-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I49xLuDRV36qhRD2iT2pll4AgxKLkm5DIk0FrXQJDglP/JSVefVdWOEfL1Qt5EgT cGgRUz9AQ+WFtjNjtaKK/Q== 0000950130-99-002844.txt : 19990511 0000950130-99-002844.hdr.sgml : 19990511 ACCESSION NUMBER: 0000950130-99-002844 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19990423 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GUEST SUPPLY INC CENTRAL INDEX KEY: 0000722642 STANDARD INDUSTRIAL CLASSIFICATION: PERFUMES, COSMETICS & OTHER TOILET PREPARATIONS [2844] IRS NUMBER: 222320483 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-11955 FILM NUMBER: 99615713 BUSINESS ADDRESS: STREET 1: 4301 U.S. HWY ONE CITY: MONMOUTH JUNCTION STATE: NJ ZIP: 08852 BUSINESS PHONE: 9082463011 MAIL ADDRESS: STREET 1: P.O. BOX 902 STREET 2: 720 U S HIGHWAY ONE CITY: MONMOUTH JUNCTION STATE: NJ ZIP: 08852 8-K 1 FORM 8-K -------------------------- OMB APPROVAL -------------------------- OMB Number: 3235-0060 Expires: May 31, 2000 Estimated average burden hours per response.....5.00 -------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) April 23, 1999 -------------- GUEST SUPPLY, INC. ------------------------------------------------ (Exact name of registrant as specified in its charter) New Jersey 1-11955 22-2320483 - --------------------------------- ---------------- ------------------- (State or other jurisdiction (Commission File (I.R.S. Employer of incorporation or organization) Number) Identification No.) 4301 U.S. Highway One Monmouth Junction, NJ 08852-0902 --------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (609) 514-9696 -------------- Not Applicable -------------------------------------------------------------------------- (Former name or former address, if changed since last report) Item 2. Acquisition or Disposition of Assets On April 23, 1999, Guest Supply, Inc. (the "Company") completed the acquisition of Kapadia Enterprises, Inc. d/b/a Nasco Supply Company and McDonald Contract Sales, Inc. (collectively "Nasco"), acquiring all of the capital stock of the privately-held distributor of textile products to the lodging industry from Madhukar and Naina Kapadia. Nasco will continue to operate under the direction of current management. The negotiated purchase price (the "Purchase Price") paid in the Nasco acquisition was (i) $18.0 million in cash at the closing of the acquisition, which price is subject to a post-closing purchase price adjustment, (ii) the issuance by the Company of a 5.18% convertible subordinated promissory note in the aggregate principal amount of $5.0 million, which note is convertible into shares of the Company's common stock, no par value ("Common Stock") at a price of $13.275 per share, subject to adjustment as provided in the note, and (iii) 45,198 shares of the Company's Common Stock ($500,000 of Common Stock based on a per share price of $11 1/16). The acquisition will be accounted for as a purchase. Concurrent with the closing of the acquisition of Nasco, the Company and its subsidiaries entered into a $35.0 million amended and restated revolving credit facility with PNC Bank, National Association, First Union National Bank, and Fleet Bank N.A. (the "Financing Agreement") and an amendment to the Company and its subsidiaries' outstanding $25.0 million aggregate principal amount senior notes (the "Senior Notes"). Borrowings under the Financing Agreement were used to fund the cash portion of the Purchase Price and will be used to finance ongoing working capital requirements of the Company and its subsidiaries. The Financing Agreement is a six-year revolving credit facility, with interest on outstanding borrowings determined, at the Company's option, based upon stated margins at or below the prime rate or in excess of eurodollar rates. Borrowings under the Financing Agreement are secured by substantially all of the assets of the Company and its subsidiaries. The Senior Notes have fixed interest rates ranging from 6.95% to 7.31%, maturities ranging from 2003 to 2009, and are secured by substantially all of the assets of the Company and its subsidiaries. The Financing Agreement and the Senior Notes contain a number of restrictive covenants, including covenants which limit incurrence of liens and indebtedness, limit transactions with affiliates, acquisitions, sales of assets, investments and other restricted payments. The Financing Agreement and the Senior Notes further require that the Company comply with certain financial and other covenants as set forth therein. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits (a) & (b) Financial statements of business acquired and pro-forma financial information. The required financial statements and pro forma financial information will be filed as soon as practicable, but not later than 60 days after the date by which this report must be filed. (c) Exhibit Index 10(w) Stock Purchase Agreement dated as of April 23, 1999 by and among the Company, Breckenridge-Remy Co., Madhukar Kapadia and Naina Kapadia, as Trustees of the 1 Kapadia Family Trust, Kapadia Enterprises, Inc., MacDonald Contract Sales, Inc., Madhukar Kapadia and Naina Kapadia. Pursuant to Reg. S-K, Item 601(b)(2), the Company agrees to furnish a copy of the Schedules to such Agreement to the Commission upon request. 10(x) 5.18% Convertible Subordinated Promissory Note due April 23, 2004 in the principal amount of $5,000,000 by the Company in favor of Madhukar Kapadia and Naina Kapadia, as Trustees of the Kapadia Family Trust. 10(y) Employment Agreement dated as of April 23, 1999 by and between the Company and Madhukar Kapadia. 10(z) Amended and Restated Revolving Credit Agreement dated as of April 21, 1999 by and among the Company, Guest Packaging, Inc., Breckenridge-Remy Co., Guest Distribution Services, Inc., Kapadia Enterprises, Inc., PNC Bank, National Association, as Agent and as Lender, First Union National Bank, as Lender, and Fleet Bank, N.A., as Lender. 10(aa) Form of Security Agreement dated as of April 21, 1999 executed by the Company and each of its subsidiaries in favor of PNC Bank, National Association, as Agent. 10(bb) Amendment No. 1 to Note Purchase Agreements dated as of April 21, 1999 by and among the Company, Guest Packaging, Inc., Breckenridge-Remy Co., Guest Distribution Services, Inc., Kapadia Enterprises, Inc., MONY Life Insurance Company, AUSA Life Insurance Company, Inc., Great-West Life and Annuity Insurance Company and Nationwide Life and Annuity Insurance Company. 99 Guest Supply, Inc. Press Release dated April 26, 1999. 2 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. GUEST SUPPLY, INC. ------------------ (Registrant) Date: May 9, 1999 By:/s/ Paul T. Xenis ----------------- Paul T. Xenis Vice President - Finance 3 EX-10.(W) 2 STOCK PURCHASE AGREEMENT DATED AS OF 4/23/99 EXHIBIT 10.(w) - -------------------------------------------------------------------------------- STOCK PURCHASE AGREEMENT By and Among KAPADIA ENTERPRISES, INC., MACDONALD CONTRACT SALES, INC., MADHUKAR KAPADIA AND NAINA KAPADIA, AS TRUSTEES OF THE KAPADIA FAMILY TRUST, MADHUKAR KAPADIA, NAINA KAPADIA, BRECKENRIDGE-REMY CO. and GUEST SUPPLY, INC. As of April 23, 1999 - -------------------------------------------------------------------------------- Table of Contents -----------------
