The Borrower may designate a replacement account from time to time by written notice. All such Designated Accounts must be reasonably satisfactory to the Agent. The Agent is entitled to rely conclusively on any individual's request for Revolving Loans on behalf of the Borrower, so long as the proceeds thereof are to be transferred to a Designated Account. The Agent has no duty to verify the identity of any individual representing himself or herself as a person authorized by the Borrower to make such requests on its behalf. (d) No Liability. The Agent shall not incur any liability to the Loan Parties as a result of acting upon any notice referred to in Sections 1.2(b) and (c), which the Agent believes in good faith to have been given by an officer or other person duly authorized by the Borrower to request Revolving Loans on its behalf. The crediting of Revolving Loans to a Designated Account or to such Persons as the Borrower may direct pursuant to Section 1.2(b)(E) shall conclusively establish the obligation of the Borrower to repay such Revolving Loans as provided herein. (e) Notice Irrevocable. Any Notice of Borrowing (or telephonic notice in lieu thereof) made pursuant to Section 1.2(b) shall be irrevocable and the Borrower shall be bound to borrow the funds requested therein in accordance therewith. (f) Agent's Election. Promptly after receipt of a Notice of Borrowing (or telephonic notice in lieu thereof), the Agent shall elect to have the terms of 3 Section 1.2(g) or the terms of Section 1.2(h) apply to such requested Borrowing. If the Bank declines in its sole discretion to make a Non-Ratable Loan pursuant to Section 1.2(h), the terms of Section 1.2(g) shall apply to the requested Borrowing. (g) Making of Revolving Loans. If Agent elects to have the terms of this Section 1.2(g) apply to a requested Borrowing, then promptly after receipt of a Notice of Borrowing or telephonic notice in lieu thereof, the Agent shall notify the Lenders by telecopy, telephone or e-mail of the requested Borrowing. Each Lender shall transfer its Pro Rata Share of the requested Borrowing available to the Agent in immediately available funds, to the account from time to time designated by Agent, not later than 2:00 p.m. (Atlanta, Georgia time) on the applicable Funding Date. After the Agent's receipt of all proceeds of such Revolving Loans, the Agent shall make the proceeds of such Revolving Loans available to the Borrower on the applicable Funding Date by transferring same day funds to the account designated by the Borrower; provided, however, that except as may otherwise be provided by this Agreement, the amount of Revolving Loans so made on any date shall not exceed the Availability on such date. (h) Making of Non-Ratable Loans. If Agent elects, with the consent of the Bank, to have the terms of this Section 1.2(h) apply to a requested Borrowing, the Bank shall make a Revolving Loan in the amount of that Borrowing available to the Borrower on the applicable Funding Date by transferring same day funds to Borrowers' Designated Account. Each Revolving Loan made solely by the Bank pursuant to this Section is herein referred to as a "Non-Ratable Loan", and such Revolving Loans are collectively referred to as the "Non-Ratable Loans." Each Non-Ratable Loan shall be subject to all the terms and conditions applicable to other Revolving Loans except that all payments thereon shall be payable to the Bank solely for its own account. The aggregate amount of Non-Ratable Loans outstanding at any time shall not exceed $15,000,000. The Agent shall not request the Bank to make any Non-Ratable Loan if (1) the Agent has received written notice from any Lender that one or more of the applicable conditions precedent set forth in Article 8 will not be satisfied on the requested Funding Date for the applicable Borrowing, or (2) the requested Borrowing would exceed Availability on that Funding Date. The Non-Ratable Loans shall be secured by the Agent's Liens in and to the Collateral and shall constitute LIBOR Rate Loans hereunder to the extent the Borrower is then entitled to additional Borrowings as LIBOR Rate Loans, and any amounts in excess thereof shall constitute Base Rate Revolving Loans hereunder. (i) Agent Advances. Subject to the limitations set forth below, the Agent is authorized by the Borrower and the Lenders, from time to time in the Agent's sole discretion, (A) after the occurrence of a Default or an Event of Default, or (B) at any time that any of the other conditions precedent set forth in Article 8 have not been satisfied, to make Base Rate Revolving Loans to the Borrower on behalf of the Lenders in an aggregate amount outstanding at any time not to exceed 5% of the Borrowing Base (but not to exceed in the aggregate, with all of the Revolving Loans outstanding, the Maximum Revolver Amount) for 4 a period not to exceed thirty (30) continuous days, which Agent, in its reasonable business judgment, deems necessary or desirable (1) to preserve or protect the Collateral, or any portion thereof, (2) to enhance the likelihood of, or maximize the amount of, repayment of the Loans and other Obligations, or (3) to pay any other amount chargeable to the Borrower pursuant to the terms of this Agreement, including costs, fees and expenses as described in Section 13.7 (any of such advances are herein referred to as "Agent Advances"); provided, that the Required Lenders may at any time revoke the Agent's authorization to make Agent Advances. Any such revocation must be in writing and shall become effective prospectively upon the Agent's receipt thereof. The Agent Advances shall be secured by the Agent's Liens in and to the Collateral and shall constitute Base Rate Revolving Loans and Obligations hereunder. 1.3 Reserved. 1.4 Letters of Credit. (a) Agreement to Issue or Cause To Issue. Subject to the terms and conditions of this Agreement, the Agent agrees, upon the request from time to time of the Borrower, in accordance with Section 1.4(d), for the issuance of a Letter of Credit for the account of the Borrower or another Loan Party as directed by the Borrower in writing, (i) to cause the Letter of Credit Issuer to issue for the account of the Borrower one or more commercial/documentary and/or standby letters of credit (each a "Letter of Credit") and/or (ii) to provide credit support or other enhancement to a Letter of Credit Issuer acceptable to the Letter of Credit Issuer which issues a Letter of Credit for the account of the Borrower (any such credit support or enhancement being herein referred to as a "Credit Support") from time to time during the term of this Agreement. (b) Amounts; Outside Expiration Date. The Agent shall not have any obligation to issue or cause to be issued any Letter of Credit or to provide Credit Support for any Letter of Credit at any time if: (i) the maximum face amount of the requested Letter of Credit is greater than the Unused Letter of Credit Subfacility at such time; (ii) the maximum undrawn amount of the requested Letter of Credit and all commissions, fees, and charges due from the Borrower in connection with the opening thereof would exceed Availability at such time; or (iii) such Letter of Credit has an expiration date less than 15 days prior to the Stated Termination Date or more than 12 months from the date of issuance for standby letters of credit or more than 6 months from the date of issuance for documentary letters of credit. With respect to any Letter of Credit which contains any "evergreen" or automatic renewal provision, each Lender shall be deemed to have consented to any such extension or renewal unless any such Lender shall have provided to the Agent, written notice that it declines to consent to any such extension or renewal at least thirty (30) days prior to the date on which the Letter of Credit Issuer is entitled to decline to extend or renew the Letter of Credit. If all of the requirements of this Section 1.4 are met and no Default or Event of Default 5 has occurred and is continuing, no Lender shall decline to consent to any such extension or renewal. (c) Other Conditions. In addition to conditions precedent contained in Article 8, the obligation of the Agent to issue or to cause to be issued any Letter of Credit or to provide Credit Support for any Letter of Credit is subject to the following conditions precedent having been satisfied in a manner reasonably satisfactory to the Agent: (1) the Borrower shall have delivered to the Letter of Credit Issuer, at such times and in such manner as such Letter of Credit Issuer may prescribe, an application in form and substance satisfactory to such Letter of Credit Issuer and reasonably satisfactory to the Agent for the issuance of the Letter of Credit and such other documents as may be required pursuant to the terms thereof, and the form, terms and purpose of the proposed Letter of Credit shall be reasonably satisfactory to the Agent and the Letter of Credit Issuer; and (2) as of the date of issuance, no order of any court, arbitrator or Governmental Authority shall purport by its terms to enjoin or restrain money center banks generally from issuing letters of credit of the type and in the amount of the proposed Letter of Credit, and no law, rule or regulation applicable to money center banks generally and no request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over money center banks generally shall prohibit, or request that the proposed Letter of Credit Issuer refrain from, the issuance of letters of credit generally or the issuance of such Letters of Credit. (d) Issuance of Letters of Credit. (1) Request for Issuance. The Borrower shall notify Agent by telephonic facsimile or electronic notice (via the Bank's "Bank Window" system) of a requested Letter of Credit at least three (3) Business Days prior to the proposed issuance date. Such notice shall be irrevocable and must specify the original face amount of the Letter of Credit requested, the Business Day of issuance of such requested Letter of Credit, whether such Letter of Credit may be drawn in a single or in partial draws, the Business Day on which the requested Letter of Credit is to expire, the purpose for which such Letter of Credit is to be issued, and the beneficiary of the requested Letter of Credit. The Borrower shall attach to such notice the proposed form of the Letter of Credit. (2) Responsibilities of the Agent; Issuance. As of the Business Day immediately preceding the requested issuance date of the Letter of Credit, the Agent shall determine the amount of the applicable Unused Letter of Credit Subfacility and Availability. If (i) the face amount of the requested Letter of Credit is less than the Unused Letter of Credit Subfacility and (ii) the amount of such requested Letter of Credit and all commissions, fees, and charges due from the Borrower in connection with the opening thereof would not exceed Availability, the Agent shall cause the Letter of Credit Issuer to issue the requested Letter of Credit on the requested issuance date so long as the other conditions hereof are met. 6 (3) No Extensions or Amendment. Other than in accordance with the last two sentences of Section 1.4(b) hereof, Agent shall not be obligated to cause the Letter of Credit Issuer to extend or amend any Letter of Credit issued pursuant hereto unless the requirements of this Section 1.4 are met as though a new Letter of Credit were being requested and issued. (e) Payments Pursuant to Letters of Credit. The Borrower agrees to reimburse immediately the Letter of Credit Issuer for any draw under any Letter of Credit and the Agent for the account of the Lenders upon any payment pursuant to any Credit Support, in each case in accordance with its respective terms, and to pay the Letter of Credit Issuer the amount of all other charges and fees payable to the Letter of Credit Issuer in connection with any Letter of Credit immediately when due, irrespective of any claim, setoff, defense or other right which the Borrower may have at any time against the Letter of Credit Issuer or any other Person. Each drawing under any Letter of Credit shall constitute a request by the Borrower at whose request such Letter of Credit or Credit Support was issued for a Borrowing of a Base Rate Revolving Loan in the amount of such drawing. The Funding Date with respect to such borrowing shall be the date of such drawing. (f) Indemnification; Exoneration; Power of Attorney. (1) Indemnification. In addition to amounts payable as elsewhere provided in this Section 1.4, each Loan Party agrees to protect, indemnify, pay and save the Lenders and the Agent harmless from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable attorneys' fees) which any Lender or the Agent (other than a Lender in its capacity as Letter of Credit Issuer) may incur or be subject to as a consequence, direct or indirect, of the issuance of any Letter of Credit or the provision of any Credit Support or enhancement in connection therewith. The Loan Parties' obligations under this Section shall survive payment of all other Obligations. (2) Assumption of Risk by the Borrower. As among the Borrower, the Lenders, and Agent (excluding any Lender in its capacity as a Letter of Credit Issuer), the Borrower assumes all risks of the acts and omissions of, or misuse of any of the Letters of Credit by, the respective beneficiaries of such Letters of Credit. In furtherance and not in limitation of the foregoing, the Lenders and the Agent (excluding any Lender in its capacity as a Letter of Credit Issuer) shall not be responsible for: (A) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any Person in connection with the application for and issuance of and presentation of drafts with respect to any of the Letters of Credit, even if it should prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (B) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (C) the failure of the beneficiary of any Letter of Credit to comply duly with conditions required in order to draw upon such Letter of Credit; (D) errors, omissions, interruptions, or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (E) errors in interpretation of technical 7 terms; (F) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any Letter of Credit or of the proceeds thereof; (G) the misapplication by the beneficiary of any Letter of Credit of the proceeds of any drawing under such Letter of Credit; (H) any consequences arising from causes beyond the control of the Lenders or the Agent, including any act or omission, whether rightful or wrongful, of any present or future de jure or de facto Governmental Authority or (I) the Letter of Credit Issuer's honor of a draw for which the draw or any certificate fails to comply in any respect with the terms of the Letter of Credit. None of the foregoing shall affect, impair or prevent the vesting of any rights or powers of the Agent or any Lender under this Section 1.4(f). (3) Exoneration. Without limiting the foregoing, no action or omission whatsoever by Agent or any Lender (excluding any Lender in its capacity as a Letter of Credit Issuer) shall result in any liability of Agent or and Lender to any Loan Party, or relieve such Loan Party of any of its obligations hereunder to any such Person. (4) Rights Against Letter of Credit Issuer. Nothing contained in this Agreement is intended to limit the Borrower's rights, if any, with respect to the Letter of Credit Issuer which arise as a result of the letter of credit application and related documents executed by and between the Borrower and the Letter of Credit Issuer. (5) Account Party. The Borrower hereby authorizes and directs any Letter of Credit Issuer to name any Loan Party as the "Account Party" therein and to deliver to the Agent all instruments, documents and other writings and property received by the Letter of Credit Issuer pursuant to the Letter of Credit, and to accept and rely upon the Agent's instructions and agreements with respect to all matters arising in connection with the Letter of Credit or the application therefor. (g) Supporting Letter of Credit; Cash Collateral. If, notwithstanding the provisions of Section 1.4(b) and Section 10.1, any Letter of Credit or Credit Support is outstanding upon the termination of this Agreement, then upon such termination the Borrower shall deposit with the Agent, for the ratable benefit of the Agent and the Lenders, with respect to each Letter of Credit or Credit Support then outstanding, a standby letter of credit (a "Supporting Letter of Credit") in form and substance reasonably satisfactory to Agent, issued by an issuer satisfactory to the Agent in an amount equal to the greatest amount for which such Letter of Credit or such Credit Support may be drawn plus any fees and expenses associated with such Letter of Credit or such Credit Support, under which Supporting Letter of Credit the Agent is entitled to draw amounts necessary to reimburse the Agent and the Lenders for payments to be made by the Agent and the Lenders under such Letter of Credit or Credit Support and any fees and expenses associated with such Letter of Credit or Credit Support. Such Supporting Letter of Credit shall be held by the Agent, for the ratable benefit of the Agent and the Lenders, as security for, and to provide for the payment of, the aggregate undrawn amount of such Letters of Credit or such Credit Support remaining outstanding. 8 1.5 Bank Products. The Loan Parties may request and the Agent may, in its sole and absolute discretion, arrange for any Consolidated Member to obtain from the Bank or any Lender or its Affiliates Bank Products although the Loan Parties are not required to do so. If Bank Products are provided by the Bank or an Affiliate of the Bank or a Lender, the Loan Parties agree to indemnify and hold the Agent and the Lenders harmless from any and all costs and obligations now or hereafter incurred by the Agent or any of the Lenders which arise from any indemnity given by the Agent to its Affiliates or the Affiliates of such Lender related to such Bank Products; provided, however, nothing contained herein is intended to limit a Consolidated Member's rights, with respect to the Bank, a Lender or their respective Affiliates, if any, which arise as a result of the execution of documents by and between a Consolidated Member and the Bank or such Lender or their Affiliates which relate to Bank Products. The agreement contained in this Section shall survive termination of this Agreement. Each Loan Party acknowledges and agrees that the obtaining of Bank Products from the Bank or a Lender or its Affiliates (a) is in the sole and absolute discretion of the Bank, such Lender or their Affiliates, and (b) is subject to all rules and regulations of the Bank, such Lender or their Affiliates. ARTICLE 2 INTEREST AND FEES 2.1 Interest. (a) Interest Rates. All outstanding Revolving Loans shall bear interest on the unpaid principal amount thereof (including, to the extent permitted by law, on interest thereon not paid when due) from the date made until paid in full in cash at a rate determined by reference to the Base Rate or the LIBOR Rate plus the Applicable Margins, but not to exceed the Maximum Rate. Any of the Loans may be converted into, or continued as LIBOR Rate Loans, subject to and in the manner provided in Section 2.2. If at any time Loans are outstanding with respect to which the Borrower has not delivered to the Agent a notice specifying the basis for determining the interest rate applicable thereto in accordance herewith, those Loans shall bear interest at a rate determined by reference to the Base Rate until notice to the contrary has been given to the Agent in accordance with this Agreement and such notice has become effective. Except as otherwise provided herein, the outstanding Obligations shall bear interest as follows: (i) For all Base Rate Revolving Loans at a fluctuating per annum rate equal to the Base Rate plus the Applicable Margin; and (ii) For all LIBOR Revolving Loans at a per annum rate equal to the LIBOR Rate plus the Applicable Margin. Each change in the Base Rate shall be reflected in the interest rate applicable to Base Rate Loans as of the effective date of such change. All interest charges shall be computed on the basis of a year of 360 days and actual days elapsed (which results in more interest being paid than if computed on the basis of a 365-day year). The Borrower shall pay to the Agent, for the ratable 9 benefit of Lenders, interest accrued on all Base Rate Loans in arrears on the first day of each month hereafter and on the Termination Date. The Borrower shall pay to the Agent, for the ratable benefit of Lenders, interest on all LIBOR Rate Loans in arrears on each LIBOR Interest Payment Date. (b) Default Rate. If an Event of Default occurs and is continuing and the Agent or the Required Lenders in their discretion so elect, then, while any such Event of Default is continuing, all of the Obligations shall bear interest at the Default Rate applicable thereto. 2.2 Continuation and Conversion Elections. (a) The Borrower may: (i) elect, as of any Business Day, in the case of Base Rate Loans to convert any Base Rate Loans (or any part thereof in an amount not less than $2,500,000, or that is in an integral multiple of $500,000 in excess thereof) into LIBOR Rate Loans; or (ii) elect, as of the last day of the applicable Interest Period, to continue any LIBOR Rate Loans having Interest Periods expiring on such day (or any part thereof in an amount not less than $2,500,000, or that is in an integral multiple of $500,000 in excess thereof); provided, that if at any time the aggregate amount of LIBOR Rate Loans in respect of any Borrowing is reduced, by payment, prepayment, or conversion of part thereof to be less than $1,000,000, such LIBOR Rate Loans shall automatically convert into Base Rate Loans; provided further that if the notice shall fail to specify the duration of the Interest Period, such Interest Period shall be one month. (b) The Borrower shall deliver by telephonic facsimile notice of continuation/conversion ("Notice of Continuation/Conversion") to the Agent not later than 12:00 noon (Atlanta, Georgia time) at least two (2) Business Days in advance of the Continuation/Conversion Date, if the Loans are to be converted into or continued as LIBOR Rate Loans and specifying: (i) the proposed Continuation/Conversion Date; (ii) the aggregate amount of Loans to be converted or renewed; (iii) the type of Loans resulting from the proposed conversion or continuation; and (iv) the duration of the requested Interest Period, provided, however, the Borrower may not select an Interest Period that ends after the Stated Termination Date. 10 (c) If upon the expiration of any Interest Period applicable to LIBOR Rate Loans, the Borrower has failed to select timely a new Interest Period to be applicable to LIBOR Rate Loans or if any Default or Event of Default then exists, the Borrower shall be deemed to have elected to convert such LIBOR Rate Loans into Base Rate Loans effective as of the expiration date of such Interest Period. (d) The Agent will promptly notify each Lender of its receipt of a Notice of Continuation/Conversion. All conversions and continuations shall be made ratably according to the respective outstanding principal amounts of the Loans with respect to which the notice was given held by each Lender. (e) There may not be more than seven (7) different LIBOR Rate Loans in effect hereunder at any time. 2.3 Maximum Interest Rate. In no event shall any interest rate provided for hereunder exceed the maximum rate legally chargeable by any Lender under applicable law for such Lender with respect to loans of the type provided for hereunder (the "Maximum Rate"). If, in any month, any interest rate, absent such limitation, would have exceeded the Maximum Rate, then the interest rate for that month shall be the Maximum Rate, and, if in future months, that interest rate would otherwise be less than the Maximum Rate, then that interest rate shall remain at the Maximum Rate until such time as the amount of interest paid hereunder equals the amount of interest which would have been paid if the same had not been limited by the Maximum Rate. In the event that, upon payment in full of the Obligations, the total amount of interest paid or accrued under the terms of this Agreement is less than the total amount of interest which would, but for this Section 2.3, have been paid or accrued if the interest rate otherwise set forth in this Agreement had at all times been in effect, then the Borrower shall, to the extent permitted by applicable law, pay the Agent, for the account of the Lenders, an amount equal to the excess of (a) the lesser of (i) the amount of interest which would have been charged if the Maximum Rate had, at all times, been in effect or (ii) the amount of interest which would have accrued had the interest rate otherwise set forth in this Agreement, at all times, been in effect over (b) the amount of interest actually paid or accrued under this Agreement. If a court of competent jurisdiction determines that the Agent and/or any Lender has received interest and other charges hereunder in excess of the Maximum Rate, such excess shall be deemed received on account of, and shall automatically be applied to reduce, the Obligations other than interest, in the inverse order of maturity, and if there are no Obligations outstanding, the Agent and/or such Lender shall refund to the Borrower such excess. 2.4 Closing Fee and Arrangement Fee. The Borrower agrees to pay the Agent on the Closing Date a closing fee (the "Closing Fee") and the arrangement fee (the "Arrangement Fee") as set forth in the Fee Letter. 2.5 Unused Line Fee. On the first day of each month and on the Termination Date the Borrower agrees to pay to the Agent for the account of the Lenders an unused line fee ("Unused Line Fee") at a 11 percentage rate per annum equal to (i) the Applicable Margin designated for Unused Line Fees on any applicable date, times (ii) the amount by which the Maximum Revolver Amount exceeded the Average Credit Facility Outstandings for the immediately preceding month. The Unused Line Fee shall be computed on the basis of a 360-day year for the actual number of days elapsed. 2.6 Letter of Credit Fee. The Borrower agrees to pay to the Agent, for the account of the Lenders, in accordance with their respective Pro Rata Shares, for each Letter of Credit, a fee (the "Letter of Credit Fee") equal to the Applicable Margin per annum in effect for LIBOR Revolving Loans on any applicable date on the undrawn face amount of each Letter of Credit and to Agent for the benefit of the Letter of Credit Issuer a fronting fee of one-quarter of one percent (0.25%) per annum of the undrawn face amount of each Letter of Credit, and to the Letter of Credit Issuer, all out-of-pocket costs, fees and expenses incurred by the Letter of Credit Issuer in connection with the application for, processing of, issuance of, or amendment to any Letter of Credit. The Letter of Credit Fee shall be payable monthly in arrears on the first day of each month following any month in which a Letter of Credit is outstanding and on the Termination Date. The Letter of Credit Fee shall be computed on the basis of a 360-day year for the actual number of days elapsed. 2.7 Administration Fee. The Borrower agrees to pay the Agent on the Closing Date and on each anniversary of the Closing Date the administration fee (the "Administration Fee") as set forth in the Fee Letter. 2.8 Collections Fee. The Borrower agrees to pay the Agent on the first day of each month after the Closing Date the collections fee (the "Collections Fee") as set forth in the Fee Letter. ARTICLE 3 PAYMENTS AND PREPAYMENTS 3.1 Revolving Loans. The Borrower shall repay the outstanding principal balance of the Revolving Loans, plus all accrued but unpaid interest thereon, on the Termination Date. The Borrower may prepay Revolving Loans at any time, and reborrow subject to the terms of this Agreement. In addition, and without limiting the generality of the foregoing, upon demand the Borrower shall pay to the Agent, for account of the Lenders, the amount, without duplication, by which the Aggregate Revolver Outstandings exceeds the lesser of the Borrowing Base or the Maximum Revolver Amount. 12 3.2 Termination of Facility. The Borrower may terminate this Agreement upon at least ten (10) Business Days' notice to the Agent and the Lenders, upon (a) the payment in full of all outstanding Revolving Loans, together with accrued interest thereon, and the cancellation and return of all outstanding Letters of Credit, (b) the payment of the early termination fee set forth below, (c) the payment in full in cash of all reimbursable expenses and other Obligations, and (d) with respect to any LIBOR Rate Loans prepaid, payment of the amounts due under Section 4.4, if any. If this Agreement is terminated at any time prior to the Stated Termination Date, whether pursuant to this Section or pursuant to Section 9.2, the Borrower shall, in addition to the foregoing, pay to the Agent, for the account of the Lenders, an early termination fee determined in accordance with the following table:

PERIOD DURING WHICH EARLY EARLY TERMINATION TERMINATION OCCURS FEE On or prior to the first 1% of the Maximum Anniversary Date Revolver Amount After the first Anniversary 0.5% of the Maximum Date but on or prior to the Revolver Amount second Anniversary Date After the second 0.25% of the Maximum Anniversary Date but prior Revolver Amount to the third Anniversary Date The Third Anniversary Date None and thereafter

3.3 Optional Commitment Reductions. The Borrower shall, by notice from an Responsible Officer, have the right from time to time but not more frequently than once each calendar month, upon not less than three (3) Business Days' written notice to Agent, effective upon receipt, to permanently reduce the total Commitments. Agent shall give each Lender, within one (1) Business Day of receipt of such notice, telefacsimile notice, or telephonic notice (confirmed in writing), of such reduction. Each such reduction shall be in the aggregate amount of $5,000,000 or such greater amount which is in an integral multiple of $1,000,000, or the entire remaining total Commitments, and shall permanently reduce the total Commitments. Each reduction of the total Commitments shall be accompanied by payment of the Revolving Loans to the extent that the principal amount of Revolving Loans outstanding, plus Non-Ratable Loans outstanding, plus Letters of Credit outstanding exceeds the lesser of (i) the total Commitments or (ii) the Borrowing Base, after giving effect to such reduction, together with accrued and unpaid interest on the amounts 13 prepaid. No such reduction shall result in the payment of any LIBOR Rate Loans other than on the last day of the Interest Period of such LIBOR Rate Loan unless such prepayment is accompanied by amounts due, if any, under Section 4.4 hereof. Notwithstanding the foregoing, if any of the Commitments are reduced at any time or times prior to the Stated Termination Date, the Borrower shall pay to the Agent in each instance, for the account of the Lenders, an early termination fee on the portion of the Commitments so reduced (the "Commitment Reduction Amount") in accordance with the applicable provisions of Section 3.2; provided, however, that the reference to "Maximum Revolver Amount" as used therein shall be deemed to refer to the Commitment Reduction Amount for purposes of calculating the amount of such early termination fees. 3.4 Payments from Distributions or Loans from Subsidiaries. All proceeds or other cash payments received by the Borrower constituting proceeds of a Distribution, loan or other advance to the Borrower shall be paid to the Agent, promptly upon the receipt thereof by the Borrower, for application to the Revolving Loans. 3.5 Payments from Asset Dispositions. All proceeds of any Asset Disposition by a Consolidated Member received by a Loan Party shall be paid to the Agent, promptly upon the receipt thereof by the Borrower, for application to the Revolving Loans. No provision contained in this Section 3.5 shall constitute a consent to any Asset Disposition that is not otherwise permitted by the express terms of this Agreement. 3.6 LIBOR Rate Loan Prepayments. Except as otherwise expressly provided in this Agreement, in connection with any prepayment, if any LIBOR Rate Loans are prepaid prior to the expiration date of the Interest Period applicable thereto, the Borrower shall pay to the Lenders the amounts described in Section 4.4. 3.7 Payments by the Borrower. (a) All payments to be made by the Borrower shall be made without set-off, recoupment or counterclaim. Except as otherwise expressly provided herein, all payments by the Borrower or other forms of payment received by the Agent shall be made to the Agent for the account of the Lenders at the Payment Account or such other account designated by the Agent in writing and shall be made in Dollars and in immediately available funds, no later than 12:00 noon (Atlanta, Georgia time) on the date such payment is due and shall be deemed to have been received (subject to final collection) on the Business Day that Agent receives such items in immediately available funds for purposes of (i) determining Availability, (ii) calculating the Unused Line Fee pursuant to Section 2.5 of this Agreement, and (iii) calculating the amount of interest accrued thereon. Any payment received by Agent after 12:00 noon (Atlanta, Georgia time) shall be deemed to have been received on the next Business Day thereafter and any applicable interest and other charges shall continue to accrue for such period. 14 (b) Subject to the provisions set forth in the definition of "Interest Period", whenever any payment is due on a day other than a Business Day, such payment shall be due on the following Business Day, and such extension of time shall in such case be included in the computation of interest or fees, as the case may be. 3.8 Payments as Revolving Loans. At the election of Agent, all payments of principal, interest, reimbursement obligations in connection with Letters of Credit and Credit Support for Letters of Credit, fees, premiums, reimbursable expenses and other sums payable hereunder, may be paid from the proceeds of Revolving Loans made hereunder. The Borrower hereby irrevocably authorizes the Agent to charge the Loan Account for the purpose of paying all amounts from time to time due hereunder and agrees that all such amounts charged shall constitute Base Rate Revolving Loans (including Non-Ratable Loans and Agent Advances). 3.9 Apportionment, Application and Reversal of Payments. Principal and interest payments shall be apportioned ratably among the Lenders (according to the unpaid principal balance of the Loans to which such payments relate held by each Lender) and payments of the fees shall, as applicable, be apportioned ratably among the Lenders, except for fees payable solely to Agent and the Letter of Credit Issuer and except as provided in Section 11.1(b). All payments shall be remitted to the Agent and all such payments not relating to principal or interest of specific Loans, or not constituting payment of specific fees, and all proceeds of Accounts or other Collateral received by the Agent, shall be applied, ratably, subject to the provisions of this Agreement, first, to pay any fees, indemnities or expense reimbursements then due to the Agent from the Borrower; second, to pay any fees or expense reimbursements then due to the Lenders from the Borrower; third, to pay interest due in respect of all Loans, including Non-Ratable Loans and Agent Advances; fourth, to pay or prepay principal of the Non-Ratable Loans and Agent Advances; fifth, to pay or prepay principal of the Revolving Loans (other than Non-Ratable Loans and Agent Advances) and unpaid reimbursement obligations in respect of Letters of Credit; sixth, to pay an amount to Agent equal to all outstanding Letter of Credit Obligations to be held as cash collateral for such Obligations; and seventh, to the payment of any other Obligation including any amounts relating to Bank Products due to the Agent or any Lender by the Borrower. Notwithstanding anything to the contrary contained in this Agreement, neither Agent nor any Lender shall apply any payments which it receives to any LIBOR Rate Loan, unless (a) so directed by the Borrower, (b) an Event of Default has occurred and is continuing or (c) such payments are applied on the expiration date of the Interest Period applicable to any such LIBOR Rate Loan. For so long as Event of Default has occurred and is continuing, the Agent and the Lenders shall have the continuing and exclusive right to apply and reverse and reapply any and all such proceeds and payments to any portion of the Obligations. 15 3.10 Indemnity for Returned Payments. If after receipt of any payment which is applied to the payment of all or any part of the Obligations, the Agent, any Lender, the Bank or any Affiliate of the Bank or a Lender is for any reason compelled to surrender such payment or proceeds to any Person because such payment or application of proceeds is invalidated, declared fraudulent, set aside, determined to be void or voidable as a preference, impermissible setoff, or a diversion of trust funds, or for any other reason, then the Obligations or part thereof intended to be satisfied shall be revived and continued and this Agreement shall continue in full force as if such payment or proceeds had not been received by the Agent or such Lender and the Borrower shall be liable to pay to the Agent and the Lenders, and hereby does indemnify the Agent and the Lenders and hold the Agent and the Lenders harmless for the amount of such payment or proceeds surrendered. The provisions of this Section 3.10 shall be and remain effective notwithstanding any contrary action which may have been taken by the Agent or any Lender in reliance upon such payment or application of proceeds, and any such contrary action so taken shall be without prejudice to the Agent's and the Lenders' rights under this Agreement and shall be deemed to have been conditioned upon such payment or application of proceeds having become final and irrevocable. The provisions of this Section 3.10 shall survive the termination of this Agreement. 3.11 Agent's and Lenders' Books and Records; Monthly Statements. The Agent shall record the principal amount of the Loans owing to each Lender, the undrawn face amount of all outstanding Letters of Credit and the aggregate amount of unpaid reimbursement obligations outstanding with respect to the Letters of Credit from time to time on its books. In addition, each Lender may note the date and amount of each payment or prepayment of principal of such Lender's Loans in its books and records. Failure by Agent or any Lender to make such notation shall not affect the obligations of the Borrower with respect to the Loans or the Letters of Credit. The Loan Parties agree that the Agent's and each Lender's books and records showing the Obligations and the transactions pursuant to this Agreement and the other Loan Documents shall be admissible in any action or proceeding arising therefrom, and shall constitute rebuttably presumptive proof thereof, irrespective of whether any Obligation is also evidenced by a promissory note or other instrument. The Agent will provide to the Borrower a monthly statement of Loans, payments, and other transactions pursuant to this Agreement. Such statement shall be deemed correct, accurate, and binding on the Loan Parties and an account stated (except for reversals and reapplications of payments made as provided in Section 3.8 and corrections of errors discovered by the Agent), unless the Borrower notifies the Agent in writing to the contrary within thirty (30) days after such statement is rendered. In the event a timely written notice of objections is given by the Borrower, only the items to which exception is expressly made will be considered to be disputed. ARTICLE 4 TAXES, YIELD PROTECTION AND ILLEGALITY 4.1 Taxes. (a) Any and all payments by the Loan Parties to each Lender or the Agent under this Agreement and any other Loan Document shall be made free 16 and clear of, and without deduction or withholding for any Taxes. In addition, the Loan Parties shall pay all Taxes relating to present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Documents. (b) The Loan Parties agree to indemnify and hold harmless each Lender and the Agent for the full amount of Taxes (including any Taxes imposed by any jurisdiction on amounts payable under this Section) paid by any Lender or Agent and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto. Payment under this indemnification shall be made within 30 days after the date such Lender or Agent makes written demand therefor. (c) If the Loan Parties shall be required by law to deduct or withhold any Taxes from or in respect of any sum payable hereunder to any Lender or Agent, then: (i) the sum payable shall be increased as necessary so that after making all required deductions and withholdings (including deductions and withholdings applicable to additional sums payable under this Section) such Lender or Agent, as the case may be, receives an amount equal to the sum it would have received had no such deductions or withholdings been made; (ii) the Loan Parties shall make such deductions and withholdings; (iii) the Loan Parties shall pay the full amount deducted or withheld to the relevant taxing authority or other authority in accordance with applicable law or, if being contested in good faith, set up adequate reserves for such Taxes; and (iv) the Loan Parties shall also pay to each Lender or Agent for the account of such Lender, at the time interest is paid, all additional amounts which the respective Lender documents (in reasonable detail) as being necessary to preserve the after-tax yield such Lender would have received if such Taxes had not been imposed. (d) At the Agent's request, within 30 days after the date of any payment by the Loan Parties of Taxes or Other Taxes, the Loan Parties shall furnish the Agent the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to the Agent. (e) If the Loan Parties are required to pay additional amounts to any Lender or the Agent pursuant to subsection (c) of this Section, then such Lender shall use reasonable efforts (consistent with legal and regulatory restrictions) to change the jurisdiction of its lending office so as to eliminate any such additional 17 payment by the Loan Parties which may thereafter accrue, if such change in the judgment of such Lender is not otherwise disadvantageous to such Lender. 4.2 Illegality. (a) If any Lender determines, based upon advice from legal counsel, that the introduction of any Requirement of Law, or any change in any Requirement of Law, or in the interpretation or administration of any Requirement of Law, has made it unlawful, or that any central bank or other Governmental Authority has asserted that it is unlawful, for any Lender or its applicable lending office to make LIBOR Rate Loans, then, on notice thereof by that Lender to the Borrower through the Agent, any obligation of that Lender to make LIBOR Rate Loans shall be suspended until that Lender notifies the Agent and the Borrower that the circumstances giving rise to such determination no longer exist. (b) If a Lender determines that it is unlawful to maintain any LIBOR Rate Loan, the Borrower shall, upon receipt of notice of such fact and demand from such Lender (with a copy to the Agent), prepay in full such LIBOR Rate Loans of that Lender then outstanding, together with interest accrued thereon and amounts required under Section 4.4, either on the last day of the Interest Period thereof, if that Lender may lawfully continue to maintain such LIBOR Rate Loans to such day, or immediately, if that Lender may not lawfully continue to maintain such LIBOR Rate Loans. In the event such Lender shall have determined that it is no longer unlawful for it to maintain a LIBOR Rate Loan, it shall promptly give notice to the Borrower and Agent. If the Borrower is required to so prepay any LIBOR Rate Loans, then concurrently with such prepayment, the Borrower shall borrow from the affected Lender, in the amount of such repayment, a Base Rate Loan. Notwithstanding anything to the contrary in this Agreement, the Borrower shall not be liable for any losses, or be required to reimburse an Lender as set forth in Section 4.4 to the extent a LIBOR Rate Loan has been prepaid in accordance with this Section 4.2. 4.3 Increased Costs and Reduction of Return. (a) If any Lender determines, based upon advice from legal counsel, that due to either (i) the introduction of or any change in the interpretation of any law or regulation or (ii) the compliance by that Lender with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to such Lender of agreeing to make or making, funding or maintaining any LIBOR Rate Loans, then the Borrower shall be liable for, and shall from time to time, upon demand (with a copy of such demand to be sent to the Agent), pay to the Agent for the account of such Lender, additional amounts as are sufficient to compensate such Lender for such increased costs or, alternatively, in the case where the affected Lender's increased costs are material, the Borrower may choose to prepay such LIBOR Rate Loan and concurrently with such prepayment, the Borrower shall borrow 18 from the affected Lender, a Base Rate Loan in the amount of such repayment; provided, however, that no Lender shall be entitled to claim any additional amount hereunder with respect to the period which is more than 30 days prior to the date the Lender actually became aware of such additional amounts; provided, further, that notwithstanding anything to the contrary in this Agreement, the Borrower shall not be liable for any losses, or be required to reimburse any Lender as set forth in Section 4.4 to the extent a LIBOR Rate Loan has been prepaid in accordance with this Section 4.3(a). (b) If any Lender shall have determined, based upon advice from legal counsel, that (i) the introduction of any Capital Adequacy Regulation, (ii) any change in any Capital Adequacy Regulation, (iii) any change in the interpretation or administration of any Capital Adequacy Regulation by any central bank or other Governmental Authority charged with the interpretation or administration thereof, or (iv) compliance by such Lender or any corporation or other entity controlling such Lender with any Capital Adequacy Regulation, affects or would affect the amount of capital required or expected to be maintained by such Lender or any corporation or other entity controlling such Lender and (taking into consideration such Lender's or such corporation's or other entity's policies with respect to capital adequacy and such Lender's desired return on capital) determines that the amount of such capital is increased as a consequence of its Commitments, loans, credits or obligations under this Agreement, then, upon demand of such Lender to the Borrower through the Agent, the Borrower shall pay to such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender for such non-material increase; provided, however, that no Lender shall be entitled to claim any such additional amount with respect to the period which is more than 30 days prior to the date the Lender actually became aware of such additional amounts. 4.4 Funding Losses. The Borrower shall reimburse each Lender and hold each Lender harmless from any loss or expense which such Lender may sustain or incur as a consequence of: (a) the failure of the Borrower to make on a timely basis any payment of principal of any LIBOR Rate Loan; (b) the failure of the Borrower to borrow, continue or convert a Loan after the Borrower has given (or is deemed to have given) a Notice of Borrowing or a Notice of Continuation/Conversion; or (c) the prepayment or other payment (including after acceleration thereof) of any LIBOR Rate Loans on a day that is not the last day of the relevant Interest Period; including any such loss of anticipated profit and any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain its LIBOR Rate Loans or from fees payable 19 to terminate the deposits from which such funds were obtained. Borrowers shall also pay any customary administrative fees charged by any Lender in connection with the foregoing. 4.5 Inability to Determine Rates. If the Agent determines that for any reason adequate and reasonable means do not exist for determining the LIBOR Rate for any requested Interest Period with respect to a proposed LIBOR Rate Loan, or that the LIBOR Rate for any requested Interest Period with respect to a proposed LIBOR Rate Loan does not adequately and fairly reflect the cost to the Lenders of funding such Loan, the Agent will promptly so notify the Borrower and each Lender. Thereafter, the obligation of the Lenders to make or maintain LIBOR Rate Loans hereunder shall be suspended until the Agent revokes such notice in writing. Upon receipt of such notice, the Borrower may revoke any Notice of Borrowing or Notice of Continuation/Conversion then submitted by it. If the Borrower does not revoke such Notice, the Lenders shall make, convert or continue the Loans, as proposed by the Borrower, in the amount specified in the applicable notice submitted by the Borrower, but such Loans shall be made, converted or continued as Base Rate Loans instead of LIBOR Rate Loans. 4.6 Certificates of Agent. If any Lender claims reimbursement or compensation under this Article 4, Agent shall deliver to the Borrower (with a copy to the affected Lender) a certificate setting forth in reasonable detail the amount payable to the affected Lender, and such certificate shall be conclusive and binding on the Borrower in the absence of manifest error. 4.7 Obligation to Mitigate. (a) Subject to Section 4.7(b) below, each Lender, Letter of Credit Issuer, Agent and Bank agrees that, as promptly as practicable after the officer of such Lender, Letter of Credit Issuer, Agent or Bank responsible for administering the Loans or Letters of Credit of such Lender, Letter of Credit Issuer, Agent or Bank, as the case may be, becomes aware of the occurrence of any event or the existence of a condition that would cause such Lender, Letter of Credit Issuer or Bank to receive increased payments from the Borrower under Section 4.1, Section 4.2 or Section 4.3, it will, to the extent not inconsistent with the formal internal policies of such Lender, Letter of Credit Issuer, the Agent or the Bank and any applicable legal or regulatory restrictions, use reasonable efforts (i) to make, issue, fund or maintain the Commitments of such Lender or the affected Loans or Letters of Credit of such Lender, Letter of Credit Issuer, the Agent or the Bank through another lending or letter of credit office of such Lender, Letter of Credit Issuer, the Agent or the Bank, or (ii) take such other actions as Lender, Letter of Credit Issuer, the Agent or the Bank may deem reasonable to cause the additional amounts that the Borrower would be required to pay the Lender, Letter of Credit Issuer, the Agent or the Bank under Section 4.1, Section 4.2 or Section 4.3 to be reduced. 20 (b) The Borrower may, in its sole discretion, on ten (10) Business Days' prior written notice to the Agent and the applicable Lender, cause a Lender who has (i) incurred increased costs or is unable to make LIBOR Rate Loans, or (ii) made any claim for taxes under Section 4.1 hereof, (and such Lender shall) to assign, pursuant to Section 11.2 hereof, all of its rights and obligations under this Agreement to an Eligible Assignee designated by the Borrower and acceptable to the Agent which is willing to become a Lender for a purchase price equal to the outstanding principal amount of the Revolving Loans payable to such Lender plus any accrued but unpaid interest on such Revolving Loans, any accrued but unpaid fees with respect to such Agreement; provided, however, that any expenses or other amounts which would be owing to such Lender pursuant to any indemnification provision hereof (including, if applicable, Section 4.4 hereof) shall be payable by the Borrower as if the Borrower had prepaid the Revolving Loans of such Lender rather than such Lender having assigned its interest hereunder. The Borrower or such assignee shall pay the applicable processing fee under Section 11.2 hereof. 4.8 Survival. The agreements and obligations of the Borrower in this Article 4 shall survive the payment of all other Obligations. ARTICLE 5 BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES 5.1 Books and Records. The Borrower shall maintain, at all times, correct and complete books, records and accounts in which complete, correct and timely entries are made of its transactions in accordance with GAAP applied consistently with the audited Financial Statements required to be delivered pursuant to Section 5.2(a). The Borrower shall, by means of appropriate entries, reflect in such accounts and in all Financial Statements proper liabilities and reserves for all taxes and proper provision for depreciation and amortization of property and bad debts, all in accordance with GAAP. The Loan Parties shall maintain at all times books and records pertaining to the Collateral in such detail, form and scope as required under the Security Agreement as to the Borrower and its Domestic Subsidiaries party thereto and as required under the Applica Canada Security Agreement as to Applica Canada. 5.2 Financial Information. The Loan Parties shall promptly furnish to the Agent all such financial information regarding any Consolidated Member's financial and business affairs as the Agent shall reasonably request. Without limiting the foregoing, the Loan Parties will furnish to the Agent, via electronic notice or otherwise, in sufficient copies for distribution by the Agent to each Lender (and upon receipt, the Agent shall promptly distribute to the Lenders), in such detail as the Agent or the Lenders shall request, the following: 21 (a) As soon as available, but in any event not later than ninety (90) days after the close of each Fiscal Year, consolidated audited balance sheets, income statements, cash flow statements and changes in stockholders' equity for the Consolidated Members for such Fiscal Year and consolidating unaudited balance sheets, income statements and cash flow statements prepared in accordance with the footnotes regarding condensed and consolidating financial statements in the Borrower's financial statements filed with the SEC in relation to the Debt evidenced by the Senior Subordinated Debt Offering Documents, for the Consolidated Members for such Fiscal Year, and the accompanying notes thereto, setting forth in each case in comparative form figures for the previous Fiscal Year, all in reasonable detail, fairly presenting the financial position and the results of operations of the Consolidated Members as at the date thereof and for the Fiscal Year then ended, and prepared in accordance with GAAP. Such statements shall be examined in accordance with generally accepted auditing standards by and, in the case of such statements performed on a consolidated basis, accompanied by a report thereon unqualified in any respect of independent certified public accountants selected by the Borrower and reasonably satisfactory to the Agent. Each Loan Party hereby authorizes the Agent to communicate, together with a representative of the Borrower, directly with its certified public accountants and, by this provision, authorizes those accountants to disclose to the Agent any and all financial statements and other supporting financial documents and schedules relating to the Consolidated Members and to discuss directly with the Agent and a representative of the Borrower the finances and affairs of the Consolidated Members. (b) As soon as available, but in any event not later than forty-five (45) days after the end of each fiscal quarter, consolidated unaudited balance sheets, income statements and cash flow statements for the Consolidated Members for such fiscal quarter and consolidating unaudited balance sheets, income statements and cash flow statements prepared in accordance with the footnotes regarding condensed and consolidating financial statements in the Borrower's financial statements filed with the SEC in relation to the Debt evidenced by the Senior Subordinated Debt Offering Documents, for the Consolidated Members for such quarter and for the period from the beginning of the Fiscal Year to the end of such quarter, all in reasonable detail, fairly presenting the financial position and results of operations of the Consolidated Members as at the date thereof and for such periods, and, in each case, in comparable form, figures for the corresponding period in the prior Fiscal Year and prepared in accordance with GAAP applied consistently with the audited Financial Statements required to be delivered pursuant to Section 5.2(a). The Borrower shall certify by a certificate signed by its chief financial officer that all such statements have been prepared in accordance with GAAP and present fairly the Consolidated Members' financial position as at the dates thereof and its results of operations for the periods then ended, subject to normal year-end adjustments and the absence of footnotes. (c) As soon as available, but in any event not later than thirty (30) days after the end of each month, consolidated unaudited balance sheets of the 22 Consolidated Members as at the end of such month, and consolidated unaudited income statements and cash flow statements for the Consolidated Members for such month and for the period from the beginning of the Fiscal Year to the end of such month, all in reasonable detail, fairly presenting the financial position and results of operations of the Consolidated Members as at the date thereof and for such periods, and, in each case, in comparable form, figures for the corresponding period in the prior Fiscal Year and prepared in accordance with GAAP applied consistently with the audited Financial Statements required to be delivered pursuant to Section 5.2(a). The Borrower shall certify by a certificate signed by its chief financial officer that all such statements have been prepared in accordance with GAAP and present fairly the Consolidated Members' financial position as at the dates thereof and its results of operations for the periods then ended, subject to normal year-end adjustments and the absence of footnotes. (d) With each of the audited Financial Statements delivered pursuant to Section 5.2(a), a certificate of the independent certified public accountants that examined such statement to the effect that they have reviewed and are familiar with this Agreement and that, in examining such Financial Statements, they did not become aware of any fact or condition which then constituted a Default or Event of Default with respect to a financial covenant, except for those, if any, described in reasonable detail in such certificate. (e) With each of the annual audited Financial Statements delivered pursuant to Section 5.2(a), and within 45 days after the end of each fiscal quarter, a certificate of the chief financial officer of the Borrower setting forth in reasonable detail the calculations required to establish that the Loan Parties were in compliance with the covenants set forth in Sections 7.26 through 7.28 during the period covered in such Financial Statements and as at the end thereof. Within 45 days after the end of each fiscal quarter, a certificate of the chief financial officer of the Borrower stating that, except as explained in reasonable detail in such certificate, (A) all of the representations and warranties of the Loan Parties contained in this Agreement and the other Loan Documents are correct and complete in all material respects as at the date of such certificate as if made at such time, except for those that speak as of a particular date, (B) the Loan Parties are, at the date of such certificate, in compliance in all material respects with all of its respective covenants and agreements in this Agreement and the other Loan Documents, (C) no Default or Event of Default then exists or existed during the period covered by the Financial Statements for such fiscal quarter, (D) describing and analyzing in reasonable detail all material trends, changes, and developments in each and all Financial Statements or, alternatively, refer to the applicable documents filed by the Borrower with the Securities and Exchange Commission in accordance with the Exchange Act including, but not limited to, sections of such filings entitled "Management's Discussion and Analysis"; and (E) explaining the variances of the figures in the corresponding budgets and prior Fiscal Year financial statements. If such certificate discloses that a representation or warranty is not correct or complete, or that a covenant has not been complied with, or that a 23 Default or Event of Default existed or exists, such certificate shall set forth what action the Borrower has taken or proposes to take with respect thereto. (f) No sooner than sixty (60) days prior to the beginning of each Fiscal Year, annual forecasts (to include forecasted consolidated balance sheets, income statements and cash flow statements) for the Consolidated Members as at the end of and for each month of such Fiscal Year. No later than fifteen (15) days after the beginning of each Fiscal Year, annual forecast statements of profits and losses on a consolidating basis for the Loan Parties as at the end of and for each month of such Fiscal Year. (g) Promptly after filing with the PBGC and the IRS, a copy of each annual report or other filing filed with respect to each Plan of the Consolidated Members. (h) Promptly upon the filing thereof, copies of all reports, if any, to or other documents filed by any Consolidated Member with the Securities and Exchange Commission under the Exchange Act, and all material reports, notices, or statements sent by the Borrower to holders of any equity interests of the Borrower (other than routine non-material correspondence sent by the trustee under any indenture under which the same is issued). (i) As soon as available, but in any event not later than 15 days after any Loan Party's receipt thereof, a copy of all management reports and management letters prepared by any independent certified public accountants of any Loan Party. (j) Promptly after their preparation, copies of any and all proxy statements, financial statements, and reports which the Borrower makes available to its shareholders. (k) If requested by Agent in writing, promptly after filing with the IRS, a copy of each tax return filed by the any Consolidated Member. (l) As soon as available, but in any event within 15 days after the end of each month (for such month) (i) a Borrowing Base Certificate supporting information in accordance with Section 9 of the Security Agreement, (ii) a report showing the beginning and ending balances of all intercompany loans, advances or investments ("Intercompany Accounts") for such month, and (iii) a calculation of the Applica Canada Formula Amount and the Applica Consumer Products Formula Amount as of the last day of such month. (m) Such additional information as the Agent and/or any Lender may from time to time reasonably request regarding the financial and business affairs of any Consolidated Member. (n) On the last Business Day of each month, duplicate original bank statements for the preceding month in respect of the Applica Canada Blocked Agreement. 24 5.3 Notices to the Lenders. The Loan Parties shall notify the Agent and the Lenders in writing of the following matters at the following times: (a) Immediately after becoming aware of any Default or Event of Default; (b) Immediately after becoming aware of the assertion by the holder of any Capital Stock of the Borrower or the holder of any Debt of the Borrower or any Subsidiary in a face amount in excess of $1,000,000 that a default exists with respect thereto or that any Consolidated Member is not in compliance with the terms thereof, or the threat or commencement by such holder of any enforcement action because of such asserted default or non-compliance; (c) Immediately after becoming aware of any event or circumstance which could reasonably be expected to have a Material Adverse Effect; (d) Immediately after becoming aware of any pending or threatened action, suit, or proceeding, by any Person, or any pending or threatened investigation by a Governmental Authority, which could reasonably be expected to have a Material Adverse Effect; (e) Immediately after becoming aware of any pending or threatened strike, work stoppage, unfair labor practice claim, or other labor dispute affecting any Consolidated Member in a manner which could reasonably be expected to have a Material Adverse Effect; (f) Immediately after becoming aware of any violation of any law, statute, regulation, or ordinance of a Governmental Authority affecting the any Consolidated Member which could reasonably be expected to have a Material Adverse Effect; (g) Immediately after receipt of any notice of any violation by the any Consolidated Member of any Environmental Law which could reasonably be expected to have a Material Adverse Effect or that any Governmental Authority has asserted in writing that any Consolidated Member is not in compliance with any Environmental Law or is investigating any Consolidated Member; (h) Immediately after receipt of any written notice that any Consolidated Member is or may be liable to any Person as a result of the Release or threatened Release of any Contaminant or that any Consolidated Member is subject to investigation by any Governmental Authority evaluating whether any remedial action is needed to respond to the Release or threatened Release of any Contaminant which, in either case, is reasonably likely to give rise to liability in excess of $1,000,000; 25 (i) Immediately after receipt of any written notice of the imposition of any Environmental Lien against any property of any Consolidated Member; (j) Any change in any Loan Party's name as it appears in the state of its incorporation or other organization, state of incorporation or organization, type of entity, organizational identification number, locations of Collateral other than those set forth in Section 4 of the Security Agreement, or form of organization, trade names under which a Loan Party sells Inventory or create Accounts, or to which instruments in payment of Accounts may be made payable, in each case at least ten (10) days prior thereto, and, with regard to any other Consolidated Member, such information as of the first day of the following fiscal quarter; (k) Within ten (10) Business Days after any Loan Party or any ERISA Affiliate knows or has reason to know, that an ERISA Event or a prohibited transaction (as defined in Sections 406 of ERISA and 4975 of the Code) has occurred, which could reasonably be expected to have a Material Adverse Effect, and, when known, any action taken or threatened by the IRS, the DOL, the PBGC or any other Governmental Authority with respect thereto; (l) Upon Agent's written request, or, in the event that such filing reflects a significant change with respect to the matters covered thereby, within three (3) Business Days after the filing thereof with the PBGC, the DOL, the IRS, or the Pension Commission of Ontario or any other applicable Governmental Authority as applicable, copies of the following: (i) each annual report (form 5500 series), including Schedule B thereto, filed with the PBGC, the DOL or the IRS with respect to each Plan and in the case of any Plan governed by the PBA, each report, valuation, request for amendment, whole or partial withdrawal or termination or other variation, (ii) a copy of each funding waiver request filed with the PBGC, the DOL, the IRS or the Pension Commission of Ontario or any other applicable Governmental Authority with respect to any Plan and all communications received by the Borrower or any ERISA Affiliate from the PBGC, the DOL, the IRS or the Pension Commission of Ontario or any other applicable Governmental Authority with respect to such request, and (iii) a copy of each other filing or notice filed with the PBGC, the DOL, the IRS or the Pension Commission of Ontario or any other applicable Governmental Authority, with respect to each Plan by either a Loan Party or any ERISA Affiliate; (m) Upon Agent's written request, copies of each actuarial report for any Plan or Multi-employer Plan and annual report for any Multi-employer Plan; and within three (3) Business Days after receipt thereof by a Loan Party or any ERISA Affiliate, copies of the following: (i) any notices of the PBGC, the Pension Commission of Ontario or any other applicable Governmental Authority intention to terminate a Plan or to have a trustee appointed to administer such Plan; (ii) any favorable or unfavorable determination letter from the IRS, the Pension Commission of Ontario or any other applicable Governmental Authority regarding the qualification of a Plan under Section 401(a) of the Code, the PBA or 26 other applicable laws; or (iii) any notice from a Multi-employer Plan regarding the imposition of withdrawal liability; (n) Within three (3) Business Days after the occurrence thereof: (i) any changes in the benefits of any existing Plan which increase a Loan Parties' annual costs with respect thereto by an amount in excess of $500,000, or the establishment of any new Plan or the commencement of contributions to any Plan to which the Loan Parties or any ERISA Affiliate was not previously contributing; or (ii) any failure by a Loan Party or any ERISA Affiliate to make a required installment or any other required payment under Section 412 of the Code, the PBA or other applicable laws on or before the due date for such installment or payment; or (o) Within three (3) Business Days after a Loan Party or any ERISA Affiliate knows or has reason to know that any of the following events has or will occur: (i) a Multi-employer Plan has been or will be terminated; (ii) the administrator or plan sponsor of a Multi-employer Plan intends to terminate a Multi-employer Plan; or (iii) the PBGC has instituted or will institute proceedings under Section 4042 of ERISA to terminate a Multi-employer Plan, or (iv) Reportable Event or Termination Event in respect of any Plan. Each notice given under this Section shall describe the subject matter thereof in reasonable detail, and shall set forth the action that the Loan Party or any ERISA Affiliate, as applicable, has taken or proposes to take with respect thereto. 5.4 Revisions or Updates to Schedules. Should any of the information or disclosures provided on any of the schedules originally attached hereto become outdated or incorrect in any material respect, the Borrower from time to time shall deliver to the Agent and the Lenders, together with an officer's certificate of the type required pursuant to Section 5.2(e), such revisions or updates to such schedule(s) whereupon such schedules shall be deemed to be amended by such revisions or updates, as may be necessary or appropriate to update or correct such schedule(s), provided that, notwithstanding the foregoing, (a) no such revisions or updates to Schedules 6.5, 6.11-6.16, 6.19, 6.24, 6.25, or 6.27 shall be deemed to have amended, modified, or superseded any such schedules as originally attached hereto, or to have cured any breach of warranty or representation resulting from the inaccuracy or incompleteness of any such schedules, unless and until the Agent shall have accepted in writing such revisions or updates to any such schedules and (b) no such revisions or updates to Schedules 6.9. shall be deemed to have amended, modified, or superseded such schedule as originally attached hereto, or to have cured any breach of warranty or representation resulting from the inaccuracy or incompleteness of such schedule, unless and until the Required Lenders shall have accepted in writing such revisions or updates to such schedule. 27 ARTICLE 6 GENERAL WARRANTIES AND REPRESENTATIONS Each Loan Party warrants and represents to Agent and the Lenders that, after giving the effect to the Refinancing: 6.1 Authorization, Validity, and Enforceability of this Agreement and the Loan Documents. Each Obligated Party has the power and authority to execute, deliver and perform this Agreement and the other Loan Documents to which it is a party, to incur the Obligations, and to grant to the Agent Liens upon and security interests in the Collateral. Each Obligated Party has taken all necessary action (including obtaining approval of its stockholders if necessary) to authorize its execution, delivery, and performance of this Agreement and the other Loan Documents to which it is a party. This Agreement and the other Loan Documents to which it is a party have been duly executed and delivered by each Obligated Party, and, assuming this Agreement and the other Loan Documents constitute the legal, valid and binding obligations of Agent, Bank and each of the Lenders hereto, constitute the legal, valid and binding obligations of each Obligated Party, enforceable against it in accordance with their respective terms. Each Obligated Party's execution, delivery, and performance of this Agreement and the other Loan Documents to which it is a party do not and will not conflict with, or constitute a violation or breach of, or result in the imposition of any Lien upon the property of an Obligated Party or any of its Subsidiaries, by reason of the terms of (a) any contract, mortgage, lease, agreement, indenture, or instrument to which such Obligated Party or any of its Subsidiaries is a party or which is binding upon it, (b) any Requirement of Law applicable to the such Obligated Party or any of its Subsidiaries, or (c) the certificate or articles of incorporation or by-laws or the limited liability company or limited partnership agreement of the Obligated Parties or any of their Subsidiaries. 6.2 Validity and Priority of Security Interest. The provisions of this Agreement, and the other Loan Documents create legal and valid Liens on all the Collateral in favor of the Agent, for the ratable benefit of the Agent and the Lenders, and such Liens constitute perfected and continuing Liens on all the Collateral, having priority over all other Liens on the Collateral, except for those Liens identified in clauses (a), (c), (d), (e), (g), (h) and (i) of the definition of Permitted Liens securing all the Obligations, and enforceable against the Obligated Parties and all third parties. 6.3 Organization and Qualification. Each Obligated Party (a) is duly organized or incorporated and validly existing in good standing under the laws of the state of its organization or incorporation, (b) is qualified to do business and is in good standing in the jurisdictions set forth on Schedule 6.3 which are the only jurisdictions in which qualification is necessary in order for it to own or lease its property and conduct its business, except where the failure to so qualify would have a Material Adverse Effect, and (c) has all requisite power and authority to conduct its business and to own its property. 28 6.4 [Reserved]. 6.5 Subsidiaries. Schedule 6.5 is a correct and complete list of the name and relationship to the Borrower of each and all of the Borrower's Subsidiaries (specifying whether such Subsidiaries are Domestic Subsidiaries or Foreign Subsidiaries). Each Subsidiary is (a) duly incorporated or organized and validly existing in good standing under the laws of its state of incorporation or organization set forth on Schedule 6.5, and (b) qualified to do business and in good standing in each jurisdiction in which the failure to so qualify or be in good standing could reasonably be expected to have a Material Adverse Effect and (c) has all requisite power and authority to conduct its business and own its property. 6.6 Financial Statements and Projections. (a) The Borrower has delivered to the Agent and the Lenders the audited balance sheet and related statements of income, retained earnings, cash flows, and changes in stockholders equity for the Consolidated Members as of December 31, 2000, and for the Fiscal Year then ended, accompanied by the report thereon of the Borrower's independent certified public accountants, Grant Thornton LLP. The Borrower has also delivered to the Agent and the Lenders the unaudited balance sheet and related statements of income and cash flows for the Consolidated Members as of September 30, 2001. Such financial statements are attached hereto as Exhibit C. All such financial statements have been prepared in accordance with GAAP (except for the quarterly or monthly financial statements) and present accurately and fairly in all material respects the financial position of the Consolidated Members as at the dates thereof and their results of operations for the periods then ended. (b) The Latest Projections when submitted to the Agent as required herein represent the Loan Party's good faith estimate of the future financial performance of the Consolidated Members for the periods set forth therein. The Latest Projections have been prepared on the basis of the assumptions set forth therein, which the Loan Parties believe are fair and reasonable in light of current and reasonably foreseeable business conditions at the time submitted to the Lenders. 6.7 [Reserved]. 6.8 Solvency. Each Loan Party is Solvent prior to and after giving effect to the Borrowings to be made on the Closing Date and the issuance of the Letters of Credit to be issued on the Closing Date and shall remain solvent during the term of this Agreement. 29 6.9 Debt. After giving effect to the making of the Revolving Loans to be made on the Closing Date, the Loan Parties have no material Debt, except (a) the Obligations, (b) Debt described on Schedule 6.9., and (c) other Debt as permitted under Section 7.13. 6.10 Distributions. Since December 31, 2000, no Distribution has been declared, paid, or made upon or in respect of any Capital Stock of the Borrower. 6.11 Real Estate; Leases. Schedule 6.11 sets forth, as of the Closing Date, a correct and complete list of all Real Estate, all leases and subleases of real property held by each Loan Party as lessee or sublessee, and all leases and subleases of real property held by each Loan Party as lessor, or sublessor in excess of $100,000. Each of such leases and subleases is valid and enforceable in accordance with its terms and is in full force and effect, and no default by any party to any such lease or sublease exists. Each Loan Party has good and marketable title in fee simple to the Real Estate identified on Schedule 6.11 as owned by such Loan Party, or valid leasehold interests in all Real Estate designated therein as "leased" by such Loan Party and each Loan Party has good, indefeasible, and merchantable title to all of its other property reflected on the December 31, 2000 Financial Statements delivered to Agent and the Lenders, except as disposed of in the ordinary course of business since the date thereof, free of all Liens except Permitted Liens. 6.12 Proprietary Rights. Schedule 6.12 sets forth a correct and complete list of all of each Loan Party's material Proprietary Rights. None of the material Proprietary Rights is subject to any licensing agreement or similar arrangement except as set forth on Schedule 6.12. To the knowledge of each Loan Party, none of the Proprietary Rights infringes on or conflicts with any other Person's property, and no other Person's property infringes on or conflicts with the Proprietary Rights. The Proprietary Rights described on Schedule 6.12 constitute all of the property of such type necessary to the current and anticipated future conduct of the Loan Parties' business. 6.13 Trade Names. All trade names or styles under which the Loan Parties currently or currently intend to sell Inventory or create Accounts, or to which Instruments in payment of Accounts may be made payable, are listed on Schedule 6.13. 6.14 Litigation. Except as set forth on Schedule 6.14, there is no pending, or to the knowledge of any Loan Party, there is not threatened, action, suit, proceeding, or counterclaim by any Person, or to the knowledge of any Loan Party, investigation by any Governmental Authority, or any basis for any of the foregoing, which could reasonably be expected to have a Material Adverse Effect. 30 6.15 Labor Disputes. Except as set forth on Schedule 6.15, as of the Closing Date (a) there is no collective bargaining agreement or other labor contract covering employees of any Loan Party, (b) no such collective bargaining agreement or other labor contract is scheduled to expire during the term of this Agreement, (c) to the knowledge of any Loan Party, no union or other labor organization is seeking to organize, or to be recognized as, a collective bargaining unit of employees of any Loan Party or for any similar purpose, and (d) there is no pending or, to the knowledge of any Loan Party, threatened, strike, work stoppage, material unfair labor practice claim, or other material labor dispute against or affecting any Loan Party or its employees. 6.16 Environmental Laws. Except as otherwise disclosed on Schedule 6.16: (a) The Loan Parties have complied in all respects with all Environmental Laws except as could not reasonably be expected to have a Material Adverse Effect and no Loan Party nor any of its presently owned real property or presently conducted operations or any property now or previously in its charge, management or control (to the extent any Loan Party was the non-complying party in connection with any property previously in its charge, management or control), nor, to the knowledge of a Loan Party, its previously owned real property or prior operations, is subject to any enforcement order from or liability agreement with any Governmental Authority or private Person respecting (i) compliance with any Environmental Law or (ii) any potential liabilities and costs or remedial action arising from the Release or threatened Release of a Contaminant. (b) Each Loan Party has obtained all permits necessary for its current operations under Environmental Laws, and all such permits are in good standing and each Loan Party is in compliance with all material terms and conditions of such permits, except where the failure to obtain or comply with such permits could not reasonably be expected to have a Material Adverse Effect. (c) No Loan Party, nor, to the knowledge of a Loan Party, any of its predecessors in interest, has been or is in violation of any applicable law relating to the storage, treatment or disposal of any hazardous waste. (d) No Loan Party has received any summons, complaint, order or similar written notice indicating that it is not currently in compliance with, or that any Governmental Authority is investigating its compliance with, any Environmental Laws or that it is or may be liable to any other Person as a result of a Release or threatened Release of a Contaminant. (e) To the knowledge of the Loan Party, none of the present or past operations of the Loan Parties is the subject of any investigation by any Governmental Authority evaluating whether any remedial action is needed to respond to a Release or threatened Release of a Contaminant. 31 (f) No Loan Party has filed, within the past 5 years, any notice under any requirement of Environmental Law reporting a spill or accidental and unpermitted Release or discharge of a Contaminant into the environment. (g) No Loan Party has entered into any negotiations or settlement agreements with any Person (including the prior owner of its property and any Governmental Authority) imposing material obligations or liabilities on any Loan Party with respect to any remedial action in response to the Release of a Contaminant or environmentally related claim. (h) None of the products manufactured, distributed or sold by a Loan Party contain asbestos containing material. (i) No Environmental Lien has attached to any of the Real Estate. 6.17 No Violation of Law. No Loan Party is in violation of any law, statute, regulation, ordinance, judgment, order, or decree applicable to it which violation could reasonably be expected to have a Material Adverse Effect. 6.18 No Default. No Loan Party is in default with respect to any note, indenture, loan agreement, mortgage, lease, deed, or other agreement to which a Loan Party is a party or by which it is bound, which default could reasonably be expected to have a Material Adverse Effect. 6.19 ERISA Compliance. Except as specifically disclosed in Schedule 6.19: (a) Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code, the PBA and other federal, provincial or state law, except where the lack of such compliance could not reasonably be expected to have a Material Adverse Effect. Each Plan which is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the IRS and to the best knowledge of the Loan Parties, nothing has occurred which would cause the loss of such qualification. The Loan Parties and each ERISA Affiliate has made all required contributions to any Plan when due other than any contributions that could not reasonably be expected to have a Material Adverse Effect, and no application for a funding waiver or an extension of any amortization period has been made with respect to any Plan. (b) There are no pending or, to the best knowledge of the Loan Parties, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect. There has been no prohibited transaction or 32 violation of the fiduciary responsibility rules with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect. (c) Except as could not reasonably be expected to have a Material Adverse Effect: (i) No ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither the Loan Parties nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iv) neither the Loan Parties nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Section 4201 or 4243 of ERISA with respect to a Multi-employer Plan; (v) neither the Loan Parties nor any ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or 4212(c) of ERISA; and (vi) no Lien has arisen, choate or inchoate, in respect of a Loan Party or its property in connection with any Plan (save for contributions amounts not yet due). 6.20 Taxes. Each Loan Party has filed all federal, provincial, state and other tax returns and reports required to be filed, and have paid all federal, provincial, state and other taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable unless (i) such unpaid taxes and assessments would constitute a Permitted Lien or (ii) such Taxes are being contested in good faith and there are adequate reserves for such Taxes. 6.21 Regulated Entities. No Consolidated Member nor any Person controlling a Consolidated Member is an "Investment Company" within the meaning of the Investment Company Act of 1940. No Consolidated Member is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, any state public utilities code or law, or any other federal or state statute or regulation limiting its ability to incur indebtedness. 6.22 Margin Regulations. No Consolidated Member is engaged in the business of purchasing or selling Margin Stock or extending credit for the purpose of purchasing or carrying Margin Stock. 6.23 Copyrights, Patents, Trademarks and Licenses, etc. Each Loan Party owns or is licensed or otherwise has the right to use all of the patents, trademarks, service marks, trade names, copyrights, contractual franchises, licenses, rights of way, authorizations and other rights that are reasonably necessary for the operation of its businesses, without conflict with the rights of any other Person. To the knowledge of the Loan Parties, no slogan or other advertising device, product, process, method, substance, part or other material now employed by the Consolidated Members infringes upon any rights held by 33 any other Person which could reasonably be expected to have a Material Adverse Effect. No claim or litigation regarding any of the foregoing is pending or, to the knowledge of the Borrower, threatened, and no patent, invention, device, application, principle or any statute, law, rule, regulation, standard or code is pending or, to the knowledge of the Loan Parties, proposed, which, in either case, could reasonably be expected to have a Material Adverse Effect. 6.24 Material Agreements. Schedule 6.24 hereto sets forth as of the Closing Date all Material Contracts to which any Loan Party is a party or is bound as of the date hereof. 6.25 Bank Accounts. Schedule 6.25 contains as of the Closing Date a complete and accurate list of all bank accounts maintained by each Loan Party with any bank or other financial institution. 6.26 Governmental Authorization. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority or other Person is necessary or required in connection with the execution, delivery or performance by, or enforcement against, a Loan Party of this Agreement or any other Loan Document. 6.27 Investment Property. (a) Schedule 6.27 sets forth a correct and complete list of all material Investment Property owned by each Loan Party. Each Loan Party is the legal and beneficial owner of such Investment Property, as so reflected, free and clear of any Lien (other than Permitted Liens), and has not sold, granted any option with respect to, assigned or transferred, or otherwise disposed of any of its rights or interest therein. (b) To the extent any Loan Party is the owner of or becomes the issuer of any Investment Property that is Collateral (each such Person which issues any such Investment Property being referred to herein as an "Issuer"): (i) the Issuer's shareholders that are Loan Parties and the ownership interest of each such shareholder are as set forth on Schedule 6.27, and each such shareholder is the registered owner thereof on the books of the Issuer; (ii) the Issuer acknowledges the Agent's Lien; (iii) to the extent required to perfect the Agent's Liens, such security interest, collateral assignment, lien, and pledge in favor of the Agent has been registered on the books of the Issuer for such purpose as of the date hereof, and (iv) the Issuer is not aware of any liens, restrictions, or adverse claims which exist on any such Investment Property other than the Agent's Lien. 6.28 No Material Adverse Change. No Material Adverse Effect has occurred since December 31, 2000, except as otherwise disclosed (a) in the Borrower's filings with the Securities and Exchange Commission under the Exchange Act and (b) to Agent and Lenders in writing prior to the Closing Date. 34 6.29 Full Disclosure. None of the representations or warranties made by the Loan Party in the Loan Documents as of the date such representations and warranties are made, and none of the statements contained in any exhibit, report, statement or certificate furnished by or on behalf of any Loan Party in connection with the Loan Documents (including the offering and disclosure materials delivered by or on behalf of the Loan Parties to the Lenders prior to the Closing Date), contains any untrue statement of a material fact or omits any material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they are made, not misleading as of the time when made or delivered. 6.30 Common Enterprise. The successful operation and condition of each of the Loan Parties is dependent on the continued successful performance of the functions of the group of Loan Parties as a whole and the successful operation of each Loan Party is dependent on the successful performance and operation of each of the other Loan Parties. Each of the Loan Parties expects to derive benefit (and its board of directors or other governing body has determined that it may reasonably be expected to derive benefit), directly and indirectly, from successful operations of each of the other Loan Parties. Each Loan Party expects to derive benefit (and the boards of directors or other governing body of each such Loan Party have determined that it may reasonably be expected to derive benefit), directly and indirectly, from the credit extended by the Lenders to the Loan Parties hereunder, both in their separate capacities and as members of a group of companies. Each Loan Party has determined that execution, delivery, and performance of this Agreement and any other Loan Documents to be executed by such Loan Party is within its corporate purpose, will be of direct and indirect benefit to such Loan Party, and is in its best interest. ARTICLE 7 AFFIRMATIVE AND NEGATIVE COVENANTS Each Loan Party covenants to Agent and each Lender that so long as any of the Obligations remain outstanding or this Agreement is in effect: 7.1 Taxes and Other Obligations. Each Consolidated Member shall (a) file when due (after taking into account any applicable extensions) all tax returns and other reports which it is required to file; (b) pay, or provide for the payment, when due, of all taxes, fees, assessments and other governmental charges against it or upon its property, income and franchises, make all required withholding and other tax deposits, and provide to Agent and the Lenders, upon request, satisfactory evidence of its timely compliance with the foregoing; and (c) pay when due all Debt owed by it and all valid claims of materialmen, mechanics, carriers, warehousemen, landlords, processors and other like Persons, and all other indebtedness owed by it and perform and discharge in a timely manner all other obligations undertaken by it; provided, however, so long as a Loan Party has notified Agent in writing, no Consolidated Member need pay any tax, fee, assessment, or governmental charge (i) it is contesting in good faith by appropriate proceedings diligently pursued, (ii) as to 35 which a Consolidated Member has established proper reserves as required under GAAP, and (iii) the nonpayment of which does not result in the imposition of a Lien (other than a Permitted Lien). 7.2 Legal Existence and Good Standing. Each Consolidated Member shall maintain its legal existence and its qualification and good standing in all jurisdictions in which the failure to maintain such existence and qualification or good standing could reasonably be expected to have a Material Adverse Effect. 7.3 Compliance with Law and Agreements; Maintenance of Licenses. Each Consolidated Member shall comply in all respects with all Requirements of Law of any Governmental Authority having jurisdiction over it or its business (including the Federal Fair Labor Standards Act and all Environmental Laws) except where the failure to comply could not reasonably be expected to have a Material Adverse Effect. Each Consolidated Member shall obtain and maintain all licenses, permits, franchises, and governmental authorizations necessary to own its property and to conduct its business as conducted on the Closing Date. No Consolidated Member shall modify, amend or alter its certificate or articles of incorporation, or its limited liability company operating agreement or limited partnership agreement, as applicable, other than in a manner which does not adversely affect the rights of the Lenders or the Agent. 7.4 Maintenance of Property; Inspection of Property. (a) Each Consolidated Member shall maintain all of its respective property necessary and useful in the conduct of its business, in good operating condition and repair in accordance with the standard of the Borrower's industry and consistent with the Borrower's or Subsidiary's past conduct, ordinary wear and tear excepted. (b) Each Consolidated Member shall permit representatives and independent contractors of the Agent or a Lender (in the case of the Agent, at the expense of the Borrower not to exceed four (4) times per year for quarterly field exams of the Collateral within the United States and Canada unless an Event of Default has occurred and is continuing, and in the case of any Lender, at such Lender's expense) to visit and inspect any of its properties, to examine its corporate, financial and operating records, and make copies thereof or abstracts therefrom and to discuss its affairs, finances and accounts with its directors, officers and independent public accountants, at such reasonable times during normal business hours and as soon as may be reasonably desired, upon reasonable advance notice to such Consolidated Member and such visits and inspections shall not interfere materially with the business of any such Consolidated Member; provided, however, when an Event of Default exists, the Agent or any Lender may do any of the foregoing at the expense of the Loan Parties at any time during normal business hours and without advance notice. 36 7.5 Insurance. (a) Each Loan Party shall maintain with financially sound and reputable insurers, and in the manners as are customarily insured against by similar business owning such properties similarly situated, insurance against loss or damage by fire with extended coverage; theft, burglary, pilferage and loss in transit; public liability and third party property damage; larceny, embezzlement or other criminal liability; business interruption; public liability and third party property damage; and such other hazards or of such other types as is customary for Persons engaged in the same or similar business, as Agent, in its discretion, or acting at the direction of the Required Lenders, shall reasonably specify, in amounts, and under policies reasonably acceptable to Agent and the Required Lenders. Without limiting the foregoing, in the event that any Inventory or Equipment is located within an area that has been identified by the Director of the Federal Emergency Management Agency as a Special Flood Hazard Area ("SFHA"), the Loan Parties shall purchase and maintain flood insurance on any such Equipment and Inventory located in a SFHA. (b) Each of the Loan Parties shall cause Agent, for the ratable benefit of Agent and the Lenders, to be named as secured party or mortgagee and sole loss payee or additional insured on all insurance policies covering Collateral, in a manner reasonably acceptable to Agent. Each policy of insurance shall contain a clause or endorsement requiring the insurer to give not less than thirty (30) days' prior written notice to Agent in the event of cancellation of the policy for any reason whatsoever and a clause or endorsement stating that the interest of Agent shall not be impaired or invalidated by any act or neglect of the insured Person or the owner of any premises for purposes more hazardous than are permitted by such policy. All premiums for such insurance shall be paid by the Borrower when due, and certificates of insurance and, if requested by Agent or any Lender, photocopies of the policies, shall be delivered to Agent, in each case in sufficient quantity for distribution by the Agent to each of the Lenders. If any Loan Party fails to procure such insurance or to pay the premiums therefor when due, the Agent may, and at the direction of the Required Lenders shall, do so from the proceeds of Revolving Loans. 7.6 Insurance and Condemnation Proceeds. Each Loan Party shall promptly upon becoming aware, notify Agent and the Lenders of any material loss, damage, or destruction to the Collateral, whether or not covered by insurance. Agent is hereby authorized to collect all insurance and condemnation proceeds in respect of Collateral directly and to apply or remit them as follows: (i) With respect to insurance and condemnation proceeds relating to Collateral other than Fixed Assets, after deducting from such proceeds the reasonable expenses, if any, incurred by the Agent in the collection or handling thereof, the Agent shall apply such proceeds, ratably, to the reduction of the Obligations in the order provided for in Section 3.9. 37 (ii) With respect to insurance and condemnation proceeds relating to Collateral consisting of Fixed Assets, the Agent shall permit or require affected Loan Party to use such proceeds, or any part thereof, to replace, repair, restore or rebuild the relevant Fixed Assets in a diligent and expeditious manner with materials and workmanship of substantially the same quality as existed before the loss, damage or destruction so long as (1) no Default or Event of Default has occurred and is continuing, (2) the aggregate proceeds do not exceed $500,000 and (3) such Loan Party first, for such repairs using insurance and condemnation proceeds in excess of $100,000 (i) provides Agent and the Required Lenders with plans and specifications for any such repair or restoration which shall be reasonably satisfactory to Agent and the Required Lenders and (ii) demonstrates to the reasonable satisfaction of Agent and the Required Lenders that the funds available to it will be sufficient to complete such project in the manner provided therein. In all other circumstances, the Agent shall apply such insurance and condemnation proceeds, ratably, to the reduction of the Obligations in the order provided for in Section 3.9. 7.7 Environmental Laws. (a) Each Loan Party shall conduct, and shall cause each other Consolidated Member to conduct, its business in compliance with all Environmental Laws applicable to it, including those relating to the generation, handling, use, storage, and disposal of any Contaminant, except where the failure to so comply could not reasonably be expected to have a Material Adverse Effect. Each Loan Party shall take, and shall cause each other Consolidated Member to take, prompt and appropriate action to respond to any non-compliance with Environmental Laws and shall regularly report to the Agent on such response. (b) Without limiting the generality of the foregoing, each Loan Party shall submit to the Agent and the Lenders annually, commencing on the first Anniversary Date, and on each Anniversary Date thereafter, an update of the status of each material environmental compliance or liability issue, if any, concerning any Consolidated Member or any of their respective properties or operations (whether past or present). Agent or any Lender may request, in which case the Loan Parties will promptly furnish or cause to be furnished to Agent, copies of technical reports prepared by the Borrower and its communications with any Governmental Authority to determine whether the Borrower or any of its Subsidiaries is proceeding reasonably to correct, cure or contest in good faith any such alleged non-compliance or environmental liability. Where a material non-compliance or alleged non-compliance by a Governmental Authority with Environmental Laws has occurred, the Loan Parties shall, at Agent's or the Required Lenders' request and at the Loan Parties' expense, (i) retain an independent environmental engineer acceptable to Agent to evaluate the site, including tests if appropriate, and prepare and deliver to Agent, in sufficient quantity for distribution by Agent to the Lenders, a report setting forth the results of such evaluation, a proposed plan for responding to any environmental problems described therein, and an estimate of the costs thereof, and (ii) provide to Agent 38 and the Lenders a supplemental report of such engineer whenever the scope of the environmental problems, or the response thereto or the estimated costs thereof, shall increase in any material respect. (c) The Agent and its representatives will have the right at any reasonable time (accompanied by a representative of the Borrower) to enter and visit the Real Estate and any other place where any property of any Consolidated Member is located for the purposes of observing the Real Estate, taking and removing soil or groundwater samples, and conducting tests on any part of the Real Estate. The Agent is under no duty, however, to visit or observe the Real Estate or to conduct tests, and any such acts by the Agent will be solely for the purposes of protecting the Agent's Liens and preserving the Agent and the Lenders' rights under the Loan Documents. No site visit, observation or testing by the Agent and the Lenders will result in a waiver of any Default or Event of Default or impose any liability on the Agent or the Lenders. In no event will any site visit, observation or testing by the Agent be a representation that hazardous substances are or are not present in, on or under the Real Estate, or that there has been or will be compliance with any Environmental Law. No Consolidated Member nor any other party is entitled to rely on any site visit, observation or testing by the Agent. The Agent and the Lenders owe no duty of care to protect the Consolidated Members or any other party against, or to inform any Consolidated Member or any other party of, any hazardous substances or any other adverse condition affecting the Real Estate. The Agent may in its discretion disclose to a Consolidated Member or to any other party if so required by law any report or findings made as a result of, or in connection with, any site visit, observation or testing by the Agent. The Loan Parties understand and agree that the Agent makes no warranty or representation to the Consolidated Members or any other party regarding the truth, accuracy or completeness of any such report or findings that may be disclosed. The Loan Parties also understands that depending on the results of any site visit, observation or testing by the Agent and disclosed to any Consolidated Member, a Consolidated Member may have a legal obligation to notify one or more environmental agencies of the results, that such reporting requirements are site-specific, and are to be evaluated by the Consolidated Members without advice or assistance from the Agent. In each instance, the Agent will give the Borrower reasonable notice before entering the Real Estate or any other place the Agent is permitted to enter under this Section 7.7(c). The Agent will make reasonable efforts to avoid interfering with any Consolidated Member's use of the Real Estate or any other property in exercising any rights provided hereunder. 7.8 Compliance with ERISA. Except as could not reasonably be expected to have a Material Adverse Effect, the Loan Party shall, and shall cause each of its ERISA Affiliates to: (a) maintain each Plan in compliance in all material respects with the applicable provisions of ERISA, the Code, the PBA and other federal, provincial or state law; (b) cause each Plan which is qualified under Section 401 (a) of the Code to maintain such qualification; (c) make all required contributions to any 39 Plan subject to Section 412 of the Code; (d) not engage in a prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan; (e) not engage in a transaction that could be subject to Section 4069 or 4212(c) of ERISA and (f) not permit any Lien, choate or inchoate, to arise or exist in connection with any Plan (save for contribution amounts not yet due). 7.9 Mergers, Consolidations or Sales. No Loan Party shall enter into any transaction of merger, reorganization, or consolidation, or transfer, sell, assign, lease as lessor, or otherwise dispose of all or any part of its property, or wind up, liquidate or dissolve, or agree to do any of the foregoing, except (a) for sales of Inventory in the ordinary course of its business, (b) dispositions of Equipment which (i) is replaced with Equipment of like kind, function and value, provided the replacement Equipment shall be acquired prior to or substantially contemporaneously with any disposition of the Equipment that is to be replaced, and the replacement Equipment shall be free and clear of Liens other than Permitted Liens or (ii) are in the ordinary course of its business that is obsolete or no longer useable by the Borrower in its business with an orderly liquidation value not to exceed $500,000 in any Fiscal Year (c) dispositions of accounts receivable pursuant to any Approved Receivables Program or (d) pursuant to the Headquarters Financing Transaction; provided, however, that (i) any Guarantor may merge or transfer all or any part of its assets into or consolidate with a Loan Party, in each case, provided the requirements of the Security Agreement are complied with as of the effective date of the consummation of such merger, (ii) any Guarantor may merge into another Person that is not a Subsidiary prior to such merger whereby such other Person is the surviving corporation provided the requirements of the Security Agreement and Section 7.24 hereof are complied with and such other Person becomes a Subsidiary as of the effective date of the consummation of such merger and that such merger would be a Permitted Acquisition but for the Subsidiary not being the surviving corporation, and (iii) the Loan Parties may make a Permitted Acquisition. Notwithstanding the foregoing or any other provision of this Agreement, as long as no Default or Event of Default exists or would result therefrom and provided the Borrower gives the Agent and the Lenders prior written notice: (x) a Loan Party, other than the Borrower, may wind-up, dissolve, or liquidate if (i) its property is transferred to the Borrower or another Loan Party and (ii) the Person acquiring such property complies with its obligations under Section 3.4 and Section 7.31 simultaneously with such acquisition; and (y) a Loan Party, other than the Borrower, may merge or consolidate with the Borrower or another Loan Party (provided the Borrower or such other Loan Party is the survivor of any such merger or consolidation to which it is a party). 7.10 Distributions; Capital Change; Restricted Investments. No Loan Party shall (i) directly or indirectly declare or make, or incur any liability to make, any Distribution, except Distributions by a Loan Party to another Loan Party, (ii) make any change in its capital structure which could have a Material Adverse Effect or (iii) make any Restricted Investment. 7.11 Reserved. 40 7.12 Third Party Guaranties. No Loan Party shall make, issue, or become liable on any Guaranty, except (a) Guaranties of the Obligations in favor of the Agent, or (b) unsecured Guaranties of Debt incurred by a Foreign Subsidiary in an aggregate principal amount at any time outstanding not to exceed $40,000,000. 7.13 Debt. No Loan Party shall incur or maintain any Debt, other than: (a) the Obligations; (b) Debt described on Schedule 6.9; (c) Capital Leases of Equipment and purchase money secured Debt incurred to purchase Equipment provided that (i) Liens securing the same attach only to the Equipment acquired by the incurrence of such Debt, and (ii) the aggregate amount of such Debt (including Capital Leases) outstanding does not exceed $5,000,000 at any time; (d) Debt consisting of intercompany loans and advances made between the Loan Parties to the extent consistent with Section 7.29; (e) Debt evidencing a refunding, renewal or extension of the Debt described on Schedule 6.9; provided that (i) the principal amount thereof is not increased, (ii) the Liens, if any, securing such refunded, renewed or extended Debt do not attach to any assets in addition to those assets, if any, securing the Debt to be refunded, renewed or extended, (iii) no Person that is not an obligor or guarantor of such Debt as of the Closing Date shall become an obligor or guarantor thereof, and (iv) the terms of such refunding, renewal or extension are not materially less favorable to such Consolidated Member, the Agent or the Lenders than the original Debt; (f) Debt in respect of Hedge Agreements entered into for non-speculative purposes related to hedging interest rates, currency values and commodities in connection with the Core Business; (g) the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; (h) Debt arising by reason of Guaranties by a Loan Party permitted under Section 7.12(b); (i) Debt incurred with respect to the Headquarters Financing Transaction, such Debt not to exceed 80% of the value of the Headquarters; (j) Approved Receivables Programs to the extent approved by the Required Lenders; and (j) other unsecured Debt in an aggregate principal amount at any time outstanding not to exceed $1,000,000. 7.14 Prepayment. No Loan Party voluntarily shall prepay any Debt, except (a) the Obligations in accordance with the terms of this Agreement, (b) in connection with the Refinancing and (c) Debt evidenced by the Senior Subordinated Debt Offering Documents in an aggregate amount not to exceed $15,000,000 during any Fiscal Year, if and only if, (i) no Event of Default then exists or would exist after giving effect to any such prepayment and (ii) for 30 consecutive days prior to and immediately after such prepayment Availability is not less than $35,000,000. 7.15 Transactions with Affiliates. Except as permitted under Section 7.9, Section 7.10, Section 7.12 or Section 7.13 and except as set forth below, no Loan Party shall sell, transfer, distribute, or pay any money or property, including, but not limited to, any fees or expenses of any nature (including, but not limited to, any fees or expenses for management services), to any Affiliate that is not a Loan 41 Party, or lend or advance money or property to any Affiliate that is not a Loan Party, or invest in (by capital contribution or otherwise) or purchase or repurchase any Capital Stock or indebtedness, or any property, of any Affiliate that is not a Loan Party, or become liable on any Guaranty of the indebtedness, dividends, or other obligations of any Affiliate that is not a Loan Party. Notwithstanding the foregoing, if no Default or Event of Default is in existence or would result therefrom, any Consolidated Member may engage in transactions with an Affiliate in the ordinary course of such Consolidated Member's business consistent with past practices and upon terms no less favorable to such Consolidated Member than would be obtained in a comparable arm's-length transaction with a third party who is not an Affiliate. 7.16 [Reserved] 7.17 [Reserved] 7.18 Loan Party Guaranties. Each Loan Party other than the Borrower shall guarantee payment and performance of the Obligations pursuant to a Guaranty Agreement (including, without limitation, the Applica Canada Guaranty) in form and substance satisfactory to the Agent, duly executed by each such Loan Party. 7.19 [Reserved]. 7.20 Investment Banking and Finder's Fees. No Consolidated Member shall pay or agree to pay, or reimburse any other party with respect to, any investment banking or similar or related fee, underwriter's fee, finder's fee, or broker's fee to any Person in connection with this Agreement. The Loan Parties shall defend and indemnify the Agent and the Lenders and their affiliates against and hold them harmless from all claims of any Person that a Consolidated Member is obligated to pay for any such fees, and all costs and expenses (including attorneys' fees) incurred by the Agent and/or any Lender and their affiliates in connection therewith. 7.21 Business Conducted. The Consolidated Members shall not and shall not permit any of its Subsidiaries to, engage directly or indirectly, in any line of business other than the Core Business or those businesses that reasonably and rationally develop from such Core Business from time to time. 7.22 Liens. No Loan Party shall create, incur, assume, or permit to exist any Lien on any property now owned or hereafter acquired by any of them, except (a) Permitted Liens, (b) Liens securing Capital Leases and purchase money Debt permitted in Section 7.13 and (c) any Lien incurred with respect to the Headquarters Financing Transaction, such Lien not to attach to any Collateral or to exceed 80% of the value of the Headquarters. 42 7.23 Sale and Leaseback Transactions. No Loan Party shall, directly or indirectly, enter into any arrangement with any Person providing for a Loan Party to lease or rent property that a Loan Party has sold or will sell or otherwise transfer to such Person, except with respect to the Headquarters Financing Transaction. 7.24 New Subsidiaries. The Loan Parties shall not, directly or indirectly, organize, create, acquire, or permit to exist any Subsidiary except as permitted by this Section 7.24. The Loan Parties shall (a) in the event of the acquisition or creation of any Subsidiary (a "New Subsidiary") cause to be delivered to Agent for the benefit of the Lenders a Pledge Agreement with respect to the Capital Stock of such New Subsidiary substantially in the form of the Pledge Agreement executed and delivered to Agent on the Closing Date within thirty (30) Business Days of the acquisition or creation of a Subsidiary; provided, however, that if such New Subsidiary is a Foreign Subsidiary, such pledge of Capital Stock shall be limited to 65% of the outstanding voting stock of such New Subsidiary and shall only be required if it is a Direct Foreign Subsidiary; (b) in the event of the acquisition or creation of any Domestic Subsidiary, cause to be delivered to the Agent for the benefit of the Lenders each of the following, in each case to be duly executed and delivered by such Subsidiary within thirty (30) Business Days of the acquisition or creation of such Subsidiary: (i) a Subsidiary Guaranty; (ii) a security agreement in substantially the form of the Security Agreement; (iii) if such Subsidiary has any material leased locations, a Collateral Access Agreement with respect thereto; and (iv) if such Subsidiary owns any real property, a Mortgage executed by such Subsidiary in form and substance acceptable to the Agent; and (c) in the event of the acquisition or creation of any Subsidiary subject to the provisions of clauses (a) or (b) above, cause to be delivered to Agent for the benefit of the Lenders each of the following within the time periods indicated therein: (i) an opinion of counsel to such Subsidiary dated as of the date of the delivery of the other documents required to be delivered pursuant to this Section 7.24 and addressed to Agent and the Lenders, in form and substance identical to the opinion of counsel delivered pursuant to Section 8.1(a)(xviii) hereof on the Closing Date with respect to any Guarantor; and (ii) current certified copies of the Organizational Documents and Operating Documents of such Subsidiary, minutes of duly called and conducted meetings (or duly effected consent actions) of the Board of Directors, or appropriate committees thereof (and, if required by such Organizational Documents or Operating Documents or by applicable laws, of the shareholders), of such Subsidiary authorizing it to enter into the agreements required under this Section 7.24 and evidence satisfactory to Agent (confirmation of the receipt of which will be provided by Agent to the Lenders) that such Subsidiary is Solvent as of such date after giving effect to such Guaranty, Security Agreement and Pledge Agreement. 7.25 Fiscal Year. The Borrower shall not change and shall not permit the Loan Parties to change its Fiscal Year. 43 7.26 Capital Expenditures. The Loan Parties shall not make or incur any Capital Expenditures if, after giving effect thereto, the aggregate amount of all Capital Expenditures by the Loan Parties on a consolidated basis would exceed $30,000,000 during any Fiscal Year. Seventy-five percent (75%) of the amount by which Capital Expenditures made in any Fiscal Year are less than $30,000,000 may be carried over by the Loan Parties only to the next Fiscal Year; provided, however, that any amounts so carried over shall be deemed used by the Loan Parties only after all sums otherwise permitted for Capital Expenditures in such next Fiscal Year have been utilized. 7.27 Minimum EBITDA. If the Loan Parties fail to maintain Availability of at least $30,000,000 on any date on or after January 1, 2002 (any date on or after January 1, 2002 on which the Loan Parties fail to maintain such Availability being hereinafter referred to as the "Trigger Date"), then as of the last day of the fiscal quarter in which the Trigger Date occurs, the Loan Parties shall not permit Consolidated EBITDA or North American EBITDA to be less than the amounts set forth below for the test period applicable for the fiscal quarter in which such Trigger Date occurs:

Period Minimum Consolidated Minimum North American EBITDA EBITDA Fiscal Quarter ending $6,500,000 $5000 March 31, 2002 Two (2) Fiscal Quarters $17,000,000 $2,500,000 ending June 30, 2002 Three (3) Fiscal Quarters $33,500,000 $4,000,000 ending September 30, 2002 The Applicable Period $55,000,000 $6,500,000 ending December 31, 2002 and as of the last day of each Fiscal Quarter thereafter, in each case for the Applicable Period then ending

If the Loan Parties maintain Availability of at least $30,000,000 on each day during any fiscal quarter, the Loan Parties shall not be required to satisfy the foregoing Consolidated EBITDA and North American EBITDA requirements as of the last day of such fiscal quarter. 7.28 Minimum Availability. The Loan Parties shall maintain Availability of not less than (a) $20,000,000 at all times 44 after the Closing Date through and including January 1, 2002, and (b) $10,000,000 at all times thereafter during the term of this Agreement. 7.29 Use of Proceeds. The Loan proceeds shall be used by the Borrower solely for one or more of the following purposes: (i) to satisfy in full and terminate any and all obligations of the Borrower and its respective Subsidiaries (including the termination of any Liens granted under the Original Credit Agreement) under the Original Credit Agreement (the "Refinancing"), (ii) to satisfy reimbursement Debt in respect of Letters of Credit and (iii) to finance the ongoing working capital and other general corporate purposes of the Borrower, Applica Consumer Products to the extent of the Applica Consumer Products Formula Amount at any date, and Applica Canada to the extent of the Applica Canada Formula Amount at any date. The financing of the ongoing working capital and other general corporate purposes of Loan Parties other than the Borrower, Applica Consumer Products and Applica Canada shall be provided solely by Applica Consumer Products to the extent expressly permitted under the terms of this Agreement. In no event shall any portion of the Loan proceeds be used by a Loan Party or any Subsidiary, directly or indirectly, to purchase or carry Margin Stock, to repay or otherwise refinance indebtedness of a Loan Party or others incurred to purchase or carry Margin Stock, to extend credit for the purpose of purchasing or carrying any Margin Stock, or to acquire any security in any transaction that is subject to Section 13 or 14 of the Exchange Act, other than a Permitted Acquisition. 7.30 Changes to Senior Subordinated Debt Offering Documents. The Loan Parties shall not modify or amend the terms of the Senior Subordinated Debt Offering Documents if the effect of such amendment is to: (a) increase the maximum principal amount of the Debt thereunder or the interest rate payable in respect thereof; (b) change the dates upon which payments of principal or interest are due under the Senior Subordinated Debt Offering Documents; (c) modify any event of default or add any covenant with respect to such Debt; (d) modify the payment, redemption or prepayment provisions of such Debt; (e) modify the subordination provisions under the Senior Subordinated Debt Offering Documents; or (f) modify any other term of the Senior Subordinated Debt Offering Documents if such modification would materially increase the obligations of any obligor thereunder or confer additional material rights to the holder of such Debt in a manner adverse to the Loan Parties, the Borrower, or any of the other Consolidated Members, Agent or any Lender. 7.31 Closure of Bank Accounts; Blocked Account Agreement; AmEx Termination. No later than thirty (30) days after Closing Date, the Loan Parties shall close (a) the Standalone Bank Account (Applica Consumer Products, Inc.) Account Number 36407011679 with JP Morgan Chase, (b) the Standalone Bank Account (HP Americas, Inc.) Account Number 101210 with Citibank, and (c) the Standalone Bank Account (Applica Canada Corporation) Account Number 115-023-4 with Royal Bank of Canada. On or before January 15, 2002, (y) Applica Canada shall have obtained an Applica Canada Blocked Account Agreement from Scotia Bank in respect of the Lockbox and Disbursement Account Number 228220032611 45 and an authenticated account control agreement in respect of Standalone Bank Account (Applica Canada Corporation) Account Number 228220140414 and (z) terminations of all UCC financing statements filed against the Borrower in favor of American Express Business Finance Corporation. 7.32 Intercompany Security Interest. At any time that Applica Consumer Products shall have a Tangible Net Worth of less than $250,000,000, upon Agent's request the Loan Parties shall enter into security agreements pursuant to which each Loan Party other than the Borrower shall grant to the Borrower a security interest in the Collateral to secure all Intercompany Accounts owing by them from time to time to the Borrower and the Borrower shall collaterally assign such security interest to the Agent for the benefit of the Lenders as additional security for the Obligations. 7.33 Applica Canada Blocked Account. For so long as no Event of Default has occurred and is continuing, the Borrower shall cause to be transferred to it no less frequently than weekly all cash balances contained in the Applica Canada Blocked Account for application to the Payment Account pursuant to Section 3.7.; provided, however, that for so long as no Event of Default exists, Applica Canada may retain from such cash balances solely for working capital purposes related to its Core Business in Canada an aggregate amount not to exceed $(Cdn)3,500,000 during any month. Any sums so retained by Applica Canada shall be reflected in each Borrowing Base for any applicable period and to Applica Canada's general ledger. After the occurrence of an Event of Default, upon written notice from the Agent to any bank maintaining the Applica Canada Blocked Account and to the Borrower, Applica Canada shall not be entitled to retain any such balances and the Agent shall have the sole and exclusive right to withdraw funds from time to time in the Applica Canada Blocked Account and all amounts so collected by the Agent shall be applied to the Payment Account in accordance with Section 3.7. 7.34 Further Assurances. The Loan Parties shall execute and deliver, or cause to be executed and delivered, to the Agent such documents and agreements, and shall take or cause to be taken such actions as the Agent may, from time to time, reasonably request to carry out the terms and conditions of this Agreement and the other Loan Documents. ARTICLE 8 CONDITIONS OF LENDING 8.1 Conditions Precedent to Making of Loans on the Closing Date. The obligation of the Lenders to make the initial Loans on the Closing Date, and the obligation of the Agent to cause the Letter of Credit Issuer to issue any Letter of Credit or Credit Support on the Closing Date, are subject to the following conditions precedent having 46 been satisfied in a manner satisfactory to the Agent and each Lender: (a) The Agent shall have received each of the following documents, all of which shall be satisfactory in form and substance to the Agent and the Lenders: (i) certified copies of the certificate of incorporation, certificate of the organizational document of each of the Loan Parties, with all amendments, if any, certified by the appropriate Governmental Authority (provided that upon request by any Loan Party and with the consent of the Agent, any such certified certificate of incorporation, certificate of limited partnership, or comparable organizational document for such Loan Party to the extent not provided on the Closing Date, may be provided within thirty (30) days of the Closing Date, provided that an uncertified copy thereof has been delivered to the Agent together with a written statement by a Responsible Officer confirming that such copy is true, correct, and complete), and the bylaws, regulations, operating agreement, or similar governing document of each Loan Party, in each case certified by the corporate secretary, general partner, or comparable authorized representative of such Loan Party, as being true and correct and in effect on the Closing Date; (ii) certificates of incumbency and specimen signatures with respect to each Person authorized to execute and deliver this Agreement and the other Loan Documents on behalf of each Loan Party and each other Person executing any document, certificate, or instrument to be delivered in connection with this Agreement and the other Loan Documents and, in the case of the Borrower, to request Borrowings and the issuance of Letters of Credit or Credit Support; (iii) a certificate evidencing the existence of each Loan Party, and certificates evidencing the good standing of each Loan Party in the jurisdiction of its organization and in each other jurisdiction in which it is required to be qualified as a foreign business entity to transact its business as presently conducted, provided that upon request by any Loan Party and with the consent of the Agent, certificates of good standing for any Loan Party from a Governmental Authority other than the jurisdiction of its organization and chief executive office, to the extent not provided on the Closing Date, may be provided within thirty (30) days of the Closing Date; (iv) this Agreement and the other Loan Documents duly executed and delivered by each Loan Party that is a party thereto; (v) certified copies of all action taken by each Loan Party to authorize the execution, delivery, and performance of this Agreement, the other Loan Documents, and with respect to the Borrower, the Borrowings and the issuance of Letters of Credit and/or Credit Support; (vi) a certificate of each Loan Party signed by a Responsible Officer: (A) stating that all of the representations and warranties made 47 or deemed to be made under this Agreement are true and correct as of the Closing Date, after giving effect to the Loans to be made at such time and the application of the proceeds thereof and the issuance of any Letter(s) of Credit and/or Credit Support at such time, (B) stating that no Default or Event of Default exists, (C) specifying the account of the Borrower which is a Designated Account, and (D) certifying as to such other factual matters as may be reasonably requested by the Agent; (vii) with respect to any Letter of Credit or Credit Support to be issued, all documentation required by Section 1.4, duly executed and delivered by each Loan Party, complying with the requirements of such Section; (viii) (A) UCC or PPSA financing statements and/or amendments to existing UCC or PPSA financing statements with respect to all Collateral as may be requested by the Agent (and in all events in each state of incorporation of an Obligated Party), duly executed by the respective Loan Parties, to the extent any such Liens may be perfected under the UCC or PPSA and (B) with respect to any Loan Party located in, or organized under the laws of, Canada and all filings and recordations required by Requirements of Law of Canada (including without limitation under the PPSA and RDPRM), respectively, as the case may be, in all jurisdictions that the Agent may deem necessary or desirable in order to perfect the Agent's Lien in all the Collateral, including without limitation, Accounts and Deposit Accounts of such Loan Party; (ix) (A) duly executed UCC-3 termination statements or assignments with respect to the UCC and such other releases or instruments, in each case in form and substance satisfactory to the Agent, as in each case shall be necessary to terminate and satisfy all Liens, except Permitted Liens, on the property of the Loan Parties, to the extent the Agent's Liens therein may be perfected under the UCC and (B) releases, terminations or other instruments under the Requirements of Law of Canada (including without limitation under the PPSA and other applicable law), and such other releases or instruments, in each case in form and substance satisfactory to the Agent, in each case as shall be necessary to terminate and satisfy all Liens, except Permitted Liens, on all the Collateral, including without limitation, the Accounts and Deposit Accounts of any Loan Party; (x) as may be required by the Agent in its discretion, notifications of security interests, in patents, trademarks and copyrights under the Security Agreement, as applicable, with respect to any and all Proprietary Rights, if any, owned by any Loan Party which must be registered with any Governmental Authority to perfect the Agent's Liens in such Proprietary Rights, duly executed 48 by each such Consolidated Member, as applicable; (xi) each Guaranty Agreement (including the Applica Canada Guarantee), duly executed and delivered by each Person required pursuant to Section 7.18; (xii) (A) stock certificates and stock powers (duly executed in blank) for all Capital Stock (to the extent certificated) owned by a Loan Party in any Loan Party, in form and substance satisfactory to the Agent and (B) as may be required by the Agent in its discretion, "control" agreements (pursuant to the UCC), each duly executed, as the Agent may request with respect to any other Investment Property listed in Schedule 6.27; (xiii) a Borrowing Base Certificate effective as of the Business Day preceding the day such initial Loans are to be funded or any such Letter of Credit or Credit Support is to be issued; (xiv) as requested by the Agent in its discretion, a landlord's or mortgagee's waiver and consent agreement, in form and substance reasonably acceptable to the Agent, duly executed on behalf of each landlord or mortgagee, as the case may be, of Real Estate on which any Collateral is located provided, that the Agent may, in its discretion, establish, without duplication, a reserve in an amount equal to three (3) months rent with respect to the Collateral located on any Real Estate for which the Agent has not received an acceptable waiver and consent agreement); (xv) Each Blocked Account Agreement (including each Applica Canada Blocked Account Agreement) duly executed as required by the Security Agreement; (xvi) the Applica Canada Security Agreement duly executed and delivered by Applica Canada; (xvii) (A) the Agent shall have received satisfactory evidence that the Agent has a valid, exclusive (other than Permitted Liens), and perfected first priority security interest, lien, collateral assignment, and pledge as of such date in all Collateral as security for all Obligations, to the extent any such Liens may be perfected under the UCC (excluding any Liens on vehicles for which a certificate of title has been issued and Liens perfected solely by possession, but only to the extent the Agent has not requested perfection of its Liens in such vehicles or possession of such Collateral) and (B) with respect to any Loan Party located in, or organized under the laws of Canada, the Agent shall have received satisfactory evidence that the Agent has a valid, exclusive (other than Permitted Liens), and perfected first priority Lien in all personal Property of any such Loan Party, to the extent any such Liens may be perfected under the Requirements of Law of Canada including without limitation under the PPSA and other applicable law 49 respectively, as the case may be, in each case in form and substance satisfactory to the Agent; provided further, that upon the Agent's request, the Loan Parties shall provide any additional agreement, document, instrument, certificate, or other item relating to any Collateral as may be required for perfection under any Requirement of Law; (xviii) opinions of counsel for the Loan Parties, each such opinion to be in a form, scope, and substance reasonably satisfactory to the Agent, the Lenders, and their respective counsel; and (xix) such other documents and instruments as the Agent or any Lender may reasonably request. (b) After giving effect to the making of all Loans (including any Loans made to finance payment or reimbursement for fees, costs, and expenses then payable under or pursuant to this Agreement) and issuance of all Letters of Credit and Credit Support and with all of their obligations current, the Loan Parties shall have remaining Availability in an amount not less than $25,000,000 on the Closing Date. (c) All representations and warranties made hereunder and in the other Loan Documents shall be true and correct as if made on the Closing Date. (d) No Event of Default shall exist or would exist after giving effect to the Refinancing, the Loans to be made and the Letters of Credit and Credit Support to be issued. (e) Subject to Section 13.7 hereof, the Loan Parties shall have paid all fees and expenses of Agent and the Attorney Costs incurred in connection with any of the Loan Documents and the transactions contemplated thereby to the extent invoiced. (f) Agent shall have received evidence, in form, scope, and substance, reasonably satisfactory to the Agent, of all insurance coverage as required by this Agreement. (g) All proceedings taken in connection with the execution of this Agreement, the other Loan Documents, and all documents and papers relating thereto shall be reasonably satisfactory in form, scope, and substance to the Agent and the Lenders. (h) Without limiting the generality of the items described above, the Loan Parties and each Person guaranteeing or securing payment of the Obligations shall have delivered or caused to be delivered to the Agent (in form and substance reasonably satisfactory to the Agent), the financial statements, instruments, resolutions, documents, agreements, certificates, opinions and other items required by the Agent. The acceptance by the Borrower of any Loans made or Letters of Credit or Credit Support issued on the Closing Date shall be deemed to be a representation and warranty made by the Loan 50 Parties to the effect that all of the conditions precedent to the making of such Loans or issuance of such Letters of Credit or Credit Support have been satisfied, with the same effect as delivery to the Agent and the Lenders of a certificate signed by a Responsible Officer of the Loan Parties, dated the Closing Date, to such effect. Execution and delivery to the Agent by a Lender of a counterpart of this Agreement shall be deemed confirmation by such Lender that (i) the decision of such Lender to execute and deliver to the Agent an executed counterpart of this Agreement was made by such Lender independently and without reliance on the Agent or any other Lender as to the satisfaction of any condition precedent set forth in this Section 8.1, and (ii) all documents sent to such Lender for approval, consent, or satisfaction were acceptable to such Lender. 8.2 Conditions Precedent to Each Loan. The obligation of the Lenders to make each Loan, including the initial Loans on the Closing Date, and the obligation of the Agent to cause the Letter of Credit Issuer to issue any Letter of Credit or Credit Support shall be subject to the further conditions precedent that on and as of the date of any such extension of credit the following statements shall be true, and the acceptance by the Borrower of any extension of credit shall be deemed to be a statement to the effect set forth in clause (a), clause (b), and clause (c) following with the same effect as the delivery to the Agent and the Lenders of a certificate signed by a Responsible Officer of the Loan Parties, dated the date of such extension of credit, stating that: (a) the representations and warranties contained in this Agreement and the other Loan Documents are correct in all material respects on and as of the date of such extension of credit as though made on and as of such date, other than any such representation or warranty which relates to a specified prior date and except to the extent the Agent and the Lenders have been notified in writing by the Loan Parties that any representation or warranty is not correct and the Required Lenders have explicitly waived in writing compliance with such representation or warranty; (b) No Default or Event of Default has occurred and is continuing, or would result from such proposed Borrowing; and (c) The proposed Borrowing will not cause the aggregate principal amount of all outstanding Revolving Loans plus the aggregate amount available for drawing under all outstanding Letters of Credit and in respect of any Credit Support, to exceed the Borrowing Base or the combined Commitments of the Lenders. Except as provided by Section 11.1(a), no Borrowing or issuance of any Letter of Credit or Credit Support shall exceed the Availability, provided, however, that the foregoing conditions precedent are not conditions to the requirement for each Lender participating in or reimbursing the Bank or the Agent for such Lenders' Pro Rata Share of any Non-Ratable Loan or Agent Advance made in accordance with the provisions of Section 1.2(h) and Section 1.2(i). 51 ARTICLE 9 DEFAULT; REMEDIES 9.1 Events of Default. It shall constitute an event of default ("Event of Default") if any one or more of the following shall occur for any reason: (a) any failure by the Borrower to pay the principal of or interest or premium on any of the Obligations or any fee or other amount owing hereunder when due, whether upon demand or otherwise; (b) any representation or warranty made or deemed made by a Loan Party in this Agreement or by a Loan Party in any of the other Loan Documents, any Financial Statement, or any certificate furnished by any Consolidated Member at any time to the Agent or any Lender shall prove to be untrue in any material respect as of the date on which made, deemed made, or furnished; (c) (i) any default shall occur in the observance or performance of any of the covenants and agreements contained in Sections 5.2(l), 7.2, 7.5, 7.9-7.31, or Section 11 of the Security Agreement, (ii) any default shall occur in the observance or performance of any of the covenants and agreements contained in Sections 5.2 (a)-(f) or 5.3 (a)-(j) and such default shall continue for five (5) days or more; or (iii) any default shall occur in the observance or performance of any of the other covenants or agreements contained in any other Section of this Agreement or any other Loan Document, any other Loan Documents, or any other agreement entered into at any time to which any Loan Party and the Agent or any Lender are a party (including in respect of any Bank Products) and such default shall continue for twenty (20) days or more; (d) any default which has not been waived shall occur with respect to (i) Debt of the Borrower evidenced by or arising under the Senior Subordinated Debt Offering Documents or (ii) any Debt (other than the Obligations and Debt contemplated by clause (i) hereof) of any Loan Party in an outstanding principal amount which exceeds $500,000, or under any agreement or instrument under or pursuant to which any such Debt may have been issued, created, assumed, or guaranteed by any Loan Party, and such default shall continue for more than the period of grace, if any, therein specified, if the effect thereof (with or without the giving of notice or further lapse of time or both) is to accelerate, or to permit the holders of any such Debt to accelerate, the maturity of any such Debt; or any such Debt shall be declared due and payable or be required to be prepaid (other than by a regularly scheduled required prepayment) prior to the stated maturity thereof; (e) any Loan Party shall (i) file a voluntary petition in bankruptcy or file a voluntary petition or an answer or file any proposal or notice of intent to file a proposal or otherwise commence any action or proceeding seeking reorganization, arrangement, consolidation or readjustment of its debts or which 52 seeks to stay or has the effect of staying any creditor or for any other relief under the federal Bankruptcy Code, as amended, or under any other bankruptcy, insolvency, liquidation, winding up, corporate or similar act or law, provincial, state or federal (including without limitation, the BIA or the Companies' Creditors Arrangement Act (Canada)), now or hereafter existing, or consent to, approve of, or acquiesce in, any such petition, proposal, action or proceeding; (ii) apply for or acquiesce in the appointment of a receiver, assignee, liquidator, sequestrator, custodian, monitor, administrator, trustee or similar officer for it or for all or any part of its property; (iii) make an assignment for the benefit of creditors; or (iv) be unable generally to pay its debts as they become due; (f) an involuntary petition shall be filed or an action or proceeding otherwise commenced seeking reorganization, arrangement, consolidation or readjustment of the debts of any Loan Party or for any other relief under the federal Bankruptcy Code, as amended, or under any other bankruptcy, insolvency, liquidation, winding up, corporate or similar act or law (including, without limitation, the BIA or the Companies' Creditors Arrangement Act (Canada)), provincial, state or federal, now or hereafter existing and either such petition, proposal or proceeding shall not be dismissed within forty-five (45) days after the filing or commencement thereof or an order of relief shall be entered with respect thereto; (g) a receiver, assignee, liquidator, sequestrator, custodian, monitor, administrator, trustee or similar officer for any Loan Party or for all or any part of its property shall be appointed or a warrant of attachment, execution, writ of seizure or seizure and sale or similar process shall be issued against any part of the property of any Loan Party or any distress or analogous process is levied upon all or any part of any Loan Party; (h) any Loan Party shall file a certificate of dissolution or like process under applicable state law or shall be liquidated, dissolved or wound-up or shall commence or have commenced against it any action or proceeding for dissolution, winding-up or liquidation, or shall take any corporate action in furtherance thereof, except as permitted under Section 7.9(x); (i) all or any material part of the property of any Loan Party shall be nationalized, expropriated or condemned, seized or otherwise appropriated, or custody or control of such property or of such Loan Party shall be assumed by any Governmental Authority or any court of competent jurisdiction at the instance of any Governmental Authority or any other Person, except where contested in good faith by proper proceedings diligently pursued where a stay of enforcement is in effect; (j) any Loan Document shall be terminated, revoked or declared void or invalid or unenforceable or any material Loan Document is challenged by any Loan Party or any Affiliate; 53 (k) one or more judgments, orders, decrees or arbitration awards is entered against any Loan Party involving in the aggregate liability for all Loan Party (to the extent not covered by independent third-party insurance as to which the insurer does not dispute coverage) as to any single or related or unrelated series of transactions, incidents or conditions, of $1,000,000 or more, and, whether or not covered by insurance, the same shall remain unsatisfied, unvacated and unstayed pending appeal for a period of thirty (30) days after the entry thereof; (l) payment by a Loan Party under an agreement of Guaranty issued by such Loan Party with respect to any Debt of a Foreign Subsidiary or a judgment, order, decree or arbitration award is entered against a Loan Party with respect to any such agreement of Guaranty, in either case in an aggregate amount in excess of $10,000,000 during the term of this Agreement; (m) any loss, theft, damage or destruction of any item or items of Collateral or other property of any Loan Party occurs which could reasonably be expected to cause a Material Adverse Effect and is not adequately covered by insurance; (n) there is filed against any Loan Party any action, suit or proceeding under any federal or state racketeering statute (including the Racketeer Influenced and Corrupt Organization Act of 1970), which action, suit or proceeding (i) is not dismissed within one hundred twenty (120) days, and (ii) could reasonably be expected to result in the confiscation or forfeiture of any material portion of the Collateral; (o) for any reason other than the failure of the Agent to take any action available to it to maintain perfection of the Agent's Liens, pursuant to the Loan Documents, any material Loan Document ceases to be in full force and effect or any Lien with respect to any material portion of the Collateral intended to be secured thereby ceases to be, or is not, valid, perfected and prior to all other Liens (other than Permitted Liens) or is terminated, revoked or declared void; (p) (i) an ERISA Event shall occur with respect to a Pension Plan or Multi-employer Plan which has resulted or could reasonably be expected to result in liability of the Loan Parties or any ERISA Affiliate under applicable laws in an aggregate amount in excess of $500,000; (ii) the aggregate amount of Unfunded Pension Liability among all Pension Plans at any time exceeds $500,000; (iii) the Loan Parties or any ERISA Affiliate shall fail to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multi-employer Plan in an aggregate amount in excess of $500,000; or (iv) any Lien (save for contribution amounts not yet due) arises in connection with any Plan; (q) (i) there occurs a Change of Control of the Borrower or (ii) any Loan Party or any Foreign Subsidiary ceases to be a Wholly-Owned Subsidiary; 54 (r) the Black & Decker License Agreement shall be terminated, revoked or declared void or invalid or unenforceable for any reason; or (s) there occurs an event having a Material Adverse Effect. 9.2 Remedies. (a) If a Default or an Event of Default exists, the Agent may, in its discretion, and shall, at the direction of the Required Lenders, do one or more of the following at any time or times and in any order, without notice to or demand on the Borrower: (i) reduce the Maximum Revolver Amount, or the advance rates against Eligible Accounts and/or Eligible Inventory used in computing the Borrowing Base, or reduce one or more of the other elements used in computing the Borrowing Base; (ii) restrict the amount of or refuse to make Revolving Loans; and (iii) restrict or refuse to provide Letters of Credit or Credit Support. If an Event of Default exists, the Agent shall, at the direction of the Required Lenders, do one or more of the following, in addition to the actions described in the preceding sentence, at any time or times and in any order, without notice to or demand on the Borrower: (A) terminate the Commitments and this Agreement; (B) declare any or all Obligations to be immediately due and payable; provided, however, that upon the occurrence of any Event of Default described in Sections 9.1(e), 9.1(f), 9.1(g), or 9.1(h), the Commitments shall automatically and immediately expire and all Obligations shall automatically become immediately due and payable without notice or demand of any kind; (C) require the Loan Parties to cash collateralize all outstanding Letter of Credit Obligations in an amount not less than 105% of the outstanding face amount of such Letter of Credit Obligations and, if the Loan Parties fail to make such deposit promptly, the Lenders may (and shall upon the direction of the Required Lenders) advance such amount as a Revolving Loan (whether or not such loan would be in excess of the Borrowing Base). Any such deposit or advance shall be held by the Agent as a reserve to fund future payments on any Letter of Credit Obligations; and (D) pursue its other rights and remedies under the Loan Documents and applicable law. (b) If an Event of Default has occurred and is continuing: the Agent shall have for the benefit of the Lenders, in addition to all other rights of the Agent and the Lenders, the rights and remedies of a secured party under the Loan Documents, the UCC, the PPSA, and other applicable law. ARTICLE 10 TERM AND TERMINATION 10.1 Term and Termination. The term of this Agreement shall end on the Stated Termination Date unless sooner terminated in accordance with the terms hereof. The Agent upon direction from the Required Lenders shall terminate this Agreement without notice upon the occurrence of an Event 55 of Default. Upon the effective date of termination of this Agreement for any reason whatsoever, all Obligations (including all unpaid principal, accrued and unpaid interest and any early termination or prepayment fees or penalties) shall become immediately due and payable and the Loan Parties shall immediately arrange for the cancellation and return of Letters of Credit then outstanding. Notwithstanding the termination of this Agreement, until all Obligations are indefeasibly paid and performed in full in cash, the Loan Parties shall remain bound by the terms of this Agreement and shall not be relieved of any of their Obligations hereunder or under any other Loan Document, and the Agent and the Lenders shall retain all their rights and remedies hereunder (including the Agent's Liens in and all rights and remedies with respect to all then existing and after-arising Collateral). ARTICLE 11 AMENDMENTS; WAIVERs; PARTICIPATIONS; ASSIGNMENTS; SUCCESSORS 11.1 Amendments and Waivers. (a) No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent with respect to any departure by the Loan Parties therefrom, shall be effective unless the same shall be in writing and signed by the Required Lenders (or by the Agent at the written request of the Required Lenders) and the Loan Parties and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such waiver, amendment, or consent shall, unless in writing and signed by all the Lenders and the Loan Parties and acknowledged by the Agent, do any of the following: (i) increase or extend the Commitment of any Lender; (ii) postpone or delay any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees or other amounts due to the Lenders (or any of them) hereunder or under any other Loan Document; (iii) reduce the principal of, or the rate of interest specified herein on any Loan, or any fees or other amounts payable hereunder or under any other Loan Document; (iv) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans which is required for the Lenders or any of them to take any action hereunder; (v) increase any of the percentages set forth in the definition of the Borrowing Base or in Section 1.2(i); (vi) amend this Section or any provision of this Agreement providing for consent or other action by all Lenders; 56 (vii) release any Loan Parties from their obligations under this Agreement or any of the other Loan Documents, release any Guaranties of the Obligations or release Collateral other than as permitted by Section 12.11; (viii) amend the definition of "Required Lenders;" (ix) increase the Maximum Revolver Amount, the Maximum Inventory Loan Amount, Letter of Credit Subfacility or the maximum permitted amount of Non-Ratable Loans; (x) reduce, amend, waive or eliminate the minimum Availability requirement set forth in Section 7.28; or (xi) amend the definition of "Borrowing Base" (other than reduce the advance rates set forth therein) or "In-Transit Inventory." provided, however, the Agent may, in its sole discretion and notwithstanding the limitations contained in clauses (v) and (xi) above and any other terms of this Agreement, make Agent Advances in accordance with Section 1.2(i) and, provided further, that no amendment, waiver or consent shall, unless in writing and signed by the Agent, affect the rights or duties of the Agent under this Agreement or any other Loan Document and provided further, that Schedule 1.2 hereto (Commitments) may be amended from time to time by Agent alone to reflect assignments of Commitments in accordance herewith. (b) If, in connection with any proposed amendment, waiver or consent (a "Proposed Change") requiring the consent of all Lenders, the consent of Required Lenders is obtained, but the consent of other Lenders is not obtained (any such Lender whose consent is not obtained as described in this clause (c) being referred to as a "Non-Consenting Lender"), then, so long as the Agent is not a Non-Consenting Lender, at the Loan Parties' request, the Agent or an Eligible Assignee shall have the right (but not the obligation) with the Agent's approval, to purchase from the Non-Consenting Lenders, and the Non-Consenting Lenders agree that they shall sell, all the Non-Consenting Lenders' Commitments for an amount equal to the principal balances thereof and all accrued interest and fees (except any fees arising in connection with such purchase that would otherwise arise under Section 4.4, for which the Loan parties shall not be liable) with respect thereto through the date of sale pursuant to Assignment and Acceptance Agreement(s), without premium or discount. 11.2 Assignments; Participations. (a) Any Lender may, with the written consent of the Agent (which consent shall not be unreasonably delayed or withheld), assign and delegate to one or more Eligible Assignees (provided that no consent of the Agent shall be required in connection with any assignment and delegation by a Lender to another Lender or an Affiliate of such Lender) (each an "Assignee") all, or any ratable part of all, of the Loans, the Commitments and the other rights and obligations of such Lender hereunder, in a minimum amount of $10,000,000 (provided that, 57 unless an assignor Lender has assigned and delegated all of its Loans and Commitments, no such assignment and/or delegation shall be permitted unless, after giving effect thereto, such assignor Lender retains a Commitment in a minimum amount of $10,000,000; provided, however, that the Loan Parties and the Agent may continue to deal solely and directly with such Lender in connection with the interest so assigned to an Assignee until (i) written notice of such assignment, together with payment instructions, addresses and related information with respect to the Assignee, shall have been given to the Loan Parties and the Agent by such Lender and the Assignee; (ii) such Lender and its Assignee shall have delivered to the Loan Parties and the Agent an Assignment and Acceptance in the form of Exhibit F ("Assignment and Acceptance") together with any note or notes subject to such assignment and (iii) except for an assignment to an Affiliate, the assignor Lender or Assignee has paid to the Agent a processing fee in the amount of $3,500. (b) From and after the date that the Agent notifies the assignor Lender that it has received an executed Assignment and Acceptance and payment of the above-referenced processing fee, (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations, including, but not limited to, the obligation to participate in Letters of Credit and Credit Support have been assigned to it pursuant to such Assignment and Acceptance, shall have the rights and obligations of a Lender under the Loan Documents, and (ii) the assignor Lender shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations 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). (c) By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder and the Assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender 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 the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other Loan Document furnished pursuant hereto or the attachment, perfection, or priority of any Lien granted by the Loan Parties to the Agent or any Lender in the Collateral; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Consolidated Members or any of them or the performance or observance by any Loan Party of any of its obligations under this Agreement or any other Loan Document furnished pursuant hereto; (iii) such Assignee confirms that it has received a copy of this Agreement, together with 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 the Agent, such 58 assigning Lender or any other Lender, 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; (v) such Assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Loan Documents as are delegated to the Agent by the terms hereof, together with such powers, including the discretionary rights and incidental power, as are reasonably incidental thereto; and (vi) such Assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender. (d) Immediately upon satisfaction of the requirements of Section 11.2(a), this Agreement shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee and the resulting adjustment of the Commitments arising therefrom. The Commitment allocated to each Assignee shall reduce such Commitments of the assigning Lender pro tanto. (e) Any Lender may at any time sell to one or more commercial banks, financial institutions, or other Persons not Affiliates of a Consolidated Member (a "Participant") participating interests in any Loans, the Commitment of that Lender and the other interests of that Lender (the "originating Lender") hereunder and under the other Loan Documents; provided, however, that (i) the originating Lender's obligations under this Agreement shall remain unchanged, (ii) the originating Lender shall remain solely responsible for the performance of such obligations, (iii) the Loan Parties and the Agent shall continue to deal solely and directly with the originating Lender in connection with the originating Lender's rights and obligations under this Agreement and the other Loan Documents, and (iv) no Lender shall transfer or grant any participating interest under which the Participant has rights to approve any amendment to, or any consent or waiver with respect to, this Agreement or any other Loan Document except the matters set forth in Section 11.1(a) (i), (ii) and (iii), and all amounts payable by the Loan Parties hereunder shall be determined as if such Lender had not sold such participation; except that, if amounts outstanding under this Agreement are due and unpaid, or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement to the same extent and subject to the same limitation as if the amount of its participating interest were owing directly to it as a Lender under this Agreement. (f) Notwithstanding any other provision in this Agreement, any Lender may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in this Agreement in favor of any Federal Reserve Bank in accordance with Regulation A of the FRB or U.S. Treasury Regulation 31 CFR Section 203.14, and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law. 59 ARTICLE 12 THE AGENT 12.1 Appointment and Authorization. Each Lender hereby designates and appoints Bank as its Agent under this Agreement and the other Loan Documents and each Lender hereby irrevocably authorizes the Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. The Agent agrees to act as such on the express conditions contained in this Article 12. The provisions of this Article 12 are solely for the benefit of the Agent and the Lenders and the Loan Parties shall have no rights as a third party beneficiary of any of the provisions contained herein, nor shall anything contained in this Article 12 limit any rights the Loan Parties have or may have as against Agent, Bank, any Lender, any Letter of Credit Issuer or any other Agent-Related Person. Notwithstanding any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall the Agent have or be deemed to have any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Agent. Without limiting the generality of the foregoing sentence, the use of the term "agent" in this Agreement with reference to the Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties. Except as expressly otherwise provided in this Agreement, the Agent shall have and may use its sole discretion with respect to exercising or refraining from exercising any discretionary rights or taking or refraining from taking any actions which the Agent is expressly entitled to take or assert under this Agreement and the other Loan Documents, including (a) the determination of the applicability of ineligibility criteria with respect to the calculation of the Borrowing Base, (b) the making of Agent Advances pursuant to Section 1.2(i), and (c) the exercise of remedies pursuant to Section 9.2, and, with respect to any such action so taken, if exercised in good faith, Agent shall have no liability to the Lenders for any errors in judgement. 12.2 Delegation of Duties. The Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects as long as such selection was made without gross negligence or willful misconduct. 12.3 Liability of Agent. None of the Agent-Related Persons shall (i) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other 60 Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct), or (ii) be responsible in any manner to any of the Lenders for any recital, statement, representation or warranty made by any Loan Party or any other Consolidated Member, or any officer thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of any Loan Party or any other Consolidated Member or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of any Loan Party or any other Consolidated Member. 12.4 Reliance by Agent. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to the Loan Parties), independent accountants and other experts selected by the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Required Lenders (or all Lenders if so required by Section 11.1) and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Lenders. 12.5 Notice of Default. The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default, unless the Agent shall have received written notice from a Lender or any of the Loan Parties referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default." The Agent will notify the Lenders of its receipt of any such notice. The Agent shall promptly take such action with respect to such Default or Event of Default as may be requested by the Required Lenders in accordance with Section 9; provided, however, that unless and until the Agent has received any such request, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable. 12.6 Credit Decision. Each Lender acknowledges that none of the Agent-Related Persons has made any representation or warranty to it, and that no act by the Agent hereinafter taken, including any 61 review of the affairs of the Loan Parties and their Affiliates, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Lender. Each Lender represents to the Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of the Loan Parties or the other Consolidated Members, and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to the Loan Parties. Each Lender also represents that it will, independently and without reliance upon any Agent-Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of the Borrower. Except for notices, reports and other documents expressly herein required to be furnished to the Lenders by the Agent, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of any Loan Party or any other Consolidated Member which may come into the possession of any of the Agent-Related Persons. 12.7 Indemnification. Whether or not the transactions contemplated hereby are consummated, the Lenders shall indemnify upon demand the Agent-Related Persons (to the extent not reimbursed by or on behalf of the Loan Parties and without limiting the obligation of the Loan Parties to do so), in accordance with their Pro Rata Shares, from and against any and all Indemnified Liabilities as such term is defined in Section 13.11; provided, however, that no Lender shall be liable for the payment to the Agent-Related Persons of any portion of such Indemnified Liabilities to the extent resulting from such Person's gross negligence or willful misconduct or from the breach of any representation, warranty or covenant contained herein or in another Loan Document by such Indemnified Person. Without limitation of the foregoing, each Lender shall reimburse the Agent upon demand for its Pro Rata Share of any costs or out-of-pocket expenses (including Attorney Costs) incurred by the 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, any other Loan Document, or any document contemplated by or referred to herein, to the extent that the Agent is not reimbursed for such expenses by or on behalf of the Loan Parties. The undertaking in this Section shall survive the payment of all Obligations hereunder and the resignation or replacement of the Agent. 12.8 Agent in Individual Capacity. The Bank and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with the Consolidated Members and their Affiliates as though the Bank were not the Agent hereunder and without notice to or consent of the Lenders. The Bank or its Affiliates may receive information regarding the 62 Consolidated Members, their Affiliates and Account Debtors (including information that may be subject to confidentiality obligations in favor of the Consolidated Members) and acknowledge that except as required by the Loan Documents and applicable law, the Agent and the Bank shall be under no obligation to provide such information to them. With respect to its Loans, the Bank shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the Agent, and the terms "Lender" and "Lenders" include the Bank in its individual capacity. 12.9 Successor Agent. The Agent may resign as Agent upon at least 30 days' prior notice to the Lenders and the Borrower, such resignation to be effective upon the acceptance of a successor agent to its appointment as Agent. In the event the Bank sells all of its Commitment and Revolving Loans as part of a sale, transfer or other disposition by the Bank of substantially all of its loan portfolio, the Bank shall resign as Agent and such purchaser or transferee shall become the successor Agent hereunder. Subject to the foregoing, if the Agent resigns under this Agreement, the Required Lenders shall appoint from among the Lenders a successor agent for the Lenders. If no successor agent is appointed prior to the effective date of the resignation of the Agent, the Agent may appoint, after consulting with the Lenders and the Loan Parties, a successor agent from among the Lenders. Upon the acceptance of its appointment as successor agent hereunder, such successor agent shall succeed to all the rights, powers and duties of the retiring Agent and the term "Agent" shall mean such successor agent and the retiring Agent's appointment, powers and duties as Agent shall be terminated. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article 12 shall continue to inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. Notwithstanding anything herein to the contrary, the Borrower shall have the right to consult with the Agent and the Lenders in the choice of any such successor Agent so long as no Event of Default exists. 12.10 Withholding Tax. (a) If any Lender is a "foreign corporation, partnership or trust" within the meaning of the Code and such Lender claims exemption from, or a reduction of, U.S. withholding tax under Sections 1441 or 1442 of the Code, such Lender agrees with and in favor of the Agent, to deliver to the Agent: (i) if such Lender claims an exemption from, or a reduction of, withholding tax under a United States of America tax treaty, properly completed IRS Forms W-8BEN and W-8ECI before the payment of any interest in the first calendar year and before the payment of any interest in each third succeeding calendar year during which interest may be paid under this Agreement; (ii) if such Lender claims that interest paid under this Agreement is exempt from United States of America withholding tax because it is effectively connected with a United States of America trade or business of such Lender, two properly completed and executed copies of IRS Form W-8ECI before the payment of any interest is due in the first taxable year of such Lender and in 63 each succeeding taxable year of such Lender during which interest may be paid under this Agreement, and IRS Form W-9; and (iii) such other form or forms as may be required under the Code or other laws of the United States of America as a condition to exemption from, or reduction of, United States of America withholding tax. Such Lender agrees to promptly notify the Agent of any change in circumstances which would modify or render invalid any claimed exemption or reduction. (b) If any Lender claims exemption from, or reduction of, withholding tax under a United States of America tax treaty by providing IRS Form FW-8BEN and such Lender sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations owing to such Lender, such Lender agrees to notify the Agent of the percentage amount in which it is no longer the beneficial owner of Obligations of the Loan Parties to such Lender. To the extent of such percentage amount, the Agent will treat such Lender's IRS Form W-8BEN as no longer valid. (c) If any Lender claiming exemption from United States of America withholding tax by filing IRS Form W-8ECI with the Agent sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations owing to such Lender, such Lender agrees to undertake sole responsibility for complying with the withholding tax requirements imposed by Sections 1441 and 1442 of the Code. (d) If any Lender is entitled to a reduction in the applicable withholding tax, the Agent may withhold from any interest payment to such Lender an amount equivalent to the applicable withholding tax after taking into account such reduction. If the forms or other documentation required by subsection (a) of this Section are not delivered to the Agent, then the Agent may withhold from any interest payment to such Lender not providing such forms or other documentation an amount equivalent to the applicable withholding tax. (e) If the IRS or any other Governmental Authority of the United States of America or other jurisdiction asserts a claim that the Agent did not properly withhold tax from amounts paid to or for the account of any Lender (because the appropriate form was not delivered, was not properly executed, or because such Lender failed to notify the Agent of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason) such Lender shall indemnify the Agent fully for all amounts paid, directly or indirectly, by the Agent as tax or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on the amounts payable to the Agent under this Section, together with all costs and expenses (including Attorney Costs). The obligation of the Lenders under this subsection shall survive the payment of all Obligations and the resignation or replacement of the Agent. For any period with respect to which a Lender has 64 failed to provide a Loan Parties and Agent with the appropriate form pursuant to this Section 12.10 hereof (unless such failure is due to a change in treaty, law, or regulation occurring subsequent to the date on which a form originally was required to be provided), such Lender shall not be entitled to indemnification under Section 4.1(a), 4.1(b) or 4.1(c) hereof with respect to Taxes imposed by the United States; provided, however, that should a Lender, which is otherwise exempt from or subject to a reduced rate of withholding tax, become subject to Taxes because of its failure to deliver a form required hereunder, the Loan Parties shall take such steps as such Lender shall reasonably request to assist such Lender to recover such Taxes at such Lender's expense. 12.11 Collateral Matters. (a) The Lenders hereby irrevocably authorize the Agent, at its option and in its sole discretion, to release any Agent's Liens upon any Collateral (i) upon the termination of the Commitments and payment and satisfaction in full of all Loans and reimbursement obligations in respect of Letters of Credit and Credit Support, and the termination of all outstanding Letters of Credit (whether or not any of such obligations are due) and all other Obligations; (ii) constituting property being sold or disposed of if the Loan Party certifies to the Agent that the sale or disposition is made in compliance with Section 7.9 and Section 3.5 (and the Agent may rely conclusively on any such certificate, without further inquiry); (iii) constituting property in which no Loan Party owned an interest at the time the Lien was granted or at any time thereafter; or (iv) constituting property leased to an Loan Party under a lease which has expired or been terminated in a transaction permitted under this Agreement. Except as provided above, the Agent will not release any of the Agent's Liens without the prior written authorization of the Lenders; provided that the Agent may, in its discretion, release the Agent's Liens on Collateral valued in the aggregate not in excess of $1,000,000 during each Fiscal Year without the prior written authorization of the Lenders and the Agent may release the Agent's Liens on Collateral valued in the aggregate not in excess of $2,000,000 during each Fiscal Year with the prior written authorization of Required Lenders. Upon request by the Agent or the Loan Parties at any time, the Lenders will confirm in writing the Agent's authority to release any Agent's Liens upon particular types or items of Collateral pursuant to this Section 12.11. (b) Upon receipt by the Agent of any authorization required pursuant to Section 12.11(a) from the Lenders of the Agent's authority to release Agent's Liens upon particular types or items of Collateral, and upon at least five (5) Business Days prior written request by the Loan Parties, the Agent shall (and is hereby irrevocably authorized by the Lenders to) execute such documents as may be necessary to evidence the release of the Agent's Liens upon such Collateral; provided, however, that (i) the Agent shall not be required to execute any such document on terms which, in the Agent's opinion, would expose the Agent to liability or create any material obligation or entail any material consequence other than the release of such Liens without recourse or warranty, and (ii) such release shall not in any manner discharge, affect or impair the Obligations or any Liens 65 (other than those expressly being released) upon (or obligations of the Loan Parties in respect of) all interests retained by any Loan Party, including the proceeds of any sale, all of which shall continue to constitute part of the Collateral. (c) The Agent shall have no obligation whatsoever to any of the Lenders to assure that the Collateral exists or is owned by any Loan Party or is cared for, protected or insured or has been encumbered, or that the Agent's Liens have been properly or sufficiently or lawfully created, perfected, protected or enforced or are entitled to any particular priority, or to exercise at all or in any particular manner or under any duty of care, disclosure or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to the Agent pursuant to any of the Loan Documents, it being understood and agreed that in respect of the Collateral, or any act, omission or event related thereto, the Agent may act in any manner it may deem appropriate, in its sole discretion given the Agent's own interest in the Collateral in its capacity as one of the Lenders and that the Agent shall have no other duty or liability whatsoever to any Lender as to any of the foregoing. 12.12 Restrictions on Actions by Lenders; Sharing of Payments. (a) Each of the Lenders agrees that it shall not, without the express consent of all Lenders, and that it shall, to the extent it is lawfully entitled to do so, upon the request of all Lenders, set off against the Obligations, any amounts owing by such Lender to an Loan Party or any accounts of an Loan Party now or hereafter maintained with such Lender. Each of the Lenders further agrees that it shall not, unless specifically requested to do so by the Agent, take or cause to be taken any action to enforce its rights under this Agreement or against any Loan Party, including the commencement of any legal or equitable proceedings, to foreclose any Lien on, or otherwise enforce any security interest in, any of the Collateral. (b) If at any time or times any Lender shall receive (i) by payment, foreclosure, setoff or otherwise, any proceeds of Collateral or any payments with respect to the Obligations of any Loan Party to such Lender arising under, or relating to, this Agreement or the other Loan Documents, except for any such proceeds or payments received by such Lender from the Agent pursuant to the terms of this Agreement, or (ii) payments from the Agent in excess of such Lender's ratable portion of all such distributions by the Agent, such Lender shall promptly (1) turn the same over to the Agent, in kind, and with such endorsements as may be required to negotiate the same to the Agent, or in same day funds, as applicable, for the account of all of the Lenders and for application to the Obligations in accordance with the applicable provisions of this Agreement, or (2) purchase, without recourse or warranty, an undivided interest and participation in the Obligations owed to the other Lenders so that such excess payment received shall be applied ratably as among the Lenders in accordance with their Pro Rata Shares; provided, however, that if all or part of such excess 66 payment received by the purchasing party is thereafter recovered from it, those purchases of participations shall be rescinded in whole or in part, as applicable, and the applicable portion of the purchase price paid therefor shall be returned to such purchasing party, but without interest except to the extent that such purchasing party is required to pay interest in connection with the recovery of the excess payment. 12.13 Agency for Perfection. Each Lender hereby appoints each other Lender as agent for the purpose of perfecting the Lenders' security interest in assets which, in accordance with Article 9 of the UCC or the applicable provisions of the PPSA or other applicable law can be perfected only by possession. Should any Lender (other than the Agent) obtain possession of any such Collateral, such Lender shall notify the Agent thereof, and, promptly upon the Agent's request therefor shall deliver such Collateral to the Agent or in accordance with the Agent's instructions. 12.14 Payments by Agent to Lenders. All payments to be made by the Agent to the Lenders shall be made by bank wire transfer or internal transfer of immediately available funds to each Lender pursuant to wire transfer instructions delivered in writing to the Agent on or prior to the Closing Date (or if such Lender is an Assignee, on the applicable Assignment and Acceptance), or pursuant to such other wire transfer instructions as each party may designate for itself by written notice to the Agent. Concurrently with each such payment, the Agent shall identify whether such payment (or any portion thereof) represents principal, premium or interest on the Revolving Loans or otherwise. Unless the Agent receives notice from the Loan parties prior to the date on which any payment is due to the Lenders that the Loan Parties will not make such payment in full as and when required, the Agent may assume that the Loan Parties has made such payment in full to the Agent on such date in immediately available funds and the Agent may (but shall not be so required), in reliance upon such assumption, distribute to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent the Loan Parties have not made such payment in full to the Agent, each Lender shall repay to the Agent on demand such amount distributed to such Lender, together with interest thereon at the Federal Funds Rate for each day from the date such amount is distributed to such Lender until the date repaid. 12.15 Settlement. (a) (i) Each Lender's funded portion of the Revolving Loans is intended by the Lenders to be equal at all times to such Lender's Pro Rata Share of the outstanding Revolving Loans. Notwithstanding such agreement, the Agent, the Bank, and the other Lenders agree (which agreement shall not be for the benefit of or enforceable by the Loan Parties or any other Consolidated Member) that in order to facilitate the administration of this Agreement and the other Loan Documents, settlement among them as to the Revolving Loans, the Non-Ratable Loans and the Agent Advances shall take place on a periodic basis in accordance with the following provisions: 67 (ii) The Agent shall request settlement ("Settlement") with the Lenders on at least a weekly basis, or on a more frequent basis at Agent's election, (A) on behalf of the Bank, with respect to each outstanding Non-Ratable Loan, (B) for itself, with respect to each Agent Advance, and (C) with respect to collections received, in each case, by notifying the Lenders of such requested Settlement by telecopy, telephone or other similar form of transmission, of such requested Settlement, no later than 12:00 noon (Atlanta, Georgia time) on the date of such requested Settlement (the "Settlement Date"). Each Lender (other than the Bank, in the case of Non-Ratable Loans and the Agent in the case of Agent Advances) shall transfer the amount of such Lender's Pro Rata Share of the outstanding principal amount of the Non-Ratable Loans and Agent Advances with respect to each Settlement to the Agent, to Agent's account, not later than 2:00 p.m. (Atlanta, Georgia time), on the Settlement Date applicable thereto. Settlements may occur during the continuation of a Default or an Event of Default and whether or not the applicable conditions precedent set forth in Article 8 have then been satisfied. Such amounts made available to the Agent shall be applied against the amounts of the applicable Non-Ratable Loan or Agent Advance and, together with the portion of such Non-Ratable Loan or Agent Advance representing the Bank's Pro Rata Share thereof, shall constitute Revolving Loans of such Lenders. If any such amount is not transferred to the Agent by any Lender on the Settlement Date applicable thereto, the Agent shall be entitled to recover such amount on demand from such Lender together with interest thereon at the Federal Funds Rate for the first three (3) days from and after the Settlement Date and thereafter at the Interest Rate then applicable to the Revolving Loans (A) on behalf of the Bank, with respect to each outstanding Non-Ratable Loan, and (B) for itself, with respect to each Agent Advance. (iii) Notwithstanding the foregoing, not more than one (1) Business Day after demand is made by the Agent (whether before or after the occurrence of a Default or an Event of Default and regardless of whether the Agent has requested a Settlement with respect to a Non-Ratable Loan or Agent Advance), each other Lender (A) shall irrevocably and unconditionally purchase and receive from the Bank or the Agent, as applicable, without recourse or warranty, an undivided interest and participation in such Non-Ratable Loan or Agent Advance equal to such Lender's Pro Rata Share of such Non-Ratable Loan or Agent Advance and (B) if Settlement has not previously occurred with respect to such Non-Ratable Loans or Agent Advances, upon demand by Bank or Agent, as applicable, shall pay to Bank or Agent, as applicable, as the purchase price of such participation an amount equal to one-hundred percent (100%) of such Lender's Pro Rata Share of such Non-Ratable Loans or Agent Advances. If such amount is not in fact made available to the Agent by any Lender, the Agent shall be entitled to recover such amount on demand from such Lender together with interest thereon at the Federal Funds Rate for the first three (3) days from and after such demand and thereafter at the Interest Rate then applicable to Base Rate Revolving Loans. (iv) From and after the date, if any, on which any Lender 68 purchases an undivided interest and participation in any Non-Ratable Loan or Agent Advance pursuant to clause (iii) above, the Agent shall promptly distribute to such Lender, such Lender's Pro Rata Share of all payments of principal and interest and all proceeds of Collateral received by the Agent in respect of such Non-Ratable Loan or Agent Advance. (v) Between Settlement Dates, the Agent, to the extent no Agent Advances are outstanding, may pay over to the Bank any payments received by the Agent, which in accordance with the terms of this Agreement would be applied to the reduction of the Revolving Loans, for application to the Bank's Revolving Loans including Non-Ratable Loans. If, as of any Settlement Date, collections received since the then immediately preceding Settlement Date have been applied to the Bank's Revolving Loans (other than to Non-Ratable Loans or Agent Advances in which such Lender has not yet funded its purchase of a participation pursuant to clause (iii) above), as provided for in the previous sentence, the Bank shall pay to the Agent for the accounts of the Lenders, to be applied to the outstanding Revolving Loans of such Lenders, an amount such that each Lender shall, upon receipt of such amount, have, as of such Settlement Date, its Pro Rata Share of the Revolving Loans. During the period between Settlement Dates, the Bank with respect to Non-Ratable Loans, the Agent with respect to Agent Advances, and each Lender with respect to the Revolving Loans other than Non-Ratable Loans and Agent Advances, shall be entitled to interest at the applicable rate or rates payable under this Agreement on the actual average daily amount of funds employed by the Bank, the Agent and the other Lenders. (b) Lenders' Failure to Perform. All Revolving Loans (other than Non-Ratable Loans and Agent Advances) shall be made by the Lenders simultaneously and in accordance with their Pro Rata Shares. It is understood that (i) no Lender shall be responsible for any failure by any other Lender to perform its obligation to make any Revolving Loans hereunder, nor shall any Commitment of any Lender be increased or decreased as a result of any failure by any other Lender to perform its obligation to make any Revolving Loans hereunder, (ii) no failure by any Lender to perform its obligation to make any Revolving Loans hereunder shall excuse any other Lender from its obligation to make any Revolving Loans hereunder, and (iii) the obligations of each Lender hereunder shall be several, not joint and several. (c) Defaulting Lenders. Unless the Agent receives notice from a Lender on or prior to the Closing Date or, with respect to any Borrowing after the Closing Date, at least one Business Day prior to the date of such Borrowing, that such Lender will not make available as and when required hereunder to the Agent that Lender's Pro Rata Share of a Borrowing, the Agent may assume that each Lender has made such amount available to the Agent in immediately available funds on the Funding Date. Furthermore, the Agent may, in reliance upon such assumption, make available to the Loan Parties on such date a corresponding amount. If any Lender has not transferred its full Pro Rata Share to the Agent in immediately available funds and the Agent has transferred corresponding amount 69 to the Loan Parties on the Business Day following such Funding Date that Lender shall make such amount available to the Agent, together with interest at the Federal Funds Rate for that day. A notice by the Agent submitted to any Lender with respect to amounts owing shall be conclusive, absent manifest error. If each Lender's full Pro Rata Share is transferred to the Agent as required, the amount transferred to the Agent shall constitute that Lender's Revolving Loan for all purposes of this Agreement. If that amount is not transferred to the Agent on the Business Day following the Funding Date, the Agent will notify the Loan Parties of such failure to fund and, upon demand by the Agent, the Loan Parties shall pay such amount to the Agent for the Agent's account, together with interest thereon for each day elapsed since the date of such Borrowing, at a rate per annum equal to the Interest Rate applicable at the time to the Revolving Loans comprising that particular Borrowing. The failure of any Lender to make any Revolving Loan on any Funding Date (any such Lender, prior to the cure of such failure, being hereinafter referred to as a "Defaulting Lender") shall not relieve any other Lender of its obligation hereunder to make a Revolving Loan on that Funding Date. No Lender shall be responsible for any other Lender's failure to advance such other Lenders' Pro Rata Share of any Borrowing. (d) Retention of Defaulting Lender's Payments. The Agent shall not be obligated to transfer to a Defaulting Lender any payments made by Loan Parties to the Agent for the Defaulting Lender's benefit; nor shall a Defaulting Lender be entitled to the sharing of any payments hereunder. Amounts payable to a Defaulting Lender shall instead be paid to or retained by the Agent. In its discretion, the Agent may loan the amount of all such payments received or retained by it for the account of such Defaulting Lender. Any amounts so loaned to the Loan Parties shall bear interest at the rate applicable to Base Rate Revolving Loans and for all other purposes of this Agreement shall be treated as if they were Revolving Loans, provided, however, that for purposes of voting or consenting to matters with respect to the Loan Documents and determining Pro Rata Shares, such Defaulting Lender shall be deemed not to be a "Lender". Until a Defaulting Lender cures its failure to fund its Pro Rata Share of any Borrowing (A) such Defaulting Lender shall not be entitled to any portion of the Unused Line Fee and (B) the Unused Line Fee shall accrue in favor of the Lenders which have funded their respective Pro Rata Shares of such requested Borrowing and shall be allocated among such performing Lenders ratably based upon their relative Commitments. This Section shall remain effective with respect to such Lender until such time as the Defaulting Lender shall no longer be in default of any of its obligations under this Agreement. The terms of this Section shall not be construed to increase or otherwise affect the Commitment of any Lender, or relieve or excuse the performance by the Loan Parties of their duties and obligations hereunder. (e) Removal of Defaulting Lender. At the Borrower's request, the Agent or an Eligible Assignee reasonably acceptable to the Agent and the Borrower shall have the right (but not the obligation) to purchase from any Defaulting Lender, and each Defaulting Lender shall, upon such request, sell and 70 assign to the Agent or such Eligible Assignee, all of the Defaulting Lender's outstanding Commitments hereunder. Such sale shall be consummated promptly after Agent has arranged for a purchase by Agent or an Eligible Assignee pursuant to an Assignment and Acceptance, and at a price equal to the outstanding principal balance of the Defaulting Lender's Loans, plus accrued interest and fees (except any fees in connection with such sale that would otherwise arise under Section 4.4 hereof, for which the Borrower shall not be liable), without premium or discount . 12.16 Letters of Credit; Intra-Lender Issues. (a) Notice of Letter of Credit Balance. On each Settlement Date the Agent shall notify each Lender of the issuance of all Letters of Credit since the prior Settlement Date and indicate the expiry dates and terms of any evergreen provisions therein. (b) Participations in Letters of Credit. (i) Purchase of Participations. Immediately upon issuance of any Letter of Credit in accordance with Section 1.4(d), each Lender shall be deemed to have irrevocably and unconditionally purchased and received without recourse or warranty, an undivided interest and participation equal to such Lender's Pro Rata Share of the face amount of such Letter of Credit or the Credit Support provided through the Agent to the Letter of Credit Issuer, if not the Bank, in connection with the issuance of such Letter of Credit (including all obligations of the Borrower with respect thereto, and any security therefor or guaranty pertaining thereto). (ii) Sharing of Reimbursement Obligation Payments. Whenever the Agent receives a payment from the Loan Parties on account of reimbursement obligations in respect of a Letter of Credit or Credit Support as to which the Agent has previously received for the account of the Letter of Credit Issuer thereof payment from a Lender, the Agent shall promptly pay to such Lender such Lender's Pro Rata Share of such payment from the Borrower. Each such payment shall be made by the Agent on the next Settlement Date. (iii) Documentation. Upon the request of any Lender, the Agent shall furnish to such Lender copies of any Letter of Credit, Credit Support for any Letter of Credit, reimbursement agreements executed in connection therewith, applications for any Letter of Credit, and such other documentation as may reasonably be requested by such Lender. (iv) Obligations Irrevocable. The obligations of each Lender to make payments to the Agent with respect to any Letter of Credit or with respect to their participation therein or with respect to any Credit Support for any Letter of Credit or with respect to the Revolving Loans made as a result of a drawing under a Letter of Credit and the obligations of the Loan Parties for whose account the Letter of Credit or Credit Support was issued to make payments to the Agent, for 71 the account of the Lenders, shall be irrevocable and shall not be subject to any qualification or exception whatsoever, including any of the following circumstances: (1) any lack of validity or enforceability of this Agreement or any of the other Loan Documents; (2) the existence of any claim, setoff, defense or other right which any Loan Party may have at any time against a beneficiary named in a Letter of Credit or any transferee of any Letter of Credit (or any Person for whom any such transferee may be acting), any Lender, the Agent, the issuer of such Letter of Credit, or any other Person, whether in connection with this Agreement, any Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transactions between the Borrower or any other Person and the beneficiary named in any Letter of Credit); (3) any draft, certificate or any other document presented under the 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; (4) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Loan Documents; (5) the occurrence of any Default or Event of Default; or (6) the failure of the Borrower to satisfy the applicable conditions precedent set forth in Article 8. (c) Recovery or Avoidance of Payments; Refund of Payments In Error. In the event any payment by or on behalf of the Borrower received by the Agent with respect to any Letter of Credit or Credit Support provided for any Letter of Credit and distributed by the Agent to the Lenders on account of their respective participations therein is thereafter set aside, avoided or recovered from the Agent in connection with any receivership, liquidation or bankruptcy proceeding, the Lenders shall, upon demand by the Agent, pay to the Agent their respective Pro Rata Shares of such amount set aside, avoided or recovered, together with interest at the rate required to be paid by the Agent upon the amount required to be repaid by it. Unless the Agent receives notice from the Borrower prior to the date on which any payment is due to the Lenders that the Borrower will not make such payment in full as and when required, the Agent may assume that the Borrower has made such payment in full to the Agent on such date in immediately available funds and the Agent may (but shall not be so required), in reliance upon such assumption, distribute to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent the Borrower has not made such payment in full to the Agent, each Lender shall repay to the Agent on demand such amount distributed to such Lender, together with interest thereon at the Federal Funds Rate for each day from the date such amount is distributed to such Lender until the date repaid. 72 (d) Indemnification by Lenders. To the extent not reimbursed by the Loan Parties and without limiting the obligations of the Loan Parties hereunder, the Lenders agree to indemnify the Letter of Credit Issuer ratably in accordance with their respective Pro Rata Shares, for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including attorneys' fees) or disbursements of any kind and nature whatsoever that may be imposed on, incurred by or asserted against the Letter of Credit Issuer in any way relating to or arising out of any Letter of Credit or the transactions contemplated thereby or any action taken or omitted by the Letter of Credit Issuer under any Letter of Credit or any Loan Document in connection therewith; provided that no Lender shall be liable for any of the foregoing to the extent it arises from the gross negligence or willful misconduct of the Person to be indemnified. Without limitation of the foregoing, each Lender agrees to reimburse the Letter of Credit Issuer promptly upon demand for its Pro Rata Share of any costs or expenses payable by any Loan Party to the Letter of Credit Issuer, to the extent that the Letter of Credit Issuer is not promptly reimbursed for such costs and expenses by the Loan Parties. The agreement contained in this Section shall survive payment in full of all other Obligations. 12.17 Concerning the Collateral and the Related Loan Documents. Each Lender authorizes and directs the Agent to enter into the other Loan Documents, for the ratable benefit and obligation of the Agent and the Lenders. Each Lender agrees that any action taken by the Agent or Required Lenders in accordance with the terms of this Agreement or the other Loan Documents, and the exercise by the Agent or the Required Lenders, as applicable, of their respective powers set forth therein or herein, together with such other powers that are reasonably incidental thereto, shall be binding upon all of the Lenders. The Lenders acknowledge that the Revolving Loans, Agent Advances, Non-Ratable Loans, Hedge Agreements, Bank Products and all interest, fees and expenses hereunder constitute one Debt, secured pari passu by all of the Collateral. 12.18 Field Audit and Examination Reports; Disclaimer by Lenders. By signing this Agreement, each Lender: (a) is deemed to have requested that the Agent furnish such Lender, promptly after it becomes available, a copy of each field audit or examination report (each a "Report" and collectively, "Reports") prepared by or on behalf of the Agent; (b) expressly agrees and acknowledges that neither the Bank nor the Agent (i) makes any representation or warranty as to the accuracy of any Report, or (ii) shall be liable for any information contained in any Report; (c) expressly agrees and acknowledges that the Reports are not comprehensive audits or examinations, that the Agent or the Bank or other party performing any audit or examination will inspect only specific information 73 regarding the Loan Parties and will rely significantly upon the Loan Parties' books and records, as well as on representations of the Loan Parties' personnel; (d) agrees to keep all Reports confidential and strictly for its internal use, and not to distribute except to its participants, or use any Report in any other manner; and (e) without limiting the generality of any other indemnification provision contained in this Agreement, agrees: (i) to hold the Agent and any such other Lender preparing a Report harmless from any action the indemnifying Lender may take or conclusion the indemnifying Lender may reach or draw from any Report in connection with any loans or other credit accommodations that the indemnifying Lender has made or may make to the Borrower, or the indemnifying Lender's participation in, or the indemnifying Lender's purchase of, a loan or loans of the Borrower; and (ii) to pay and protect, and indemnify, defend and hold the Agent and any such other Lender preparing a Report harmless from and against, the claims, actions, proceedings, damages, costs, expenses and other amounts (including Attorney Costs) incurred by the Agent and any such other Lender preparing a Report as the direct or indirect result of any third parties who might obtain all or part of any Report through the indemnifying Lender. 12.19 Relation Among Lenders. The Lenders are not partners or co-venturers, and no Lender shall be liable for the acts or omissions of, or (except as otherwise set forth herein in case of the Agent) authorized to act for, any other Lender. ARTICLE 13 MISCELLANEOUS 13.1 No Waivers; Cumulative Remedies. No failure by the Agent or any Lender to exercise any right, remedy, or option under this Agreement or any present or future supplement thereto, or in any other agreement between or among the Loan Parties and the Agent and/or any Lender, or delay by the Agent or any Lender in exercising the same, will operate as a waiver thereof. No waiver by the Agent or any Lender will be effective unless it is in writing, and then only to the extent specifically stated. No waiver by the Agent or the Lenders on any occasion shall affect or diminish the Agent's and each Lender's rights thereafter to require strict performance by the Loan Parties of any provision of this Agreement. The Agent and the Lenders may proceed directly to collect the Obligations without any prior recourse to the Collateral. The Agent's and each Lender's rights under this Agreement will be cumulative and not exclusive of any other right or remedy which the Agent or any Lender may have. 13.2 Severability. The illegality or unenforceability of any provision of this Agreement or any Loan Document or any instrument or agreement required hereunder shall not in any way affect or 74 impair the legality or enforceability of the remaining provisions of this Agreement or any instrument or agreement required hereunder. 13.3 Governing Law; Choice of Forum; Service of Process. (a) THIS AGREEMENT SHALL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICT OF LAWS PROVISIONS PROVIDED THAT PERFECTION ISSUES WITH RESPECT TO ARTICLE 9 OF THE UCC MAY GIVE EFFECT TO APPLICABLE CHOICE OR CONFLICT OF LAW RULES SET FORTH IN ARTICLE 9 OF THE UCC) OF THE STATE OF NEW YORK; PROVIDED THAT THE AGENT AND THE LENDERS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW. (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF AMERICA LOCATED IN NEW YORK COUNTY, NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE LOAN PARTIES, THE AGENT AND THE LENDERS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE LOAN PARTIES, THE AGENT AND THE LENDERS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. NOTWITHSTANDING THE FOREGOING: (1) THE AGENT AND THE LENDERS SHALL HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST THE LOAN PARTIES OR THEIR PROPERTIES IN THE COURTS OF ANY OTHER JURISDICTION THE AGENT OR THE LENDERS DEEM NECESSARY OR APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERAL OR OTHER SECURITY FOR THE OBLIGATIONS AND (2) EACH OF THE PARTIES HERETO ACKNOWLEDGES THAT ANY APPEALS FROM THE COURTS DESCRIBED IN THE IMMEDIATELY PRECEDING SENTENCE MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE THOSE JURISDICTIONS. (c) EACH OF THE LOAN PARTIES HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY REGISTERED MAIL (RETURN RECEIPT REQUESTED) DIRECTED TO THE ADDRESS SET FORTH IN SECTION 13.8 AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED SEVEN (7) DAYS AFTER THE 75 SAME SHALL HAVE BEEN SO DEPOSITED IN THE U.S. MAILS POSTAGE PREPAID. NOTHING CONTAINED HEREIN SHALL AFFECT THE RIGHT OF AGENT OR THE LENDERS TO SERVE LEGAL PROCESS BY ANY OTHER MANNER PERMITTED BY LAW. 13.4 WAIVER OF JURY TRIAL. EACH OF THE LOAN PARTIES, THE LENDERS AND THE AGENT EACH IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE LOAN PARTIES, THE LENDERS AND THE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. 13.5 Survival of Representations and Warranties. All of the Loan Parties' representations and warranties contained in this Agreement shall survive the execution, delivery, and acceptance thereof by the parties, notwithstanding any investigation by the Agent or the Lenders or their respective agents. 13.6 Other Security and Guaranties. The Agent, may, without notice or demand and without affecting the Loan Parties' obligations hereunder, from time to time: (a) take from any Person and hold collateral (other than the Collateral) for the payment of all or any part of the Obligations and exchange, enforce or release such collateral or any part thereof; and (b) accept and hold any endorsement or guaranty of payment of all or any part of the Obligations and release or substitute any such endorser or guarantor, or any Person who has given any Lien in any other collateral as security for the payment of all or any part of the Obligations, or any other Person in any way obligated to pay all or any part of the Obligations. 13.7 Fees and Expenses. Each Loan Party agrees to pay to the Agent, for its benefit, on demand, all costs and expenses that Agent pays or incurs in connection with the negotiation, preparation, syndication, consummation, administration, enforcement, and termination of this Agreement or 76 any of the other Loan Documents, including: (a) Attorney Costs, provided, that the Loan Parties shall not be obligated to pay Attorney Costs incurred by the Agent in connection with the negotiation, preparation, syndication and consummation of this Agreement or any of the other Loan Documents which exceed the sum of (i) $100,000 for the Agent's local outside counsel and (ii) $(Cdn)20,000 for the Attorney Costs of Agent's Canadian counsel; (b) costs and expenses (including attorneys' and paralegals' fees and disbursements) for any amendment, supplement, waiver, consent, or subsequent closing in connection with the Loan Documents and the transactions contemplated thereby; (c) costs and expenses of lien and title searches; (d) taxes, fees and other charges for filing financing statements and continuations, and other actions to perfect, protect, and continue the Agent's Liens (including costs and expenses paid or incurred by the Agent in connection with the consummation of Agreement); (e) sums paid or incurred to pay any amount or take any action required of any Loan Party under the Loan Documents that such Loan Party fails to pay or take; (f) costs of appraisals, inspections, and verifications of the Collateral, including reasonable travel, lodging, and meals for inspections of the Collateral and the Loan Parties' operations by the Agent plus the Agent's then customary charge for field examinations and audits and the preparation of reports thereof (such charge is currently $750 per day (or portion thereof) for each Person retained or employed by the Agent with respect to each field examination or audit); provided, however, that unless an Event of Default shall exist and be continuing, the Borrower shall not be obligated to the Agent for any expenses set forth in this clause (f) for travel and visits to Consolidated Members' facilities located in The People's Republic of China or Mexico; and (g) without duplication, costs and expenses of forwarding loan proceeds, collecting checks and other items of payment, and establishing and maintaining Payment Accounts and lock boxes, and costs and expenses of preserving and protecting the Collateral. In addition, each Loan Party agrees to pay costs and expenses incurred by the Agent (including Attorneys' Costs) to the Agent, for its benefit, on demand, and to the other Lenders for their benefit, on demand, and all reasonable fees, expenses and disbursements incurred by such other Lenders, including reasonable attorneys' fees and disbursements, in each case, paid or incurred to obtain payment of the Obligations, enforce the Agent's Liens, sell or otherwise realize upon the Collateral, and otherwise enforce the provisions of the Loan Documents, or to defend any claims made or threatened against the Agent or any Lender arising out of the transactions contemplated hereby (including preparations for and consultations concerning any such matters). The foregoing shall not be construed to limit any other provisions of the Loan Documents regarding costs and expenses to be paid by the Loan Parties. All of the foregoing costs and expenses shall be charged to the Loan Account as Revolving Loans as described in Section 3.7. 13.8 Notices. Except as otherwise provided herein, all notices, demands and requests that any party is required or elects to give to any other shall be in writing, or by a telecommunications device capable of creating a written record, and any such notice shall become effective (a) upon personal delivery thereof, including, but not limited to, delivery by overnight mail and courier service, (b) four (4) days after it shall have been mailed by United States mail, first class, certified or registered, with postage prepaid, or (c) in the case of notice by such a telecommunications device, when properly transmitted, in each case addressed to the party to be notified as follows: 77 If to the Agent or to the Bank: Bank of America, N.A. 600 Peachtree Street, 5th Floor Atlanta, Georgia 30308 Attention: Business Credit-Account Executive Telecopy No.: 404.607.6059 If to a Loan Party: Applica Incorporated 5980 Miami Lakes Drive Miami Lakes, Florida 33014 Attention: Treasurer Telecopy No.: 305.364-0502 Emil: adam.Kaplan@applicamail.com or to such other address as each party may designate for itself by like notice. Failure or delay in delivering copies of any notice, demand, request, consent, approval, declaration or other communication to the persons designated above to receive copies shall not adversely affect the effectiveness of such notice, demand, request, consent, approval, declaration or other communication. 13.9 Waiver of Notices. Unless otherwise expressly provided herein, the Loan Parties waive presentment, and notice of demand or dishonor and protest as to any instrument, notice of intent to accelerate the Obligations and notice of acceleration of the Obligations, as well as any and all other notices to which they might otherwise be entitled. No notice to or demand on a Loan Party which the Agent or any Lender may elect to give shall entitle the Loan Parties to any or further notice or demand in the same, similar or other circumstances. 13.10 Binding Effect. The provisions of this Agreement shall be binding upon and inure to the benefit of the respective representatives, successors, and assigns of the parties hereto; provided, however, that no interest herein may be assigned by any Loan Party without prior written consent of the Agent and each Lender. The rights and benefits of the Agent and the Lenders hereunder shall, if such Persons so agree, inure to any party acquiring any interest in the Obligations or any part thereof. 13.11 Indemnity of the Agent and the Lenders by the Borrower. (a) Each Loan Party agrees to defend, indemnify and hold the Agent-Related Persons, and each Lender, its Affiliates, and each of their respective officers, directors, employees, counsel, representatives, agents and 78 attorneys-in-fact (each, an "Indemnified Person") harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses and disbursements (including Attorney Costs) of any kind or nature whatsoever which may at any time (including at any time following repayment of the Loans and the termination, resignation or replacement of the Agent or replacement of any Lender) be imposed on, incurred by or asserted against any such Person in any way relating to or arising out of this Agreement or any document contemplated by or referred to herein, or the transactions contemplated hereby, or any action taken or omitted by any such Person under or in connection with any of the foregoing, including with respect to any investigation, litigation or proceeding (including any Insolvency Proceeding or appellate proceeding) related to or arising out of this Agreement, any other Loan Document, or the Loans or the use of the proceeds thereof, whether or not any Indemnified Person is a party thereto (all the foregoing, collectively, the "Indemnified Liabilities"); provided, that the Loan Parties shall have no obligation hereunder to any Indemnified Person with respect to Indemnified Liabilities resulting solely from the gross negligence or willful misconduct of such Indemnified Person. The agreements in this Section shall survive payment of all other Obligations. (b) Each Loan Party agrees to indemnify, defend and hold harmless the Agent and the Lenders and their Affiliates from any loss or liability directly or indirectly arising out of the use, generation, manufacture, production, storage, release, threatened release, discharge, disposal or presence of a hazardous substance relating to a Consolidated Member's operations, business or property. This indemnity will apply whether the hazardous substance is on, under or about the Consolidated Member's property or operations or property leased to a Consolidated Member. The indemnity includes but is not limited to Attorneys Costs. The indemnity extends to the Agent and the Lenders, their parents, affiliates, subsidiaries and all of their directors, officers, employees, agents, successors, attorneys and assigns. "Hazardous substances" means any substance, material or waste that is or becomes designated or regulated as "toxic," "hazardous," "pollutant," or "contaminant" or a similar designation or regulation under any federal, state or local law (whether under common law, statute, regulation or otherwise) or judicial or administrative interpretation of such, including petroleum or natural gas. This indemnity will survive repayment of all other Obligations. 13.12 [Reserved]. 13.13 Final Agreement. This Agreement, together with the other Loan Documents, are intended by the Loan Parties, the Agent and the Lenders to be the final, complete, and exclusive expression of the agreement between them. This Agreement and the other Loan Documents supersede any and all prior oral or written agreements relating to the subject matter hereof, except for the Fee Letter. Nothing contained herein shall be deemed to be or operate as a novation or an accord and 79 satisfaction of any of the Obligations. No modification, rescission, waiver, release, or amendment of any provision of this Agreement or any other Loan Document shall be made, except by a written agreement signed by the Loan Parties and a duly authorized officer of each of the Agent and the requisite Lenders. 13.14 Counterparts. This Agreement may be executed in any number of counterparts, including facsimile copies thereof, and by the Agent, each Lender and the Loan Parties in separate counterparts, each of which shall be an original, but all of which shall together constitute one and the same agreement; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. 13.15 Captions. The captions contained in this Agreement are for convenience of reference only, are without substantive meaning and should not be construed to modify, enlarge, or restrict any provision. 13.16 Right of Setoff. In addition to any rights and remedies of the Lenders provided by law, if an Event of Default exists or the Loans have been accelerated, each Lender is authorized (subject to the terms of Section 12.12(b)) at any time and from time to time, without prior notice to the Loan Parties, any such notice being waived by the Loan Parties to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held by, and other indebtedness at any time owing by, such Lender or any Affiliate of such Lender to or for the credit or the account of the Loan Parties against any and all Obligations owing to such Lender or its Affiliates, now or hereafter existing, irrespective of whether or not the Agent or such Lender shall have made demand under this Agreement or any Loan Document and although such Obligations may be contingent or unmatured. Each Lender agrees promptly to notify the Loan Parties and the Agent after any such set-off and application made by such Lender; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. NOTWITHSTANDING THE FOREGOING, NO LENDER SHALL EXERCISE ANY RIGHT OF SET-OFF, BANKER'S LIEN, OR THE LIKE AGAINST ANY DEPOSIT ACCOUNT OR PROPERTY OF A LOAN PARTY HELD OR MAINTAINED BY SUCH LENDER WITHOUT THE PRIOR WRITTEN UNANIMOUS CONSENT OF THE LENDERS. 13.17 Confidentiality. The Agent and each Lender (each, a "Lending Party") agrees to keep Confidential any information furnished or made available to it by the Borrower, any Guarantor or any of their Affiliates (each, a "Disclosing Party") that is marked as confidential or, with respect to verbal information, explicitly identified as confidential when furnished ("Confidential Information"). 80 (a) For purposes of this Agreement, the term "Confidential Information" shall not include information that (i) is in the Lending Party's possession prior to it being provided by or on behalf of the Disclosing Party, provided that such information is not known by the Lending Party to be subject to another confidentiality agreement with, or other legal or contractual obligation of confidentiality to, a Disclosing Party (ii) is or becomes publicly available (other than through a breach of this Agreement by any Lending Party), or (iii) becomes available to the Lending Party on a non-confidential basis, provided that the source of such information was not known by the Lending Party to be bound by a confidentiality agreement or other legal or contractual obligation of confidentiality with respect to such information. (b) Notwithstanding the foregoing, a Lending Party may disclose Confidential Information to: (i) any governmental agency or regulatory body having or reasonably claiming to have authority to regulate or oversee any aspect of the Lending Party's business in connection with the exercise of such authority or claimed authority; (ii) the extent necessary or appropriate to effect or preserve the Lending Party's security (if any) hereunder or to enforce any right or remedy provided pursuant to this Agreement or in connection with any claims asserted by or against the Lending Party or the Borrower or any other person or entity involved herewith; (iii) its directors, officers, employees, attorneys, accountants, and auditors (collectively, the "Representatives") whom it reasonably determines need to know such information; and the Lending Party agrees inform the Representatives to whom it discloses Confidential Information of the confidential nature of the Confidential Information; (iv) pursuant to subpoena or other court process; (v) when required to do so in accordance with the provisions of any applicable Requirement of Law; (vi) to the extent reasonably required in connection with any litigation or proceeding (including, but not limited to, any bankruptcy proceeding) to which any Lending Party or their respective Affiliates may be party; and (vii) any bank or financial institution or other entity to which the Lending Party has sold or desires to sell an interest or participation in the Commitment and the Loan Documents, provided that any such recipient of such Confidential Information agrees in writing to keep such Confidential Information confidential as specified in this Section 13.16; provided, however, in the event a Lending Party is requested or required (by interrogatory, court order, subpoena, administrative proceeding, civil investigatory demand, or any similar legal process) to disclose any of the Confidential Information, the Lending Party, in the absence of a protective order, may disclose such information without liability. The Lending Party, however, shall, to the extent permitted by law and as promptly as practicable, make reasonable efforts to notify the Disclosing Party and the Borrower prior to such disclosure by the Lending Party so that the Disclosing Party may seek at its sole expense a protective order or other appropriate remedy. (c) Each Lending Party acknowledges that, under certain circumstances, the United States securities laws may prohibit a person who has received material, non-public information from an issuer from purchasing or selling securities of such issuer or from communicating such information to any other person under 81 circumstances in which it is reasonably foreseeable that such other person is likely to purchase or sell such securities. Each Lending Party further acknowledges that certain Confidential Information could be considered material non-public information and agrees that it will not, and it will use reasonable efforts to ensure that its Representatives will not, trade in the securities of the Borrower on the basis of such information or communicate such information to any other person under circumstances in which it is reasonably foreseeable that such other person is likely to purchase or sell such securities. (d) This Section 13.17 shall survive the termination of this Agreement. 13.18 Conflicts with Other Loan Documents. Unless otherwise expressly provided in this Agreement (or in another Loan Document by specific reference to the applicable provision contained in this Agreement), if any provision contained in this Agreement conflicts with any provision of any other Loan Document, the provision contained in this Agreement shall govern and control. 13.19 Agency of the Borrower for Each Other Loan Party. Each of the Loan Parties other than the Borrower irrevocably appoints the Borrower as its agent for all purposes relevant to this Agreement, including the giving and receipt of notices and execution and delivery of all documents, instruments, and certificates contemplated herein (including, without limitation, execution and delivery to the Agent of Borrowing Base Certificates, Notices of Borrowing, and Notices of Continuation/Conversion) and all modifications hereto. Any agreement, acknowledgment, consent, direction, certification, or other action which might otherwise be valid or effective only if given or taken by all or any of the Loan Parties or acting singly, shall be valid and effective if given or taken only by the Borrower, whether or not any of the other Loan Parties joins therein, and the Agent and the Lenders shall have no duty or obligation to make further inquiry with respect to the authority of the Borrower under this Section 13.19, provided that nothing in this Section 13.19 shall limit the effectiveness of, or the right of the Agent and the Lenders to rely upon, any notice (including without limitation a Notice of Borrowing or a Notice of Continuation/Conversion), document, instrument, certificate, acknowledgment, consent, direction, certification, or other action delivered by the Borrower or other Loan Party pursuant to this Agreement. 13.20 Express Waivers By Loan Parties In Respect of Cross Guaranties and Cross Collateralization. Each Loan Party agrees as follows: (a) Each Loan Party hereby waives: (i) notice of acceptance of this Agreement; (ii) notice of the making of any Loans, the issuance of any Letter of Credit or Credit Support, or any other financial accommodations made or extended under the Loan Documents or the creation or existence of any Obligations; (iii) notice of the amount of the Obligations, subject, however, to such Loan Party's right to make inquiry of the Agent to ascertain the amount of the Obligations at any reasonable time; (iv) notice of any 82 adverse change in the financial condition of any other Obligated Party or of any other fact that might increase such Loan Party's risk with respect to such other Obligated Party under the Loan Documents; (v) notice of presentment for payment, demand, protest, and notice thereof as to any promissory notes or other instruments among the Loan Documents; and (vii) all other notices (except if such notice is specifically required to be given to such Loan Party hereunder or under any of the other Loan Documents to which such Loan Party is a party) and demands to which such Loan Party might otherwise be entitled; (b) Each Loan Party hereby waives the right by statute or otherwise to require the Agent or any Lender to institute suit against any other Obligated Party or to exhaust any rights and remedies which the Agent or any Lender has or may have against any other Obligated Party. Each Loan Party further waives any defense arising by reason of any disability or other defense of any other Obligated Party (other than the defense that the Obligations shall have been fully and finally performed and indefeasibly paid) or by reason of the cessation from any cause whatsoever of the liability of any such Obligated Party in respect thereof. (c) Each Loan Party hereby waives and agrees not to assert against the Agent, any Lender, or the Letter of Credit Issuer: (i) any defense (legal or equitable), setoff, counterclaim, or claim which such Loan Party may now or at any time hereafter have against any other Obligated Party; (ii) any defense, setoff, counterclaim, or claim of any kind or nature available to any other Obligated Party against the Agent, any Lender, the Bank, or the Letter of Credit Issuer, arising directly or indirectly from the present or future lack of perfection, sufficiency, validity, or enforceability of the Obligations or any security therefor; (iii) any right or defense arising by reason of any claim or defense based upon an election of remedies by the Agent, any Lender, the Bank, or the Letter of Credit Issuer under any applicable law; (iv) the benefit of any statute of limitations affecting any other Loan Party's liability hereunder; (d) Each Loan Party consents and agrees that, without notice to or by such Loan Party and without affecting or impairing the obligations of such Loan Party hereunder, the Agent may (subject to any requirement for consent of any of the Lenders to the extent required by this Agreement), by action or inaction: (i) compromise, settle, extend the duration or the time for the payment of, or discharge the performance of, or may refuse to or otherwise not enforce the Loan Documents; (ii) release all or any one or more parties to any one or more of the Loan Documents or grant other indulgences to any other Obligated Party in respect thereof, (iii) amend or modify in any manner and at any time (or from time to time) any of the Loan Documents; or (iv) release or substitute any Person liable for payment of the Obligations, or enforce, exchange, release, or waive any security for the Obligations or any Guaranty of the Obligations; Each Loan Party represents and warrants to the Agent and the Lenders that such Loan Party is currently informed of the financial condition of all other Consolidated Members and all other circumstances which a diligent inquiry would reveal and which bear upon the risk of nonpayment of the Obligations. Each Loan Party further represents and warrants that such Loan Party has read and understands the terms and conditions of the Loan Documents. Each 83 Loan Party agrees that neither the Agent, any Lender, the Bank, nor the Letter of Credit Issuer has any responsibility to inform any Loan Party of the financial condition of any other Obligated Party or of any other circumstances which bear upon the risk of nonpayment or nonperformance of the Obligations. 13.21 Judgment Currency. If for the purpose of obtaining judgment in any court it is necessary to convert an amount due hereunder in the currency in which it is due (the "Original Currency") into another currency (the "Second Currency"), the rate of exchange applied shall be that at which, in accordance with normal banking procedures, the Agent or any Lender could purchase in the New York foreign exchange market, the Original Currency with the Second Currency on the date on which judgment is given, or the preceding Business Day if such date is not a Business Day. Each Loan Party agrees that its obligation in respect of any Original Currency due from it hereunder shall, notwithstanding any judgment or payment in such other currency, be discharged only to the extent that, on the Business Day following the date the Lender receives payment of any sum so adjudged to be due hereunder in the Second Currency, the Lender may, in accordance with normal banking procedures, purchase, in the New York foreign exchange market, the Original Currency with the amount of the Second Currency so paid; and if the amount of the Original Currency so purchased or could have been so purchased is less than the amount originally due in the Original Currency, each Loan Party agrees, as a separate obligation and notwithstanding any such payment or judgment, to indemnify the Agent or any Lender against such loss. The term "rate of exchange" in this Section 13.20 means the spot rate at which Agent or any Lender, in accordance with normal practices, is able on the relevant date to purchase the Original Currency with the Second Currency, and includes any premium and costs of exchange payable in connection with such purchase. 84 IN WITNESS WHEREOF, the parties have entered into this Agreement on the date first above written. "BORROWER" APPLICA INCORPORATED, a Florida corporation By: /s/ Adam L. Kaplan -------------------------------------- Name: Adam L. Kaplan Title: Treasurer "GUARANTORS" APPLICA CONSUMER PRODUCTS, INC., a Florida corporation By: /s/ Adam L. Kaplan -------------------------------------- Name: Adam L. Kaplan Title: Treasurer APPLICA CANADA CORPORATION, a Nova Scotia corporation By: /s/ Adam L. Kaplan -------------------------------------- Name: Adam L. Kaplan Title: Treasurer WD DELAWARE, INC., a Delaware corporation By: /s/ Adam L. Kaplan -------------------------------------- Name: Adam L. Kaplan Title: Treasurer HP INTELLECTUAL CORP., a Delaware corporation By: /s/ Adam L. Kaplan -------------------------------------- Name: Adam L. Kaplan Title: Treasurer 85 WINDMERE HOLDINGS CORPORATION, a Delaware corporation By: /s/ Adam L. Kaplan -------------------------------------- Name: Adam L. Kaplan Title: Treasurer HP DELAWARE, INC., a Delaware corporation By: /s/ Adam L. Kaplan -------------------------------------- Name: Adam L. Kaplan Title: Treasurer HPG LLC, a Delaware limited liability company By: /s/ Adam L. Kaplan -------------------------------------- Name: Adam L. Kaplan Title: Treasurer HP AMERICAS, INC., a Delaware corporation By: /s/ Adam L. Kaplan -------------------------------------- Name: Adam L. Kaplan Title: Treasurer [Signatures continued on following page] 86 "AGENT" Bank of America, N.A., as the Agent By: /s/ Stuart A. Hall -------------------------------------- Name: Stuart A. Hall Title: Vice President "LENDERS" Bank of America, N.A., as a Lender By: /s/ Stuart A. Hall -------------------------------------- Name: Stuart A. Hall Title: Vice President [Signatures continued on following page] 87 FLEET CAPITAL CORPORATION, as a Lender By: /s/ Patrick McConnell -------------------------------------- Name: Patrick McConnell Title: Vice President [Signatures continued on following page] 88 CONGRESS FINANCIAL CORPORATION (FLORIDA), as a Lender By: /s/ Gary Dixon -------------------------------------- Name: Gary Dixon Title: Vice President [Signatures continued on following page] 89 LASALLE BUSINESS CREDIT, INC., as agent for Standard Federal Bank National Association, as a Lender By: /s/ Patrick Aarons -------------------------------------- Name: Patrick Aarons Title: Vice President [Signatures continued on following page] 90 GENERAL ELECTRIC CAPITAL CORPORATION, as a Lender By: /s/ Glenn Bartley -------------------------------------- Name: Glenn Bartley Title: Senior Vice President [Signatures continued on following page] 91 HSBC BUSINESS CREDIT (USA), INC., as a Lender By: /s/ Jimmy Schwartz -------------------------------------- Name: Jimmy Schwartz Title: Vice President [Signatures continued on following page] 92 NATIONAL BANK OF CANADA, as a Lender By: /s/ Jay Stein -------------------------------------- Name: Jay Stein Title: Vice President By: /s/ Jean Page -------------------------------------- Name: Jean Page Title: Vice President 93 ANNEX A TO CREDIT AGREEMENT DEFINITIONS Capitalized terms used in the Loan Documents shall have the following respective meanings (unless otherwise defined therein), and all section references in the following definitions shall refer to sections of the Agreement: "Accounts" means all of the Borrower's now owned or hereafter acquired or arising accounts, as defined in the UCC, including any rights to payment for the sale or lease of goods or rendition of services, whether or not they have been earned by performance. "Account Debtor" means each Person obligated in any way on or in connection with an Account, Chattel Paper or General Intangibles (including a payment intangible). "ACH Transactions" means any cash management or related services including the automatic clearing house transfer of funds by the Bank or any Lender for the account of any Consolidated Member. "Acquisition" means the acquisition of (i) a controlling equity interest in another Person (including the purchase of an option, warrant or convertible or similar type security to acquire such a controlling interest at the time it becomes exercisable by the holder thereof), whether by purchase of such equity interest or upon exercise of an option or warrant for, or conversion of securities into, such equity interest, or (ii) assets of another Person which constitute any material part of the assets of such Person or of a line or lines of business conducted by such Person. "Adjusted Net Earnings from Operations" means, with respect to any relevant fiscal period of the Borrower, the Consolidated Member's net income after provision for income taxes for such fiscal period, as determined in accordance with GAAP and reported on the Financial Statements for such period, excluding any and all of the following included in such net income: (a) gain or loss arising from the sale of any capital assets; (b) gain arising from any write-up in the book value of any asset; (c) earnings of any Person, substantially all the assets of which have been acquired by a Consolidated Member in any manner, to the extent realized by such other Person prior to the date of acquisition; (d) earnings of any Person in which a Consolidated Member has an ownership interest (other than a Subsidiary) unless (and only to the extent) such earnings shall actually have been received by such Consolidated Member in the form of cash distributions; (e) gains arising from any foreign currency translations or in connection with Hedge Agreements to the extent not included as a component of the Borrower's consolidated operating profit or interest expense in the Financial Statements; (f) gain arising from the acquisition of debt or equity securities of the Borrower or any other Consolidated Member or from cancellation or forgiveness of Debt; and (g) gain arising from extraordinary items, as determined in accordance with GAAP, or from any other non-recurring transaction. "Administration Fee" has the meaning specified in Section 2.7. A-1 "Affiliate" means, as to any Person, including any Consolidated Member (the "subject Person"), any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, the subject Person or which owns, directly or indirectly, ten percent (10%) or more of the outstanding equity interest of the subject Person. A Person shall be deemed to control another Person if the controlling Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the other Person, whether through the ownership of voting securities, by contract, or otherwise. "Agent" means the Bank, solely in its capacity as administrative and collateral agent for the Lenders, and any successor administrative and collateral agent. "Agent Advances" has the meaning specified in Section 1.2(i). "Agent-Related Persons" means Agent, together with its Affiliates, and the officers, directors, employees, counsel, representatives, agents and attorneys-in-fact of Agent and such Affiliates. "Agent's Liens" means the Liens in the Collateral granted to the Agent, for the benefit of the Lenders and the Agent, pursuant to this Agreement and the other Loan Documents. "Aggregate Revolver Outstandings" means, at any time, the sum of (a) the unpaid balance of the Revolving Loans, (b) 100% of the aggregate undrawn face amount of all Letters of Credit and Credit Support, and (c) the aggregate amount of any unpaid reimbursement obligations in respect of Letters of Credit and Credit Support. "Agreement" means the Credit Agreement to which this Annex A is attached, as from time to time amended, modified or restated. "Anniversary Date" means each anniversary of the Closing Date. "Applica Canada" means Applica Canada Corporation, a Nova Scotia corporation. "Applica Canada Blocked Account Agreement" means the Blocked Account Agreements entered into between Applica Canada and Scotia Bank, as amended. "Applica Canada Formula Amount" means, at any date of determination, that portion of the Borrowing Base comprised of Eligible Accounts and Eligible Inventory owned by Applica Canada. "Applica Canada Guaranty" means an agreement of Guaranty executed by Applica Canada pursuant to which Applica Canada guarantees the Obligations or any portion thereof. "Applica Canada Security Agreement" means the General Security Agreement, dated on or about the Closing Date, executed and delivered by Applica Canada in favor of Agent for the benefit of itself and the Lenders, as at any time amended. A-2 "Applica Canada Sublimit" means, as of any date of determination, the lesser of (a) $54,000,000 or (b) 30% of the Borrowing Base on any date of determination thereof. "Applica Consumer Products" means Applica Consumer Products, Inc., a Florida corporation, and its successors and assigns. "Applica Consumer Products Formula Amount" means, at any date of determination, that portion of the Borrowing Base comprised of Eligible Accounts and Eligible Inventory owned by Applica Consumer Products. "Applicable Margin" means, as of the Closing Date, (i) with respect to Base Rate Revolving Loans, .35%; (ii) with respect to LIBOR Revolving Loans, 2.35%; and (iii) with respect to the Unused Line Fee, .375%. The Applicable Margins shall be adjusted (up or down) prospectively on a quarterly basis as determined by the Borrower's consolidated financial performance, commencing with the first day of the first calendar month that occurs more than five (5) days after the date of the delivery to the Agent of the Borrower's audited Financial Statements for the Fiscal Year ending December 31, 2002. Adjustments in Applicable Margins shall be determined by reference to the following grids:

IF FUNDED DEBT TO LEVEL OF CONSOLIDATED EBITDA RATIO IS: APPLICABLE MARGINS: - ----------------------------- ------------------- > or = 2.5 Level I > or = 2.0, but < 2.5 Level II > or = 1.75, but < 2.0 Level III > or = 1.25, but < 1.75 Level IV < 1.25 Level V

LOW TO HIGH

APPLICABLE MARGINS ------------------ LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V ------- -------- --------- -------- ------- Base Rate Revolving Loans .75% .50% .35% .25% -0-% LIBOR Revolving Loans 2.75% 2.50% 2.35% 2.25% 2.0% Unused Line Fee .50% .375% .375% .375% .25%

All adjustments in the Applicable Margins after December 31, 2002 shall be implemented quarterly on a prospective basis for each calendar month commencing at least five (5) days after the date of delivery to the Agent of quarterly unaudited or annual audited (as applicable) Financial Statements evidencing the need for an adjustment. Concurrently with the delivery of those Financial Statements, the Borrower shall deliver to the Agent and the Lenders a A-3 certificate, signed by a Responsible Officer, setting forth in reasonable detail the basis for the continuance of, or any change in, the Applicable Margins. For the final quarter of any Fiscal Year of the Borrower, the Borrower may provide unaudited Financial Statements of the Borrower, subject only to year-end adjustments, for the purpose of determining the Applicable Margin; provided, however, that if, upon delivery of the annual audited Financial Statements required to be submitted by the Borrower to Agent pursuant to Section 5.2(a) of this Agreement, Loan Parties have not met the criteria for reduction of the Applicable Margin pursuant to the terms hereinabove for the final fiscal quarter of the Fiscal Year of the Borrower then ended, then (a) such Applicable Margin reduction shall be terminated and, effective on the first day of the month following receipt by Agent of such audited Financial Statements, the Applicable Margin shall be the Applicable Margin that would have been in effect if such reduction had not been implemented based upon the unaudited Financial Statements for the final fiscal quarter of the Fiscal Year of the Borrower then ended, and (b) the Borrower shall pay to Agent, for the Pro Rata benefit of the Lenders, on the first day of the month following receipt by Agent of such audited Financial Statements, an amount equal to the difference between the amount of interest that would have been paid on the principal amount of the Obligations using the Applicable Margin determined based upon such audited Financial Statements and the amount of interest actually paid during the period in which the reduction of the Applicable Margin was in effect based upon the unaudited Financial Statements for the final fiscal quarter of the Fiscal Year then ended. Failure to timely deliver such Financial Statements shall, in addition to any other remedy provided for in this Agreement, result in an increase in the Applicable Margins to the highest level set forth in the foregoing grid, until the first day of the first calendar month following the delivery of those Financial Statements demonstrating that such an increase is not required. If a Default or Event of Default has occurred and is continuing at the time any reduction in the Applicable Margins is to be implemented, no reduction may occur until the first day of the first calendar month following the date on which such Default or Event of Default is waived or cured. "Applicable Period" means, as of any date, the preceding four fiscal quarters. "Approved Receivables Program" means any securitization, factoring or receivables program of the Loan Parties as may be approved in writing by the Required Lenders in their sole discretion and subject to such intercreditor agreements, assignments or other agreements as the Agent may deem appropriate or reasonably necessary. "Arrangement Fee" has the meaning specified in Section 2.4. "Asset Disposition" means, with respect to any Person, the sale, lease or other disposition of any asset of such Person other than the sale of Inventory or the use of cash in the ordinary course of business. "Assignee" has the meaning specified in Section 11.2(a). "Assignment and Acceptance" has the meaning specified in Section 11.2(a). "Attorney Costs" means and includes all reasonable fees, expenses and disbursements of any law firm or other counsel engaged by the Agent. A-4 "Availability" means, at any time (a) the lesser of (i) the Maximum Revolver Amount or (ii) the Borrowing Base, minus (b) Reserves other than Reserves deducted in the calculation of the Borrowing Base, minus (c) in each case, the Aggregate Revolver Outstandings. "Average Credit Facility Outstandings" means for any period, the average daily Aggregate Revolver Outstandings at the end of each day during a month or during shorter periods if the foregoing is calculated for the first month after the Closing Date or as of the Termination Date. "Bank" means Bank of America, N.A., a national banking association, or any successor entity thereto. "Bank Products" means any one or more of the following types of services or facilities extended to a Consolidated Member by the Bank, any Lender, any affiliate of the Bank or a Lender, and, solely in the case of an affiliate of the Bank or a Lender, in reliance on the Bank's or such Lender's agreement to indemnify such affiliate in connection with: (i) credit cards; (ii) ACH Transactions; (iii) cash management, including controlled disbursement services; and (iv) Hedge Agreements. "Bank Product Reserves" means all reserves which the Agent from time to time establishes in its reasonable discretion for the Bank Products then provided or outstanding. "Bankruptcy Code" means Title 11 of the United States Code (11 U.S.C. Section 101 et seq.). "Base Rate" means, for any day, the rate of interest in effect for such day as publicly announced from time to time by the Bank in Charlotte, North Carolina as its "prime rate" (the "prime rate" being a rate set by the Bank based upon various factors including the Bank's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate). Any change in the prime rate announced by the Bank shall take effect at the opening of business on the day specified in the public announcement of such change. Each Interest Rate based upon the Base Rate shall be adjusted simultaneously with any change in the Base Rate. "Base Rate Loans" means, collectively, the Base Rate Revolving Loans. "Base Rate Revolving Loan" means a Revolving Loan during any period in which it bears interest based on the Base Rate. "BIA" means the Bankruptcy and Insolvency Act (Canada) and all regulations thereunder. "Black & Decker License Agreement" means the Trademark License Agreement, dated June 26, 1998, The Black & Decker Corporation and the Borrower, as at any time amended, modified, extended or renewed. "Blocked Account Agreement" means an agreement, including, inter alia, a collection account agreement, among one or more of the Loan Parties, the Agent and a Clearing A-5 Bank, in form and substance reasonably satisfactory to the Agent, concerning the collection of payments which represent the proceeds of Accounts or of any other Collateral. "Borrower" means Applica Incorporated, a Florida corporation, and its successors and assigns. "Borrowing" means a borrowing hereunder consisting of Revolving Loans made on the same day by the Lenders to the Borrower or by Bank (in the case of a Borrowing funded by Non-Ratable Loans) or by the Agent in the case of a Borrowing consisting of an Agent Advance, or the issuance of Letters of Credit or Credit Support hereunder. "Borrowing Base" means, at any time, an amount equal to (a) the sum of (i) 85% of the Net Amount of Eligible Accounts; plus (ii) the lesser of (A) $100,000,000 or (B) the lesser of (I) 70% of the Cost Value of Eligible Inventory or (II) 85% of the Net Orderly Liquidation Value; minus (b), without duplication, Reserves. Notwithstanding the foregoing, in no event shall the aggregate amount of Revolving Loans outstanding at any date (a) as measured by Eligible Inventory comprised of In-Transit Inventory exceed (i) $24,500,000 with respect to In-Transit Inventory destined for a United States port of entry, or (ii) $3,500,000 with respect to In-Transit Inventory destined for a Canadian port of entry, or (b) as measured by Eligible Accounts and Eligible Inventory of Applica Canada exceed the Applica Canada Sublimit. For purposes of the calculation of the Borrowing Base, (1) the value of Eligible Accounts and Eligible Inventory shall be calculated based on Dollar Equivalents at any date of determination, and (2) the value of Eligible Inventory consisting of In-Transit Inventory shall be net of all duty, freight, taxes, costs, insurance and other charges and expenses which customarily pertain to such In-Transit Inventory. "Borrowing Base Certificate" means a certificate by a Responsible Officer of the Borrower, substantially in the form of Exhibit B (or another form acceptable to the Agent) setting forth the calculation of the Borrowing Base, including a calculation of each component thereof, all in such detail as shall be reasonably satisfactory to the Agent. All calculations of the Borrowing Base in connection with the preparation of any Borrowing Base Certificate shall originally be made by the Borrower and certified to the Agent; provided, that the Agent shall have the right to review and adjust, in the exercise of its reasonable credit judgment, any such calculation (1) to reflect its reasonable estimate of declines in value of any of the Collateral described therein, and (2) to the extent that such calculation is not in accordance with this Agreement. "Business Day" means (a) any day that is not a Saturday, Sunday, or a day on which banks in Atlanta, Georgia or Charlotte, North Carolina are required or permitted to be closed, and (b) with respect to all notices, determinations, fundings and payments in connection with the LIBOR Rate or LIBOR Rate Loans, any day that is a Business Day pursuant to clause (a) above and that is also a day on which trading in Dollars is carried on by and between banks in the London interbank market. A-6 "Capital Adequacy Regulation" means any guideline, request or directive of any central bank or other Governmental Authority, or any other law, rule or regulation, whether or not having the force of law, in each case, regarding capital adequacy of any bank or of any corporation controlling a bank. "Capital Expenditures" means all payments due (whether or not paid during any fiscal period) in respect of the cost of any fixed asset or improvement, or replacement, substitution, or addition thereto, which has a useful life of more than one year, including, without limitation, those costs arising in connection with the direct or indirect acquisition of such asset by way of increased product or service charges or in connection with a Capital Lease, and other items presented in accordance with the GAAP. "Capital Lease" means any lease of property by a Consolidated Member which, in accordance with GAAP, should be reflected as a capital lease on the consolidated balance sheet of the Borrower. "Capital Stock" means any and all corporate stock, units, shares, partnership interests, membership interests, equity interests, rights, securities, or other equivalent evidences of ownership (however designated) issued to any Person. "Change of Control" means if any Person or group of Persons acting in concert, other than the owners of more than 10% of outstanding securities of the Borrower as of Closing Date having voting rights in the election of directors, shall own or control, directly or indirectly, more than 30% of the outstanding securities of the Borrower having voting rights in the election of directors, in each case to be determined on a fully diluted basis and taking into account any outstanding securities or contract rights exercisable, exchangeable or convertible into equity interests. "Chattel Paper" shall have the meaning specified in the Security Agreement. "Clearing Bank" means the Bank or any other banking institution with whom a Payment Account has been established pursuant to a Blocked Account Agreement. "Closing Date" means the date of this Agreement. "Closing Fee" has the meaning specified in Section 2.4. "Code" means the Internal Revenue Code of 1986, as amended. "Collateral" has the meaning specified in the Security Agreement. "Collateral Access Agreement" shall mean a Warehousemen's Agreement or a Landlord Agreement, among Agent, a Loan Party and/or a Loan Party's Affiliate and certain third parties named therein, as of the date hereof and from time to time after the date hereof, in each case substantially in the form attached hereto as Exhibit G. "Collections Fee" has the meaning specified in Section 2.8. A-7 "Commitment" means, at any time with respect to a Lender, the principal amount set forth beside such Lender's name under the heading "Commitment" on Schedule 1.2 attached to the Agreement or on the signature page of the Assignment and Acceptance pursuant to which such Lender became a Lender hereunder in accordance with the provisions of Section 11.2, as such Commitment may be adjusted from time to time in accordance with the provisions of Section 11.2, and "Commitments" means, collectively, the aggregate amount of the Commitments of all of the Lenders. "Confidential Information" has the meaning specified in Section 13.17. "Consolidated EBITDA" means, with respect to any fiscal period of the Borrower, the Adjusted Net Earnings from Operations of the Borrower and the other Consolidated Members,, plus, to the extent deducted in the determination of Adjusted Net Earnings from Operations for that fiscal period, interest expenses, federal, state, local and foreign income taxes, depreciation, amortization, and, solely for purposes of calculating Consolidated EBITDA for any period during the Borrower's 2002 Fiscal Year, those costs associated with the Borrower's consolidation of its Shelton, Connecticut facility into its Miami Lake, Florida facility that were not previously accrued, as determined in accordance with GAAP. "Consolidated Members" means the Borrower and its Subsidiaries and "Consolidated Member" means any of the foregoing. "Contaminant" means any waste, pollutant, hazardous substance, toxic substance, hazardous waste, special waste, petroleum or petroleum-derived substance or waste, asbestos in any form or condition, polychlorinated biphenyls ("PCBs"), or any constituent of any such substance or waste. "Continuation/Conversion Date" means the date on which a Loan is converted into or continued as a LIBOR Rate Loan. "Core Business" means, with respect to the Consolidated Members, the business of manufacturing and distributing of household and outdoor appliances, personal care products, pet products and related items consistent with past practices. "Cost of Acquisition" means, with respect to any Acquisition, as at the date of consummation of any such Acquisition, the sum of the following (without duplication): (i) the value of the capital stock, warrants or options to acquire capital stock of a Loan Party to be transferred in connection therewith, (ii) any cash or other property and the unpaid principal amount of any debt instrument given as consideration, (iii) any Debt assumed by a Loan Party in connection with such Acquisition, and (iv) out of pocket transaction costs for the services and expenses of attorneys, accountants and other consultants incurred in effecting such a transaction, and other similar transactions costs so incurred. For purposes of determining the Cost of Acquisition for any transaction, (A) the capital stock of a Loan Party shall be valued (I) at its market value as reported on the New York Stock Exchange with respect to shares that are freely tradable, and (II) with respect to shares that are not freely tradable, as determined by the Board of Directors of the Borrower and, if requested by Agent, determined to be a reasonable valuation by the independent public accountants referred to in Section 5.2 hereof, (B) the capital stock of A-8 any Subsidiary shall be valued as determined by the Board of Directors of the Borrower or such Subsidiary and, if requested by Agent, determined to be a reasonable valuation by the independent public accountants referred to in Section 5.2 hereof, and (C) with respect to any Acquisition accomplished pursuant to the exercise of options or warrants or the conversion of securities, the Cost of Acquisition shall include both the cost of acquiring such option, warrant or convertible security as well as the cost of exercise or conversion. "Cost Value" means, with reference to Eligible Inventory, the applicable Loan Party's cost of such Eligible Inventory calculated on a first-in, first-out basis determined in accordance with GAAP. "Credit Support" has the meaning specified in Section 1.4(a). "Debt" means, without duplication, with respect any Person (the "subject Person"), all liabilities, obligations and indebtedness of the subject Person to any other Person, of any kind or nature, now or hereafter owing, arising, due or payable, howsoever evidenced, created, incurred, acquired or owing, whether primary, secondary, direct, contingent, fixed or otherwise, consisting of indebtedness for borrowed money or the deferred purchase price of property, excluding purchases of property, product, merchandise and services in the ordinary course of business, but including (a) in the case of the Loan Parties, all Obligations; (b) all obligations and liabilities of any Person secured by any Lien on the subject Person's property, even though the subject Person shall not have assumed or become liable for the payment thereof; (except unperfected Liens incurred in the ordinary course of business and not in connection with the borrowing of money); provided, however, that all such obligations and liabilities which are limited in recourse to such property shall be included in Debt only to the extent of the book value of such property as would be shown on a balance sheet of the subject Person prepared in accordance with GAAP; (c) all obligations or liabilities created or arising under any Capital Lease or conditional sale or other title retention agreement with respect to property used or acquired by the subject Person, even if the rights and remedies of the lessor, seller or lender thereunder are limited to repossession of such property; provided, however, that all such obligations and liabilities which are limited in recourse to such property shall be included in Debt only to the extent of the book value of such property as would be shown on a balance sheet of the subject Person prepared in accordance with GAAP; (d) all obligations and liabilities under Guaranties; (e) the present value (discounted at the Base Rate) of lease payments due under synthetic leases; and (f) all obligations and liabilities under any asset securitization (other than an Approved Receivables Program) or sale/leaseback transaction (other than the Headquarters Financing Transaction); provided, further, however, that in no event shall the term Debt include the capital stock surplus, retained earnings, minority interests in the common stock of Subsidiaries, lease obligations (other than pursuant to (c) or (e) above), reserves for deferred income taxes and investment credits, other deferred credits or reserves. "Default" means any event or circumstance which, with the giving of notice, the lapse of time, or both, would (if not cured, waived, or otherwise remedied during such time) constitute an Event of Default. "Default Rate" means a fluctuating per annum interest rate at all times equal to the sum of (a) the otherwise applicable Interest Rate plus (b) two percent (2%) per annum. Each A-9 Default Rate shall be adjusted simultaneously with any change in the applicable Interest Rate. In addition, the imposition of the Default Rate shall result in an increase in the Letter of Credit Fee by two percent (2%) per annum. "Defaulting Lender" has the meaning specified in Section 12.15(c). "Deposit Accounts" shall have the meaning specified in the Security Agreement. "Designated Account" has the meaning specified in Section 1.2(c). "Direct Foreign Subsidiary" means any Foreign Subsidiary whose outstanding voting Capital Stock is owned by a Loan Party or a Domestic Subsidiary. "Disclosing Party" has the meaning specified in Section 13.17. "Distribution" means, in respect of any Person (other than a natural Person): (a) the payment or making of any dividend or other distribution of property in respect of such Person's Capital Stock (excluding any options or warrants for, or other rights with respect to, such stock) of such corporation, other than distributions in such Person's Capital Stock of the same class; or (b) the redemption or other acquisition by such corporation of any Capital Stock (or any options or warrants for such Capital Stock) of such Person. "Documents" shall have the meaning specified in the Security Agreement. "DOL" means the United States Department of Labor or any successor department or agency. "Dollar" and "$" means dollars in the lawful currency of the United States. Unless otherwise specified, all payments under the Agreements shall be made in Dollars. "Dollar(Cdn)" and "$(Cdn)" means dollars in the lawful currency of Canada. "Dollar Equivalent" means, with respect to any monetary amount in a currency other than Dollars, at any time for the determination thereof, the amount of Dollars obtained by converting such foreign currency involved in such computation into Dollars at the spot rate for the purchase of Dollars with the applicable foreign currency as quoted by Agent at approximately 11:00 a.m. (Atlanta, Georgia time) on any date of determination thereof specified in this Agreement or, if the day of determination thereof is not otherwise specified in this Agreement, on the date two (2) Business Days prior to such determination. "Domestic Subsidiaries" means the Subsidiaries of the Borrower organized or incorporated under the laws of a state in the United States and denominated as a "Domestic Subsidiary" in Schedule 6.5. "Eligible Accounts" means the Accounts of a Loan Party which the Agent in the exercise of its reasonable commercial discretion determines to be Eligible Accounts. Without limiting the discretion of the Agent to establish additional criteria of ineligibility, Eligible Accounts shall not include any Account: A-10 (a) with respect to which more than 120 days have elapsed since the date of the original invoice therefor or which is more than 60 days past due, whichever is sooner; (b) with respect to which any of the representations, warranties, covenants, and agreements contained in the Security Agreement are incorrect or have been breached; (c) with respect to which Account (or any other Account due from such Account Debtor), in whole or in part, a check, promissory note, draft, trade acceptance or other instrument for the payment of money has been received, presented for payment and returned uncollected by reason of insufficient funds; (d) which represents a progress billing (as hereinafter defined) or as to which the applicable Loan Party has materially extended the time for payment without the consent of the Agent; for the purposes hereof, "progress billing" means any invoice for goods sold or leased or services rendered under a contract or agreement pursuant to which the Account Debtor's obligation to pay such invoice is conditioned upon the applicable Loan Party's completion of any further performance under the contract or agreement; (e) with respect to which any one or more of the following events has occurred to the Account Debtor on such Account: the filing by or against the Account Debtor of a petition for liquidation, reorganization, arrangement, adjustment of debts, adjudication as a bankrupt, winding-up, or other relief under the bankruptcy, insolvency, or similar laws of the United States or Canada, any state, province or territory thereof, or any foreign jurisdiction, now or hereafter in effect; the making of any general assignment by the Account Debtor for the benefit of creditors; the appointment of a receiver or trustee for the Account Debtor or for any of the assets of the Account Debtor, including, without limitation, the appointment of or taking possession by a "custodian," as defined in the Federal Bankruptcy Code; the institution by or against the Account Debtor of any other type of insolvency proceeding (under the bankruptcy laws of the United States or otherwise) or of any formal or informal proceeding for the dissolution or liquidation of, settlement of claims against, or winding up of affairs of, the Account Debtor; the nonpayment generally by the Account Debtor of its debts as they become due; or the cessation of the business of the Account Debtor as a going concern; provided, however, that none of the foregoing exclusions from Eligible Accounts shall include any Account to the extent there is any post-petition receivable that has the status of an administrative claim and is entitled to be paid in the ordinary course; (f) if 50% or more of the aggregate Dollar amount of outstanding Accounts owed at such time by the Account Debtor thereon is classified as ineligible under clause (a) above; (g) owed by an Account Debtor which: (i) does not maintain its chief executive office in the United States of America, Canada or the Commonwealth of Puerto Rico (and, with respect to Accounts owed by an Account Debtor located in the Commonwealth of Puerto Rico, no more than $1,000,000 in aggregate face amount of such Accounts shall be deemed Eligible Accounts at any time); or (ii) is not organized under the laws of the United States of America, Canada, the Commonwealth of Puerto Rico any state or province thereof; or (iii) is the government of any foreign country or sovereign state, or of any state, province, A-11 municipality, or other political subdivision thereof, or of any department, agency, public corporation, or other instrumentality thereof; except to the extent that such Account is secured or payable by a letter of credit satisfactory to the Agent in its discretion; (h) owed by an Account Debtor which is an Affiliate or employee of a Loan Party; (i) except as provided in clause (k) below, with respect to which either the perfection, enforceability, or validity of the Agent's Liens in such Account, or the Agent's right or ability to obtain direct payment to the Agent of the proceeds of such Account, is governed by any federal, state, or local statutory requirements other than those of the UCC; (j) owed by an Account Debtor to which the applicable Loan Party or any of its Subsidiaries, is indebted in any way, or which is subject to any right of setoff or recoupment by the Account Debtor, unless the Account Debtor has entered into an agreement acceptable to the Agent to waive setoff rights; or if the Account Debtor thereon has disputed liability or made any claim with respect to any other Account due from such Account Debtor; but in each such case only to the extent of such indebtedness, setoff, recoupment, dispute, or claim; (k) owed by the government of the United States of America or Canada, or any department, agency, public corporation, or other instrumentality thereof, unless in the case of the United States of America, the Federal Assignment of Claims Act of 1940, as amended (31 U.S.C. Section 3727 et seq.), and any other steps necessary to perfect the Agent's Liens therein, have been complied with to the Agent's satisfaction with respect to such Account; (l) owed by any state, province, municipality, or other political subdivision of the United States of America or Canada, or any department, agency, public corporation, or other instrumentality thereof and as to which the Agent determines that its Lien therein is not or cannot be perfected; (m) which represents a sale on a bill-and-hold, guaranteed sale, sale and return, sale on approval, consignment, or other repurchase or return basis; (n) which is evidenced by a promissory note or other instrument or by chattel paper; (o) if the Agent believes, in the exercise of its reasonable judgment, that the prospect of collection of such Account is impaired or that the Account may not be paid by reason of the Account Debtor's financial inability to pay; (p) with respect to which the Account Debtor is located in any state requiring the filing of a Notice of Business Activities Report or similar report in order to permit the applicable Loan Party to seek judicial enforcement in such State of payment of such Account, unless such Loan Party has qualified to do business in such state or has filed a Notice of Business Activities Report or equivalent report for the then current year; (q) which arises out of a sale not made in the ordinary course of the applicable Loan Party's business; A-12 (r) with respect to which the goods giving rise to such Account have not been shipped and delivered to and accepted by the Account Debtor or the services giving rise to such Account have not been performed by the applicable Loan Party, and, if applicable, accepted by the Account Debtor, or the Account Debtor revokes its acceptance of such goods or services; (s) owed by an Account Debtor which is obligated to the applicable Loan Party respecting Accounts the aggregate unpaid balance of which exceeds 30% of the aggregate unpaid balance of all Accounts owed to such Loan Party at such time by all of such Loan Party's Account Debtors, but only to the extent of such excess; (t) which is not subject to a first priority and perfected security interest in favor of the Agent for the benefit of the Lenders. If any Account at any time ceases to be an Eligible Account, then such Account shall promptly be excluded from the calculation of Eligible Accounts until reinstated by the Agent as an Eligible Account in the exercise of its reasonable credit judgment. Notwithstanding the foregoing, none of the Accounts described in clauses (a) through (o) above shall be excluded from Eligible Accounts if the payments of such Accounts are (i) guaranteed by any third party, (ii) covered by insurance policies or (iii) secured or payable by a letter of credit, in each case as is satisfactory to Agent in its sole discretion. "Eligible Assignee" means (a) a commercial bank, commercial finance company, financial institution or other asset based lender, having total assets in excess of $1,000,000,000; (b) any Lender listed on the signature page of this Agreement; (c) any Affiliate of any Lender; and (d) if an Event of Default has occurred and is continuing, any Person reasonably acceptable to the Agent. "Eligible Inventory" means Inventory of a Loan Party which the Agent, in its reasonable discretion, determines to be Eligible Inventory. Without limiting the discretion of the Agent to establish additional criteria of ineligibility, Eligible Inventory shall not include any Inventory: (a) that is not owned by a Loan Party; (b) that is not subject to the Agent's Liens, which are perfected as to such Inventory, or that are subject to any other Lien whatsoever (other than the Liens described in clause (d) of the definition of Permitted Liens provided that such Permitted Liens (i) are junior in priority to the Agent's Liens or subject to Reserves and (ii) do not impair directly or indirectly the ability of the Agent to realize on or obtain the full benefit of the Collateral); (c) that does not consist of finished goods; (d) that consists of work-in-process, chemicals, samples, prototypes, supplies, or packing and shipping materials; (e) that is not in good condition, is unmerchantable, or does not meet all standards imposed by any Governmental Authority having regulatory authority over such goods, their use or sale; A-13 (f) that is not currently either usable or salable, at prices approximating at least cost, in the normal course of such Loan Party's business, or that is slow moving or stale; (g) that is obsolete or returned (to the extent the aggregate Cost Value of returned Inventory exceeds $5,000,000 and such returned Inventory otherwise satisfies the criteria applicable to Eligible Inventory) or repossessed or used goods taken in trade; (h) that is located outside the United States of America or Canada or that is in-transit from vendors or suppliers except to extent such Inventory constitutes In-Transit Inventory; (i) that is located in a public warehouse or in possession of a bailee or in a facility leased by the applicable Loan Party, if the warehouseman, or the bailee, or the lessor has not delivered to the Agent, if requested by the Agent, a subordination agreement in form and substance satisfactory to the Agent or if a Reserve for rents or storage charges has not been established for Inventory at that location; (j) that contains or bears any Proprietary Rights licensed to such Loan Party by any Person, if the Agent is not satisfied that it may sell or otherwise dispose of such Inventory in accordance with the terms of the Security Agreement and Section 9.2 without infringing the rights of the licensor of such Proprietary Rights or violating any contract with such licensor (and without payment of any royalties other than any royalties due with respect to the sale or disposition of such Inventory pursuant to the existing license agreement), and, as to which such Loan Party has not delivered to the Agent a consent or sublicense agreement from such licensor in form and substance acceptable to the Agent if requested; (k) that is not reflected in the details of a current perpetual inventory report; or (l) that is Inventory placed on consignment. If any Inventory at any time ceases to be Eligible Inventory, such Inventory shall promptly be excluded from the calculation of Eligible Inventory until reinstated by Agent in the exercise of its reasonable credit judgment as Eligible Inventory. "Environmental Claims" means all claims, however asserted, by any Governmental Authority or other Person alleging potential liability or responsibility for violation of any Environmental Law, or for a Release or injury to the environment. "Environmental Laws" means all federal, state, provincial or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case relating to environmental, health, safety and land use matters. "Environmental Lien" means a Lien in favor of any Governmental Authority or any other Person for (a) any liability under Environmental Laws, or (b) damages arising from, or costs incurred by such Governmental Authority in response to, a Release or threatened Release of a Contaminant into the environment. A-14 "Equipment" shall have the meaning specified in the Security Agreement. "ERISA" means the Employee Retirement Income Security Act of 1974, and regulations promulgated thereunder. "ERISA Affiliate" means any trade or business (whether or not incorporated) under common control with a Loan Party within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code). "ERISA Event" means (a) a Reportable Event and or Termination Event with respect to a Pension Plan, (b) a withdrawal by a Loan Party or any ERISA Affiliate from a Pension Plan during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or employer under the PBA or a cessation of operations which is treated as such a withdrawal, (c) a complete or partial withdrawal by a Loan Party or any ERISA Affiliate from a Multi-employer Plan or notification that a Multi-employer Plan or plan regulated or governed by the PBA is in reorganization, (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination or the commencement of proceedings by the PBGC or other applicable Governmental Authority to terminate a Pension Plan or Multi-employer Plan, (e) the occurrence of an event or condition which might reasonably be expected to constitute grounds for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multi-employer Plan, (f) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA or PBA or other applicable law of any jurisdiction, upon a Loan Party or any ERISA Affiliate; or (g) failure to make or remit any contribution when due in respect of any Plan. "Event of Default" has the meaning specified in Section 9.1. "Exchange Act" means the Securities Exchange Act of 1934, and regulations promulgated thereunder. "FDIC" means the Federal Deposit Insurance Corporation, and any Governmental Authority succeeding to any of its principal functions. "Federal Funds Rate" means, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate charged to the Bank on such day on such transactions as determined by the Agent. "Federal Reserve Board" means the Board of Governors of the Federal Reserve System or any successor thereto. A-15 "Fee Letter" means the letter from Agent to the Borrower, dated December __, 2001, setting forth certain fees and other charges payable by the Loan Parties in connection with the provision and syndication of the credit facilities contemplated under this Agreement. "Financial Statements" means, according to the context in which it is used, the financial statements referred to in Sections 5.2 and 6.6 or any other financial statements required to be given to the Agent and the Lenders pursuant to this Agreement. "Fiscal Year" means, with respect to the Loan Parties, their fiscal year for financial accounting purposes. The current Fiscal Year of the Loan Parties will end on December 31, 2001. "Fixed Assets" means the Equipment and Real Estate of the Loan Parties. "Foreign Security Document" means a Guaranty, pledge, mortgage, personal property mortgage, security agreement, assignment, security instrument, hypothecation, charge or other agreement or document by which any Foreign Subsidiary grants or otherwise conveys to the Agent or any Affiliate of the Agent for the benefit of the Agent, or any agent or trustee for or on behalf of the Agent or any such Affiliate, any Guaranty, pledge, lien, security interest, mortgage, charge, collateral assignment or similar interest in property of such Foreign Subsidiary as security for the Obligations or any portion thereof, and any and all renewals, extensions, modifications, amendments or restatements thereof. "Foreign Subsidiary" means any Subsidiary of the Borrower other than the Domestic Subsidiaries, which shall include Applica Canada and such other Foreign Subsidiaries as are designated in Schedule 6.5. "Funded Debt to Consolidated EBITDA Ratio" means, as of any date of determination, the ratio of (i) the Average Credit Facility Outstandings for the last month of any applicable fiscal quarter of the Borrower, to (ii) Consolidated EBITDA as of the last day of any applicable fiscal quarter of Borrower for the Applicable Period then ending. "Funding Date" means the date on which a Borrowing occurs. "GAAP" means generally accepted accounting principles and practices set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), which are applicable to the circumstances as of the date of the report. "General Intangibles" shall have the meaning specified in the Security Agreement. "Goods" shall have the meaning specified in the Security Agreement. "Governmental Authority" means any nation or government, any state, province, municipality, region or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory A-16 or administrative functions of or pertaining to government, any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing and any department, agency, board, commission, tribunal, committee or instrumentality of any of the foregoing. "Guarantor" means Applica Canada and any other Subsidiary of the Borrower that has executed and delivered to the Agent an agreement of Guaranty in respect of the Obligations. "Guaranty" means, with respect to any Person, all obligations of such Person which in any manner directly or indirectly guarantee or assure, or in effect guarantee or assure, the payment or performance of any indebtedness, dividend or other obligations of any other Person (the "guaranteed obligations"), or assure or in effect assure the holder of the guaranteed obligations against loss in respect thereof, including any such obligations incurred through an agreement, contingent or otherwise: (a) to purchase the guaranteed obligations or any property constituting security therefor; (b) to advance or supply funds for the purchase or payment of the guaranteed obligations or to maintain a working capital or other balance sheet condition; or (c) to lease property or to purchase any debt or equity securities or other property or services. "Headquarter Financing Transaction" shall mean any financing transaction after the date hereof involving the Headquarters. "Headquarters" shall mean the Real Estate located at 5980 Miami Lakes Drive, Miami Lakes, Florida. "Hedge Agreements" means any and all transactions, agreements or documents now existing or hereafter entered into, which provides for an interest rate, credit, commodity or equity swap, cap, floor, collar, forward foreign exchange transaction, currency swap, cross currency rate swap, currency option, or any combination of, or option with respect to, these or similar transactions, for the purpose of hedging a Person's exposure to fluctuations in interest or exchange rates, loan, credit exchange, security or currency valuations or commodity prices. "Intercompany Accounts" has the meaning specified in Section 5.2(l). "Instruments" shall have the meaning specified in the Security Agreement. "Interest Period" means, as to any LIBOR Rate Loan, the period commencing on the Funding Date of such Loan or on the Continuation/Conversion Date on which the Loan is converted into or continued as a LIBOR Rate Loan, and ending on the date one, two, three or six months thereafter as selected by the Borrower in its Notice of Borrowing, in the form attached hereto as Exhibit D, or Notice of Continuation/Conversion, in the form attached hereto as Exhibit E, provided that: (a) if any Interest Period would otherwise end on a day that is not a Business Day, that Interest Period shall be extended to the following Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the preceding Business Day; (b) any Interest Period pertaining to a LIBOR Rate Loan that begins on the A-17 last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and (c) no Interest Period shall extend beyond the Stated Termination Date. "Interest Rate" means each or any of the interest rates, including the Default Rate, set forth in Section 2.1. "In-Transit Inventory" means Inventory of a Loan Party (i) consisting of finished goods that is in transit to a Loan Party; (ii) with respect to which Agent has received from the vendor of such Inventory and each of the Loan Parties a duly executed letter agreement in substantially the form of Exhibit H and such vendor and the Loan Parties are in compliance with the terms and provisions of such letter agreement, as Agent may determine in its sole discretion; (iii) the In-Transit Perfection Documents with respect thereto have been presented to and are in the possession of Agent or its authorized bailees; and (iv) such Inventory it is fully insured by marine cargo or other insurance on terms in an amount and subject to deductibles satisfactory to Agent and with respect to which Agent has been named additional insured and loss payee. "In-Transit Perfection Documents" mean all filings, agreements or other documents requested by Agent to perfect (or continue the perfection of) a first priority Lien in favor of Agent (except for possessory liens upon such goods in the possession of a freight carrier or shipping company securing only the freight charges for the transportation of such goods to a Loan Party) upon Inventory in-transit to a Loan Party, including delivery to the Agent or a bailee of the Agent of all original Documents issued with respect to such Inventory (which shall in each instance be negotiable (as defined in the UCC)) and such other agreements as may be requested by Agent with each common carrier, shipper, customs agent, freight forwarder or other Person, in form and substance reasonably satisfactory to Agent. "Inventory" shall have the meaning specified in the Security Agreement. "Investment Property" shall have the meaning specified in the Security Agreement. "IRS" means the Internal Revenue Service and any Governmental Authority succeeding to any of its principal functions under the Code. "Latest Projections" means: (a) on the Closing Date and thereafter until the Agent receives new projections pursuant to Section 5.2(e), the projections of the Borrower's balance sheets, income statements and cash flows, for the period commencing on October 1, 2001 and ending on September 30, 2002 and delivered to Agent prior to the Closing Date; and (b) thereafter, the projections most recently received by Agent pursuant to Section 5.2(f). "Lender" and "Lenders" have the meanings specified in the introductory paragraph hereof and shall include Agent to the extent of any Agent Advance outstanding and the Bank to the extent of any Non-Ratable Loan outstanding; provided that no such Agent Advance or Non-Ratable Loan shall be taken into account in determining any Lender's Pro Rata A-18 Share. "Lending Party" has the meaning specified in Section 13.17. "Letter of Credit" has the meaning specified in Section 1.4(a). "Letter of Credit Fee" has the meaning specified in Section 2.6. "Letter of Credit Issuer" means the Bank, any Affiliate of the Bank, a Lender or any other financial institution that issues any Letter of Credit pursuant to this Agreement. "Letter-of-Credit Rights" shall have the meaning specified in the Security Agreement. "Letter of Credit Subfacility" means $10,000,000. "LIBOR Interest Payment Date" means, with respect to a LIBOR Rate Loan, the Termination Date and the last day of each Interest Period applicable to such Loan or, with respect to each Interest Period of greater than three months in duration, the last day of the third month of such Interest Period and the last day of such Interest Period. "LIBOR Rate" means, for any Interest Period, with respect to LIBOR Rate Loans, the rate of interest per annum determined pursuant to the following formula: LIBOR Rate = Offshore Base Rate ------------------------------------------------ 1.00 - Eurodollar Reserve Percentage Where, "Offshore Base Rate" means, for any Revolving Loan bearing interest at the LIBOR Rate the rate per annum appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period. If for any reason such rate is not available, the Offshore Base Rate shall be, for any Interest Period, the rate per annum appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; provided, however, if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates. If for any reason none of the foregoing rates is available, the Offshore Base Rate shall be, for any Interest Period, the rate per annum determined by Agent as the rate of interest at which dollar deposits in the approximate amount of the LIBOR Rate Loan comprising part of such Borrowing would be offered by the Bank's London Branch to major banks in the offshore dollar market at their request at or about 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period. "Eurodollar Reserve Percentage" means, for any day during any Interest Period, the reserve percentage (expressed as a decimal, rounded upward to the next A-19 1/100th of 1%) in effect on such day applicable to member banks under Regulation D or any successor regulation issued from time to time by the Federal Reserve Board for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) applicable with respect to Eurocurrency funding (currently referred to as "Eurocurrency liabilities" under Regulation D). The Offshore Rate for each outstanding LIBOR Rate Loan shall be adjusted automatically as of the effective date of any change in the Eurodollar Reserve Percentage. "LIBOR Rate Loans" means, the LIBOR Revolving Loans. "LIBOR Revolving Loan" means a Revolving Loan during any period in which it bears interest based on the LIBOR Rate. "Lien" means: (a) any interest in property securing an obligation owed to, or a claim by, a Person other than the owner of the property, whether such interest is based on the common law, statute, or contract, and including a security interest, hypothec, charge, claim, or lien arising from a mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment, deposit arrangement, agreement, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes; and (b) any contingent or other agreement to provide any of the foregoing. "Loan Account" means the loan account of the Borrower, which account shall be maintained by the Agent. "Loan Documents" means this Agreement, the Security Agreement, Subsidiary Guaranties, the Applica Canada Guaranty, the Applica Canada Security Agreement, the Pledge Agreement, the Fee Letter and any other agreements, instruments, and documents heretofore, now or hereafter evidencing, securing, guaranteeing or otherwise relating to the Obligations, the Collateral, or any other aspect of the transactions contemplated by this Agreement. "Loan Party" means each of the Borrower, the Guarantors and Applica Canada, and "Loan Parties" means any two or more of the foregoing. "Loans" means, collectively, all loans and advances provided for in Article 1. "Margin Stock" means "margin stock" as such term is defined in Regulation T, U or X of the Federal Reserve Board. "Material Adverse Effect" means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties or condition (financial or otherwise) or prospects of the Consolidated Members taken as a whole, or the Collateral; (b) a material impairment of the ability of any Obligated Party to perform under any Loan Document to which it is a party; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against any Obligated Party of any material Loan Document to which it is a party. "Material Contracts" means an agreement to which a Loan Party is a party (other than a Loan Document) (i) which would be deemed to be a material contract as provided in Regulation S-K promulgated by the SEC under the Securities Act of 1933 or (ii) for which A-20 breach, termination, cancellation, non-performance or failure to renew could reasonably be expected to have a Material Adverse Effect. "Maximum Rate" has the meaning specified in Section 2.3. "Maximum Revolver Amount" means $205,000,000. "Multi-employer Plan" means a "multi-employer plan" as defined in Section 4001(a)(3) of ERISA which is or was at any time during the current year or the immediately preceding six (6) years contributed to by the Borrower or any ERISA Affiliate. "Net Amount of Eligible Accounts" means, at any time, the gross Dollar Equivalent amount of Eligible Accounts less, unless already included as a Reserve, sales, excise or similar taxes, returns, discounts, claims, credits, allowances accrued rebates, offsets, deductions, counterclaims, disputes and other defenses of any nature at any time issued, owing, granted, outstanding, available or claimed. "Net Inventory Proceeds" means, with regard to any sale or disposition of Inventory, the gross cash proceeds received from such sale or disposition, net of the reasonable costs of such sale (including attorneys fees, charges and commissions), and all transfer, sales and other taxes paid or payable as a result of such sale. "Net Orderly Liquidation Value" shall mean at any date of determination the Net Inventory Proceeds expected to be realized at an orderly, negotiated sale of applicable items of Inventory located in the United States or Canada as determined by a "desktop" professional opinion of Ozer Valuation Services or other appraisal company of similar qualifications and standing acceptable to the Agent, with each such opinion assuming that such sale is held within a reasonable period of time after the date of the opinion. "Net Proceeds" means, in respect of an Asset Disposition of by a Person, all proceeds received by and/or payable to such Person in consideration thereof, net of (A) commissions and other reasonable and customary transaction costs, fees and expenses properly attributable to such transaction and payable by such Person in connection therewith (in each case, paid to non-Affiliates), (B) transfer taxes, (C) amounts payable to holders of senior Liens (other than the Agent's Liens and to the extent such Liens constitute Permitted Liens), if any, and (D) an appropriate reserve for income taxes in accordance with GAAP in connection therewith. "New Subsidiary" has the meaning specified in Section 7.24. "Net Worth" means with respect to any Person, such Person's total shareholder's equity (including capital stock, additional paid-in capital and retained earnings, after deducting treasury stock) which would appear as such on a balance sheet of such Person prepared in accordance with GAAP. "Non-Ratable Loan" and "Non-Ratable Loans" have the meanings specified in Section 1.2(h). A-21 "North American EBITDA" means, with respect to any fiscal period of the Borrower, the Adjusted Net Earnings from Operations of the Borrower, the Domestic Subsidiaries and Applica Canada, plus, to the extent deducted in the determination of Adjusted Net Earnings from Operations for that fiscal period, interest expenses, federal, state, local and foreign income taxes, depreciation, amortization, and, solely for purposes of calculating North American EBITDA for any period during the Borrower's 2002 Fiscal Year, those costs associated with the Borrower's consolidation of its Shelton, Connecticut facility into its Miami Lake, Florida facility that were not previously accrued, as determined in accordance with GAAP. "Notice of Borrowing" has the meaning specified in Section 1.2(b). "Notice of Continuation/Conversion" has the meaning specified in Section 2.2(b). "Obligated Parties" means (i) the Loan Parties and (ii) any other Consolidated Member that executes and delivers to the Agent any Foreign Security Document, and "Obligated Party" means any of the foregoing. "Obligations" means all present and future loans, advances, liabilities, obligations, covenants, duties, and debts owing by the Borrower or any of the other Loan Parties, or any of them, to the Agent and/or any Lender, arising under or pursuant to this Agreement or any of the other Loan Documents, whether or not evidenced by any note, or other instrument or document, whether arising from an extension of credit, opening of a letter of credit, acceptance, loan, guaranty, indemnification or otherwise, whether direct or indirect, absolute or contingent, due or to become due, primary or secondary, as principal or guarantor, and including all principal, interest, charges, expenses, fees, attorneys' fees, filing fees and any other sums chargeable to the Borrower or other Loan Party hereunder or under any of the other Loan Documents. "Obligations" includes, without limitation, (a) all debts, liabilities, and obligations now or hereafter arising from or in connection with the Letters of Credit and Credit Support and (b) all debts, liabilities and obligations now or hereafter arising from or in connection with Bank Products. "Operating Documents" means with respect to any corporation, limited liability company, partnership, limited partnership, limited liability partnership or other legally authorized incorporated or unincorporated entity, the bylaws, operating agreement, partnership agreement or limited agreement of such entity. "Organization Documents" means with respect to any corporation, limited liability company, partnership, limited liability partnership or other legally authorized incorporated or unincorporated entity, the articles of incorporation, certificate of incorporation, articles of organization or certificate of limited partnership of such entity. "Participant" means any Person who shall have been granted the right by any Lender to participate in the financing provided by such Lender under this Agreement, and who shall have entered into a participation agreement in form and substance satisfactory to such Lender. "Payment Account" has the meaning specified in the Security Agreement. A-22 "PBA" means the Pension Benefits Act of Ontario and all regulations thereunder as amended from time to time, and any successor legislation. "PBGC" means the Pension Benefit Guaranty Corporation or any Governmental Authority succeeding to the functions thereof. "Pending Revolving Loans" means, at any time, the aggregate principal amount of all Revolving Loans requested in any Notice of Borrowing received by the Agent which have not yet been advanced. "Pension Plan" means a pension plan (as defined in Section 3(2) of ERISA or the applicable laws of any other jurisdiction including the PBA) subject to Title IV of ERISA or the applicable laws of any other jurisdiction including the PBA which any Loan Party or any ERISA Affiliate sponsors, maintains, or to which it makes, is making, or is obligated to make contributions, or has made contributions at any time during the immediately preceding five (5) plan years. "Permitted Acquisition" means an Acquisition effected with the consent and approval of the board of directors or other applicable governing body of the Person being acquired ("Target"), and with the duly obtained approval of such shareholders or other holders of equity interest as such Target may be required to obtain, so long as (i) immediately prior to and after giving effect to the consummation of such Acquisition, no Event of Default has or would exist, (ii) with respect to an Acquisition where the Cost of Acquisition exceeds $2,500,000, substantially all of the sales and operating profits generated by the Target (or its assets) so acquired or invested are derived from a line or lines of business that are consistent with the Core Business, (iii) pro forma historical financial statements as of the end of the most recent fiscal quarter for the trailing twelve month period giving effect to such Acquisition are delivered to Agent not less than ten (10) Business Days prior to the consummation of such Acquisition, together with a certificate of an Responsible Officer stating that no Default or Event of Default exists before or after giving effect to such Acquisition and demonstrating compliance with Section 7.27 hereof, if then-applicable, after giving effect to such Acquisition on a pro forma basis; provided, that such Consolidated EBITDA and North American EBITDA tests shall be measured as of the most recently ended fiscal quarter for the Applicable Period then ended and shall include the EBITDA of any Target acquired through such Acquisition as if such Acquisition had been consummated on the first day of such Applicable Period, (iv) the aggregate Cost of Acquisition (excluding the value of any capital stock of the Borrower given as part of the Cost of Acquisition) with respect to any Acquisitions consummated during any Fiscal Year shall not exceed $20,000,000; (v) the aggregate Cost of Acquisition which consists in whole or in part of the value of any capital stock of the Borrower (including without limitation when combined with cash, debt or the assumption of indebtedness for any specific Acquisition) with respect to any single Acquisition consummated after the Closing Date shall not exceed $10,000,000; (vi) appropriate phase I environmental reports in respect of any real property of the Target shall have been delivered to the Agent not less than ten (10) days prior to the consummation of such Acquisition and such reports shall be acceptable to the Agent in its sole discretion; (vii) after giving effect to the consummation of such Acquisition (including any Loans made hereunder to finance such Acquisition), Availability is greater than $30,000,000 for each of the 30 days immediately preceding and immediately following the date of the consummation of such A-23 Acquisition; provided, that no assets of the Target shall be included in the calculation of Availability for purposes of this clause (vii), or for purposes of Section 7.27 or otherwise until the Agent has completed a satisfactory field examination with respect to the Target and its assets; (viii) after giving effect to the consummation of such Acquisition (including any Loans made hereunder to finance such acquisition) the Aggregate Revolver Outstandings shall not exceed the amount of the Maximum Revolver Amount minus $10,000,000; (ix) if the Target will become a Domestic Subsidiary of a Loan Party in connection with such Acquisition, the Loan Parties shall cause the Target to become a Guarantor hereunder and grant to the Agent, for the benefit of the Agent and the Lenders, a perfected, first-priority Lien on substantially all of the assets of the Target, all pursuant to documentation in form and substance acceptable to the Agent in its discretion; and (x) if the Target will become a Foreign Subsidiary of a Loan Party in connection with such Acquisition, the Loan Parties shall cause the parent Loan Party to pledge to Agent, for the benefit of the Lenders, 65% of the Capital Stock of the Target. "Permitted Liens" means: (a) Liens for Taxes, fees, assessments or other charges of a Governmental Authority which are not (i) delinquent or (ii) statutory Liens for taxes, fees, assessments or other charges in an amount not to exceed $500,000; provided that the payment of such taxes which are due and payable is being contested in good faith and by appropriate proceedings diligently pursued and as to which adequate financial reserves have been established on the applicable Loan Party's books and records and a stay of enforcement of any such Lien is in effect; (b) the Agent's Liens; (c) Liens incurred or deposits made in the ordinary course of business in connection with, or to secure payment of, obligations under worker's compensation, unemployment insurance, social security and other similar laws, or to secure the performance of bids, tenders or contracts (other than for the repayment of Debt) or to secure indemnity, performance or other similar bonds for the performance of bids, tenders or contracts (other than for the repayment of Debt) or to secure statutory obligations (other than liens arising under ERISA or Environmental Liens) or other similar obligations or arising as a result of progress payments under government contracts or surety or appeal bonds, or to secure indemnity, performance or other similar bonds; (d) Liens securing the claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like Persons, provided that if any such Lien arises from the nonpayment of such claims or demand when due, such claims or demands do not exceed $200,000 in the aggregate; (e) Liens constituting encumbrances in the nature of reservations, exceptions, encroachments, easements, rights of way, covenants running with the land, and other similar title exceptions or encumbrances affecting any Real Estate; provided that they do not in the aggregate materially detract from the value of the Real Estate or materially interfere with its use in the ordinary conduct of the applicable Loan Party's business; A-24 (f) Liens arising from judgments and attachments in connection with court proceedings provided that the attachment or enforcement of such Liens would not result in an Event of Default hereunder and such Liens are being contested in good faith by appropriate proceedings, adequate reserves have been set aside and no material Property is subject to a material risk of loss or forfeiture and the claims in respect of such Liens are fully covered by insurance (subject to ordinary and customary deductibles) and a stay of execution pending appeal or proceeding for review is in effect; and (g) Liens in respect of purchase-money Debt permitted to be incurred pursuant to Section 7.13(c) hereof in connection with the acquisition of Equipment; provided that (a) the original principal balance of the Debt secured by such Lien constitutes not more than 100% of the purchase price of the Equipment acquired and (b) such Lien extends only to the Equipment acquired with the proceeds of the Debt so secured; (h) Liens on real property securing Debt permitted under Section 7.13(a), (c), (k) hereof; (i) Liens on Accounts subject to any Approved Receivables Program; and (j) Liens, if any, which are described in Schedule A-1 on the Closing Date and Liens resulting from the refinancing of the related Debt, provided that such refinancing is on the same or substantially similar terms, the Debt secured thereby shall not be increased, and the Liens shall not cover any additional property of the any Loan Party. "Person" means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated organization, association, corporation, Governmental Authority, or any other entity. "Plan" means an employee benefit plan (as defined in Section 3(3) of ERISA or the applicable laws of any other jurisdiction) which the Borrower or any other Loan Party sponsors or maintains or to which the Borrower or any other Loan Party makes, is making, or is obligated to make contributions and includes any Pension Plan. "Pledge Agreement" means the Stock Pledge Agreement, dated on or about the Closing Date, executed by the Borrower and certain of the Domestic Subsidiaries in favor of Agent, with respect of all of the Capital Stock of the Domestic Subsidiaries referenced therein and 65% of the Capital Stock of the Direct Foreign Subsidiaries, as at any time amended. "PPSA" means, collectively, the Personal Property Security Acts of the Provinces of Ontario and Nova Scotia, and all regulations thereunder, as amended from time to time, and any successor legislation. "Proposed Change" has the meaning specified in Section 11.1(c). "Proprietary Rights" shall have the meaning specified in the Security Agreement. "Pro Rata Share" means, with respect to a Lender, a fraction (expressed as a percentage), the numerator of which is the amount of such Lender's Commitment and the A-25 denominator of which is the sum of the amounts of all of the Lenders' Commitments, or if no Commitments are outstanding, a fraction (expressed as a percentage), the numerator of which is the amount of Obligations (exclusive indebtedness in respect of Bank Products) owed to such Lender and the denominator of which is the aggregate amount of the Obligations (exclusive indebtedness in respect of Bank Products) owed to the Lenders, in each case giving effect to a Lender's participation in Non-Ratable Loans and Agent Advances. "Real Estate" means, with respect to any Person, all of such Person's now or hereafter owned or leased estates in real property, including, without limitation, all fees, leaseholds and future interests, together with all of such Person's now or hereafter owned or leased interests in the improvements thereon, the fixtures attached thereto and the easements appurtenant thereto. "Refinancing" has the meaning specified in Section 7.29. "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System (or any successor body) as the same may be amended or supplemented from time to time. "Release" means a release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration of a Contaminant into the indoor or outdoor environment or into or out of any Real Estate or other property, including the movement of Contaminants through or in the air, soil, surface water, groundwater or Real Estate or other property. "Reportable Event" means, any of the events set forth in Section 4043(b) of ERISA or the regulations thereunder, other than any such event for which the 30-day notice requirement under ERISA has been waived in regulations issued by the PBGC. "Representatives" has the meaning specified in Section 13.16. "Required Lenders" means at any time Lenders whose Pro Rata Shares aggregate more than 50%. "Requirement of Law" means, as to any Person, any law (statutory or common), treaty, rule or regulation or determination of an arbitrator declared final and binding by a Governmental Authority or of a Governmental Authority, in each case applicable to or binding upon the Person or any of its property or to which the Person or any of its property is subject. "Reserves" means reserves that limit, without duplication, the availability of credit hereunder, consisting of reserves against Availability, Eligible Accounts or Eligible Inventory, established by Agent from time to time in Agent's reasonable credit judgment. Without limiting the generality of the foregoing or in duplication thereof, the following reserves shall be deemed to be a reasonable exercise of Agent's credit judgment: (a) Bank Product Reserves, (b) a reserve for accrued, unpaid interest on the Obligations, (c) reserves for rent at leased locations subject to statutory or contractual landlord liens, (d) Inventory shrinkage consistent with the Borrower's standard accounting practices, (e) customs charges, (f) dilution, and (g) warehousemen's or bailees' charges. A-26 "Responsible Officer" means, with respect to any Loan Party, the chief executive officer, the president, the senior treasury officer, the chief financial officer, the treasurer, the controller or any senior vice president or any other officer having substantially the same authority and responsibility; or, with respect to compliance with financial covenants and the preparation of Borrowing Base Certificates, the chief financial officer or the treasurer of the Borrower, or any other officer having substantially the same authority and responsibility. "Restricted Investment" means, with respect to any Loan Party, any acquisition of property by such Loan Party in exchange for cash or other property, whether in the form of an acquisition of stock, debt, or other indebtedness or obligation, or the purchase or acquisition of any other property, or a loan, advance, capital contribution, or subscription, except the following: (a) acquisitions of Equipment to be used in the business of such Loan Party so long as the acquisition costs thereof constitute Capital Expenditures permitted hereunder; (b) acquisitions of Inventory in the ordinary course of business of such Loan Party; (c) acquisitions of current assets acquired in the ordinary course of business of the Loan Parties; (d) direct obligations of the United States of America, or any agency thereof, or obligations guaranteed by the United States of America, provided that such obligations mature within one year from the date of acquisition thereof; (e) acquisitions of certificates of deposit maturing within one year from the date of acquisition, bankers' acceptances, Eurodollar bank deposits, or overnight bank deposits, in each case issued by, created by, or with a bank or trust company organized under the laws of the United States of America or any state thereof having capital and surplus aggregating at least $100,000,000; (f) acquisitions of commercial paper given a rating of "A2" or better by Standard & Poor's Corporation or "P2" or better by Moody's Investors Service, Inc. and maturing not more than 90 days from the date of creation thereof; (g) Hedge Agreements; (h) investments, loans and advances existing as of the date hereof and as set forth in Schedule A -2; (i) Accounts arising and trade credit granted in the ordinary course of business and any securities received in satisfaction or partial satisfaction thereof in connection with accounts of financially troubled Persons to the extent reasonably necessary in order to prevent or limit loss; (j) investments consisting of loans and advances between any Loan Party and another Loan Party to the extent funded in a manner consistent with Section 7.29; (k) Permitted Acquisitions; (l) for so long as no Event of Default exists and the Borrower has Availability of not less than $15,000,000 after giving effect thereto, other loans, advances and investments in an aggregate principal amount at any time outstanding not to exceed $10,000,000; (m) the Debt evidenced by the Senior Subordinated Debt Offering Documents; and (n) shares of mutual funds, the shares of which mutual funds are at all times rated "AAA" by Standard & Poor's; (o) cash or other cash equivalents owned by the Borrower and in the possession or control of the Agent or an Affiliate of Agent invested in short terms vehicles such as repurchase agreements, overnight bank deposits, bankers' acceptances or other investments as may be mutually acceptable to the Borrower and the Agent; and (q) obligations of any corporation organized under the laws of any state of the United States of America or under the laws of any other nation, payable in the United States of America, expressed to mature not later than 180 days following the date of issuance thereof and rated in an investment grade rating category by Standard & Poor's and Moody's; provided, however, that with respect to clauses (d) - (h) and clauses (n) - (q), such investments are not subject to rights of offset (other than nominal amounts for brokerage fees and other, similar charges of financial intermediaries) in favor of any Person other than the Agent or a Lender. "Revolving Loans" has the meaning specified in Section 1.2 and includes each A-27 Agent Advance and Non-Ratable Loan. "Security Agreement" means the Security Agreement of even date herewith among the Loan Parties and Agent for the benefit of the Agent and the Lenders. "Senior Subordinated Debt Offering Documents" means: (i) the 10% Senior Subordinated Notes due 2008, executed by Windmere-Durable Holdings, Inc., now known as Applica Incorporated, dated July 27, 1998, in the principal amount of $130,000,000; (ii) the 10% Senior Subordinated Notes due 2008 Supplemental Indenture, dated as of July 27, 1998, by and among the Borrower, certain Affiliates listed on the signature pages thereof and State Street Bank and Trust Company; and (iii) all other agreements, instruments or documents executed or delivered by Borrowers in connection with the foregoing, as any of the foregoing may be at any time amended or modified. "Settlement" and "Settlement Date" have the meanings specified in Section 12.15(a)(ii). "Software" shall have the meaning specified in the Security Agreement.. "Solvent" means, when used with respect to any Person, that at the time of determination: (a) the assets of such Person, at a fair valuation, are in excess of the total amount of its debts (including contingent liabilities); and (b) the present fair saleable value of its assets is greater than its probable liability on its existing debts as such debts become absolute and matured; and (c) it is then able and expects to be able to pay its debts (including contingent debts and other commitments) as they mature; and (d) it has capital sufficient to carry on its business as conducted and as proposed to be conducted. For purposes of determining whether a Person is Solvent, the amount of any contingent liability shall be computed as the amount that, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "Stated Termination Date" means December __, 2005. "Subsidiary" of a Person, with respect to any Person (the "subject Person"), means any corporation, association, partnership, limited liability company, joint venture or other business entity of which more than fifty percent (50%) of the voting stock or other equity interests (in the case of Persons other than corporations), is owned or controlled directly or indirectly by the subject Person, or one or more of the Subsidiaries of the subject Person, or a combination thereof. Unless the context otherwise clearly requires, references herein to a "Subsidiary" refer to a Subsidiary of the Borrower. A-28 "Subsidiary Guaranty" means an agreement of Guaranty executed by any Subsidiary of the Borrower pursuant to which such Subsidiary guarantees the Obligations or any portion thereof. "Supporting Obligations" shall have the meaning specified in the Security Agreement. "Tangible Net Worth" shall mean, as applied to any Person, the Net Worth of such Person at the time in question, after deducting therefrom the amount of all intangible items reflected therein, including all unamortized debt discount and expense, unamortized research and development expense, unamortized deferred charges, goodwill, patents, trademarks, service marks, trade names, copyrights, unamortized excess cost of investment in Subsidiaries over equity at dates of acquisition, and all similar items which should properly be treated as intangibles in accordance with GAAP. "Taxes" means any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, including any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder of from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Documents, but excluding, in the case of each Lender and the Agent, such taxes (including income taxes or franchise taxes) as are imposed on or measured by the Agent's or each Lender's net income in any the jurisdiction (whether federal, state or local and including any political subdivision thereof) under the laws of which such Lender or the Agent, as the case may be, is organized or maintains a lending office. "Termination Date" means the earliest to occur of (i) the Stated Termination Date, (ii) the date the Total Facility is terminated either by the Borrower pursuant to Section 3.2 or by the Required Lenders pursuant to Section 9.2, and (iii) the date this Agreement is otherwise terminated for any reason whatsoever pursuant to the terms of this Agreement. "Termination Event" means (a) the whole or partial withdrawal of the Borrower(s) or any Subsidiary from a Plan during a plan year; or (b) the filing of a notice of intent to terminate in whole or in part a Plan or the treatment of a Plan amendment as a termination or partial termination; or (c) the institution of proceedings by any Governmental Authority to terminate in whole or in part or have a trustee appointed to administer a Plan; or (d) any other event or condition which might constitute grounds for the termination of, winding up or partial termination or winding up or the appointment of trustee to administer any Plan. "Total Facility" has the meaning specified in Section 1.1. "Trademark Use Agreement" means the Agreement Regarding Use of Trademarks, dated on or about the Closing Date, among the Borrower, Agent and Black & Decker, Inc. "UCC" has the meaning specified in the Security Agreement. "Unfunded Pension Liability" means the sum of (1) the amount by which a Pension Plan (other than a Multi-employer Plan) fails to satisfy the minimum funding standard A-29 pursuant to Section 412 of the Code for the applicable plan year, exclusive of any waived funding deficiency, as that term is defined in Section 412(d)((3) of the Code, and (2) with respect to any Pension Plan regulated or governed by the PBA or applicable laws of any jurisdiction, any unfunded liability or solvency deficiency as determined under the PBA or other applicable laws. "United States" means the United States of America. "Unused Letter of Credit Subfacility" means an amount equal to $10,000,000 minus the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit plus, without duplication, (b) the aggregate unpaid reimbursement obligations with respect to all Letters of Credit. "Unused Line Fee" has the meaning specified in Section 2.5. "Wholly-Owned Subsidiary" when used to determine the relationship of a Subsidiary to a Person, means a Subsidiary all of the issued and outstanding Capital Stock (other than directors' qualifying shares) of which shall at the time be owned by such Person or one or more of such Person's Wholly-Owned Subsidiaries or by such Person and one or more of such Person's Wholly-Owned Subsidiaries. Accounting Terms. Any accounting term used in the Agreement shall have, unless otherwise specifically provided herein, the meaning customarily given in accordance with GAAP, and all financial computations in the Agreement shall be computed, unless otherwise specifically provided therein, in accordance with GAAP as consistently applied and using the same method for inventory valuation as used in the preparation of the Financial Statements. Interpretive Provisions. (a) The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms. (b) The words "hereof," "herein," "hereunder" and similar words refer to the Agreement as a whole and not to any particular provision of the Agreement; and Subsection, Section, Schedule and Exhibit references are to the Agreement unless otherwise specified. (c) (i) The term "documents" includes any and all instruments, documents, agreements, certificates, indentures, notices and other writings, however evidenced. (ii) The term "including" is not limiting and means "including without limitation." (iii) In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including," the words "to" and "until" each mean "to but excluding" and the word "through" means "to and including." (iv) The word "or" is not exclusive. (d) Unless otherwise expressly provided herein, (i) references to agreements A-30 (including the Agreement) and other contractual instruments shall be deemed to include all subsequent amendments and other modifications thereto, but only to the extent such amendments and other modifications are not prohibited by the terms of any Loan Document, and (ii) references to any statute or regulation are to be construed as including all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting the statute or regulation. (e) The captions and headings of the Agreement and other Loan Documents are for convenience of reference only and shall not affect the interpretation of the Agreement. (f) The Agreement and other Loan Documents may use several different limitations, tests or measurements to regulate the same or similar matters. All such limitations, tests and measurements are cumulative and shall each be performed in accordance with their terms. (g) For purposes of Section 9.1, a breach of a financial covenant contained in Sections 7.26-7.28 shall be deemed to have occurred as of any date of determination thereof by Agent or as of the last day of any specified measuring period, regardless of when the Financial Statements reflecting such breach are delivered to Agent. (h) The Agreement and the other Loan Documents are the result of negotiations among and have been reviewed by counsel to the Agent, the Borrower and the other parties, and are the products of all parties. Accordingly, they shall not be construed against the Lenders or the Agent merely because of the Agent's or Lenders' involvement in their preparation. (i) As used in this Agreement, and the other Loan Documents, "knowledge" of the Borrower shall mean the actual knowledge (after due inquiry) of any Responsible Officer. A-31 EX-10.19 5 g74020ex10-19.txt SECURITY AGREEMENT EXHIBIT 10.19 SECURITY AGREEMENT THIS SECURITY AGREEMENT (this "Security Agreement", dated as of December 28, 2001, among APPLICA INCORPORATED, a Florida corporation (the "Borrower"), the Domestic Subsidiaries of the Borrower (individually a "Guarantor" and collectively the "Guarantors"; the Guarantors together with the Borrower, individually a "Credit Party" and collectively the "Credit Parties"), and BANK OF AMERICA, N.A., in its capacity as the Agent for Lenders (the "Agent"). W I T N E S S E T H: WHEREAS, pursuant to that certain Credit Agreement dated as of the date hereof by and among the Borrower, the Guarantors, certain other Affiliates and Subsidiaries of Borrower, the Agent and the Lenders (including all annexes, exhibits and schedules thereto, as from time to time amended, restated, supplemented or otherwise modified, the "Credit Agreement"), the Lenders have agreed to make the Loans and issue or participate in Letters of Credit upon the terms set forth in the Credit Agreement; WHEREAS, in order to induce Agent and Lenders to enter into the Credit Agreement and the other Loan Documents and to induce Lenders to make the Loans and issue Letters of Credit as provided for in the Credit Agreement, the Credit Parties have agreed to execute and deliver this Security Agreement to the Agent for the ratable benefits of the Lenders; and WHEREAS, as collateral security for payment and performance of the Borrower's Obligations under the Credit Agreement and the Guarantor's obligations under the Subsidiary Guaranty (as defined in the Credit Agreement), the Borrower and each Guarantor is willing to grant to Agent for the benefit of Agent and the Lenders a security interest in certain of its personal property and assets; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. DEFINED TERMS. THE FOLLOWING TERMS SHALL HAVE THE FOLLOWING RESPECTIVE MEANINGS: "Accounts" means all of the Credit Parties' now owned or hereafter acquired or arising accounts, as defined in the UCC, including any rights to payment for the sale or lease of goods or rendition of services, whether or not they have been earned by performance. "Chattel Paper" means all of the Credit Parties' now owned or hereafter acquired chattel paper, as defined in the UCC, including electronic chattel paper. "Deposit Accounts" means all "deposit accounts" as such term is defined in the UCC, now or hereafter held in the name of any Credit Party. "Documents" means all documents as such term is defined in the UCC, including bills of lading, warehouse receipts or other documents of title, now owned or hereafter acquired by any Credit Party. "Equipment" means all of the Credit Parties' now owned and hereafter acquired machinery, equipment, furniture, furnishings, fixtures, and other tangible personal property (except Inventory), including embedded software, motor vehicles with respect to which a certificate of title has been issued, aircraft, dies, tools, jigs, molds and office equipment, as well as all of such types of property leased by any Credit Party and all of such Credit Party's rights and interests with respect thereto under such leases (including, without limitation, options to purchase); together with all present and future additions and accessions thereto, replacements therefor, component and auxiliary parts and supplies used or to be used in connection therewith, and all substitutes for any of the foregoing, and all manuals, drawings, instructions, warranties and rights with respect thereto; wherever any of the foregoing is located. "General Intangibles" means all of the Credit Parties' now owned or hereafter acquired general intangibles, choses in action (other than as against Agent, Bank or any Lender in connection with the Loan Documents) and causes of action and all other intangible personal property of the Credit Parties of every kind and nature (other than Accounts), including, without limitation, all contract rights, payment intangibles, Proprietary Rights, corporate or other business records, inventions, designs, blueprints, plans, specifications, patents, patent applications, trademarks, service marks, trade names, trade secrets, goodwill, copyrights, computer software, customer lists, registrations, licenses, franchises, tax refund claims, any funds which may become due to any Credit Party in connection with the termination of any employee benefit plan or any rights thereto and any other amounts payable to any Credit Party from any employee benefit plan, rights and claims against carriers and shippers, rights to indemnification, business interruption insurance and proceeds thereof, property, casualty or any similar type of insurance and any proceeds thereof, proceeds of insurance covering the lives of key employees on which any Credit Party is beneficiary, rights to receive dividends, distributions, cash, Instruments and other property in respect of or in exchange for pledged equity interests or Investment Property and any letter of credit, guarantee, claim, security interest or other security held by or granted to any Credit Party. "Goods" means all "goods" as defined in the UCC, now owned or hereafter acquired by a Credit Party, wherever located, including embedded software to the extent included in "goods" as defined in the UCC. "Instruments" means all instruments as such term is defined in the UCC, now owned or hereafter acquired by a Credit Party. "Inventory" means all of the Credit Parties' now owned and hereafter acquired inventory, goods and merchandise, wherever located, to be furnished under any contract of service or held for sale or lease, all returned goods, raw materials, work-in-process, finished goods (including embedded software), other materials and supplies of any kind, nature or description which are used or consumed in any Credit Parties' business or used in connection with the packing, shipping, advertising, selling or finishing of such goods, merchandise, and all documents of title or other Documents representing them. "Investment Property" means all of the Credit Parties' right title and interest in and to any and all: (a) securities whether certificated or uncertificated; (b) securities entitlements; (c) securities accounts; (d) commodity contracts; or (e) commodity accounts. "Letter-of-Credit Rights" means "letter-of-credit rights" as such term is defined in the UCC, now owned or hereafter acquired by the Credit Parties, including rights to payment or performance under a letter of credit, whether or not any Credit Party, as beneficiary, has demanded or is entitled to demand payment or performance (other than any Letter of Credit issued for the account of a Credit Party pursuant to the Credit Agreement). "Payment Account" means each bank account established pursuant to this Security Agreement, to which the proceeds of Accounts and other Collateral are deposited or credited, and which is maintained in the name of the Agent or any Credit Party, as the Agent may determine, on terms acceptable to the Agent. "Proprietary Rights" means all of the Credit Parties' now owned and hereafter arising or acquired: licenses, franchises, permits, patents, patent rights, copyrights, works which are the subject matter of copyrights, trademarks, service marks, trade names, trade styles, patent, trademark and service mark applications, and all licenses and rights related to any of the foregoing, and all other rights under any of the foregoing, all extensions, renewals, reissues, divisions, continuations, and continuations-in-part of any of the foregoing, and all rights to sue for past, present and future infringement of any of the foregoing. "Software" means all "software" as such term is defined in the UCC, now owned or hereafter acquired by any Credit Party, other than software embedded in any category of Goods, including all computer programs and all supporting information provided in connection with a transaction related to any program. "Supporting Obligations" means all supporting obligations as such term is defined in the UCC, now owned or hereafter acquired by any Credit Party. "UCC" means the Uniform Commercial Code, as in effect from time to time, of the State of New York or of any other state the laws of which are required as a result thereof to be applied in connection with the issue of perfection of security interests. "Uniform Commercial Code Jurisdiction" means any jurisdiction that has adopted "Revised Article 9" of the UCC on or after July 1, 2001. All other capitalized terms used but not otherwise defined herein have the meanings given to them in the Credit Agreement or in Annex A thereto. All other undefined terms contained in this Security Agreement, unless the context indicates otherwise, have the meanings provided for by the UCC to the extent the same are used or defined therein. 2. GRANT OF LIEN. (a) As security for all Obligations, each of the Credit Parties hereby grants to Agent, for the benefit of Agent and the Lenders, a continuing security interest in, lien on, assignment of and right of set-off against, all of the following property and assets of the Credit Parties, whether now owned or existing or hereafter acquired or arising, regardless of where located: (i) all Accounts; (ii) all Inventory; (iii) all Chattel Paper; (iv) all Documents; (v) all Instruments; (vi) all Supporting Obligations and Letter-of-Credit Rights; (vii) all General Intangibles (including payment intangibles and Software); (viii) all Goods; (x) all Equipment; (xi) all Investment Property; (xii) all money, cash, cash equivalents, securities and other property of any kind of any Credit Party held directly or indirectly by Agent or any Lender; (xiii) all of the Credit Parties' Deposit Accounts, credits, and balances with the Agent or any Lender or any of their Affiliates or any other financial institution with which any Credit Party maintains deposits, including any Payment Accounts; (xiv) all books, records and other property related to or referring to any of the foregoing, including books, records, account ledgers, data processing records, computer software and other property and General Intangibles at any time evidencing or relating to any of the foregoing; and (xv) the commercial tort claims in which a Credit Party is a plaintiff: described in Schedule IV attached hereto. (xvi) all accessions to, substitutions for and replacements, products and proceeds of any of the foregoing, including, but not limited to, proceeds of any insurance policies, claims against third parties, and condemnation or requisition payments with respect to all or any of the foregoing. All of the foregoing, together with, all equity interests in Subsidiaries to the extent pledged to Agent and all other property of the Credit Parties in which Agent or any Lender may at any time be granted a Lien as collateral for the Obligations, is herein collectively referred to as the "Collateral;" provided, however, that in no event shall the Collateral include, and no Credit Party shall be deemed to have granted a security interest in, any of the Borrower's or any applicable Credit Party's rights or interests in any license, contract or agreement to which the Borrower or the applicable Credit Party is a party or any of its rights or interests thereunder to the extent, but only to the extent, that such a grant would, under the express terms of such license, contract or agreement or otherwise, result in a breach of the terms or constitute a default under such license, contract or agreement; provided, that immediately upon the ineffectiveness, waiver, lapse or termination of any such provision, the Collateral shall include, and the Borrower or the applicable Credit Party be deemed to have granted a security interest in, all such rights and interests as if such provision had never been in effect. (b) All of the Obligations shall be secured by all of the Collateral. 3. PERFECTION AND PROTECTION OF SECURITY INTEREST. (a) The Credit Parties shall, at their expense, perform all steps requested by the Agent at any time to perfect, maintain, protect, and enforce the Agent's Liens, including: (i) executing, delivering and/or filing and recording of the Copyright Security Agreements and Patent and Trademark Agreements and executing and filing financing or continuation statements, and amendments thereof, in form and substance reasonably satisfactory to the Agent; (ii) delivering to the Agent warehouse receipts covering any portion of the Collateral located in warehouses and for which warehouse receipts are issued and certificates of title covering any portion of the collateral for which certificates of title have been issued, unless the Agent shall have obtained a Collateral Access Agreement in form and substance acceptable to the Agent from any applicable warehouseman; (iii) upon the occurrence of an Event of Default, transferring Inventory to warehouses or other locations designated by the Agent; (iv) placing notations on the Credit Parties' books of account to disclose the Agent's security interest; and (v) taking such other steps as are deemed reasonably necessary by the Agent to maintain and protect the Agent's Liens. The Credit Parties agree that a carbon, photographic, photostatic, or other reproduction of this Security Agreement or of a financing statement is sufficient as a financing statement. (b) Promptly after the Agent's request therefore, the Credit Parties shall deliver to Agent all Collateral consisting of negotiable Documents, certificated securities (accompanied by stock powers executed in blank), Chattel Paper and Instruments. (c) The Credit Parties shall, in accordance with the terms of the Credit Agreement, obtain or use their commercially reasonable efforts to obtain waivers or subordinations of Liens from landlords and mortgagees. (d) If required by the terms of the Credit Agreement and not waived by Agent in writing (which waiver may be revoked), the Credit Parties shall obtain authenticated control agreements from each issuer of uncertificated securities, securities intermediary, or commodities intermediary issuing or holding any financial assets or commodities to or for any Credit Party. (e) If a Credit Party is or becomes the beneficiary of a letter of credit (other than those issued for the account of a Credit Party pursuant to the Credit Agreement), such Credit Party shall promptly notify Agent thereof and enter into a tri-party agreement with Agent and the issuer and/or confirmation bank with respect to Letter-of-Credit Rights assigning such Letter-of-Credit Rights to Agent and directing all payments thereunder to the Payment Account, all in form and substance reasonably satisfactory to Agent. (f) The Credit Parties shall take all steps necessary to grant the Agent control of all electronic chattel paper in accordance with the Code and all "transferable records" as defined in the Uniform Electronic Transactions Act. (g) The Credit Parties hereby irrevocably authorize Agent at any time and from time to time during the term of the Credit Agreement to file in any filing office in any Uniform Commercial Code jurisdiction any initial financing statements and amendments thereto that (a) indicate the Collateral (i) as all assets of Credit Parties or words of similar effect, regardless of whether any particular asset comprised in the Collateral falls within the scope of Article 9 of the UCC of the State of New York or such jurisdiction, or (ii) as being of an equal or lesser scope or with greater detail, and (b) contain any other information required by part 5 of Article 9 of the UCC of the State of New York for the sufficiency or filing office acceptance of any financing statement or amendment, including (i) whether the Credit Party is an organization, the type of organization and any organization identification number issued to such Credit Party, and (ii) in the case of a financing statement filed as a fixture filing or indicating Collateral as as-extracted collateral or timber to be cut, a sufficient description of real property to which the Collateral relates. The Credit Parties agree to furnish any such information to Agent promptly upon written request. Each Credit Party also ratifies its authorization for Agent to have filed in any Uniform Commercial Code jurisdiction any like initial financing statements or amendments thereto if filed prior to the date hereof. (h) Each Credit Party shall promptly notify Agent of any commercial tort claim (as defined in the UCC) acquired by it and unless otherwise consented by Agent, such Credit Party shall enter into a supplement to this Security Agreement, granting to Agent a Lien in such commercial tort claim. (i) From time to time, the Credit Parties shall, upon Agent's written request, execute and deliver confirmatory written instruments pledging to Agent, for the ratable benefit of Agent and the Lenders, the Collateral, but the Credit Parties' failure to do so shall not affect or limit any security interest or any other rights of Agent or any Lender in and to the Collateral with respect to the Credit Parties. So long as the Credit Agreement is in effect and until all Obligations have been fully satisfied, Agent's Liens shall continue in full force and effect in all Collateral (whether or not deemed eligible for the purpose of calculating the Availability or as the basis for any advance, loan, extension of credit, or other financial accommodation). (j) No Reincorporation. No Credit Party shall reincorporate or reorganize itself under the laws of any jurisdiction other than the jurisdiction in which it is incorporated or organized as of the date hereof or change its type of entity as identified on Schedule II without executing all necessary documents, instruments, financing statements, amendments thereto, assignments and/or other writings as Agent may reasonably request to protect or enforce its and Lenders' security interest in the Collateral. (k) Terminations Amendments Not Authorized. Each Credit Party acknowledges that other than in connection with the Refinancing it is not authorized to file any financing statement or amendment or termination statement with respect to any financing statement filed pursuant to the Loan Documents without the prior written consent of Agent and agrees that it will not do so without the prior written consent of Agent, subject to the rights of the Credit Parties under Section 9-509(d)(2) of the UCC. (l) No Restriction on Payments to Agent. No Credit Party shall enter into any Contract that restricts or prohibits the grant of a security interest in Accounts, Chattel Paper, Instruments or payment intangibles or the proceeds of the foregoing to Agent. 4. LOCATION OF COLLATERAL. Each of the Credit Parties represents and warrants to the Agent and the Lenders that: (A) Schedule I is a correct and complete list of the location of the chief executive office, the location of its books and records, the locations of the Collateral (other than In-Transit Inventory) of each of the Credit Parties, and the locations of all of the other places of business of each of the Credit Parties; and (B) Schedule I correctly identifies any of such facilities and locations that are not owned by a Credit Party and sets forth the names of the owners and lessors or sublessors of such facilities and locations. Each of the Credit Parties covenants and agrees that it will not (i) maintain any Collateral (other than In-Transit Inventory) at any location other than those locations listed for such Credit Party on Schedule I, (ii) otherwise change or add to any of such locations, or (iii) change the location of its chief executive office from the location identified in Schedule I, unless it gives the Agent at least thirty (30) days' prior written notice thereof and executes any and all financing statements and other documents that the Agent reasonably requests in connection therewith. 5. JURISDICTION OF ORGANIZATION. As to each Credit Party, Schedule II hereto identifies such Credit Party's name as of the Closing Date as it appears in official filings in the state of its incorporation or other organization, the type of entity of such Credit Party (including corporation, partnership, limited partnership or limited liability company), organizational identification number issued by such Credit Party's state of incorporation or organization or a statement that no such number has been issued and the jurisdiction in which such Credit Party is incorporated or organized. 6. TITLE TO, LIENS ON, AND SALE AND USE OF COLLATERAL. Each of the Credit Parties represents and warrants to the Agent and the Lenders and agrees with the Agent and the Lenders that: (a) each Credit Party has rights in and the power to transfer all of the Collateral free and clear of all Liens whatsoever, except for Permitted Liens; (b) the Agent's Liens in the Collateral will not be subject to any prior Lien except for those Liens identified in clauses (a), (c), (d), (e), (g) or (i) of the definition of Permitted Liens; and (c) each Credit Party will use, store, and maintain the Collateral with all reasonable care and will use such Collateral for lawful purposes only. 5. APPRAISALS. At such reasonable times as Agent may request in writing, the Borrower shall, at its expense, provide Agent with appraisals or updates thereof (who, upon receipt, will promptly deliver the same to the Lenders) of any or all of the Collateral from an appraiser, and prepared on a basis, reasonably satisfactory to Agent, such appraisals and updates to include, without limitation, information required by applicable law and regulation; provided, however, that so long as no Event of Default exists, the Borrower shall be responsible for the expense of no more than four (4) such appraisals in any calendar year. 6. [RESERVED] 7. COLLATERAL REPORTING. The Borrower shall provide Agent with the following documents at the following times in form satisfactory to Agent: (a) on each Business Day for the preceding Business Day a schedule of the Credit Parties' Accounts created, credits given, cash collected and other adjustments to such Accounts since the last such schedule; (b) on a monthly basis, by the 15th day of the following month, or more frequently if requested by the Agent in writing, (i) an aging of such Accounts, together with a reconciliation to the corresponding Borrowing Base and to the Credit Parties' general ledger; (ii) an aging of each Credit Party's accounts payable; (iii) a detailed calculation of Eligible Accounts and Eligible Inventory (including In-Transit Inventory); and (iv) Inventory reports by SKU and location, together with a reconciliation to the corresponding Borrowing Base and to the applicable general ledgers; (c) upon Agent's written request and within a reasonable time after such request, copies of invoices in connection with such Accounts, customer statements, credit memos, remittance advices and reports, deposit slips, shipping and delivery documents in connection with such Accounts and for Inventory and Equipment acquired by a Credit Party, purchase orders and invoices; (d) such other reports as to the Collateral of the Borrower or another Credit Party as the Agent shall reasonably request from time to time; and (e) with the delivery of each of the foregoing, a certificate of the Borrower executed by a Responsible Officer certifying as to the accuracy and completeness of the foregoing. If any of Credit Parties' records or reports of the Collateral are prepared by an accounting service or other agent, the Credit Parties hereby authorize such service or agent to deliver such records, reports, and related documents to the Agent, for distribution to the Lenders. 8. ACCOUNTS. (a) Each of the Credit Parties hereby represents and warrants to the Agent and the Lenders, with respect to such Credit Party's Accounts, that: (i) each existing Account represents, and each future Account will represent, a bona fide sale or lease and delivery of goods by such Credit Party, or rendition of services by such Credit Party, in the ordinary course of the Credit Party's business; (ii) each existing Account is, and each future Account will be, for a liquidated amount payable by the Account Debtor thereon on the terms set forth in the invoice therefor or in the schedule thereof delivered to the Agent, without any offset, deduction, defense, or counterclaim except those known to the applicable Credit Party and disclosed to the Agent and the Lenders pursuant to this Security Agreement; (iii) no credit, discount, or extension, or agreement will be granted on any Account, except for those immaterial credits, discounts or extensions granted by the applicable Credit Party in the ordinary course of business or consistent with past practices or except as reported to Agent and the Lenders in accordance with Section 9 of this Agreement; (iv) each copy of an invoice delivered to Agent by a Credit Party will be a genuine copy of the original invoice sent to the Account Debtor named therein; and (v) all goods described in any invoice representing a sale of goods will have been delivered to the Account Debtor and all services of the Borrower described in each invoice will have been performed. (b) The Credit Parties shall not re-date any invoice or sale, make sales on extended dating or extend or modify any Account beyond that customary in such Credit Party's business. If a Credit Party becomes aware of any matter adversely affecting the collectibility of any Account or the Account Debtor therefor involving an amount greater than $1,000,000, including information regarding the Account Debtor's creditworthiness, such Credit Party will promptly so advise the Agent. (c) If a Credit Parties accepts any note or other instrument (except a check or other instrument for the immediate payment of money) with respect to any Account, no such instrument shall be considered as payment thereof and the applicable Credit Party will promptly deliver such instrument to the Agent, endorsed by such Credit Party to the Agent in a manner satisfactory in form and substance to the Agent. Regardless of the form of presentment, demand, notice of protest with respect thereto, the Credit Party shall remain liable thereon until such instrument is paid in full. (d) Each Credit Party shall notify the Agent promptly of all disputes and claims in excess of $500,000 with any Account Debtor Each Credit Party shall send Agent a copy of each credit memorandum in excess of $500,000 promptly after it has been issued, and such Credit Party shall promptly report that credit in accordance with Section 9(a) hereof. Agent may at all times when an Event of Default exists hereunder, settle or adjust disputes and claims directly with Account Debtors for amounts and upon terms which Agent or the Required Lenders, as applicable, shall consider advisable and, in all cases, Agent will credit the Borrower's Loan Account with the net amounts received by Agent in payment of any Accounts. (e) Each Credit Party shall immediately report to Agent any return involving an amount in excess of $500,000. Each such report shall indicate the reasons for the returns and the locations and condition of the returned Inventory. In the event any Account Debtor returns Inventory to a Credit Party when an Event of Default exists, such Credit Party, upon the request of Agent, shall: (i) hold the returned Inventory in trust for the Agent; (ii) segregate all returned Inventory from all of its other property; (iii) dispose of the returned Inventory solely according to Agent's written instructions; and (iv) not issue any credits or allowances with respect thereto without Agent's prior written consent. All returned Inventory shall be subject to Agent's Liens thereon. Whenever any Inventory is returned, the related Account shall be deemed ineligible to the extent of the amount owing by the Account Debtor with respect to such returned Inventory and such returned Inventory shall not be Eligible Inventory except to the extent provided in the Credit Agreement. 9. COLLECTION OF ACCOUNTS; PAYMENTS. (a) Until Agent notifies the Borrower to the contrary in writing, each Credit Party shall make collection of its Accounts and other Collateral for Agent, shall receive all payments as Agent's trustee, and shall immediately deliver all payments in their original form duly endorsed in blank into a Payment Account established for the account of such Credit Party at a Clearing Bank acceptable to Agent, subject to a Blocked Account Agreement. On or prior to the date hereof, each Credit Party shall establish a lock-box service for collections of Accounts at a Clearing Bank acceptable to Agent and subject to a Blocked Account Agreement and other documentation acceptable to Agent. The Credit Parties shall instruct all Account Debtors to make all payments directly to the address established for such service. If, notwithstanding such instructions, a Credit Party receives any proceeds of Accounts, it shall receive such payments as Agent's trustee, and shall immediately deliver such payments to Agent in their original form duly endorsed in blank or deposit them into a Payment Account, as Agent may direct in writing. All collections received in any lock-box or Payment Account or directly by a Credit Party or Agent, and all funds in any Payment Account or other account to which such collections are deposited shall be subject to the Agent's control pursuant to the terms of any applicable Blocked Account Agreement. Agent or Agent's designee may, at any time after the occurrence of an Event of Default, notify Account Debtors in writing that the Accounts have been assigned to Agent and of Agent's security interest therein, and may collect them directly and charge the reasonable collection costs and expenses to the Loan Account as a Revolving Loan. Upon the occurrence and during the continuance of an Event of Default, the Credit Parties, at Agent's written request, shall execute and deliver to Agent such documents as Agent shall require to grant Agent access to any post office box in which collections of Accounts are received. (b) If sales of Inventory are made or services are rendered for cash, the Credit Parties shall immediately deliver to the Agent or deposit into a Payment Account the cash which the Borrower receives. (c) All payments received by the Agent in a Payment Account or at any other bank account designated by Agent in writing, will be the Agent's sole property for its benefit and the benefit of the Lenders and will be credited to the Loan Account in accordance with Section 3.7(a) of the Credit Agreement. 10. INVENTORY; PERPETUAL INVENTORY. Each Credit Party represents and warrants to the Agent and the Lenders and agrees with the Agent and the Lenders that all of the Inventory owned by the Credit Parties is and will be held for sale or lease, or to be furnished in connection with the rendition of services, in the ordinary course of a Credit Party's business, and is and will be fit for such purposes. Each Credit Party agrees that all Inventory produced by it in the United States of America will be produced in accordance with the Federal Fair Labor Standards Act of 1938, as amended, and all rules, regulations, and orders thereunder. The Credit Parties will conduct a physical count of the Inventory at least once per Fiscal Year, which may be included in any appraisal to be performed in accordance with Section 7 hereof, and after and during the continuation of an Event of Default, at such other times as Agent requests in writing. Each Credit Party will maintain a perpetual inventory reporting system at all times. No Credit Party will, without Agent's written consent, sell any Inventory on a bill-and-hold, guaranteed sale, sale and return, sale on approval, consignment, or other repurchase or return basis. 11. EQUIPMENT. The Credit Parties shall promptly inform Agent of any material additions to or deletions from the Equipment. The Credit Parties shall not permit any Equipment to become a fixture with respect to real property or to become an accession with respect to other personal property with respect to which real or personal property Agent does not have a Lien. The Credit Parties will not, without Agent's prior written consent (which consent shall not be unreasonably withheld), alter or remove any identifying symbol or number on any of a Credit Party's Equipment constituting Collateral. 12. DOCUMENTS, INSTRUMENTS, AND CHATTEL PAPER. Each Credit Party represents and warrants to Agent and the Lenders that (a) all material Documents, Instruments, and Chattel Paper describing, evidencing, or constituting Collateral, and all signatures and endorsements thereon, are and will be complete, valid, and genuine, and (b) all goods evidenced by such Documents, Instruments, Letter of Credit Rights and Chattel Paper are and will be owned by a Credit Party, free and clear of all Liens other than Permitted Liens. 13. VOTING OF INVESTMENT PROPERTY. (a) Until Agent shall have delivered a notice contemplated by clause (b) below, the Borrower and each Guarantor shall be entitled to vote or consent with respect to the Investment Property in any manner not inconsistent with the terms of any Loan Document, and Agent will, if so requested, execute appropriate revocable proxies therefor. (b) Upon the occurrence and during the continuance of an Event of Default, if and to the extent that Agent shall so notify in writing the Borrower or the Guarantor pledging the Investment Property in question, only Agent shall be entitled to vote or consent or take any other action with respect to the Investment Properties (and the Borrower or the applicable Guarantor will, if so requested, execute appropriate proxies therefor). 14. POWER OF ATTORNEY. Each Credit Party hereby appoints the Agent and the Agent's designee as such Credit Party's attorney, with power: (a) to endorse such Credit Party's name on any checks, notes, acceptances, money orders, or other forms of payment or security that come into the Agent's or any Lender's possession; (b) to sign such Credit Party's name on any invoice, bill of lading, warehouse receipt or other negotiable or non-negotiable Document constituting Collateral, on drafts against customers, on assignments of Accounts, on notices of assignment, financing statements and other public records and to file any such financing statements by electronic means with or without a signature as authorized or required by applicable law or filing procedure; (c) so long as any Event of Default has occurred and is continuing, to notify the post office authorities to change the address for delivery of such Credit Party's mail to an address designated by the Agent and to receive, open and dispose of all mail addressed to the Credit Parties; (d) to send requests for verification of Accounts to customers or Account Debtors; (e) upon the occurrence and during the continuance of an Event of Default, to complete in such Credit Party's name or the Agent's name, any order, sale or transaction, obtain the necessary Documents in connection therewith, and collect the proceeds thereof; (f) to clear Inventory through customs in such Credit Party's name, the Agent's name or the name of the Agent's designee, and to sign and deliver to customs officials powers of attorney in such Credit Party's name for such purpose; (g) to the extent that a Credit Party's authorization given in Section 3(g) of this Security Agreement is not sufficient, to file such financing statements with respect to this Security Agreement, with or without such Credit Party's signature, or to file a photocopy of this Security Agreement in substitution for a financing statement, as the Agent may deem appropriate and to execute in such Credit Party's name such financing statements and amendments thereto and continuation statements which may require such Credit Party's signature; and (h) to do all things necessary to carry out the Credit Agreement and this Security Agreement. Each Credit Party ratifies and approves all actions of such attorney taken in accordance with the terms hereof and the Credit Agreement of such attorney. None of the Lenders or the Agent nor their attorneys will be liable for any acts or omissions or for any error of judgment or mistake of fact or law except for their gross negligence or willful misconduct. This power, being coupled with an interest, is irrevocable until the Credit Agreement has been terminated and the Obligations have been paid finally and in full. 15. THE AGENT'S AND LENDERS' RIGHTS, DUTIES AND LIABILITIES. (a) The Credit Parties assume all responsibility and liability arising from or relating to the use, sale, license or other disposition of the Collateral. The Obligations shall not be affected by any failure of the Agent or any Lender to take any steps to perfect the Agent's Liens or to collect or realize upon the Collateral, nor shall loss of or damage to the Collateral release the Borrower or any other Credit Party from any of the Obligations. Following the occurrence and during the continuation of an Event of Default, the Agent may (but shall not be required to), and at the direction of the Required Lenders shall, without notice to or consent from the Credit Parties, sue upon or otherwise collect, extend the time for payment of, modify or amend the terms of, compromise or settle for cash, credit, or otherwise upon any terms, grant other indulgences, extensions, renewals, compositions, or releases, and take or omit to take any other action with respect to the Collateral, any security therefor, any agreement relating thereto, any insurance applicable thereto, or any Person liable directly or indirectly in connection with any of the foregoing, without discharging or otherwise affecting the liability of the Credit Parties for the Obligations or under the Credit Agreement or any other agreement now or hereafter existing between the Agent and/or any Lender and the Borrower and any other Credit Party, provided, however, that any amounts received pursuant to any actions taken pursuant to this Section 17(a) shall be credited, net of costs of collection, to the Obligations in accordance with the terms of the Credit Agreement. (b) It is expressly agreed by the Credit Parties that, anything herein to the contrary notwithstanding, the Credit Parties shall remain liable under each of its contracts and each of its licenses (to the extent such contracts and licenses remain in effect) to observe and perform all the conditions and obligations to be observed and performed by it thereunder. Neither Agent nor any Lender shall have any obligation or liability under any contract or license by reason of or arising out of this Security Agreement or the granting herein of a Lien thereon or the receipt by Agent or any Lender of any payment relating to any contract or license pursuant hereto, except where Agent has expressly agreed otherwise. Neither Agent nor any Lender shall be required or obligated in any manner to perform or fulfill any of the obligations of any Credit Party under or pursuant to any contract or license, or to make any payment, or to make any inquiry as to the nature or the sufficiency of any payment received by it or the sufficiency of any performance by any party under any contract or license, or to present or file any claims, or to take any action to collect or enforce any performance or the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. (c) Agent may at any time after an Event of Default has occurred and be continuing (or if any rights of set-off (other than set-offs against an Account arising under the contract giving rise to the same Account) or contra accounts may be asserted with respect to the following), without prior notice to Borrower, notify Account Debtors, and other Persons obligated on the Collateral that Agent has a security interest therein, and that payments shall be made directly to Agent, for itself and the benefit of Lenders. Upon the request of Agent, each of the Credit Parties shall so notify their respective Account Debtors and other Persons obligated on Collateral. Once any such notice has been given to any Account Debtor or other Person obligated on the Collateral, the Credit Parties shall not give any contrary instructions to such Account Debtor or other Person without Agent's prior written consent. (d) Agent may at any time in Agent's own name or in the name of a Credit Party communicate with Account Debtors, parties to Contracts and obligors in respect of Instruments to verify with such Persons, to Agent's satisfaction, the existence, amount and terms of Accounts, payment intangibles, Instruments or Chattel Paper. If a Default or Event of Default shall have occurred and be continuing, the Credit Parties, at their own expense, shall cause the independent certified public accountants then engaged by such Credit Parties to prepare and deliver to Agent and each Lender at any time and from time to time promptly upon Agent's request the following reports with respect to such Credit Party: (i) a reconciliation of all Accounts; (ii) an aging of all Accounts; (iii) trial balances; and (iv) a test verification of such Accounts as Agent may request. The Credit Parties, at their own expense, shall deliver to Agent the results of each physical verification, if any, which a Credit Party may in its discretion have made, or caused any other Person to have made on its behalf, of all or any portion of its Inventory. 16. PATENT, TRADEMARK AND COPYRIGHT COLLATERAL. (a) The Credit Parties do not have any interest in, or title to, any patent, trademark or copyright except as set forth in Schedule III hereto. This Security Agreement is effective to create a valid and continuing Lien on and, upon filing of the Copyright Security Agreement with the United States Copyright Office and filing of the Patent and Trademark Agreements with the United States Patent and Trademark Office, perfected Liens in favor of Agent on the Credit Parties' patents, trademarks and copyrights and such perfected Liens are enforceable as such as against any and all creditors of and purchasers from the Credit Parties. Upon filing of the Copyright Security Agreements with the United States Copyright Office and filing of the Patent and Trademark Agreements with the United States Patent and Trademark Office and the filing of appropriate financing statements, all action necessary or desirable to protect and perfect Agent's Lien on the Credit Parties' patents, trademarks or copyrights shall have been duly taken. (b) The Borrower shall notify Agent immediately if it knows or has reason to know that any application or registration relating to any patent, trademark or copyright (now or hereafter existing) may become abandoned or dedicated, or of any adverse determination or development (including the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office, the United States Copyright Office or any court) regarding a Credit Party's ownership of any patent, trademark or copyright, its right to register the same, or to keep and maintain the same. (c) Within forty-five (45) days of the last day of each fiscal quarter of the Credit Parties, the Credit Parties shall deliver to the Agent a schedule setting forth all material applications for the registration of any patent, trademark or copyright with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency and, upon request of Agent, the Credit Parties shall execute and deliver any and all Patent and Trademark Agreements and all Copyright Security Agreements as Agent may request to evidence Agent's Lien on such patent, trademark or copyright, and the General Intangibles of such Credit Party relating thereto or represented thereby. (d) The Credit Parties shall take all actions reasonably necessary to maintain and pursue each application, to obtain the relevant registration and to maintain the registration of each of the patents, trademarks and copyrights (now or hereafter existing), including the filing of applications for renewal, affidavits of use, affidavits of noncontestability and opposition and interference and cancellation proceedings, unless the Borrower shall determine that such patent, trademark or copyright is not material to the conduct of a Credit Party's business. (e) In the event that any of the patent, trademark or copyright Collateral is infringed upon, or misappropriated or diluted by a third party, Borrower shall notify Agent promptly after Borrower learns thereof. Borrower shall, unless it shall reasonably determine that such patent, trademark or copyright Collateral is not material to the conduct of a Credit Party's business or operations, promptly attempt to negotiate with such infringing party or sue for infringement, misappropriation or dilution and to recover any and all damages for such infringement, misappropriation or dilution, and, upon the occurrence and during the continuance of an Event of Default, shall take such other actions as Agent shall deem appropriate under the circumstances to protect such patent, trademark or copyright Collateral. 17. INDEMNIFICATION. In any suit, proceeding or action brought by Agent or any Lender relating to any Collateral for any sum owing with respect thereto or to enforce any rights or claims with respect thereto, the Credit Parties, jointly and severally, will save, indemnify and keep Agent and Lenders harmless from and against all expense (including reasonable attorneys' fees and expenses), loss or damage suffered by reason of any defense, setoff, counterclaim, recoupment or reduction of liability whatsoever of the Account Debtor or other Person obligated on the Collateral, arising out of a breach by a Credit Party of any obligation thereunder or arising out of any other agreement, indebtedness or liability at any time owing to, or in favor of, such obligor or its successors from a Credit Party, except in the case of Agent or any Lender, to the extent such expense, loss, or damage is attributable solely to the gross negligence or willful misconduct of Agent or such Lender as finally determined by a court of competent jurisdiction. All such obligations of the Credit Parties shall be and remain enforceable against and only against the Credit Parties and shall not be enforceable against Agent or any Lender. 18. [RESERVED]. 19. NOTICE REGARDING COLLATERAL. Borrower will advise Agent promptly, in reasonable detail, (i) of any Lien (other than Permitted Liens) or material claim made or asserted against any of the Collateral, and (ii) of the occurrence of any other event which would have a Material Adverse Effect. 20. REMEDIES; RIGHTS UPON DEFAULT. (a) In addition to all other rights and remedies granted to it under this Security Agreement, the Credit Agreement, the other Loan Documents and under any other instrument or agreement securing, evidencing or relating to any of the Obligations, if any Event of Default shall have occurred and be continuing, Agent may exercise all rights and remedies of a secured party under the UCC. Without limiting the generality of the foregoing, the Credit Parties expressly agree that in any such event Agent, without demand of performance or other demand, advertisement or notice of any kind (except the notice specified below of time and place of public or private sale) to or upon a Credit Party or any other Person (all and each of which demands, advertisements and notices are hereby expressly waived to the maximum extent permitted by the UCC and other applicable law), may forthwith enter upon the premises of any Credit Party where any Collateral is located through self-help, without judicial process, without first obtaining a final judgment or giving a Credit Party or any other Person notice and opportunity for a hearing on Agent's claim or action and may collect, receive, assemble, process, appropriate and realize upon the Collateral, or any part thereof, and may forthwith sell, lease, license, assign, give an option or options to purchase, or sell or otherwise dispose of and deliver said Collateral (or contract to do so), or any part thereof, in one or more parcels at a public or private sale or sales, at any exchange at such prices as it may deem acceptable, for cash or on credit or for future delivery without assumption of any credit risk. Agent or any Lender shall have the right upon any such public sale or sales and, to the extent permitted by law, upon any such private sale or sales, to purchase for the benefit of Agent and Lenders, the whole or any part of said Collateral so sold, free of any right or equity of redemption, which equity of redemption the Credit Parties hereby release. Such sales may be adjourned and continued from time to time with or without notice. Agent shall have the right to conduct such sales on the premises of any Credit Party or elsewhere and shall have the right to use any Credit Party's premises without charge for such time or times as Agent deems necessary or advisable. (b) Upon the occurrence and during the continuance of an Event of Default, each Credit Party further agrees, at Agent's request, to assemble the Collateral and make it available to Agent at a place or places designated by Agent which are reasonably convenient to Agent and Borrower, whether at a Credit Party's premises or elsewhere. Until Agent is able to effect a sale, lease, or other disposition of Collateral, Agent shall have the right to hold or use Collateral, or any part thereof, to the extent that it deems appropriate for the purpose of preserving Collateral or its value or for any other purpose deemed appropriate by Agent. Agent shall have no obligation to any Credit Party to maintain or preserve the rights of a Credit Party as against third parties with respect to Collateral while Collateral is in the possession of Agent. Upon the occurrence and during the continuance of an Event of Default, Agent may, if it so elects, seek the appointment of a receiver or keeper to take possession of Collateral and to enforce any of Agent's remedies (for the benefit of Agent and Lenders), with respect to such appointment without prior notice or hearing as to such appointment. Upon the occurrence and during the continuance of an Event of Default, Agent shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale to the Obligations as provided in the Credit Agreement, and only after so paying over such net proceeds, and after the payment by Agent of any other amount required by any provision of law, need Agent account for the surplus, if any, to Borrower. Upon the occurrence and during the continuance of an Event of Default, to the maximum extent permitted by applicable law, the Credit Parties waive all claims, damages, and demands against Agent or any Lender arising out of the repossession, retention or sale of the Collateral except such as arise solely out of the gross negligence or willful misconduct of Agent or such Lender as finally determined by a court of competent jurisdiction. Each Credit Party agrees that ten (10) days prior notice by Agent of the time and place of any public sale or of the time after which a private sale may take place is reasonable notification of such matters. The Credit Parties shall remain liable for any deficiency if the proceeds of any sale or disposition of the Collateral are insufficient to pay all Obligations, including reasonable attorneys' fees or other expenses incurred by Agent or any Lender to collect such deficiency. (c) Except as otherwise specifically provided herein, each Credit Party hereby waives presentment, demand, protest or any notice (to the maximum extent permitted by applicable law) of any kind in connection with this Security Agreement or any Collateral. (d) The net cash proceeds resulting from the collection, liquidation, sale, lease or other disposition of the Collateral shall be applied first to the expenses (including all attorneys' fees) of retaking, holding, storing, processing and preparing for sale, selling, collecting, liquidating and the like, and then to the satisfaction of all Obligations in accordance with the terms of the Credit Agreement. Each Credit Party shall be liable to Agent and the Lenders and shall pay to Agent and the Lenders, on demand, any deficiency which may remain after such sale, disposition, collection or liquidation of the Collateral. Agent shall remit to such Credit Parties or other Person entitled thereto any surplus remaining after this Agreement has been terminated in accordance with Section 25(f) hereof. (e) If an Event of Default under the Credit Agreement has occurred and is continuing: (i) Agent shall have for the benefit of the Lenders, in addition to all other rights of Agent and the Lenders, the rights and remedies of a secured party under the Loan Documents and the UCC; and (ii) Agent may sell and deliver any Collateral at public or private sales, for cash, upon credit or otherwise, at such prices and upon such terms as Agent deems advisable, in its sole discretion, and may, if Agent deems it reasonable, postpone or adjourn any sale of the Collateral by an announcement at the time and place of sale or of such postponed or adjourned sale without giving a new notice of sale. Without in any way requiring notice to be given in the following manner, each Credit Party agrees that any notice by Agent of sale, disposition or other intended action hereunder or in connection herewith, whether required by the UCC or otherwise, shall constitute reasonable notice to each Credit Party if such notice is mailed by registered or certified mail, return receipt requested, postage prepaid, or is delivered personally against receipt, at least ten (10) Business Days prior to such action to the Borrower's address specified in or pursuant to Section 13.8 of the Credit Agreement. If any Collateral is sold on terms other than payment in full at the time of sale, no credit shall be given against the Obligations until Agent or the Lenders receive payment, and if the buyer defaults in payment, Agent may resell the Collateral without further notice to the Borrower or any Credit Party. Agent is hereby granted a license or other right to use, without charge, each Credit Party's labels, patents, copyrights, name, trade secrets, trade names, trademarks, and advertising matter, or any similar property, in completing production of, advertising or selling any Collateral, and each Credit Party's rights under all licenses and all franchise agreements shall inure to Agent's benefit for such purpose. The proceeds of sale shall be applied first to all expenses of sale, including attorneys' fees, and then to the Obligations. Agent will return any excess to the Borrower and the Borrower and each other Credit Party shall remain liable for any deficiency. 21. GRANT OF LICENSE TO USE INTELLECTUAL PROPERTY. For the purpose of enabling the Agent to exercise rights and remedies under Section 22 hereof (including, without limiting the terms of Section 22 hereof, in order to take possession of, hold, preserve, process, assemble, prepare for sale, market for sale, sell or otherwise dispose of Collateral), solely for such purpose and solely during such time as Agent shall be lawfully entitled to exercise such rights and remedies, each Credit Party hereby grants to Agent, for the benefit of Agent and the Lenders, a nonexclusive license (which shall be irrevocable for so long as any Obligations remain outstanding and which shall be exercisable without payment of royalty or other compensation to the Credit Parties) to use, license or sublicense any Intellectual Property now owned or hereafter acquired by a Credit Party (other than any Intellectual Property in connection with the Trademark License Agreement dated June 26, 1998 between Parent and The Black and Decker Corporation (other than as set forth in the Trademark Use Agreement)), and wherever the same may be located, and including in such license access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof. 22. LIMITATION ON AGENT'S AND LENDERS' DUTY IN RESPECT OF COLLATERAL. The Agent and each Lender shall use reasonable care with respect to the Collateral in its possession or under its control. Neither the Agent nor any Lender shall have any other duty as to any Collateral in its possession or control or in the possession or control of any agent or nominee of the Agent or such Lender, or any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto. 23. MISCELLANEOUS. (a) REINSTATEMENT. This Security Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against the Borrower or any other Credit Party for liquidation or reorganization, should the Borrower or any other Credit Party become insolvent or make an assignment for the benefit of any creditor or creditors or should a receiver or trustee be appointed for all or any significant part of any Credit Party's assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Obligations, whether as a "voidable preference," "fraudulent conveyance," or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. (b) NOTICES. Except as otherwise provided herein, whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by any other party, or whenever any of the parties desires to give and serve upon any other party any communication with respect to this Security Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and shall be given in the manner, and deemed received, as provided for in the Credit Agreement and in Section 22(e) hereof. (c) SEVERABILITY. Whenever possible, each provision of this Security Agreement shall be interpreted in a manner as to be effective and valid under applicable law, but if any provision of this Security Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Security Agreement. This Security Agreement is to be read, construed and applied together with the Credit Agreement and the other Loan Documents which, taken together, set forth the complete understanding and agreement of the Agent, the Lenders and the Credit Parties with respect to the matters referred to herein and therein. (d) NO WAIVER; CUMULATIVE REMEDIES. Neither the Agent nor any Lender shall by any act, delay, omission or otherwise be deemed to have waived any of its rights or remedies hereunder, and no waiver shall be valid unless in writing, signed by the Agent and then only to the extent therein set forth. A waiver by the Agent of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Agent would otherwise have had on any future occasion. No failure to exercise nor any delay in exercising on the part of the Agent or any Lender, any right, power or privilege hereunder, shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or future exercise thereof or the exercise of any other right, power or privilege. The rights and remedies hereunder provided are cumulative and may be exercised singly or concurrently, and are not exclusive of any rights and remedies provided by law. None of the terms or provisions of this Security Agreement may be waived, altered, modified or amended except by an instrument in writing, duly executed by the Agent and the Credit Parties. (e) LIMITATION BY LAW. All rights, remedies and powers provided in this Security Agreement may be exercised only to the extent that the exercise thereof does not violate any applicable provision of law, and all the provisions of this Security Agreement are intended to be subject to all applicable mandatory provisions of law that may be controlling in accordance with Section 25(c) above. (f) TERMINATION OF THIS SECURITY AGREEMENT. Subject to Section 25(a) hereof, this Security Agreement shall terminate upon the termination of all Commitments, the satisfactory collateralization of all Letters of Credit and the payment in full of all other Obligations (other than indemnification Obligations as to which no claim has been asserted and to the extent necessary to satisfy the requirements of Section 22(d) hereof). (g) SUCCESSORS AND ASSIGNS. This Security Agreement and all obligations of the Credit Parties hereunder shall be binding upon the successors and assigns of the Credit Parties (including any debtor-in-possession on behalf of a Credit Party) and shall, together with the rights and remedies of the Agent, for the benefit of the Agent and the Lenders, hereunder, inure to the benefit of the Agent and Lenders, all future holders of any instrument evidencing any of the Obligations and their respective successors and assigns. No sales of participations, other sales, assignments, transfers or other dispositions of any agreement governing or instrument evidencing the Obligations or any portion thereof or interest therein shall in any manner affect the Lien granted to the Agent, for the benefit of the Agent and the Lenders, hereunder. No Credit Party may assign, sell, hypothecate or otherwise transfer any interest in or obligation under this Security Agreement. (h) COUNTERPARTS. This Security Agreement may be authenticated in any number of separate counterparts, including facsimile copies, each of which shall collectively and separately constitute one and the same agreement. This Security Agreement may be authenticated by manual signature, facsimile or, if approved in writing by Agent, electronic means, all of which shall be equally valid. (i) GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS SECURITY AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. EACH OF THE CREDIT PARTIES HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE CREDIT PARTIES, AGENT AND LENDERS PERTAINING TO THIS SECURITY AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS SECURITY AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, PROVIDED, THAT AGENT, LENDERS AND THE CREDIT PARTIES ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF NEW YORK, AND, PROVIDED, FURTHER, NOTHING IN THIS SECURITY AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF AGENT. EACH OF THE CREDIT PARTIES EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH OF THE CREDIT PARTIES HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. EACH OF THE CREDIT PARTIES HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO THE CREDIT PARTIES AT THE ADDRESS SET FORTH IN SECTION 13.8 OF THE CREDIT AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID. (j) WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT DISPUTES ARISING HEREUNDER OR RELATING HERETO BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, AMONG AGENT, LENDERS, AND THE CREDIT PARTIES ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED IN CONNECTION WITH, THIS SECURITY AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO. (k) SECTION TITLES. The Section titles contained in this Security Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. (l) NO STRICT CONSTRUCTION. The parties hereto have participated jointly in the negotiation and drafting of this Security Agreement. In the event an ambiguity or question of intent or interpretation arises, this Security 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 provisions of this Security Agreement. (m) ADVICE OF COUNSEL. Each of the parties represents to each other party hereto that it has discussed this Security Agreement and, specifically, the provisions of Section 25(i) and Section 25(j), with its counsel. (n) BENEFIT OF LENDERS. All Liens granted or contemplated hereby shall be for the benefit of Agent and Lenders, and all proceeds or payments realized from Collateral in accordance herewith shall be applied to the Obligations in accordance with the terms of the Credit Agreement. [Signatures will commence on following page] IN WITNESS WHEREOF, each of the parties hereto has caused this Security Agreement to be executed and delivered by its duly authorized officer as of the date first set forth above. BORROWER: APPLICA INCORPORATED, a Florida corporation By: /s/ Adam L. Kaplan --------------------------------------- Name: Adam L. Kaplan Title: Treasurer GUARANTORS: APPLICA CONSUMER PRODUCTS, INC., a Florida corporation By: /s/ Adam L. Kapln --------------------------------------- Name: Adam L. Kaplan Title: Treasurer WD DELAWARE, INC., a Delaware corporation By: /s/ Adam L. Kaplan --------------------------------------- Name: Adam L. Kaplan Title: Treasurer HP INTELLECTUAL CORP., a Delaware corporation By: /s/ Adam L. Kaplan --------------------------------------- Name: Adam L. Kaplan Title: Treasurer WINDMERE HOLDINGS CORPORATION, a Delaware corporation By:/s/ Adam L. Kaplan --------------------------------------- Name: Adam L. Kaplan Title: Treasurer [Signatures continued on following page] HP DELAWARE, INC., a Delaware corporation By: /s/ Adam L. Kaplan --------------------------------------- Name: Adam L. Kaplan Title: Treasurer HPG LLC, a Delaware limited liability company By: /s/ Adam K. Kaplan --------------------------------------- Name: Adam L. Kaplan Title: Treasurer HP AMERICAS, INC., a Delaware corporation By: /s/ Adam L. Kaplan --------------------------------------- Name: Adam L. Kaplan Title: Treasurer BANK OF AMERICA, N.A., as Agent By: /s/ Stuart A. Hall --------------------------------------- Name: Stuart A. Hall Title: Vice President EX-21 6 g74020ex21.txt SUBSIDIARIES EXHIBIT 21 SUBSIDIARIES OF APPLICA INCORPORATED

NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION The following companies are direct or indirect wholly owned subsidiaries of Applica Incorporated: 1. WD Delaware, Inc. Delaware 2. Windmere Holdings Corporation Delaware 3. HP Intellectual Corp. Delaware 4. Applica Consumer Products, Inc. Florida 5. Sandgate Services Limited Hong Kong 6. HP Delaware, Inc. Delaware 7. PPC Industries Ltd. British Virgin Islands 8. Windmere SPC LLC Cayman Islands 9. HPG LLC Delaware 10. Household Products Chile Comercial Limitada Chile 11. Applica de Colombia Limitada Colombia 12. Applica de Venezuela, C.A. Venezuela 13. HP (BVI) Limited British Virgin Islands 14. HP Americas, Inc. Delaware 15. Household Products (Asia) Limited Hong Kong 16. Applica Denmark ApS Denmark 17. Remdale Investments Limited British Virgin Islands 18. Durable Electric Limited Hong Kong 19. Applica Durable Manufacturing Limited Hong Kong 20. Applica Asia Limited Hong Kong 21. Maanring Holding B.V. Netherlands 22. Tofino Investment Limited British Virgin Islands 23. Applica Manufacturing, S. de R.L. de C.V. Mexico 24. Applica de Mexico, S. de R.L. de C.V. Mexico 25. Applica Canada Corporation Nova Scotia 26. Windmere Durable (Asia) Limited Hong Kong 27. Novotek Limited Hong Kong 28. Redcliffe Import and Export Limited Hong Kong 29. Applica Durable Electric Limited Hong Kong 30. Delanee Limited Hong Kong The following companies are directly or indirectly 50% owned by Applica Incorporated: 31. Anasazi Partners, L.P. Massachusetts 32. Freshflush LLC Florida

EX-23 7 g74020ex23.txt CONSENT OF EXPERTS AND COUNSEL EXHIBIT 23 AUDITOR'S CONSENT We have issued our report dated February 6, 2002, accompanying the consolidated financial statements and schedule included in the Annual Report of Applica Incorporated (formerly Windmere-Durable Holdings, Inc.) on Form 10-K for the year ended December 31, 2001. We hereby consent to the incorporation by reference of the aforementioned report in the Registration Statements of Applica Incorporated on Form S-3 (File No. 33-26955, effective February 8, 1989), Form S-8 (File No. 33-58574, effective February 22, 1993), Form S-3 (File No. 333-06759, effective June 25, 1996), Form S-8 (File No. 333-52389, effective May 12, 1998), Form S-8 (File No. 333-52383, effective May 12, 1998), Form S-8 (File No. 333-86507, effective August 3, 1999), Form S-8 (File No. 333-39986, effective June 23, 2000) and Form S-8 (File No. 333-39990, effective June 23, 2000). /s/ Grant Thornton LLP Miami, Florida March 7, 2002 -----END PRIVACY-ENHANCED MESSAGE-----

EX-10.10

                                  EXHIBIT 10.10


                              EMPLOYMENT AGREEMENT


      THIS EMPLOYMENT AGREEMENT (the "Agreement") is executed this 20th day of
November, 2001, by and between Applica Durable Manufacturing Limited, a Hong
Kong corporation (the "Company"), and Raymond So, an individual residing in Hong
Kong (the "Executive").


                                    RECITALS:

       A.     The Executive is currently employed as the Managing Director of
the Company.

       B.     The Executive possesses intimate knowledge of the business and
affairs of the Company and its subsidiaries, their policies, methods and
personnel.

       C.     The Directors of the Company (the "Board") recognize that the
Executive has contributed to the growth and success of the Company and its
subsidiaries, and desires to assure the Company and its subsidiaries of the
Executive's continued employment and to compensate him therefor.

       D.     The Directors have determined that this Agreement will reinforce
and encourage the Executive's continued attention and dedication to the Company
and its subsidiaries and affiliates.

       E.     The Executive is willing to make his services available to the
Company on the terms and conditions hereinafter set forth.

                                       AGREEMENT

      Therefore, in consideration of the premises, mutual covenants and
agreements of the parties contained herein, and other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
Company and the Executive hereby agree as follows:

       1.     Employment. Commencing on the Closing Date, the Company shall
              employ the Executive and the Executive shall accept employment by
the Company, upon the terms and conditions set forth in this Agreement.

       2.     Term. The term of employment (the "Term") of this Agreement shall
begin on the date hereof and shall terminate as provided herein. Except as
otherwise provided in Sections 7, 8, 9, 10, 11 and 12 below, the Term shall be
for a continuous three-year period commencing on this date and running for a
period such that on each "Anniversary Date" (as defined below) an additional
year automatically shall be added. At any time on or up to 30 days' prior to any
Anniversary Date, either party may provide written notice to the other party of
that party's

intention not to extend the Term of this Agreement beyond the number of years
then remaining in the Term, which shall always be three. Such written notice
shall be deemed the notice to terminate this Agreement at the end of the
three-year term then in effect. The "Anniversary Date," as used herein, shall be
the first day of the second year of the Term and the first day of each
subsequent year, including each year beyond the first three years of the Term.
It is the intention of the parties that the Term as of each Anniversary Date
automatically shall be three years, that three years' written notice shall be
required to terminate this Agreement, except as otherwise provided in Sections
7, 8, 9, 10, 11 and 12 below, and that said written notice to terminate may only
be given on an Anniversary Date.

       3.     Duties. The Executive will have such duties as are assigned or
delegated to the Executive by the Board of Directors or Chief Executive Officer
of Applica Incorporated, a Florida corporation and the parent corporation of the
Company ("Applica"), and will initially serve as the Managing Director of the
Company. The Executive will devote his entire business time, attention, skill,
and energy exclusively to the business of the Company and its subsidiaries and
affiliates, will use his best efforts to promote the success of the Company and
its subsidiaries, and will cooperate fully with the Directors in the advancement
of the best interests of the Company and its subsidiaries, as well as Applica.

       4.     Compensation. During the Term, the Company shall compensate
Executive as follows:

              (a) Salary. The Company shall pay Executive an annual salary of US
$450,000 (the "Annual Base Salary"), to be distributed in equal periodic
installments according to the Company's customary payroll practices.

              (b) Annual Bonus. The Executive shall be entitled to receive
incentive compensation (the "Incentive Compensation") for each year during the
Term as set forth below:

                  (i) Performance Bonus. At the beginning of each calendar year
      during the Term, the Chief Executive Officer of Applica shall establish
      target goals for (A) (1) earnings before interest, taxes, depreciation and
      amortization ("EBITDA") of the Company on a consolidated basis and Applica
      on a consolidated basis, (2) annual inventory levels for Applica and (3)
      customer service and (B) the Executive's personal performance
      (collectively, the "Performance Goals"). The Executive shall be entitled
      to an annual bonus (the "Performance Bonus") based 50% on the achievement
      of the Performance Goal set forth in (A) above and 50% on the achievement
      of the Performance Goal set forth in (B) above, it being understood that a
      pro rata Performance Bonus may be earned by the Executive as set forth
      below in any year in which either Performance Goal is met. Such
      Performance Bonus shall be equal to a percentage of his Annual Base Salary
      to be determined as follows:



                    AGGREGATE PERCENTAGE OF             BONUS AS PERCENTAGE
                  PERFORMANCE GOALS ACHIEVED           OF ANNUAL BASE SALARY
            --------------------------------           ---------------------
                                                    
            75% - 79% (Threshold Performance)                   20%


                                       2

                                                    
            80% - 84%                                           23%
            85% - 89%                                           26%
            90% - 94%                                           29%
            95% - 99%                                           32%
            100% - 104% (Target Performance)                    35%
            105% - 109%                                         38%
            110% - 114%                                         41%
            115% - 119%                                         44%
            120% - 124%                                         47%
            125% and above (Maximum Performance)                50%



              (ii) Cumulative Synergy Bonus. If the Company achieves $45 million
in certain cumulative synergies resulting from the integration of the Household
Products business into Applica (the "Cumulative Synergy Goals") on or before
December 31, 2001, the Company shall establish a bonus pool in an amount equal
to 30% of the aggregate Annual Base Salaries of all employees entitled to a
cumulative synergy bonus. Upon the achievement of the Cumulative Synergy Goals,
the Employee shall be entitled to receive a one-time cash bonus (the "Cumulative
Synergy Bonus") to be paid in the first quarter of 2002, if the Employee is
employed with the Company. The amount of the Cumulative Synergy Bonus shall be
determined in the sole discretion of the Board (or the Compensation Committee,
as applicable).

              (iii) Special Bonus. From time to time during the Term, as
determined by the Chief Executive Officer of Applica, the Executive shall be
entitled to additional bonuses to be paid in cash, stock or otherwise.

       5.     Expense Reimbursement and Other Benefits.

              (a) Reimbursement of Expenses. During the term of Executive's
employment hereunder, the Company, upon the submission of proper substantiation,
including copies of all relevant invoices, receipts or other evidence reasonably
requested by the Company, by the Executive, shall reimburse the Executive for
all reasonable expenses actually paid or incurred by the Executive in the course
of and pursuant to the business of the Company, including first class or
business class air travel.

              (b) Executive Benefits. Executive shall participate in the
Company's insurance plans (collectively, the "Welfare Benefits") and executive
benefits and bonuses covering the Company's senior executive officers as are now
or may in the future be in effect, subject to applicable eligibility
requirements.

              (c) Stock Options. During the Term of this Agreement, the
Executive shall be eligible to be granted options to acquire shares of the
Common Stock of Applica under (and therefore subject to all terms and conditions
of) Applica's stock option plans as then in effect, and all rules and
regulations of the United States Securities and Exchange Commission applicable
to stock option plans. Such options will contain such restrictions as required
by the Board of Directors of Applica or the applicable committee of such Board
charged with

                                       3

administration of the stock option plan. The number of shares of Common Stock
subject to the stock options shall be adjusted for any subsequent stock splits,
stock dividends or similar recapitalizations of Applica's Common Stock which
results in an increase or decrease of the number of shares of outstanding Common
Stock. The number of options and terms and conditions of options shall be
determined in the sole discretion of the Board of Directors of Applica, or
applicable committee thereof, and shall be based on several factors, including
the performance of the Company and Applica.

              (d) Automobile. During the Term, the Company shall provide
Executive with an automobile or a monthly automobile allowance.

              (e) Vacation. During the Term, the Executive will be entitled to
four weeks' paid vacation for each year. The Executive will also be entitled to
the paid holidays and other paid leave set forth in the Company's policies.

       6.     Restrictions.

              (a) Non-Competition. During the Term and for a one year period
after the termination of the Term for any reason, the Executive shall not,
directly or indirectly, engage in or have any interest in any sole
proprietorship, partnership, corporation or business or any other person or
entity (whether as an Executive, officer, director, partner, agent, security
holder, creditor, consultant or otherwise) that directly or indirectly (or
through any affiliated entity) engages in competition with the Company (for this
purpose, any business that engages in the manufacture or distribution of
products similar to those products manufactured or distributed by the Company at
the time of termination of the Agreement shall be deemed to be in competition
with the Company); provided that such provision shall not apply to the
Executive's ownership of Common Stock of Applica or the acquisition by the
Executive, solely as an investment, of securities of any issuer that is
registered under Section 12(b) or 12(g) of the United States Securities Exchange
Act of 1934, as amended, and that are listed or admitted for trading on any
United States national securities exchange or that are quoted on Nasdaq or any
similar system or automated dissemination of quotations of securities prices in
common use, so long as the Executive does not control, acquire a controlling
interest in or become a member of a group which exercises direct or indirect
control or, more than five percent of any class of capital stock of such
corporation.

              (b) Nondisclosure. During the Term and after the termination of
the Term for any reason, the Executive shall not at any time divulge,
communicate, use to the detriment of the Company or for the benefit of any other
person or persons, or misuse in any way, any Confidential Information (as
hereinafter defined) pertaining to the business of the Company. Any Confidential
Information or data now or hereafter acquired by the Executive with respect to
the business of the Company shall be deemed a valuable, special and unique asset
of the Company that is received by the Executive in confidence and as a
fiduciary, and Executive shall remain a fiduciary to the Company with respect to
all of such information. For purposes of this Agreement, "Confidential
Information" means information disclosed to the Executive or known by the
Executive as a consequence of or through his employment by the Company
(including

                                       4

information conceived, originated, discovered or developed by the Executive)
prior to or after the date hereof, and not generally known, about the Company or
its business. Confidential Information shall include, but not be limited to, any
and all:

                  (i) trade secrets and data concerning the past, current and
      planned business, strategy, operations and affairs of the Company, data,
      know-how, compositions, processes, designs, sketches, photographs, graphs,
      drawings, samples, inventions and ideas, past, current, and planned
      research and development, customer lists, client lists, agent lists,
      current and anticipated customer and client requirements, price lists,
      commission information, market studies, business plans, computer software
      and programs (including object code and source code), computer software
      and database technologies, systems, concepts, ideas, designs, methods and
      information relating directly or indirectly to the Company;

                  (ii) information concerning the past, current and planned
      business, strategy, operations and affairs of the Company, which includes
      historical financial statements, financial projections and budgets,
      historical and projected income, capital spending budgets and plans, the
      names and backgrounds of key personnel, suppliers, distributors,
      manufacturers, customers and clients, and any and all information

                  (iii) notes, analysis, compilations, studies, summaries, and
      other material prepared by or for the Company containing or based, in
      whole or in part, on any information included in the foregoing.

              Notwithstanding the foregoing, nothing herein shall be deemed to
restrict the Executive from disclosing Confidential Information to the extent
required by law; provided, however, that the Executive provides prior notice of
such disclosure to the Company and provides the Company with a reasonable
opportunity to prevent, limit or protect such disclosure. None of the foregoing
obligations and restrictions apply to any Confidential Information that the
Executive demonstrates was or became generally available to the public other
than as a result of disclosure by the Executive.

              (c) Nonsolicitation of Executives and Clients. During the Term and
for a one year period after the termination of the Term for any reason, the
Executive shall not, directly or indirectly, for himself or for any other
person, firm, corporation, partnership, association or other entity, other than
in connection with the performance of Executive's duties under this Agreement,
(a) employ or attempt to employ or enter into any contractual arrangement with
any Executive or former Executive of the Company, unless such Executive or
former Executive has not been employed by the Company for a period in excess of
six months, (b) call on or solicit any of the actual or targeted prospective
clients of the Company on behalf of any person or entity in connection with any
business competitive with the business of the Company, and/or (c) make known the
names and addresses of such clients or any information relating in any manner to
the Company's trade or business relationships with such customers (unless the
Executive can

                                       5

demonstrate that such information was or became generally available to the
public other than as a result of a disclosure by the Executive).

              (d) Ownership of Developments. All copyrights, patents, trade
secrets, or other intellectual property rights associated with any ideas,
concepts, techniques, inventions, processes, or works of authorship developed or
created by Executive during the course of performing work for the Company or its
customers (collectively, the "Work Product") shall belong exclusively to the
Company and shall, to the extent possible, be considered a work made by the
Executive for hire for the Company within the meaning of Title 17 of the United
States Code. To the extent the Work Product may not be considered work made by
the Executive for hire for the Company, the Executive agrees to assign, and
automatically assign at the time of creation of the Work Product, without any
requirement of further consideration, any right, title, or interest the
Executive may have in such Work Product. Upon the request of the Company, the
Executive shall take such further actions, including execution and delivery of
instruments of conveyance, as may be appropriate to give full and proper effect
to such assignment.

              (e) Books and Records. All books, records, and accounts relating
in any manner to the customers of the Company, whether prepared by the Executive
or otherwise coming into the Executive's possession, shall be the exclusive
property of the Company and shall be returned immediately to the Company on
termination of the Executive's employment hereunder or on the Company's request
at any time. The Executive will not remove from the Company's premises any other
proprietary or confidential document, agreement, record, notebook, plan, model,
component, device, or computer software or code, whether embodied in a disk or
in any other form (collectively, the "Proprietary Items"). The Executive
recognizes that, as between the Company and the Executive, all of the
Proprietary Items, whether or not developed by the Executive, are the exclusive
property of the Company. Upon termination of this Agreement by either party, or
upon the request of the Company during the term of this Agreement, the Executive
will promptly return to the Company all of the Proprietary Items in the
Executive's possession or subject to the Executive's control, and the Executive
shall not retain any copies or other physical embodiment of any of the
Proprietary Items.

              (f) Definition of Company. Solely for purposes of this Section 6,
the term "Company" shall mean Applica, along with its current direct and
indirect subsidiaries, any existing or future subsidiaries of Applica that are
operating during the time periods described herein and any other entities that
directly or indirectly, through one or more intermediaries, control, are
controlled by or are under common control with Applica during the periods
described herein.

              (g) Acknowledgment by Executive. The Executive acknowledges and
confirms that (a) the restrictive covenants contained in this Section 6 are
reasonably necessary to protect the legitimate business interests of the
Company, and (b) the restrictions contained in this Section 6 (including without
limitation the length of the term of the provisions of this Section 6) are not
overbroad, overlong, or unfair and are not the result of overreaching, duress or
coercion of any kind. The Executive further acknowledges and confirms that his
full, uninhibited and faithful observance of each of the covenants contained in
this Section 6 will not cause him any

                                       6

undue hardship, financial or otherwise, and that enforcement of each of the
covenants contained herein will not impair his ability to obtain employment
commensurate with his abilities and on terms fully acceptable to him or
otherwise to obtain income required for the comfortable support of him and his
family and the satisfaction of the needs of his creditors. The Executive
acknowledges and confirms that his special knowledge of the business of the
Company is such as would cause the Company serious injury or loss if he were to
use such ability and knowledge to the benefit of a competitor or were to compete
with the Company in violation of the terms of this Section 6. The Executive
further acknowledges that the restrictions contained in this Section 6 are
intended to be, and shall be, for the benefit of and shall be enforceable by,
the Company's successors and assigns.

              (h) Reformation by Court. In the event that a court of competent
jurisdiction shall determine that any provision of this Section 6 is invalid or
more restrictive than permitted under the governing law of such jurisdiction,
then only as to enforcement of this Section 6 within the jurisdiction of such
court, such provision shall be interpreted and enforced as if it provided for
the maximum restriction permitted under such governing law.

              (i) Extension of Time. If the Executive shall be in violation of
any provision of this Section 6, then each time limitation set forth in this
Section 6 shall be extended for a period of time equal to the period of time
during which such violation or violations occur. If the Company seeks injunctive
relief from such violation in any court, then the covenants set forth in this
Section 6 shall be extended for a period of time equal to the pendency of such
proceeding including all appeals by the Executive.

              (j) Survival. The provisions of this Section 6 shall survive the
termination of this Agreement, as applicable.

              (k) Injunctive Relief. The Executive acknowledges that the injury
that would be suffered by the Company as a result of a breach of any provision
of this Section 6 would be irreparable and that an award of monetary damages for
such a breach would be an inadequate remedy. Consequently, the Executive
consents to, and the Company will have the right (in addition to any other
rights it may have) to request, the issuance of a temporary restraining order or
a preliminary or permanent injunction to prohibit or restrain any breach or
threatened breach or otherwise to specifically enforce any provision of this
Section 6, or to maintain the status quo pending the outcome of any proceeding
which may be initiated. The Company will not be obligated to post bond or other
security in seeking such relief.

       7.     Death. The Term shall terminate upon the death of Executive and be
of no further force or effect. Upon such termination, the Company will pay the
Executive's estate a lump sum equal to the sum of (A) the Annual Base Salary at
the date of termination multiplied by the number of years remaining in the Term,
and (B) the product of the sum of the Performance Bonus for the prior year
multiplied by the number of years remaining in the Term.

       8.     Disability. If during the Term Executive is unable to perform his
services, by reason of illness or incapacity, for a period of 180 consecutive
days or more, the Company may,

                                       7

at its option, upon written notice to Executive, terminate the Term and his
employment hereunder. If the Term is terminated as a result of the Executive's
disability, the Company will pay the Executive (A) his Annual Base Salary at the
date of termination for the period remaining in the Term to be distributed in
periodic installments according to the Company's customary payroll practices,
and (B) a lump sum equal to the product of the sum of the Performance Bonus for
the prior year multiplied by the number of years remaining in the Term, to be
paid at the time of such termination. The Company shall also continue to pay the
premiums for the same or substantially similar Welfare Benefits for the
remainder of the Term. Notwithstanding the foregoing, if the Executive shall
find other employment during the period he is receiving payments pursuant to
this Section 8, then the Executive shall promptly notify the Company in writing
of the date and terms of such employment and the Company shall be entitled to
reduce the amount payable to the Executive pursuant to this Section 8 during the
period from the commencement of such other employment by the cash compensation
received and to be received by the Executive for services rendered in connection
with such other employment.

      9.    Termination for Cause.

              (a) The Company shall have the right to terminate the Term and the
Executive's employment hereunder for Cause (as defined below). Upon any
termination pursuant to this Section 9, the Company shall pay to the Executive
any unpaid Annual Base Salary through the effective date of termination
specified in such notice. The Company shall have no further liability hereunder
(other than for reimbursement for reasonable business expenses incurred prior to
the date of termination, subject, however, to the provisions of Section 5(a)).

              (b) For purposes hereof, the term "Cause" shall mean: (A) the
willful and continued failure by the Executive to substantially perform his
duties with the Company, other than any such failure resulting from his
incapacity due to physical or mental illness or any such actual or anticipated
failure after the issuance by the Executive of a notice of termination for Good
Reason (as defined in section 11 hereof), after a written demand for substantial
performance is delivered to the Executive by the Directors of the Company, the
Board of Directors of Applica or the Chief Executive Officer of Applica, which
demand specifically identifies the manner in which the Executive has not
substantially performed the Executive's duties, or (B) the willful engaging by
the Executive in conduct which is demonstrably and materially injurious to the
Company or Applica, monetarily or otherwise. For purposes of this section, no
act or failure to act on the part of the Executive shall be deemed "willful"
unless done, or omitted to be done, by the Executive not in good faith and
without reasonable belief that his action or omission was in the best interest
of the Company or Applica.

       10.    Termination Without Cause. At any time the Company shall have the
right to terminate the Term and the Executive's employment hereunder by written
notice to the Executive. Upon any termination pursuant to this Section 10 (that
is not a termination under any of Sections 7, 8, 11 or 12), the Company shall
pay to the Executive a lump sum equal to the sum of (A) the Annual Base Salary
at the date of termination multiplied by the number of years remaining in the
Term, and (B) the product of the sum of the Performance Bonus for the prior

                                       8

year multiplied by the number of years remaining in the Term. The Company shall
also continue to pay the premiums for the same or substantially similar Welfare
Benefits and the Executive shall be entitled to the other benefits set forth in
Section 5(b), (d) and (e) for the remainder of the Term. Further, any Applica
stock option granted to Executive shall be exercisable immediately and the
Applica stock acquired pursuant to such exercise may be sold by Executive
subject to no restrictions by the Company whatsoever (other than those imposed
by United States federal and state securities laws). The Company shall have no
further liability hereunder (other than for reimbursement for reasonable
business expenses incurred prior to the date of termination, subject, however,
to the provisions of Section 5(a)). The Executive shall be entitled to receive
all severance payments and benefits hereunder regardless of any future
employment undertaken by the Executive as long as he is in full compliance with
the terms of this Agreement.

      11.   Termination by Executive.

              (a) The Executive shall at all times have the right, upon 60 days
written notice to the Company, to terminate the Term and his employment
hereunder.

              (b) Upon any termination pursuant to this Section 11 by the
Executive without Good Reason (as defined below), the Company shall pay to the
Executive any unpaid Annual Base Salary through the effective date of
termination specified in such notice. The Company shall have no further
liability hereunder (other than for reimbursement for reasonable business
expenses incurred prior to the date of termination, subject, however, to the
provisions of Section 5(a)). The Executive shall be entitled to receive all
severance payments and benefits hereunder regardless of any future employment
undertaken by the Executive as long as he is in full compliance with the terms
of this Agreement.

              (c) Upon any termination pursuant to this Section 11 by the
Executive for Good Reason, the Company shall pay to the Executive the same
amounts that would have been payable by the Company to the Executive under
Section 10 of this Agreement if the Executive's employment had been terminated
by the Company without Cause. The Company shall have no further liability
hereunder (other than for reimbursement for reasonable business expenses
incurred prior to the date of termination, subject, however, to the provisions
of Section 5(a)).

              (d) For purposes of this Agreement, "Good Reason" shall mean (i)
the assignment to the Executive of any duties inconsistent in any material
respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 3 of this Agreement, or any other action by the Company which results
in a material diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive; (ii) the
relocation of the Executive to another location more than 50 miles from his
current location without his consent, or (iii) any failure by the Company to
comply with any of the material provisions of Section 4 of this Agreement, other
than an

                                       9

isolated, insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice thereof given
by the Executive.

       12.    Change in Control.

              (a) In the event that (i) a Change in Control (as defined in
paragraph (b) of this Section 12) of Applica shall occur during the Term, and
(ii) prior to the earlier of the expiration of the Term and one year after the
date of the Change in Control, the Term and Executive's employment with the
Company is terminated by the Company without Cause, as defined in Section 9(b)
(and other than pursuant to Section 7 by reason of the Executive's death or
Section 8 by reason of the Executive's disability) or the Executive terminates
the Term and his employment for Good Reason, as defined in Section 11(d), the
Company shall (1) pay to the Executive any unpaid Annual Base Salary through the
effective date of termination, (2) pay to the Executive the Incentive
Compensation, if any, not yet paid to the Executive for any year prior to such
termination, at such time as the Incentive Compensation otherwise would have
been payable to the Executive, (3) at the time of such termination, pay to the
Executive a lump sum equal to the sum of (A) the Annual Base Salary at the date
of termination multiplied by the number of years remaining in the Term, and (B)
the product of the sum of the Performance Bonus for the prior year multiplied by
the number of years remaining in the Term. The Company shall also continue to
pay the premiums for the same or substantially similar Welfare Benefits for the
number of years remaining in the Term. Further, any Applica stock option granted
to Executive shall be exercisable immediately and the Applica stock acquired
pursuant to such exercise may be sold by Executive subject to no restrictions by
the Company whatsoever (other than those imposed by United States federal and
state securities laws). The Company shall have no further liability hereunder
(other than for reimbursement for reasonable business expenses incurred prior to
the date of termination, subject, however, to the provisions of Section 5(a)).

              (b) For purposes of this Agreement, the term "Change in Control"
shall mean:

                     (i) Approval by the shareholders of Applica of (x) a
              reorganization, merger, consolidation or other form of corporate
              transaction or series of transactions, in each case, with respect
              to which persons who were the shareholders of Applica immediately
              prior to such reorganization, merger or consolidation or other
              transaction do not, immediately thereafter, own more than 50% of
              the combined voting power entitled to vote generally in the
              election of directors of the reorganized, merged or consolidated
              company's then outstanding voting securities, or (y) a liquidation
              or dissolution of Applica or (z) the sale of all or substantially
              all of the assets of Applica (unless such reorganization, merger,
              consolidation or other corporate transaction, liquidation,
              dissolution or sale is subsequently abandoned); or

                     (ii) Individuals who, as of the date hereof, constitute the
              Board of Directors of Applica (as of the date hereof the
              "Incumbent Board") cease for any reason to constitute at least a
              majority of the Board of Directors of Applica, provided that any
              person becoming a director subsequent to the date hereof whose
              election, or nomination

                                       10

              for election by Applica's shareholders, was approved by a vote of
              at least a majority of the directors then comprising the Incumbent
              Board (other than an election or nomination of an individual whose
              initial assumption of office is in connection with an actual or
              threatened election contest relating to the election of the
              Directors of Applica, as such terms are used in Rule 14a-11 of
              Regulation 14A promulgated under the United States Securities
              Exchange Act) shall be, for purposes of this Agreement, considered
              as though such person were a member of the Incumbent Board; or

                     (iii) The acquisition (other than from Applica) by any
              person, entity or "group", within the meaning of Section 13(d)(3)
              or 14(d)(2) of the Securities Exchange Act (excluding, for this
              purpose, Applica or its subsidiaries, or any Executive benefit
              plan of Applica or its subsidiaries) which acquires beneficial
              ownership (within the meaning of Rule 13d-3 promulgated under the
              Securities Exchange Act), of 20% or more of either the then
              outstanding shares of the Applica's Common Stock or the combined
              voting power of Applica's then outstanding voting securities
              entitled to vote generally in the election of directors.

              (c) The payments made pursuant to paragraph (a) above shall be in
lieu of any and all compensation due to Executive for the years that would
otherwise be remaining in the Term. Upon receipt of said lump sum payment, this
Agreement and all rights and duties of the parties shall be terminated, except
as follows. In consideration for such lump sum payment and for the right to
terminate under the conditions set forth above, Executive agrees to consult with
the Company and Applica (or their successors), and their officers if requested
to do so for a period of at least two years from the date of such termination.
However, Executive shall be required to devote only such part of his time to
such services as Executive believes reasonable in Executive's sole discretion,
and the time and date such services are offered shall be determined by Executive
so long as that time and date is within a reasonable period of time after the
request. It is expressly agreed that the Company's and Applica's rights to avail
itself of the advice and consultation services of Executive shall at all times
be exercised in a reasonable manner, that adequate notice shall be given to
Executive in such events, and that non-compliance with any such request by
Executive for good reason, including, but not limited to, ill health or prior
commitments, shall not constitute a breach or violation of this Agreement.
Executive agrees that, except for reimbursement of all reasonable expenses
incurred by him with respect to such consultation and advisory services, payable
as such consultation and advisory services are rendered, he shall not be
entitled to any further compensation. It is understood that in furnishing any
advisory and consulting services provided herein, Executive shall not be an
Executive of the Company or Applica but shall act in the capacity of independent
contractor.

       13.    Waivers. It is understood that either party may waive the strict
performance of any covenant or agreement made herein; however, any waiver made
by a party hereto must be duly made in writing in order to be considered a
waiver, and the waiver of one covenant or agreement shall not be considered a
waiver of any other covenant or agreement unless specifically in writing as
aforementioned.


                                       11

       14.    Savings Provisions. The invalidity, in whole or in part, of any
covenant or restriction, or any section, subsection, sentence, clause, phrase or
word, or other provisions of this Agreement, as the same may be amended from
time to time shall not affect the validity of the remaining portions thereof.

       15.    Governing Law. This Agreement shall be construed in accordance
              with and governed by the laws of the State of Florida without
giving effect to its choice of law provision.

       16.    Notices. If either party desires to give notice to the other in
connection with any of the terms and provisions of this Agreement, said notice
must be in writing and shall be deemed given when (a) delivered by hand (with
written confirmation of receipt), (b) sent by facsimile (with written
confirmation of receipt), provided that a copy is mailed by registered mail,
return receipt requested, or (c) when received by the addressee, if sent by a
nationally recognized overnight delivery service (receipt requested), in each
case addressed to the party for whom it is intended as follows (or such other
addresses as either party may designated by notice to the other party):

            If to the Company:        Applica Durable Manufacturing Limited
                                      5980 Miami Lakes Drive
                                      Miami, Lakes, Florida 33014
                                      Attn: David M. Friedson

            If to Executive:          At the most recent home address of
                                      Executive on the official records of the
                                      Company

       17.    Default. In the event either party defaults in the performance of
its obligations under this Agreement, the non-defaulting party may, after giving
30 days notice to the defaulting party to provide a reasonable opportunity to
cure such default, proceed to protect its rights by suit in equity, action at
law, or, where specifically provided for herein, by arbitration, to enforce
performance under this Agreement or to recover damages for breach thereof,
including all costs and attorneys' fees, whether settled out of court,
arbitrated, or tried (at both trial and appellate levels).

       18.    No Third Party Beneficiary. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
other than the Company, the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and assigns, any rights or
remedies under or by reason of this Agreement.

       19.    Waiver of Jury Trial. ALL PARTIES KNOWINGLY WAIVE THEIR RIGHTS TO
REQUEST A TRIAL BY JURY IN ANY LITIGATION IN ANY COURT OF LAW, TRIBUNAL OR LEGAL
PROCEEDING INVOLVING THE PARTIES HERETO OR ANY DISPUTES ARISING OUT OF OR
RELATED TO THIS AGREEMENT.

                         [Signatures on following page.]


                                       12

       IN WITNESS WHEREOF, the Company, by its appropriate officer, signed this
Agreement and Executive have signed this Agreement, as of the day and year first
above written.


                                        APPLICA DURABLE MANUFACTURING LIMITED


                                        By: /s/ Harry D. Schulman
                                            ---------------------
                                        Name: Harry D. Schulman
                                        Its: Director

                                        EXECUTIVE


                                        /s/ Raymond So
                                            ----------------------
                                          Raymond So


                                       13

EX-10.18

                                                                   Exhibit 10.18

                                CREDIT AGREEMENT

                          Dated as of December 28, 2001

                                      Among

                   THE FINANCIAL INSTITUTIONS NAMED HEREIN

                                 as the Lenders

                                       and

                            BANK OF AMERICA, N.A.

                                  as the Agent

                                       and

                              APPLICA INCORPORATED

                                 as the Borrower

                                       and

                          ITS SUBSIDIARIES PARTY HERETO

                                  as Guarantors

                                TABLE OF CONTENTS


Article                                                                         Page
- -------                                                                         ----
                                                                            
ARTICLE 1 LOANS AND LETTERS OF CREDIT........................................    1

      1.1   Total Facility...................................................    1
      1.2   Revolving Loans..................................................    2
      1.3   Reserved.........................................................    5
      1.4   Letters of Credit................................................    5
      1.5   Bank Products....................................................    9

ARTICLE 2 INTEREST AND FEES..................................................    9

      2.1   Interest.........................................................    9
      2.2   Continuation and Conversion Elections............................   10
      2.3   Maximum Interest Rate............................................   11
      2.4   Closing Fee and Arrangement Fee..................................   11
      2.5   Unused Line Fee..................................................   11
      2.6   Letter of Credit Fee.............................................   12

ARTICLE 3 PAYMENTS AND PREPAYMENTS...........................................   12

      3.1   Revolving Loans..................................................   12
      3.2   Termination of Facility..........................................   13
      3.3   Optional Commitment Reductions...................................   13
      3.4   Payments from Distributions or Loans from Subsidiaries...........   14
      3.5   Payments from Asset Dispositions.................................   14
      3.6   LIBOR Rate Loan Prepayments......................................   14
      3.7   Payments by the Borrower.........................................   14
      3.8   Payments as Revolving Loans......................................   15
      3.9   Apportionment, Application and Reversal of Payments..............   15
      3.10  Indemnity for Returned Payments..................................   16
      3.11  Agent's and Lenders' Books and Records; Monthly Statements.......   16

ARTICLE 4 TAXES, YIELD PROTECTION AND ILLEGALITY.............................   16

      4.1   Taxes............................................................   16
      4.2   Illegality.......................................................   18
      4.3   Increased Costs and Reduction of Return..........................   18
      4.4   Funding Losses...................................................   19
      4.5   Inability to Determine Rates.....................................   20
      4.6   Certificates of Agent............................................   20
      4.7   Obligation to Mitigate...........................................   20
      4.8   Survival.........................................................   21

ARTICLE 5 BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES..................   21
      5.1   Books and Records................................................   21


                                       i

                                                                            
      5.2   Financial Information............................................   21
      5.3   Notices to the Lenders...........................................   25
      5.4   Revisions or Updates to Schedules................................   27

ARTICLE 6 GENERAL WARRANTIES AND REPRESENTATIONS.............................   28

      6.1   Authorization, Validity, and Enforceability of this
            Agreement and the Loan Documents.................................   28
      6.2   Validity and Priority of Security Interest.......................   28
      6.3   Organization and Qualification...................................   28
      6.4   [Reserved].......................................................   29
      6.5   Subsidiaries.....................................................   29
      6.6   Financial Statements and Projections.............................   29
      6.7   [Reserved].......................................................   29
      6.8   Solvency.........................................................   29
      6.9   Debt.............................................................   30
      6.10  Distributions....................................................   30
      6.11  Real Estate; Leases..............................................   30
      6.12  Proprietary Rights...............................................   30
      6.13  Trade Names......................................................   30
      6.14  Litigation.......................................................   30
      6.15  Labor Disputes...................................................   31
      6.16  Environmental Laws...............................................   31
      6.17  No Violation of Law..............................................   32
      6.18  No Default.......................................................   32
      6.19  ERISA Compliance.................................................   32
      6.20  Taxes............................................................   33
      6.21  Regulated Entities...............................................   33
      6.22  Margin Regulations...............................................   33
      6.23  Copyrights, Patents, Trademarks and Licenses, etc................   33
      6.24  Material Agreements..............................................   34
      6.25  Bank Accounts....................................................   34
      6.26  Governmental Authorization.......................................   34
      6.27  Investment Property..............................................   34
      6.28  No Material Adverse Change.......................................   34
      6.29  Full Disclosure..................................................   35
      6.30  Common Enterprise................................................   35

ARTICLE 7 AFFIRMATIVE AND NEGATIVE COVENANTS.................................   35

      7.1   Taxes and Other Obligations......................................   35
      7.2   Legal Existence and Good Standing................................   36
      7.3   Compliance with Law and Agreements; Maintenance of Licenses......   36
      7.4   Maintenance of Property; Inspection of Property..................   36
      7.5   Insurance........................................................   37
      7.6   Insurance and Condemnation Proceeds..............................   37
      7.7   Environmental Laws...............................................   38



                                       ii

                                                                            
      7.8   Compliance with ERISA............................................   39
      7.9   Mergers, Consolidations or Sales.................................   40
      7.10  Distributions; Capital Change; Restricted Investments............   40
      7.11  Reserved.........................................................   40
      7.12  Third Party Guaranties...........................................   41
      7.13  Debt.............................................................   41
      7.14  Prepayment.......................................................   41
      7.15  Transactions with Affiliates.....................................   41
      7.16  [Reserved].......................................................   42
      7.17  [Reserved].......................................................   42
      7.18  Loan Party Guaranties............................................   42
      7.19  [Reserved].......................................................   42
      7.20  Investment Banking and Finder's Fees.............................   42
      7.21  Business Conducted...............................................   42
      7.22  Liens............................................................   42
      7.23  Sale and Leaseback Transactions..................................   43
      7.24  New Subsidiaries.................................................   43
      7.25  Fiscal Year......................................................   43
      7.26  Capital Expenditures.............................................   44
      7.27  Minimum EBITDA...................................................   44
      7.28  Minimum Availability.............................................   44
      7.29  Use of Proceeds..................................................   45
      7.30  Changes to Senior Subordinated Debt Offering Documents...........   45
      7.31  Closure of Bank Accounts.........................................   45
      7.32  Intercompany Security Interest...................................   46
      7.33  Applica Canada Blocked Account...................................   46
      7.34  Further Assurances...............................................   46

ARTICLE 8 CONDITIONS OF LENDING..............................................   46

      8.1   Conditions Precedent to Making of Loans on the Closing Date......   46
      8.2   Conditions Precedent to Each Loan................................   51

ARTICLE 9 DEFAULT; REMEDIES..................................................   52

      9.1   Events of Default................................................   52
      9.2   Remedies.........................................................   55

ARTICLE 10 TERM AND TERMINATION..............................................   55

      10.1  Term and Termination.............................................   55

ARTICLE 11 AMENDMENTS; WAIVERs; PARTICIPATIONS; ASSIGNMENTS; SUCCESSORS......   56

      11.1  Amendments and Waivers...........................................   56
      11.2  Assignments; Participations......................................   57



                                      iii

                                                                            

ARTICLE 12 THE AGENT.........................................................    60

      12.1  Appointment and Authorization....................................    60
      12.2  Delegation of Duties.............................................    60
      12.3  Liability of Agent...............................................    60
      12.4  Reliance by Agent................................................    61
      12.5  Notice of Default................................................    61
      12.6  Credit Decision..................................................    61
      12.7  Indemnification..................................................    62
      12.8  Agent in Individual Capacity.....................................    62
      12.9  Successor Agent..................................................    63
      12.10 Withholding Tax..................................................    63
      12.11 Collateral Matters...............................................    65
      12.12 Restrictions on Actions by Lenders; Sharing of Payments..........    66
      12.13 Agency for Perfection............................................    67
      12.14 Payments by Agent to Lenders.....................................    67
      12.15 Settlement.......................................................    67
      12.16 Letters of Credit; Intra-Lender Issues...........................    71
      12.17 Concerning the Collateral and the Related Loan Documents.........    73
      12.18 Field Audit and Examination Reports; Disclaimer by Lenders.......    73
      12.19 Relation Among Lenders...........................................    74

ARTICLE 13 MISCELLANEOUS.....................................................    74

      13.1  No Waivers; Cumulative Remedies..................................    74
      13.2  Severability.....................................................    74
      13.3  Governing Law; Choice of Forum; Service of Process...............    75
      13.4  WAIVER OF JURY TRIAL.............................................    76
      13.5  Survival of Representations and Warranties.......................    76
      13.6  Other Security and Guaranties....................................    76
      13.7  Fees and Expenses................................................    76
      13.8  Notices..........................................................    77
      13.9  Waiver of Notices................................................    78
      13.10 Binding Effect...................................................    78
      13.11 Indemnity of the Agent and the Lenders by the Borrower...........    78
      13.12 [Reserved].......................................................    79
      13.13 Final Agreement..................................................    79
      13.14 Counterparts.....................................................    80
      13.15 Captions.........................................................    80
      13.16 Right of Setoff..................................................    80
      13.17 Confidentiality..................................................    80
      13.18 Conflicts with Other Loan Documents..............................    82
      13.19 Agency of the Borrower for Each Other Loan Party.................    82
      13.20 Express Waivers By Loan Parties In Respect of Cross
            Guaranties and Cross Collateralization...........................    82
      13.21 Judgment Currency................................................    84



                                       iv

                         ANNEXES, EXHIBITS AND SCHEDULES


ANNEX A       -  DEFINED TERMS

EXHIBIT A     -  [Reserved]

EXHIBIT B     -  BORROWING BASE CERTIFICATE

EXHIBIT C     -  FINANCIAL STATEMENTS

EXHIBIT D     -  NOTICE OF BORROWING

EXHIBIT E     -  NOTICE OF CONTINUATION/CONVERSION

EXHIBIT F     -  ASSIGNMENT AND ACCEPTANCE AGREEMENT

EXHIBIT G     -  COLLATERAL ACCESS AGREEMENT

EXHIBIT H     -  VENDOR LETTER


SCHEDULE 1.1 - ASSIGNMENT AND ACCEPTANCE

SCHEDULE 1.2 - COMMITMENTS

SCHEDULE 6.3 - ORGANIZATION AND QUALIFICATIONS

SCHEDULE 6.5 - SUBSIDIARIES AND AFFILIATES

SCHEDULE 6.9 - DEBT

SCHEDULE 6.11 - REAL ESTATE; LEASES

SCHEDULE 6.12 - PROPRIETARY RIGHTS

SCHEDULE 6.13 - TRADE NAMES

SCHEDULE 6.14 - LITIGATION

SCHEDULE 6.15 - LABOR DISPUTES

SCHEDULE 6.16 - ENVIRONMENTAL LAW

SCHEDULE 6.19 - ERISA COMPLIANCE

SCHEDULE 6.24 - MATERIAL AGREEMENTS

SCHEDULE 6.25 - BANK ACCOUNTS

                                       v

SCHEDULE 6.27   -  INVESTMENT PROPERTY

SCHEDULE A-1    -  PERMITTED LIENS

SCHEDULE A-2    -  RESTRICTED INVESTMENTS

                                       vi





                                CREDIT AGREEMENT

            This Credit Agreement, dated as of December 28, 2001, (this
"Agreement") among the financial institutions from time to time parties hereto
(such financial institutions, together with their respective successors and
assigns, are referred to hereinafter each individually as a "Lender" and
collectively as the "Lenders"), BANK OF AMERICA, N.A. with an office at 600
Peachtree Street, Atlanta, Georgia 30308, as agent for the Lenders (in its
capacity as agent, the "Agent"), and APPLICA INCORPORATED, a Florida
corporation, and each of its Subsidiaries party hereto.

                             W I T N E S S E T H:

            WHEREAS, the Loan Parties have requested the Lenders to make
available to the Borrower a revolving line of credit for loans and letters of
credit in an amount not to exceed $205,000,000, and which extensions of credit
the Borrower will use for the purposes permitted by Section 7.29;

            WHEREAS, the Borrower, Agent, Bank and certain other financial
institutions have entered into that certain Amended and Restated Credit
Agreement dated as of August 7, 1998 (as theretofore amended, supplemented or
restated from time to time, the "Original Credit Agreement"); and

            WHEREAS, the Lenders have agreed to make available to the Borrower a
revolving credit facility upon the terms and conditions set forth in this
Agreement; and

            WHEREAS, capitalized terms used in this Agreement and not otherwise
defined herein shall have the meanings ascribed thereto in Annex A which is
attached hereto and incorporated herein. The rules of construction contained in
Annex A shall govern the interpretation of this Agreement, and all Annexes,
Exhibits and Schedules attached hereto are incorporated herein by reference;

            NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth in this Agreement, and for good and valuable consideration,
the receipt of which is hereby acknowledged, the Lenders, the Agent and the Loan
Parties hereby agree as follows;

                                   ARTICLE 1
                           LOANS AND LETTERS OF CREDIT

            1.1 Total Facility.

            Subject to all of the terms and conditions of this Agreement, the
Lenders agree to make available a total credit facility of up to $205,000,000
(the "Total Facility") to the Borrower

from time to time during the term of this Agreement. The Total Facility shall be
composed of a revolving line of credit consisting of Revolving Loans and Letters
of Credit and Credit Support as described in Section 1.2 and Section 1.4.