Page SECTION I. PURCHASE AND SALE OF THE SHARES........................................................... 1 1.01 Purchase and Sale of the Shares........................................................... 1 1.02 Discharge of Funded Indebtedness.......................................................... 2 SECTION II. THE PURCHASE PRICE; REGISTRATION RIGHTS................................................... 2 2.01 Purchase Price............................................................................ 2 2.02 Purchase Price Adjustment................................................................. 2 2.03 Registration Rights....................................................................... 4 2.04 Section 338(h)(10) Election and Allocation................................................ 6 SECTION III. REPRESENTATIONS, WARRANTIES OF THE KAPADIAS AND THE SHAREHOLDER........................... 8 3.01 Organization and Qualification............................................................ 8 3.02 Authority................................................................................. 9 3.03 No Legal Bar; Conflicts................................................................... 9 3.04 Capitalization............................................................................ 9 3.05 Financial Statements; No Undisclosed Liabilities.......................................... 9 3.06 Absence of Certain Changes................................................................ 10 3.07 Accounts Receivable; Inventories.......................................................... 11 3.08 No Dividends, Loans, Etc.................................................................. 11 3.09 Real Property Owned or Leased............................................................. 11 3.10 Title to Assets; Condition of Property.................................................... 12 3.11 Taxes..................................................................................... 13 3.12 Compliance with Applicable Law; Permits; Authorizations................................... 14 3.13 Contractual and Other Obligations; Customers and Suppliers................................ 15 3.14 Compensation.............................................................................. 16 3.15 Employee Benefit Plans.................................................................... 16 3.16 Labor Relations........................................................................... 18 3.17 Insurance................................................................................. 18 3.18 Conduct of Business; Allowances........................................................... 19 3.19 Patents, Trademarks, Etc.................................................................. 19 3.20 Power of Attorney; Bank Accounts.......................................................... 19 3.21 No Foreign Person......................................................................... 20 3.22 Books and Records......................................................................... 20 3.23 Litigation; Disputes...................................................................... 20 3.24 Insider Interests; Intercompany Transactions.............................................. 20 3.25 Year 2000 Compliance...................................................................... 20 3.26 Disclosure................................................................................ 21 3.27 Use of Names.............................................................................. 21 3.28 Accounts Payable; Indebtedness, Etc....................................................... 21 3.29 Location of Business and Assets........................................................... 21
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SECTION IV. REPRESENTATIONS, WARRANTIES OF THE SHAREHOLDER AND THE KAPADIAS........................... 21 4.01 Authority................................................................................. 21 4.02 Ownership of Shares....................................................................... 21 4.03 No Legal Bar; Conflicts................................................................... 22 4.04 Investment................................................................................ 22 SECTION V. REPRESENTATIONS, WARRANTIES OF THE PURCHASER AND THE ISSUER............................... 23 5.01 Organization.............................................................................. 23 5.02 Authority................................................................................. 23 5.03 No Legal Bar; Conflicts................................................................... 23 5.04 SEC Documents............................................................................. 24 SECTION VI. COVENANTS OF THE SHAREHOLDER, THE COMPANIES, THE KAPADIAS, THE PURCHASER AND THE ISSUER.. 24 6.01 Publicity................................................................................. 24 6.02 Encumbrances.............................................................................. 24 6.03 Confidential Information.................................................................. 24 6.04 Brokers and Finders....................................................................... 24 6.05 Cash Management........................................................................... 25 6.06 Acquisition Proposals..................................................................... 25 6.07 HSR Act Filing............................................................................ 25 6.08 Correspondence............................................................................ 26 SECTION VII. CONDUCT OF THE COMPANIES PRIOR TO CLOSING................................................. 26 7.01 Operation of the Business................................................................. 26 7.02 Capital Stock, Etc........................................................................ 26 7.03 Changes; Contracts; Claims................................................................ 26 7.04 Preservation of Organization, Employees and Business Relationships........................ 27 7.05 Notice of Adverse Developments; Litigation................................................ 27 7.06 Payment of Taxes.......................................................................... 27 7.07 Documents, Etc............................................................................ 27 7.08 No Loans, Advances, Etc................................................................... 27 7.09 Books and Records and Interim Financial Statements........................................ 28 7.10 Compliance with Laws...................................................................... 28 7.11 Sale of Assets............................................................................ 28 7.12 Discharge of Obligations.................................................................. 28 7.13 Revenues; Accounts Receivable; Inventory.................................................. 28 7.14 Facilities................................................................................ 28 7.15 Cooperation............................................................................... 28 SECTION VIII. CLOSING................................................................................... 29 8.01 Time and Place of Closing................................................................. 29 8.02 Termination............................................................................... 29 8.03 Effect on Obligations..................................................................... 29 8.04 Return of Documentation................................................................... 30
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8.05 Delivery of Shares........................................................................ 30 SECTION IX. CONDITIONS TO THE SHAREHOLDER'S OBLIGATION TO CLOSE....................................... 30 9.01 No Litigation............................................................................. 30 9.02 Representations, Warranties and Covenants................................................. 30 9.03 Other Certificates........................................................................ 31 9.04 Opinion of the Purchaser's and the Issuer's Counsel....................................... 31 9.05 Employment Agreement...................................................................... 31 9.06 Hart-Scott-Rodino......................................................................... 31 9.07 Payoff of Funded Indebtedness............................................................. 31 SECTION X. CONDITIONS TO THE PURCHASER'S OBLIGATION TO CLOSE......................................... 31 10.01 No Litigation............................................................................. 31 10.02 Representations, Warranties and Covenants................................................. 31 10.03 Other Certificates........................................................................ 