            1.2 Revolving Loans.

                        (a) Amounts. Subject to the satisfaction of the
            conditions precedent set forth in Article 8, each Lender severally,
            but not jointly, agrees, upon the Borrower's request from time to
            time on any Business Day during the period from and including the
            Closing Date to the Termination Date, to make revolving loans (the
            "Revolving Loans") to the Borrower in amounts not to exceed such
            Lender's Pro Rata Share of Availability, except for Non-Ratable
            Loans and Agent Advances. The Lenders, however, in their unanimous
            discretion, may elect to make Revolving Loans or issue or arrange to
            have issued Letters of Credit in excess of the Borrowing Base on one
            or more occasions, but if they do so, neither the Agent nor the
            Lenders shall be deemed thereby to have changed the limits of the
            Borrowing Base or to be obligated to exceed such limits on any other
            occasion. If any Borrowing would exceed Availability, the Lenders
            may refuse to make or may otherwise restrict the making of Revolving
            Loans as the Lenders determine until such excess has been
            eliminated, subject to the Agent's authority, in its sole
            discretion, to make Agent Advances pursuant to the terms of Section
            1.2(i).

                        (b) Procedure for Borrowing.

                        (1) Each Borrowing shall be made upon the Borrower's
irrevocable written notice or by facsimile transmission delivered to the Agent
in the form of a notice of borrowing ("Notice of Borrowing"), which must be
received by the Agent prior to (i) 12:00 noon (Atlanta, Georgia time) three
Business Days prior to the requested Funding Date, in the case of LIBOR Rate
Loans and (ii) 11:00 a.m. (Atlanta, Georgia time) on the requested Funding Date,
in the case of Base Rate Loans, specifying:

                        (A) the amount of the Borrowing, which in the case of a
LIBOR Rate Loan must equal or exceed $2,500,000 (and increments of $500,000 in
excess of such amount);

                        (B) the requested Funding Date, which must be a Business
Day;

                        (C) whether the Revolving Loans requested are to be Base
Rate Revolving Loans or LIBOR Revolving Loans (and if not specified, it shall be
deemed a request for a Base Rate Revolving Loan); and

                        (D) the duration of the Interest Period for LIBOR
Revolving Loans (and if not specified, it shall be deemed a request for an
Interest Period of one month); and

                                       2

                        (E) whether the proceeds of such Borrowing are to be
deposited to a Designated Account or sent by wire transfer to a third party, in
which case the Borrower shall provide the Agent with wire transfer instructions
satisfactory to the Agent;

provided, however, that with respect to the Borrowing to be made on the Closing
Date, such Borrowings will consist of Base Rate Revolving Loans only.

                        (2) In lieu of delivering a Notice of Borrowing, (I) a
Responsible Officer may give Agent telephonic notice of such request for
advances to a Designated Account on or before the deadline set forth in clause
(i) above and the Agent at all times shall be entitled to rely on such
telephonic notice in making such Revolving Loans, regardless of whether any
written confirmation is received, or (II) whenever a presentment or request for
payment is made against a Designated Account in an amount greater than the then
available balance therein, such presentment or request shall be deemed to be a
request for a Base Rate Revolving Loan on the date of such presentment in an
amount equal to the excess of such check or other presented payment item over
the available balance therein.

                        (3) The Borrower shall have no right to request a LIBOR
Rate Loan while a Default or Event of Default has occurred and is continuing.

                  (c) Reliance upon Authority. Prior to the Closing Date, the
            Borrower shall deliver to the Agent a notice setting forth an
            account ("Designated Account") to which the Agent is authorized by
            the Borrower to transfer the proceeds of the Revolving Loans
            requested hereunder. The Borrower may designate a replacement
            account from time to time by written notice. All such Designated
            Accounts must be reasonably satisfactory to the Agent. The Agent is
            entitled to rely conclusively on any individual's request for
            Revolving Loans on behalf of the Borrower, so long as the proceeds
            thereof are to be transferred to a Designated Account. The Agent has
            no duty to verify the identity of any individual representing
            himself or herself as a person authorized by the Borrower to make
            such requests on its behalf.

                  (d) No Liability. The Agent shall not incur any liability to
            the Loan Parties as a result of acting upon any notice referred to
            in Sections 1.2(b) and (c), which the Agent believes in good faith
            to have been given by an officer or other person duly authorized by
            the Borrower to request Revolving Loans on its behalf. The crediting
            of Revolving Loans to a Designated Account or to such Persons as the
            Borrower may direct pursuant to Section 1.2(b)(E) shall conclusively
            establish the obligation of the Borrower to repay such Revolving
            Loans as provided herein.

                  (e) Notice Irrevocable. Any Notice of Borrowing (or telephonic
            notice in lieu thereof) made pursuant to Section 1.2(b) shall be
            irrevocable and the Borrower shall be bound to borrow the funds
            requested therein in accordance therewith.

                  (f) Agent's Election. Promptly after receipt of a Notice of
            Borrowing (or telephonic notice in lieu thereof), the Agent shall
            elect to have the terms of

                                       3

            Section 1.2(g) or the terms of Section 1.2(h) apply to such
            requested Borrowing. If the Bank declines in its sole discretion to
            make a Non-Ratable Loan pursuant to Section 1.2(h), the terms of
            Section 1.2(g) shall apply to the requested Borrowing.

                  (g) Making of Revolving Loans. If Agent elects to have the
            terms of this Section 1.2(g) apply to a requested Borrowing, then
            promptly after receipt of a Notice of Borrowing or telephonic notice
            in lieu thereof, the Agent shall notify the Lenders by telecopy,
            telephone or e-mail of the requested Borrowing. Each Lender shall
            transfer its Pro Rata Share of the requested Borrowing available to
            the Agent in immediately available funds, to the account from time
            to time designated by Agent, not later than 2:00 p.m. (Atlanta,
            Georgia time) on the applicable Funding Date. After the Agent's
            receipt of all proceeds of such Revolving Loans, the Agent shall
            make the proceeds of such Revolving Loans available to the Borrower
            on the applicable Funding Date by transferring same day funds to the
            account designated by the Borrower; provided, however, that except
            as may otherwise be provided by this Agreement, the amount of
            Revolving Loans so made on any date shall not exceed the
            Availability on such date.

                  (h) Making of Non-Ratable Loans. If Agent elects, with the
            consent of the Bank, to have the terms of this Section 1.2(h) apply
            to a requested Borrowing, the Bank shall make a Revolving Loan in
            the amount of that Borrowing available to the Borrower on the
            applicable Funding Date by transferring same day funds to Borrowers'
            Designated Account. Each Revolving Loan made solely by the Bank
            pursuant to this Section is herein referred to as a "Non-Ratable
            Loan", and such Revolving Loans are collectively referred to as the
            "Non-Ratable Loans." Each Non-Ratable Loan shall be subject to all
            the terms and conditions applicable to other Revolving Loans except
            that all payments thereon shall be payable to the Bank solely for
            its own account. The aggregate amount of Non-Ratable Loans
            outstanding at any time shall not exceed $15,000,000. The Agent
            shall not request the Bank to make any Non-Ratable Loan if (1) the
            Agent has received written notice from any Lender that one or more
            of the applicable conditions precedent set forth in Article 8 will
            not be satisfied on the requested Funding Date for the applicable
            Borrowing, or (2) the requested Borrowing would exceed Availability
            on that Funding Date. The Non-Ratable Loans shall be secured by the
            Agent's Liens in and to the Collateral and shall constitute LIBOR
            Rate Loans hereunder to the extent the Borrower is then entitled to
            additional Borrowings as LIBOR Rate Loans, and any amounts in excess
            thereof shall constitute Base Rate Revolving Loans hereunder.

                  (i) Agent Advances. Subject to the limitations set forth
            below, the Agent is authorized by the Borrower and the Lenders, from
            time to time in the Agent's sole discretion, (A) after the
            occurrence of a Default or an Event of Default, or (B) at any time
            that any of the other conditions precedent set forth in Article 8
            have not been satisfied, to make Base Rate Revolving Loans to the
            Borrower on behalf of the Lenders in an aggregate amount outstanding
            at any time not to exceed 5% of the Borrowing Base (but not to
            exceed in the aggregate, with all of the Revolving Loans
            outstanding, the Maximum Revolver Amount) for

                                       4

            a period not to exceed thirty (30) continuous days, which Agent, in
            its reasonable business judgment, deems necessary or desirable (1)
            to preserve or protect the Collateral, or any portion thereof, (2)
            to enhance the likelihood of, or maximize the amount of, repayment
            of the Loans and other Obligations, or (3) to pay any other amount
            chargeable to the Borrower pursuant to the terms of this Agreement,
            including costs, fees and expenses as described in Section 13.7 (any
            of such advances are herein referred to as "Agent Advances");
            provided, that the Required Lenders may at any time revoke the
            Agent's authorization to make Agent Advances. Any such revocation
            must be in writing and shall become effective prospectively upon the
            Agent's receipt thereof. The Agent Advances shall be secured by the
            Agent's Liens in and to the Collateral and shall constitute Base
            Rate Revolving Loans and Obligations hereunder.

            1.3 Reserved.

            1.4 Letters of Credit.

                  (a) Agreement to Issue or Cause To Issue. Subject to the terms
            and conditions of this Agreement, the Agent agrees, upon the request
            from time to time of the Borrower, in accordance with Section
            1.4(d), for the issuance of a Letter of Credit for the account of
            the Borrower or another Loan Party as directed by the Borrower in
            writing, (i) to cause the Letter of Credit Issuer to issue for the
            account of the Borrower one or more commercial/documentary and/or
            standby letters of credit (each a "Letter of Credit") and/or (ii) to
            provide credit support or other enhancement to a Letter of Credit
            Issuer acceptable to the Letter of Credit Issuer which issues a
            Letter of Credit for the account of the Borrower (any such credit
            support or enhancement being herein referred to as a "Credit
            Support") from time to time during the term of this Agreement.

                  (b) Amounts; Outside Expiration Date. The Agent shall not have
            any obligation to issue or cause to be issued any Letter of Credit
            or to provide Credit Support for any Letter of Credit at any time
            if: (i) the maximum face amount of the requested Letter of Credit is
            greater than the Unused Letter of Credit Subfacility at such time;
            (ii) the maximum undrawn amount of the requested Letter of Credit
            and all commissions, fees, and charges due from the Borrower in
            connection with the opening thereof would exceed Availability at
            such time; or (iii) such Letter of Credit has an expiration date
            less than 15 days prior to the Stated Termination Date or more than
            12 months from the date of issuance for standby letters of credit or
            more than 6 months from the date of issuance for documentary letters
            of credit. With respect to any Letter of Credit which contains any
            "evergreen" or automatic renewal provision, each Lender shall be
            deemed to have consented to any such extension or renewal unless any
            such Lender shall have provided to the Agent, written notice that it
            declines to consent to any such extension or renewal at least thirty
            (30) days prior to the date on which the Letter of Credit Issuer is
            entitled to decline to extend or renew the Letter of Credit. If all
            of the requirements of this Section 1.4 are met and no Default or
            Event of Default

                                       5

            has occurred and is continuing, no Lender shall decline to consent
            to any such extension or renewal.

                  (c) Other Conditions. In addition to conditions precedent
            contained in Article 8, the obligation of the Agent to issue or to
            cause to be issued any Letter of Credit or to provide Credit Support
            for any Letter of Credit is subject to the following conditions
            precedent having been satisfied in a manner reasonably satisfactory
            to the Agent:

                        (1) the Borrower shall have delivered to the Letter of
Credit Issuer, at such times and in such manner as such Letter of Credit Issuer
may prescribe, an application in form and substance satisfactory to such Letter
of Credit Issuer and reasonably satisfactory to the Agent for the issuance of
the Letter of Credit and such other documents as may be required pursuant to the
terms thereof, and the form, terms and purpose of the proposed Letter of Credit
shall be reasonably satisfactory to the Agent and the Letter of Credit Issuer;
and

                        (2) as of the date of issuance, no order of any court,
arbitrator or Governmental Authority shall purport by its terms to enjoin or
restrain money center banks generally from issuing letters of credit of the type
and in the amount of the proposed Letter of Credit, and no law, rule or
regulation applicable to money center banks generally and no request or
directive (whether or not having the force of law) from any Governmental
Authority with jurisdiction over money center banks generally shall prohibit, or
request that the proposed Letter of Credit Issuer refrain from, the issuance of
letters of credit generally or the issuance of such Letters of Credit.

                  (d) Issuance of Letters of Credit.

                        (1) Request for Issuance. The Borrower shall notify
Agent by telephonic facsimile or electronic notice (via the Bank's "Bank Window"
system) of a requested Letter of Credit at least three (3) Business Days prior
to the proposed issuance date. Such notice shall be irrevocable and must specify
the original face amount of the Letter of Credit requested, the Business Day of
issuance of such requested Letter of Credit, whether such Letter of Credit may
be drawn in a single or in partial draws, the Business Day on which the
requested Letter of Credit is to expire, the purpose for which such Letter of
Credit is to be issued, and the beneficiary of the requested Letter of Credit.
The Borrower shall attach to such notice the proposed form of the Letter of
Credit.

                        (2) Responsibilities of the Agent; Issuance. As of the
Business Day immediately preceding the requested issuance date of the Letter of
Credit, the Agent shall determine the amount of the applicable Unused Letter of
Credit Subfacility and Availability. If (i) the face amount of the requested
Letter of Credit is less than the Unused Letter of Credit Subfacility and (ii)
the amount of such requested Letter of Credit and all commissions, fees, and
charges due from the Borrower in connection with the opening thereof would not
exceed Availability, the Agent shall cause the Letter of Credit Issuer to issue
the requested Letter of Credit on the requested issuance date so long as the
other conditions hereof are met.


                                       6

                        (3) No Extensions or Amendment. Other than in accordance
with the last two sentences of Section 1.4(b) hereof, Agent shall not be
obligated to cause the Letter of Credit Issuer to extend or amend any Letter of
Credit issued pursuant hereto unless the requirements of this Section 1.4 are
met as though a new Letter of Credit were being requested and issued.

                  (e) Payments Pursuant to Letters of Credit. The Borrower
            agrees to reimburse immediately the Letter of Credit Issuer for any
            draw under any Letter of Credit and the Agent for the account of the
            Lenders upon any payment pursuant to any Credit Support, in each
            case in accordance with its respective terms, and to pay the Letter
            of Credit Issuer the amount of all other charges and fees payable to
            the Letter of Credit Issuer in connection with any Letter of Credit
            immediately when due, irrespective of any claim, setoff, defense or
            other right which the Borrower may have at any time against the
            Letter of Credit Issuer or any other Person. Each drawing under any
            Letter of Credit shall constitute a request by the Borrower at whose
            request such Letter of Credit or Credit Support was issued for a
            Borrowing of a Base Rate Revolving Loan in the amount of such
            drawing. The Funding Date with respect to such borrowing shall be
            the date of such drawing.

                  (f) Indemnification; Exoneration; Power of Attorney.

                        (1) Indemnification. In addition to amounts payable as
elsewhere provided in this Section 1.4, each Loan Party agrees to protect,
indemnify, pay and save the Lenders and the Agent harmless from and against any
and all claims, demands, liabilities, damages, losses, costs, charges and
expenses (including reasonable attorneys' fees) which any Lender or the Agent
(other than a Lender in its capacity as Letter of Credit Issuer) may incur or be
subject to as a consequence, direct or indirect, of the issuance of any Letter
of Credit or the provision of any Credit Support or enhancement in connection
therewith. The Loan Parties' obligations under this Section shall survive
payment of all other Obligations.

                        (2) Assumption of Risk by the Borrower. As among the
Borrower, the Lenders, and Agent (excluding any Lender in its capacity as a
Letter of Credit Issuer), the Borrower assumes all risks of the acts and
omissions of, or misuse of any of the Letters of Credit by, the respective
beneficiaries of such Letters of Credit. In furtherance and not in limitation of
the foregoing, the Lenders and the Agent (excluding any Lender in its capacity
as a Letter of Credit Issuer) shall not be responsible for: (A) the form,
validity, sufficiency, accuracy, genuineness or legal effect of any document
submitted by any Person in connection with the application for and issuance of
and presentation of drafts with respect to any of the Letters of Credit, even if
it should prove to be in any or all respects invalid, insufficient, inaccurate,
fraudulent or forged; (B) the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign any Letter of
Credit or the rights or benefits thereunder or proceeds thereof, in whole or in
part, which may prove to be invalid or ineffective for any reason; (C) the
failure of the beneficiary of any Letter of Credit to comply duly with
conditions required in order to draw upon such Letter of Credit; (D) errors,
omissions, interruptions, or delays in transmission or delivery of any messages,
by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher;
(E) errors in interpretation of technical

                                       7

terms; (F) any loss or delay in the transmission or otherwise of any document
required in order to make a drawing under any Letter of Credit or of the
proceeds thereof; (G) the misapplication by the beneficiary of any Letter of
Credit of the proceeds of any drawing under such Letter of Credit; (H) any
consequences arising from causes beyond the control of the Lenders or the Agent,
including any act or omission, whether rightful or wrongful, of any present or
future de jure or de facto Governmental Authority or (I) the Letter of Credit
Issuer's honor of a draw for which the draw or any certificate fails to comply
in any respect with the terms of the Letter of Credit. None of the foregoing
shall affect, impair or prevent the vesting of any rights or powers of the Agent
or any Lender under this Section 1.4(f).

                        (3) Exoneration. Without limiting the foregoing, no
action or omission whatsoever by Agent or any Lender (excluding any Lender in
its capacity as a Letter of Credit Issuer) shall result in any liability of
Agent or and Lender to any Loan Party, or relieve such Loan Party of any of its
obligations hereunder to any such Person.

                        (4) Rights Against Letter of Credit Issuer. Nothing
contained in this Agreement is intended to limit the Borrower's rights, if any,
with respect to the Letter of Credit Issuer which arise as a result of the
letter of credit application and related documents executed by and between the
Borrower and the Letter of Credit Issuer.

                        (5) Account Party. The Borrower hereby authorizes and
directs any Letter of Credit Issuer to name any Loan Party as the "Account
Party" therein and to deliver to the Agent all instruments, documents and other
writings and property received by the Letter of Credit Issuer pursuant to the
Letter of Credit, and to accept and rely upon the Agent's instructions and
agreements with respect to all matters arising in connection with the Letter of
Credit or the application therefor.

                  (g) Supporting Letter of Credit; Cash Collateral. If,
            notwithstanding the provisions of Section 1.4(b) and Section 10.1,
            any Letter of Credit or Credit Support is outstanding upon the
            termination of this Agreement, then upon such termination the
            Borrower shall deposit with the Agent, for the ratable benefit of
            the Agent and the Lenders, with respect to each Letter of Credit or
            Credit Support then outstanding, a standby letter of credit (a
            "Supporting Letter of Credit") in form and substance reasonably
            satisfactory to Agent, issued by an issuer satisfactory to the Agent
            in an amount equal to the greatest amount for which such Letter of
            Credit or such Credit Support may be drawn plus any fees and
            expenses associated with such Letter of Credit or such Credit
            Support, under which Supporting Letter of Credit the Agent is
            entitled to draw amounts necessary to reimburse the Agent and the
            Lenders for payments to be made by the Agent and the Lenders under
            such Letter of Credit or Credit Support and any fees and expenses
            associated with such Letter of Credit or Credit Support. Such
            Supporting Letter of Credit shall be held by the Agent, for the
            ratable benefit of the Agent and the Lenders, as security for, and
            to provide for the payment of, the aggregate undrawn amount of such
            Letters of Credit or such Credit Support remaining outstanding.


                                       8

            1.5 Bank Products.

            The Loan Parties may request and the Agent may, in its sole and
absolute discretion, arrange for any Consolidated Member to obtain from the Bank
or any Lender or its Affiliates Bank Products although the Loan Parties are not
required to do so. If Bank Products are provided by the Bank or an Affiliate of
the Bank or a Lender, the Loan Parties agree to indemnify and hold the Agent and
the Lenders harmless from any and all costs and obligations now or hereafter
incurred by the Agent or any of the Lenders which arise from any indemnity given
by the Agent to its Affiliates or the Affiliates of such Lender related to such
Bank Products; provided, however, nothing contained herein is intended to limit
a Consolidated Member's rights, with respect to the Bank, a Lender or their
respective Affiliates, if any, which arise as a result of the execution of
documents by and between a Consolidated Member and the Bank or such Lender or
their Affiliates which relate to Bank Products. The agreement contained in this
Section shall survive termination of this Agreement. Each Loan Party
acknowledges and agrees that the obtaining of Bank Products from the Bank or a
Lender or its Affiliates (a) is in the sole and absolute discretion of the Bank,
such Lender or their Affiliates, and (b) is subject to all rules and regulations
of the Bank, such Lender or their Affiliates.

                                   ARTICLE 2
                                INTEREST AND FEES

            2.1 Interest.

                  (a) Interest Rates. All outstanding Revolving Loans shall bear
            interest on the unpaid principal amount thereof (including, to the
            extent permitted by law, on interest thereon not paid when due) from
            the date made until paid in full in cash at a rate determined by
            reference to the Base Rate or the LIBOR Rate plus the Applicable
            Margins, but not to exceed the Maximum Rate. Any of the Loans may be
            converted into, or continued as LIBOR Rate Loans, subject to and in
            the manner provided in Section 2.2. If at any time Loans are
            outstanding with respect to which the Borrower has not delivered to
            the Agent a notice specifying the basis for determining the interest
            rate applicable thereto in accordance herewith, those Loans shall
            bear interest at a rate determined by reference to the Base Rate
            until notice to the contrary has been given to the Agent in
            accordance with this Agreement and such notice has become effective.
            Except as otherwise provided herein, the outstanding Obligations
            shall bear interest as follows:

                        (i) For all Base Rate Revolving Loans at a fluctuating
            per annum rate equal to the Base Rate plus the Applicable Margin;
            and

                        (ii) For all LIBOR Revolving Loans at a per annum rate
            equal to the LIBOR Rate plus the Applicable Margin.

Each change in the Base Rate shall be reflected in the interest rate applicable
to Base Rate Loans as of the effective date of such change. All interest charges
shall be computed on the basis of a year of 360 days and actual days elapsed
(which results in more interest being paid than if computed on the basis of a
365-day year). The Borrower shall pay to the Agent, for the ratable

                                       9

benefit of Lenders, interest accrued on all Base Rate Loans in arrears on the
first day of each month hereafter and on the Termination Date. The Borrower
shall pay to the Agent, for the ratable benefit of Lenders, interest on all
LIBOR Rate Loans in arrears on each LIBOR Interest Payment Date.

                  (b) Default Rate. If an Event of Default occurs and is
            continuing and the Agent or the Required Lenders in their discretion
            so elect, then, while any such Event of Default is continuing, all
            of the Obligations shall bear interest at the Default Rate
            applicable thereto.

            2.2 Continuation and Conversion Elections.

                  (a) The Borrower may:

                        (i) elect, as of any Business Day, in the case of Base
            Rate Loans to convert any Base Rate Loans (or any part thereof in an
            amount not less than $2,500,000, or that is in an integral multiple
            of $500,000 in excess thereof) into LIBOR Rate Loans; or

                        (ii) elect, as of the last day of the applicable
            Interest Period, to continue any LIBOR Rate Loans having Interest
            Periods expiring on such day (or any part thereof in an amount not
            less than $2,500,000, or that is in an integral multiple of $500,000
            in excess thereof);

provided, that if at any time the aggregate amount of LIBOR Rate Loans in
respect of any Borrowing is reduced, by payment, prepayment, or conversion of
part thereof to be less than $1,000,000, such LIBOR Rate Loans shall
automatically convert into Base Rate Loans; provided further that if the notice
shall fail to specify the duration of the Interest Period, such Interest Period
shall be one month.

                  (b) The Borrower shall deliver by telephonic facsimile notice
            of continuation/conversion ("Notice of Continuation/Conversion") to
            the Agent not later than 12:00 noon (Atlanta, Georgia time) at least
            two (2) Business Days in advance of the Continuation/Conversion
            Date, if the Loans are to be converted into or continued as LIBOR
            Rate Loans and specifying:

                        (i) the proposed Continuation/Conversion Date;

                        (ii) the aggregate amount of Loans to be converted or
            renewed;

                        (iii) the type of Loans resulting from the proposed
            conversion or continuation; and

                        (iv) the duration of the requested Interest Period,
            provided, however, the Borrower may not select an Interest Period
            that ends after the Stated Termination Date.


                                       10

                  (c) If upon the expiration of any Interest Period applicable
            to LIBOR Rate Loans, the Borrower has failed to select timely a new
            Interest Period to be applicable to LIBOR Rate Loans or if any
            Default or Event of Default then exists, the Borrower shall be
            deemed to have elected to convert such LIBOR Rate Loans into Base
            Rate Loans effective as of the expiration date of such Interest
            Period.

                  (d) The Agent will promptly notify each Lender of its receipt
            of a Notice of Continuation/Conversion. All conversions and
            continuations shall be made ratably according to the respective
            outstanding principal amounts of the Loans with respect to which the
            notice was given held by each Lender.

                  (e) There may not be more than seven (7) different LIBOR Rate
            Loans in effect hereunder at any time.

            2.3 Maximum Interest Rate.

            In no event shall any interest rate provided for hereunder exceed
the maximum rate legally chargeable by any Lender under applicable law for such
Lender with respect to loans of the type provided for hereunder (the "Maximum
Rate"). If, in any month, any interest rate, absent such limitation, would have
exceeded the Maximum Rate, then the interest rate for that month shall be the
Maximum Rate, and, if in future months, that interest rate would otherwise be
less than the Maximum Rate, then that interest rate shall remain at the Maximum
Rate until such time as the amount of interest paid hereunder equals the amount
of interest which would have been paid if the same had not been limited by the
Maximum Rate. In the event that, upon payment in full of the Obligations, the
total amount of interest paid or accrued under the terms of this Agreement is
less than the total amount of interest which would, but for this Section 2.3,
have been paid or accrued if the interest rate otherwise set forth in this
Agreement had at all times been in effect, then the Borrower shall, to the
extent permitted by applicable law, pay the Agent, for the account of the
Lenders, an amount equal to the excess of (a) the lesser of (i) the amount of
interest which would have been charged if the Maximum Rate had, at all times,
been in effect or (ii) the amount of interest which would have accrued had the
interest rate otherwise set forth in this Agreement, at all times, been in
effect over (b) the amount of interest actually paid or accrued under this
Agreement. If a court of competent jurisdiction determines that the Agent and/or
any Lender has received interest and other charges hereunder in excess of the
Maximum Rate, such excess shall be deemed received on account of, and shall
automatically be applied to reduce, the Obligations other than interest, in the
inverse order of maturity, and if there are no Obligations outstanding, the
Agent and/or such Lender shall refund to the Borrower such excess.

            2.4 Closing Fee and Arrangement Fee.

            The Borrower agrees to pay the Agent on the Closing Date a closing
fee (the "Closing Fee") and the arrangement fee (the "Arrangement Fee") as set
forth in the Fee Letter.

            2.5 Unused Line Fee.

            On the first day of each month and on the Termination Date the
Borrower agrees to pay to the Agent for the account of the Lenders an unused
line fee ("Unused Line Fee") at a

                                       11

percentage rate per annum equal to (i) the Applicable Margin designated for
Unused Line Fees on any applicable date, times (ii) the amount by which the
Maximum Revolver Amount exceeded the Average Credit Facility Outstandings for
the immediately preceding month. The Unused Line Fee shall be computed on the
basis of a 360-day year for the actual number of days elapsed.

            2.6 Letter of Credit Fee.

            The Borrower agrees to pay to the Agent, for the account of the
Lenders, in accordance with their respective Pro Rata Shares, for each Letter of
Credit, a fee (the "Letter of Credit Fee") equal to the Applicable Margin per
annum in effect for LIBOR Revolving Loans on any applicable date on the undrawn
face amount of each Letter of Credit and to Agent for the benefit of the Letter
of Credit Issuer a fronting fee of one-quarter of one percent (0.25%) per annum
of the undrawn face amount of each Letter of Credit, and to the Letter of Credit
Issuer, all out-of-pocket costs, fees and expenses incurred by the Letter of
Credit Issuer in connection with the application for, processing of, issuance
of, or amendment to any Letter of Credit. The Letter of Credit Fee shall be
payable monthly in arrears on the first day of each month following any month in
which a Letter of Credit is outstanding and on the Termination Date. The Letter
of Credit Fee shall be computed on the basis of a 360-day year for the actual
number of days elapsed.

            2.7 Administration Fee.

            The Borrower agrees to pay the Agent on the Closing Date and on each
anniversary of the Closing Date the administration fee (the "Administration
Fee") as set forth in the Fee Letter.

            2.8 Collections Fee.

            The Borrower agrees to pay the Agent on the first day of each month
after the Closing Date the collections fee (the "Collections Fee") as set forth
in the Fee Letter.

                                   ARTICLE 3
                            PAYMENTS AND PREPAYMENTS

            3.1 Revolving Loans.

            The Borrower shall repay the outstanding principal balance of the
Revolving Loans, plus all accrued but unpaid interest thereon, on the
Termination Date. The Borrower may prepay Revolving Loans at any time, and
reborrow subject to the terms of this Agreement. In addition, and without
limiting the generality of the foregoing, upon demand the Borrower shall pay to
the Agent, for account of the Lenders, the amount, without duplication, by which
the Aggregate Revolver Outstandings exceeds the lesser of the Borrowing Base or
the Maximum Revolver Amount.


                                       12

            3.2 Termination of Facility.

            The Borrower may terminate this Agreement upon at least ten (10)
Business Days' notice to the Agent and the Lenders, upon (a) the payment in full
of all outstanding Revolving Loans, together with accrued interest thereon, and
the cancellation and return of all outstanding Letters of Credit, (b) the
payment of the early termination fee set forth below, (c) the payment in full in
cash of all reimbursable expenses and other Obligations, and (d) with respect to
any LIBOR Rate Loans prepaid, payment of the amounts due under Section 4.4, if
any. If this Agreement is terminated at any time prior to the Stated Termination
Date, whether pursuant to this Section or pursuant to Section 9.2, the Borrower
shall, in addition to the foregoing, pay to the Agent, for the account of the
Lenders, an early termination fee determined in accordance with the following
table:




    PERIOD DURING WHICH EARLY               EARLY TERMINATION
        TERMINATION OCCURS                         FEE
                                         
      On or prior to the first               1% of the Maximum
      Anniversary Date                      Revolver Amount

      After the first Anniversary            0.5% of the Maximum
      Date but on or prior to the           Revolver Amount
      second Anniversary Date

      After the second                      0.25% of the Maximum
      Anniversary Date but prior            Revolver Amount
      to the third Anniversary
      Date

      The Third Anniversary Date            None
      and thereafter



            3.3 Optional Commitment Reductions.

            The Borrower shall, by notice from an Responsible Officer, have the
right from time to time but not more frequently than once each calendar month,
upon not less than three (3) Business Days' written notice to Agent, effective
upon receipt, to permanently reduce the total Commitments. Agent shall give each
Lender, within one (1) Business Day of receipt of such notice, telefacsimile
notice, or telephonic notice (confirmed in writing), of such reduction. Each
such reduction shall be in the aggregate amount of $5,000,000 or such greater
amount which is in an integral multiple of $1,000,000, or the entire remaining
total Commitments, and shall permanently reduce the total Commitments. Each
reduction of the total Commitments shall be accompanied by payment of the
Revolving Loans to the extent that the principal amount of Revolving Loans
outstanding, plus Non-Ratable Loans outstanding, plus Letters of Credit
outstanding exceeds the lesser of (i) the total Commitments or (ii) the
Borrowing Base, after giving effect to such reduction, together with accrued and
unpaid interest on the amounts

                                       13

prepaid. No such reduction shall result in the payment of any LIBOR Rate Loans
other than on the last day of the Interest Period of such LIBOR Rate Loan unless
such prepayment is accompanied by amounts due, if any, under Section 4.4 hereof.
Notwithstanding the foregoing, if any of the Commitments are reduced at any time
or times prior to the Stated Termination Date, the Borrower shall pay to the
Agent in each instance, for the account of the Lenders, an early termination fee
on the portion of the Commitments so reduced (the "Commitment Reduction Amount")
in accordance with the applicable provisions of Section 3.2; provided, however,
that the reference to "Maximum Revolver Amount" as used therein shall be deemed
to refer to the Commitment Reduction Amount for purposes of calculating the
amount of such early termination fees.

            3.4 Payments from Distributions or Loans from Subsidiaries.

            All proceeds or other cash payments received by the Borrower
constituting proceeds of a Distribution, loan or other advance to the Borrower
shall be paid to the Agent, promptly upon the receipt thereof by the Borrower,
for application to the Revolving Loans.

            3.5 Payments from Asset Dispositions.

            All proceeds of any Asset Disposition by a Consolidated Member
received by a Loan Party shall be paid to the Agent, promptly upon the receipt
thereof by the Borrower, for application to the Revolving Loans. No provision
contained in this Section 3.5 shall constitute a consent to any Asset
Disposition that is not otherwise permitted by the express terms of this
Agreement.

            3.6 LIBOR Rate Loan Prepayments.

            Except as otherwise expressly provided in this Agreement, in
connection with any prepayment, if any LIBOR Rate Loans are prepaid prior to the
expiration date of the Interest Period applicable thereto, the Borrower shall
pay to the Lenders the amounts described in Section 4.4.

            3.7 Payments by the Borrower.

                  (a) All payments to be made by the Borrower shall be made
            without set-off, recoupment or counterclaim. Except as otherwise
            expressly provided herein, all payments by the Borrower or other
            forms of payment received by the Agent shall be made to the Agent
            for the account of the Lenders at the Payment Account or such other
            account designated by the Agent in writing and shall be made in
            Dollars and in immediately available funds, no later than 12:00 noon
            (Atlanta, Georgia time) on the date such payment is due and shall be
            deemed to have been received (subject to final collection) on the
            Business Day that Agent receives such items in immediately available
            funds for purposes of (i) determining Availability, (ii) calculating
            the Unused Line Fee pursuant to Section 2.5 of this Agreement, and
            (iii) calculating the amount of interest accrued thereon. Any
            payment received by Agent after 12:00 noon (Atlanta, Georgia time)
            shall be deemed to have been received on the next Business Day
            thereafter and any applicable interest and other charges shall
            continue to accrue for such period.


                                       14

                  (b) Subject to the provisions set forth in the definition of
            "Interest Period", whenever any payment is due on a day other than a
            Business Day, such payment shall be due on the following Business
            Day, and such extension of time shall in such case be included in
            the computation of interest or fees, as the case may be.

            3.8 Payments as Revolving Loans.

            At the election of Agent, all payments of principal, interest,
reimbursement obligations in connection with Letters of Credit and Credit
Support for Letters of Credit, fees, premiums, reimbursable expenses and other
sums payable hereunder, may be paid from the proceeds of Revolving Loans made
hereunder. The Borrower hereby irrevocably authorizes the Agent to charge the
Loan Account for the purpose of paying all amounts from time to time due
hereunder and agrees that all such amounts charged shall constitute Base Rate
Revolving Loans (including Non-Ratable Loans and Agent Advances).

            3.9 Apportionment, Application and Reversal of Payments.

            Principal and interest payments shall be apportioned ratably among
the Lenders (according to the unpaid principal balance of the Loans to which
such payments relate held by each Lender) and payments of the fees shall, as
applicable, be apportioned ratably among the Lenders, except for fees payable
solely to Agent and the Letter of Credit Issuer and except as provided in
Section 11.1(b). All payments shall be remitted to the Agent and all such
payments not relating to principal or interest of specific Loans, or not
constituting payment of specific fees, and all proceeds of Accounts or other
Collateral received by the Agent, shall be applied, ratably, subject to the
provisions of this Agreement, first, to pay any fees, indemnities or expense
reimbursements then due to the Agent from the Borrower; second, to pay any fees
or expense reimbursements then due to the Lenders from the Borrower; third, to
pay interest due in respect of all Loans, including Non-Ratable Loans and Agent
Advances; fourth, to pay or prepay principal of the Non-Ratable Loans and Agent
Advances; fifth, to pay or prepay principal of the Revolving Loans (other than
Non-Ratable Loans and Agent Advances) and unpaid reimbursement obligations in
respect of Letters of Credit; sixth, to pay an amount to Agent equal to all
outstanding Letter of Credit Obligations to be held as cash collateral for such
Obligations; and seventh, to the payment of any other Obligation including any
amounts relating to Bank Products due to the Agent or any Lender by the
Borrower. Notwithstanding anything to the contrary contained in this Agreement,
neither Agent nor any Lender shall apply any payments which it receives to any
LIBOR Rate Loan, unless (a) so directed by the Borrower, (b) an Event of Default
has occurred and is continuing or (c) such payments are applied on the
expiration date of the Interest Period applicable to any such LIBOR Rate Loan.
For so long as Event of Default has occurred and is continuing, the Agent and
the Lenders shall have the continuing and exclusive right to apply and reverse
and reapply any and all such proceeds and payments to any portion of the
Obligations.


                                       15

            3.10 Indemnity for Returned Payments.

            If after receipt of any payment which is applied to the payment of
all or any part of the Obligations, the Agent, any Lender, the Bank or any
Affiliate of the Bank or a Lender is for any reason compelled to surrender such
payment or proceeds to any Person because such payment or application of
proceeds is invalidated, declared fraudulent, set aside, determined to be void
or voidable as a preference, impermissible setoff, or a diversion of trust
funds, or for any other reason, then the Obligations or part thereof intended to
be satisfied shall be revived and continued and this Agreement shall continue in
full force as if such payment or proceeds had not been received by the Agent or
such Lender and the Borrower shall be liable to pay to the Agent and the
Lenders, and hereby does indemnify the Agent and the Lenders and hold the Agent
and the Lenders harmless for the amount of such payment or proceeds surrendered.
The provisions of this Section 3.10 shall be and remain effective
notwithstanding any contrary action which may have been taken by the Agent or
any Lender in reliance upon such payment or application of proceeds, and any
such contrary action so taken shall be without prejudice to the Agent's and the
Lenders' rights under this Agreement and shall be deemed to have been
conditioned upon such payment or application of proceeds having become final and
irrevocable. The provisions of this Section 3.10 shall survive the termination
of this Agreement.

            3.11 Agent's and Lenders' Books and Records; Monthly Statements.

            The Agent shall record the principal amount of the Loans owing to
each Lender, the undrawn face amount of all outstanding Letters of Credit and
the aggregate amount of unpaid reimbursement obligations outstanding with
respect to the Letters of Credit from time to time on its books. In addition,
each Lender may note the date and amount of each payment or prepayment of
principal of such Lender's Loans in its books and records. Failure by Agent or
any Lender to make such notation shall not affect the obligations of the
Borrower with respect to the Loans or the Letters of Credit. The Loan Parties
agree that the Agent's and each Lender's books and records showing the
Obligations and the transactions pursuant to this Agreement and the other Loan
Documents shall be admissible in any action or proceeding arising therefrom, and
shall constitute rebuttably presumptive proof thereof, irrespective of whether
any Obligation is also evidenced by a promissory note or other instrument. The
Agent will provide to the Borrower a monthly statement of Loans, payments, and
other transactions pursuant to this Agreement. Such statement shall be deemed
correct, accurate, and binding on the Loan Parties and an account stated (except
for reversals and reapplications of payments made as provided in Section 3.8 and
corrections of errors discovered by the Agent), unless the Borrower notifies the
Agent in writing to the contrary within thirty (30) days after such statement is
rendered. In the event a timely written notice of objections is given by the
Borrower, only the items to which exception is expressly made will be considered
to be disputed.

                                   ARTICLE 4
                     TAXES, YIELD PROTECTION AND ILLEGALITY

            4.1 Taxes.

                  (a) Any and all payments by the Loan Parties to each Lender or
            the Agent under this Agreement and any other Loan Document shall be
            made free

                                       16

            and clear of, and without deduction or withholding for any Taxes. In
            addition, the Loan Parties shall pay all Taxes relating to present
            or future stamp or documentary taxes or any other excise or property
            taxes, charges or similar levies which arise from any payment made
            hereunder or from the execution, delivery or registration of, or
            otherwise with respect to, this Agreement or any other Loan
            Documents.

                  (b) The Loan Parties agree to indemnify and hold harmless each
            Lender and the Agent for the full amount of Taxes (including any
            Taxes imposed by any jurisdiction on amounts payable under this
            Section) paid by any Lender or Agent and any liability (including
            penalties, interest, additions to tax and expenses) arising
            therefrom or with respect thereto. Payment under this
            indemnification shall be made within 30 days after the date such
            Lender or Agent makes written demand therefor.

                  (c) If the Loan Parties shall be required by law to deduct or
            withhold any Taxes from or in respect of any sum payable hereunder
            to any Lender or Agent, then:

                        (i) the sum payable shall be increased as necessary so
            that after making all required deductions and withholdings
            (including deductions and withholdings applicable to additional sums
            payable under this Section) such Lender or Agent, as the case may
            be, receives an amount equal to the sum it would have received had
            no such deductions or withholdings been made;

                        (ii) the Loan Parties shall make such deductions and
            withholdings;

                        (iii) the Loan Parties shall pay the full amount
            deducted or withheld to the relevant taxing authority or other
            authority in accordance with applicable law or, if being contested
            in good faith, set up adequate reserves for such Taxes; and

                        (iv) the Loan Parties shall also pay to each Lender or
            Agent for the account of such Lender, at the time interest is paid,
            all additional amounts which the respective Lender documents (in
            reasonable detail) as being necessary to preserve the after-tax
            yield such Lender would have received if such Taxes had not been
            imposed.

                  (d) At the Agent's request, within 30 days after the date of
            any payment by the Loan Parties of Taxes or Other Taxes, the Loan
            Parties shall furnish the Agent the original or a certified copy of
            a receipt evidencing payment thereof, or other evidence of payment
            satisfactory to the Agent.

                  (e) If the Loan Parties are required to pay additional amounts
            to any Lender or the Agent pursuant to subsection (c) of this
            Section, then such Lender shall use reasonable efforts (consistent
            with legal and regulatory restrictions) to change the jurisdiction
            of its lending office so as to eliminate any such additional

                                       17

            payment by the Loan Parties which may thereafter accrue, if such
            change in the judgment of such Lender is not otherwise
            disadvantageous to such Lender.

            4.2 Illegality.

                  (a) If any Lender determines, based upon advice from legal
            counsel, that the introduction of any Requirement of Law, or any
            change in any Requirement of Law, or in the interpretation or
            administration of any Requirement of Law, has made it unlawful, or
            that any central bank or other Governmental Authority has asserted
            that it is unlawful, for any Lender or its applicable lending office
            to make LIBOR Rate Loans, then, on notice thereof by that Lender to
            the Borrower through the Agent, any obligation of that Lender to
            make LIBOR Rate Loans shall be suspended until that Lender notifies
            the Agent and the Borrower that the circumstances giving rise to
            such determination no longer exist.

                  (b) If a Lender determines that it is unlawful to maintain any
            LIBOR Rate Loan, the Borrower shall, upon receipt of notice of such
            fact and demand from such Lender (with a copy to the Agent), prepay
            in full such LIBOR Rate Loans of that Lender then outstanding,
            together with interest accrued thereon and amounts required under
            Section 4.4, either on the last day of the Interest Period thereof,
            if that Lender may lawfully continue to maintain such LIBOR Rate
            Loans to such day, or immediately, if that Lender may not lawfully
            continue to maintain such LIBOR Rate Loans. In the event such Lender
            shall have determined that it is no longer unlawful for it to
            maintain a LIBOR Rate Loan, it shall promptly give notice to the
            Borrower and Agent. If the Borrower is required to so prepay any
            LIBOR Rate Loans, then concurrently with such prepayment, the
            Borrower shall borrow from the affected Lender, in the amount of
            such repayment, a Base Rate Loan. Notwithstanding anything to the
            contrary in this Agreement, the Borrower shall not be liable for any
            losses, or be required to reimburse an Lender as set forth in
            Section 4.4 to the extent a LIBOR Rate Loan has been prepaid in
            accordance with this Section 4.2.

            4.3 Increased Costs and Reduction of Return.

                  (a) If any Lender determines, based upon advice from legal
            counsel, that due to either (i) the introduction of or any change in
            the interpretation of any law or regulation or (ii) the compliance
            by that Lender with any guideline or request from any central bank
            or other Governmental Authority (whether or not having the force of
            law), there shall be any increase in the cost to such Lender of
            agreeing to make or making, funding or maintaining any LIBOR Rate
            Loans, then the Borrower shall be liable for, and shall from time to
            time, upon demand (with a copy of such demand to be sent to the
            Agent), pay to the Agent for the account of such Lender, additional
            amounts as are sufficient to compensate such Lender for such
            increased costs or, alternatively, in the case where the affected
            Lender's increased costs are material, the Borrower may choose to
            prepay such LIBOR Rate Loan and concurrently with such prepayment,
            the Borrower shall borrow

                                       18

            from the affected Lender, a Base Rate Loan in the amount of such
            repayment; provided, however, that no Lender shall be entitled to
            claim any additional amount hereunder with respect to the period
            which is more than 30 days prior to the date the Lender actually
            became aware of such additional amounts; provided, further, that
            notwithstanding anything to the contrary in this Agreement, the
            Borrower shall not be liable for any losses, or be required to
            reimburse any Lender as set forth in Section 4.4 to the extent a
            LIBOR Rate Loan has been prepaid in accordance with this Section
            4.3(a).

                  (b) If any Lender shall have determined, based upon advice
            from legal counsel, that (i) the introduction of any Capital
            Adequacy Regulation, (ii) any change in any Capital Adequacy
            Regulation, (iii) any change in the interpretation or administration
            of any Capital Adequacy Regulation by any central bank or other
            Governmental Authority charged with the interpretation or
            administration thereof, or (iv) compliance by such Lender or any
            corporation or other entity controlling such Lender with any Capital
            Adequacy Regulation, affects or would affect the amount of capital
            required or expected to be maintained by such Lender or any
            corporation or other entity controlling such Lender and (taking into
            consideration such Lender's or such corporation's or other entity's
            policies with respect to capital adequacy and such Lender's desired
            return on capital) determines that the amount of such capital is
            increased as a consequence of its Commitments, loans, credits or
            obligations under this Agreement, then, upon demand of such Lender
            to the Borrower through the Agent, the Borrower shall pay to such
            Lender, from time to time as specified by such Lender, additional
            amounts sufficient to compensate such Lender for such non-material
            increase; provided, however, that no Lender shall be entitled to
            claim any such additional amount with respect to the period which is
            more than 30 days prior to the date the Lender actually became aware
            of such additional amounts.

            4.4 Funding Losses.

            The Borrower shall reimburse each Lender and hold each Lender
harmless from any loss or expense which such Lender may sustain or incur as a
consequence of:

                  (a) the failure of the Borrower to make on a timely basis any
            payment of principal of any LIBOR Rate Loan;

                  (b) the failure of the Borrower to borrow, continue or convert
            a Loan after the Borrower has given (or is deemed to have given) a
            Notice of Borrowing or a Notice of Continuation/Conversion; or

                  (c) the prepayment or other payment (including after
            acceleration thereof) of any LIBOR Rate Loans on a day that is not
            the last day of the relevant Interest Period;

including any such loss of anticipated profit and any loss or expense arising
from the liquidation or reemployment of funds obtained by it to maintain its
LIBOR Rate Loans or from fees payable

                                       19

to terminate the deposits from which such funds were obtained. Borrowers shall
also pay any customary administrative fees charged by any Lender in connection
with the foregoing.

            4.5 Inability to Determine Rates.

            If the Agent determines that for any reason adequate and reasonable
means do not exist for determining the LIBOR Rate for any requested Interest
Period with respect to a proposed LIBOR Rate Loan, or that the LIBOR Rate for
any requested Interest Period with respect to a proposed LIBOR Rate Loan does
not adequately and fairly reflect the cost to the Lenders of funding such Loan,
the Agent will promptly so notify the Borrower and each Lender. Thereafter, the
obligation of the Lenders to make or maintain LIBOR Rate Loans hereunder shall
be suspended until the Agent revokes such notice in writing. Upon receipt of
such notice, the Borrower may revoke any Notice of Borrowing or Notice of
Continuation/Conversion then submitted by it. If the Borrower does not revoke
such Notice, the Lenders shall make, convert or continue the Loans, as proposed
by the Borrower, in the amount specified in the applicable notice submitted by
the Borrower, but such Loans shall be made, converted or continued as Base Rate
Loans instead of LIBOR Rate Loans.

            4.6 Certificates of Agent.

            If any Lender claims reimbursement or compensation under this
Article 4, Agent shall deliver to the Borrower (with a copy to the affected
Lender) a certificate setting forth in reasonable detail the amount payable to
the affected Lender, and such certificate shall be conclusive and binding on the
Borrower in the absence of manifest error.

            4.7 Obligation to Mitigate.

                  (a) Subject to Section 4.7(b) below, each Lender, Letter of
            Credit Issuer, Agent and Bank agrees that, as promptly as
            practicable after the officer of such Lender, Letter of Credit
            Issuer, Agent or Bank responsible for administering the Loans or
            Letters of Credit of such Lender, Letter of Credit Issuer, Agent or
            Bank, as the case may be, becomes aware of the occurrence of any
            event or the existence of a condition that would cause such Lender,
            Letter of Credit Issuer or Bank to receive increased payments from
            the Borrower under Section 4.1, Section 4.2 or Section 4.3, it will,
            to the extent not inconsistent with the formal internal policies of
            such Lender, Letter of Credit Issuer, the Agent or the Bank and any
            applicable legal or regulatory restrictions, use reasonable efforts
            (i) to make, issue, fund or maintain the Commitments of such Lender
            or the affected Loans or Letters of Credit of such Lender, Letter of
            Credit Issuer, the Agent or the Bank through another lending or
            letter of credit office of such Lender, Letter of Credit Issuer, the
            Agent or the Bank, or (ii) take such other actions as Lender, Letter
            of Credit Issuer, the Agent or the Bank may deem reasonable to cause
            the additional amounts that the Borrower would be required to pay
            the Lender, Letter of Credit Issuer, the Agent or the Bank under
            Section 4.1, Section 4.2 or Section 4.3 to be reduced.


                                       20

                  (b) The Borrower may, in its sole discretion, on ten (10)
            Business Days' prior written notice to the Agent and the applicable
            Lender, cause a Lender who has (i) incurred increased costs or is
            unable to make LIBOR Rate Loans, or (ii) made any claim for taxes
            under Section 4.1 hereof, (and such Lender shall) to assign,
            pursuant to Section 11.2 hereof, all of its rights and obligations
            under this Agreement to an Eligible Assignee designated by the
            Borrower and acceptable to the Agent which is willing to become a
            Lender for a purchase price equal to the outstanding principal
            amount of the Revolving Loans payable to such Lender plus any
            accrued but unpaid interest on such Revolving Loans, any accrued but
            unpaid fees with respect to such Agreement; provided, however, that
            any expenses or other amounts which would be owing to such Lender
            pursuant to any indemnification provision hereof (including, if
            applicable, Section 4.4 hereof) shall be payable by the Borrower as
            if the Borrower had prepaid the Revolving Loans of such Lender
            rather than such Lender having assigned its interest hereunder. The
            Borrower or such assignee shall pay the applicable processing fee
            under Section 11.2 hereof.

            4.8 Survival.

            The agreements and obligations of the Borrower in this Article 4
shall survive the payment of all other Obligations.

                                   ARTICLE 5
                BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES

            5.1 Books and Records.

            The Borrower shall maintain, at all times, correct and complete
books, records and accounts in which complete, correct and timely entries are
made of its transactions in accordance with GAAP applied consistently with the
audited Financial Statements required to be delivered pursuant to Section
5.2(a). The Borrower shall, by means of appropriate entries, reflect in such
accounts and in all Financial Statements proper liabilities and reserves for all
taxes and proper provision for depreciation and amortization of property and bad
debts, all in accordance with GAAP. The Loan Parties shall maintain at all times
books and records pertaining to the Collateral in such detail, form and scope as
required under the Security Agreement as to the Borrower and its Domestic
Subsidiaries party thereto and as required under the Applica Canada Security
Agreement as to Applica Canada.

            5.2 Financial Information.

            The Loan Parties shall promptly furnish to the Agent all such
financial information regarding any Consolidated Member's financial and business
affairs as the Agent shall reasonably request. Without limiting the foregoing,
the Loan Parties will furnish to the Agent, via electronic notice or otherwise,
in sufficient copies for distribution by the Agent to each Lender (and upon
receipt, the Agent shall promptly distribute to the Lenders), in such detail as
the Agent or the Lenders shall request, the following:


                                       21

                  (a) As soon as available, but in any event not later than
            ninety (90) days after the close of each Fiscal Year, consolidated
            audited balance sheets, income statements, cash flow statements and
            changes in stockholders' equity for the Consolidated Members for
            such Fiscal Year and consolidating unaudited balance sheets, income
            statements and cash flow statements prepared in accordance with the
            footnotes regarding condensed and consolidating financial statements
            in the Borrower's financial statements filed with the SEC in
            relation to the Debt evidenced by the Senior Subordinated Debt
            Offering Documents, for the Consolidated Members for such Fiscal
            Year, and the accompanying notes thereto, setting forth in each case
            in comparative form figures for the previous Fiscal Year, all in
            reasonable detail, fairly presenting the financial position and the
            results of operations of the Consolidated Members as at the date
            thereof and for the Fiscal Year then ended, and prepared in
            accordance with GAAP. Such statements shall be examined in
            accordance with generally accepted auditing standards by and, in the
            case of such statements performed on a consolidated basis,
            accompanied by a report thereon unqualified in any respect of
            independent certified public accountants selected by the Borrower
            and reasonably satisfactory to the Agent. Each Loan Party hereby
            authorizes the Agent to communicate, together with a representative
            of the Borrower, directly with its certified public accountants and,
            by this provision, authorizes those accountants to disclose to the
            Agent any and all financial statements and other supporting
            financial documents and schedules relating to the Consolidated
            Members and to discuss directly with the Agent and a representative
            of the Borrower the finances and affairs of the Consolidated
            Members.

                  (b) As soon as available, but in any event not later than
            forty-five (45) days after the end of each fiscal quarter,
            consolidated unaudited balance sheets, income statements and cash
            flow statements for the Consolidated Members for such fiscal quarter
            and consolidating unaudited balance sheets, income statements and
            cash flow statements prepared in accordance with the footnotes
            regarding condensed and consolidating financial statements in the
            Borrower's financial statements filed with the SEC in relation to
            the Debt evidenced by the Senior Subordinated Debt Offering
            Documents, for the Consolidated Members for such quarter and for the
            period from the beginning of the Fiscal Year to the end of such
            quarter, all in reasonable detail, fairly presenting the financial
            position and results of operations of the Consolidated Members as at
            the date thereof and for such periods, and, in each case, in
            comparable form, figures for the corresponding period in the prior
            Fiscal Year and prepared in accordance with GAAP applied
            consistently with the audited Financial Statements required to be
            delivered pursuant to Section 5.2(a). The Borrower shall certify by
            a certificate signed by its chief financial officer that all such
            statements have been prepared in accordance with GAAP and present
            fairly the Consolidated Members' financial position as at the dates
            thereof and its results of operations for the periods then ended,
            subject to normal year-end adjustments and the absence of footnotes.

                  (c) As soon as available, but in any event not later than
            thirty (30) days after the end of each month, consolidated unaudited
            balance sheets of the

                                       22

            Consolidated Members as at the end of such month, and consolidated
            unaudited income statements and cash flow statements for the
            Consolidated Members for such month and for the period from the
            beginning of the Fiscal Year to the end of such month, all in
            reasonable detail, fairly presenting the financial position and
            results of operations of the Consolidated Members as at the date
            thereof and for such periods, and, in each case, in comparable form,
            figures for the corresponding period in the prior Fiscal Year and
            prepared in accordance with GAAP applied consistently with the
            audited Financial Statements required to be delivered pursuant to
            Section 5.2(a). The Borrower shall certify by a certificate signed
            by its chief financial officer that all such statements have been
            prepared in accordance with GAAP and present fairly the Consolidated
            Members' financial position as at the dates thereof and its results
            of operations for the periods then ended, subject to normal year-end
            adjustments and the absence of footnotes.

                  (d) With each of the audited Financial Statements delivered
            pursuant to Section 5.2(a), a certificate of the independent
            certified public accountants that examined such statement to the
            effect that they have reviewed and are familiar with this Agreement
            and that, in examining such Financial Statements, they did not
            become aware of any fact or condition which then constituted a
            Default or Event of Default with respect to a financial covenant,
            except for those, if any, described in reasonable detail in such
            certificate.

                  (e) With each of the annual audited Financial Statements
            delivered pursuant to Section 5.2(a), and within 45 days after the
            end of each fiscal quarter, a certificate of the chief financial
            officer of the Borrower setting forth in reasonable detail the
            calculations required to establish that the Loan Parties were in
            compliance with the covenants set forth in Sections 7.26 through
            7.28 during the period covered in such Financial Statements and as
            at the end thereof. Within 45 days after the end of each fiscal
            quarter, a certificate of the chief financial officer of the
            Borrower stating that, except as explained in reasonable detail in
            such certificate, (A) all of the representations and warranties of
            the Loan Parties contained in this Agreement and the other Loan
            Documents are correct and complete in all material respects as at
            the date of such certificate as if made at such time, except for
            those that speak as of a particular date, (B) the Loan Parties are,
            at the date of such certificate, in compliance in all material
            respects with all of its respective covenants and agreements in this
            Agreement and the other Loan Documents, (C) no Default or Event of
            Default then exists or existed during the period covered by the
            Financial Statements for such fiscal quarter, (D) describing and
            analyzing in reasonable detail all material trends, changes, and
            developments in each and all Financial Statements or, alternatively,
            refer to the applicable documents filed by the Borrower with the
            Securities and Exchange Commission in accordance with the Exchange
            Act including, but not limited to, sections of such filings entitled
            "Management's Discussion and Analysis"; and (E) explaining the
            variances of the figures in the corresponding budgets and prior
            Fiscal Year financial statements. If such certificate discloses that
            a representation or warranty is not correct or complete, or that a
            covenant has not been complied with, or that a

                                       23

            Default or Event of Default existed or exists, such certificate
            shall set forth what action the Borrower has taken or proposes to
            take with respect thereto.

                  (f) No sooner than sixty (60) days prior to the beginning of
            each Fiscal Year, annual forecasts (to include forecasted
            consolidated balance sheets, income statements and cash flow
            statements) for the Consolidated Members as at the end of and for
            each month of such Fiscal Year. No later than fifteen (15) days
            after the beginning of each Fiscal Year, annual forecast statements
            of profits and losses on a consolidating basis for the Loan Parties
            as at the end of and for each month of such Fiscal Year.

                  (g) Promptly after filing with the PBGC and the IRS, a copy of
            each annual report or other filing filed with respect to each Plan
            of the Consolidated Members.

                  (h) Promptly upon the filing thereof, copies of all reports,
            if any, to or other documents filed by any Consolidated Member with
            the Securities and Exchange Commission under the Exchange Act, and
            all material reports, notices, or statements sent by the Borrower to
            holders of any equity interests of the Borrower (other than routine
            non-material correspondence sent by the trustee under any indenture
            under which the same is issued).

                  (i) As soon as available, but in any event not later than 15
            days after any Loan Party's receipt thereof, a copy of all
            management reports and management letters prepared by any
            independent certified public accountants of any Loan Party.

                  (j) Promptly after their preparation, copies of any and all
            proxy statements, financial statements, and reports which the
            Borrower makes available to its shareholders.

                  (k) If requested by Agent in writing, promptly after filing
            with the IRS, a copy of each tax return filed by the any
            Consolidated Member.

                  (l) As soon as available, but in any event within 15 days
            after the end of each month (for such month) (i) a Borrowing Base
            Certificate supporting information in accordance with Section 9 of
            the Security Agreement, (ii) a report showing the beginning and
            ending balances of all intercompany loans, advances or investments
            ("Intercompany Accounts") for such month, and (iii) a calculation of
            the Applica Canada Formula Amount and the Applica Consumer Products
            Formula Amount as of the last day of such month.

                  (m) Such additional information as the Agent and/or any Lender
            may from time to time reasonably request regarding the financial and
            business affairs of any Consolidated Member.

                  (n) On the last Business Day of each month, duplicate original
            bank statements for the preceding month in respect of the Applica
            Canada Blocked Agreement.


                                       24

            5.3 Notices to the Lenders.

            The Loan Parties shall notify the Agent and the Lenders in writing
of the following matters at the following times:

                  (a) Immediately after becoming aware of any Default or Event
            of Default;

                  (b) Immediately after becoming aware of the assertion by the
            holder of any Capital Stock of the Borrower or the holder of any
            Debt of the Borrower or any Subsidiary in a face amount in excess of
            $1,000,000 that a default exists with respect thereto or that any
            Consolidated Member is not in compliance with the terms thereof, or
            the threat or commencement by such holder of any enforcement action
            because of such asserted default or non-compliance;

                  (c) Immediately after becoming aware of any event or
            circumstance which could reasonably be expected to have a Material
            Adverse Effect;

                  (d) Immediately after becoming aware of any pending or
            threatened action, suit, or proceeding, by any Person, or any
            pending or threatened investigation by a Governmental Authority,
            which could reasonably be expected to have a Material Adverse
            Effect;

                  (e) Immediately after becoming aware of any pending or
            threatened strike, work stoppage, unfair labor practice claim, or
            other labor dispute affecting any Consolidated Member in a manner
            which could reasonably be expected to have a Material Adverse
            Effect;

                  (f) Immediately after becoming aware of any violation of any
            law, statute, regulation, or ordinance of a Governmental Authority
            affecting the any Consolidated Member which could reasonably be
            expected to have a Material Adverse Effect;

                  (g) Immediately after receipt of any notice of any violation
            by the any Consolidated Member of any Environmental Law which could
            reasonably be expected to have a Material Adverse Effect or that any
            Governmental Authority has asserted in writing that any Consolidated
            Member is not in compliance with any Environmental Law or is
            investigating any Consolidated Member;

                  (h) Immediately after receipt of any written notice that any
            Consolidated Member is or may be liable to any Person as a result of
            the Release or threatened Release of any Contaminant or that any
            Consolidated Member is subject to investigation by any Governmental
            Authority evaluating whether any remedial action is needed to
            respond to the Release or threatened Release of any Contaminant
            which, in either case, is reasonably likely to give rise to
            liability in excess of $1,000,000;

                                       25


                  (i)   Immediately after receipt of any written notice of the
            imposition of any Environmental Lien against any property of any
            Consolidated Member;

                  (j)   Any change in any Loan Party's name as it appears in the
            state of its incorporation or other organization, state of
            incorporation or organization, type of entity, organizational
            identification number, locations of Collateral other than those set
            forth in Section 4 of the Security Agreement, or form of
            organization, trade names under which a Loan Party sells Inventory
            or create Accounts, or to which instruments in payment of Accounts
            may be made payable, in each case at least ten (10) days prior
            thereto, and, with regard to any other Consolidated Member, such
            information as of the first day of the following fiscal quarter;

                  (k)   Within ten (10) Business Days after any Loan Party or
            any ERISA Affiliate knows or has reason to know, that an ERISA Event
            or a prohibited transaction (as defined in Sections 406 of ERISA and
            4975 of the Code) has occurred, which could reasonably be expected
            to have a Material Adverse Effect, and, when known, any action taken
            or threatened by the IRS, the DOL, the PBGC or any other
            Governmental Authority with respect thereto;

                  (l)   Upon Agent's written request, or, in the event that such
            filing reflects a significant change with respect to the matters
            covered thereby, within three (3) Business Days after the filing
            thereof with the PBGC, the DOL, the IRS, or the Pension Commission
            of Ontario or any other applicable Governmental Authority as
            applicable, copies of the following: (i) each annual report (form
            5500 series), including Schedule B thereto, filed with the PBGC, the
            DOL or the IRS with respect to each Plan and in the case of any Plan
            governed by the PBA, each report, valuation, request for amendment,
            whole or partial withdrawal or termination or other variation, (ii)
            a copy of each funding waiver request filed with the PBGC, the DOL,
            the IRS or the Pension Commission of Ontario or any other applicable
            Governmental Authority with respect to any Plan and all
            communications received by the Borrower or any ERISA Affiliate from
            the PBGC, the DOL, the IRS or the Pension Commission of Ontario or
            any other applicable Governmental Authority with respect to such
            request, and (iii) a copy of each other filing or notice filed with
            the PBGC, the DOL, the IRS or the Pension Commission of Ontario or
            any other applicable Governmental Authority, with respect to each
            Plan by either a Loan Party or any ERISA Affiliate;

                  (m)   Upon Agent's written request, copies of each actuarial
            report for any Plan or Multi-employer Plan and annual report for any
            Multi-employer Plan; and within three (3) Business Days after
            receipt thereof by a Loan Party or any ERISA Affiliate, copies of
            the following: (i) any notices of the PBGC, the Pension Commission
            of Ontario or any other applicable Governmental Authority intention
            to terminate a Plan or to have a trustee appointed to administer
            such Plan; (ii) any favorable or unfavorable determination letter
            from the IRS, the Pension Commission of Ontario or any other
            applicable Governmental Authority regarding the qualification of a
            Plan under Section 401(a) of the Code, the PBA or


                                       26

            other applicable laws; or (iii) any notice from a Multi-employer
            Plan regarding the imposition of withdrawal liability;

                  (n)   Within three (3) Business Days after the occurrence
            thereof: (i) any changes in the benefits of any existing Plan which
            increase a Loan Parties' annual costs with respect thereto by an
            amount in excess of $500,000, or the establishment of any new Plan
            or the commencement of contributions to any Plan to which the Loan
            Parties or any ERISA Affiliate was not previously contributing; or
            (ii) any failure by a Loan Party or any ERISA Affiliate to make a
            required installment or any other required payment under Section 412
            of the Code, the PBA or other applicable laws on or before the due
            date for such installment or payment; or

                  (o)   Within three (3) Business Days after a Loan Party or any
            ERISA Affiliate knows or has reason to know that any of the
            following events has or will occur: (i) a Multi-employer Plan has
            been or will be terminated; (ii) the administrator or plan sponsor
            of a Multi-employer Plan intends to terminate a Multi-employer Plan;
            or (iii) the PBGC has instituted or will institute proceedings under
            Section 4042 of ERISA to terminate a Multi-employer Plan, or (iv)
            Reportable Event or Termination Event in respect of any Plan.

Each notice given under this Section shall describe the subject matter thereof
in reasonable detail, and shall set forth the action that the Loan Party or any
ERISA Affiliate, as applicable, has taken or proposes to take with respect
thereto.

            5.4   Revisions or Updates to Schedules.

            Should any of the information or disclosures provided on any of the
schedules originally attached hereto become outdated or incorrect in any
material respect, the Borrower from time to time shall deliver to the Agent and
the Lenders, together with an officer's certificate of the type required
pursuant to Section 5.2(e), such revisions or updates to such schedule(s)
whereupon such schedules shall be deemed to be amended by such revisions or
updates, as may be necessary or appropriate to update or correct such
schedule(s), provided that, notwithstanding the foregoing, (a) no such revisions
or updates to Schedules 6.5, 6.11-6.16, 6.19, 6.24, 6.25, or 6.27 shall be
deemed to have amended, modified, or superseded any such schedules as originally
attached hereto, or to have cured any breach of warranty or representation
resulting from the inaccuracy or incompleteness of any such schedules, unless
and until the Agent shall have accepted in writing such revisions or updates to
any such schedules and (b) no such revisions or updates to Schedules 6.9. shall
be deemed to have amended, modified, or superseded such schedule as originally
attached hereto, or to have cured any breach of warranty or representation
resulting from the inaccuracy or incompleteness of such schedule, unless and
until the Required Lenders shall have accepted in writing such revisions or
updates to such schedule.


                                       27

                                    ARTICLE 6
                     GENERAL WARRANTIES AND REPRESENTATIONS

            Each Loan Party warrants and represents to Agent and the Lenders
that, after giving the effect to the Refinancing:

            6.1   Authorization, Validity, and Enforceability of this Agreement
      and the Loan Documents.

            Each Obligated Party has the power and authority to execute, deliver
and perform this Agreement and the other Loan Documents to which it is a party,
to incur the Obligations, and to grant to the Agent Liens upon and security
interests in the Collateral. Each Obligated Party has taken all necessary action
(including obtaining approval of its stockholders if necessary) to authorize its
execution, delivery, and performance of this Agreement and the other Loan
Documents to which it is a party. This Agreement and the other Loan Documents to
which it is a party have been duly executed and delivered by each Obligated
Party, and, assuming this Agreement and the other Loan Documents constitute the
legal, valid and binding obligations of Agent, Bank and each of the Lenders
hereto, constitute the legal, valid and binding obligations of each Obligated
Party, enforceable against it in accordance with their respective terms. Each
Obligated Party's execution, delivery, and performance of this Agreement and the
other Loan Documents to which it is a party do not and will not conflict with,
or constitute a violation or breach of, or result in the imposition of any Lien
upon the property of an Obligated Party or any of its Subsidiaries, by reason of
the terms of (a) any contract, mortgage, lease, agreement, indenture, or
instrument to which such Obligated Party or any of its Subsidiaries is a party
or which is binding upon it, (b) any Requirement of Law applicable to the such
Obligated Party or any of its Subsidiaries, or (c) the certificate or articles
of incorporation or by-laws or the limited liability company or limited
partnership agreement of the Obligated Parties or any of their Subsidiaries.

            6.2   Validity and Priority of Security Interest.

            The provisions of this Agreement, and the other Loan Documents
create legal and valid Liens on all the Collateral in favor of the Agent, for
the ratable benefit of the Agent and the Lenders, and such Liens constitute
perfected and continuing Liens on all the Collateral, having priority over all
other Liens on the Collateral, except for those Liens identified in clauses (a),
(c), (d), (e), (g), (h) and (i) of the definition of Permitted Liens securing
all the Obligations, and enforceable against the Obligated Parties and all third
parties.

            6.3   Organization and Qualification.

            Each Obligated Party (a) is duly organized or incorporated and
validly existing in good standing under the laws of the state of its
organization or incorporation, (b) is qualified to do business and is in good
standing in the jurisdictions set forth on Schedule 6.3 which are the only
jurisdictions in which qualification is necessary in order for it to own or
lease its property and conduct its business, except where the failure to so
qualify would have a Material Adverse Effect, and (c) has all requisite power
and authority to conduct its business and to own its property.


                                       28

            6.4   [Reserved].

            6.5   Subsidiaries.

            Schedule 6.5 is a correct and complete list of the name and
relationship to the Borrower of each and all of the Borrower's Subsidiaries
(specifying whether such Subsidiaries are Domestic Subsidiaries or Foreign
Subsidiaries). Each Subsidiary is (a) duly incorporated or organized and validly
existing in good standing under the laws of its state of incorporation or
organization set forth on Schedule 6.5, and (b) qualified to do business and in
good standing in each jurisdiction in which the failure to so qualify or be in
good standing could reasonably be expected to have a Material Adverse Effect and
(c) has all requisite power and authority to conduct its business and own its
property.

            6.6   Financial Statements and Projections.

                  (a)   The Borrower has delivered to the Agent and the Lenders
            the audited balance sheet and related statements of income, retained
            earnings, cash flows, and changes in stockholders equity for the
            Consolidated Members as of December 31, 2000, and for the Fiscal
            Year then ended, accompanied by the report thereon of the Borrower's
            independent certified public accountants, Grant Thornton LLP. The
            Borrower has also delivered to the Agent and the Lenders the
            unaudited balance sheet and related statements of income and cash
            flows for the Consolidated Members as of September 30, 2001. Such
            financial statements are attached hereto as Exhibit C. All such
            financial statements have been prepared in accordance with GAAP
            (except for the quarterly or monthly financial statements) and
            present accurately and fairly in all material respects the financial
            position of the Consolidated Members as at the dates thereof and
            their results of operations for the periods then ended.

                  (b)   The Latest Projections when submitted to the Agent as
            required herein represent the Loan Party's good faith estimate of
            the future financial performance of the Consolidated Members for the
            periods set forth therein. The Latest Projections have been prepared
            on the basis of the assumptions set forth therein, which the Loan
            Parties believe are fair and reasonable in light of current and
            reasonably foreseeable business conditions at the time submitted to
            the Lenders.

            6.7   [Reserved].

            6.8   Solvency.

            Each Loan Party is Solvent prior to and after giving effect to the
Borrowings to be made on the Closing Date and the issuance of the Letters of
Credit to be issued on the Closing Date and shall remain solvent during the term
of this Agreement.


                                       29

            6.9   Debt.

            After giving effect to the making of the Revolving Loans to be made
on the Closing Date, the Loan Parties have no material Debt, except (a) the
Obligations, (b) Debt described on Schedule 6.9., and (c) other Debt as
permitted under Section 7.13.

            6.10  Distributions.

            Since December 31, 2000, no Distribution has been declared, paid, or
made upon or in respect of any Capital Stock of the Borrower.

            6.11  Real Estate; Leases.

            Schedule 6.11 sets forth, as of the Closing Date, a correct and
complete list of all Real Estate, all leases and subleases of real property held
by each Loan Party as lessee or sublessee, and all leases and subleases of real
property held by each Loan Party as lessor, or sublessor in excess of $100,000.
Each of such leases and subleases is valid and enforceable in accordance with
its terms and is in full force and effect, and no default by any party to any
such lease or sublease exists. Each Loan Party has good and marketable title in
fee simple to the Real Estate identified on Schedule 6.11 as owned by such Loan
Party, or valid leasehold interests in all Real Estate designated therein as
"leased" by such Loan Party and each Loan Party has good, indefeasible, and
merchantable title to all of its other property reflected on the December 31,
2000 Financial Statements delivered to Agent and the Lenders, except as disposed
of in the ordinary course of business since the date thereof, free of all Liens
except Permitted Liens.

            6.12  Proprietary Rights.

            Schedule 6.12 sets forth a correct and complete list of all of each
Loan Party's material Proprietary Rights. None of the material Proprietary
Rights is subject to any licensing agreement or similar arrangement except as
set forth on Schedule 6.12. To the knowledge of each Loan Party, none of the
Proprietary Rights infringes on or conflicts with any other Person's property,
and no other Person's property infringes on or conflicts with the Proprietary
Rights. The Proprietary Rights described on Schedule 6.12 constitute all of the
property of such type necessary to the current and anticipated future conduct of
the Loan Parties' business.

            6.13  Trade Names.

            All trade names or styles under which the Loan Parties currently or
currently intend to sell Inventory or create Accounts, or to which Instruments
in payment of Accounts may be made payable, are listed on Schedule 6.13.

            6.14  Litigation.

            Except as set forth on Schedule 6.14, there is no pending, or to the
knowledge of any Loan Party, there is not threatened, action, suit, proceeding,
or counterclaim by any Person, or to the knowledge of any Loan Party,
investigation by any Governmental Authority, or any basis for any of the
foregoing, which could reasonably be expected to have a Material Adverse Effect.


                                       30

            6.15  Labor Disputes.

            Except as set forth on Schedule 6.15, as of the Closing Date (a)
there is no collective bargaining agreement or other labor contract covering
employees of any Loan Party, (b) no such collective bargaining agreement or
other labor contract is scheduled to expire during the term of this Agreement,
(c) to the knowledge of any Loan Party, no union or other labor organization is
seeking to organize, or to be recognized as, a collective bargaining unit of
employees of any Loan Party or for any similar purpose, and (d) there is no
pending or, to the knowledge of any Loan Party, threatened, strike, work
stoppage, material unfair labor practice claim, or other material labor dispute
against or affecting any Loan Party or its employees.

            6.16  Environmental Laws.

            Except as otherwise disclosed on Schedule 6.16:

                  (a)   The Loan Parties have complied in all respects with all
            Environmental Laws except as could not reasonably be expected to
            have a Material Adverse Effect and no Loan Party nor any of its
            presently owned real property or presently conducted operations or
            any property now or previously in its charge, management or control
            (to the extent any Loan Party was the non-complying party in
            connection with any property previously in its charge, management or
            control), nor, to the knowledge of a Loan Party, its previously
            owned real property or prior operations, is subject to any
            enforcement order from or liability agreement with any Governmental
            Authority or private Person respecting (i) compliance with any
            Environmental Law or (ii) any potential liabilities and costs or
            remedial action arising from the Release or threatened Release of a
            Contaminant.

                  (b)   Each Loan Party has obtained all permits necessary for
            its current operations under Environmental Laws, and all such
            permits are in good standing and each Loan Party is in compliance
            with all material terms and conditions of such permits, except where
            the failure to obtain or comply with such permits could not
            reasonably be expected to have a Material Adverse Effect.

                  (c)   No Loan Party, nor, to the knowledge of a Loan Party,
            any of its predecessors in interest, has been or is in violation of
            any applicable law relating to the storage, treatment or disposal of
            any hazardous waste.

                  (d)   No Loan Party has received any summons, complaint, order
            or similar written notice indicating that it is not currently in
            compliance with, or that any Governmental Authority is investigating
            its compliance with, any Environmental Laws or that it is or may be
            liable to any other Person as a result of a Release or threatened
            Release of a Contaminant.

                  (e)   To the knowledge of the Loan Party, none of the present
            or past operations of the Loan Parties is the subject of any
            investigation by any Governmental Authority evaluating whether any
            remedial action is needed to respond to a Release or threatened
            Release of a Contaminant.


                                       31

                  (f)   No Loan Party has filed, within the past 5 years, any
            notice under any requirement of Environmental Law reporting a spill
            or accidental and unpermitted Release or discharge of a Contaminant
            into the environment.

                  (g)   No Loan Party has entered into any negotiations or
            settlement agreements with any Person (including the prior owner of
            its property and any Governmental Authority) imposing material
            obligations or liabilities on any Loan Party with respect to any
            remedial action in response to the Release of a Contaminant or
            environmentally related claim.

                  (h)   None of the products manufactured, distributed or sold
            by a Loan Party contain asbestos containing material.

                  (i)   No Environmental Lien has attached to any of the Real
            Estate.

            6.17  No Violation of Law.

            No Loan Party is in violation of any law, statute, regulation,
ordinance, judgment, order, or decree applicable to it which violation could
reasonably be expected to have a Material Adverse Effect.

            6.18  No Default.

            No Loan Party is in default with respect to any note, indenture,
loan agreement, mortgage, lease, deed, or other agreement to which a Loan Party
is a party or by which it is bound, which default could reasonably be expected
to have a Material Adverse Effect.

            6.19  ERISA Compliance.

            Except as specifically disclosed in Schedule 6.19:

                  (a)   Each Plan is in compliance in all material respects with
            the applicable provisions of ERISA, the Code, the PBA and other
            federal, provincial or state law, except where the lack of such
            compliance could not reasonably be expected to have a Material
            Adverse Effect. Each Plan which is intended to qualify under Section
            401(a) of the Code has received a favorable determination letter
            from the IRS and to the best knowledge of the Loan Parties, nothing
            has occurred which would cause the loss of such qualification. The
            Loan Parties and each ERISA Affiliate has made all required
            contributions to any Plan when due other than any contributions that
            could not reasonably be expected to have a Material Adverse Effect,
            and no application for a funding waiver or an extension of any
            amortization period has been made with respect to any Plan.

                  (b)   There are no pending or, to the best knowledge of the
            Loan Parties, threatened claims, actions or lawsuits, or action by
            any Governmental Authority, with respect to any Plan which has
            resulted or could reasonably be expected to result in a Material
            Adverse Effect. There has been no prohibited transaction or


                                       32

            violation of the fiduciary responsibility rules with respect to any
            Plan which has resulted or could reasonably be expected to result in
            a Material Adverse Effect.

                  (c)   Except as could not reasonably be expected to have a
            Material Adverse Effect: (i) No ERISA Event has occurred or is
            reasonably expected to occur; (ii) no Pension Plan has any Unfunded
            Pension Liability; (iii) neither the Loan Parties nor any ERISA
            Affiliate has incurred, or reasonably expects to incur, any
            liability under Title IV of ERISA with respect to any Pension Plan
            (other than premiums due and not delinquent under Section 4007 of
            ERISA); (iv) neither the Loan Parties nor any ERISA Affiliate has
            incurred, or reasonably expects to incur, any liability (and no
            event has occurred which, with the giving of notice under Section
            4219 of ERISA, would result in such liability) under Section 4201 or
            4243 of ERISA with respect to a Multi-employer Plan; (v) neither the
            Loan Parties nor any ERISA Affiliate has engaged in a transaction
            that could be subject to Section 4069 or 4212(c) of ERISA; and (vi)
            no Lien has arisen, choate or inchoate, in respect of a Loan Party
            or its property in connection with any Plan (save for contributions
            amounts not yet due).

            6.20  Taxes.

            Each Loan Party has filed all federal, provincial, state and other
tax returns and reports required to be filed, and have paid all federal,
provincial, state and other taxes, assessments, fees and other governmental
charges levied or imposed upon them or their properties, income or assets
otherwise due and payable unless (i) such unpaid taxes and assessments would
constitute a Permitted Lien or (ii) such Taxes are being contested in good faith
and there are adequate reserves for such Taxes.

            6.21  Regulated Entities.

            No Consolidated Member nor any Person controlling a Consolidated
Member is an "Investment Company" within the meaning of the Investment Company
Act of 1940. No Consolidated Member is subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act, the Interstate
Commerce Act, any state public utilities code or law, or any other federal or
state statute or regulation limiting its ability to incur indebtedness.

            6.22  Margin Regulations.

            No Consolidated Member is engaged in the business of purchasing or
selling Margin Stock or extending credit for the purpose of purchasing or
carrying Margin Stock.

            6.23  Copyrights, Patents, Trademarks and Licenses, etc.

            Each Loan Party owns or is licensed or otherwise has the right to
use all of the patents, trademarks, service marks, trade names, copyrights,
contractual franchises, licenses, rights of way, authorizations and other rights
that are reasonably necessary for the operation of its businesses, without
conflict with the rights of any other Person. To the knowledge of the Loan
Parties, no slogan or other advertising device, product, process, method,
substance, part or other material now employed by the Consolidated Members
infringes upon any rights held by


                                       33

any other Person which could reasonably be expected to have a Material Adverse
Effect. No claim or litigation regarding any of the foregoing is pending or, to
the knowledge of the Borrower, threatened, and no patent, invention, device,
application, principle or any statute, law, rule, regulation, standard or code
is pending or, to the knowledge of the Loan Parties, proposed, which, in either
case, could reasonably be expected to have a Material Adverse Effect.

            6.24  Material Agreements.

            Schedule 6.24 hereto sets forth as of the Closing Date all Material
Contracts to which any Loan Party is a party or is bound as of the date hereof.

            6.25  Bank Accounts.

            Schedule 6.25 contains as of the Closing Date a complete and
accurate list of all bank accounts maintained by each Loan Party with any bank
or other financial institution.

            6.26  Governmental Authorization.

            No approval, consent, exemption, authorization, or other action by,
or notice to, or filing with, any Governmental Authority or other Person is
necessary or required in connection with the execution, delivery or performance
by, or enforcement against, a Loan Party of this Agreement or any other Loan
Document.

            6.27  Investment Property.

            (a)   Schedule 6.27 sets forth a correct and complete list of all
material Investment Property owned by each Loan Party. Each Loan Party is the
legal and beneficial owner of such Investment Property, as so reflected, free
and clear of any Lien (other than Permitted Liens), and has not sold, granted
any option with respect to, assigned or transferred, or otherwise disposed of
any of its rights or interest therein.

            (b)   To the extent any Loan Party is the owner of or becomes the
issuer of any Investment Property that is Collateral (each such Person which
issues any such Investment Property being referred to herein as an "Issuer"):
(i) the Issuer's shareholders that are Loan Parties and the ownership interest
of each such shareholder are as set forth on Schedule 6.27, and each such
shareholder is the registered owner thereof on the books of the Issuer; (ii) the
Issuer acknowledges the Agent's Lien; (iii) to the extent required to perfect
the Agent's Liens, such security interest, collateral assignment, lien, and
pledge in favor of the Agent has been registered on the books of the Issuer for
such purpose as of the date hereof, and (iv) the Issuer is not aware of any
liens, restrictions, or adverse claims which exist on any such Investment
Property other than the Agent's Lien.

            6.28  No Material Adverse Change.

            No Material Adverse Effect has occurred since December 31, 2000,
except as otherwise disclosed (a) in the Borrower's filings with the Securities
and Exchange Commission under the Exchange Act and (b) to Agent and Lenders in
writing prior to the Closing Date.


                                       34

            6.29  Full Disclosure.

            None of the representations or warranties made by the Loan Party in
the Loan Documents as of the date such representations and warranties are made,
and none of the statements contained in any exhibit, report, statement or
certificate furnished by or on behalf of any Loan Party in connection with the
Loan Documents (including the offering and disclosure materials delivered by or
on behalf of the Loan Parties to the Lenders prior to the Closing Date),
contains any untrue statement of a material fact or omits any material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances under which they are made, not misleading as of
the time when made or delivered.

            6.30  Common Enterprise.

            The successful operation and condition of each of the Loan Parties
is dependent on the continued successful performance of the functions of the
group of Loan Parties as a whole and the successful operation of each Loan Party
is dependent on the successful performance and operation of each of the other
Loan Parties. Each of the Loan Parties expects to derive benefit (and its board
of directors or other governing body has determined that it may reasonably be
expected to derive benefit), directly and indirectly, from successful operations
of each of the other Loan Parties. Each Loan Party expects to derive benefit
(and the boards of directors or other governing body of each such Loan Party
have determined that it may reasonably be expected to derive benefit), directly
and indirectly, from the credit extended by the Lenders to the Loan Parties
hereunder, both in their separate capacities and as members of a group of
companies. Each Loan Party has determined that execution, delivery, and
performance of this Agreement and any other Loan Documents to be executed by
such Loan Party is within its corporate purpose, will be of direct and indirect
benefit to such Loan Party, and is in its best interest.

                                    ARTICLE 7
                       AFFIRMATIVE AND NEGATIVE COVENANTS

            Each Loan Party covenants to Agent and each Lender that so long as
any of the Obligations remain outstanding or this Agreement is in effect:

            7.1   Taxes and Other Obligations.

            Each Consolidated Member shall (a) file when due (after taking into
account any applicable extensions) all tax returns and other reports which it is
required to file; (b) pay, or provide for the payment, when due, of all taxes,
fees, assessments and other governmental charges against it or upon its
property, income and franchises, make all required withholding and other tax
deposits, and provide to Agent and the Lenders, upon request, satisfactory
evidence of its timely compliance with the foregoing; and (c) pay when due all
Debt owed by it and all valid claims of materialmen, mechanics, carriers,
warehousemen, landlords, processors and other like Persons, and all other
indebtedness owed by it and perform and discharge in a timely manner all other
obligations undertaken by it; provided, however, so long as a Loan Party has
notified Agent in writing, no Consolidated Member need pay any tax, fee,
assessment, or governmental charge (i) it is contesting in good faith by
appropriate proceedings diligently pursued, (ii) as to


                                       35

which a Consolidated Member has established proper reserves as required under
GAAP, and (iii) the nonpayment of which does not result in the imposition of a
Lien (other than a Permitted Lien).

            7.2   Legal Existence and Good Standing.

            Each Consolidated Member shall maintain its legal existence and its
qualification and good standing in all jurisdictions in which the failure to
maintain such existence and qualification or good standing could reasonably be
expected to have a Material Adverse Effect.

            7.3   Compliance with Law and Agreements; Maintenance of Licenses.

            Each Consolidated Member shall comply in all respects with all
Requirements of Law of any Governmental Authority having jurisdiction over it or
its business (including the Federal Fair Labor Standards Act and all
Environmental Laws) except where the failure to comply could not reasonably be
expected to have a Material Adverse Effect. Each Consolidated Member shall
obtain and maintain all licenses, permits, franchises, and governmental
authorizations necessary to own its property and to conduct its business as
conducted on the Closing Date. No Consolidated Member shall modify, amend or
alter its certificate or articles of incorporation, or its limited liability
company operating agreement or limited partnership agreement, as applicable,
other than in a manner which does not adversely affect the rights of the Lenders
or the Agent.

            7.4   Maintenance of Property; Inspection of Property.

                        (a)   Each Consolidated Member shall maintain all of its
            respective property necessary and useful in the conduct of its
            business, in good operating condition and repair in accordance with
            the standard of the Borrower's industry and consistent with the
            Borrower's or Subsidiary's past conduct, ordinary wear and tear
            excepted.

                        (b)   Each Consolidated Member shall permit
            representatives and independent contractors of the Agent or a Lender
            (in the case of the Agent, at the expense of the Borrower not to
            exceed four (4) times per year for quarterly field exams of the
            Collateral within the United States and Canada unless an Event of
            Default has occurred and is continuing, and in the case of any
            Lender, at such Lender's expense) to visit and inspect any of its
            properties, to examine its corporate, financial and operating
            records, and make copies thereof or abstracts therefrom and to
            discuss its affairs, finances and accounts with its directors,
            officers and independent public accountants, at such reasonable
            times during normal business hours and as soon as may be reasonably
            desired, upon reasonable advance notice to such Consolidated Member
            and such visits and inspections shall not interfere materially with
            the business of any such Consolidated Member; provided, however,
            when an Event of Default exists, the Agent or any Lender may do any
            of the foregoing at the expense of the Loan Parties at any time
            during normal business hours and without advance notice.


                                       36

            7.5   Insurance.

                        (a)   Each Loan Party shall maintain with financially
            sound and reputable insurers, and in the manners as are customarily
            insured against by similar business owning such properties similarly
            situated, insurance against loss or damage by fire with extended
            coverage; theft, burglary, pilferage and loss in transit; public
            liability and third party property damage; larceny, embezzlement or
            other criminal liability; business interruption; public liability
            and third party property damage; and such other hazards or of such
            other types as is customary for Persons engaged in the same or
            similar business, as Agent, in its discretion, or acting at the
            direction of the Required Lenders, shall reasonably specify, in
            amounts, and under policies reasonably acceptable to Agent and the
            Required Lenders. Without limiting the foregoing, in the event that
            any Inventory or Equipment is located within an area that has been
            identified by the Director of the Federal Emergency Management
            Agency as a Special Flood Hazard Area ("SFHA"), the Loan Parties
            shall purchase and maintain flood insurance on any such Equipment
            and Inventory located in a SFHA.

                        (b)   Each of the Loan Parties shall cause Agent, for
            the ratable benefit of Agent and the Lenders, to be named as secured
            party or mortgagee and sole loss payee or additional insured on all
            insurance policies covering Collateral, in a manner reasonably
            acceptable to Agent. Each policy of insurance shall contain a clause
            or endorsement requiring the insurer to give not less than thirty
            (30) days' prior written notice to Agent in the event of
            cancellation of the policy for any reason whatsoever and a clause or
            endorsement stating that the interest of Agent shall not be impaired
            or invalidated by any act or neglect of the insured Person or the
            owner of any premises for purposes more hazardous than are permitted
            by such policy. All premiums for such insurance shall be paid by the
            Borrower when due, and certificates of insurance and, if requested
            by Agent or any Lender, photocopies of the policies, shall be
            delivered to Agent, in each case in sufficient quantity for
            distribution by the Agent to each of the Lenders. If any Loan Party
            fails to procure such insurance or to pay the premiums therefor when
            due, the Agent may, and at the direction of the Required Lenders
            shall, do so from the proceeds of Revolving Loans.

            7.6   Insurance and Condemnation Proceeds.

            Each Loan Party shall promptly upon becoming aware, notify Agent and
the Lenders of any material loss, damage, or destruction to the Collateral,
whether or not covered by insurance. Agent is hereby authorized to collect all
insurance and condemnation proceeds in respect of Collateral directly and to
apply or remit them as follows:

                        (i)   With respect to insurance and condemnation
            proceeds relating to Collateral other than Fixed Assets, after
            deducting from such proceeds the reasonable expenses, if any,
            incurred by the Agent in the collection or handling thereof, the
            Agent shall apply such proceeds, ratably, to the reduction of the
            Obligations in the order provided for in Section 3.9.


                                       37

                        (ii)  With respect to insurance and condemnation
            proceeds relating to Collateral consisting of Fixed Assets, the
            Agent shall permit or require affected Loan Party to use such
            proceeds, or any part thereof, to replace, repair, restore or
            rebuild the relevant Fixed Assets in a diligent and expeditious
            manner with materials and workmanship of substantially the same
            quality as existed before the loss, damage or destruction so long as
            (1) no Default or Event of Default has occurred and is continuing,
            (2) the aggregate proceeds do not exceed $500,000 and (3) such Loan
            Party first, for such repairs using insurance and condemnation
            proceeds in excess of $100,000 (i) provides Agent and the Required
            Lenders with plans and specifications for any such repair or
            restoration which shall be reasonably satisfactory to Agent and the
            Required Lenders and (ii) demonstrates to the reasonable
            satisfaction of Agent and the Required Lenders that the funds
            available to it will be sufficient to complete such project in the
            manner provided therein. In all other circumstances, the Agent shall
            apply such insurance and condemnation proceeds, ratably, to the
            reduction of the Obligations in the order provided for in Section
            3.9.

            7.7   Environmental Laws.

                        (a)   Each Loan Party shall conduct, and shall cause
            each other Consolidated Member to conduct, its business in
            compliance with all Environmental Laws applicable to it, including
            those relating to the generation, handling, use, storage, and
            disposal of any Contaminant, except where the failure to so comply
            could not reasonably be expected to have a Material Adverse Effect.
            Each Loan Party shall take, and shall cause each other Consolidated
            Member to take, prompt and appropriate action to respond to any
            non-compliance with Environmental Laws and shall regularly report to
            the Agent on such response.

                        (b)   Without limiting the generality of the foregoing,
            each Loan Party shall submit to the Agent and the Lenders annually,
            commencing on the first Anniversary Date, and on each Anniversary
            Date thereafter, an update of the status of each material
            environmental compliance or liability issue, if any, concerning any
            Consolidated Member or any of their respective properties or
            operations (whether past or present). Agent or any Lender may
            request, in which case the Loan Parties will promptly furnish or
            cause to be furnished to Agent, copies of technical reports prepared
            by the Borrower and its communications with any Governmental
            Authority to determine whether the Borrower or any of its
            Subsidiaries is proceeding reasonably to correct, cure or contest in
            good faith any such alleged non-compliance or environmental
            liability. Where a material non-compliance or alleged non-compliance
            by a Governmental Authority with Environmental Laws has occurred,
            the Loan Parties shall, at Agent's or the Required Lenders' request
            and at the Loan Parties' expense, (i) retain an independent
            environmental engineer acceptable to Agent to evaluate the site,
            including tests if appropriate, and prepare and deliver to Agent, in
            sufficient quantity for distribution by Agent to the Lenders, a
            report setting forth the results of such evaluation, a proposed plan
            for responding to any environmental problems described therein, and
            an estimate of the costs thereof, and (ii) provide to Agent


                                       38

            and the Lenders a supplemental report of such engineer whenever the
            scope of the environmental problems, or the response thereto or the
            estimated costs thereof, shall increase in any material respect.

                        (c)   The Agent and its representatives will have the
            right at any reasonable time (accompanied by a representative of the
            Borrower) to enter and visit the Real Estate and any other place
            where any property of any Consolidated Member is located for the
            purposes of observing the Real Estate, taking and removing soil or
            groundwater samples, and conducting tests on any part of the Real
            Estate. The Agent is under no duty, however, to visit or observe the
            Real Estate or to conduct tests, and any such acts by the Agent will
            be solely for the purposes of protecting the Agent's Liens and
            preserving the Agent and the Lenders' rights under the Loan
            Documents. No site visit, observation or testing by the Agent and
            the Lenders will result in a waiver of any Default or Event of
            Default or impose any liability on the Agent or the Lenders. In no
            event will any site visit, observation or testing by the Agent be a
            representation that hazardous substances are or are not present in,
            on or under the Real Estate, or that there has been or will be
            compliance with any Environmental Law. No Consolidated Member nor
            any other party is entitled to rely on any site visit, observation
            or testing by the Agent. The Agent and the Lenders owe no duty of
            care to protect the Consolidated Members or any other party against,
            or to inform any Consolidated Member or any other party of, any
            hazardous substances or any other adverse condition affecting the
            Real Estate. The Agent may in its discretion disclose to a
            Consolidated Member or to any other party if so required by law any
            report or findings made as a result of, or in connection with, any
            site visit, observation or testing by the Agent. The Loan Parties
            understand and agree that the Agent makes no warranty or
            representation to the Consolidated Members or any other party
            regarding the truth, accuracy or completeness of any such report or
            findings that may be disclosed. The Loan Parties also understands
            that depending on the results of any site visit, observation or
            testing by the Agent and disclosed to any Consolidated Member, a
            Consolidated Member may have a legal obligation to notify one or
            more environmental agencies of the results, that such reporting
            requirements are site-specific, and are to be evaluated by the
            Consolidated Members without advice or assistance from the Agent. In
            each instance, the Agent will give the Borrower reasonable notice
            before entering the Real Estate or any other place the Agent is
            permitted to enter under this Section 7.7(c). The Agent will make
            reasonable efforts to avoid interfering with any Consolidated
            Member's use of the Real Estate or any other property in exercising
            any rights provided hereunder.

            7.8   Compliance with ERISA.

            Except as could not reasonably be expected to have a Material
Adverse Effect, the Loan Party shall, and shall cause each of its ERISA
Affiliates to: (a) maintain each Plan in compliance in all material respects
with the applicable provisions of ERISA, the Code, the PBA and other federal,
provincial or state law; (b) cause each Plan which is qualified under Section
401 (a) of the Code to maintain such qualification; (c) make all required
contributions to any


                                       39

Plan subject to Section 412 of the Code; (d) not engage in a prohibited
transaction or violation of the fiduciary responsibility rules with respect to
any Plan; (e) not engage in a transaction that could be subject to Section 4069
or 4212(c) of ERISA and (f) not permit any Lien, choate or inchoate, to arise or
exist in connection with any Plan (save for contribution amounts not yet due).

            7.9   Mergers, Consolidations or Sales.

            No Loan Party shall enter into any transaction of merger,
reorganization, or consolidation, or transfer, sell, assign, lease as lessor, or
otherwise dispose of all or any part of its property, or wind up, liquidate or
dissolve, or agree to do any of the foregoing, except (a) for sales of Inventory
in the ordinary course of its business, (b) dispositions of Equipment which (i)
is replaced with Equipment of like kind, function and value, provided the
replacement Equipment shall be acquired prior to or substantially
contemporaneously with any disposition of the Equipment that is to be replaced,
and the replacement Equipment shall be free and clear of Liens other than
Permitted Liens or (ii) are in the ordinary course of its business that is
obsolete or no longer useable by the Borrower in its business with an orderly
liquidation value not to exceed $500,000 in any Fiscal Year (c) dispositions of
accounts receivable pursuant to any Approved Receivables Program or (d) pursuant
to the Headquarters Financing Transaction; provided, however, that (i) any
Guarantor may merge or transfer all or any part of its assets into or
consolidate with a Loan Party, in each case, provided the requirements of the
Security Agreement are complied with as of the effective date of the
consummation of such merger, (ii) any Guarantor may merge into another Person
that is not a Subsidiary prior to such merger whereby such other Person is the
surviving corporation provided the requirements of the Security Agreement and
Section 7.24 hereof are complied with and such other Person becomes a Subsidiary
as of the effective date of the consummation of such merger and that such merger
would be a Permitted Acquisition but for the Subsidiary not being the surviving
corporation, and (iii) the Loan Parties may make a Permitted Acquisition.
Notwithstanding the foregoing or any other provision of this Agreement, as long
as no Default or Event of Default exists or would result therefrom and provided
the Borrower gives the Agent and the Lenders prior written notice: (x) a Loan
Party, other than the Borrower, may wind-up, dissolve, or liquidate if (i) its
property is transferred to the Borrower or another Loan Party and (ii) the
Person acquiring such property complies with its obligations under Section 3.4
and Section 7.31 simultaneously with such acquisition; and (y) a Loan Party,
other than the Borrower, may merge or consolidate with the Borrower or another
Loan Party (provided the Borrower or such other Loan Party is the survivor of
any such merger or consolidation to which it is a party).

            7.10  Distributions; Capital Change; Restricted Investments.

            No Loan Party shall (i) directly or indirectly declare or make, or
incur any liability to make, any Distribution, except Distributions by a Loan
Party to another Loan Party, (ii) make any change in its capital structure which
could have a Material Adverse Effect or (iii) make any Restricted Investment.

            7.11  Reserved.


                                       40

            7.12  Third Party Guaranties.

            No Loan Party shall make, issue, or become liable on any Guaranty,
except (a) Guaranties of the Obligations in favor of the Agent, or (b) unsecured
Guaranties of Debt incurred by a Foreign Subsidiary in an aggregate principal
amount at any time outstanding not to exceed $40,000,000.

            7.13  Debt.

            No Loan Party shall incur or maintain any Debt, other than: (a) the
Obligations; (b) Debt described on Schedule 6.9; (c) Capital Leases of Equipment
and purchase money secured Debt incurred to purchase Equipment provided that (i)
Liens securing the same attach only to the Equipment acquired by the incurrence
of such Debt, and (ii) the aggregate amount of such Debt (including Capital
Leases) outstanding does not exceed $5,000,000 at any time; (d) Debt consisting
of intercompany loans and advances made between the Loan Parties to the extent
consistent with Section 7.29; (e) Debt evidencing a refunding, renewal or
extension of the Debt described on Schedule 6.9; provided that (i) the principal
amount thereof is not increased, (ii) the Liens, if any, securing such refunded,
renewed or extended Debt do not attach to any assets in addition to those
assets, if any, securing the Debt to be refunded, renewed or extended, (iii) no
Person that is not an obligor or guarantor of such Debt as of the Closing Date
shall become an obligor or guarantor thereof, and (iv) the terms of such
refunding, renewal or extension are not materially less favorable to such
Consolidated Member, the Agent or the Lenders than the original Debt; (f) Debt
in respect of Hedge Agreements entered into for non-speculative purposes related
to hedging interest rates, currency values and commodities in connection with
the Core Business; (g) the endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business; (h) Debt
arising by reason of Guaranties by a Loan Party permitted under Section 7.12(b);
(i) Debt incurred with respect to the Headquarters Financing Transaction, such
Debt not to exceed 80% of the value of the Headquarters; (j) Approved
Receivables Programs to the extent approved by the Required Lenders; and (j)
other unsecured Debt in an aggregate principal amount at any time outstanding
not to exceed $1,000,000.

            7.14  Prepayment.

            No Loan Party voluntarily shall prepay any Debt, except (a) the
Obligations in accordance with the terms of this Agreement, (b) in connection
with the Refinancing and (c) Debt evidenced by the Senior Subordinated Debt
Offering Documents in an aggregate amount not to exceed $15,000,000 during any
Fiscal Year, if and only if, (i) no Event of Default then exists or would exist
after giving effect to any such prepayment and (ii) for 30 consecutive days
prior to and immediately after such prepayment Availability is not less than
$35,000,000.

            7.15  Transactions with Affiliates.

            Except as permitted under Section 7.9, Section 7.10, Section 7.12 or
Section 7.13 and except as set forth below, no Loan Party shall sell, transfer,
distribute, or pay any money or property, including, but not limited to, any
fees or expenses of any nature (including, but not limited to, any fees or
expenses for management services), to any Affiliate that is not a Loan


                                       41

Party, or lend or advance money or property to any Affiliate that is not a Loan
Party, or invest in (by capital contribution or otherwise) or purchase or
repurchase any Capital Stock or indebtedness, or any property, of any Affiliate
that is not a Loan Party, or become liable on any Guaranty of the indebtedness,
dividends, or other obligations of any Affiliate that is not a Loan Party.
Notwithstanding the foregoing, if no Default or Event of Default is in existence
or would result therefrom, any Consolidated Member may engage in transactions
with an Affiliate in the ordinary course of such Consolidated Member's business
consistent with past practices and upon terms no less favorable to such
Consolidated Member than would be obtained in a comparable arm's-length
transaction with a third party who is not an Affiliate.

            7.16  [Reserved]

            7.17  [Reserved]

            7.18  Loan Party Guaranties.

            Each Loan Party other than the Borrower shall guarantee payment and
performance of the Obligations pursuant to a Guaranty Agreement (including,
without limitation, the Applica Canada Guaranty) in form and substance
satisfactory to the Agent, duly executed by each such Loan Party.

            7.19  [Reserved].

            7.20  Investment Banking and Finder's Fees.

            No Consolidated Member shall pay or agree to pay, or reimburse any
other party with respect to, any investment banking or similar or related fee,
underwriter's fee, finder's fee, or broker's fee to any Person in connection
with this Agreement. The Loan Parties shall defend and indemnify the Agent and
the Lenders and their affiliates against and hold them harmless from all claims
of any Person that a Consolidated Member is obligated to pay for any such fees,
and all costs and expenses (including attorneys' fees) incurred by the Agent
and/or any Lender and their affiliates in connection therewith.

            7.21  Business Conducted.

            The Consolidated Members shall not and shall not permit any of its
Subsidiaries to, engage directly or indirectly, in any line of business other
than the Core Business or those businesses that reasonably and rationally
develop from such Core Business from time to time.

            7.22  Liens.

            No Loan Party shall create, incur, assume, or permit to exist any
Lien on any property now owned or hereafter acquired by any of them, except (a)
Permitted Liens, (b) Liens securing Capital Leases and purchase money Debt
permitted in Section 7.13 and (c) any Lien incurred with respect to the
Headquarters Financing Transaction, such Lien not to attach to any Collateral or
to exceed 80% of the value of the Headquarters.


                                       42

            7.23  Sale and Leaseback Transactions.

            No Loan Party shall, directly or indirectly, enter into any
arrangement with any Person providing for a Loan Party to lease or rent property
that a Loan Party has sold or will sell or otherwise transfer to such Person,
except with respect to the Headquarters Financing Transaction.

            7.24  New Subsidiaries.

            The Loan Parties shall not, directly or indirectly, organize,
create, acquire, or permit to exist any Subsidiary except as permitted by this
Section 7.24. The Loan Parties shall (a) in the event of the acquisition or
creation of any Subsidiary (a "New Subsidiary") cause to be delivered to Agent
for the benefit of the Lenders a Pledge Agreement with respect to the Capital
Stock of such New Subsidiary substantially in the form of the Pledge Agreement
executed and delivered to Agent on the Closing Date within thirty (30) Business
Days of the acquisition or creation of a Subsidiary; provided, however, that if
such New Subsidiary is a Foreign Subsidiary, such pledge of Capital Stock shall
be limited to 65% of the outstanding voting stock of such New Subsidiary and
shall only be required if it is a Direct Foreign Subsidiary; (b) in the event of
the acquisition or creation of any Domestic Subsidiary, cause to be delivered to
the Agent for the benefit of the Lenders each of the following, in each case to
be duly executed and delivered by such Subsidiary within thirty (30) Business
Days of the acquisition or creation of such Subsidiary: (i) a Subsidiary
Guaranty; (ii) a security agreement in substantially the form of the Security
Agreement; (iii) if such Subsidiary has any material leased locations, a
Collateral Access Agreement with respect thereto; and (iv) if such Subsidiary
owns any real property, a Mortgage executed by such Subsidiary in form and
substance acceptable to the Agent; and (c) in the event of the acquisition or
creation of any Subsidiary subject to the provisions of clauses (a) or (b)
above, cause to be delivered to Agent for the benefit of the Lenders each of the
following within the time periods indicated therein: (i) an opinion of counsel
to such Subsidiary dated as of the date of the delivery of the other documents
required to be delivered pursuant to this Section 7.24 and addressed to Agent
and the Lenders, in form and substance identical to the opinion of counsel
delivered pursuant to Section 8.1(a)(xviii) hereof on the Closing Date with
respect to any Guarantor; and (ii) current certified copies of the
Organizational Documents and Operating Documents of such Subsidiary, minutes of
duly called and conducted meetings (or duly effected consent actions) of the
Board of Directors, or appropriate committees thereof (and, if required by such
Organizational Documents or Operating Documents or by applicable laws, of the
shareholders), of such Subsidiary authorizing it to enter into the agreements
required under this Section 7.24 and evidence satisfactory to Agent
(confirmation of the receipt of which will be provided by Agent to the Lenders)
that such Subsidiary is Solvent as of such date after giving effect to such
Guaranty, Security Agreement and Pledge Agreement.

            7.25  Fiscal Year.

            The Borrower shall not change and shall not permit the Loan Parties
to change its Fiscal Year.


                                       43

            7.26  Capital Expenditures.

            The Loan Parties shall not make or incur any Capital Expenditures
if, after giving effect thereto, the aggregate amount of all Capital
Expenditures by the Loan Parties on a consolidated basis would exceed
$30,000,000 during any Fiscal Year. Seventy-five percent (75%) of the amount by
which Capital Expenditures made in any Fiscal Year are less than $30,000,000 may
be carried over by the Loan Parties only to the next Fiscal Year; provided,
however, that any amounts so carried over shall be deemed used by the Loan
Parties only after all sums otherwise permitted for Capital Expenditures in such
next Fiscal Year have been utilized.

            7.27  Minimum EBITDA.

            If the Loan Parties fail to maintain Availability of at least
$30,000,000 on any date on or after January 1, 2002 (any date on or after
January 1, 2002 on which the Loan Parties fail to maintain such Availability
being hereinafter referred to as the "Trigger Date"), then as of the last day of
the fiscal quarter in which the Trigger Date occurs, the Loan Parties shall not
permit Consolidated EBITDA or North American EBITDA to be less than the amounts
set forth below for the test period applicable for the fiscal quarter in which
such Trigger Date occurs:



            Period             Minimum Consolidated      Minimum North American
                                      EBITDA                    EBITDA
                                                   
Fiscal Quarter ending               $6,500,000                $5000
March 31, 2002

Two (2) Fiscal Quarters             $17,000,000               $2,500,000
ending June 30, 2002

Three (3) Fiscal Quarters           $33,500,000               $4,000,000
ending September 30, 2002

The Applicable Period               $55,000,000               $6,500,000
ending December 31, 2002
and as of the last day of
each Fiscal Quarter

thereafter, in each case
for the Applicable Period
then ending


            If the Loan Parties maintain Availability of at least $30,000,000 on
each day during any fiscal quarter, the Loan Parties shall not be required to
satisfy the foregoing Consolidated EBITDA and North American EBITDA requirements
as of the last day of such fiscal quarter.

            7.28  Minimum Availability.

            The Loan Parties shall maintain Availability of not less than (a)
$20,000,000 at all times


                                       44

after the Closing Date through and including January 1, 2002, and (b)
$10,000,000 at all times thereafter during the term of this Agreement.

            7.29  Use of Proceeds.

            The Loan proceeds shall be used by the Borrower solely for one or
more of the following purposes: (i) to satisfy in full and terminate any and all
obligations of the Borrower and its respective Subsidiaries (including the
termination of any Liens granted under the Original Credit Agreement) under the
Original Credit Agreement (the "Refinancing"), (ii) to satisfy reimbursement
Debt in respect of Letters of Credit and (iii) to finance the ongoing working
capital and other general corporate purposes of the Borrower, Applica Consumer
Products to the extent of the Applica Consumer Products Formula Amount at any
date, and Applica Canada to the extent of the Applica Canada Formula Amount at
any date. The financing of the ongoing working capital and other general
corporate purposes of Loan Parties other than the Borrower, Applica Consumer
Products and Applica Canada shall be provided solely by Applica Consumer
Products to the extent expressly permitted under the terms of this Agreement. In
no event shall any portion of the Loan proceeds be used by a Loan Party or any
Subsidiary, directly or indirectly, to purchase or carry Margin Stock, to repay
or otherwise refinance indebtedness of a Loan Party or others incurred to
purchase or carry Margin Stock, to extend credit for the purpose of purchasing
or carrying any Margin Stock, or to acquire any security in any transaction that
is subject to Section 13 or 14 of the Exchange Act, other than a Permitted
Acquisition.

            7.30  Changes to Senior Subordinated Debt Offering Documents.

            The Loan Parties shall not modify or amend the terms of the Senior
Subordinated Debt Offering Documents if the effect of such amendment is to: (a)
increase the maximum principal amount of the Debt thereunder or the interest
rate payable in respect thereof; (b) change the dates upon which payments of
principal or interest are due under the Senior Subordinated Debt Offering
Documents; (c) modify any event of default or add any covenant with respect to
such Debt; (d) modify the payment, redemption or prepayment provisions of such
Debt; (e) modify the subordination provisions under the Senior Subordinated Debt
Offering Documents; or (f) modify any other term of the Senior Subordinated Debt
Offering Documents if such modification would materially increase the
obligations of any obligor thereunder or confer additional material rights to
the holder of such Debt in a manner adverse to the Loan Parties, the Borrower,
or any of the other Consolidated Members, Agent or any Lender.

            7.31  Closure of Bank Accounts; Blocked Account Agreement; AmEx
      Termination.

            No later than thirty (30) days after Closing Date, the Loan Parties
shall close (a) the Standalone Bank Account (Applica Consumer Products, Inc.)
Account Number 36407011679 with JP Morgan Chase, (b) the Standalone Bank Account
(HP Americas, Inc.) Account Number 101210 with Citibank, and (c) the Standalone
Bank Account (Applica Canada Corporation) Account Number 115-023-4 with Royal
Bank of Canada. On or before January 15, 2002, (y) Applica Canada shall have
obtained an Applica Canada Blocked Account Agreement from Scotia Bank in respect
of the Lockbox and Disbursement Account Number 228220032611


                                       45

and an authenticated account control agreement in respect of Standalone Bank
Account (Applica Canada Corporation) Account Number 228220140414 and (z)
terminations of all UCC financing statements filed against the Borrower in favor
of American Express Business Finance Corporation.

            7.32  Intercompany Security Interest.

            At any time that Applica Consumer Products shall have a Tangible Net
Worth of less than $250,000,000, upon Agent's request the Loan Parties shall
enter into security agreements pursuant to which each Loan Party other than the
Borrower shall grant to the Borrower a security interest in the Collateral to
secure all Intercompany Accounts owing by them from time to time to the Borrower
and the Borrower shall collaterally assign such security interest to the Agent
for the benefit of the Lenders as additional security for the Obligations.

            7.33  Applica Canada Blocked Account.

            For so long as no Event of Default has occurred and is continuing,
the Borrower shall cause to be transferred to it no less frequently than weekly
all cash balances contained in the Applica Canada Blocked Account for
application to the Payment Account pursuant to Section 3.7.; provided, however,
that for so long as no Event of Default exists, Applica Canada may retain from
such cash balances solely for working capital purposes related to its Core
Business in Canada an aggregate amount not to exceed $(Cdn)3,500,000 during any
month. Any sums so retained by Applica Canada shall be reflected in each
Borrowing Base for any applicable period and to Applica Canada's general ledger.
After the occurrence of an Event of Default, upon written notice from the Agent
to any bank maintaining the Applica Canada Blocked Account and to the Borrower,
Applica Canada shall not be entitled to retain any such balances and the Agent
shall have the sole and exclusive right to withdraw funds from time to time in
the Applica Canada Blocked Account and all amounts so collected by the Agent
shall be applied to the Payment Account in accordance with Section 3.7.

            7.34  Further Assurances.

            The Loan Parties shall execute and deliver, or cause to be executed
and delivered, to the Agent such documents and agreements, and shall take or
cause to be taken such actions as the Agent may, from time to time, reasonably
request to carry out the terms and conditions of this Agreement and the other
Loan Documents.

                                    ARTICLE 8
                              CONDITIONS OF LENDING

            8.1   Conditions Precedent to Making of Loans on the Closing Date.

            The obligation of the Lenders to make the initial Loans on the
Closing Date, and the obligation of the Agent to cause the Letter of Credit
Issuer to issue any Letter of Credit or Credit Support on the Closing Date, are
subject to the following conditions precedent having


                                       46

been satisfied in a manner satisfactory to the Agent and each Lender:

            (a)   The Agent shall have received each of the following documents,
      all of which shall be satisfactory in form and substance to the Agent and
      the Lenders:

                  (i)      certified copies of the certificate of incorporation,
            certificate of the organizational document of each of the Loan
            Parties, with all amendments, if any, certified by the appropriate
            Governmental Authority (provided that upon request by any Loan Party
            and with the consent of the Agent, any such certified certificate of
            incorporation, certificate of limited partnership, or comparable
            organizational document for such Loan Party to the extent not
            provided on the Closing Date, may be provided within thirty (30)
            days of the Closing Date, provided that an uncertified copy thereof
            has been delivered to the Agent together with a written statement by
            a Responsible Officer confirming that such copy is true, correct,
            and complete), and the bylaws, regulations, operating agreement, or
            similar governing document of each Loan Party, in each case
            certified by the corporate secretary, general partner, or comparable
            authorized representative of such Loan Party, as being true and
            correct and in effect on the Closing Date;

                  (ii)     certificates of incumbency and specimen signatures
            with respect to each Person authorized to execute and deliver this
            Agreement and the other Loan Documents on behalf of each Loan Party
            and each other Person executing any document, certificate, or
            instrument to be delivered in connection with this Agreement and the
            other Loan Documents and, in the case of the Borrower, to request
            Borrowings and the issuance of Letters of Credit or Credit Support;

                  (iii)    a certificate evidencing the existence of each Loan
            Party, and certificates evidencing the good standing of each Loan
            Party in the jurisdiction of its organization and in each other
            jurisdiction in which it is required to be qualified as a foreign
            business entity to transact its business as presently conducted,
            provided that upon request by any Loan Party and with the consent of
            the Agent, certificates of good standing for any Loan Party from a
            Governmental Authority other than the jurisdiction of its
            organization and chief executive office, to the extent not provided
            on the Closing Date, may be provided within thirty (30) days of the
            Closing Date;

                  (iv)     this Agreement and the other Loan Documents duly
            executed and delivered by each Loan Party that is a party thereto;

                  (v)      certified copies of all action taken by each Loan
            Party to authorize the execution, delivery, and performance of this
            Agreement, the other Loan Documents, and with respect to the
            Borrower, the Borrowings and the issuance of Letters of Credit
            and/or Credit Support;

                  (vi)     a certificate of each Loan Party signed by a
            Responsible Officer:

                           (A)      stating that all of the representations and
                  warranties made


                                       47

                  or deemed to be made under this Agreement are true and correct
                  as of the Closing Date, after giving effect to the Loans to be
                  made at such time and the application of the proceeds thereof
                  and the issuance of any Letter(s) of Credit and/or Credit
                  Support at such time,

                           (B)      stating that no Default or Event of Default
                  exists,

                           (C)      specifying the account of the Borrower which
                  is a Designated Account, and

                           (D)      certifying as to such other factual matters
                  as may be reasonably requested by the Agent;

                  (vii)    with respect to any Letter of Credit or Credit
            Support to be issued, all documentation required by Section 1.4,
            duly executed and delivered by each Loan Party, complying with the
            requirements of such Section;

                  (viii)   (A) UCC or PPSA financing statements and/or
            amendments to existing UCC or PPSA financing statements with respect
            to all Collateral as may be requested by the Agent (and in all
            events in each state of incorporation of an Obligated Party), duly
            executed by the respective Loan Parties, to the extent any such
            Liens may be perfected under the UCC or PPSA and (B) with respect to
            any Loan Party located in, or organized under the laws of, Canada
            and all filings and recordations required by Requirements of Law of
            Canada (including without limitation under the PPSA and RDPRM),
            respectively, as the case may be, in all jurisdictions that the
            Agent may deem necessary or desirable in order to perfect the
            Agent's Lien in all the Collateral, including without limitation,
            Accounts and Deposit Accounts of such Loan Party;

                  (ix)     (A) duly executed UCC-3 termination statements or
            assignments with respect to the UCC and such other releases or
            instruments, in each case in form and substance satisfactory to the
            Agent, as in each case shall be necessary to terminate and satisfy
            all Liens, except Permitted Liens, on the property of the Loan
            Parties, to the extent the Agent's Liens therein may be perfected
            under the UCC and (B) releases, terminations or other instruments
            under the Requirements of Law of Canada (including without
            limitation under the PPSA and other applicable law), and such other
            releases or instruments, in each case in form and substance
            satisfactory to the Agent, in each case as shall be necessary to
            terminate and satisfy all Liens, except Permitted Liens, on all the
            Collateral, including without limitation, the Accounts and Deposit
            Accounts of any Loan Party;

                  (x)      as may be required by the Agent in its discretion,
            notifications of security interests, in patents, trademarks and
            copyrights under the Security Agreement, as applicable, with respect
            to any and all Proprietary Rights, if any, owned by any Loan Party
            which must be registered with any Governmental Authority to perfect
            the Agent's Liens in such Proprietary Rights, duly executed


                                       48

            by each such Consolidated Member, as applicable;

                  (xi)     each Guaranty Agreement (including the Applica Canada
            Guarantee), duly executed and delivered by each Person required
            pursuant to Section 7.18;

                  (xii)    (A) stock certificates and stock powers (duly
            executed in blank) for all Capital Stock (to the extent
            certificated) owned by a Loan Party in any Loan Party, in form and
            substance satisfactory to the Agent and (B) as may be required by
            the Agent in its discretion, "control" agreements (pursuant to the
            UCC), each duly executed, as the Agent may request with respect to
            any other Investment Property listed in Schedule 6.27;

                  (xiii)   a Borrowing Base Certificate effective as of the
            Business Day preceding the day such initial Loans are to be funded
            or any such Letter of Credit or Credit Support is to be issued;

                  (xiv)    as requested by the Agent in its discretion, a
            landlord's or mortgagee's waiver and consent agreement, in form and
            substance reasonably acceptable to the Agent, duly executed on
            behalf of each landlord or mortgagee, as the case may be, of Real
            Estate on which any Collateral is located provided, that the Agent
            may, in its discretion, establish, without duplication, a reserve in
            an amount equal to three (3) months rent with respect to the
            Collateral located on any Real Estate for which the Agent has not
            received an acceptable waiver and consent agreement);

                  (xv)     Each Blocked Account Agreement (including each
            Applica Canada Blocked Account Agreement) duly executed as required
            by the Security Agreement;

                  (xvi)    the Applica Canada Security Agreement duly executed
            and delivered by Applica Canada;

                  (xvii)   (A) the Agent shall have received satisfactory
            evidence that the Agent has a valid, exclusive (other than Permitted
            Liens), and perfected first priority security interest, lien,
            collateral assignment, and pledge as of such date in all Collateral
            as security for all Obligations, to the extent any such Liens may be
            perfected under the UCC (excluding any Liens on vehicles for which a
            certificate of title has been issued and Liens perfected solely by
            possession, but only to the extent the Agent has not requested
            perfection of its Liens in such vehicles or possession of such
            Collateral) and (B) with respect to any Loan Party located in, or
            organized under the laws of Canada, the Agent shall have received
            satisfactory evidence that the Agent has a valid, exclusive (other
            than Permitted Liens), and perfected first priority Lien in all
            personal Property of any such Loan Party, to the extent any such
            Liens may be perfected under the Requirements of Law of Canada
            including without limitation under the PPSA and other applicable law


                                       49

            respectively, as the case may be, in each case in form and substance
            satisfactory to the Agent; provided further, that upon the Agent's
            request, the Loan Parties shall provide any additional agreement,
            document, instrument, certificate, or other item relating to any
            Collateral as may be required for perfection under any Requirement
            of Law;

                  (xviii)  opinions of counsel for the Loan Parties, each such
            opinion to be in a form, scope, and substance reasonably
            satisfactory to the Agent, the Lenders, and their respective
            counsel; and

                  (xix)    such other documents and instruments as the Agent or
            any Lender may reasonably request.

            (b)   After giving effect to the making of all Loans (including any
      Loans made to finance payment or reimbursement for fees, costs, and
      expenses then payable under or pursuant to this Agreement) and issuance of
      all Letters of Credit and Credit Support and with all of their obligations
      current, the Loan Parties shall have remaining Availability in an amount
      not less than $25,000,000 on the Closing Date.

            (c)   All representations and warranties made hereunder and in the
      other Loan Documents shall be true and correct as if made on the Closing
      Date.

            (d)   No Event of Default shall exist or would exist after giving
      effect to the Refinancing, the Loans to be made and the Letters of Credit
      and Credit Support to be issued.

            (e)   Subject to Section 13.7 hereof, the Loan Parties shall have
      paid all fees and expenses of Agent and the Attorney Costs incurred in
      connection with any of the Loan Documents and the transactions
      contemplated thereby to the extent invoiced.

            (f)   Agent shall have received evidence, in form, scope, and
      substance, reasonably satisfactory to the Agent, of all insurance coverage
      as required by this Agreement.

            (g)   All proceedings taken in connection with the execution of this
      Agreement, the other Loan Documents, and all documents and papers relating
      thereto shall be reasonably satisfactory in form, scope, and substance to
      the Agent and the Lenders.

            (h)   Without limiting the generality of the items described above,
      the Loan Parties and each Person guaranteeing or securing payment of the
      Obligations shall have delivered or caused to be delivered to the Agent
      (in form and substance reasonably satisfactory to the Agent), the
      financial statements, instruments, resolutions, documents, agreements,
      certificates, opinions and other items required by the Agent.

The acceptance by the Borrower of any Loans made or Letters of Credit or Credit
Support issued on the Closing Date shall be deemed to be a representation and
warranty made by the Loan


                                       50

Parties to the effect that all of the conditions precedent to the making of such
Loans or issuance of such Letters of Credit or Credit Support have been
satisfied, with the same effect as delivery to the Agent and the Lenders of a
certificate signed by a Responsible Officer of the Loan Parties, dated the
Closing Date, to such effect. Execution and delivery to the Agent by a Lender of
a counterpart of this Agreement shall be deemed confirmation by such Lender that
(i) the decision of such Lender to execute and deliver to the Agent an executed
counterpart of this Agreement was made by such Lender independently and without
reliance on the Agent or any other Lender as to the satisfaction of any
condition precedent set forth in this Section 8.1, and (ii) all documents sent
to such Lender for approval, consent, or satisfaction were acceptable to such
Lender.

            8.2   Conditions Precedent to Each Loan.

            The obligation of the Lenders to make each Loan, including the
initial Loans on the Closing Date, and the obligation of the Agent to cause the
Letter of Credit Issuer to issue any Letter of Credit or Credit Support shall be
subject to the further conditions precedent that on and as of the date of any
such extension of credit the following statements shall be true, and the
acceptance by the Borrower of any extension of credit shall be deemed to be a
statement to the effect set forth in clause (a), clause (b), and clause (c)
following with the same effect as the delivery to the Agent and the Lenders of a
certificate signed by a Responsible Officer of the Loan Parties, dated the date
of such extension of credit, stating that:

            (a)   the representations and warranties contained in this Agreement
and the other Loan Documents are correct in all material respects on and as of
the date of such extension of credit as though made on and as of such date,
other than any such representation or warranty which relates to a specified
prior date and except to the extent the Agent and the Lenders have been notified
in writing by the Loan Parties that any representation or warranty is not
correct and the Required Lenders have explicitly waived in writing compliance
with such representation or warranty;

            (b)   No Default or Event of Default has occurred and is continuing,
or would result from such proposed Borrowing; and

            (c)   The proposed Borrowing will not cause the aggregate principal
amount of all outstanding Revolving Loans plus the aggregate amount available
for drawing under all outstanding Letters of Credit and in respect of any Credit
Support, to exceed the Borrowing Base or the combined Commitments of the
Lenders.

Except as provided by Section 11.1(a), no Borrowing or issuance of any Letter of
Credit or Credit Support shall exceed the Availability, provided, however, that
the foregoing conditions precedent are not conditions to the requirement for
each Lender participating in or reimbursing the Bank or the Agent for such
Lenders' Pro Rata Share of any Non-Ratable Loan or Agent Advance made in
accordance with the provisions of Section 1.2(h) and Section 1.2(i).


                                       51

                                    ARTICLE 9
                                DEFAULT; REMEDIES

            9.1   Events of Default.

            It shall constitute an event of default ("Event of Default") if any
one or more of the following shall occur for any reason:

                  (a)   any failure by the Borrower to pay the principal of or
            interest or premium on any of the Obligations or any fee or other
            amount owing hereunder when due, whether upon demand or otherwise;

                  (b)   any representation or warranty made or deemed made by a
            Loan Party in this Agreement or by a Loan Party in any of the other
            Loan Documents, any Financial Statement, or any certificate
            furnished by any Consolidated Member at any time to the Agent or any
            Lender shall prove to be untrue in any material respect as of the
            date on which made, deemed made, or furnished;

                  (c)   (i) any default shall occur in the observance or
            performance of any of the covenants and agreements contained in
            Sections 5.2(l), 7.2, 7.5, 7.9-7.31, or Section 11 of the Security
            Agreement, (ii) any default shall occur in the observance or
            performance of any of the covenants and agreements contained in
            Sections 5.2 (a)-(f) or 5.3 (a)-(j) and such default shall continue
            for five (5) days or more; or (iii) any default shall occur in the
            observance or performance of any of the other covenants or
            agreements contained in any other Section of this Agreement or any
            other Loan Document, any other Loan Documents, or any other
            agreement entered into at any time to which any Loan Party and the
            Agent or any Lender are a party (including in respect of any Bank
            Products) and such default shall continue for twenty (20) days or
            more;

                  (d)   any default which has not been waived shall occur with
            respect to (i) Debt of the Borrower evidenced by or arising under
            the Senior Subordinated Debt Offering Documents or (ii) any Debt
            (other than the Obligations and Debt contemplated by clause (i)
            hereof) of any Loan Party in an outstanding principal amount which
            exceeds $500,000, or under any agreement or instrument under or
            pursuant to which any such Debt may have been issued, created,
            assumed, or guaranteed by any Loan Party, and such default shall
            continue for more than the period of grace, if any, therein
            specified, if the effect thereof (with or without the giving of
            notice or further lapse of time or both) is to accelerate, or to
            permit the holders of any such Debt to accelerate, the maturity of
            any such Debt; or any such Debt shall be declared due and payable or
            be required to be prepaid (other than by a regularly scheduled
            required prepayment) prior to the stated maturity thereof;

                  (e)   any Loan Party shall (i) file a voluntary petition in
            bankruptcy or file a voluntary petition or an answer or file any
            proposal or notice of intent to file a proposal or otherwise
            commence any action or proceeding seeking reorganization,
            arrangement, consolidation or readjustment of its debts or which


                                       52

            seeks to stay or has the effect of staying any creditor or for any
            other relief under the federal Bankruptcy Code, as amended, or under
            any other bankruptcy, insolvency, liquidation, winding up, corporate
            or similar act or law, provincial, state or federal (including
            without limitation, the BIA or the Companies' Creditors Arrangement
            Act (Canada)), now or hereafter existing, or consent to, approve of,
            or acquiesce in, any such petition, proposal, action or proceeding;
            (ii) apply for or acquiesce in the appointment of a receiver,
            assignee, liquidator, sequestrator, custodian, monitor,
            administrator, trustee or similar officer for it or for all or any
            part of its property; (iii) make an assignment for the benefit of
            creditors; or (iv) be unable generally to pay its debts as they
            become due;

                  (f)   an involuntary petition shall be filed or an action or
            proceeding otherwise commenced seeking reorganization, arrangement,
            consolidation or readjustment of the debts of any Loan Party or for
            any other relief under the federal Bankruptcy Code, as amended, or
            under any other bankruptcy, insolvency, liquidation, winding up,
            corporate or similar act or law (including, without limitation, the
            BIA or the Companies' Creditors Arrangement Act (Canada)),
            provincial, state or federal, now or hereafter existing and either
            such petition, proposal or proceeding shall not be dismissed within
            forty-five (45) days after the filing or commencement thereof or an
            order of relief shall be entered with respect thereto;

                  (g)   a receiver, assignee, liquidator, sequestrator,
            custodian, monitor, administrator, trustee or similar officer for
            any Loan Party or for all or any part of its property shall be
            appointed or a warrant of attachment, execution, writ of seizure or
            seizure and sale or similar process shall be issued against any part
            of the property of any Loan Party or any distress or analogous
            process is levied upon all or any part of any Loan Party;

                  (h)   any Loan Party shall file a certificate of dissolution
            or like process under applicable state law or shall be liquidated,
            dissolved or wound-up or shall commence or have commenced against it
            any action or proceeding for dissolution, winding-up or liquidation,
            or shall take any corporate action in furtherance thereof, except as
            permitted under Section 7.9(x);

                  (i)   all or any material part of the property of any Loan
            Party shall be nationalized, expropriated or condemned, seized or
            otherwise appropriated, or custody or control of such property or of
            such Loan Party shall be assumed by any Governmental Authority or
            any court of competent jurisdiction at the instance of any
            Governmental Authority or any other Person, except where contested
            in good faith by proper proceedings diligently pursued where a stay
            of enforcement is in effect;

                  (j)   any Loan Document shall be terminated, revoked or
            declared void or invalid or unenforceable or any material Loan
            Document is challenged by any Loan Party or any Affiliate;


                                       53

                  (k)   one or more judgments, orders, decrees or arbitration
            awards is entered against any Loan Party involving in the aggregate
            liability for all Loan Party (to the extent not covered by
            independent third-party insurance as to which the insurer does not
            dispute coverage) as to any single or related or unrelated series of
            transactions, incidents or conditions, of $1,000,000 or more, and,
            whether or not covered by insurance, the same shall remain
            unsatisfied, unvacated and unstayed pending appeal for a period of
            thirty (30) days after the entry thereof;

                  (l)   payment by a Loan Party under an agreement of Guaranty
            issued by such Loan Party with respect to any Debt of a Foreign
            Subsidiary or a judgment, order, decree or arbitration award is
            entered against a Loan Party with respect to any such agreement of
            Guaranty, in either case in an aggregate amount in excess of
            $10,000,000 during the term of this Agreement;

                  (m)   any loss, theft, damage or destruction of any item or
            items of Collateral or other property of any Loan Party occurs which
            could reasonably be expected to cause a Material Adverse Effect and
            is not adequately covered by insurance;

                  (n)   there is filed against any Loan Party any action, suit
            or proceeding under any federal or state racketeering statute
            (including the Racketeer Influenced and Corrupt Organization Act of
            1970), which action, suit or proceeding (i) is not dismissed within
            one hundred twenty (120) days, and (ii) could reasonably be expected
            to result in the confiscation or forfeiture of any material portion
            of the Collateral;

                  (o)   for any reason other than the failure of the Agent to
            take any action available to it to maintain perfection of the
            Agent's Liens, pursuant to the Loan Documents, any material Loan
            Document ceases to be in full force and effect or any Lien with
            respect to any material portion of the Collateral intended to be
            secured thereby ceases to be, or is not, valid, perfected and prior
            to all other Liens (other than Permitted Liens) or is terminated,
            revoked or declared void;

                  (p)   (i) an ERISA Event shall occur with respect to a Pension
            Plan or Multi-employer Plan which has resulted or could reasonably
            be expected to result in liability of the Loan Parties or any ERISA
            Affiliate under applicable laws in an aggregate amount in excess of
            $500,000; (ii) the aggregate amount of Unfunded Pension Liability
            among all Pension Plans at any time exceeds $500,000; (iii) the Loan
            Parties or any ERISA Affiliate shall fail to pay when due, after the
            expiration of any applicable grace period, any installment payment
            with respect to its withdrawal liability under Section 4201 of ERISA
            under a Multi-employer Plan in an aggregate amount in excess of
            $500,000; or (iv) any Lien (save for contribution amounts not yet
            due) arises in connection with any Plan;

                  (q)   (i) there occurs a Change of Control of the Borrower or
            (ii) any Loan Party or any Foreign Subsidiary ceases to be a
            Wholly-Owned Subsidiary;


                                       54

                  (r)   the Black & Decker License Agreement shall be
            terminated, revoked or declared void or invalid or unenforceable for
            any reason; or

                  (s)   there occurs an event having a Material Adverse Effect.

            9.2   Remedies.

                  (a)   If a Default or an Event of Default exists, the Agent
            may, in its discretion, and shall, at the direction of the Required
            Lenders, do one or more of the following at any time or times and in
            any order, without notice to or demand on the Borrower: (i) reduce
            the Maximum Revolver Amount, or the advance rates against Eligible
            Accounts and/or Eligible Inventory used in computing the Borrowing
            Base, or reduce one or more of the other elements used in computing
            the Borrowing Base; (ii) restrict the amount of or refuse to make
            Revolving Loans; and (iii) restrict or refuse to provide Letters of
            Credit or Credit Support. If an Event of Default exists, the Agent
            shall, at the direction of the Required Lenders, do one or more of
            the following, in addition to the actions described in the preceding
            sentence, at any time or times and in any order, without notice to
            or demand on the Borrower: (A) terminate the Commitments and this
            Agreement; (B) declare any or all Obligations to be immediately due
            and payable; provided, however, that upon the occurrence of any
            Event of Default described in Sections 9.1(e), 9.1(f), 9.1(g), or
            9.1(h), the Commitments shall automatically and immediately expire
            and all Obligations shall automatically become immediately due and
            payable without notice or demand of any kind; (C) require the Loan
            Parties to cash collateralize all outstanding Letter of Credit
            Obligations in an amount not less than 105% of the outstanding face
            amount of such Letter of Credit Obligations and, if the Loan Parties
            fail to make such deposit promptly, the Lenders may (and shall upon
            the direction of the Required Lenders) advance such amount as a
            Revolving Loan (whether or not such loan would be in excess of the
            Borrowing Base). Any such deposit or advance shall be held by the
            Agent as a reserve to fund future payments on any Letter of Credit
            Obligations; and (D) pursue its other rights and remedies under the
            Loan Documents and applicable law.

                  (b)   If an Event of Default has occurred and is continuing:
            the Agent shall have for the benefit of the Lenders, in addition to
            all other rights of the Agent and the Lenders, the rights and
            remedies of a secured party under the Loan Documents, the UCC, the
            PPSA, and other applicable law.

                                   ARTICLE 10
                              TERM AND TERMINATION

            10.1  Term and Termination.

            The term of this Agreement shall end on the Stated Termination Date
unless sooner terminated in accordance with the terms hereof. The Agent upon
direction from the Required Lenders shall terminate this Agreement without
notice upon the occurrence of an Event


                                       55

of Default. Upon the effective date of termination of this Agreement for any
reason whatsoever, all Obligations (including all unpaid principal, accrued and
unpaid interest and any early termination or prepayment fees or penalties) shall
become immediately due and payable and the Loan Parties shall immediately
arrange for the cancellation and return of Letters of Credit then outstanding.
Notwithstanding the termination of this Agreement, until all Obligations are
indefeasibly paid and performed in full in cash, the Loan Parties shall remain
bound by the terms of this Agreement and shall not be relieved of any of their
Obligations hereunder or under any other Loan Document, and the Agent and the
Lenders shall retain all their rights and remedies hereunder (including the
Agent's Liens in and all rights and remedies with respect to all then existing
and after-arising Collateral).

                                   ARTICLE 11
          AMENDMENTS; WAIVERs; PARTICIPATIONS; ASSIGNMENTS; SUCCESSORS

            11.1  Amendments and Waivers.

                  (a)   No amendment or waiver of any provision of this
            Agreement or any other Loan Document, and no consent with respect to
            any departure by the Loan Parties therefrom, shall be effective
            unless the same shall be in writing and signed by the Required
            Lenders (or by the Agent at the written request of the Required
            Lenders) and the Loan Parties and then any such waiver or consent
            shall be effective only in the specific instance and for the
            specific purpose for which given; provided, however, that no such
            waiver, amendment, or consent shall, unless in writing and signed by
            all the Lenders and the Loan Parties and acknowledged by the Agent,
            do any of the following:

                        (i)   increase or extend the Commitment of any Lender;

                        (ii)  postpone or delay any date fixed by this Agreement
            or any other Loan Document for any payment of principal, interest,
            fees or other amounts due to the Lenders (or any of them) hereunder
            or under any other Loan Document;

                        (iii) reduce the principal of, or the rate of interest
            specified herein on any Loan, or any fees or other amounts payable
            hereunder or under any other Loan Document;

                        (iv)  change the percentage of the Commitments or of the
            aggregate unpaid principal amount of the Loans which is required for
            the Lenders or any of them to take any action hereunder;

                        (v)   increase any of the percentages set forth in the
            definition of the Borrowing Base or in Section 1.2(i);

                        (vi)  amend this Section or any provision of this
            Agreement providing for consent or other action by all Lenders;


                                       56

                        (vii) release any Loan Parties from their obligations
            under this Agreement or any of the other Loan Documents, release any
            Guaranties of the Obligations or release Collateral other than as
            permitted by Section 12.11;

                        (viii) amend the definition of "Required Lenders;"

                        (ix)  increase the Maximum Revolver Amount, the Maximum
            Inventory Loan Amount, Letter of Credit Subfacility or the maximum
            permitted amount of Non-Ratable Loans;

                        (x)   reduce, amend, waive or eliminate the minimum
            Availability requirement set forth in Section 7.28; or

                        (xi)  amend the definition of "Borrowing Base" (other
            than reduce the advance rates set forth therein) or "In-Transit
            Inventory."

provided, however, the Agent may, in its sole discretion and notwithstanding the
limitations contained in clauses (v) and (xi) above and any other terms of this
Agreement, make Agent Advances in accordance with Section 1.2(i) and, provided
further, that no amendment, waiver or consent shall, unless in writing and
signed by the Agent, affect the rights or duties of the Agent under this
Agreement or any other Loan Document and provided further, that Schedule 1.2
hereto (Commitments) may be amended from time to time by Agent alone to reflect
assignments of Commitments in accordance herewith.

                  (b)   If, in connection with any proposed amendment, waiver or
            consent (a "Proposed Change") requiring the consent of all Lenders,
            the consent of Required Lenders is obtained, but the consent of
            other Lenders is not obtained (any such Lender whose consent is not
            obtained as described in this clause (c) being referred to as a
            "Non-Consenting Lender"), then, so long as the Agent is not a
            Non-Consenting Lender, at the Loan Parties' request, the Agent or an
            Eligible Assignee shall have the right (but not the obligation) with
            the Agent's approval, to purchase from the Non-Consenting Lenders,
            and the Non-Consenting Lenders agree that they shall sell, all the
            Non-Consenting Lenders' Commitments for an amount equal to the
            principal balances thereof and all accrued interest and fees (except
            any fees arising in connection with such purchase that would
            otherwise arise under Section 4.4, for which the Loan parties shall
            not be liable) with respect thereto through the date of sale
            pursuant to Assignment and Acceptance Agreement(s), without premium
            or discount.

            11.2  Assignments; Participations.

                  (a)   Any Lender may, with the written consent of the Agent
            (which consent shall not be unreasonably delayed or withheld),
            assign and delegate to one or more Eligible Assignees (provided that
            no consent of the Agent shall be required in connection with any
            assignment and delegation by a Lender to another Lender or an
            Affiliate of such Lender) (each an "Assignee") all, or any ratable
            part of all, of the Loans, the Commitments and the other rights and
            obligations of such Lender hereunder, in a minimum amount of
            $10,000,000 (provided that,


                                       57

            unless an assignor Lender has assigned and delegated all of its
            Loans and Commitments, no such assignment and/or delegation shall be
            permitted unless, after giving effect thereto, such assignor Lender
            retains a Commitment in a minimum amount of $10,000,000; provided,
            however, that the Loan Parties and the Agent may continue to deal
            solely and directly with such Lender in connection with the interest
            so assigned to an Assignee until (i) written notice of such
            assignment, together with payment instructions, addresses and
            related information with respect to the Assignee, shall have been
            given to the Loan Parties and the Agent by such Lender and the
            Assignee; (ii) such Lender and its Assignee shall have delivered to
            the Loan Parties and the Agent an Assignment and Acceptance in the
            form of Exhibit F ("Assignment and Acceptance") together with any
            note or notes subject to such assignment and (iii) except for an
            assignment to an Affiliate, the assignor Lender or Assignee has paid
            to the Agent a processing fee in the amount of $3,500.

                  (b)   From and after the date that the Agent notifies the
            assignor Lender that it has received an executed Assignment and
            Acceptance and payment of the above-referenced processing fee, (i)
            the Assignee thereunder shall be a party hereto and, to the extent
            that rights and obligations, including, but not limited to, the
            obligation to participate in Letters of Credit and Credit Support
            have been assigned to it pursuant to such Assignment and Acceptance,
            shall have the rights and obligations of a Lender under the Loan
            Documents, and (ii) the assignor Lender shall, to the extent that
            rights and obligations hereunder and under the other Loan Documents
            have been assigned by it pursuant to such Assignment and Acceptance,
            relinquish its rights and be released from its obligations 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).

                  (c)   By executing and delivering an Assignment and
            Acceptance, the assigning Lender thereunder and the Assignee
            thereunder confirm to and agree with each other and the other
            parties hereto as follows: (i) other than as provided in such
            Assignment and Acceptance, such assigning Lender 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 the execution, legality,
            validity, enforceability, genuineness, sufficiency or value of this
            Agreement or any other Loan Document furnished pursuant hereto or
            the attachment, perfection, or priority of any Lien granted by the
            Loan Parties to the Agent or any Lender in the Collateral; (ii) such
            assigning Lender makes no representation or warranty and assumes no
            responsibility with respect to the financial condition of the
            Consolidated Members or any of them or the performance or observance
            by any Loan Party of any of its obligations under this Agreement or
            any other Loan Document furnished pursuant hereto; (iii) such
            Assignee confirms that it has received a copy of this Agreement,
            together with 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 the Agent, such


                                       58

            assigning Lender or any other Lender, 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; (v) such Assignee appoints and authorizes the
            Agent to take such action as agent on its behalf and to exercise
            such powers under this Agreement and the other Loan Documents as are
            delegated to the Agent by the terms hereof, together with such
            powers, including the discretionary rights and incidental power, as
            are reasonably incidental thereto; and (vi) such Assignee agrees
            that it will perform in accordance with their terms all of the
            obligations which by the terms of this Agreement are required to be
            performed by it as a Lender.

                  (d)   Immediately upon satisfaction of the requirements of
            Section 11.2(a), this Agreement shall be deemed to be amended to the
            extent, but only to the extent, necessary to reflect the addition of
            the Assignee and the resulting adjustment of the Commitments arising
            therefrom. The Commitment allocated to each Assignee shall reduce
            such Commitments of the assigning Lender pro tanto.

                  (e)   Any Lender may at any time sell to one or more
            commercial banks, financial institutions, or other Persons not
            Affiliates of a Consolidated Member (a "Participant") participating
            interests in any Loans, the Commitment of that Lender and the other
            interests of that Lender (the "originating Lender") hereunder and
            under the other Loan Documents; provided, however, that (i) the
            originating Lender's obligations under this Agreement shall remain
            unchanged, (ii) the originating Lender shall remain solely
            responsible for the performance of such obligations, (iii) the Loan
            Parties and the Agent shall continue to deal solely and directly
            with the originating Lender in connection with the originating
            Lender's rights and obligations under this Agreement and the other
            Loan Documents, and (iv) no Lender shall transfer or grant any
            participating interest under which the Participant has rights to
            approve any amendment to, or any consent or waiver with respect to,
            this Agreement or any other Loan Document except the matters set
            forth in Section 11.1(a) (i), (ii) and (iii), and all amounts
            payable by the Loan Parties hereunder shall be determined as if such
            Lender had not sold such participation; except that, if amounts
            outstanding under this Agreement are due and unpaid, or shall have
            become due and payable upon the occurrence of an Event of Default,
            each Participant shall be deemed to have the right of set-off in
            respect of its participating interest in amounts owing under this
            Agreement to the same extent and subject to the same limitation as
            if the amount of its participating interest were owing directly to
            it as a Lender under this Agreement.

                  (f)   Notwithstanding any other provision in this Agreement,
            any Lender may at any time create a security interest in, or pledge,
            all or any portion of its rights under and interest in this
            Agreement in favor of any Federal Reserve Bank in accordance with
            Regulation A of the FRB or U.S. Treasury Regulation 31 CFR
            Section 203.14, and such Federal Reserve Bank may enforce such
            pledge or security interest in any manner permitted under applicable
            law.


                                       59

                                   ARTICLE 12
                                    THE AGENT

            12.1  Appointment and Authorization.

            Each Lender hereby designates and appoints Bank as its Agent under
this Agreement and the other Loan Documents and each Lender hereby irrevocably
authorizes the Agent to take such action on its behalf under the provisions of
this Agreement and each other Loan Document and to exercise such powers and
perform such duties as are expressly delegated to it by the terms of this
Agreement or any other Loan Document, together with such powers as are
reasonably incidental thereto. The Agent agrees to act as such on the express
conditions contained in this Article 12. The provisions of this Article 12 are
solely for the benefit of the Agent and the Lenders and the Loan Parties shall
have no rights as a third party beneficiary of any of the provisions contained
herein, nor shall anything contained in this Article 12 limit any rights the
Loan Parties have or may have as against Agent, Bank, any Lender, any Letter of
Credit Issuer or any other Agent-Related Person. Notwithstanding any provision
to the contrary contained elsewhere in this Agreement or in any other Loan
Document, the Agent shall not have any duties or responsibilities, except those
expressly set forth herein, nor shall the Agent have or be deemed to have any
fiduciary relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the Agent.
Without limiting the generality of the foregoing sentence, the use of the term
"agent" in this Agreement with reference to the Agent is not intended to connote
any fiduciary or other implied (or express) obligations arising under agency
doctrine of any applicable law. Instead, such term is used merely as a matter of
market custom, and is intended to create or reflect only an administrative
relationship between independent contracting parties. Except as expressly
otherwise provided in this Agreement, the Agent shall have and may use its sole
discretion with respect to exercising or refraining from exercising any
discretionary rights or taking or refraining from taking any actions which the
Agent is expressly entitled to take or assert under this Agreement and the other
Loan Documents, including (a) the determination of the applicability of
ineligibility criteria with respect to the calculation of the Borrowing Base,
(b) the making of Agent Advances pursuant to Section 1.2(i), and (c) the
exercise of remedies pursuant to Section 9.2, and, with respect to any such
action so taken, if exercised in good faith, Agent shall have no liability to
the Lenders for any errors in judgement.

            12.2  Delegation of Duties.

            The Agent may execute any of its duties under this Agreement or any
other Loan Document by or through agents, employees or attorneys-in-fact and
shall be entitled to advice of counsel concerning all matters pertaining to such
duties. The Agent shall not be responsible for the negligence or misconduct of
any agent or attorney-in-fact that it selects as long as such selection was made
without gross negligence or willful misconduct.

            12.3  Liability of Agent.

            None of the Agent-Related Persons shall (i) be liable for any action
taken or omitted to be taken by any of them under or in connection with this
Agreement or any other


                                       60

Loan Document or the transactions contemplated hereby (except for its own gross
negligence or willful misconduct), or (ii) be responsible in any manner to any
of the Lenders for any recital, statement, representation or warranty made by
any Loan Party or any other Consolidated Member, or any officer thereof,
contained in this Agreement or in any other Loan Document, or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Agent under or in connection with, this Agreement or any
other Loan Document, or the validity, effectiveness, genuineness, enforceability
or sufficiency of this Agreement or any other Loan Document, or for any failure
of any Loan Party or any other Consolidated Member or any other party to any
Loan Document to perform its obligations hereunder or thereunder. No
Agent-Related Person shall be under any obligation to any Lender to ascertain or
to inquire as to the observance or performance of any of the agreements
contained in, or conditions of, this Agreement or any other Loan Document, or to
inspect the properties, books or records of any Loan Party or any other
Consolidated Member.

            12.4  Reliance by Agent.

            The Agent shall be entitled to rely, and shall be fully protected in
relying, upon any writing, resolution, notice, consent, certificate, affidavit,
letter, telegram, facsimile, telex or telephone message, statement or other
document or conversation believed by it to be genuine and correct and to have
been signed, sent or made by the proper Person or Persons, and upon advice and
statements of legal counsel (including counsel to the Loan Parties), independent
accountants and other experts selected by the Agent. The Agent shall be fully
justified in failing or refusing to take any action under this Agreement or any
other Loan Document unless it shall first receive such advice or concurrence of
the Required Lenders as it deems appropriate and, if it so requests, it shall
first be indemnified to its satisfaction by the Lenders against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. The Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement or any
other Loan Document in accordance with a request or consent of the Required
Lenders (or all Lenders if so required by Section 11.1) and such request and any
action taken or failure to act pursuant thereto shall be binding upon all of the
Lenders.

            12.5  Notice of Default.

            The Agent shall not be deemed to have knowledge or notice of the
occurrence of any Default or Event of Default, unless the Agent shall have
received written notice from a Lender or any of the Loan Parties referring to
this Agreement, describing such Default or Event of Default and stating that
such notice is a "notice of default." The Agent will notify the Lenders of its
receipt of any such notice. The Agent shall promptly take such action with
respect to such Default or Event of Default as may be requested by the Required
Lenders in accordance with Section 9; provided, however, that unless and until
the Agent has received any such request, the Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem advisable.

            12.6  Credit Decision.

            Each Lender acknowledges that none of the Agent-Related Persons has
made any representation or warranty to it, and that no act by the Agent
hereinafter taken, including any


                                       61

review of the affairs of the Loan Parties and their Affiliates, shall be deemed
to constitute any representation or warranty by any Agent-Related Person to any
Lender. Each Lender represents to the Agent that it has, independently and
without reliance upon any Agent-Related Person and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, prospects, operations, property, financial and
other condition and creditworthiness of the Loan Parties or the other
Consolidated Members, and all applicable bank regulatory laws relating to the
transactions contemplated hereby, and made its own decision to enter into this
Agreement and to extend credit to the Loan Parties. Each Lender also represents
that it will, independently and without reliance upon any Agent-Related Person
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit analysis, appraisals and decisions in
taking or not taking action under this Agreement and the other Loan Documents,
and to make such investigations as it deems necessary to inform itself as to the
business, prospects, operations, property, financial and other condition and
creditworthiness of the Borrower. Except for notices, reports and other
documents expressly herein required to be furnished to the Lenders by the Agent,
the Agent shall not have any duty or responsibility to provide any Lender with
any credit or other information concerning the business, prospects, operations,
property, financial and other condition or creditworthiness of any Loan Party or
any other Consolidated Member which may come into the possession of any of the
Agent-Related Persons.

            12.7  Indemnification.

            Whether or not the transactions contemplated hereby are consummated,
the Lenders shall indemnify upon demand the Agent-Related Persons (to the extent
not reimbursed by or on behalf of the Loan Parties and without limiting the
obligation of the Loan Parties to do so), in accordance with their Pro Rata
Shares, from and against any and all Indemnified Liabilities as such term is
defined in Section 13.11; provided, however, that no Lender shall be liable for
the payment to the Agent-Related Persons of any portion of such Indemnified
Liabilities to the extent resulting from such Person's gross negligence or
willful misconduct or from the breach of any representation, warranty or
covenant contained herein or in another Loan Document by such Indemnified
Person. Without limitation of the foregoing, each Lender shall reimburse the
Agent upon demand for its Pro Rata Share of any costs or out-of-pocket expenses
(including Attorney Costs) incurred by the 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,
any other Loan Document, or any document contemplated by or referred to herein,
to the extent that the Agent is not reimbursed for such expenses by or on behalf
of the Loan Parties. The undertaking in this Section shall survive the payment
of all Obligations hereunder and the resignation or replacement of the Agent.

            12.8  Agent in Individual Capacity.

            The Bank and its Affiliates may make loans to, issue letters of
credit for the account of, accept deposits from, acquire equity interests in and
generally engage in any kind of banking, trust, financial advisory, underwriting
or other business with the Consolidated Members and their Affiliates as though
the Bank were not the Agent hereunder and without notice to or consent of the
Lenders. The Bank or its Affiliates may receive information regarding the


                                       62

Consolidated Members, their Affiliates and Account Debtors (including
information that may be subject to confidentiality obligations in favor of the
Consolidated Members) and acknowledge that except as required by the Loan
Documents and applicable law, the Agent and the Bank shall be under no
obligation to provide such information to them. With respect to its Loans, the
Bank shall have the same rights and powers under this Agreement as any other
Lender and may exercise the same as though it were not the Agent, and the terms
"Lender" and "Lenders" include the Bank in its individual capacity.

            12.9  Successor Agent.

            The Agent may resign as Agent upon at least 30 days' prior notice to
the Lenders and the Borrower, such resignation to be effective upon the
acceptance of a successor agent to its appointment as Agent. In the event the
Bank sells all of its Commitment and Revolving Loans as part of a sale, transfer
or other disposition by the Bank of substantially all of its loan portfolio, the
Bank shall resign as Agent and such purchaser or transferee shall become the
successor Agent hereunder. Subject to the foregoing, if the Agent resigns under
this Agreement, the Required Lenders shall appoint from among the Lenders a
successor agent for the Lenders. If no successor agent is appointed prior to the
effective date of the resignation of the Agent, the Agent may appoint, after
consulting with the Lenders and the Loan Parties, a successor agent from among
the Lenders. Upon the acceptance of its appointment as successor agent
hereunder, such successor agent shall succeed to all the rights, powers and
duties of the retiring Agent and the term "Agent" shall mean such successor
agent and the retiring Agent's appointment, powers and duties as Agent shall be
terminated. After any retiring Agent's resignation hereunder as Agent, the
provisions of this Article 12 shall continue to inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent under this
Agreement. Notwithstanding anything herein to the contrary, the Borrower shall
have the right to consult with the Agent and the Lenders in the choice of any
such successor Agent so long as no Event of Default exists.

            12.10 Withholding Tax.

                  (a)   If any Lender is a "foreign corporation, partnership or
            trust" within the meaning of the Code and such Lender claims
            exemption from, or a reduction of, U.S. withholding tax under
            Sections 1441 or 1442 of the Code, such Lender agrees with and in
            favor of the Agent, to deliver to the Agent:

                        (i)   if such Lender claims an exemption from, or a
            reduction of, withholding tax under a United States of America tax
            treaty, properly completed IRS Forms W-8BEN and W-8ECI before the
            payment of any interest in the first calendar year and before the
            payment of any interest in each third succeeding calendar year
            during which interest may be paid under this Agreement;

                        (ii)  if such Lender claims that interest paid under
            this Agreement is exempt from United States of America withholding
            tax because it is effectively connected with a United States of
            America trade or business of such Lender, two properly completed and
            executed copies of IRS Form W-8ECI before the payment of any
            interest is due in the first taxable year of such Lender and in


                                       63

            each succeeding taxable year of such Lender during which interest
            may be paid under this Agreement, and IRS Form W-9; and

                        (iii) such other form or forms as may be required under
            the Code or other laws of the United States of America as a
            condition to exemption from, or reduction of, United States of
            America withholding tax.

Such Lender agrees to promptly notify the Agent of any change in circumstances
which would modify or render invalid any claimed exemption or reduction.

                  (b)   If any Lender claims exemption from, or reduction of,
            withholding tax under a United States of America tax treaty by
            providing IRS Form FW-8BEN and such Lender sells, assigns, grants a
            participation in, or otherwise transfers all or part of the
            Obligations owing to such Lender, such Lender agrees to notify the
            Agent of the percentage amount in which it is no longer the
            beneficial owner of Obligations of the Loan Parties to such Lender.
            To the extent of such percentage amount, the Agent will treat such
            Lender's IRS Form W-8BEN as no longer valid.

                  (c)   If any Lender claiming exemption from United States of
            America withholding tax by filing IRS Form W-8ECI with the Agent
            sells, assigns, grants a participation in, or otherwise transfers
            all or part of the Obligations owing to such Lender, such Lender
            agrees to undertake sole responsibility for complying with the
            withholding tax requirements imposed by Sections 1441 and 1442 of
            the Code.

                  (d)   If any Lender is entitled to a reduction in the
            applicable withholding tax, the Agent may withhold from any interest
            payment to such Lender an amount equivalent to the applicable
            withholding tax after taking into account such reduction. If the
            forms or other documentation required by subsection (a) of this
            Section are not delivered to the Agent, then the Agent may withhold
            from any interest payment to such Lender not providing such forms or
            other documentation an amount equivalent to the applicable
            withholding tax.

                  (e)   If the IRS or any other Governmental Authority of the
            United States of America or other jurisdiction asserts a claim that
            the Agent did not properly withhold tax from amounts paid to or for
            the account of any Lender (because the appropriate form was not
            delivered, was not properly executed, or because such Lender failed
            to notify the Agent of a change in circumstances which rendered the
            exemption from, or reduction of, withholding tax ineffective, or for
            any other reason) such Lender shall indemnify the Agent fully for
            all amounts paid, directly or indirectly, by the Agent as tax or
            otherwise, including penalties and interest, and including any taxes
            imposed by any jurisdiction on the amounts payable to the Agent
            under this Section, together with all costs and expenses (including
            Attorney Costs). The obligation of the Lenders under this subsection
            shall survive the payment of all Obligations and the resignation or
            replacement of the Agent. For any period with respect to which a
            Lender has


                                       64

            failed to provide a Loan Parties and Agent with the appropriate form
            pursuant to this Section 12.10 hereof (unless such failure is due to
            a change in treaty, law, or regulation occurring subsequent to the
            date on which a form originally was required to be provided), such
            Lender shall not be entitled to indemnification under Section
            4.1(a), 4.1(b) or 4.1(c) hereof with respect to Taxes imposed by the
            United States; provided, however, that should a Lender, which is
            otherwise exempt from or subject to a reduced rate of withholding
            tax, become subject to Taxes because of its failure to deliver a
            form required hereunder, the Loan Parties shall take such steps as
            such Lender shall reasonably request to assist such Lender to
            recover such Taxes at such Lender's expense.

            12.11 Collateral Matters.

                  (a)   The Lenders hereby irrevocably authorize the Agent, at
            its option and in its sole discretion, to release any Agent's Liens
            upon any Collateral (i) upon the termination of the Commitments and
            payment and satisfaction in full of all Loans and reimbursement
            obligations in respect of Letters of Credit and Credit Support, and
            the termination of all outstanding Letters of Credit (whether or not
            any of such obligations are due) and all other Obligations; (ii)
            constituting property being sold or disposed of if the Loan Party
            certifies to the Agent that the sale or disposition is made in
            compliance with Section 7.9 and Section 3.5 (and the Agent may rely
            conclusively on any such certificate, without further inquiry);
            (iii) constituting property in which no Loan Party owned an interest
            at the time the Lien was granted or at any time thereafter; or (iv)
            constituting property leased to an Loan Party under a lease which
            has expired or been terminated in a transaction permitted under this
            Agreement. Except as provided above, the Agent will not release any
            of the Agent's Liens without the prior written authorization of the
            Lenders; provided that the Agent may, in its discretion, release the
            Agent's Liens on Collateral valued in the aggregate not in excess of
            $1,000,000 during each Fiscal Year without the prior written
            authorization of the Lenders and the Agent may release the Agent's
            Liens on Collateral valued in the aggregate not in excess of
            $2,000,000 during each Fiscal Year with the prior written
            authorization of Required Lenders. Upon request by the Agent or the
            Loan Parties at any time, the Lenders will confirm in writing the
            Agent's authority to release any Agent's Liens upon particular types
            or items of Collateral pursuant to this Section 12.11.

                  (b)   Upon receipt by the Agent of any authorization required
            pursuant to Section 12.11(a) from the Lenders of the Agent's
            authority to release Agent's Liens upon particular types or items of
            Collateral, and upon at least five (5) Business Days prior written
            request by the Loan Parties, the Agent shall (and is hereby
            irrevocably authorized by the Lenders to) execute such documents as
            may be necessary to evidence the release of the Agent's Liens upon
            such Collateral; provided, however, that (i) the Agent shall not be
            required to execute any such document on terms which, in the Agent's
            opinion, would expose the Agent to liability or create any material
            obligation or entail any material consequence other than the release
            of such Liens without recourse or warranty, and (ii) such release
            shall not in any manner discharge, affect or impair the Obligations
            or any Liens


                                       65

            (other than those expressly being released) upon (or obligations of
            the Loan Parties in respect of) all interests retained by any Loan
            Party, including the proceeds of any sale, all of which shall
            continue to constitute part of the Collateral.

                  (c)   The Agent shall have no obligation whatsoever to any of
            the Lenders to assure that the Collateral exists or is owned by any
            Loan Party or is cared for, protected or insured or has been
            encumbered, or that the Agent's Liens have been properly or
            sufficiently or lawfully created, perfected, protected or enforced
            or are entitled to any particular priority, or to exercise at all or
            in any particular manner or under any duty of care, disclosure or
            fidelity, or to continue exercising, any of the rights, authorities
            and powers granted or available to the Agent pursuant to any of the
            Loan Documents, it being understood and agreed that in respect of
            the Collateral, or any act, omission or event related thereto, the
            Agent may act in any manner it may deem appropriate, in its sole
            discretion given the Agent's own interest in the Collateral in its
            capacity as one of the Lenders and that the Agent shall have no
            other duty or liability whatsoever to any Lender as to any of the
            foregoing.

            12.12 Restrictions on Actions by Lenders; Sharing of Payments.

                  (a)   Each of the Lenders agrees that it shall not, without
            the express consent of all Lenders, and that it shall, to the extent
            it is lawfully entitled to do so, upon the request of all Lenders,
            set off against the Obligations, any amounts owing by such Lender to
            an Loan Party or any accounts of an Loan Party now or hereafter
            maintained with such Lender. Each of the Lenders further agrees that
            it shall not, unless specifically requested to do so by the Agent,
            take or cause to be taken any action to enforce its rights under
            this Agreement or against any Loan Party, including the commencement
            of any legal or equitable proceedings, to foreclose any Lien on, or
            otherwise enforce any security interest in, any of the Collateral.

                  (b)   If at any time or times any Lender shall receive (i) by
            payment, foreclosure, setoff or otherwise, any proceeds of
            Collateral or any payments with respect to the Obligations of any
            Loan Party to such Lender arising under, or relating to, this
            Agreement or the other Loan Documents, except for any such proceeds
            or payments received by such Lender from the Agent pursuant to the
            terms of this Agreement, or (ii) payments from the Agent in excess
            of such Lender's ratable portion of all such distributions by the
            Agent, such Lender shall promptly (1) turn the same over to the
            Agent, in kind, and with such endorsements as may be required to
            negotiate the same to the Agent, or in same day funds, as
            applicable, for the account of all of the Lenders and for
            application to the Obligations in accordance with the applicable
            provisions of this Agreement, or (2) purchase, without recourse or
            warranty, an undivided interest and participation in the Obligations
            owed to the other Lenders so that such excess payment received shall
            be applied ratably as among the Lenders in accordance with their Pro
            Rata Shares; provided, however, that if all or part of such excess


                                       66

            payment received by the purchasing party is thereafter recovered
            from it, those purchases of participations shall be rescinded in
            whole or in part, as applicable, and the applicable portion of the
            purchase price paid therefor shall be returned to such purchasing
            party, but without interest except to the extent that such
            purchasing party is required to pay interest in connection with the
            recovery of the excess payment.

            12.13 Agency for Perfection.

            Each Lender hereby appoints each other Lender as agent for the
purpose of perfecting the Lenders' security interest in assets which, in
accordance with Article 9 of the UCC or the applicable provisions of the PPSA or
other applicable law can be perfected only by possession. Should any Lender
(other than the Agent) obtain possession of any such Collateral, such Lender
shall notify the Agent thereof, and, promptly upon the Agent's request therefor
shall deliver such Collateral to the Agent or in accordance with the Agent's
instructions.

            12.14 Payments by Agent to Lenders.

            All payments to be made by the Agent to the Lenders shall be made by
bank wire transfer or internal transfer of immediately available funds to each
Lender pursuant to wire transfer instructions delivered in writing to the Agent
on or prior to the Closing Date (or if such Lender is an Assignee, on the
applicable Assignment and Acceptance), or pursuant to such other wire transfer
instructions as each party may designate for itself by written notice to the
Agent. Concurrently with each such payment, the Agent shall identify whether
such payment (or any portion thereof) represents principal, premium or interest
on the Revolving Loans or otherwise. Unless the Agent receives notice from the
Loan parties prior to the date on which any payment is due to the Lenders that
the Loan Parties will not make such payment in full as and when required, the
Agent may assume that the Loan Parties has made such payment in full to the
Agent on such date in immediately available funds and the Agent may (but shall
not be so required), in reliance upon such assumption, distribute to each Lender
on such due date an amount equal to the amount then due such Lender. If and to
the extent the Loan Parties have not made such payment in full to the Agent,
each Lender shall repay to the Agent on demand such amount distributed to such
Lender, together with interest thereon at the Federal Funds Rate for each day
from the date such amount is distributed to such Lender until the date repaid.

            12.15 Settlement.

                  (a)   (i)   Each Lender's funded portion of the Revolving
            Loans is intended by the Lenders to be equal at all times to such
            Lender's Pro Rata Share of the outstanding Revolving Loans.
            Notwithstanding such agreement, the Agent, the Bank, and the other
            Lenders agree (which agreement shall not be for the benefit of or
            enforceable by the Loan Parties or any other Consolidated Member)
            that in order to facilitate the administration of this Agreement and
            the other Loan Documents, settlement among them as to the Revolving
            Loans, the Non-Ratable Loans and the Agent Advances shall take place
            on a periodic basis in accordance with the following provisions:


                                       67

                        (ii)  The Agent shall request settlement ("Settlement")
            with the Lenders on at least a weekly basis, or on a more frequent
            basis at Agent's election, (A) on behalf of the Bank, with respect
            to each outstanding Non-Ratable Loan, (B) for itself, with respect
            to each Agent Advance, and (C) with respect to collections received,
            in each case, by notifying the Lenders of such requested Settlement
            by telecopy, telephone or other similar form of transmission, of
            such requested Settlement, no later than 12:00 noon (Atlanta,
            Georgia time) on the date of such requested Settlement (the
            "Settlement Date"). Each Lender (other than the Bank, in the case of
            Non-Ratable Loans and the Agent in the case of Agent Advances) shall
            transfer the amount of such Lender's Pro Rata Share of the
            outstanding principal amount of the Non-Ratable Loans and Agent
            Advances with respect to each Settlement to the Agent, to Agent's
            account, not later than 2:00 p.m. (Atlanta, Georgia time), on the
            Settlement Date applicable thereto. Settlements may occur during the
            continuation of a Default or an Event of Default and whether or not
            the applicable conditions precedent set forth in Article 8 have then
            been satisfied. Such amounts made available to the Agent shall be
            applied against the amounts of the applicable Non-Ratable Loan or
            Agent Advance and, together with the portion of such Non-Ratable
            Loan or Agent Advance representing the Bank's Pro Rata Share
            thereof, shall constitute Revolving Loans of such Lenders. If any
            such amount is not transferred to the Agent by any Lender on the
            Settlement Date applicable thereto, the Agent shall be entitled to
            recover such amount on demand from such Lender together with
            interest thereon at the Federal Funds Rate for the first three (3)
            days from and after the Settlement Date and thereafter at the
            Interest Rate then applicable to the Revolving Loans (A) on behalf
            of the Bank, with respect to each outstanding Non-Ratable Loan, and
            (B) for itself, with respect to each Agent Advance.

                        (iii) Notwithstanding the foregoing, not more than one
            (1) Business Day after demand is made by the Agent (whether before
            or after the occurrence of a Default or an Event of Default and
            regardless of whether the Agent has requested a Settlement with
            respect to a Non-Ratable Loan or Agent Advance), each other Lender
            (A) shall irrevocably and unconditionally purchase and receive from
            the Bank or the Agent, as applicable, without recourse or warranty,
            an undivided interest and participation in such Non-Ratable Loan or
            Agent Advance equal to such Lender's Pro Rata Share of such
            Non-Ratable Loan or Agent Advance and (B) if Settlement has not
            previously occurred with respect to such Non-Ratable Loans or Agent
            Advances, upon demand by Bank or Agent, as applicable, shall pay to
            Bank or Agent, as applicable, as the purchase price of such
            participation an amount equal to one-hundred percent (100%) of such
            Lender's Pro Rata Share of such Non-Ratable Loans or Agent Advances.
            If such amount is not in fact made available to the Agent by any
            Lender, the Agent shall be entitled to recover such amount on demand
            from such Lender together with interest thereon at the Federal Funds
            Rate for the first three (3) days from and after such demand and
            thereafter at the Interest Rate then applicable to Base Rate
            Revolving Loans.

                        (iv)  From and after the date, if any, on which any
            Lender


                                       68

            purchases an undivided interest and participation in any Non-Ratable
            Loan or Agent Advance pursuant to clause (iii) above, the Agent
            shall promptly distribute to such Lender, such Lender's Pro Rata
            Share of all payments of principal and interest and all proceeds of
            Collateral received by the Agent in respect of such Non-Ratable Loan
            or Agent Advance.

                        (v)   Between Settlement Dates, the Agent, to the extent
            no Agent Advances are outstanding, may pay over to the Bank any
            payments received by the Agent, which in accordance with the terms
            of this Agreement would be applied to the reduction of the Revolving
            Loans, for application to the Bank's Revolving Loans including
            Non-Ratable Loans. If, as of any Settlement Date, collections
            received since the then immediately preceding Settlement Date have
            been applied to the Bank's Revolving Loans (other than to
            Non-Ratable Loans or Agent Advances in which such Lender has not yet
            funded its purchase of a participation pursuant to clause (iii)
            above), as provided for in the previous sentence, the Bank shall pay
            to the Agent for the accounts of the Lenders, to be applied to the
            outstanding Revolving Loans of such Lenders, an amount such that
            each Lender shall, upon receipt of such amount, have, as of such
            Settlement Date, its Pro Rata Share of the Revolving Loans. During
            the period between Settlement Dates, the Bank with respect to
            Non-Ratable Loans, the Agent with respect to Agent Advances, and
            each Lender with respect to the Revolving Loans other than
            Non-Ratable Loans and Agent Advances, shall be entitled to interest
            at the applicable rate or rates payable under this Agreement on the
            actual average daily amount of funds employed by the Bank, the Agent
            and the other Lenders.

                  (b)   Lenders' Failure to Perform. All Revolving Loans (other
            than Non-Ratable Loans and Agent Advances) shall be made by the
            Lenders simultaneously and in accordance with their Pro Rata Shares.
            It is understood that (i) no Lender shall be responsible for any
            failure by any other Lender to perform its obligation to make any
            Revolving Loans hereunder, nor shall any Commitment of any Lender be
            increased or decreased as a result of any failure by any other
            Lender to perform its obligation to make any Revolving Loans
            hereunder, (ii) no failure by any Lender to perform its obligation
            to make any Revolving Loans hereunder shall excuse any other Lender
            from its obligation to make any Revolving Loans hereunder, and (iii)
            the obligations of each Lender hereunder shall be several, not joint
            and several.

                  (c)   Defaulting Lenders. Unless the Agent receives notice
            from a Lender on or prior to the Closing Date or, with respect to
            any Borrowing after the Closing Date, at least one Business Day
            prior to the date of such Borrowing, that such Lender will not make
            available as and when required hereunder to the Agent that Lender's
            Pro Rata Share of a Borrowing, the Agent may assume that each Lender
            has made such amount available to the Agent in immediately available
            funds on the Funding Date. Furthermore, the Agent may, in reliance
            upon such assumption, make available to the Loan Parties on such
            date a corresponding amount. If any Lender has not transferred its
            full Pro Rata Share to the Agent in immediately available funds and
            the Agent has transferred corresponding amount


                                       69

            to the Loan Parties on the Business Day following such Funding Date
            that Lender shall make such amount available to the Agent, together
            with interest at the Federal Funds Rate for that day. A notice by
            the Agent submitted to any Lender with respect to amounts owing
            shall be conclusive, absent manifest error. If each Lender's full
            Pro Rata Share is transferred to the Agent as required, the amount
            transferred to the Agent shall constitute that Lender's Revolving
            Loan for all purposes of this Agreement. If that amount is not
            transferred to the Agent on the Business Day following the Funding
            Date, the Agent will notify the Loan Parties of such failure to fund
            and, upon demand by the Agent, the Loan Parties shall pay such
            amount to the Agent for the Agent's account, together with interest
            thereon for each day elapsed since the date of such Borrowing, at a
            rate per annum equal to the Interest Rate applicable at the time to
            the Revolving Loans comprising that particular Borrowing. The
            failure of any Lender to make any Revolving Loan on any Funding Date
            (any such Lender, prior to the cure of such failure, being
            hereinafter referred to as a "Defaulting Lender") shall not relieve
            any other Lender of its obligation hereunder to make a Revolving
            Loan on that Funding Date. No Lender shall be responsible for any
            other Lender's failure to advance such other Lenders' Pro Rata Share
            of any Borrowing.

                  (d)   Retention of Defaulting Lender's Payments. The Agent
            shall not be obligated to transfer to a Defaulting Lender any
            payments made by Loan Parties to the Agent for the Defaulting
            Lender's benefit; nor shall a Defaulting Lender be entitled to the
            sharing of any payments hereunder. Amounts payable to a Defaulting
            Lender shall instead be paid to or retained by the Agent. In its
            discretion, the Agent may loan the amount of all such payments
            received or retained by it for the account of such Defaulting
            Lender. Any amounts so loaned to the Loan Parties shall bear
            interest at the rate applicable to Base Rate Revolving Loans and for
            all other purposes of this Agreement shall be treated as if they
            were Revolving Loans, provided, however, that for purposes of voting
            or consenting to matters with respect to the Loan Documents and
            determining Pro Rata Shares, such Defaulting Lender shall be deemed
            not to be a "Lender". Until a Defaulting Lender cures its failure to
            fund its Pro Rata Share of any Borrowing (A) such Defaulting Lender
            shall not be entitled to any portion of the Unused Line Fee and (B)
            the Unused Line Fee shall accrue in favor of the Lenders which have
            funded their respective Pro Rata Shares of such requested Borrowing
            and shall be allocated among such performing Lenders ratably based
            upon their relative Commitments. This Section shall remain effective
            with respect to such Lender until such time as the Defaulting Lender
            shall no longer be in default of any of its obligations under this
            Agreement. The terms of this Section shall not be construed to
            increase or otherwise affect the Commitment of any Lender, or
            relieve or excuse the performance by the Loan Parties of their
            duties and obligations hereunder.