32 10.04 Opinion of the Companies' and the Shareholder's Counsel................................... 32 10.05 Environmental............................................................................. 32 10.06 Sale of All the Shares.................................................................... 32 10.07 Resignations.............................................................................. 32 10.08 Consents.................................................................................. 32 10.09 Transfer of Building...................................................................... 32 10.10 Employment Agreements..................................................................... 33 10.11 Financing................................................................................. 33 10.12 No Material Adverse Change................................................................ 33 10.13 Hart-Scott-Rodino......................................................................... 33 10.14 Regulation S-X and Adjusted EBITDA Certificate............................................ 33 10.15 Payoff of Funded Indebtedness............................................................. 33 SECTION XI. INDEMNIFICATION........................................................................... 33 11.01 Indemnification by the Shareholder and the Kapadias....................................... 33 11.02 Indemnification by the Purchaser and the Issuer........................................... 34 11.03 Procedure for Indemnification............................................................. 34 11.04 Subrogation............................................................................... 35 11.05 Validity.................................................................................. 36 11.06 Time Periods for Representation and Warranty Indemnifications............................. 36 11.07 Indemnity Escrow; Offset.................................................................. 36 11.08 Limits on Indemnification................................................................. 38 SECTION XII. NON-COMPETITION AGREEMENT................................................................. 38 12.01 Solicitation of Employees................................................................. 38 12.02 Noncompetition............................................................................ 38 SECTION XIII. MISCELLANEOUS............................................................................. 39 13.01 Notices................................................................................... 39 13.02 Survival of Representations............................................................... 40
iii 13.03 Entire Agreement.......................................................................... 40 13.04 Further Assurances........................................................................ 40 13.05 Expenses.................................................................................. 40 13.06 Injunctive Relief......................................................................... 41 13.07 Invalidity................................................................................ 41 13.08 Successors and Assigns.................................................................... 41 13.09 Governing Law............................................................................. 42 13.10 Counterparts.............................................................................. 42 13.11 Knowledge................................................................................. 42 13.12 Interpretation............................................................................ 42 13.13 Gender and Number......................................................................... 42 13.14 Joint and Several Obligations............................................................. 42 13.15 Headings.................................................................................. 42 13.16 Independence of Covenants and Representations and Warranties.............................. 42
iv EXHIBITS A. FORM OF KAPADIA EMPLOYMENT AGREEMENT B. FORM OF CONVERTIBLE NOTE C. FORM OF ESCROW AGREEMENT ANNEX A. DEFINITIONS v STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (this "Agreement") made as of the 23rd day of April, 1999 by and among Breckenridge-Remy Co., a Delaware corporation (the "Purchaser"), Kapadia Enterprises, Inc., a California corporation ("KEI"), MacDonald Contract Sales, Inc., a corporation organized and existing under the laws of Ontario, Canada ("MCSI"; and together with KEI collectively, the "Companies"), Madhukar Kapadia and Naina Kapadia, as Trustees of the Kapadia Family Trust (the "Shareholder"), the owner of all of the issued and outstanding shares of capital stock of each of the Companies, Madhukar Kapadia ("M. Kapadia"), Naina Kapadia ("N. Kapadia"; and together with M. Kapadia, the "Kapadias"), and Guest Supply, Inc., a New Jersey corporation (the "Issuer"). Capitalized terms used herein and not defined in the specific Section in which they are used shall have the meanings assigned to such terms in Annex A hereof. W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Companies are engaged in the business of purchasing and distributing textiles and related items for the lodging industry (such activities and all incidental or related businesses of each of the Companies being herein referred to as the "Business"); WHEREAS, the Shareholder is the holder of all of the issued and outstanding shares of capital stock of each of the Companies, (all such shares of capital stock held by the Shareholder being hereinafter collectively referred to as the "Shares"); WHEREAS, the Purchaser is a wholly owned subsidiary of the Issuer; WHEREAS, the Kapadias are trustees and beneficiaries of the Shareholder and, as such, will derive direct economic benefit from the transactions contemplated hereby, and in order to induce the Purchaser and the Issuer to enter into this Agreement and consummate the transactions contemplated hereby, each of the Kapadias hereby agrees to make the representations, warranties, covenants and agreements contained herein; and WHEREAS, the Purchaser desires to acquire from the Shareholder, and the Shareholder desires to sell to the Purchaser, all of the Shares held by such Shareholder. NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements hereinafter set forth and intending to be legally bound, the parties hereto hereby agree as follows: SECTION I. --------- PURCHASE AND SALE OF THE SHARES ------------------------------- 1.01 Purchase and Sale of the Shares . (a) Subject to the terms and ------------------------------- conditions of this Agreement and on the basis of the representations, warranties, covenants and agreements 2 herein contained, at the Closing, the Shareholder agrees to sell, assign and convey to the Purchaser, free and clear of all Liens, and the Purchaser agrees to purchase, acquire and accept from the Shareholder, and the Issuer shall cause the Purchaser to purchase, acquire and accept, all of the Shares held by such Shareholder. (b) The parties hereto acknowledge and agree that the Purchaser may designate the Issuer or a direct or indirect wholly owned subsidiary of the Issuer to acquire the Shares provided, however, that the Purchaser's payment obligations hereunder shall not be affected by such designation by the Purchaser. 1.02 Discharge of Funded Indebtedness . On the Closing Date, the -------------------------------- Purchaser and the Issuer shall pay or cause to be paid all amounts outstanding as of the Closing Date under all Funded Indebtedness. The Shareholder shall designate to the Purchaser in writing the aggregate pay-off amount for each Funded Indebtedness Holder as of the Closing Date and the accounts (at a bank or other financial institution) to which such pay-off amounts shall be wired, which designation shall be accompanied by written instructions (or other pay-off letters) from each Funded Indebtedness Holder setting forth the amounts owed, the pay-off instructions and related matters. SECTION II. ---------- THE PURCHASE PRICE; REGISTRATION RIGHTS --------------------------------------- 2.01 Purchase Price . The aggregate purchase price, subject to -------------- adjustment pursuant to Section 2.02 below, for the Shares (the "Purchase Price") shall be payable at the Closing as follows: (i) in cash, by wire transfer to an account designated by the Shareholder, an amount equal to $18,000,000 (the "Cash Purchase Price"), (ii) a five-year convertible subordinated promissory note of the Issuer substantially in the form of Exhibit B attached hereto (the "Note"), payable to the Shareholder in the principal amount of $5,000,000, bearing interest at a fixed annual rate equal to the greater of (A) the lowest applicable federal rate under Section 1274(d) of the Code or (B) 4%, payable quarterly, and convertible, into a number of shares of common stock, without par value, of the Issuer (the "Common Stock") equal to the then outstanding principal amount owed under the Note divided by the Conversion Price, and (iii) the issuance to the Shareholder of 45,198 shares of Common Stock (such Common Stock, together with the Common Stock issuable upon the conversion of the Note, collectively, the "Purchase Price Common Stock"). The payment by the Purchaser of the Purchase Price as provided above shall, subject to adjustment as provided in Section 2.02 below, constitute full and final payment to the Shareholder of the Purchase Price for the Shares. 2.02 Purchase Price Adjustments . (a) In the event that the -------------------------- Companies' Adjusted EBITDA as set forth on the Adjusted EBITDA Certificate is less than $3,350,000, then the Cash Purchase Price paid at the Closing shall be reduced by an amount equal to (A) such deficiency multiplied by (B) 7.8. (b)(i) In the event that the Companies' Closing Adjusted Net Worth is less than $7,155,000, then the Cash Purchase Price shall be reduced by the amount of such deficiency, all in accordance with the provisions of this Section 2.02, and (ii) in the event that the Companies' 3 Closing Adjusted Net Worth, is greater than $7,355,000, then the Cash Purchase Price shall be increased by the lesser of (A) $3,000,000 or (B) the amount of such excess, all in accordance with the provisions of this Section 2.02. (c) (i) As promptly as practicable following the Closing Date, but in no event later than 60 days thereafter (the "60-Day Period"), the Shareholder shall cause Carpenter Kuhen & Sprayberry to prepare and deliver to the Purchaser and the Shareholder (1) an audited combined balance sheet of the Companies as of the Closing Date (the "Closing Balance Sheet") and (2) a statement of the amount of the Closing Adjusted Net Worth. The Closing Balance Sheet shall be prepared in accordance with GAAP, consistently applied, and otherwise, to the extent consistent with GAAP, in a manner consistent with the preparation of the Companies' audited balance sheet as at December 31, 1998. All reasonable expenses incurred in connection with the preparation and delivery of the audited Closing Balance Sheet shall be borne one-half by the Shareholder and one-half by the Purchaser. The Shareholder shall request Carpenter Kuhen & Sprayberry to permit the Shareholder, the Purchaser and their respective representatives to review all work papers with respect to the Closing Balance Sheet. (ii) During the 60-Day Period and during the 30-Day Period, the Purchaser shall, at the request of the Shareholder, on reasonable prior notice from the Shareholder and during normal business hours, afford the Shareholder and the Kapadias access to the Companies' books and records with respect to the Business and otherwise reasonably cooperate with the Shareholder and the Kapadias in connection with their evaluation of the Closing Balance Sheet. (d) On the thirtieth day after the date on which the Closing Balance Sheet has been delivered to the Shareholder and the Purchaser (or such earlier date as the parties hereto agree in writing), if the Closing Adjusted Net Worth shown on the Closing Balance Sheet is not disputed by the Shareholder or the Purchaser pursuant to Section 2.02(e) hereof, (i) in the event that the Closing Adjusted Net Worth exceeds the $7,355,000, then the Purchaser shall pay to the Shareholder, by bank wire transfer, the lesser of (A) $3,000,000 or (B) the amount of such excess and (ii) in the event that the Closing Adjusted Net Worth is less than $7,155,000, then the Shareholder shall pay to the Purchaser, by bank wire transfer, the amount of such deficiency. In addition, it is understood and agreed that if the Shareholder or the Purchaser does not deliver a Dispute Notice to the other party hereto within 30 days after the delivery of the Closing Balance Sheet to the Shareholder and the Purchaser (the "30-Day Period"), then the Closing Balance Sheet shall be deemed accepted in all respects by the Shareholder, the Purchaser and the Kapadias and shall be final and binding upon the parties hereto with the effects set forth in clauses (i) and (ii) of this subsection (d). (e) If the Shareholder or the Purchaser disputes the Closing Adjusted Net Worth, the disputing party shall give written notice (the "Dispute Notice") to the nondisputing party within the 30-Day Period, which Dispute Notice shall specify in reasonable detail the matters and the reasons for such dispute and the amount(s) in dispute. If the Shareholder and the Purchaser are unable to resolve the disputed matters within 30 days after receipt by the nondisputing party of the Dispute Notice, all disputed matters raised in the Dispute Notice and not so resolved (the "Disputed Matters") shall be submitted to the Los Angeles, California office of (i) Arthur Andersen LLP, and if such firm refuses to accept such engagement, (ii) Pricewaterhouse Coopers LLP, and if such firm refuses to accept such engagement then (iii) such 4 other nationally recognized independent accounting firm as is chosen by mutual agreement of the Shareholder and the Purchaser acting in good faith (such firm which accepts the engagement, the "Independent Auditor"), for final resolution in accordance with the terms and provisions of this Agreement. The Purchaser, on the one hand, and the Shareholder, on the other hand shall each be permitted to submit a written position to the Independent Auditor regarding the Disputed Matters. The Purchaser and the Shareholder shall use their respective best efforts to cause the Independent Auditor to make its determination as to the resolution of the Disputed Matters (the "Determination") as soon as possible, but in no event later than 60 days after receipt of the Disputed Matters. The Determination shall be final and binding upon the parties hereto and shall be limited to the Disputed Matters. The Independent Auditor's Determination shall be reflected in a written report which shall be delivered promptly by the Independent Auditor to the Shareholder and the Purchaser, which written report shall, in addition to setting forth the resolution of the Disputed Matters, set forth the Closing Adjusted Net Worth determined in accordance with the terms hereof (and after giving effect to such resolution) and shall set forth, after giving effect to the foregoing determinations, which of clauses (i) or (ii) of subsection (d) above is applicable in the circumstances. One-half of all fees and disbursements of the Independent Auditor shall be paid by the Purchaser and one-half of such fees and disbursements shall be paid by the Shareholder. Any payment to be made as a consequence of the Determination by the Independent Auditor shall be made, free and clear of any deductions or set-off by bank wire transfer of immediately available funds, not later than three (3) business days after the receipt of the Determination by the Shareholder and the Purchaser, in accordance with the provisions of clauses (i) and (ii) of Section 2.02(d). (f) All amounts paid pursuant to this Section 2.02 shall be paid by bank wire transfer of immediately available funds and shall bear interest from and after the Closing Date, until paid, at the per annum rate equal to the prime rate of PNC Bank (or its successors), as in effect from time to time, on the basis of a 360-day year and the actual number of days elapsed. 