                  (e)   Removal of Defaulting Lender. At the Borrower's request,
            the Agent or an Eligible Assignee reasonably acceptable to the Agent
            and the Borrower shall have the right (but not the obligation) to
            purchase from any Defaulting Lender, and each Defaulting Lender
            shall, upon such request, sell and


                                       70

            assign to the Agent or such Eligible Assignee, all of the Defaulting
            Lender's outstanding Commitments hereunder. Such sale shall be
            consummated promptly after Agent has arranged for a purchase by
            Agent or an Eligible Assignee pursuant to an Assignment and
            Acceptance, and at a price equal to the outstanding principal
            balance of the Defaulting Lender's Loans, plus accrued interest and
            fees (except any fees in connection with such sale that would
            otherwise arise under Section 4.4 hereof, for which the Borrower
            shall not be liable), without premium or discount .

            12.16 Letters of Credit; Intra-Lender Issues.

                  (a)   Notice of Letter of Credit Balance. On each Settlement
Date the Agent shall notify each Lender of the issuance of all Letters of Credit
since the prior Settlement Date and indicate the expiry dates and terms of any
evergreen provisions therein.

                  (b)   Participations in Letters of Credit.

                        (i)   Purchase of Participations. Immediately upon
            issuance of any Letter of Credit in accordance with Section 1.4(d),
            each Lender shall be deemed to have irrevocably and unconditionally
            purchased and received without recourse or warranty, an undivided
            interest and participation equal to such Lender's Pro Rata Share of
            the face amount of such Letter of Credit or the Credit Support
            provided through the Agent to the Letter of Credit Issuer, if not
            the Bank, in connection with the issuance of such Letter of Credit
            (including all obligations of the Borrower with respect thereto, and
            any security therefor or guaranty pertaining thereto).

                        (ii)  Sharing of Reimbursement Obligation Payments.
            Whenever the Agent receives a payment from the Loan Parties on
            account of reimbursement obligations in respect of a Letter of
            Credit or Credit Support as to which the Agent has previously
            received for the account of the Letter of Credit Issuer thereof
            payment from a Lender, the Agent shall promptly pay to such Lender
            such Lender's Pro Rata Share of such payment from the Borrower. Each
            such payment shall be made by the Agent on the next Settlement Date.

                        (iii) Documentation. Upon the request of any Lender, the
            Agent shall furnish to such Lender copies of any Letter of Credit,
            Credit Support for any Letter of Credit, reimbursement agreements
            executed in connection therewith, applications for any Letter of
            Credit, and such other documentation as may reasonably be requested
            by such Lender.

                        (iv)  Obligations Irrevocable. The obligations of each
            Lender to make payments to the Agent with respect to any Letter of
            Credit or with respect to their participation therein or with
            respect to any Credit Support for any Letter of Credit or with
            respect to the Revolving Loans made as a result of a drawing under a
            Letter of Credit and the obligations of the Loan Parties for whose
            account the Letter of Credit or Credit Support was issued to make
            payments to the Agent, for


                                       71

            the account of the Lenders, shall be irrevocable and shall not be
            subject to any qualification or exception whatsoever, including any
            of the following circumstances:

                              (1)   any lack of validity or enforceability of
this Agreement or any of the other Loan Documents;

                              (2)   the existence of any claim, setoff, defense
or other right which any Loan Party may have at any time against a beneficiary
named in a Letter of Credit or any transferee of any Letter of Credit (or any
Person for whom any such transferee may be acting), any Lender, the Agent, the
issuer of such Letter of Credit, or any other Person, whether in connection with
this Agreement, any Letter of Credit, the transactions contemplated herein or
any unrelated transactions (including any underlying transactions between the
Borrower or any other Person and the beneficiary named in any Letter of Credit);

                              (3)   any draft, certificate or any other document
presented under the 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;

                              (4)   the surrender or impairment of any security
for the performance or observance of any of the terms of any of the Loan
Documents;

                              (5)   the occurrence of any Default or Event of
Default; or

                              (6)   the failure of the Borrower to satisfy the
applicable conditions precedent set forth in Article 8.

                  (c)   Recovery or Avoidance of Payments; Refund of Payments In
            Error. In the event any payment by or on behalf of the Borrower
            received by the Agent with respect to any Letter of Credit or Credit
            Support provided for any Letter of Credit and distributed by the
            Agent to the Lenders on account of their respective participations
            therein is thereafter set aside, avoided or recovered from the Agent
            in connection with any receivership, liquidation or bankruptcy
            proceeding, the Lenders shall, upon demand by the Agent, pay to the
            Agent their respective Pro Rata Shares of such amount set aside,
            avoided or recovered, together with interest at the rate required to
            be paid by the Agent upon the amount required to be repaid by it.
            Unless the Agent receives notice from the Borrower prior to the date
            on which any payment is due to the Lenders that the Borrower will
            not make such payment in full as and when required, the Agent may
            assume that the Borrower has made such payment in full to the Agent
            on such date in immediately available funds and the Agent may (but
            shall not be so required), in reliance upon such assumption,
            distribute to each Lender on such due date an amount equal to the
            amount then due such Lender. If and to the extent the Borrower has
            not made such payment in full to the Agent, each Lender shall repay
            to the Agent on demand such amount distributed to such Lender,
            together with interest thereon at the Federal Funds Rate for each
            day from the date such amount is distributed to such Lender until
            the date repaid.


                                       72

                  (d)   Indemnification by Lenders. To the extent not reimbursed
            by the Loan Parties and without limiting the obligations of the Loan
            Parties hereunder, the Lenders agree to indemnify the Letter of
            Credit Issuer ratably in accordance with their respective Pro Rata
            Shares, for any and all liabilities, obligations, losses, damages,
            penalties, actions, judgments, suits, costs, expenses (including
            attorneys' fees) or disbursements of any kind and nature whatsoever
            that may be imposed on, incurred by or asserted against the Letter
            of Credit Issuer in any way relating to or arising out of any Letter
            of Credit or the transactions contemplated thereby or any action
            taken or omitted by the Letter of Credit Issuer under any Letter of
            Credit or any Loan Document in connection therewith; provided that
            no Lender shall be liable for any of the foregoing to the extent it
            arises from the gross negligence or willful misconduct of the Person
            to be indemnified. Without limitation of the foregoing, each Lender
            agrees to reimburse the Letter of Credit Issuer promptly upon demand
            for its Pro Rata Share of any costs or expenses payable by any Loan
            Party to the Letter of Credit Issuer, to the extent that the Letter
            of Credit Issuer is not promptly reimbursed for such costs and
            expenses by the Loan Parties. The agreement contained in this
            Section shall survive payment in full of all other Obligations.

            12.17 Concerning the Collateral and the Related Loan Documents.


            Each Lender authorizes and directs the Agent to enter into the other
Loan Documents, for the ratable benefit and obligation of the Agent and the
Lenders. Each Lender agrees that any action taken by the Agent or Required
Lenders in accordance with the terms of this Agreement or the other Loan
Documents, and the exercise by the Agent or the Required Lenders, as applicable,
of their respective powers set forth therein or herein, together with such other
powers that are reasonably incidental thereto, shall be binding upon all of the
Lenders. The Lenders acknowledge that the Revolving Loans, Agent Advances,
Non-Ratable Loans, Hedge Agreements, Bank Products and all interest, fees and
expenses hereunder constitute one Debt, secured pari passu by all of the
Collateral.

            12.18 Field Audit and Examination Reports; Disclaimer by Lenders.


            By signing this Agreement, each Lender:

                  (a)   is deemed to have requested that the Agent furnish such
            Lender, promptly after it becomes available, a copy of each field
            audit or examination report (each a "Report" and collectively,
            "Reports") prepared by or on behalf of the Agent;

                  (b)   expressly agrees and acknowledges that neither the Bank
            nor the Agent (i) makes any representation or warranty as to the
            accuracy of any Report, or (ii) shall be liable for any information
            contained in any Report;

                  (c)   expressly agrees and acknowledges that the Reports are
            not comprehensive audits or examinations, that the Agent or the Bank
            or other party performing any audit or examination will inspect only
            specific information


                                       73

            regarding the Loan Parties and will rely significantly upon the Loan
            Parties' books and records, as well as on representations of the
            Loan Parties' personnel;

                  (d)   agrees to keep all Reports confidential and strictly for
            its internal use, and not to distribute except to its participants,
            or use any Report in any other manner; and

                  (e)   without limiting the generality of any other
            indemnification provision contained in this Agreement, agrees: (i)
            to hold the Agent and any such other Lender preparing a Report
            harmless from any action the indemnifying Lender may take or
            conclusion the indemnifying Lender may reach or draw from any Report
            in connection with any loans or other credit accommodations that the
            indemnifying Lender has made or may make to the Borrower, or the
            indemnifying Lender's participation in, or the indemnifying Lender's
            purchase of, a loan or loans of the Borrower; and (ii) to pay and
            protect, and indemnify, defend and hold the Agent and any such other
            Lender preparing a Report harmless from and against, the claims,
            actions, proceedings, damages, costs, expenses and other amounts
            (including Attorney Costs) incurred by the Agent and any such other
            Lender preparing a Report as the direct or indirect result of any
            third parties who might obtain all or part of any Report through the
            indemnifying Lender.

            12.19 Relation Among Lenders.

            The Lenders are not partners or co-venturers, and no Lender shall be
liable for the acts or omissions of, or (except as otherwise set forth herein in
case of the Agent) authorized to act for, any other Lender.

                                   ARTICLE 13
                                  MISCELLANEOUS

            13.1  No Waivers; Cumulative Remedies.

            No failure by the Agent or any Lender to exercise any right, remedy,
or option under this Agreement or any present or future supplement thereto, or
in any other agreement between or among the Loan Parties and the Agent and/or
any Lender, or delay by the Agent or any Lender in exercising the same, will
operate as a waiver thereof. No waiver by the Agent or any Lender will be
effective unless it is in writing, and then only to the extent specifically
stated. No waiver by the Agent or the Lenders on any occasion shall affect or
diminish the Agent's and each Lender's rights thereafter to require strict
performance by the Loan Parties of any provision of this Agreement. The Agent
and the Lenders may proceed directly to collect the Obligations without any
prior recourse to the Collateral. The Agent's and each Lender's rights under
this Agreement will be cumulative and not exclusive of any other right or remedy
which the Agent or any Lender may have.

            13.2  Severability.

            The illegality or unenforceability of any provision of this
Agreement or any Loan Document or any instrument or agreement required hereunder
shall not in any way affect or


                                       74

impair the legality or enforceability of the remaining provisions of this
Agreement or any instrument or agreement required hereunder.

            13.3  Governing Law; Choice of Forum; Service of Process.

                  (a)   THIS AGREEMENT SHALL BE INTERPRETED AND THE RIGHTS AND
            LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE
            INTERNAL LAWS (AS OPPOSED TO THE CONFLICT OF LAWS PROVISIONS
            PROVIDED THAT PERFECTION ISSUES WITH RESPECT TO ARTICLE 9 OF THE UCC
            MAY GIVE EFFECT TO APPLICABLE CHOICE OR CONFLICT OF LAW RULES SET
            FORTH IN ARTICLE 9 OF THE UCC) OF THE STATE OF NEW YORK; PROVIDED
            THAT THE AGENT AND THE LENDERS SHALL RETAIN ALL RIGHTS ARISING UNDER
            FEDERAL LAW.

                  (b)   ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
            AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF
            THE STATE OF NEW YORK OR OF THE UNITED STATES OF AMERICA LOCATED IN
            NEW YORK COUNTY, NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS
            AGREEMENT, EACH OF THE LOAN PARTIES, THE AGENT AND THE LENDERS
            CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE
            NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE LOAN
            PARTIES, THE AGENT AND THE LENDERS IRREVOCABLY WAIVES ANY OBJECTION,
            INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE
            GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE
            TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN
            RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO.
            NOTWITHSTANDING THE FOREGOING: (1) THE AGENT AND THE LENDERS SHALL
            HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST THE LOAN
            PARTIES OR THEIR PROPERTIES IN THE COURTS OF ANY OTHER JURISDICTION
            THE AGENT OR THE LENDERS DEEM NECESSARY OR APPROPRIATE IN ORDER TO
            REALIZE ON THE COLLATERAL OR OTHER SECURITY FOR THE OBLIGATIONS AND
            (2) EACH OF THE PARTIES HERETO ACKNOWLEDGES THAT ANY APPEALS FROM
            THE COURTS DESCRIBED IN THE IMMEDIATELY PRECEDING SENTENCE MAY HAVE
            TO BE HEARD BY A COURT LOCATED OUTSIDE THOSE JURISDICTIONS.

                  (c)   EACH OF THE LOAN PARTIES HEREBY WAIVES PERSONAL SERVICE
            OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF
            PROCESS MAY BE MADE BY REGISTERED MAIL (RETURN RECEIPT REQUESTED)
            DIRECTED TO THE ADDRESS SET FORTH IN SECTION 13.8 AND SERVICE SO
            MADE SHALL BE DEEMED TO BE COMPLETED SEVEN (7) DAYS AFTER THE


                                       75

            SAME SHALL HAVE BEEN SO DEPOSITED IN THE U.S. MAILS POSTAGE PREPAID.
            NOTHING CONTAINED HEREIN SHALL AFFECT THE RIGHT OF AGENT OR THE
            LENDERS TO SERVE LEGAL PROCESS BY ANY OTHER MANNER PERMITTED BY LAW.

            13.4  WAIVER OF JURY TRIAL.

            EACH OF THE LOAN PARTIES, THE LENDERS AND THE AGENT EACH IRREVOCABLY
WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN
DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION,
PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST
ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER
WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE LOAN PARTIES,
THE LENDERS AND THE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION
SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING,
THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS
WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER
PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION
HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS.

            13.5  Survival of Representations and Warranties.

            All of the Loan Parties' representations and warranties contained in
this Agreement shall survive the execution, delivery, and acceptance thereof by
the parties, notwithstanding any investigation by the Agent or the Lenders or
their respective agents.

            13.6  Other Security and Guaranties.

            The Agent, may, without notice or demand and without affecting the
Loan Parties' obligations hereunder, from time to time: (a) take from any Person
and hold collateral (other than the Collateral) for the payment of all or any
part of the Obligations and exchange, enforce or release such collateral or any
part thereof; and (b) accept and hold any endorsement or guaranty of payment of
all or any part of the Obligations and release or substitute any such endorser
or guarantor, or any Person who has given any Lien in any other collateral as
security for the payment of all or any part of the Obligations, or any other
Person in any way obligated to pay all or any part of the Obligations.

            13.7  Fees and Expenses.

            Each Loan Party agrees to pay to the Agent, for its benefit, on
demand, all costs and expenses that Agent pays or incurs in connection with the
negotiation, preparation, syndication, consummation, administration,
enforcement, and termination of this Agreement or


                                       76

any of the other Loan Documents, including: (a) Attorney Costs, provided, that
the Loan Parties shall not be obligated to pay Attorney Costs incurred by the
Agent in connection with the negotiation, preparation, syndication and
consummation of this Agreement or any of the other Loan Documents which exceed
the sum of (i) $100,000 for the Agent's local outside counsel and (ii)
$(Cdn)20,000 for the Attorney Costs of Agent's Canadian counsel; (b) costs and
expenses (including attorneys' and paralegals' fees and disbursements) for any
amendment, supplement, waiver, consent, or subsequent closing in connection with
the Loan Documents and the transactions contemplated thereby; (c) costs and
expenses of lien and title searches; (d) taxes, fees and other charges for
filing financing statements and continuations, and other actions to perfect,
protect, and continue the Agent's Liens (including costs and expenses paid or
incurred by the Agent in connection with the consummation of Agreement); (e)
sums paid or incurred to pay any amount or take any action required of any Loan
Party under the Loan Documents that such Loan Party fails to pay or take; (f)
costs of appraisals, inspections, and verifications of the Collateral, including
reasonable travel, lodging, and meals for inspections of the Collateral and the
Loan Parties' operations by the Agent plus the Agent's then customary charge for
field examinations and audits and the preparation of reports thereof (such
charge is currently $750 per day (or portion thereof) for each Person retained
or employed by the Agent with respect to each field examination or audit);
provided, however, that unless an Event of Default shall exist and be
continuing, the Borrower shall not be obligated to the Agent for any expenses
set forth in this clause (f) for travel and visits to Consolidated Members'
facilities located in The People's Republic of China or Mexico; and (g) without
duplication, costs and expenses of forwarding loan proceeds, collecting checks
and other items of payment, and establishing and maintaining Payment Accounts
and lock boxes, and costs and expenses of preserving and protecting the
Collateral. In addition, each Loan Party agrees to pay costs and expenses
incurred by the Agent (including Attorneys' Costs) to the Agent, for its
benefit, on demand, and to the other Lenders for their benefit, on demand, and
all reasonable fees, expenses and disbursements incurred by such other Lenders,
including reasonable attorneys' fees and disbursements, in each case, paid or
incurred to obtain payment of the Obligations, enforce the Agent's Liens, sell
or otherwise realize upon the Collateral, and otherwise enforce the provisions
of the Loan Documents, or to defend any claims made or threatened against the
Agent or any Lender arising out of the transactions contemplated hereby
(including preparations for and consultations concerning any such matters). The
foregoing shall not be construed to limit any other provisions of the Loan
Documents regarding costs and expenses to be paid by the Loan Parties. All of
the foregoing costs and expenses shall be charged to the Loan Account as
Revolving Loans as described in Section 3.7.

            13.8  Notices.

            Except as otherwise provided herein, all notices, demands and
requests that any party is required or elects to give to any other shall be in
writing, or by a telecommunications device capable of creating a written record,
and any such notice shall become effective (a) upon personal delivery thereof,
including, but not limited to, delivery by overnight mail and courier service,
(b) four (4) days after it shall have been mailed by United States mail, first
class, certified or registered, with postage prepaid, or (c) in the case of
notice by such a telecommunications device, when properly transmitted, in each
case addressed to the party to be notified as follows:


                                       77

            If to the Agent or to the Bank:

                  Bank of America, N.A.
                  600 Peachtree Street, 5th Floor
                  Atlanta, Georgia 30308
                  Attention: Business Credit-Account Executive
                  Telecopy No.:  404.607.6059


            If to a Loan Party:

                  Applica Incorporated
                  5980 Miami Lakes Drive
                  Miami Lakes, Florida 33014
                  Attention: Treasurer
                  Telecopy No.:  305.364-0502
                  Emil: adam.Kaplan@applicamail.com


or to such other address as each party may designate for itself by like notice.
Failure or delay in delivering copies of any notice, demand, request, consent,
approval, declaration or other communication to the persons designated above to
receive copies shall not adversely affect the effectiveness of such notice,
demand, request, consent, approval, declaration or other communication.

            13.9  Waiver of Notices.

            Unless otherwise expressly provided herein, the Loan Parties waive
presentment, and notice of demand or dishonor and protest as to any instrument,
notice of intent to accelerate the Obligations and notice of acceleration of the
Obligations, as well as any and all other notices to which they might otherwise
be entitled. No notice to or demand on a Loan Party which the Agent or any
Lender may elect to give shall entitle the Loan Parties to any or further notice
or demand in the same, similar or other circumstances.

            13.10 Binding Effect.

            The provisions of this Agreement shall be binding upon and inure to
the benefit of the respective representatives, successors, and assigns of the
parties hereto; provided, however, that no interest herein may be assigned by
any Loan Party without prior written consent of the Agent and each Lender. The
rights and benefits of the Agent and the Lenders hereunder shall, if such
Persons so agree, inure to any party acquiring any interest in the Obligations
or any part thereof.

            13.11 Indemnity of the Agent and the Lenders by the Borrower.

                  (a)   Each Loan Party agrees to defend, indemnify and hold the
            Agent-Related Persons, and each Lender, its Affiliates, and each of
            their respective officers, directors, employees, counsel,
            representatives, agents and


                                       78

            attorneys-in-fact (each, an "Indemnified Person") harmless from and
            against any and all liabilities, obligations, losses, damages,
            penalties, actions, judgments, suits, costs, charges, expenses and
            disbursements (including Attorney Costs) of any kind or nature
            whatsoever which may at any time (including at any time following
            repayment of the Loans and the termination, resignation or
            replacement of the Agent or replacement of any Lender) be imposed
            on, incurred by or asserted against any such Person in any way
            relating to or arising out of this Agreement or any document
            contemplated by or referred to herein, or the transactions
            contemplated hereby, or any action taken or omitted by any such
            Person under or in connection with any of the foregoing, including
            with respect to any investigation, litigation or proceeding
            (including any Insolvency Proceeding or appellate proceeding)
            related to or arising out of this Agreement, any other Loan
            Document, or the Loans or the use of the proceeds thereof, whether
            or not any Indemnified Person is a party thereto (all the foregoing,
            collectively, the "Indemnified Liabilities"); provided, that the
            Loan Parties shall have no obligation hereunder to any Indemnified
            Person with respect to Indemnified Liabilities resulting solely from
            the gross negligence or willful misconduct of such Indemnified
            Person. The agreements in this Section shall survive payment of all
            other Obligations.

                  (b)   Each Loan Party agrees to indemnify, defend and hold
            harmless the Agent and the Lenders and their Affiliates from any
            loss or liability directly or indirectly arising out of the use,
            generation, manufacture, production, storage, release, threatened
            release, discharge, disposal or presence of a hazardous substance
            relating to a Consolidated Member's operations, business or
            property. This indemnity will apply whether the hazardous substance
            is on, under or about the Consolidated Member's property or
            operations or property leased to a Consolidated Member. The
            indemnity includes but is not limited to Attorneys Costs. The
            indemnity extends to the Agent and the Lenders, their parents,
            affiliates, subsidiaries and all of their directors, officers,
            employees, agents, successors, attorneys and assigns. "Hazardous
            substances" means any substance, material or waste that is or
            becomes designated or regulated as "toxic," "hazardous,"
            "pollutant," or "contaminant" or a similar designation or regulation
            under any federal, state or local law (whether under common law,
            statute, regulation or otherwise) or judicial or administrative
            interpretation of such, including petroleum or natural gas. This
            indemnity will survive repayment of all other Obligations.

            13.12 [Reserved].

            13.13 Final Agreement.

            This Agreement, together with the other Loan Documents, are intended
by the Loan Parties, the Agent and the Lenders to be the final, complete, and
exclusive expression of the agreement between them. This Agreement and the other
Loan Documents supersede any and all prior oral or written agreements relating
to the subject matter hereof, except for the Fee Letter. Nothing contained
herein shall be deemed to be or operate as a novation or an accord and


                                       79

satisfaction of any of the Obligations. No modification, rescission, waiver,
release, or amendment of any provision of this Agreement or any other Loan
Document shall be made, except by a written agreement signed by the Loan Parties
and a duly authorized officer of each of the Agent and the requisite Lenders.

            13.14 Counterparts.

            This Agreement may be executed in any number of counterparts,
including facsimile copies thereof, and by the Agent, each Lender and the Loan
Parties in separate counterparts, each of which shall be an original, but all of
which shall together constitute one and the same agreement; signature pages may
be detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the same
document.

            13.15 Captions.

            The captions contained in this Agreement are for convenience of
reference only, are without substantive meaning and should not be construed to
modify, enlarge, or restrict any provision.

            13.16 Right of Setoff.

            In addition to any rights and remedies of the Lenders provided by
law, if an Event of Default exists or the Loans have been accelerated, each
Lender is authorized (subject to the terms of Section 12.12(b)) at any time and
from time to time, without prior notice to the Loan Parties, any such notice
being waived by the Loan Parties to the fullest extent permitted by law, to set
off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held by, and other indebtedness at any time
owing by, such Lender or any Affiliate of such Lender to or for the credit or
the account of the Loan Parties against any and all Obligations owing to such
Lender or its Affiliates, now or hereafter existing, irrespective of whether or
not the Agent or such Lender shall have made demand under this Agreement or any
Loan Document and although such Obligations may be contingent or unmatured. Each
Lender agrees promptly to notify the Loan Parties and the Agent after any such
set-off and application made by such Lender; provided, however, that the failure
to give such notice shall not affect the validity of such set-off and
application. NOTWITHSTANDING THE FOREGOING, NO LENDER SHALL EXERCISE ANY RIGHT
OF SET-OFF, BANKER'S LIEN, OR THE LIKE AGAINST ANY DEPOSIT ACCOUNT OR PROPERTY
OF A LOAN PARTY HELD OR MAINTAINED BY SUCH LENDER WITHOUT THE PRIOR WRITTEN
UNANIMOUS CONSENT OF THE LENDERS.

            13.17 Confidentiality.

            The Agent and each Lender (each, a "Lending Party") agrees to keep
Confidential any information furnished or made available to it by the Borrower,
any Guarantor or any of their Affiliates (each, a "Disclosing Party") that is
marked as confidential or, with respect to verbal information, explicitly
identified as confidential when furnished ("Confidential Information").


                                       80

                  (a)   For purposes of this Agreement, the term "Confidential
            Information" shall not include information that (i) is in the
            Lending Party's possession prior to it being provided by or on
            behalf of the Disclosing Party, provided that such information is
            not known by the Lending Party to be subject to another
            confidentiality agreement with, or other legal or contractual
            obligation of confidentiality to, a Disclosing Party (ii) is or
            becomes publicly available (other than through a breach of this
            Agreement by any Lending Party), or (iii) becomes available to the
            Lending Party on a non-confidential basis, provided that the source
            of such information was not known by the Lending Party to be bound
            by a confidentiality agreement or other legal or contractual
            obligation of confidentiality with respect to such information.

                  (b)   Notwithstanding the foregoing, a Lending Party may
            disclose Confidential Information to: (i) any governmental agency or
            regulatory body having or reasonably claiming to have authority to
            regulate or oversee any aspect of the Lending Party's business in
            connection with the exercise of such authority or claimed authority;
            (ii) the extent necessary or appropriate to effect or preserve the
            Lending Party's security (if any) hereunder or to enforce any right
            or remedy provided pursuant to this Agreement or in connection with
            any claims asserted by or against the Lending Party or the Borrower
            or any other person or entity involved herewith; (iii) its
            directors, officers, employees, attorneys, accountants, and auditors
            (collectively, the "Representatives") whom it reasonably determines
            need to know such information; and the Lending Party agrees inform
            the Representatives to whom it discloses Confidential Information of
            the confidential nature of the Confidential Information; (iv)
            pursuant to subpoena or other court process; (v) when required to do
            so in accordance with the provisions of any applicable Requirement
            of Law; (vi) to the extent reasonably required in connection with
            any litigation or proceeding (including, but not limited to, any
            bankruptcy proceeding) to which any Lending Party or their
            respective Affiliates may be party; and (vii) any bank or financial
            institution or other entity to which the Lending Party has sold or
            desires to sell an interest or participation in the Commitment and
            the Loan Documents, provided that any such recipient of such
            Confidential Information agrees in writing to keep such Confidential
            Information confidential as specified in this Section 13.16;
            provided, however, in the event a Lending Party is requested or
            required (by interrogatory, court order, subpoena, administrative
            proceeding, civil investigatory demand, or any similar legal
            process) to disclose any of the Confidential Information, the
            Lending Party, in the absence of a protective order, may disclose
            such information without liability. The Lending Party, however,
            shall, to the extent permitted by law and as promptly as
            practicable, make reasonable efforts to notify the Disclosing Party
            and the Borrower prior to such disclosure by the Lending Party so
            that the Disclosing Party may seek at its sole expense a protective
            order or other appropriate remedy.

                  (c)   Each Lending Party acknowledges that, under certain
            circumstances, the United States securities laws may prohibit a
            person who has received material, non-public information from an
            issuer from purchasing or selling securities of such issuer or from
            communicating such information to any other person under


                                       81

            circumstances in which it is reasonably foreseeable that such other
            person is likely to purchase or sell such securities. Each Lending
            Party further acknowledges that certain Confidential Information
            could be considered material non-public information and agrees that
            it will not, and it will use reasonable efforts to ensure that its
            Representatives will not, trade in the securities of the Borrower on
            the basis of such information or communicate such information to any
            other person under circumstances in which it is reasonably
            foreseeable that such other person is likely to purchase or sell
            such securities.

                  (d)   This Section 13.17 shall survive the termination of this
            Agreement.

            13.18 Conflicts with Other Loan Documents.

            Unless otherwise expressly provided in this Agreement (or in another
Loan Document by specific reference to the applicable provision contained in
this Agreement), if any provision contained in this Agreement conflicts with any
provision of any other Loan Document, the provision contained in this Agreement
shall govern and control.

            13.19 Agency of the Borrower for Each Other Loan Party.

            Each of the Loan Parties other than the Borrower irrevocably
appoints the Borrower as its agent for all purposes relevant to this Agreement,
including the giving and receipt of notices and execution and delivery of all
documents, instruments, and certificates contemplated herein (including, without
limitation, execution and delivery to the Agent of Borrowing Base Certificates,
Notices of Borrowing, and Notices of Continuation/Conversion) and all
modifications hereto. Any agreement, acknowledgment, consent, direction,
certification, or other action which might otherwise be valid or effective only
if given or taken by all or any of the Loan Parties or acting singly, shall be
valid and effective if given or taken only by the Borrower, whether or not any
of the other Loan Parties joins therein, and the Agent and the Lenders shall
have no duty or obligation to make further inquiry with respect to the authority
of the Borrower under this Section 13.19, provided that nothing in this Section
13.19 shall limit the effectiveness of, or the right of the Agent and the
Lenders to rely upon, any notice (including without limitation a Notice of
Borrowing or a Notice of Continuation/Conversion), document, instrument,
certificate, acknowledgment, consent, direction, certification, or other action
delivered by the Borrower or other Loan Party pursuant to this Agreement.

            13.20 Express Waivers By Loan Parties In Respect of Cross Guaranties
      and Cross Collateralization.

            Each Loan Party agrees as follows:

            (a)   Each Loan Party hereby waives: (i) notice of acceptance of
      this Agreement; (ii) notice of the making of any Loans, the issuance of
      any Letter of Credit or Credit Support, or any other financial
      accommodations made or extended under the Loan Documents or the creation
      or existence of any Obligations; (iii) notice of the amount of the
      Obligations, subject, however, to such Loan Party's right to make inquiry
      of the Agent to ascertain the amount of the Obligations at any reasonable
      time; (iv) notice of any


                                       82

      adverse change in the financial condition of any other Obligated Party or
      of any other fact that might increase such Loan Party's risk with respect
      to such other Obligated Party under the Loan Documents; (v) notice of
      presentment for payment, demand, protest, and notice thereof as to any
      promissory notes or other instruments among the Loan Documents; and (vii)
      all other notices (except if such notice is specifically required to be
      given to such Loan Party hereunder or under any of the other Loan
      Documents to which such Loan Party is a party) and demands to which such
      Loan Party might otherwise be entitled;

            (b)   Each Loan Party hereby waives the right by statute or
      otherwise to require the Agent or any Lender to institute suit against any
      other Obligated Party or to exhaust any rights and remedies which the
      Agent or any Lender has or may have against any other Obligated Party.
      Each Loan Party further waives any defense arising by reason of any
      disability or other defense of any other Obligated Party (other than the
      defense that the Obligations shall have been fully and finally performed
      and indefeasibly paid) or by reason of the cessation from any cause
      whatsoever of the liability of any such Obligated Party in respect
      thereof.

            (c)   Each Loan Party hereby waives and agrees not to assert against
      the Agent, any Lender, or the Letter of Credit Issuer: (i) any defense
      (legal or equitable), setoff, counterclaim, or claim which such Loan Party
      may now or at any time hereafter have against any other Obligated Party;
      (ii) any defense, setoff, counterclaim, or claim of any kind or nature
      available to any other Obligated Party against the Agent, any Lender, the
      Bank, or the Letter of Credit Issuer, arising directly or indirectly from
      the present or future lack of perfection, sufficiency, validity, or
      enforceability of the Obligations or any security therefor; (iii) any
      right or defense arising by reason of any claim or defense based upon an
      election of remedies by the Agent, any Lender, the Bank, or the Letter of
      Credit Issuer under any applicable law; (iv) the benefit of any statute of
      limitations affecting any other Loan Party's liability hereunder;

            (d)   Each Loan Party consents and agrees that, without notice to or
by such Loan Party and without affecting or impairing the obligations of such
Loan Party hereunder, the Agent may (subject to any requirement for consent of
any of the Lenders to the extent required by this Agreement), by action or
inaction: (i) compromise, settle, extend the duration or the time for the
payment of, or discharge the performance of, or may refuse to or otherwise not
enforce the Loan Documents; (ii) release all or any one or more parties to any
one or more of the Loan Documents or grant other indulgences to any other
Obligated Party in respect thereof, (iii) amend or modify in any manner and at
any time (or from time to time) any of the Loan Documents; or (iv) release or
substitute any Person liable for payment of the Obligations, or enforce,
exchange, release, or waive any security for the Obligations or any Guaranty of
the Obligations;

            Each Loan Party represents and warrants to the Agent and the Lenders
that such Loan Party is currently informed of the financial condition of all
other Consolidated Members and all other circumstances which a diligent inquiry
would reveal and which bear upon the risk of nonpayment of the Obligations. Each
Loan Party further represents and warrants that such Loan Party has read and
understands the terms and conditions of the Loan Documents. Each


                                       83

Loan Party agrees that neither the Agent, any Lender, the Bank, nor the Letter
of Credit Issuer has any responsibility to inform any Loan Party of the
financial condition of any other Obligated Party or of any other circumstances
which bear upon the risk of nonpayment or nonperformance of the Obligations.

            13.21 Judgment Currency.

            If for the purpose of obtaining judgment in any court it is
necessary to convert an amount due hereunder in the currency in which it is due
(the "Original Currency") into another currency (the "Second Currency"), the
rate of exchange applied shall be that at which, in accordance with normal
banking procedures, the Agent or any Lender could purchase in the New York
foreign exchange market, the Original Currency with the Second Currency on the
date on which judgment is given, or the preceding Business Day if such date is
not a Business Day. Each Loan Party agrees that its obligation in respect of any
Original Currency due from it hereunder shall, notwithstanding any judgment or
payment in such other currency, be discharged only to the extent that, on the
Business Day following the date the Lender receives payment of any sum so
adjudged to be due hereunder in the Second Currency, the Lender may, in
accordance with normal banking procedures, purchase, in the New York foreign
exchange market, the Original Currency with the amount of the Second Currency so
paid; and if the amount of the Original Currency so purchased or could have been
so purchased is less than the amount originally due in the Original Currency,
each Loan Party agrees, as a separate obligation and notwithstanding any such
payment or judgment, to indemnify the Agent or any Lender against such loss. The
term "rate of exchange" in this Section 13.20 means the spot rate at which Agent
or any Lender, in accordance with normal practices, is able on the relevant date
to purchase the Original Currency with the Second Currency, and includes any
premium and costs of exchange payable in connection with such purchase.


                                       84

            IN WITNESS WHEREOF, the parties have entered into this Agreement on
the date first above written.


                                   "BORROWER"


                                    APPLICA INCORPORATED, a Florida
                                    corporation

                                    By:  /s/ Adam L. Kaplan
                                        --------------------------------------
                                    Name:  Adam L. Kaplan
                                    Title: Treasurer


                                    "GUARANTORS"


                                    APPLICA CONSUMER PRODUCTS, INC., a
                                    Florida corporation

                                    By:  /s/ Adam L. Kaplan
                                        --------------------------------------
                                    Name:  Adam L. Kaplan
                                    Title: Treasurer


                                    APPLICA CANADA CORPORATION, a Nova Scotia
                                    corporation

                                    By:  /s/ Adam L. Kaplan
                                        --------------------------------------
                                    Name:  Adam L. Kaplan
                                    Title: Treasurer


                                    WD DELAWARE, INC., a Delaware corporation

                                    By:  /s/ Adam L. Kaplan
                                        --------------------------------------
                                    Name:  Adam L. Kaplan
                                    Title: Treasurer


                                    HP INTELLECTUAL CORP., a Delaware
                                    corporation

                                    By:  /s/ Adam L. Kaplan
                                        --------------------------------------
                                    Name:  Adam L. Kaplan
                                    Title: Treasurer


                                       85

                                    WINDMERE HOLDINGS CORPORATION, a Delaware
                                    corporation

                                    By:  /s/ Adam L. Kaplan
                                        --------------------------------------
                                    Name:  Adam L. Kaplan
                                    Title: Treasurer


                                    HP DELAWARE, INC., a Delaware corporation

                                    By:  /s/ Adam L. Kaplan
                                        --------------------------------------
                                    Name:  Adam L. Kaplan
                                    Title: Treasurer


                                    HPG LLC, a Delaware limited liability
                                     company

                                    By:  /s/ Adam L. Kaplan
                                        --------------------------------------
                                    Name:  Adam L. Kaplan
                                    Title: Treasurer


                                    HP AMERICAS, INC., a Delaware corporation

                                    By:  /s/ Adam L. Kaplan
                                        --------------------------------------
                                    Name:  Adam L. Kaplan
                                    Title: Treasurer








                    [Signatures continued on following page]


                                       86

                                    "AGENT"

                                    Bank of America, N.A., as the Agent


                                    By:  /s/ Stuart A. Hall
                                        --------------------------------------
                                    Name:  Stuart A. Hall
                                    Title: Vice President


                                    "LENDERS"

                                    Bank of America, N.A., as a Lender

                                    By:  /s/ Stuart A. Hall
                                        --------------------------------------
                                    Name:  Stuart A. Hall
                                    Title: Vice President





                    [Signatures continued on following page]


                                       87

                                    FLEET CAPITAL CORPORATION, as a Lender

                                    By:  /s/ Patrick McConnell
                                        --------------------------------------
                                    Name:  Patrick McConnell
                                    Title: Vice President



                    [Signatures continued on following page]


                                       88

                                    CONGRESS FINANCIAL CORPORATION (FLORIDA),
                                    as a Lender

                                    By:  /s/ Gary Dixon
                                        --------------------------------------
                                    Name:  Gary Dixon
                                    Title: Vice President




                    [Signatures continued on following page]


                                       89

                                    LASALLE BUSINESS CREDIT, INC., as agent
                                    for Standard Federal Bank National
                                    Association, as a Lender

                                    By:  /s/ Patrick Aarons
                                        --------------------------------------
                                    Name:  Patrick Aarons
                                    Title: Vice President




                    [Signatures continued on following page]


                                       90

                                    GENERAL ELECTRIC CAPITAL CORPORATION, as
                                    a Lender

                                    By:  /s/ Glenn Bartley
                                        --------------------------------------
                                    Name:  Glenn Bartley
                                    Title: Senior Vice President




                    [Signatures continued on following page]


                                       91

                                    HSBC BUSINESS CREDIT (USA), INC., as a
                                    Lender

                                    By:  /s/ Jimmy Schwartz
                                        --------------------------------------
                                    Name:  Jimmy Schwartz
                                    Title: Vice President




                    [Signatures continued on following page]


                                       92

                                    NATIONAL BANK OF CANADA, as a Lender

                                    By:  /s/ Jay Stein
                                        --------------------------------------
                                    Name:  Jay Stein
                                    Title: Vice President


                                    By:  /s/ Jean Page
                                        --------------------------------------
                                    Name:  Jean Page
                                    Title: Vice President


                                       93

                                     ANNEX A
                                       TO
                                CREDIT AGREEMENT

                                   DEFINITIONS

            Capitalized terms used in the Loan Documents shall have the
following respective meanings (unless otherwise defined therein), and all
section references in the following definitions shall refer to sections of the
Agreement:

            "Accounts" means all of the Borrower's now owned or hereafter
acquired or arising accounts, as defined in the UCC, including any rights to
payment for the sale or lease of goods or rendition of services, whether or not
they have been earned by performance.

            "Account Debtor" means each Person obligated in any way on or in
connection with an Account, Chattel Paper or General Intangibles (including a
payment intangible).

            "ACH Transactions" means any cash management or related services
including the automatic clearing house transfer of funds by the Bank or any
Lender for the account of any Consolidated Member.

            "Acquisition" means the acquisition of (i) a controlling equity
interest in another Person (including the purchase of an option, warrant or
convertible or similar type security to acquire such a controlling interest at
the time it becomes exercisable by the holder thereof), whether by purchase of
such equity interest or upon exercise of an option or warrant for, or conversion
of securities into, such equity interest, or (ii) assets of another Person which
constitute any material part of the assets of such Person or of a line or lines
of business conducted by such Person.

            "Adjusted Net Earnings from Operations" means, with respect to any
relevant fiscal period of the Borrower, the Consolidated Member's net income
after provision for income taxes for such fiscal period, as determined in
accordance with GAAP and reported on the Financial Statements for such period,
excluding any and all of the following included in such net income: (a) gain or
loss arising from the sale of any capital assets; (b) gain arising from any
write-up in the book value of any asset; (c) earnings of any Person,
substantially all the assets of which have been acquired by a Consolidated
Member in any manner, to the extent realized by such other Person prior to the
date of acquisition; (d) earnings of any Person in which a Consolidated Member
has an ownership interest (other than a Subsidiary) unless (and only to the
extent) such earnings shall actually have been received by such Consolidated
Member in the form of cash distributions; (e) gains arising from any foreign
currency translations or in connection with Hedge Agreements to the extent not
included as a component of the Borrower's consolidated operating profit or
interest expense in the Financial Statements; (f) gain arising from the
acquisition of debt or equity securities of the Borrower or any other
Consolidated Member or from cancellation or forgiveness of Debt; and (g) gain
arising from extraordinary items, as determined in accordance with GAAP, or from
any other non-recurring transaction.

            "Administration Fee" has the meaning specified in Section 2.7.


                                      A-1

            "Affiliate" means, as to any Person, including any Consolidated
Member (the "subject Person"), any other Person which, directly or indirectly,
is in control of, is controlled by, or is under common control with, the subject
Person or which owns, directly or indirectly, ten percent (10%) or more of the
outstanding equity interest of the subject Person. A Person shall be deemed to
control another Person if the controlling Person possesses, directly or
indirectly, the power to direct or cause the direction of the management and
policies of the other Person, whether through the ownership of voting
securities, by contract, or otherwise.

            "Agent" means the Bank, solely in its capacity as administrative and
collateral agent for the Lenders, and any successor administrative and
collateral agent.

            "Agent Advances" has the meaning specified in Section 1.2(i).

            "Agent-Related Persons" means Agent, together with its Affiliates,
and the officers, directors, employees, counsel, representatives, agents and
attorneys-in-fact of Agent and such Affiliates.

            "Agent's Liens" means the Liens in the Collateral granted to the
Agent, for the benefit of the Lenders and the Agent, pursuant to this Agreement
and the other Loan Documents.

            "Aggregate Revolver Outstandings" means, at any time, the sum of (a)
the unpaid balance of the Revolving Loans, (b) 100% of the aggregate undrawn
face amount of all Letters of Credit and Credit Support, and (c) the aggregate
amount of any unpaid reimbursement obligations in respect of Letters of Credit
and Credit Support.

            "Agreement" means the Credit Agreement to which this Annex A is
attached, as from time to time amended, modified or restated.

            "Anniversary Date" means each anniversary of the Closing Date.

            "Applica Canada" means Applica Canada Corporation, a Nova Scotia
corporation.

            "Applica Canada Blocked Account Agreement" means the Blocked Account
Agreements entered into between Applica Canada and Scotia Bank, as amended.

            "Applica Canada Formula Amount" means, at any date of determination,
that portion of the Borrowing Base comprised of Eligible Accounts and Eligible
Inventory owned by Applica Canada.

            "Applica Canada Guaranty" means an agreement of Guaranty executed by
Applica Canada pursuant to which Applica Canada guarantees the Obligations or
any portion thereof.

            "Applica Canada Security Agreement" means the General Security
Agreement, dated on or about the Closing Date, executed and delivered by Applica
Canada in favor of Agent for the benefit of itself and the Lenders, as at any
time amended.


                                      A-2

            "Applica Canada Sublimit" means, as of any date of determination,
the lesser of (a) $54,000,000 or (b) 30% of the Borrowing Base on any date of
determination thereof.

            "Applica Consumer Products" means Applica Consumer Products,
Inc., a Florida corporation, and its successors and assigns.

            "Applica Consumer Products Formula Amount" means, at any date of
determination, that portion of the Borrowing Base comprised of Eligible Accounts
and Eligible Inventory owned by Applica Consumer Products.

            "Applicable Margin" means, as of the Closing Date,

            (i)   with respect to Base Rate Revolving Loans, .35%;

            (ii)  with respect to LIBOR Revolving Loans, 2.35%; and

            (iii) with respect to the Unused Line Fee, .375%.

            The Applicable Margins shall be adjusted (up or down) prospectively
on a quarterly basis as determined by the Borrower's consolidated financial
performance, commencing with the first day of the first calendar month that
occurs more than five (5) days after the date of the delivery to the Agent of
the Borrower's audited Financial Statements for the Fiscal Year ending December
31, 2002. Adjustments in Applicable Margins shall be determined by reference to
the following grids:



IF FUNDED DEBT TO                LEVEL OF
CONSOLIDATED EBITDA RATIO IS:    APPLICABLE MARGINS:
- -----------------------------    -------------------
                              
> or = 2.5                       Level I
> or = 2.0, but < 2.5            Level II
> or = 1.75, but < 2.0           Level III
> or = 1.25, but < 1.75          Level IV
< 1.25                           Level V


      LOW TO HIGH



                            APPLICABLE MARGINS
                            ------------------
                            LEVEL I   LEVEL II   LEVEL III   LEVEL IV   LEVEL V
                            -------   --------   ---------   --------   -------
                                                         
Base Rate Revolving Loans     .75%       .50%        .35%       .25%      -0-%
LIBOR Revolving Loans        2.75%      2.50%       2.35%      2.25%      2.0%
Unused Line Fee               .50%      .375%       .375%      .375%      .25%


            All adjustments in the Applicable Margins after December 31, 2002
shall be implemented quarterly on a prospective basis for each calendar month
commencing at least five (5) days after the date of delivery to the Agent of
quarterly unaudited or annual audited (as applicable) Financial Statements
evidencing the need for an adjustment. Concurrently with the delivery of those
Financial Statements, the Borrower shall deliver to the Agent and the Lenders a


                                      A-3

certificate, signed by a Responsible Officer, setting forth in reasonable detail
the basis for the continuance of, or any change in, the Applicable Margins. For
the final quarter of any Fiscal Year of the Borrower, the Borrower may provide
unaudited Financial Statements of the Borrower, subject only to year-end
adjustments, for the purpose of determining the Applicable Margin; provided,
however, that if, upon delivery of the annual audited Financial Statements
required to be submitted by the Borrower to Agent pursuant to Section 5.2(a) of
this Agreement, Loan Parties have not met the criteria for reduction of the
Applicable Margin pursuant to the terms hereinabove for the final fiscal quarter
of the Fiscal Year of the Borrower then ended, then (a) such Applicable Margin
reduction shall be terminated and, effective on the first day of the month
following receipt by Agent of such audited Financial Statements, the Applicable
Margin shall be the Applicable Margin that would have been in effect if such
reduction had not been implemented based upon the unaudited Financial Statements
for the final fiscal quarter of the Fiscal Year of the Borrower then ended, and
(b) the Borrower shall pay to Agent, for the Pro Rata benefit of the Lenders, on
the first day of the month following receipt by Agent of such audited Financial
Statements, an amount equal to the difference between the amount of interest
that would have been paid on the principal amount of the Obligations using the
Applicable Margin determined based upon such audited Financial Statements and
the amount of interest actually paid during the period in which the reduction of
the Applicable Margin was in effect based upon the unaudited Financial
Statements for the final fiscal quarter of the Fiscal Year then ended. Failure
to timely deliver such Financial Statements shall, in addition to any other
remedy provided for in this Agreement, result in an increase in the Applicable
Margins to the highest level set forth in the foregoing grid, until the first
day of the first calendar month following the delivery of those Financial
Statements demonstrating that such an increase is not required. If a Default or
Event of Default has occurred and is continuing at the time any reduction in the
Applicable Margins is to be implemented, no reduction may occur until the first
day of the first calendar month following the date on which such Default or
Event of Default is waived or cured.

            "Applicable Period" means, as of any date, the preceding four fiscal
quarters.

            "Approved Receivables Program" means any securitization, factoring
or receivables program of the Loan Parties as may be approved in writing by the
Required Lenders in their sole discretion and subject to such intercreditor
agreements, assignments or other agreements as the Agent may deem appropriate or
reasonably necessary.

            "Arrangement Fee" has the meaning specified in Section 2.4.

            "Asset Disposition" means, with respect to any Person, the sale,
lease or other disposition of any asset of such Person other than the sale of
Inventory or the use of cash in the ordinary course of business.

            "Assignee" has the meaning specified in Section 11.2(a).

            "Assignment and Acceptance" has the meaning specified in Section
11.2(a).

            "Attorney Costs" means and includes all reasonable fees, expenses
and disbursements of any law firm or other counsel engaged by the Agent.


                                      A-4

            "Availability" means, at any time (a) the lesser of (i) the Maximum
Revolver Amount or (ii) the Borrowing Base, minus (b) Reserves other than
Reserves deducted in the calculation of the Borrowing Base, minus (c) in each
case, the Aggregate Revolver Outstandings.

            "Average Credit Facility Outstandings" means for any period, the
average daily Aggregate Revolver Outstandings at the end of each day during a
month or during shorter periods if the foregoing is calculated for the first
month after the Closing Date or as of the Termination Date.

            "Bank" means Bank of America, N.A., a national banking
association, or any successor entity thereto.

            "Bank Products" means any one or more of the following types of
services or facilities extended to a Consolidated Member by the Bank, any
Lender, any affiliate of the Bank or a Lender, and, solely in the case of an
affiliate of the Bank or a Lender, in reliance on the Bank's or such Lender's
agreement to indemnify such affiliate in connection with: (i) credit cards; (ii)
ACH Transactions; (iii) cash management, including controlled disbursement
services; and (iv) Hedge Agreements.

            "Bank Product Reserves" means all reserves which the Agent from time
to time establishes in its reasonable discretion for the Bank Products then
provided or outstanding.

            "Bankruptcy Code" means Title 11 of the United States Code (11
U.S.C. Section 101 et seq.).

            "Base Rate" means, for any day, the rate of interest in effect for
such day as publicly announced from time to time by the Bank in Charlotte, North
Carolina as its "prime rate" (the "prime rate" being a rate set by the Bank
based upon various factors including the Bank's costs and desired return,
general economic conditions and other factors, and is used as a reference point
for pricing some loans, which may be priced at, above, or below such announced
rate). Any change in the prime rate announced by the Bank shall take effect at
the opening of business on the day specified in the public announcement of such
change. Each Interest Rate based upon the Base Rate shall be adjusted
simultaneously with any change in the Base Rate.

            "Base Rate Loans" means, collectively, the Base Rate Revolving
Loans.

            "Base Rate Revolving Loan" means a Revolving Loan during any period
in which it bears interest based on the Base Rate.

            "BIA" means the Bankruptcy and Insolvency Act (Canada) and all
regulations thereunder.

            "Black & Decker License Agreement" means the Trademark License
Agreement, dated June 26, 1998, The Black & Decker Corporation and the Borrower,
as at any time amended, modified, extended or renewed.

            "Blocked Account Agreement" means an agreement, including, inter
alia, a collection account agreement, among one or more of the Loan Parties, the
Agent and a Clearing


                                      A-5

Bank, in form and substance reasonably satisfactory to the Agent, concerning the
collection of payments which represent the proceeds of Accounts or of any other
Collateral.

            "Borrower" means Applica Incorporated, a Florida corporation, and
its successors and assigns.

            "Borrowing" means a borrowing hereunder consisting of Revolving
Loans made on the same day by the Lenders to the Borrower or by Bank (in the
case of a Borrowing funded by Non-Ratable Loans) or by the Agent in the case of
a Borrowing consisting of an Agent Advance, or the issuance of Letters of Credit
or Credit Support hereunder.

            "Borrowing Base" means, at any time, an amount equal to (a) the sum
of (i) 85% of the Net Amount of Eligible Accounts; plus (ii) the lesser of (A)
$100,000,000 or (B) the lesser of (I) 70% of the Cost Value of Eligible
Inventory or (II) 85% of the Net Orderly Liquidation Value; minus (b), without
duplication, Reserves.

            Notwithstanding the foregoing, in no event shall the aggregate
amount of Revolving Loans outstanding at any date (a) as measured by Eligible
Inventory comprised of In-Transit Inventory exceed (i) $24,500,000 with respect
to In-Transit Inventory destined for a United States port of entry, or (ii)
$3,500,000 with respect to In-Transit Inventory destined for a Canadian port of
entry, or (b) as measured by Eligible Accounts and Eligible Inventory of Applica
Canada exceed the Applica Canada Sublimit.

            For purposes of the calculation of the Borrowing Base, (1) the value
of Eligible Accounts and Eligible Inventory shall be calculated based on Dollar
Equivalents at any date of determination, and (2) the value of Eligible
Inventory consisting of In-Transit Inventory shall be net of all duty, freight,
taxes, costs, insurance and other charges and expenses which customarily pertain
to such In-Transit Inventory.

            "Borrowing Base Certificate" means a certificate by a Responsible
Officer of the Borrower, substantially in the form of Exhibit B (or another form
acceptable to the Agent) setting forth the calculation of the Borrowing Base,
including a calculation of each component thereof, all in such detail as shall
be reasonably satisfactory to the Agent. All calculations of the Borrowing Base
in connection with the preparation of any Borrowing Base Certificate shall
originally be made by the Borrower and certified to the Agent; provided, that
the Agent shall have the right to review and adjust, in the exercise of its
reasonable credit judgment, any such calculation (1) to reflect its reasonable
estimate of declines in value of any of the Collateral described therein, and
(2) to the extent that such calculation is not in accordance with this
Agreement.

            "Business Day" means (a) any day that is not a Saturday, Sunday, or
a day on which banks in Atlanta, Georgia or Charlotte, North Carolina are
required or permitted to be closed, and (b) with respect to all notices,
determinations, fundings and payments in connection with the LIBOR Rate or LIBOR
Rate Loans, any day that is a Business Day pursuant to clause (a) above and that
is also a day on which trading in Dollars is carried on by and between banks in
the London interbank market.


                                      A-6

            "Capital Adequacy Regulation" means any guideline, request or
directive of any central bank or other Governmental Authority, or any other law,
rule or regulation, whether or not having the force of law, in each case,
regarding capital adequacy of any bank or of any corporation controlling a bank.

            "Capital Expenditures" means all payments due (whether or not paid
during any fiscal period) in respect of the cost of any fixed asset or
improvement, or replacement, substitution, or addition thereto, which has a
useful life of more than one year, including, without limitation, those costs
arising in connection with the direct or indirect acquisition of such asset by
way of increased product or service charges or in connection with a Capital
Lease, and other items presented in accordance with the GAAP.

            "Capital Lease" means any lease of property by a Consolidated Member
which, in accordance with GAAP, should be reflected as a capital lease on the
consolidated balance sheet of the Borrower.

            "Capital Stock" means any and all corporate stock, units, shares,
partnership interests, membership interests, equity interests, rights,
securities, or other equivalent evidences of ownership (however designated)
issued to any Person.

            "Change of Control" means if any Person or group of Persons acting
in concert, other than the owners of more than 10% of outstanding securities of
the Borrower as of Closing Date having voting rights in the election of
directors, shall own or control, directly or indirectly, more than 30% of the
outstanding securities of the Borrower having voting rights in the election of
directors, in each case to be determined on a fully diluted basis and taking
into account any outstanding securities or contract rights exercisable,
exchangeable or convertible into equity interests.

            "Chattel Paper" shall have the meaning specified in the Security
Agreement.

            "Clearing Bank" means the Bank or any other banking institution with
whom a Payment Account has been established pursuant to a Blocked Account
Agreement.

            "Closing Date" means the date of this Agreement.

            "Closing Fee" has the meaning specified in Section 2.4.

            "Code" means the Internal Revenue Code of 1986, as amended.

            "Collateral" has the meaning specified in the Security Agreement.

            "Collateral Access Agreement" shall mean a Warehousemen's Agreement
or a Landlord Agreement, among Agent, a Loan Party and/or a Loan Party's
Affiliate and certain third parties named therein, as of the date hereof and
from time to time after the date hereof, in each case substantially in the form
attached hereto as Exhibit G.

            "Collections Fee" has the meaning specified in Section 2.8.


                                      A-7

            "Commitment" means, at any time with respect to a Lender, the
principal amount set forth beside such Lender's name under the heading
"Commitment" on Schedule 1.2 attached to the Agreement or on the signature page
of the Assignment and Acceptance pursuant to which such Lender became a Lender
hereunder in accordance with the provisions of Section 11.2, as such Commitment
may be adjusted from time to time in accordance with the provisions of Section
11.2, and "Commitments" means, collectively, the aggregate amount of the
Commitments of all of the Lenders.

            "Confidential Information" has the meaning specified in Section
13.17.

            "Consolidated EBITDA" means, with respect to any fiscal period of
the Borrower, the Adjusted Net Earnings from Operations of the Borrower and the
other Consolidated Members,, plus, to the extent deducted in the determination
of Adjusted Net Earnings from Operations for that fiscal period, interest
expenses, federal, state, local and foreign income taxes, depreciation,
amortization, and, solely for purposes of calculating Consolidated EBITDA for
any period during the Borrower's 2002 Fiscal Year, those costs associated with
the Borrower's consolidation of its Shelton, Connecticut facility into its Miami
Lake, Florida facility that were not previously accrued, as determined in
accordance with GAAP.

            "Consolidated Members" means the Borrower and its Subsidiaries and
"Consolidated Member" means any of the foregoing.

            "Contaminant" means any waste, pollutant, hazardous substance, toxic
substance, hazardous waste, special waste, petroleum or petroleum-derived
substance or waste, asbestos in any form or condition, polychlorinated biphenyls
("PCBs"), or any constituent of any such substance or waste.

            "Continuation/Conversion Date" means the date on which a Loan is
converted into or continued as a LIBOR Rate Loan.

            "Core Business" means, with respect to the Consolidated Members, the
business of manufacturing and distributing of household and outdoor appliances,
personal care products, pet products and related items consistent with past
practices.

            "Cost of Acquisition" means, with respect to any Acquisition, as at
the date of consummation of any such Acquisition, the sum of the following
(without duplication): (i) the value of the capital stock, warrants or options
to acquire capital stock of a Loan Party to be transferred in connection
therewith, (ii) any cash or other property and the unpaid principal amount of
any debt instrument given as consideration, (iii) any Debt assumed by a Loan
Party in connection with such Acquisition, and (iv) out of pocket transaction
costs for the services and expenses of attorneys, accountants and other
consultants incurred in effecting such a transaction, and other similar
transactions costs so incurred. For purposes of determining the Cost of
Acquisition for any transaction, (A) the capital stock of a Loan Party shall be
valued (I) at its market value as reported on the New York Stock Exchange with
respect to shares that are freely tradable, and (II) with respect to shares that
are not freely tradable, as determined by the Board of Directors of the Borrower
and, if requested by Agent, determined to be a reasonable valuation by the
independent public accountants referred to in Section 5.2 hereof, (B) the
capital stock of


                                      A-8

any Subsidiary shall be valued as determined by the Board of Directors of the
Borrower or such Subsidiary and, if requested by Agent, determined to be a
reasonable valuation by the independent public accountants referred to in
Section 5.2 hereof, and (C) with respect to any Acquisition accomplished
pursuant to the exercise of options or warrants or the conversion of securities,
the Cost of Acquisition shall include both the cost of acquiring such option,
warrant or convertible security as well as the cost of exercise or conversion.

            "Cost Value" means, with reference to Eligible Inventory, the
applicable Loan Party's cost of such Eligible Inventory calculated on a
first-in, first-out basis determined in accordance with GAAP.

            "Credit Support" has the meaning specified in Section 1.4(a).

            "Debt" means, without duplication, with respect any Person (the
"subject Person"), all liabilities, obligations and indebtedness of the subject
Person to any other Person, of any kind or nature, now or hereafter owing,
arising, due or payable, howsoever evidenced, created, incurred, acquired or
owing, whether primary, secondary, direct, contingent, fixed or otherwise,
consisting of indebtedness for borrowed money or the deferred purchase price of
property, excluding purchases of property, product, merchandise and services in
the ordinary course of business, but including (a) in the case of the Loan
Parties, all Obligations; (b) all obligations and liabilities of any Person
secured by any Lien on the subject Person's property, even though the subject
Person shall not have assumed or become liable for the payment thereof; (except
unperfected Liens incurred in the ordinary course of business and not in
connection with the borrowing of money); provided, however, that all such
obligations and liabilities which are limited in recourse to such property shall
be included in Debt only to the extent of the book value of such property as
would be shown on a balance sheet of the subject Person prepared in accordance
with GAAP; (c) all obligations or liabilities created or arising under any
Capital Lease or conditional sale or other title retention agreement with
respect to property used or acquired by the subject Person, even if the rights
and remedies of the lessor, seller or lender thereunder are limited to
repossession of such property; provided, however, that all such obligations and
liabilities which are limited in recourse to such property shall be included in
Debt only to the extent of the book value of such property as would be shown on
a balance sheet of the subject Person prepared in accordance with GAAP; (d) all
obligations and liabilities under Guaranties; (e) the present value (discounted
at the Base Rate) of lease payments due under synthetic leases; and (f) all
obligations and liabilities under any asset securitization (other than an
Approved Receivables Program) or sale/leaseback transaction (other than the
Headquarters Financing Transaction); provided, further, however, that in no
event shall the term Debt include the capital stock surplus, retained earnings,
minority interests in the common stock of Subsidiaries, lease obligations (other
than pursuant to (c) or (e) above), reserves for deferred income taxes and
investment credits, other deferred credits or reserves.

            "Default" means any event or circumstance which, with the giving of
notice, the lapse of time, or both, would (if not cured, waived, or otherwise
remedied during such time) constitute an Event of Default.

            "Default Rate" means a fluctuating per annum interest rate at all
times equal to the sum of (a) the otherwise applicable Interest Rate plus (b)
two percent (2%) per annum. Each


                                      A-9

Default Rate shall be adjusted simultaneously with any change in the applicable
Interest Rate. In addition, the imposition of the Default Rate shall result in
an increase in the Letter of Credit Fee by two percent (2%) per annum.

            "Defaulting Lender" has the meaning specified in Section 12.15(c).

            "Deposit Accounts" shall have the meaning specified in the Security
Agreement.

            "Designated Account" has the meaning specified in Section 1.2(c).

            "Direct Foreign Subsidiary" means any Foreign Subsidiary whose
outstanding voting Capital Stock is owned by a Loan Party or a Domestic
Subsidiary.

            "Disclosing Party" has the meaning specified in Section 13.17.

            "Distribution" means, in respect of any Person (other than a natural
Person): (a) the payment or making of any dividend or other distribution of
property in respect of such Person's Capital Stock (excluding any options or
warrants for, or other rights with respect to, such stock) of such corporation,
other than distributions in such Person's Capital Stock of the same class; or
(b) the redemption or other acquisition by such corporation of any Capital Stock
(or any options or warrants for such Capital Stock) of such Person.

            "Documents" shall have the meaning specified in the Security
Agreement.

            "DOL" means the United States Department of Labor or any successor
department or agency.

            "Dollar" and "$" means dollars in the lawful currency of the United
States. Unless otherwise specified, all payments under the Agreements shall be
made in Dollars.

            "Dollar(Cdn)" and "$(Cdn)" means dollars in the lawful currency of
Canada.

            "Dollar Equivalent" means, with respect to any monetary amount in a
currency other than Dollars, at any time for the determination thereof, the
amount of Dollars obtained by converting such foreign currency involved in such
computation into Dollars at the spot rate for the purchase of Dollars with the
applicable foreign currency as quoted by Agent at approximately 11:00 a.m.
(Atlanta, Georgia time) on any date of determination thereof specified in this
Agreement or, if the day of determination thereof is not otherwise specified in
this Agreement, on the date two (2) Business Days prior to such determination.

            "Domestic Subsidiaries" means the Subsidiaries of the Borrower
organized or incorporated under the laws of a state in the United States and
denominated as a "Domestic Subsidiary" in Schedule 6.5.

            "Eligible Accounts" means the Accounts of a Loan Party which the
Agent in the exercise of its reasonable commercial discretion determines to be
Eligible Accounts. Without limiting the discretion of the Agent to establish
additional criteria of ineligibility, Eligible Accounts shall not include any
Account:


                                      A-10

            (a)   with respect to which more than 120 days have elapsed since
the date of the original invoice therefor or which is more than 60 days past
due, whichever is sooner;

            (b)   with respect to which any of the representations, warranties,
covenants, and agreements contained in the Security Agreement are incorrect or
have been breached;

            (c)   with respect to which Account (or any other Account due from
such Account Debtor), in whole or in part, a check, promissory note, draft,
trade acceptance or other instrument for the payment of money has been received,
presented for payment and returned uncollected by reason of insufficient funds;

            (d)   which represents a progress billing (as hereinafter defined)
or as to which the applicable Loan Party has materially extended the time for
payment without the consent of the Agent; for the purposes hereof, "progress
billing" means any invoice for goods sold or leased or services rendered under a
contract or agreement pursuant to which the Account Debtor's obligation to pay
such invoice is conditioned upon the applicable Loan Party's completion of any
further performance under the contract or agreement;

            (e)   with respect to which any one or more of the following events
has occurred to the Account Debtor on such Account: the filing by or against the
Account Debtor of a petition for liquidation, reorganization, arrangement,
adjustment of debts, adjudication as a bankrupt, winding-up, or other relief
under the bankruptcy, insolvency, or similar laws of the United States or
Canada, any state, province or territory thereof, or any foreign jurisdiction,
now or hereafter in effect; the making of any general assignment by the Account
Debtor for the benefit of creditors; the appointment of a receiver or trustee
for the Account Debtor or for any of the assets of the Account Debtor,
including, without limitation, the appointment of or taking possession by a
"custodian," as defined in the Federal Bankruptcy Code; the institution by or
against the Account Debtor of any other type of insolvency proceeding (under the
bankruptcy laws of the United States or otherwise) or of any formal or informal
proceeding for the dissolution or liquidation of, settlement of claims against,
or winding up of affairs of, the Account Debtor; the nonpayment generally by the
Account Debtor of its debts as they become due; or the cessation of the business
of the Account Debtor as a going concern; provided, however, that none of the
foregoing exclusions from Eligible Accounts shall include any Account to the
extent there is any post-petition receivable that has the status of an
administrative claim and is entitled to be paid in the ordinary course;

            (f)   if 50% or more of the aggregate Dollar amount of outstanding
Accounts owed at such time by the Account Debtor thereon is classified as
ineligible under clause (a) above;

            (g)   owed by an Account Debtor which: (i) does not maintain its
chief executive office in the United States of America, Canada or the
Commonwealth of Puerto Rico (and, with respect to Accounts owed by an Account
Debtor located in the Commonwealth of Puerto Rico, no more than $1,000,000 in
aggregate face amount of such Accounts shall be deemed Eligible Accounts at any
time); or (ii) is not organized under the laws of the United States of America,
Canada, the Commonwealth of Puerto Rico any state or province thereof; or (iii)
is the government of any foreign country or sovereign state, or of any state,
province,


                                      A-11

municipality, or other political subdivision thereof, or of any department,
agency, public corporation, or other instrumentality thereof; except to the
extent that such Account is secured or payable by a letter of credit
satisfactory to the Agent in its discretion;

            (h)   owed by an Account Debtor which is an Affiliate or employee of
a Loan Party;

            (i)   except as provided in clause (k) below, with respect to which
either the perfection, enforceability, or validity of the Agent's Liens in such
Account, or the Agent's right or ability to obtain direct payment to the Agent
of the proceeds of such Account, is governed by any federal, state, or local
statutory requirements other than those of the UCC;

            (j)   owed by an Account Debtor to which the applicable Loan Party
or any of its Subsidiaries, is indebted in any way, or which is subject to any
right of setoff or recoupment by the Account Debtor, unless the Account Debtor
has entered into an agreement acceptable to the Agent to waive setoff rights; or
if the Account Debtor thereon has disputed liability or made any claim with
respect to any other Account due from such Account Debtor; but in each such case
only to the extent of such indebtedness, setoff, recoupment, dispute, or claim;

            (k)   owed by the government of the United States of America or
Canada, or any department, agency, public corporation, or other instrumentality
thereof, unless in the case of the United States of America, the Federal
Assignment of Claims Act of 1940, as amended (31 U.S.C. Section 3727 et seq.),
and any other steps necessary to perfect the Agent's Liens therein, have been
complied with to the Agent's satisfaction with respect to such Account;

            (l)   owed by any state, province, municipality, or other political
subdivision of the United States of America or Canada, or any department,
agency, public corporation, or other instrumentality thereof and as to which the
Agent determines that its Lien therein is not or cannot be perfected;

            (m)   which represents a sale on a bill-and-hold, guaranteed sale,
sale and return, sale on approval, consignment, or other repurchase or return
basis;

            (n)   which is evidenced by a promissory note or other instrument or
by chattel paper;

            (o)   if the Agent believes, in the exercise of its reasonable
judgment, that the prospect of collection of such Account is impaired or that
the Account may not be paid by reason of the Account Debtor's financial
inability to pay;

            (p)   with respect to which the Account Debtor is located in any
state requiring the filing of a Notice of Business Activities Report or similar
report in order to permit the applicable Loan Party to seek judicial enforcement
in such State of payment of such Account, unless such Loan Party has qualified
to do business in such state or has filed a Notice of Business Activities Report
or equivalent report for the then current year;

            (q)   which arises out of a sale not made in the ordinary course of
the applicable Loan Party's business;


                                      A-12

            (r)   with respect to which the goods giving rise to such Account
have not been shipped and delivered to and accepted by the Account Debtor or the
services giving rise to such Account have not been performed by the applicable
Loan Party, and, if applicable, accepted by the Account Debtor, or the Account
Debtor revokes its acceptance of such goods or services;

            (s)   owed by an Account Debtor which is obligated to the applicable
Loan Party respecting Accounts the aggregate unpaid balance of which exceeds 30%
of the aggregate unpaid balance of all Accounts owed to such Loan Party at such
time by all of such Loan Party's Account Debtors, but only to the extent of such
excess;

            (t)   which is not subject to a first priority and perfected
security interest in favor of the Agent for the benefit of the Lenders.

            If any Account at any time ceases to be an Eligible Account, then
such Account shall promptly be excluded from the calculation of Eligible
Accounts until reinstated by the Agent as an Eligible Account in the exercise of
its reasonable credit judgment. Notwithstanding the foregoing, none of the
Accounts described in clauses (a) through (o) above shall be excluded from
Eligible Accounts if the payments of such Accounts are (i) guaranteed by any
third party, (ii) covered by insurance policies or (iii) secured or payable by a
letter of credit, in each case as is satisfactory to Agent in its sole
discretion.

            "Eligible Assignee" means (a) a commercial bank, commercial finance
company, financial institution or other asset based lender, having total assets
in excess of $1,000,000,000; (b) any Lender listed on the signature page of this
Agreement; (c) any Affiliate of any Lender; and (d) if an Event of Default has
occurred and is continuing, any Person reasonably acceptable to the Agent.

            "Eligible Inventory" means Inventory of a Loan Party which the
Agent, in its reasonable discretion, determines to be Eligible Inventory.
Without limiting the discretion of the Agent to establish additional criteria of
ineligibility, Eligible Inventory shall not include any Inventory:

            (a)   that is not owned by a Loan Party;

            (b)   that is not subject to the Agent's Liens, which are perfected
as to such Inventory, or that are subject to any other Lien whatsoever (other
than the Liens described in clause (d) of the definition of Permitted Liens
provided that such Permitted Liens (i) are junior in priority to the Agent's
Liens or subject to Reserves and (ii) do not impair directly or indirectly the
ability of the Agent to realize on or obtain the full benefit of the
Collateral);

            (c)   that does not consist of finished goods;

            (d)   that consists of work-in-process, chemicals, samples,
prototypes, supplies, or packing and shipping materials;

            (e)   that is not in good condition, is unmerchantable, or does not
meet all standards imposed by any Governmental Authority having regulatory
authority over such goods, their use or sale;


                                      A-13

            (f)   that is not currently either usable or salable, at prices
approximating at least cost, in the normal course of such Loan Party's business,
or that is slow moving or stale;

            (g)   that is obsolete or returned (to the extent the aggregate Cost
Value of returned Inventory exceeds $5,000,000 and such returned Inventory
otherwise satisfies the criteria applicable to Eligible Inventory) or
repossessed or used goods taken in trade;

            (h)   that is located outside the United States of America or Canada
or that is in-transit from vendors or suppliers except to extent such Inventory
constitutes In-Transit Inventory;

            (i)   that is located in a public warehouse or in possession of a
bailee or in a facility leased by the applicable Loan Party, if the
warehouseman, or the bailee, or the lessor has not delivered to the Agent, if
requested by the Agent, a subordination agreement in form and substance
satisfactory to the Agent or if a Reserve for rents or storage charges has not
been established for Inventory at that location;

            (j)   that contains or bears any Proprietary Rights licensed to such
Loan Party by any Person, if the Agent is not satisfied that it may sell or
otherwise dispose of such Inventory in accordance with the terms of the Security
Agreement and Section 9.2 without infringing the rights of the licensor of such
Proprietary Rights or violating any contract with such licensor (and without
payment of any royalties other than any royalties due with respect to the sale
or disposition of such Inventory pursuant to the existing license agreement),
and, as to which such Loan Party has not delivered to the Agent a consent or
sublicense agreement from such licensor in form and substance acceptable to the
Agent if requested;

            (k)   that is not reflected in the details of a current perpetual
inventory report; or

            (l)   that is Inventory placed on consignment.

            If any Inventory at any time ceases to be Eligible Inventory, such
Inventory shall promptly be excluded from the calculation of Eligible Inventory
until reinstated by Agent in the exercise of its reasonable credit judgment as
Eligible Inventory.

            "Environmental Claims" means all claims, however asserted, by any
Governmental Authority or other Person alleging potential liability or
responsibility for violation of any Environmental Law, or for a Release or
injury to the environment.

            "Environmental Laws" means all federal, state, provincial or local
laws, statutes, common law duties, rules, regulations, ordinances and codes,
together with all administrative orders, directed duties, licenses,
authorizations and permits of, and agreements with, any Governmental Authority,
in each case relating to environmental, health, safety and land use matters.

            "Environmental Lien" means a Lien in favor of any Governmental
Authority or any other Person for (a) any liability under Environmental Laws, or
(b) damages arising from, or costs incurred by such Governmental Authority in
response to, a Release or threatened Release of a Contaminant into the
environment.


                                      A-14

            "Equipment" shall have the meaning specified in the Security
Agreement.

            "ERISA" means the Employee Retirement Income Security Act of 1974,
and regulations promulgated thereunder.

            "ERISA Affiliate" means any trade or business (whether or not
incorporated) under common control with a Loan Party within the meaning of
Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for
purposes of provisions relating to Section 412 of the Code).

            "ERISA Event" means (a) a Reportable Event and or Termination Event
with respect to a Pension Plan, (b) a withdrawal by a Loan Party or any ERISA
Affiliate from a Pension Plan during a plan year in which it was a substantial
employer (as defined in Section 4001(a)(2) of ERISA) or employer under the PBA
or a cessation of operations which is treated as such a withdrawal, (c) a
complete or partial withdrawal by a Loan Party or any ERISA Affiliate from a
Multi-employer Plan or notification that a Multi-employer Plan or plan regulated
or governed by the PBA is in reorganization, (d) the filing of a notice of
intent to terminate, the treatment of a Plan amendment as a termination or the
commencement of proceedings by the PBGC or other applicable Governmental
Authority to terminate a Pension Plan or Multi-employer Plan, (e) the occurrence
of an event or condition which might reasonably be expected to constitute
grounds for the termination of, or the appointment of a trustee to administer,
any Pension Plan or Multi-employer Plan, (f) the imposition of any liability
under Title IV of ERISA, other than for PBGC premiums due but not delinquent
under Section 4007 of ERISA or PBA or other applicable law of any jurisdiction,
upon a Loan Party or any ERISA Affiliate; or (g) failure to make or remit any
contribution when due in respect of any Plan.

            "Event of Default" has the meaning specified in Section 9.1.

            "Exchange Act" means the Securities Exchange Act of 1934, and
regulations promulgated thereunder.

            "FDIC" means the Federal Deposit Insurance Corporation, and any
Governmental Authority succeeding to any of its principal functions.

            "Federal Funds Rate" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average
of the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers on such day, as published by
the Federal Reserve Bank of New York on the Business Day next succeeding such
day; provided that (a) if such day is not a Business Day, the Federal Funds Rate
for such day shall be such rate on such transactions on the next preceding
Business Day as so published on the next succeeding Business Day, and (b) if no
such rate is so published on such next succeeding Business Day, the Federal
Funds Rate for such day shall be the average rate charged to the Bank on such
day on such transactions as determined by the Agent.

            "Federal Reserve Board" means the Board of Governors of the Federal
Reserve System or any successor thereto.


                                      A-15

            "Fee Letter" means the letter from Agent to the Borrower, dated
December __, 2001, setting forth certain fees and other charges payable by the
Loan Parties in connection with the provision and syndication of the credit
facilities contemplated under this Agreement.

            "Financial Statements" means, according to the context in which it
is used, the financial statements referred to in Sections 5.2 and 6.6 or any
other financial statements required to be given to the Agent and the Lenders
pursuant to this Agreement.

            "Fiscal Year" means, with respect to the Loan Parties, their fiscal
year for financial accounting purposes. The current Fiscal Year of the Loan
Parties will end on December 31, 2001.

            "Fixed Assets" means the Equipment and Real Estate of the Loan
Parties.

            "Foreign Security Document" means a Guaranty, pledge, mortgage,
personal property mortgage, security agreement, assignment, security instrument,
hypothecation, charge or other agreement or document by which any Foreign
Subsidiary grants or otherwise conveys to the Agent or any Affiliate of the
Agent for the benefit of the Agent, or any agent or trustee for or on behalf of
the Agent or any such Affiliate, any Guaranty, pledge, lien, security interest,
mortgage, charge, collateral assignment or similar interest in property of such
Foreign Subsidiary as security for the Obligations or any portion thereof, and
any and all renewals, extensions, modifications, amendments or restatements
thereof.

            "Foreign Subsidiary" means any Subsidiary of the Borrower other than
the Domestic Subsidiaries, which shall include Applica Canada and such other
Foreign Subsidiaries as are designated in Schedule 6.5.

            "Funded Debt to Consolidated EBITDA Ratio" means, as of any date of
determination, the ratio of (i) the Average Credit Facility Outstandings for the
last month of any applicable fiscal quarter of the Borrower, to (ii)
Consolidated EBITDA as of the last day of any applicable fiscal quarter of
Borrower for the Applicable Period then ending.

            "Funding Date" means the date on which a Borrowing occurs.

            "GAAP" means generally accepted accounting principles and practices
set forth from time to time in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board (or
agencies with similar functions of comparable stature and authority within the
U.S. accounting profession), which are applicable to the circumstances as of the
date of the report.

            "General Intangibles" shall have the meaning specified in the
Security Agreement.

            "Goods" shall have the meaning specified in the Security Agreement.

            "Governmental Authority" means any nation or government, any state,
province, municipality, region or other political subdivision thereof, any
central bank (or similar monetary or regulatory authority) thereof, any entity
exercising executive, legislative, judicial, regulatory


                                      A-16

or administrative functions of or pertaining to government, any corporation or
other entity owned or controlled, through stock or capital ownership or
otherwise, by any of the foregoing and any department, agency, board,
commission, tribunal, committee or instrumentality of any of the foregoing.

            "Guarantor" means Applica Canada and any other Subsidiary of the
Borrower that has executed and delivered to the Agent an agreement of Guaranty
in respect of the Obligations.

            "Guaranty" means, with respect to any Person, all obligations of
such Person which in any manner directly or indirectly guarantee or assure, or
in effect guarantee or assure, the payment or performance of any indebtedness,
dividend or other obligations of any other Person (the "guaranteed
obligations"), or assure or in effect assure the holder of the guaranteed
obligations against loss in respect thereof, including any such obligations
incurred through an agreement, contingent or otherwise: (a) to purchase the
guaranteed obligations or any property constituting security therefor; (b) to
advance or supply funds for the purchase or payment of the guaranteed
obligations or to maintain a working capital or other balance sheet condition;
or (c) to lease property or to purchase any debt or equity securities or other
property or services.

            "Headquarter Financing Transaction" shall mean any financing
transaction after the date hereof involving the Headquarters.

            "Headquarters" shall mean the Real Estate located at 5980 Miami
Lakes Drive, Miami Lakes, Florida.

            "Hedge Agreements" means any and all transactions, agreements or
documents now existing or hereafter entered into, which provides for an interest
rate, credit, commodity or equity swap, cap, floor, collar, forward foreign
exchange transaction, currency swap, cross currency rate swap, currency option,
or any combination of, or option with respect to, these or similar transactions,
for the purpose of hedging a Person's exposure to fluctuations in interest or
exchange rates, loan, credit exchange, security or currency valuations or
commodity prices.

            "Intercompany Accounts" has the meaning specified in Section 5.2(l).

            "Instruments" shall have the meaning specified in the Security
Agreement.

            "Interest Period" means, as to any LIBOR Rate Loan, the period
commencing on the Funding Date of such Loan or on the Continuation/Conversion
Date on which the Loan is converted into or continued as a LIBOR Rate Loan, and
ending on the date one, two, three or six months thereafter as selected by the
Borrower in its Notice of Borrowing, in the form attached hereto as Exhibit D,
or Notice of Continuation/Conversion, in the form attached hereto as Exhibit E,
provided that:

            (a)   if any Interest Period would otherwise end on a day that is
      not a Business Day, that Interest Period shall be extended to the
      following Business Day unless the result of such extension would be to
      carry such Interest Period into another calendar month, in which event
      such Interest Period shall end on the preceding Business Day;

            (b)   any Interest Period pertaining to a LIBOR Rate Loan that
      begins on the


                                      A-17

      last Business Day of a calendar month (or on a day for which there is no
      numerically corresponding day in the calendar month at the end of such
      Interest Period) shall end on the last Business Day of the calendar month
      at the end of such Interest Period; and

            (c)   no Interest Period shall extend beyond the Stated Termination
      Date.

            "Interest Rate" means each or any of the interest rates, including
the Default Rate, set forth in Section 2.1.

            "In-Transit Inventory" means Inventory of a Loan Party (i)
consisting of finished goods that is in transit to a Loan Party; (ii) with
respect to which Agent has received from the vendor of such Inventory and each
of the Loan Parties a duly executed letter agreement in substantially the form
of Exhibit H and such vendor and the Loan Parties are in compliance with the
terms and provisions of such letter agreement, as Agent may determine in its
sole discretion; (iii) the In-Transit Perfection Documents with respect thereto
have been presented to and are in the possession of Agent or its authorized
bailees; and (iv) such Inventory it is fully insured by marine cargo or other
insurance on terms in an amount and subject to deductibles satisfactory to Agent
and with respect to which Agent has been named additional insured and loss
payee.

            "In-Transit Perfection Documents" mean all filings, agreements or
other documents requested by Agent to perfect (or continue the perfection of) a
first priority Lien in favor of Agent (except for possessory liens upon such
goods in the possession of a freight carrier or shipping company securing only
the freight charges for the transportation of such goods to a Loan Party) upon
Inventory in-transit to a Loan Party, including delivery to the Agent or a
bailee of the Agent of all original Documents issued with respect to such
Inventory (which shall in each instance be negotiable (as defined in the UCC))
and such other agreements as may be requested by Agent with each common carrier,
shipper, customs agent, freight forwarder or other Person, in form and substance
reasonably satisfactory to Agent.

            "Inventory" shall have the meaning specified in the Security
Agreement.

            "Investment Property" shall have the meaning specified in the
Security Agreement.

            "IRS" means the Internal Revenue Service and any Governmental
Authority succeeding to any of its principal functions under the Code.

            "Latest Projections" means: (a) on the Closing Date and thereafter
until the Agent receives new projections pursuant to Section 5.2(e), the
projections of the Borrower's balance sheets, income statements and cash flows,
for the period commencing on October 1, 2001 and ending on September 30, 2002
and delivered to Agent prior to the Closing Date; and (b) thereafter, the
projections most recently received by Agent pursuant to Section 5.2(f).

            "Lender" and "Lenders" have the meanings specified in the
introductory paragraph hereof and shall include Agent to the extent of any Agent
Advance outstanding and the Bank to the extent of any Non-Ratable Loan
outstanding; provided that no such Agent Advance or Non-Ratable Loan shall be
taken into account in determining any Lender's Pro Rata


                                      A-18

Share.

            "Lending Party" has the meaning specified in Section 13.17.

            "Letter of Credit" has the meaning specified in Section 1.4(a).

            "Letter of Credit Fee" has the meaning specified in Section 2.6.

            "Letter of Credit Issuer" means the Bank, any Affiliate of the Bank,
a Lender or any other financial institution that issues any Letter of Credit
pursuant to this Agreement.

            "Letter-of-Credit Rights" shall have the meaning specified in the
Security Agreement.

            "Letter of Credit Subfacility" means $10,000,000.

            "LIBOR Interest Payment Date" means, with respect to a LIBOR Rate
Loan, the Termination Date and the last day of each Interest Period applicable
to such Loan or, with respect to each Interest Period of greater than three
months in duration, the last day of the third month of such Interest Period and
the last day of such Interest Period.

            "LIBOR Rate" means, for any Interest Period, with respect to LIBOR
Rate Loans, the rate of interest per annum determined pursuant to the following
formula:

            LIBOR Rate  =                 Offshore Base Rate
                          ------------------------------------------------
                                1.00 - Eurodollar Reserve Percentage
            Where,

                  "Offshore Base Rate" means, for any Revolving Loan bearing
      interest at the LIBOR Rate the rate per annum appearing on Telerate Page
      3750 (or any successor page) as the London interbank offered rate for
      deposits in Dollars at approximately 11:00 a.m. (London time) two Business
      Days prior to the first day of such Interest Period for a term comparable
      to such Interest Period. If for any reason such rate is not available, the
      Offshore Base Rate shall be, for any Interest Period, the rate per annum
      appearing on Reuters Screen LIBO Page as the London interbank offered rate
      for deposits in Dollars at approximately 11:00 a.m. (London time) two
      Business Days prior to the first day of such Interest Period for a term
      comparable to such Interest Period; provided, however, if more than one
      rate is specified on Reuters Screen LIBO Page, the applicable rate shall
      be the arithmetic mean of all such rates. If for any reason none of the
      foregoing rates is available, the Offshore Base Rate shall be, for any
      Interest Period, the rate per annum determined by Agent as the rate of
      interest at which dollar deposits in the approximate amount of the LIBOR
      Rate Loan comprising part of such Borrowing would be offered by the Bank's
      London Branch to major banks in the offshore dollar market at their
      request at or about 11:00 a.m. (London time) two Business Days prior to
      the first day of such Interest Period for a term comparable to such
      Interest Period.

                  "Eurodollar Reserve Percentage" means, for any day during any
      Interest Period, the reserve percentage (expressed as a decimal, rounded
      upward to the next


                                      A-19

      1/100th of 1%) in effect on such day applicable to member banks under
      Regulation D or any successor regulation issued from time to time by the
      Federal Reserve Board for determining the maximum reserve requirement
      (including any emergency, supplemental or other marginal reserve
      requirement) applicable with respect to Eurocurrency funding (currently
      referred to as "Eurocurrency liabilities" under Regulation D). The
      Offshore Rate for each outstanding LIBOR Rate Loan shall be adjusted
      automatically as of the effective date of any change in the Eurodollar
      Reserve Percentage.

            "LIBOR Rate Loans" means, the LIBOR Revolving Loans.

            "LIBOR Revolving Loan" means a Revolving Loan during any period in
which it bears interest based on the LIBOR Rate.