2.03 Registration Rights . (a) In the event that, at any time or ------------------- from time to time, the Issuer proposes to register any shares of the Issuer's Common Stock (the "Registration Shares"), under the Securities Act, other than pursuant to a registration statement on Forms S-4 or S-8 or any successor to such Forms, for the purpose of the sale or other transfer of the Registration Shares by the Issuer, the Issuer shall mail or deliver a written notice (a "Registration Notice") of its intention so to register the Registration Shares to the Shareholder, in the event that the Shareholder (or a Section 2.03 Transferee) continues to hold the Purchase Price Common Stock on the day before such Registration Notice is sent, at least 30 days prior to the filing of the registration statement covering the Registration Shares. (b) In the event that a Registration Notice shall have been so mailed or delivered, the Shareholder, at its election, may deliver to the Issuer a written notice (a "Supplemental Notice") (i) specifying the number of shares of Purchase Price Common Stock proposed to be sold or otherwise transferred by the Shareholder (the "Supplemental Registration Shares"), (ii) describing the proposed manner of sale or other transfer thereof and (iii) requesting the registration thereof under the Securities Act; provided, however, that such Supplemental Notice shall be so delivered not more than 15 days after the date of delivery to the Shareholder of a Registration Notice. 5 (c) From and after receipt of a Supplemental Notice, the Issuer shall, subject to the sale or other transfer of some or all of the Supplemental Registration Shares, use its best efforts to cause the public sale of the Supplemental Registration Shares to be registered under the Securities Act and to effect and to comply with all such qualifications and requirements as may be necessary to permit the public sale or other transfer of the Supplemental Registration Shares; provided, however, that if (i) in the case of an underwritten public offering of securities, the managing underwriter shall advise the Issuer that inclusion of some or all of the Supplemental Registration Shares would, in such managing underwriter's judgment, interfere with the proposed distribution of the securities in respect of which registration was originally to be effected, then the Issuer may, upon written notice to the Shareholder, allocate the Supplemental Registration Shares to be included in the registration statement (if and to the extent such allocation is stated by such managing underwriter as necessary to eliminate such interference) pro rata among holders of Supplemental Registration Shares on the basis of the number of shares of the Issuer's Common Stock held by such holders or (ii) any firm of counsel representing the Issuer in connection with such registration shall advise the Issuer and the Shareholder in writing that one or more of the steps contemplated hereby is not necessary to permit the sale of the Supplemental Registration Shares in a transaction constituting a public offering within the meaning of the Securities Act, then the Issuer shall not be required to take any action with respect to such step or steps. (d) The Shareholder agrees to furnish the Issuer such information regarding itself, and the proposed distribution of the Supplemental Registration Shares by such Shareholder as the Issuer may from time to time reasonably request in writing in order to prepare a registration statement and prospectus or any supplement or amendment thereto pursuant to the Securities Act and the rules and regulations promulgated thereunder. (e) The Issuer shall pay all expenses (the "Registration Expenses") necessary to effect under the Securities Act any registration statements, amendments or supplements filed pursuant to this Section 2.03 (other than underwriters' discounts and commissions and brokerage commission and fees, if any, payable with respect to securities sold by the Shareholder and other than legal fees and expenses of counsel to the Shareholder), including without limitation, printing expenses, fees of the Commission and The New York Stock Exchange, Inc., and accounting and legal fees and expenses of the Issuer. (f) If the Registration Shares are to be distributed by or through one or more underwriter(s), as determined by the Issuer in its sole discretion, the Issuer will have the sole right to select the managing underwriter(s) to administer the offering. (g) In the event of any registration pursuant to this Section 2.03 covering the Supplemental Registration Shares, the Issuer will indemnify and hold harmless the Shareholder (if securities of the Shareholder are included in the subject registration statement) against any Damages which arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any such registration statement, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the Issuer will not be liable to the Shareholder in any such case to the extent that any such 6 Damage arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in said registration statement, said preliminary prospectus, said final prospectus, or any said amendment or supplement, in reliance upon and in conformity with written information furnished by the Shareholder specifically for use in the preparation thereof. (h) In the event of any registration pursuant to this Section 2.03 covering the Supplemental Registration Shares, the Shareholder (if securities of the Shareholder are included in the subject registration statement) shall, in the instances and to the extent set forth in this subsection (h), indemnify and hold harmless the Issuer, each of its directors and officers who has signed any registration statement, and each person, if any, who controls the Issuer within the meaning of the Securities Act, against any Damages, to which the Issuer or any such director, officer, or controlling person may become subject, under the Securities Act or otherwise, insofar as such Damages, arise out of or are based upon any untrue or alleged untrue statement of any material fact contained in said registration statement, said preliminary prospectus, said final prospectus, or said amendment or supplement thereto, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in said registration statement, said preliminary prospectus, said final prospectus, or said amendment or supplement, in reliance upon and in conformity with written information furnished by the Shareholder specifically for use in the preparation thereof. (i) With respect to any underwritten offering, each of the Shareholders severally and not jointly shall, in addition to the foregoing, provide the underwriter of such offering with customary representations and warranties, and indemnification, in each instance as shall be reasonably requested by the underwriter, provided, however, that any such agreement to indemnify an underwriter with respect to any preliminary prospectus shall not inure to the benefit of any such underwriter to the extent that any Damages of any such underwriter results solely from an untrue statement of material fact contained in, or the omission of a material fact from, such preliminary prospectus which untrue statement or omission was corrected in the final prospectus, if such underwriter failed to send or give a copy of the final prospectus to the Person asserting such loss, claim, damage or liability at or prior to the written confirmation of the sale of such securities to such Person, and provided further that any such agreement by any of the Shareholder to indemnify an underwriter shall be on a several (and not joint) basis in proportion to the number of securities sold by the Shareholder in such underwritten offering and shall be limited in amount to the net proceeds received by such Shareholder in such underwritten offering. (j) It is understood and agreed that notwithstanding anything to the contrary contained herein, the rights and benefits of this Section 2.03 may be assigned or otherwise transferred to a Section 2.03 Transferee. Any attempted assignment or transfer in violation of this subsection (j) shall be void and of no force or effect. 