            "Lien" means: (a) any interest in property securing an obligation
owed to, or a claim by, a Person other than the owner of the property, whether
such interest is based on the common law, statute, or contract, and including a
security interest, hypothec, charge, claim, or lien arising from a mortgage,
deed of trust, encumbrance, pledge, hypothecation, assignment, deposit
arrangement, agreement, security agreement, conditional sale or trust receipt or
a lease, consignment or bailment for security purposes; and (b) any contingent
or other agreement to provide any of the foregoing.

            "Loan Account" means the loan account of the Borrower, which account
shall be maintained by the Agent.

            "Loan Documents" means this Agreement, the Security Agreement,
Subsidiary Guaranties, the Applica Canada Guaranty, the Applica Canada Security
Agreement, the Pledge Agreement, the Fee Letter and any other agreements,
instruments, and documents heretofore, now or hereafter evidencing, securing,
guaranteeing or otherwise relating to the Obligations, the Collateral, or any
other aspect of the transactions contemplated by this Agreement.

            "Loan Party" means each of the Borrower, the Guarantors and Applica
Canada, and "Loan Parties" means any two or more of the foregoing.

            "Loans" means, collectively, all loans and advances provided for in
Article 1.

            "Margin Stock" means "margin stock" as such term is defined in
Regulation T, U or X of the Federal Reserve Board.

            "Material Adverse Effect" means (a) a material adverse change in, or
a material adverse effect upon, the operations, business, properties or
condition (financial or otherwise) or prospects of the Consolidated Members
taken as a whole, or the Collateral; (b) a material impairment of the ability of
any Obligated Party to perform under any Loan Document to which it is a party;
or (c) a material adverse effect upon the legality, validity, binding effect or
enforceability against any Obligated Party of any material Loan Document to
which it is a party.

            "Material Contracts" means an agreement to which a Loan Party is a
party (other than a Loan Document) (i) which would be deemed to be a material
contract as provided in Regulation S-K promulgated by the SEC under the
Securities Act of 1933 or (ii) for which


                                      A-20

breach, termination, cancellation, non-performance or failure to renew could
reasonably be expected to have a Material Adverse Effect.

            "Maximum Rate" has the meaning specified in Section 2.3.

            "Maximum Revolver Amount" means $205,000,000.

            "Multi-employer Plan" means a "multi-employer plan" as defined in
Section 4001(a)(3) of ERISA which is or was at any time during the current year
or the immediately preceding six (6) years contributed to by the Borrower or any
ERISA Affiliate.

            "Net Amount of Eligible Accounts" means, at any time, the gross
Dollar Equivalent amount of Eligible Accounts less, unless already included as a
Reserve, sales, excise or similar taxes, returns, discounts, claims, credits,
allowances accrued rebates, offsets, deductions, counterclaims, disputes and
other defenses of any nature at any time issued, owing, granted, outstanding,
available or claimed.

            "Net Inventory Proceeds" means, with regard to any sale or
disposition of Inventory, the gross cash proceeds received from such sale or
disposition, net of the reasonable costs of such sale (including attorneys fees,
charges and commissions), and all transfer, sales and other taxes paid or
payable as a result of such sale.

            "Net Orderly Liquidation Value" shall mean at any date of
determination the Net Inventory Proceeds expected to be realized at an orderly,
negotiated sale of applicable items of Inventory located in the United States or
Canada as determined by a "desktop" professional opinion of Ozer Valuation
Services or other appraisal company of similar qualifications and standing
acceptable to the Agent, with each such opinion assuming that such sale is held
within a reasonable period of time after the date of the opinion.

            "Net Proceeds" means, in respect of an Asset Disposition of by a
Person, all proceeds received by and/or payable to such Person in consideration
thereof, net of (A) commissions and other reasonable and customary transaction
costs, fees and expenses properly attributable to such transaction and payable
by such Person in connection therewith (in each case, paid to non-Affiliates),
(B) transfer taxes, (C) amounts payable to holders of senior Liens (other than
the Agent's Liens and to the extent such Liens constitute Permitted Liens), if
any, and (D) an appropriate reserve for income taxes in accordance with GAAP in
connection therewith.

            "New Subsidiary" has the meaning specified in Section 7.24.

            "Net Worth" means with respect to any Person, such Person's total
shareholder's equity (including capital stock, additional paid-in capital and
retained earnings, after deducting treasury stock) which would appear as such on
a balance sheet of such Person prepared in accordance with GAAP.

            "Non-Ratable Loan" and "Non-Ratable Loans" have the meanings
specified in Section 1.2(h).


                                      A-21

            "North American EBITDA" means, with respect to any fiscal period of
the Borrower, the Adjusted Net Earnings from Operations of the Borrower, the
Domestic Subsidiaries and Applica Canada, plus, to the extent deducted in the
determination of Adjusted Net Earnings from Operations for that fiscal period,
interest expenses, federal, state, local and foreign income taxes, depreciation,
amortization, and, solely for purposes of calculating North American EBITDA for
any period during the Borrower's 2002 Fiscal Year, those costs associated with
the Borrower's consolidation of its Shelton, Connecticut facility into its Miami
Lake, Florida facility that were not previously accrued, as determined in
accordance with GAAP.

            "Notice of Borrowing" has the meaning specified in Section 1.2(b).

            "Notice of Continuation/Conversion" has the meaning specified in
Section 2.2(b).

            "Obligated Parties" means (i) the Loan Parties and (ii) any other
Consolidated Member that executes and delivers to the Agent any Foreign Security
Document, and "Obligated Party" means any of the foregoing.

            "Obligations" means all present and future loans, advances,
liabilities, obligations, covenants, duties, and debts owing by the Borrower or
any of the other Loan Parties, or any of them, to the Agent and/or any Lender,
arising under or pursuant to this Agreement or any of the other Loan Documents,
whether or not evidenced by any note, or other instrument or document, whether
arising from an extension of credit, opening of a letter of credit, acceptance,
loan, guaranty, indemnification or otherwise, whether direct or indirect,
absolute or contingent, due or to become due, primary or secondary, as principal
or guarantor, and including all principal, interest, charges, expenses, fees,
attorneys' fees, filing fees and any other sums chargeable to the Borrower or
other Loan Party hereunder or under any of the other Loan Documents.
"Obligations" includes, without limitation, (a) all debts, liabilities, and
obligations now or hereafter arising from or in connection with the Letters of
Credit and Credit Support and (b) all debts, liabilities and obligations now or
hereafter arising from or in connection with Bank Products.

            "Operating Documents" means with respect to any corporation, limited
liability company, partnership, limited partnership, limited liability
partnership or other legally authorized incorporated or unincorporated entity,
the bylaws, operating agreement, partnership agreement or limited agreement of
such entity.

            "Organization Documents" means with respect to any corporation,
limited liability company, partnership, limited liability partnership or other
legally authorized incorporated or unincorporated entity, the articles of
incorporation, certificate of incorporation, articles of organization or
certificate of limited partnership of such entity.

            "Participant" means any Person who shall have been granted the right
by any Lender to participate in the financing provided by such Lender under this
Agreement, and who shall have entered into a participation agreement in form and
substance satisfactory to such Lender.

            "Payment Account" has the meaning specified in the Security
Agreement.


                                      A-22

            "PBA" means the Pension Benefits Act of Ontario and all regulations
thereunder as amended from time to time, and any successor legislation.

            "PBGC" means the Pension Benefit Guaranty Corporation or any
Governmental Authority succeeding to the functions thereof.

            "Pending Revolving Loans" means, at any time, the aggregate
principal amount of all Revolving Loans requested in any Notice of Borrowing
received by the Agent which have not yet been advanced.

            "Pension Plan" means a pension plan (as defined in Section 3(2) of
ERISA or the applicable laws of any other jurisdiction including the PBA)
subject to Title IV of ERISA or the applicable laws of any other jurisdiction
including the PBA which any Loan Party or any ERISA Affiliate sponsors,
maintains, or to which it makes, is making, or is obligated to make
contributions, or has made contributions at any time during the immediately
preceding five (5) plan years.

            "Permitted Acquisition" means an Acquisition effected with the
consent and approval of the board of directors or other applicable governing
body of the Person being acquired ("Target"), and with the duly obtained
approval of such shareholders or other holders of equity interest as such Target
may be required to obtain, so long as (i) immediately prior to and after giving
effect to the consummation of such Acquisition, no Event of Default has or would
exist, (ii) with respect to an Acquisition where the Cost of Acquisition exceeds
$2,500,000, substantially all of the sales and operating profits generated by
the Target (or its assets) so acquired or invested are derived from a line or
lines of business that are consistent with the Core Business, (iii) pro forma
historical financial statements as of the end of the most recent fiscal quarter
for the trailing twelve month period giving effect to such Acquisition are
delivered to Agent not less than ten (10) Business Days prior to the
consummation of such Acquisition, together with a certificate of an Responsible
Officer stating that no Default or Event of Default exists before or after
giving effect to such Acquisition and demonstrating compliance with Section 7.27
hereof, if then-applicable, after giving effect to such Acquisition on a pro
forma basis; provided, that such Consolidated EBITDA and North American EBITDA
tests shall be measured as of the most recently ended fiscal quarter for the
Applicable Period then ended and shall include the EBITDA of any Target acquired
through such Acquisition as if such Acquisition had been consummated on the
first day of such Applicable Period, (iv) the aggregate Cost of Acquisition
(excluding the value of any capital stock of the Borrower given as part of the
Cost of Acquisition) with respect to any Acquisitions consummated during any
Fiscal Year shall not exceed $20,000,000; (v) the aggregate Cost of Acquisition
which consists in whole or in part of the value of any capital stock of the
Borrower (including without limitation when combined with cash, debt or the
assumption of indebtedness for any specific Acquisition) with respect to any
single Acquisition consummated after the Closing Date shall not exceed
$10,000,000; (vi) appropriate phase I environmental reports in respect of any
real property of the Target shall have been delivered to the Agent not less than
ten (10) days prior to the consummation of such Acquisition and such reports
shall be acceptable to the Agent in its sole discretion; (vii) after giving
effect to the consummation of such Acquisition (including any Loans made
hereunder to finance such Acquisition), Availability is greater than $30,000,000
for each of the 30 days immediately preceding and immediately following the date
of the consummation of such


                                      A-23

Acquisition; provided, that no assets of the Target shall be included in the
calculation of Availability for purposes of this clause (vii), or for purposes
of Section 7.27 or otherwise until the Agent has completed a satisfactory field
examination with respect to the Target and its assets; (viii) after giving
effect to the consummation of such Acquisition (including any Loans made
hereunder to finance such acquisition) the Aggregate Revolver Outstandings shall
not exceed the amount of the Maximum Revolver Amount minus $10,000,000; (ix) if
the Target will become a Domestic Subsidiary of a Loan Party in connection with
such Acquisition, the Loan Parties shall cause the Target to become a Guarantor
hereunder and grant to the Agent, for the benefit of the Agent and the Lenders,
a perfected, first-priority Lien on substantially all of the assets of the
Target, all pursuant to documentation in form and substance acceptable to the
Agent in its discretion; and (x) if the Target will become a Foreign Subsidiary
of a Loan Party in connection with such Acquisition, the Loan Parties shall
cause the parent Loan Party to pledge to Agent, for the benefit of the Lenders,
65% of the Capital Stock of the Target.

            "Permitted Liens" means:

            (a)   Liens for Taxes, fees, assessments or other charges of a
Governmental Authority which are not (i) delinquent or (ii) statutory Liens for
taxes, fees, assessments or other charges in an amount not to exceed $500,000;
provided that the payment of such taxes which are due and payable is being
contested in good faith and by appropriate proceedings diligently pursued and as
to which adequate financial reserves have been established on the applicable
Loan Party's books and records and a stay of enforcement of any such Lien is in
effect;

            (b)   the Agent's Liens;

            (c)   Liens incurred or deposits made in the ordinary course of
business in connection with, or to secure payment of, obligations under worker's
compensation, unemployment insurance, social security and other similar laws, or
to secure the performance of bids, tenders or contracts (other than for the
repayment of Debt) or to secure indemnity, performance or other similar bonds
for the performance of bids, tenders or contracts (other than for the repayment
of Debt) or to secure statutory obligations (other than liens arising under
ERISA or Environmental Liens) or other similar obligations or arising as a
result of progress payments under government contracts or surety or appeal
bonds, or to secure indemnity, performance or other similar bonds;

            (d)   Liens securing the claims or demands of materialmen,
mechanics, carriers, warehousemen, landlords and other like Persons, provided
that if any such Lien arises from the nonpayment of such claims or demand when
due, such claims or demands do not exceed $200,000 in the aggregate;

            (e)   Liens constituting encumbrances in the nature of reservations,
exceptions, encroachments, easements, rights of way, covenants running with the
land, and other similar title exceptions or encumbrances affecting any Real
Estate; provided that they do not in the aggregate materially detract from the
value of the Real Estate or materially interfere with its use in the ordinary
conduct of the applicable Loan Party's business;


                                      A-24

            (f)   Liens arising from judgments and attachments in connection
with court proceedings provided that the attachment or enforcement of such Liens
would not result in an Event of Default hereunder and such Liens are being
contested in good faith by appropriate proceedings, adequate reserves have been
set aside and no material Property is subject to a material risk of loss or
forfeiture and the claims in respect of such Liens are fully covered by
insurance (subject to ordinary and customary deductibles) and a stay of
execution pending appeal or proceeding for review is in effect; and

            (g)   Liens in respect of purchase-money Debt permitted to be
incurred pursuant to Section 7.13(c) hereof in connection with the acquisition
of Equipment; provided that (a) the original principal balance of the Debt
secured by such Lien constitutes not more than 100% of the purchase price of the
Equipment acquired and (b) such Lien extends only to the Equipment acquired with
the proceeds of the Debt so secured;

            (h)   Liens on real property securing Debt permitted under Section
7.13(a), (c), (k) hereof;

            (i)   Liens on Accounts subject to any Approved Receivables Program;
and

            (j)   Liens, if any, which are described in Schedule A-1 on the
Closing Date and Liens resulting from the refinancing of the related Debt,
provided that such refinancing is on the same or substantially similar terms,
the Debt secured thereby shall not be increased, and the Liens shall not cover
any additional property of the any Loan Party.

            "Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, Governmental Authority, or any other entity.

            "Plan" means an employee benefit plan (as defined in Section 3(3) of
ERISA or the applicable laws of any other jurisdiction) which the Borrower or
any other Loan Party sponsors or maintains or to which the Borrower or any other
Loan Party makes, is making, or is obligated to make contributions and includes
any Pension Plan.

            "Pledge Agreement" means the Stock Pledge Agreement, dated on or
about the Closing Date, executed by the Borrower and certain of the Domestic
Subsidiaries in favor of Agent, with respect of all of the Capital Stock of the
Domestic Subsidiaries referenced therein and 65% of the Capital Stock of the
Direct Foreign Subsidiaries, as at any time amended.

            "PPSA" means, collectively, the Personal Property Security Acts of
the Provinces of Ontario and Nova Scotia, and all regulations thereunder, as
amended from time to time, and any successor legislation.

            "Proposed Change" has the meaning specified in Section 11.1(c).

            "Proprietary Rights" shall have the meaning specified in the
Security Agreement.

            "Pro Rata Share" means, with respect to a Lender, a fraction
(expressed as a percentage), the numerator of which is the amount of such
Lender's Commitment and the


                                      A-25

denominator of which is the sum of the amounts of all of the Lenders'
Commitments, or if no Commitments are outstanding, a fraction (expressed as a
percentage), the numerator of which is the amount of Obligations (exclusive
indebtedness in respect of Bank Products) owed to such Lender and the
denominator of which is the aggregate amount of the Obligations (exclusive
indebtedness in respect of Bank Products) owed to the Lenders, in each case
giving effect to a Lender's participation in Non-Ratable Loans and Agent
Advances.

            "Real Estate" means, with respect to any Person, all of such
Person's now or hereafter owned or leased estates in real property, including,
without limitation, all fees, leaseholds and future interests, together with all
of such Person's now or hereafter owned or leased interests in the improvements
thereon, the fixtures attached thereto and the easements appurtenant thereto.

            "Refinancing" has the meaning specified in Section 7.29.

            "Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System (or any successor body) as the same may be amended or
supplemented from time to time.

            "Release" means a release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration of a
Contaminant into the indoor or outdoor environment or into or out of any Real
Estate or other property, including the movement of Contaminants through or in
the air, soil, surface water, groundwater or Real Estate or other property.

            "Reportable Event" means, any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder, other than any such event for
which the 30-day notice requirement under ERISA has been waived in regulations
issued by the PBGC.

            "Representatives" has the meaning specified in Section 13.16.

            "Required Lenders" means at any time Lenders whose Pro Rata Shares
aggregate more than 50%.

            "Requirement of Law" means, as to any Person, any law (statutory or
common), treaty, rule or regulation or determination of an arbitrator declared
final and binding by a Governmental Authority or of a Governmental Authority, in
each case applicable to or binding upon the Person or any of its property or to
which the Person or any of its property is subject.

            "Reserves" means reserves that limit, without duplication, the
availability of credit hereunder, consisting of reserves against Availability,
Eligible Accounts or Eligible Inventory, established by Agent from time to time
in Agent's reasonable credit judgment. Without limiting the generality of the
foregoing or in duplication thereof, the following reserves shall be deemed to
be a reasonable exercise of Agent's credit judgment: (a) Bank Product Reserves,
(b) a reserve for accrued, unpaid interest on the Obligations, (c) reserves for
rent at leased locations subject to statutory or contractual landlord liens, (d)
Inventory shrinkage consistent with the Borrower's standard accounting
practices, (e) customs charges, (f) dilution, and (g) warehousemen's or bailees'
charges.


                                      A-26

            "Responsible Officer" means, with respect to any Loan Party, the
chief executive officer, the president, the senior treasury officer, the chief
financial officer, the treasurer, the controller or any senior vice president or
any other officer having substantially the same authority and responsibility;
or, with respect to compliance with financial covenants and the preparation of
Borrowing Base Certificates, the chief financial officer or the treasurer of the
Borrower, or any other officer having substantially the same authority and
responsibility.

            "Restricted Investment" means, with respect to any Loan Party, any
acquisition of property by such Loan Party in exchange for cash or other
property, whether in the form of an acquisition of stock, debt, or other
indebtedness or obligation, or the purchase or acquisition of any other
property, or a loan, advance, capital contribution, or subscription, except the
following: (a) acquisitions of Equipment to be used in the business of such Loan
Party so long as the acquisition costs thereof constitute Capital Expenditures
permitted hereunder; (b) acquisitions of Inventory in the ordinary course of
business of such Loan Party; (c) acquisitions of current assets acquired in the
ordinary course of business of the Loan Parties; (d) direct obligations of the
United States of America, or any agency thereof, or obligations guaranteed by
the United States of America, provided that such obligations mature within one
year from the date of acquisition thereof; (e) acquisitions of certificates of
deposit maturing within one year from the date of acquisition, bankers'
acceptances, Eurodollar bank deposits, or overnight bank deposits, in each case
issued by, created by, or with a bank or trust company organized under the laws
of the United States of America or any state thereof having capital and surplus
aggregating at least $100,000,000; (f) acquisitions of commercial paper given a
rating of "A2" or better by Standard & Poor's Corporation or "P2" or better by
Moody's Investors Service, Inc. and maturing not more than 90 days from the date
of creation thereof; (g) Hedge Agreements; (h) investments, loans and advances
existing as of the date hereof and as set forth in Schedule A -2; (i) Accounts
arising and trade credit granted in the ordinary course of business and any
securities received in satisfaction or partial satisfaction thereof in
connection with accounts of financially troubled Persons to the extent
reasonably necessary in order to prevent or limit loss; (j) investments
consisting of loans and advances between any Loan Party and another Loan Party
to the extent funded in a manner consistent with Section 7.29; (k) Permitted
Acquisitions; (l) for so long as no Event of Default exists and the Borrower has
Availability of not less than $15,000,000 after giving effect thereto, other
loans, advances and investments in an aggregate principal amount at any time
outstanding not to exceed $10,000,000; (m) the Debt evidenced by the Senior
Subordinated Debt Offering Documents; and (n) shares of mutual funds, the shares
of which mutual funds are at all times rated "AAA" by Standard & Poor's; (o)
cash or other cash equivalents owned by the Borrower and in the possession or
control of the Agent or an Affiliate of Agent invested in short terms vehicles
such as repurchase agreements, overnight bank deposits, bankers' acceptances or
other investments as may be mutually acceptable to the Borrower and the Agent;
and (q) obligations of any corporation organized under the laws of any state of
the United States of America or under the laws of any other nation, payable in
the United States of America, expressed to mature not later than 180 days
following the date of issuance thereof and rated in an investment grade rating
category by Standard & Poor's and Moody's; provided, however, that with respect
to clauses (d) - (h) and clauses (n) - (q), such investments are not subject to
rights of offset (other than nominal amounts for brokerage fees and other,
similar charges of financial intermediaries) in favor of any Person other than
the Agent or a Lender.

            "Revolving Loans" has the meaning specified in Section 1.2 and
includes each


                                      A-27

Agent Advance and Non-Ratable Loan.

            "Security Agreement" means the Security Agreement of even date
herewith among the Loan Parties and Agent for the benefit of the Agent and the
Lenders.

            "Senior Subordinated Debt Offering Documents" means: (i) the 10%
Senior Subordinated Notes due 2008, executed by Windmere-Durable Holdings, Inc.,
now known as Applica Incorporated, dated July 27, 1998, in the principal amount
of $130,000,000; (ii) the 10% Senior Subordinated Notes due 2008 Supplemental
Indenture, dated as of July 27, 1998, by and among the Borrower, certain
Affiliates listed on the signature pages thereof and State Street Bank and Trust
Company; and (iii) all other agreements, instruments or documents executed or
delivered by Borrowers in connection with the foregoing, as any of the foregoing
may be at any time amended or modified.

            "Settlement" and "Settlement Date" have the meanings specified in
Section 12.15(a)(ii).

            "Software" shall have the meaning specified in the Security
Agreement..

            "Solvent" means, when used with respect to any Person, that at the
time of determination:

            (a)   the assets of such Person, at a fair valuation, are in
      excess of the total amount of its debts (including contingent
      liabilities); and

            (b)   the present fair saleable value of its assets is greater than
      its probable liability on its existing debts as such debts become absolute
      and matured; and

            (c)   it is then able and expects to be able to pay its debts
      (including contingent debts and other commitments) as they mature; and

            (d)   it has capital sufficient to carry on its business as
      conducted and as proposed to be conducted.

            For purposes of determining whether a Person is Solvent, the amount
of any contingent liability shall be computed as the amount that, in light of
all the facts and circumstances existing at such time, represents the amount
that can reasonably be expected to become an actual or matured liability.

            "Stated Termination Date" means December __, 2005.

            "Subsidiary" of a Person, with respect to any Person (the "subject
Person"), means any corporation, association, partnership, limited liability
company, joint venture or other business entity of which more than fifty percent
(50%) of the voting stock or other equity interests (in the case of Persons
other than corporations), is owned or controlled directly or indirectly by the
subject Person, or one or more of the Subsidiaries of the subject Person, or a
combination thereof. Unless the context otherwise clearly requires, references
herein to a "Subsidiary" refer to a Subsidiary of the Borrower.


                                      A-28

            "Subsidiary Guaranty" means an agreement of Guaranty executed by any
Subsidiary of the Borrower pursuant to which such Subsidiary guarantees the
Obligations or any portion thereof.

            "Supporting Obligations" shall have the meaning specified in the
Security Agreement.

            "Tangible Net Worth" shall mean, as applied to any Person, the Net
Worth of such Person at the time in question, after deducting therefrom the
amount of all intangible items reflected therein, including all unamortized debt
discount and expense, unamortized research and development expense, unamortized
deferred charges, goodwill, patents, trademarks, service marks, trade names,
copyrights, unamortized excess cost of investment in Subsidiaries over equity at
dates of acquisition, and all similar items which should properly be treated as
intangibles in accordance with GAAP.

            "Taxes" means any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
including any present or future stamp or documentary taxes or any other excise
or property taxes, charges or similar levies which arise from any payment made
hereunder of from the execution, delivery or registration of, or otherwise with
respect to, this Agreement or any other Loan Documents, but excluding, in the
case of each Lender and the Agent, such taxes (including income taxes or
franchise taxes) as are imposed on or measured by the Agent's or each Lender's
net income in any the jurisdiction (whether federal, state or local and
including any political subdivision thereof) under the laws of which such Lender
or the Agent, as the case may be, is organized or maintains a lending office.

            "Termination Date" means the earliest to occur of (i) the Stated
Termination Date, (ii) the date the Total Facility is terminated either by the
Borrower pursuant to Section 3.2 or by the Required Lenders pursuant to Section
9.2, and (iii) the date this Agreement is otherwise terminated for any reason
whatsoever pursuant to the terms of this Agreement.

            "Termination Event" means (a) the whole or partial withdrawal of the
Borrower(s) or any Subsidiary from a Plan during a plan year; or (b) the filing
of a notice of intent to terminate in whole or in part a Plan or the treatment
of a Plan amendment as a termination or partial termination; or (c) the
institution of proceedings by any Governmental Authority to terminate in whole
or in part or have a trustee appointed to administer a Plan; or (d) any other
event or condition which might constitute grounds for the termination of,
winding up or partial termination or winding up or the appointment of trustee to
administer any Plan.

            "Total Facility" has the meaning specified in Section 1.1.

            "Trademark Use Agreement" means the Agreement Regarding Use of
Trademarks, dated on or about the Closing Date, among the Borrower, Agent and
Black & Decker, Inc.

            "UCC" has the meaning specified in the Security Agreement.

            "Unfunded Pension Liability" means the sum of (1) the amount by
which a Pension Plan (other than a Multi-employer Plan) fails to satisfy the
minimum funding standard


                                      A-29

pursuant to Section 412 of the Code for the applicable plan year, exclusive of
any waived funding deficiency, as that term is defined in Section 412(d)((3) of
the Code, and (2) with respect to any Pension Plan regulated or governed by the
PBA or applicable laws of any jurisdiction, any unfunded liability or solvency
deficiency as determined under the PBA or other applicable laws.

            "United States" means the United States of America.

            "Unused Letter of Credit Subfacility" means an amount equal to
$10,000,000 minus the sum of (a) the aggregate undrawn amount of all outstanding
Letters of Credit plus, without duplication, (b) the aggregate unpaid
reimbursement obligations with respect to all Letters of Credit.

            "Unused Line Fee" has the meaning specified in Section 2.5.

            "Wholly-Owned Subsidiary" when used to determine the relationship of
a Subsidiary to a Person, means a Subsidiary all of the issued and outstanding
Capital Stock (other than directors' qualifying shares) of which shall at the
time be owned by such Person or one or more of such Person's Wholly-Owned
Subsidiaries or by such Person and one or more of such Person's Wholly-Owned
Subsidiaries.

            Accounting Terms. Any accounting term used in the Agreement shall
have, unless otherwise specifically provided herein, the meaning customarily
given in accordance with GAAP, and all financial computations in the Agreement
shall be computed, unless otherwise specifically provided therein, in accordance
with GAAP as consistently applied and using the same method for inventory
valuation as used in the preparation of the Financial Statements.

            Interpretive Provisions.  (a)  The meanings of defined terms are
equally applicable to the singular and plural forms of the defined terms.

            (b)   The words "hereof," "herein," "hereunder" and similar words
refer to the Agreement as a whole and not to any particular provision of the
Agreement; and Subsection, Section, Schedule and Exhibit references are to the
Agreement unless otherwise specified.

            (c)   (i)   The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other writings,
however evidenced.

                  (ii)  The term "including" is not limiting and means
      "including without limitation."

                  (iii) In the computation of periods of time from a specified
      date to a later specified date, the word "from" means "from and
      including," the words "to" and "until" each mean "to but excluding" and
      the word "through" means "to and including."

                  (iv)  The word "or" is not exclusive.

            (d)   Unless otherwise expressly provided herein, (i) references to
agreements


                                      A-30

(including the Agreement) and other contractual instruments shall be deemed to
include all subsequent amendments and other modifications thereto, but only to
the extent such amendments and other modifications are not prohibited by the
terms of any Loan Document, and (ii) references to any statute or regulation are
to be construed as including all statutory and regulatory provisions
consolidating, amending, replacing, supplementing or interpreting the statute or
regulation.

            (e)   The captions and headings of the Agreement and other Loan
Documents are for convenience of reference only and shall not affect the
interpretation of the Agreement.

            (f)   The Agreement and other Loan Documents may use several
different limitations, tests or measurements to regulate the same or similar
matters. All such limitations, tests and measurements are cumulative and shall
each be performed in accordance with their terms.

            (g)   For purposes of Section 9.1, a breach of a financial covenant
contained in Sections 7.26-7.28 shall be deemed to have occurred as of any date
of determination thereof by Agent or as of the last day of any specified
measuring period, regardless of when the Financial Statements reflecting such
breach are delivered to Agent.

            (h)   The Agreement and the other Loan Documents are the result of
negotiations among and have been reviewed by counsel to the Agent, the Borrower
and the other parties, and are the products of all parties. Accordingly, they
shall not be construed against the Lenders or the Agent merely because of the
Agent's or Lenders' involvement in their preparation.

            (i)   As used in this Agreement, and the other Loan Documents,
"knowledge" of the Borrower shall mean the actual knowledge (after due inquiry)
of any Responsible Officer.


                                      A-31

EX-10.19

                                                                   EXHIBIT 10.19
                               SECURITY AGREEMENT

                  THIS SECURITY AGREEMENT (this "Security Agreement", dated as
of December 28, 2001, among APPLICA INCORPORATED, a Florida corporation (the
"Borrower"), the Domestic Subsidiaries of the Borrower (individually a
"Guarantor" and collectively the "Guarantors"; the Guarantors together with the
Borrower, individually a "Credit Party" and collectively the "Credit Parties"),
and BANK OF AMERICA, N.A., in its capacity as the Agent for Lenders (the
"Agent").

                              W I T N E S S E T H:

                  WHEREAS, pursuant to that certain Credit Agreement dated as of
the date hereof by and among the Borrower, the Guarantors, certain other
Affiliates and Subsidiaries of Borrower, the Agent and the Lenders (including
all annexes, exhibits and schedules thereto, as from time to time amended,
restated, supplemented or otherwise modified, the "Credit Agreement"), the
Lenders have agreed to make the Loans and issue or participate in Letters of
Credit upon the terms set forth in the Credit Agreement;

                  WHEREAS, in order to induce Agent and Lenders to enter into
the Credit Agreement and the other Loan Documents and to induce Lenders to make
the Loans and issue Letters of Credit as provided for in the Credit Agreement,
the Credit Parties have agreed to execute and deliver this Security Agreement to
the Agent for the ratable benefits of the Lenders; and

                  WHEREAS, as collateral security for payment and performance of
the Borrower's Obligations under the Credit Agreement and the Guarantor's
obligations under the Subsidiary Guaranty (as defined in the Credit Agreement),
the Borrower and each Guarantor is willing to grant to Agent for the benefit of
Agent and the Lenders a security interest in certain of its personal property
and assets;

                  NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

         1.       DEFINED TERMS. THE FOLLOWING TERMS SHALL HAVE THE FOLLOWING
RESPECTIVE MEANINGS:

                  "Accounts" means all of the Credit Parties' now owned or
hereafter acquired or arising accounts, as defined in the UCC, including any
rights to payment for the sale or lease of goods or rendition of services,
whether or not they have been earned by performance.

                  "Chattel Paper" means all of the Credit Parties' now owned or
hereafter acquired chattel paper, as defined in the UCC, including electronic
chattel paper.


                  "Deposit Accounts" means all "deposit accounts" as such term
is defined in the UCC, now or hereafter held in the name of any Credit Party.

                  "Documents" means all documents as such term is defined in the
UCC, including bills of lading, warehouse receipts or other documents of title,
now owned or hereafter acquired by any Credit Party.

                  "Equipment" means all of the Credit Parties' now owned and
hereafter acquired machinery, equipment, furniture, furnishings, fixtures, and
other tangible personal property (except Inventory), including embedded
software, motor vehicles with respect to which a certificate of title has been
issued, aircraft, dies, tools, jigs, molds and office equipment, as well as all
of such types of property leased by any Credit Party and all of such Credit
Party's rights and interests with respect thereto under such leases (including,
without limitation, options to purchase); together with all present and future
additions and accessions thereto, replacements therefor, component and auxiliary
parts and supplies used or to be used in connection therewith, and all
substitutes for any of the foregoing, and all manuals, drawings, instructions,
warranties and rights with respect thereto; wherever any of the foregoing is
located.

                  "General Intangibles" means all of the Credit Parties' now
owned or hereafter acquired general intangibles, choses in action (other than as
against Agent, Bank or any Lender in connection with the Loan Documents) and
causes of action and all other intangible personal property of the Credit
Parties of every kind and nature (other than Accounts), including, without
limitation, all contract rights, payment intangibles, Proprietary Rights,
corporate or other business records, inventions, designs, blueprints, plans,
specifications, patents, patent applications, trademarks, service marks, trade
names, trade secrets, goodwill, copyrights, computer software, customer lists,
registrations, licenses, franchises, tax refund claims, any funds which may
become due to any Credit Party in connection with the termination of any
employee benefit plan or any rights thereto and any other amounts payable to any
Credit Party from any employee benefit plan, rights and claims against carriers
and shippers, rights to indemnification, business interruption insurance and
proceeds thereof, property, casualty or any similar type of insurance and any
proceeds thereof, proceeds of insurance covering the lives of key employees on
which any Credit Party is beneficiary, rights to receive dividends,
distributions, cash, Instruments and other property in respect of or in exchange
for pledged equity interests or Investment Property and any letter of credit,
guarantee, claim, security interest or other security held by or granted to any
Credit Party.

                  "Goods" means all "goods" as defined in the UCC, now owned or
hereafter acquired by a Credit Party, wherever located, including embedded
software to the extent included in "goods" as defined in the UCC.

                  "Instruments" means all instruments as such term is defined in
the UCC, now owned or hereafter acquired by a Credit Party.

                  "Inventory" means all of the Credit Parties' now owned and
hereafter acquired inventory, goods and merchandise, wherever located, to be
furnished under any contract of service or held for sale or lease, all returned
goods, raw materials, work-in-process, finished


goods (including embedded software), other materials and supplies of any kind,
nature or description which are used or consumed in any Credit Parties' business
or used in connection with the packing, shipping, advertising, selling or
finishing of such goods, merchandise, and all documents of title or other
Documents representing them.

                  "Investment Property" means all of the Credit Parties' right
title and interest in and to any and all: (a) securities whether certificated or
uncertificated; (b) securities entitlements; (c) securities accounts; (d)
commodity contracts; or (e) commodity accounts.

                  "Letter-of-Credit Rights" means "letter-of-credit rights" as
such term is defined in the UCC, now owned or hereafter acquired by the Credit
Parties, including rights to payment or performance under a letter of credit,
whether or not any Credit Party, as beneficiary, has demanded or is entitled to
demand payment or performance (other than any Letter of Credit issued for the
account of a Credit Party pursuant to the Credit Agreement).

                  "Payment Account" means each bank account established pursuant
to this Security Agreement, to which the proceeds of Accounts and other
Collateral are deposited or credited, and which is maintained in the name of the
Agent or any Credit Party, as the Agent may determine, on terms acceptable to
the Agent.

                  "Proprietary Rights" means all of the Credit Parties' now
owned and hereafter arising or acquired: licenses, franchises, permits, patents,
patent rights, copyrights, works which are the subject matter of copyrights,
trademarks, service marks, trade names, trade styles, patent, trademark and
service mark applications, and all licenses and rights related to any of the
foregoing, and all other rights under any of the foregoing, all extensions,
renewals, reissues, divisions, continuations, and continuations-in-part of any
of the foregoing, and all rights to sue for past, present and future
infringement of any of the foregoing.

                  "Software" means all "software" as such term is defined in the
UCC, now owned or hereafter acquired by any Credit Party, other than software
embedded in any category of Goods, including all computer programs and all
supporting information provided in connection with a transaction related to any
program.

                  "Supporting Obligations" means all supporting obligations as
such term is defined in the UCC, now owned or hereafter acquired by any Credit
Party.

                  "UCC" means the Uniform Commercial Code, as in effect from
time to time, of the State of New York or of any other state the laws of which
are required as a result thereof to be applied in connection with the issue of
perfection of security interests.

                  "Uniform Commercial Code Jurisdiction" means any jurisdiction
that has adopted "Revised Article 9" of the UCC on or after July 1, 2001.

                  All other capitalized terms used but not otherwise defined
herein have the meanings given to them in the Credit Agreement or in Annex A
thereto. All other undefined terms contained in this Security Agreement, unless
the context indicates otherwise, have the meanings provided for by the UCC to
the extent the same are used or defined therein.


         2.       GRANT OF LIEN.

                  (a) As security for all Obligations, each of the Credit
Parties hereby grants to Agent, for the benefit of Agent and the Lenders, a
continuing security interest in, lien on, assignment of and right of set-off
against, all of the following property and assets of the Credit Parties, whether
now owned or existing or hereafter acquired or arising, regardless of where
located:

                  (i)      all Accounts;

                  (ii)     all Inventory;

                  (iii)    all Chattel Paper;

                  (iv)     all Documents;

                  (v)      all Instruments;

                  (vi)     all Supporting Obligations and Letter-of-Credit
                           Rights;

                  (vii)    all General Intangibles (including payment
                           intangibles and Software);

                  (viii)   all Goods;

                  (x)      all Equipment;

                  (xi)     all Investment Property;

                  (xii)    all money, cash, cash equivalents, securities and
other property of any kind of any Credit Party held directly or indirectly by
Agent or any Lender;

                  (xiii)   all of the Credit Parties' Deposit Accounts, credits,
and balances with the Agent or any Lender or any of their Affiliates or any
other financial institution with which any Credit Party maintains deposits,
including any Payment Accounts;

                  (xiv)    all books, records and other property related to or
referring to any of the foregoing, including books, records, account ledgers,
data processing records, computer software and other property and General
Intangibles at any time evidencing or relating to any of the foregoing; and

                  (xv)     the commercial tort claims in which a Credit Party is
a plaintiff: described in Schedule IV attached hereto.

                  (xvi)    all accessions to, substitutions for and
replacements, products and proceeds of any of the foregoing, including, but not
limited to, proceeds of any insurance policies, claims against third parties,
and condemnation or requisition payments with respect to all or any of the
foregoing.


All of the foregoing, together with, all equity interests in Subsidiaries to the
extent pledged to Agent and all other property of the Credit Parties in which
Agent or any Lender may at any time be granted a Lien as collateral for the
Obligations, is herein collectively referred to as the "Collateral;" provided,
however, that in no event shall the Collateral include, and no Credit Party
shall be deemed to have granted a security interest in, any of the Borrower's or
any applicable Credit Party's rights or interests in any license, contract or
agreement to which the Borrower or the applicable Credit Party is a party or any
of its rights or interests thereunder to the extent, but only to the extent,
that such a grant would, under the express terms of such license, contract or
agreement or otherwise, result in a breach of the terms or constitute a default
under such license, contract or agreement; provided, that immediately upon the
ineffectiveness, waiver, lapse or termination of any such provision, the
Collateral shall include, and the Borrower or the applicable Credit Party be
deemed to have granted a security interest in, all such rights and interests as
if such provision had never been in effect.

                  (b)      All of the Obligations shall be secured by all of the
                           Collateral.

         3.       PERFECTION AND PROTECTION OF SECURITY INTEREST.

                  (a)      The Credit Parties shall, at their expense, perform
all steps requested by the Agent at any time to perfect, maintain, protect, and
enforce the Agent's Liens, including: (i) executing, delivering and/or filing
and recording of the Copyright Security Agreements and Patent and Trademark
Agreements and executing and filing financing or continuation statements, and
amendments thereof, in form and substance reasonably satisfactory to the Agent;
(ii) delivering to the Agent warehouse receipts covering any portion of the
Collateral located in warehouses and for which warehouse receipts are issued and
certificates of title covering any portion of the collateral for which
certificates of title have been issued, unless the Agent shall have obtained a
Collateral Access Agreement in form and substance acceptable to the Agent from
any applicable warehouseman; (iii) upon the occurrence of an Event of Default,
transferring Inventory to warehouses or other locations designated by the Agent;
(iv) placing notations on the Credit Parties' books of account to disclose the
Agent's security interest; and (v) taking such other steps as are deemed
reasonably necessary by the Agent to maintain and protect the Agent's Liens. The
Credit Parties agree that a carbon, photographic, photostatic, or other
reproduction of this Security Agreement or of a financing statement is
sufficient as a financing statement.

                  (b)      Promptly after the Agent's request therefore, the
Credit Parties shall deliver to Agent all Collateral consisting of negotiable
Documents, certificated securities (accompanied by stock powers executed in
blank), Chattel Paper and Instruments.

                  (c)      The Credit Parties shall, in accordance with the
terms of the Credit Agreement, obtain or use their commercially reasonable
efforts to obtain waivers or subordinations of Liens from landlords and
mortgagees.

                  (d)      If required by the terms of the Credit Agreement and
not waived by Agent in writing (which waiver may be revoked), the Credit Parties
shall obtain authenticated control agreements from each issuer of uncertificated
securities, securities intermediary, or commodities intermediary issuing or
holding any financial assets or commodities to or for any Credit Party.


                  (e)      If a Credit Party is or becomes the beneficiary of a
letter of credit (other than those issued for the account of a Credit Party
pursuant to the Credit Agreement), such Credit Party shall promptly notify Agent
thereof and enter into a tri-party agreement with Agent and the issuer and/or
confirmation bank with respect to Letter-of-Credit Rights assigning such
Letter-of-Credit Rights to Agent and directing all payments thereunder to the
Payment Account, all in form and substance reasonably satisfactory to Agent.

                  (f)      The Credit Parties shall take all steps necessary to
grant the Agent control of all electronic chattel paper in accordance with the
Code and all "transferable records" as defined in the Uniform Electronic
Transactions Act.

                  (g)      The Credit Parties hereby irrevocably authorize Agent
at any time and from time to time during the term of the Credit Agreement to
file in any filing office in any Uniform Commercial Code jurisdiction any
initial financing statements and amendments thereto that (a) indicate the
Collateral (i) as all assets of Credit Parties or words of similar effect,
regardless of whether any particular asset comprised in the Collateral falls
within the scope of Article 9 of the UCC of the State of New York or such
jurisdiction, or (ii) as being of an equal or lesser scope or with greater
detail, and (b) contain any other information required by part 5 of Article 9 of
the UCC of the State of New York for the sufficiency or filing office acceptance
of any financing statement or amendment, including (i) whether the Credit Party
is an organization, the type of organization and any organization identification
number issued to such Credit Party, and (ii) in the case of a financing
statement filed as a fixture filing or indicating Collateral as as-extracted
collateral or timber to be cut, a sufficient description of real property to
which the Collateral relates. The Credit Parties agree to furnish any such
information to Agent promptly upon written request. Each Credit Party also
ratifies its authorization for Agent to have filed in any Uniform Commercial
Code jurisdiction any like initial financing statements or amendments thereto if
filed prior to the date hereof.

                  (h)      Each Credit Party shall promptly notify Agent of any
commercial tort claim (as defined in the UCC) acquired by it and unless
otherwise consented by Agent, such Credit Party shall enter into a supplement to
this Security Agreement, granting to Agent a Lien in such commercial tort claim.

                  (i)      From time to time, the Credit Parties shall, upon
Agent's written request, execute and deliver confirmatory written instruments
pledging to Agent, for the ratable benefit of Agent and the Lenders, the
Collateral, but the Credit Parties' failure to do so shall not affect or limit
any security interest or any other rights of Agent or any Lender in and to the
Collateral with respect to the Credit Parties. So long as the Credit Agreement
is in effect and until all Obligations have been fully satisfied, Agent's Liens
shall continue in full force and effect in all Collateral (whether or not deemed
eligible for the purpose of calculating the Availability or as the basis for any
advance, loan, extension of credit, or other financial accommodation).

                  (j)      No Reincorporation. No Credit Party shall
reincorporate or reorganize itself under the laws of any jurisdiction other than
the jurisdiction in which it is incorporated or organized as of the date hereof
or change its type of entity as identified on Schedule II without executing all
necessary documents, instruments, financing statements, amendments thereto,


assignments and/or other writings as Agent may reasonably request to protect or
enforce its and Lenders' security interest in the Collateral.

                  (k)      Terminations Amendments Not Authorized. Each Credit
Party acknowledges that other than in connection with the Refinancing it is not
authorized to file any financing statement or amendment or termination statement
with respect to any financing statement filed pursuant to the Loan Documents
without the prior written consent of Agent and agrees that it will not do so
without the prior written consent of Agent, subject to the rights of the Credit
Parties under Section 9-509(d)(2) of the UCC.

                  (l)      No Restriction on Payments to Agent. No Credit Party
shall enter into any Contract that restricts or prohibits the grant of a
security interest in Accounts, Chattel Paper, Instruments or payment intangibles
or the proceeds of the foregoing to Agent.

         4.       LOCATION OF COLLATERAL.

                  Each of the Credit Parties represents and warrants to the
Agent and the Lenders that: (A) Schedule I is a correct and complete list of the
location of the chief executive office, the location of its books and records,
the locations of the Collateral (other than In-Transit Inventory) of each of the
Credit Parties, and the locations of all of the other places of business of each
of the Credit Parties; and (B) Schedule I correctly identifies any of such
facilities and locations that are not owned by a Credit Party and sets forth the
names of the owners and lessors or sublessors of such facilities and locations.
Each of the Credit Parties covenants and agrees that it will not (i) maintain
any Collateral (other than In-Transit Inventory) at any location other than
those locations listed for such Credit Party on Schedule I, (ii) otherwise
change or add to any of such locations, or (iii) change the location of its
chief executive office from the location identified in Schedule I, unless it
gives the Agent at least thirty (30) days' prior written notice thereof and
executes any and all financing statements and other documents that the Agent
reasonably requests in connection therewith.

         5.       JURISDICTION OF ORGANIZATION.

                  As to each Credit Party, Schedule II hereto identifies such
Credit Party's name as of the Closing Date as it appears in official filings in
the state of its incorporation or other organization, the type of entity of such
Credit Party (including corporation, partnership, limited partnership or limited
liability company), organizational identification number issued by such Credit
Party's state of incorporation or organization or a statement that no such
number has been issued and the jurisdiction in which such Credit Party is
incorporated or organized.

         6.       TITLE TO, LIENS ON, AND SALE AND USE OF COLLATERAL.

                  Each of the Credit Parties represents and warrants to the
Agent and the Lenders and agrees with the Agent and the Lenders that: (a) each
Credit Party has rights in and the power to transfer all of the Collateral free
and clear of all Liens whatsoever, except for Permitted Liens; (b) the Agent's
Liens in the Collateral will not be subject to any prior Lien except for those
Liens identified in clauses (a), (c), (d), (e), (g) or (i) of the definition of
Permitted Liens; and (c) each


Credit Party will use, store, and maintain the Collateral with all reasonable
care and will use such Collateral for lawful purposes only.

         5.       APPRAISALS.

                  At such reasonable times as Agent may request in writing, the
Borrower shall, at its expense, provide Agent with appraisals or updates thereof
(who, upon receipt, will promptly deliver the same to the Lenders) of any or all
of the Collateral from an appraiser, and prepared on a basis, reasonably
satisfactory to Agent, such appraisals and updates to include, without
limitation, information required by applicable law and regulation; provided,
however, that so long as no Event of Default exists, the Borrower shall be
responsible for the expense of no more than four (4) such appraisals in any
calendar year.

         6.       [RESERVED]

         7.       COLLATERAL REPORTING.

                  The Borrower shall provide Agent with the following documents
at the following times in form satisfactory to Agent: (a) on each Business Day
for the preceding Business Day a schedule of the Credit Parties' Accounts
created, credits given, cash collected and other adjustments to such Accounts
since the last such schedule; (b) on a monthly basis, by the 15th day of the
following month, or more frequently if requested by the Agent in writing, (i) an
aging of such Accounts, together with a reconciliation to the corresponding
Borrowing Base and to the Credit Parties' general ledger; (ii) an aging of each
Credit Party's accounts payable; (iii) a detailed calculation of Eligible
Accounts and Eligible Inventory (including In-Transit Inventory); and (iv)
Inventory reports by SKU and location, together with a reconciliation to the
corresponding Borrowing Base and to the applicable general ledgers; (c) upon
Agent's written request and within a reasonable time after such request, copies
of invoices in connection with such Accounts, customer statements, credit memos,
remittance advices and reports, deposit slips, shipping and delivery documents
in connection with such Accounts and for Inventory and Equipment acquired by a
Credit Party, purchase orders and invoices; (d) such other reports as to the
Collateral of the Borrower or another Credit Party as the Agent shall reasonably
request from time to time; and (e) with the delivery of each of the foregoing, a
certificate of the Borrower executed by a Responsible Officer certifying as to
the accuracy and completeness of the foregoing. If any of Credit Parties'
records or reports of the Collateral are prepared by an accounting service or
other agent, the Credit Parties hereby authorize such service or agent to
deliver such records, reports, and related documents to the Agent, for
distribution to the Lenders.

         8.       ACCOUNTS.

                  (a)      Each of the Credit Parties hereby represents and
warrants to the Agent and the Lenders, with respect to such Credit Party's
Accounts, that: (i) each existing Account represents, and each future Account
will represent, a bona fide sale or lease and delivery of goods by such Credit
Party, or rendition of services by such Credit Party, in the ordinary course of
the Credit Party's business; (ii) each existing Account is, and each future
Account will be, for a liquidated amount payable by the Account Debtor thereon
on the terms set forth in the invoice


therefor or in the schedule thereof delivered to the Agent, without any offset,
deduction, defense, or counterclaim except those known to the applicable Credit
Party and disclosed to the Agent and the Lenders pursuant to this Security
Agreement; (iii) no credit, discount, or extension, or agreement will be granted
on any Account, except for those immaterial credits, discounts or extensions
granted by the applicable Credit Party in the ordinary course of business or
consistent with past practices or except as reported to Agent and the Lenders in
accordance with Section 9 of this Agreement; (iv) each copy of an invoice
delivered to Agent by a Credit Party will be a genuine copy of the original
invoice sent to the Account Debtor named therein; and (v) all goods described in
any invoice representing a sale of goods will have been delivered to the Account
Debtor and all services of the Borrower described in each invoice will have been
performed.

                  (b)      The Credit Parties shall not re-date any invoice or
sale, make sales on extended dating or extend or modify any Account beyond that
customary in such Credit Party's business. If a Credit Party becomes aware of
any matter adversely affecting the collectibility of any Account or the Account
Debtor therefor involving an amount greater than $1,000,000, including
information regarding the Account Debtor's creditworthiness, such Credit Party
will promptly so advise the Agent.

                  (c)      If a Credit Parties accepts any note or other
instrument (except a check or other instrument for the immediate payment of
money) with respect to any Account, no such instrument shall be considered as
payment thereof and the applicable Credit Party will promptly deliver such
instrument to the Agent, endorsed by such Credit Party to the Agent in a manner
satisfactory in form and substance to the Agent. Regardless of the form of
presentment, demand, notice of protest with respect thereto, the Credit Party
shall remain liable thereon until such instrument is paid in full.

                  (d)      Each Credit Party shall notify the Agent promptly of
all disputes and claims in excess of $500,000 with any Account Debtor Each
Credit Party shall send Agent a copy of each credit memorandum in excess of
$500,000 promptly after it has been issued, and such Credit Party shall promptly
report that credit in accordance with Section 9(a) hereof. Agent may at all
times when an Event of Default exists hereunder, settle or adjust disputes and
claims directly with Account Debtors for amounts and upon terms which Agent or
the Required Lenders, as applicable, shall consider advisable and, in all cases,
Agent will credit the Borrower's Loan Account with the net amounts received by
Agent in payment of any Accounts.

                  (e)      Each Credit Party shall immediately report to Agent
any return involving an amount in excess of $500,000. Each such report shall
indicate the reasons for the returns and the locations and condition of the
returned Inventory. In the event any Account Debtor returns Inventory to a
Credit Party when an Event of Default exists, such Credit Party, upon the
request of Agent, shall: (i) hold the returned Inventory in trust for the Agent;
(ii) segregate all returned Inventory from all of its other property; (iii)
dispose of the returned Inventory solely according to Agent's written
instructions; and (iv) not issue any credits or allowances with respect thereto
without Agent's prior written consent. All returned Inventory shall be subject
to Agent's Liens thereon. Whenever any Inventory is returned, the related
Account shall be deemed ineligible to the extent of the amount owing by the
Account Debtor with respect to such returned Inventory


and such returned Inventory shall not be Eligible Inventory except to the extent
provided in the Credit Agreement.

         9.       COLLECTION OF ACCOUNTS; PAYMENTS.

                  (a)      Until Agent notifies the Borrower to the contrary in
writing, each Credit Party shall make collection of its Accounts and other
Collateral for Agent, shall receive all payments as Agent's trustee, and shall
immediately deliver all payments in their original form duly endorsed in blank
into a Payment Account established for the account of such Credit Party at a
Clearing Bank acceptable to Agent, subject to a Blocked Account Agreement. On or
prior to the date hereof, each Credit Party shall establish a lock-box service
for collections of Accounts at a Clearing Bank acceptable to Agent and subject
to a Blocked Account Agreement and other documentation acceptable to Agent. The
Credit Parties shall instruct all Account Debtors to make all payments directly
to the address established for such service. If, notwithstanding such
instructions, a Credit Party receives any proceeds of Accounts, it shall receive
such payments as Agent's trustee, and shall immediately deliver such payments to
Agent in their original form duly endorsed in blank or deposit them into a
Payment Account, as Agent may direct in writing. All collections received in any
lock-box or Payment Account or directly by a Credit Party or Agent, and all
funds in any Payment Account or other account to which such collections are
deposited shall be subject to the Agent's control pursuant to the terms of any
applicable Blocked Account Agreement. Agent or Agent's designee may, at any time
after the occurrence of an Event of Default, notify Account Debtors in writing
that the Accounts have been assigned to Agent and of Agent's security interest
therein, and may collect them directly and charge the reasonable collection
costs and expenses to the Loan Account as a Revolving Loan. Upon the occurrence
and during the continuance of an Event of Default, the Credit Parties, at
Agent's written request, shall execute and deliver to Agent such documents as
Agent shall require to grant Agent access to any post office box in which
collections of Accounts are received.

                  (b)      If sales of Inventory are made or services are
rendered for cash, the Credit Parties shall immediately deliver to the Agent or
deposit into a Payment Account the cash which the Borrower receives.

                  (c)      All payments received by the Agent in a Payment
Account or at any other bank account designated by Agent in writing, will be the
Agent's sole property for its benefit and the benefit of the Lenders and will be
credited to the Loan Account in accordance with Section 3.7(a) of the Credit
Agreement.

         10.      INVENTORY; PERPETUAL INVENTORY.

                  Each Credit Party represents and warrants to the Agent and the
Lenders and agrees with the Agent and the Lenders that all of the Inventory
owned by the Credit Parties is and will be held for sale or lease, or to be
furnished in connection with the rendition of services, in the ordinary course
of a Credit Party's business, and is and will be fit for such purposes. Each
Credit Party agrees that all Inventory produced by it in the United States of
America will be produced in accordance with the Federal Fair Labor Standards Act
of 1938, as amended, and all rules, regulations, and orders thereunder. The
Credit Parties will conduct a physical count of the


Inventory at least once per Fiscal Year, which may be included in any appraisal
to be performed in accordance with Section 7 hereof, and after and during the
continuation of an Event of Default, at such other times as Agent requests in
writing. Each Credit Party will maintain a perpetual inventory reporting system
at all times. No Credit Party will, without Agent's written consent, sell any
Inventory on a bill-and-hold, guaranteed sale, sale and return, sale on
approval, consignment, or other repurchase or return basis.

         11.      EQUIPMENT.

                  The Credit Parties shall promptly inform Agent of any material
additions to or deletions from the Equipment. The Credit Parties shall not
permit any Equipment to become a fixture with respect to real property or to
become an accession with respect to other personal property with respect to
which real or personal property Agent does not have a Lien. The Credit Parties
will not, without Agent's prior written consent (which consent shall not be
unreasonably withheld), alter or remove any identifying symbol or number on any
of a Credit Party's Equipment constituting Collateral.

         12.      DOCUMENTS, INSTRUMENTS, AND CHATTEL PAPER.

                  Each Credit Party represents and warrants to Agent and the
Lenders that (a) all material Documents, Instruments, and Chattel Paper
describing, evidencing, or constituting Collateral, and all signatures and
endorsements thereon, are and will be complete, valid, and genuine, and (b) all
goods evidenced by such Documents, Instruments, Letter of Credit Rights and
Chattel Paper are and will be owned by a Credit Party, free and clear of all
Liens other than Permitted Liens.

         13.      VOTING OF INVESTMENT PROPERTY.

                  (a)      Until Agent shall have delivered a notice
contemplated by clause (b) below, the Borrower and each Guarantor shall be
entitled to vote or consent with respect to the Investment Property in any
manner not inconsistent with the terms of any Loan Document, and Agent will, if
so requested, execute appropriate revocable proxies therefor.

                  (b)      Upon the occurrence and during the continuance of an
Event of Default, if and to the extent that Agent shall so notify in writing the
Borrower or the Guarantor pledging the Investment Property in question, only
Agent shall be entitled to vote or consent or take any other action with respect
to the Investment Properties (and the Borrower or the applicable Guarantor will,
if so requested, execute appropriate proxies therefor).

         14.      POWER OF ATTORNEY.

                  Each Credit Party hereby appoints the Agent and the Agent's
designee as such Credit Party's attorney, with power: (a) to endorse such Credit
Party's name on any checks, notes, acceptances, money orders, or other forms of
payment or security that come into the Agent's or any Lender's possession; (b)
to sign such Credit Party's name on any invoice, bill of lading, warehouse
receipt or other negotiable or non-negotiable Document constituting


Collateral, on drafts against customers, on assignments of Accounts, on notices
of assignment, financing statements and other public records and to file any
such financing statements by electronic means with or without a signature as
authorized or required by applicable law or filing procedure; (c) so long as any
Event of Default has occurred and is continuing, to notify the post office
authorities to change the address for delivery of such Credit Party's mail to an
address designated by the Agent and to receive, open and dispose of all mail
addressed to the Credit Parties; (d) to send requests for verification of
Accounts to customers or Account Debtors; (e) upon the occurrence and during the
continuance of an Event of Default, to complete in such Credit Party's name or
the Agent's name, any order, sale or transaction, obtain the necessary Documents
in connection therewith, and collect the proceeds thereof; (f) to clear
Inventory through customs in such Credit Party's name, the Agent's name or the
name of the Agent's designee, and to sign and deliver to customs officials
powers of attorney in such Credit Party's name for such purpose; (g) to the
extent that a Credit Party's authorization given in Section 3(g) of this
Security Agreement is not sufficient, to file such financing statements with
respect to this Security Agreement, with or without such Credit Party's
signature, or to file a photocopy of this Security Agreement in substitution for
a financing statement, as the Agent may deem appropriate and to execute in such
Credit Party's name such financing statements and amendments thereto and
continuation statements which may require such Credit Party's signature; and (h)
to do all things necessary to carry out the Credit Agreement and this Security
Agreement. Each Credit Party ratifies and approves all actions of such attorney
taken in accordance with the terms hereof and the Credit Agreement of such
attorney. None of the Lenders or the Agent nor their attorneys will be liable
for any acts or omissions or for any error of judgment or mistake of fact or law
except for their gross negligence or willful misconduct. This power, being
coupled with an interest, is irrevocable until the Credit Agreement has been
terminated and the Obligations have been paid finally and in full.

         15.      THE AGENT'S AND LENDERS' RIGHTS, DUTIES AND LIABILITIES.

                  (a)      The Credit Parties assume all responsibility and
liability arising from or relating to the use, sale, license or other
disposition of the Collateral. The Obligations shall not be affected by any
failure of the Agent or any Lender to take any steps to perfect the Agent's
Liens or to collect or realize upon the Collateral, nor shall loss of or damage
to the Collateral release the Borrower or any other Credit Party from any of the
Obligations. Following the occurrence and during the continuation of an Event of
Default, the Agent may (but shall not be required to), and at the direction of
the Required Lenders shall, without notice to or consent from the Credit
Parties, sue upon or otherwise collect, extend the time for payment of, modify
or amend the terms of, compromise or settle for cash, credit, or otherwise upon
any terms, grant other indulgences, extensions, renewals, compositions, or
releases, and take or omit to take any other action with respect to the
Collateral, any security therefor, any agreement relating thereto, any insurance
applicable thereto, or any Person liable directly or indirectly in connection
with any of the foregoing, without discharging or otherwise affecting the
liability of the Credit Parties for the Obligations or under the Credit
Agreement or any other agreement now or hereafter existing between the Agent
and/or any Lender and the Borrower and any other Credit Party, provided,
however, that any amounts received pursuant to any actions taken pursuant to
this Section 17(a) shall be credited, net of costs of collection, to the
Obligations in accordance with the terms of the Credit Agreement.


                  (b)      It is expressly agreed by the Credit Parties that,
anything herein to the contrary notwithstanding, the Credit Parties shall remain
liable under each of its contracts and each of its licenses (to the extent such
contracts and licenses remain in effect) to observe and perform all the
conditions and obligations to be observed and performed by it thereunder.
Neither Agent nor any Lender shall have any obligation or liability under any
contract or license by reason of or arising out of this Security Agreement or
the granting herein of a Lien thereon or the receipt by Agent or any Lender of
any payment relating to any contract or license pursuant hereto, except where
Agent has expressly agreed otherwise. Neither Agent nor any Lender shall be
required or obligated in any manner to perform or fulfill any of the obligations
of any Credit Party under or pursuant to any contract or license, or to make any
payment, or to make any inquiry as to the nature or the sufficiency of any
payment received by it or the sufficiency of any performance by any party under
any contract or license, or to present or file any claims, or to take any action
to collect or enforce any performance or the payment of any amounts which may
have been assigned to it or to which it may be entitled at any time or times.

                  (c)      Agent may at any time after an Event of Default has
occurred and be continuing (or if any rights of set-off (other than set-offs
against an Account arising under the contract giving rise to the same Account)
or contra accounts may be asserted with respect to the following), without prior
notice to Borrower, notify Account Debtors, and other Persons obligated on the
Collateral that Agent has a security interest therein, and that payments shall
be made directly to Agent, for itself and the benefit of Lenders. Upon the
request of Agent, each of the Credit Parties shall so notify their respective
Account Debtors and other Persons obligated on Collateral. Once any such notice
has been given to any Account Debtor or other Person obligated on the
Collateral, the Credit Parties shall not give any contrary instructions to such
Account Debtor or other Person without Agent's prior written consent.

                  (d)      Agent may at any time in Agent's own name or in the
name of a Credit Party communicate with Account Debtors, parties to Contracts
and obligors in respect of Instruments to verify with such Persons, to Agent's
satisfaction, the existence, amount and terms of Accounts, payment intangibles,
Instruments or Chattel Paper. If a Default or Event of Default shall have
occurred and be continuing, the Credit Parties, at their own expense, shall
cause the independent certified public accountants then engaged by such Credit
Parties to prepare and deliver to Agent and each Lender at any time and from
time to time promptly upon Agent's request the following reports with respect to
such Credit Party: (i) a reconciliation of all Accounts; (ii) an aging of all
Accounts; (iii) trial balances; and (iv) a test verification of such Accounts as
Agent may request. The Credit Parties, at their own expense, shall deliver to
Agent the results of each physical verification, if any, which a Credit Party
may in its discretion have made, or caused any other Person to have made on its
behalf, of all or any portion of its Inventory.

         16.      PATENT, TRADEMARK AND COPYRIGHT COLLATERAL.

                  (a)      The Credit Parties do not have any interest in, or
title to, any patent, trademark or copyright except as set forth in Schedule III
hereto. This Security Agreement is effective to create a valid and continuing
Lien on and, upon filing of the Copyright Security Agreement with the United
States Copyright Office and filing of the Patent and Trademark


Agreements with the United States Patent and Trademark Office, perfected Liens
in favor of Agent on the Credit Parties' patents, trademarks and copyrights and
such perfected Liens are enforceable as such as against any and all creditors of
and purchasers from the Credit Parties. Upon filing of the Copyright Security
Agreements with the United States Copyright Office and filing of the Patent and
Trademark Agreements with the United States Patent and Trademark Office and the
filing of appropriate financing statements, all action necessary or desirable to
protect and perfect Agent's Lien on the Credit Parties' patents, trademarks or
copyrights shall have been duly taken.

                  (b)      The Borrower shall notify Agent immediately if it
knows or has reason to know that any application or registration relating to any
patent, trademark or copyright (now or hereafter existing) may become abandoned
or dedicated, or of any adverse determination or development (including the
institution of, or any such determination or development in, any proceeding in
the United States Patent and Trademark Office, the United States Copyright
Office or any court) regarding a Credit Party's ownership of any patent,
trademark or copyright, its right to register the same, or to keep and maintain
the same.

                  (c)      Within forty-five (45) days of the last day of each
fiscal quarter of the Credit Parties, the Credit Parties shall deliver to the
Agent a schedule setting forth all material applications for the registration of
any patent, trademark or copyright with the United States Patent and Trademark
Office, the United States Copyright Office or any similar office or agency and,
upon request of Agent, the Credit Parties shall execute and deliver any and all
Patent and Trademark Agreements and all Copyright Security Agreements as Agent
may request to evidence Agent's Lien on such patent, trademark or copyright, and
the General Intangibles of such Credit Party relating thereto or represented
thereby.

                  (d)      The Credit Parties shall take all actions reasonably
necessary to maintain and pursue each application, to obtain the relevant
registration and to maintain the registration of each of the patents, trademarks
and copyrights (now or hereafter existing), including the filing of applications
for renewal, affidavits of use, affidavits of noncontestability and opposition
and interference and cancellation proceedings, unless the Borrower shall
determine that such patent, trademark or copyright is not material to the
conduct of a Credit Party's business.

                  (e)      In the event that any of the patent, trademark or
copyright Collateral is infringed upon, or misappropriated or diluted by a third
party, Borrower shall notify Agent promptly after Borrower learns thereof.
Borrower shall, unless it shall reasonably determine that such patent, trademark
or copyright Collateral is not material to the conduct of a Credit Party's
business or operations, promptly attempt to negotiate with such infringing party
or sue for infringement, misappropriation or dilution and to recover any and all
damages for such infringement, misappropriation or dilution, and, upon the
occurrence and during the continuance of an Event of Default, shall take such
other actions as Agent shall deem appropriate under the circumstances to protect
such patent, trademark or copyright Collateral.

         17.      INDEMNIFICATION.


                  In any suit, proceeding or action brought by Agent or any
Lender relating to any Collateral for any sum owing with respect thereto or to
enforce any rights or claims with respect thereto, the Credit Parties, jointly
and severally, will save, indemnify and keep Agent and Lenders harmless from and
against all expense (including reasonable attorneys' fees and expenses), loss or
damage suffered by reason of any defense, setoff, counterclaim, recoupment or
reduction of liability whatsoever of the Account Debtor or other Person
obligated on the Collateral, arising out of a breach by a Credit Party of any
obligation thereunder or arising out of any other agreement, indebtedness or
liability at any time owing to, or in favor of, such obligor or its successors
from a Credit Party, except in the case of Agent or any Lender, to the extent
such expense, loss, or damage is attributable solely to the gross negligence or
willful misconduct of Agent or such Lender as finally determined by a court of
competent jurisdiction. All such obligations of the Credit Parties shall be and
remain enforceable against and only against the Credit Parties and shall not be
enforceable against Agent or any Lender.

         18.      [RESERVED].

         19.      NOTICE REGARDING COLLATERAL.

                  Borrower will advise Agent promptly, in reasonable detail, (i)
of any Lien (other than Permitted Liens) or material claim made or asserted
against any of the Collateral, and (ii) of the occurrence of any other event
which would have a Material Adverse Effect.

         20.      REMEDIES; RIGHTS UPON DEFAULT.

                  (a)      In addition to all other rights and remedies granted
to it under this Security Agreement, the Credit Agreement, the other Loan
Documents and under any other instrument or agreement securing, evidencing or
relating to any of the Obligations, if any Event of Default shall have occurred
and be continuing, Agent may exercise all rights and remedies of a secured party
under the UCC. Without limiting the generality of the foregoing, the Credit
Parties expressly agree that in any such event Agent, without demand of
performance or other demand, advertisement or notice of any kind (except the
notice specified below of time and place of public or private sale) to or upon a
Credit Party or any other Person (all and each of which demands, advertisements
and notices are hereby expressly waived to the maximum extent permitted by the
UCC and other applicable law), may forthwith enter upon the premises of any
Credit Party where any Collateral is located through self-help, without judicial
process, without first obtaining a final judgment or giving a Credit Party or
any other Person notice and opportunity for a hearing on Agent's claim or action
and may collect, receive, assemble, process, appropriate and realize upon the
Collateral, or any part thereof, and may forthwith sell, lease, license, assign,
give an option or options to purchase, or sell or otherwise dispose of and
deliver said Collateral (or contract to do so), or any part thereof, in one or
more parcels at a public or private sale or sales, at any exchange at such
prices as it may deem acceptable, for cash or on credit or for future delivery
without assumption of any credit risk. Agent or any Lender shall have the right
upon any such public sale or sales and, to the extent permitted by law, upon any
such private sale or sales, to purchase for the benefit of Agent and Lenders,
the whole or any part of said Collateral so sold, free of any right or equity of
redemption, which equity of redemption the Credit Parties hereby release. Such
sales may be adjourned and continued from time to time


with or without notice. Agent shall have the right to conduct such sales on the
premises of any Credit Party or elsewhere and shall have the right to use any
Credit Party's premises without charge for such time or times as Agent deems
necessary or advisable.

                  (b)      Upon the occurrence and during the continuance of an
Event of Default, each Credit Party further agrees, at Agent's request, to
assemble the Collateral and make it available to Agent at a place or places
designated by Agent which are reasonably convenient to Agent and Borrower,
whether at a Credit Party's premises or elsewhere. Until Agent is able to effect
a sale, lease, or other disposition of Collateral, Agent shall have the right to
hold or use Collateral, or any part thereof, to the extent that it deems
appropriate for the purpose of preserving Collateral or its value or for any
other purpose deemed appropriate by Agent. Agent shall have no obligation to any
Credit Party to maintain or preserve the rights of a Credit Party as against
third parties with respect to Collateral while Collateral is in the possession
of Agent. Upon the occurrence and during the continuance of an Event of Default,
Agent may, if it so elects, seek the appointment of a receiver or keeper to take
possession of Collateral and to enforce any of Agent's remedies (for the benefit
of Agent and Lenders), with respect to such appointment without prior notice or
hearing as to such appointment. Upon the occurrence and during the continuance
of an Event of Default, Agent shall apply the net proceeds of any such
collection, recovery, receipt, appropriation, realization or sale to the
Obligations as provided in the Credit Agreement, and only after so paying over
such net proceeds, and after the payment by Agent of any other amount required
by any provision of law, need Agent account for the surplus, if any, to
Borrower. Upon the occurrence and during the continuance of an Event of Default,
to the maximum extent permitted by applicable law, the Credit Parties waive all
claims, damages, and demands against Agent or any Lender arising out of the
repossession, retention or sale of the Collateral except such as arise solely
out of the gross negligence or willful misconduct of Agent or such Lender as
finally determined by a court of competent jurisdiction. Each Credit Party
agrees that ten (10) days prior notice by Agent of the time and place of any
public sale or of the time after which a private sale may take place is
reasonable notification of such matters. The Credit Parties shall remain liable
for any deficiency if the proceeds of any sale or disposition of the Collateral
are insufficient to pay all Obligations, including reasonable attorneys' fees or
other expenses incurred by Agent or any Lender to collect such deficiency.

                  (c)      Except as otherwise specifically provided herein,
each Credit Party hereby waives presentment, demand, protest or any notice (to
the maximum extent permitted by applicable law) of any kind in connection with
this Security Agreement or any Collateral.

                  (d)      The net cash proceeds resulting from the collection,
liquidation, sale, lease or other disposition of the Collateral shall be applied
first to the expenses (including all attorneys' fees) of retaking, holding,
storing, processing and preparing for sale, selling, collecting, liquidating and
the like, and then to the satisfaction of all Obligations in accordance with the
terms of the Credit Agreement. Each Credit Party shall be liable to Agent and
the Lenders and shall pay to Agent and the Lenders, on demand, any deficiency
which may remain after such sale, disposition, collection or liquidation of the
Collateral. Agent shall remit to such Credit Parties or other Person entitled
thereto any surplus remaining after this Agreement has been terminated in
accordance with Section 25(f) hereof.


                  (e)      If an Event of Default under the Credit Agreement has
occurred and is continuing: (i) Agent shall have for the benefit of the Lenders,
in addition to all other rights of Agent and the Lenders, the rights and
remedies of a secured party under the Loan Documents and the UCC; and (ii) Agent
may sell and deliver any Collateral at public or private sales, for cash, upon
credit or otherwise, at such prices and upon such terms as Agent deems
advisable, in its sole discretion, and may, if Agent deems it reasonable,
postpone or adjourn any sale of the Collateral by an announcement at the time
and place of sale or of such postponed or adjourned sale without giving a new
notice of sale. Without in any way requiring notice to be given in the following
manner, each Credit Party agrees that any notice by Agent of sale, disposition
or other intended action hereunder or in connection herewith, whether required
by the UCC or otherwise, shall constitute reasonable notice to each Credit Party
if such notice is mailed by registered or certified mail, return receipt
requested, postage prepaid, or is delivered personally against receipt, at least
ten (10) Business Days prior to such action to the Borrower's address specified
in or pursuant to Section 13.8 of the Credit Agreement. If any Collateral is
sold on terms other than payment in full at the time of sale, no credit shall be
given against the Obligations until Agent or the Lenders receive payment, and if
the buyer defaults in payment, Agent may resell the Collateral without further
notice to the Borrower or any Credit Party. Agent is hereby granted a license or
other right to use, without charge, each Credit Party's labels, patents,
copyrights, name, trade secrets, trade names, trademarks, and advertising
matter, or any similar property, in completing production of, advertising or
selling any Collateral, and each Credit Party's rights under all licenses and
all franchise agreements shall inure to Agent's benefit for such purpose. The
proceeds of sale shall be applied first to all expenses of sale, including
attorneys' fees, and then to the Obligations. Agent will return any excess to
the Borrower and the Borrower and each other Credit Party shall remain liable
for any deficiency.

         21.      GRANT OF LICENSE TO USE INTELLECTUAL PROPERTY.

                  For the purpose of enabling the Agent to exercise rights and
remedies under Section 22 hereof (including, without limiting the terms of
Section 22 hereof, in order to take possession of, hold, preserve, process,
assemble, prepare for sale, market for sale, sell or otherwise dispose of
Collateral), solely for such purpose and solely during such time as Agent shall
be lawfully entitled to exercise such rights and remedies, each Credit Party
hereby grants to Agent, for the benefit of Agent and the Lenders, a nonexclusive
license (which shall be irrevocable for so long as any Obligations remain
outstanding and which shall be exercisable without payment of royalty or other
compensation to the Credit Parties) to use, license or sublicense any
Intellectual Property now owned or hereafter acquired by a Credit Party (other
than any Intellectual Property in connection with the Trademark License
Agreement dated June 26, 1998 between Parent and The Black and Decker
Corporation (other than as set forth in the Trademark Use Agreement)), and
wherever the same may be located, and including in such license access to all
media in which any of the licensed items may be recorded or stored and to all
computer software and programs used for the compilation or printout thereof.

         22.      LIMITATION ON AGENT'S AND LENDERS' DUTY IN RESPECT OF
COLLATERAL.


                  The Agent and each Lender shall use reasonable care with
respect to the Collateral in its possession or under its control. Neither the
Agent nor any Lender shall have any other duty as to any Collateral in its
possession or control or in the possession or control of any agent or nominee of
the Agent or such Lender, or any income thereon or as to the preservation of
rights against prior parties or any other rights pertaining thereto.

         23.      MISCELLANEOUS.

                  (a)      REINSTATEMENT. This Security Agreement shall remain
in full force and effect and continue to be effective should any petition be
filed by or against the Borrower or any other Credit Party for liquidation or
reorganization, should the Borrower or any other Credit Party become insolvent
or make an assignment for the benefit of any creditor or creditors or should a
receiver or trustee be appointed for all or any significant part of any Credit
Party's assets, and shall continue to be effective or be reinstated, as the case
may be, if at any time payment and performance of the Obligations, or any part
thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must
otherwise be restored or returned by any obligee of the Obligations, whether as
a "voidable preference," "fraudulent conveyance," or otherwise, all as though
such payment or performance had not been made. In the event that any payment, or
any part thereof, is rescinded, reduced, restored or returned, the Obligations
shall be reinstated and deemed reduced only by such amount paid and not so
rescinded, reduced, restored or returned.

                  (b)      NOTICES. Except as otherwise provided herein,
whenever it is provided herein that any notice, demand, request, consent,
approval, declaration or other communication shall or may be given to or served
upon any of the parties by any other party, or whenever any of the parties
desires to give and serve upon any other party any communication with respect to
this Security Agreement, each such notice, demand, request, consent, approval,
declaration or other communication shall be in writing and shall be given in the
manner, and deemed received, as provided for in the Credit Agreement and in
Section 22(e) hereof.

                  (c)      SEVERABILITY. Whenever possible, each provision of
this Security Agreement shall be interpreted in a manner as to be effective and
valid under applicable law, but if any provision of this Security Agreement
shall be prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity without invalidating
the remainder of such provision or the remaining provisions of this Security
Agreement. This Security Agreement is to be read, construed and applied together
with the Credit Agreement and the other Loan Documents which, taken together,
set forth the complete understanding and agreement of the Agent, the Lenders and
the Credit Parties with respect to the matters referred to herein and therein.

                  (d)      NO WAIVER; CUMULATIVE REMEDIES. Neither the Agent nor
any Lender shall by any act, delay, omission or otherwise be deemed to have
waived any of its rights or remedies hereunder, and no waiver shall be valid
unless in writing, signed by the Agent and then only to the extent therein set
forth. A waiver by the Agent of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which the Agent
would otherwise have had on any future occasion. No failure to exercise nor any
delay in exercising on the part of the Agent or any Lender, any right, power or
privilege hereunder, shall operate as a


waiver thereof, nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or future exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies
hereunder provided are cumulative and may be exercised singly or concurrently,
and are not exclusive of any rights and remedies provided by law. None of the
terms or provisions of this Security Agreement may be waived, altered, modified
or amended except by an instrument in writing, duly executed by the Agent and
the Credit Parties.

                  (e)      LIMITATION BY LAW. All rights, remedies and powers
provided in this Security Agreement may be exercised only to the extent that the
exercise thereof does not violate any applicable provision of law, and all the
provisions of this Security Agreement are intended to be subject to all
applicable mandatory provisions of law that may be controlling in accordance
with Section 25(c) above.

                  (f)      TERMINATION OF THIS SECURITY AGREEMENT. Subject to
Section 25(a) hereof, this Security Agreement shall terminate upon the
termination of all Commitments, the satisfactory collateralization of all
Letters of Credit and the payment in full of all other Obligations (other than
indemnification Obligations as to which no claim has been asserted and to the
extent necessary to satisfy the requirements of Section 22(d) hereof).

                  (g)      SUCCESSORS AND ASSIGNS. This Security Agreement and
all obligations of the Credit Parties hereunder shall be binding upon the
successors and assigns of the Credit Parties (including any debtor-in-possession
on behalf of a Credit Party) and shall, together with the rights and remedies of
the Agent, for the benefit of the Agent and the Lenders, hereunder, inure to the
benefit of the Agent and Lenders, all future holders of any instrument
evidencing any of the Obligations and their respective successors and assigns.
No sales of participations, other sales, assignments, transfers or other
dispositions of any agreement governing or instrument evidencing the Obligations
or any portion thereof or interest therein shall in any manner affect the Lien
granted to the Agent, for the benefit of the Agent and the Lenders, hereunder.
No Credit Party may assign, sell, hypothecate or otherwise transfer any interest
in or obligation under this Security Agreement.

                  (h)      COUNTERPARTS. This Security Agreement may be
authenticated in any number of separate counterparts, including facsimile
copies, each of which shall collectively and separately constitute one and the
same agreement. This Security Agreement may be authenticated by manual
signature, facsimile or, if approved in writing by Agent, electronic means, all
of which shall be equally valid.

                  (i)      GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED
IN ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS SECURITY AGREEMENT AND THE
OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
MADE AND PERFORMED IN THAT STATE, AND ANY APPLICABLE LAWS OF THE UNITED STATES
OF AMERICA. EACH OF THE CREDIT PARTIES HEREBY CONSENTS AND AGREES THAT THE STATE
OR FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW


YORK, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR
DISPUTES BETWEEN THE CREDIT PARTIES, AGENT AND LENDERS PERTAINING TO THIS
SECURITY AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY MATTER ARISING
OUT OF OR RELATING TO THIS SECURITY AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS, PROVIDED, THAT AGENT, LENDERS AND THE CREDIT PARTIES ACKNOWLEDGE THAT
ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF
THE COUNTY OF NEW YORK, STATE OF NEW YORK, AND, PROVIDED, FURTHER, NOTHING IN
THIS SECURITY AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE AGENT FROM
BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE
ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A
JUDGMENT OR OTHER COURT ORDER IN FAVOR OF AGENT. EACH OF THE CREDIT PARTIES
EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR
SUIT COMMENCED IN ANY SUCH COURT, AND EACH OF THE CREDIT PARTIES HEREBY WAIVES
ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF
SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. EACH OF
THE CREDIT PARTIES HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND
OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH
SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED
MAIL ADDRESSED TO THE CREDIT PARTIES AT THE ADDRESS SET FORTH IN SECTION 13.8 OF
THE CREDIT AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE
EARLIER OF ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S.
MAILS, PROPER POSTAGE PREPAID.

                  (j)      WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY
RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE
STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES
DESIRE THAT DISPUTES ARISING HEREUNDER OR RELATING HERETO BE RESOLVED BY A JUDGE
APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE
BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO RESOLVE ANY
DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, AMONG AGENT, LENDERS,
AND THE CREDIT PARTIES ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL
TO THE RELATIONSHIP ESTABLISHED IN CONNECTION WITH, THIS SECURITY AGREEMENT OR
ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO.


                  (k)      SECTION TITLES. The Section titles contained in this
Security Agreement are and shall be without substantive meaning or content of
any kind whatsoever and are not a part of the agreement between the parties
hereto.

                  (l)      NO STRICT CONSTRUCTION. The parties hereto have
participated jointly in the negotiation and drafting of this Security Agreement.
In the event an ambiguity or question of intent or interpretation arises, this
Security 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 provisions of this Security
Agreement.

                  (m)      ADVICE OF COUNSEL. Each of the parties represents to
each other party hereto that it has discussed this Security Agreement and,
specifically, the provisions of Section 25(i) and Section 25(j), with its
counsel.

                  (n)      BENEFIT OF LENDERS. All Liens granted or contemplated
hereby shall be for the benefit of Agent and Lenders, and all proceeds or
payments realized from Collateral in accordance herewith shall be applied to the
Obligations in accordance with the terms of the Credit Agreement.

                  [Signatures will commence on following page]


                  IN WITNESS WHEREOF, each of the parties hereto has caused this
Security Agreement to be executed and delivered by its duly authorized officer
as of the date first set forth above.

BORROWER:                           APPLICA INCORPORATED, a Florida
                                    corporation



                                    By: /s/ Adam L. Kaplan
                                        ---------------------------------------
                                    Name: Adam L. Kaplan
                                    Title:   Treasurer

GUARANTORS:                         APPLICA CONSUMER PRODUCTS, INC.,
                                    a Florida corporation



                                    By: /s/ Adam L. Kapln
                                        ---------------------------------------
                                    Name: Adam L. Kaplan
                                    Title:   Treasurer

                                    WD DELAWARE, INC., a Delaware
                                    corporation



                                    By: /s/ Adam L. Kaplan
                                        ---------------------------------------
                                    Name: Adam L. Kaplan
                                    Title:   Treasurer

                                    HP INTELLECTUAL CORP., a Delaware
                                    corporation



                                    By: /s/ Adam L. Kaplan
                                        ---------------------------------------
                                    Name: Adam L. Kaplan
                                    Title:   Treasurer

                                    WINDMERE HOLDINGS CORPORATION, a Delaware
                                    corporation



                                    By:/s/ Adam L. Kaplan
                                        ---------------------------------------
                                    Name: Adam L. Kaplan
                                    Title:   Treasurer

                    [Signatures continued on following page]


                                    HP DELAWARE, INC., a Delaware
                                    corporation



                                    By: /s/ Adam L. Kaplan
                                        ---------------------------------------
                                    Name: Adam L. Kaplan
                                    Title:   Treasurer

                                    HPG LLC, a Delaware limited liability
                                    company



                                    By: /s/ Adam K. Kaplan
                                        ---------------------------------------
                                    Name: Adam L. Kaplan
                                    Title: Treasurer

                                    HP AMERICAS, INC., a Delaware corporation



                                    By:  /s/ Adam L. Kaplan
                                        ---------------------------------------
                                    Name: Adam L. Kaplan
                                    Title: Treasurer


                                    BANK OF AMERICA, N.A.,
                                    as Agent



                                    By: /s/ Stuart A. Hall
                                        ---------------------------------------
                                    Name: Stuart A. Hall
                                    Title: Vice President

EX-21

                                                                      EXHIBIT 21

                      SUBSIDIARIES OF APPLICA INCORPORATED


         NAME OF SUBSIDIARY                           JURISDICTION OF INCORPORATION

                                                        
The following companies are direct or indirect wholly owned subsidiaries of
Applica Incorporated:

1.       WD Delaware, Inc.                                    Delaware
2.       Windmere Holdings Corporation                        Delaware
3.       HP Intellectual Corp.                                Delaware
4.       Applica Consumer Products, Inc.                      Florida
5.       Sandgate Services Limited                            Hong Kong
6.       HP Delaware, Inc.                                    Delaware
7.       PPC Industries Ltd.                                  British Virgin Islands
8.       Windmere SPC LLC                                     Cayman Islands
9.       HPG LLC                                              Delaware
10.      Household Products Chile Comercial Limitada          Chile
11.      Applica de Colombia Limitada                         Colombia
12.      Applica de Venezuela, C.A.                           Venezuela
13.      HP (BVI) Limited                                     British Virgin Islands
14.      HP Americas, Inc.                                    Delaware
15.      Household Products (Asia) Limited                    Hong Kong
16.      Applica Denmark ApS                                  Denmark
17.      Remdale Investments Limited                          British Virgin Islands
18.      Durable Electric Limited                             Hong Kong
19.      Applica Durable Manufacturing Limited                Hong Kong
20.      Applica Asia Limited                                 Hong Kong
21.      Maanring Holding B.V.                                Netherlands
22.      Tofino Investment Limited                            British Virgin Islands
23.      Applica Manufacturing, S. de R.L. de C.V.            Mexico
24.      Applica de Mexico, S. de R.L. de C.V.                Mexico
25.      Applica Canada Corporation                           Nova Scotia
26.      Windmere Durable (Asia) Limited                      Hong Kong
27.      Novotek Limited                                      Hong Kong
28.      Redcliffe Import and Export Limited                  Hong Kong
29.      Applica Durable Electric Limited                     Hong Kong
30.      Delanee Limited                                      Hong Kong

The following companies are directly or indirectly 50% owned by Applica
Incorporated:

31.      Anasazi Partners, L.P.                               Massachusetts
32.      Freshflush LLC                                       Florida

EX-23

                                                                      EXHIBIT 23

                               AUDITOR'S CONSENT

We have issued our report dated February 6, 2002, accompanying the consolidated
financial statements and schedule included in the Annual Report of Applica
Incorporated (formerly Windmere-Durable Holdings, Inc.) on Form 10-K for the
year ended December 31, 2001. We hereby consent to the incorporation by
reference of the aforementioned report in the Registration Statements of Applica
Incorporated on Form S-3 (File No. 33-26955, effective February 8, 1989), Form
S-8 (File No. 33-58574, effective February 22, 1993), Form S-3 (File No.
333-06759, effective June 25, 1996), Form S-8 (File No. 333-52389, effective May
12, 1998), Form S-8 (File No. 333-52383, effective May 12, 1998), Form S-8 (File
No. 333-86507, effective August 3, 1999), Form S-8 (File No. 333-39986,
effective June 23, 2000) and Form S-8 (File No. 333-39990, effective June 23,
2000).



/s/ Grant Thornton LLP

Miami, Florida
March 7, 2002