2.04 Section 338(h)(10) Election and Allocation. (a) The ------------------------------------------ Purchaser and the Shareholder agree that, at the election of the Purchaser (the "Election"), they shall jointly elect to treat the purchase of the Shares of KEI as an acquisition of assets in accordance with Section 7 338(h)(10) of the Code (the "338(h)(10) Election"). In order to effect a timely 338(h)(10) Election (and any comparable election under state or local tax law) with respect to the acquisition of the Shares of KEI by the Purchaser, the Purchaser and the Shareholder shall jointly execute copies of Internal Revenue Service Form 8023 and all attachments required to be filed therewith pursuant to applicable Treasury regulations (collectively, the "Form 8023"). Following the Closing, in the event that the Election occurs, the Purchaser and Shareholder will file the Form 8023 with the Internal Revenue Service (with a copy to the Shareholder) in order to effect a timely 338(h)(10) Election. In the event the Election occurs, the Purchaser and the Shareholder agree otherwise to take all necessary action to make a timely 338(h)(10) Election (and any comparable election under state or local tax law) with respect to the acquisition of the Shares of KEI by the Purchaser. The Purchaser and the Shareholder shall otherwise cooperate fully with each other in the making of such election. (b) In the event that the Election occurs, the Purchase Price paid by the Purchaser for the Shares of KEI (which solely for this purpose shall include the liabilities of KEI and any other amounts required to be included in the "adjusted deemed sale price" under Section 338(h)(10) of the Code) shall be allocated to the assets of KEI in a manner which is intended to comply with the allocation method required by Section 338(h)(10) of the Code. In such event, the parties shall fully cooperate to comply with all substantive and procedural requirements of Section 338(h)(10) of the Code and any regulations thereunder, and the allocation shall be adjusted, if and to the extent deemed necessary by the Purchaser, to comply with the requirements of Section 338(h)(10) of the Code. Except as required by applicable law, neither the Purchaser nor the Shareholder nor the Kapadias will take, nor permit any Affiliate to take, for federal, state or local income tax purposes, any position inconsistent with the Section 338(h)(10) Election or the allocation set forth in the Form 8023 filed by the Purchaser, or, if applicable, any adjusted allocation. It is understood and agreed that without Shareholder's consent, no part of the Purchase Price shall be allocated to the covenant not to compete set forth in Section XII hereof. (c) (i) As promptly as practicable following the Closing Date, KEI shall prepare and deliver, or cause to be prepared and delivered, to the Purchaser and the Shareholder all income Tax Returns of KEI for the short taxable year ending on the date prior to the Closing Date (the "Short Year Tax Returns"), which Short Year Tax Returns, if the Election is made, shall reflect all Taxes arising as a result of the 338(h)(10) Election. All costs of preparation of the Short Year Tax Returns shall be borne by KEI. (ii) In the event that the Election occurs and there are any Incremental Taxes, (x) the amount of such Incremental Taxes (the "Adjustment Amount") shall be due and owing by the Purchaser and the Issuer to the Shareholder within 30 days after delivery of the Short Year Tax Returns to the Purchaser, by wire transfer to the Shareholder and (y) an amount equal to the federal, state and local taxes payable by the Shareholder in respect of the Adjustment Amount shall be due and owing by the Purchaser to the Shareholder and shall be paid at the same time the Adjustment Amount is paid. In addition, in the event that the Election occurs, the Purchaser and the Issuer agree to reimburse the Shareholder and/or the Kapadias for all reasonable out-of-pocket costs and expenses of third parties incurred by them (or any of them) arising from or related to the matters contemplated by this Section 2.04, it being the intent of the 8 parties that the Shareholder and/or Kapadia be made whole for any and all such costs and expenses as if the 338(h)(10) Election had not taken place. (iii) Unless prohibited by a change in applicable law or regulation, if the Election shall have occurred, the Shareholder shall report income and gain from the deemed sale of KEI's assets (occurring by reason of the 338(h)(10) Election) on the installment method to the extent attributable to the Note. In the event that there is a final determination or other conclusion satisfactory to the Purchaser (it being understood and agreed that, following the Closing, the conduct, settlement and other disposition of any claims, disputes, audits or inquires with respect to Taxes or other amounts in respect of Taxes otherwise payable by the Shareholder, the Companies (or either of them), the Purchaser and/or the Issuer by reason of this Agreement and the transactions contemplated hereby (including, but not limited to, such in respect of the subject matter of this clause (iii); provided that in the case of a settlement by the Purchaser of a claim in respect of the subject matter of this clause (iii), the indemnity set forth in this clause (iii) is concurrrently made available to the Shareholder) shall be controlled by the Purchaser and the Issuer, at their election, and, if so elected, at their sole cost and expense, and that all parties hereto shall cooperate with the Purchaser and the Issuer in connection therewith, and the parties hereto shall keep each other informed as to the status of such matters) that the installment method was not available to the Shareholder in respect of the Note by reason of the 338(h)(10) Election, the Purchaser and the Issuer shall indemnify the Shareholder for any Damages (including interest and penalties) incurred by it in respect of such final determination or other conclusion satisfactory to the Purchaser. SECTION III. ----------- REPRESENTATIONS, WARRANTIES OF THE KAPADIAS AND THE SHAREHOLDER ----------------------------------- Except as set forth on the Disclosure Schedule attached hereto and made part hereof, each of the Kapadias and the Shareholder, jointly and severally, hereby represent and warrant to each of the Purchaser and the Issuer as of the date hereof, that: 3.01 Organization and Qualification . Each of the Companies is duly ------------------------------ organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has full power and authority to own its respective properties and to conduct the businesses in which it is now engaged. Each of the Companies is in good standing in each other jurisdiction wherein the failure so to qualify could have a Material Adverse Effect. Neither of the Companies has any subsidiaries, owns any capital stock or other proprietary interest, directly or indirectly, in any other corporation, association, trust, partnership, joint venture or other entity, nor have any agreement with any person, firm or corporation or other entity to acquire any such capital stock or other proprietary interest. Accurate and complete copies of the certificate of incorporation, including all amendments thereto and restatements thereof, and by-laws each of the Companies and of the corporate minutes and the stock record books of each of the Companies have been delivered to the Purchaser. Complete and accurate records with respect to the issuance, transfer, redemption and cancellation of shares of capital stock are set forth in or together with such stock record books. 9 3.02 Authority. The execution and delivery by each of the --------- Companies of this Agreement and each other instrument or document required to be executed and delivered by either of the Companies pursuant hereto, the performance by each of the Companies of its respective covenants and agreements hereunder and thereunder and the consummation by each of the Companies of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate and shareholder action. This Agreement and each other instrument or document required to be executed and delivered by either of the Companies pursuant hereto constitutes a valid and legally binding obligation of each of the Companies party thereto, enforceable against each of the Companies party thereto in accordance with its terms. 3.03 No Legal Bar; Conflicts. Neither the execution and delivery ----------------------- of this Agreement or any other instrument or document required to be executed and delivered by either of the Companies pursuant hereto, nor the consummation of the transactions contemplated hereby or thereby, violates or will violate any provision of the certificate of incorporation or by-laws of either of the Companies, respectively, or any statute, ordinance, regulation, order, judgment or decree of any court or other Governmental Authority or other Permit, or conflicts with or will conflict with or results in or will result in any breach or modification of any of the terms of or constitutes or will constitute a default under or results in or will result in the termination of or the creation of any Lien, acceleration right or other right pursuant to the terms of any Contract or Permit or will in any way affect the continuation, validity or effectiveness of any Contract or Permit. No consents, approvals or authorizations of, or designations, registrations, declarations or filings with or notices to, any Governmental Authority or any other person or entity (including, without limitation, pursuant to the terms of any Contract, Permit or otherwise) are required in connection with the execution and delivery of this Agreement or any other instrument or document required to be executed and delivered by either of the Companies pursuant hereto, or the consummation of the transactions contemplated hereby or thereby. 3.04 Capitalization. The authorized capital stock of KEI consists -------------- of 24,000 shares of common stock, no par value, of which 15,048 shares are issued and outstanding. The authorized capital stock of MCSI consists of an unlimited number of shares of common stock, no par value, of which 10,000 shares are issued and outstanding. The Shares constitute all of the issued and outstanding shares of capital stock of each of the Companies. All of the issued and outstanding shares of capital stock of each of the Companies have been duly and validly authorized and issued, are fully paid and non-assessable and are owned beneficially and of record by the Shareholder, in each case free and clear of all Liens. There are no outstanding subscriptions, warrants, options, calls, commitments or other rights or agreements to which either of the Companies, either of the Kapadias or the Shareholder is subject to or bound relating to the issuance, sale, transfer or redemption of shares of capital stock or other securities of either of the Companies and no person other than the Shareholder has any interest in the capital stock of either of the Companies. No shares of capital stock or other securities of either of the Companies are reserved for any purpose. At the Closing, the Shareholder will deliver to the Purchaser good and valid title to the Shares free and clear of all Liens. 3.05 Financial Statements; No Undisclosed Liabilities . ------------------------------------------------ (a) The Companies and the Shareholder have delivered to the Purchaser the Companies' balance sheets as at December 31, 1996, December 31, 1997, December 31, 1998 10 and the related statements of operations, retained earnings and cash flows for the 12-month periods then ended, which in the case of such statements for the year ended December 31, 1998 are audited (collectively, the "Annual Financial Statements"), and the Companies' balance sheet as at February 28, 1999 (the "Balance Sheet") and the related statement of operations for the 2-month period then ended (the "Interim Financial Statements" and collectively with the Annual Financial Statements and the financial statements required to be delivered pursuant to Section 10.14, the "Financial Statements"). The Financial Statements are complete and correct in all material respects, have been prepared from the books and records of each of the Companies and in accordance with GAAP consistently applied and maintained throughout the periods indicated, and fairly present the financial condition of each of the Companies as at their respective dates and the results of their respective operations for the periods covered thereby. (b) Except to the extent set forth in or reserved against in the Balance Sheet or as identified in the Disclosure Schedule, and except for current liabilities (determined in accordance with GAAP, consistently applied) incurred since the Balance Sheet Date in the ordinary course of business consistent with past practices, neither of the Companies has liabilities or obligations of any nature, whether accrued, absolute, known or unknown, contingent or otherwise, whether due or to become due, whether properly reflected under generally accepted accounting principles as a liability or a charge or reserve against an asset or equity account or not, and whether the amount thereof is readily ascertainable or not. 3.06 Absence of Certain Changes . Except as set forth in the -------------------------- Disclosure Schedule, subsequent to December 31, 1998, there has not been with respect to either of the Companies or the Business any (a) material adverse or prospective material adverse change in the condition (financial or otherwise), results of operation, assets, properties, business or prospects; (b) material damage or destruction (whether or not insured) affecting the assets, properties, business or operations; (c) labor dispute or threatened labor dispute involving any employee; (d) actual or threatened material dispute with any material customer or supplier or actual or threatened material loss of business from any material customer or supplier or, to the knowledge of either of the Companies or either of the Shareholder, any event or circumstance which could reasonably be expected to result in any such dispute or loss of business; (e) changes in the methods or procedures for billing or collection of customer accounts or recording of customer accounts receivable or reserves for doubtful accounts; (f) sale, assignment or transfer of any of the assets, except in the ordinary course of business, consistent with past practice; (g) cancellation of any debts or waivers of any claims or rights of substantial value; (h) agreements or commitments for capital expenditures in excess of $25,000 (individually or in the aggregate) for repairs or additions to property, plant, equipment or tangible capital assets other than as approved by the Purchaser in writing; (i) change in any method of accounting or accounting principles; (j) increase in the compensation, commission, bonus or other direct or indirect remuneration payable or to become payable to any salesman, distributor, agent or employee other than increases in salary to its employees in the ordinary course of business, consistent with past practice; (k) any Liens with respect to any of the assets or the Business; (l) Contracts entered into requiring the payment by either of the Companies of $25,000 or more; or (m) agreement or commitment to do any of the foregoing. 11 3.07 Accounts Receivable; Inventories . -------------------------------- (a) All accounts receivable of each of the Companies which are reflected in the Balance Sheet, and all such accounts receivable which will have arisen since the Balance Sheet Date, are valid and shall have arisen only from bona fide arms-length transactions in the ordinary course of the business. All accounts receivable are fully and correctly reflected on the Financial Statements or, with respect to accounts receivable arising after the Balance Sheet Date, on the books and records of each of the Companies, in each case, in accordance with GAAP consistently applied. To the knowledge of each of the Companies and the Shareholder, no basis exists for the assertion of any counterclaim or set-off or the repayment of any accounts receivable or payments heretofore received by either of the Companies. The Disclosure Schedule sets forth the amount of all commissions (and the rate of commission) paid or payable to sales personnel, and to whom paid or due, with respect to all accounts receivable by either of the Companies as of March 31, 1999. (b) All items of inventories reflected on the Balance Sheet, or thereafter acquired by either of the Companies (and not subsequently disposed of in the ordinary course of business) ("Inventory"), are sufficient for the requirements of the Business in the ordinary course and, as a whole, consist of items of a quality and quantity which are merchantable and fully usable in the normal course of the Business. The values at which such Inventories are carried on the Balance Sheet, or in the case of Inventory acquired following the Balance Sheet Date on the books and records of each of the Companies, reflect the normal inventory valuation policy of each of the Companies (including the writing down of or reserving against the value of slow-moving or obsolete inventory) and stating Inventories at the lower of cost or market (on a first-in, first-out method), in each case in accordance with GAAP consistently applied. 3.08 No Dividends, Loans, Etc . (a) Subsequent to December 31, ------------------------ 1998, neither of the Companies has (i) except for the distribution to the Shareholder of KEI's undistributed net profit for periods prior to the Closing Date and except for the Transfer of the Building, declared or paid any dividend (whether in cash, in property or otherwise) or made any other distribution of any kind in respect of its capital stock, and neither of the Companies has any obligation (contingent or otherwise) to pay any dividends or make any other distribution of any kind, or (ii) purchased, redeemed or otherwise acquired or disposed of or issued any shares of capital stock or any notes, bonds or other securities of any kind and has no obligation (contingent or otherwise) to do any of the foregoing. Each of the Companies has paid on a timely basis in all material respects (i) all amounts due and payable under Company Indebtedness, leases and other contractual obligations and (ii) all other amounts due and payable to any persons or entities. Neither of the Companies has any outstanding loans or advances to the Shareholder, either of the Kapadias or to any Affiliate of the Shareholder or of either of the Kapadias. (b) The Disclosure Schedule accurately and completely sets forth all of the Company Indebtedness. There is no issued or outstanding Funded Indebtedness on the Closing Date. 3.09 Real Property Owned or Leased . (a) A list and description of ----------------------------- all real property leased to or owned by either of the Companies or in which either of the Companies has any interest is set forth in the Disclosure Schedule (the "Real Property"). All such leased Real 12 Property is held subject to written leases or other agreements which are valid and effective in accordance with their respective terms, and there are no existing defaults or events of default which could have a Material Adverse Effect, or events which with notice or lapse of time or both would constitute defaults which could have a Material Adverse Effect, thereunder on the part of either of the Companies. True and complete copies of all such leases, together with any amendments thereto, have been delivered to the Purchaser. Neither of the Companies nor the Shareholder has any knowledge of any default or claimed or purported or alleged default which could have a Material Adverse Effect or state of facts which with notice or lapse of time or both would constitute a default which could have a Material Adverse Effect on the part of any other party in the performance of any obligation to be performed or paid by such other party under any lease referred to on the Disclosure Schedule. Neither of the Companies nor the Shareholder has received any written or oral notice to the effect that any lease will not be renewed at the termination of the term thereof or that any such lease will be renewed only at a substantially higher rent. (b) (i) Neither of the Companies nor the Shareholder has received any written notice of, nor are any of them aware of, any violation of any laws, rules, regulations or ordinances relating to the Real Property or requesting or requiring the performance of any repairs, alterations or other work in order so to comply. (ii) Neither of the Companies nor the Shareholder has received any written notice of, and neither of them is aware of, any currently proposed or pending assessment for public improvements or of any condemnation, taking by eminent domain or similar proceedings with respect to any portion of the Real Property. (iii) The buildings and other improvements constituting a part of the Real Property have no material structural, roof or other defects and such buildings and improvements (including, without limitation, all plumbing, heating, electrical, air conditioning, ventilation and other mechanical systems and equipment) are in good working order, condition and repair, normal wear and tear excepted. (iv) The Real Property (and uses to which it is put) conforms in all material respects with all applicable laws, rules, ordinances, regulations and all applicable agreements to which either of the Companies is a party or by which the Real Property is subject to or bound, including, without limitation, those relating to zoning, environmental, health and safety standards and the rules and regulations relating thereto. 3.10 Title to Assets; Condition of Property . (a) Each of the -------------------------------------- Companies has good, valid and marketable title to all of its respective properties and assets, real, personal and mixed, tangible and intangible, including, without limitation, the properties and assets reflected in the Balance Sheet (except for assets leased under leases set forth on the Disclosure Schedule, and except for accounts receivable collected upon and Inventory or other assets disposed of since the Balance Sheet Date in the ordinary course of business, consistent with past practice), free and clear of all Liens except for the Liens listed on the Disclosure Schedule (i) securing certain equipment used by the Companies and described thereon (the "Permitted Equipment Liens") (ii) Permitted Encumbrances (collectively together with Permitted Equipment Liens, "Permitted Liens"), and (iii) arising under Funded Indebtedness listed on the Disclosure Schedule. 13 (b) All of the assets and properties (including, without limitation, all equipment and the improvements, fixtures and appurtenances on or to the Real Property) owned or leased by either of the Companies pursuant to written leases set forth on the Disclosure Schedule are in good operating condition and repair, normal wear and tear excepted, and have been maintained and serviced in accordance with reasonable business practices, are suitable for the purposes for which they presently are being used and constitute all of the assets and properties used in the operations of, and necessary to operate, the Business as presently conducted. None of the assets or properties owned or leased by either of the Companies (or uses to which they are put) fails to conform in any material respect with any applicable agreement, law, ordinance or regulation. Except with respect to assets leased pursuant to valid leases set forth on the Disclosure Schedule, each of the Companies owns all the properties and assets located at or on the Real Property and owns all of the properties and assets necessary for the conduct of the Business. 3.11 Taxes . (a) Each of the Companies has filed or caused to be ----- filed on a timely basis all federal, state, province, local, foreign and other tax returns, reports and declarations (collectively, as amended, the "Tax Returns") required to be filed by such Company and has paid all taxes, including, but not limited to, income, gross receipts, capital stock, profits, stamp, occupation, transfer, value added, excise, franchise, sales, use, property (whether real, personal or mixed), employment, unemployment, disability, withholding, social security and workers' compensation taxes and estimated income and franchise tax payments, and interest, penalties, fines, costs and assessments (collectively, "Taxes"), due and payable with respect to the periods covered by such Tax Returns. All Tax Returns filed by or on behalf of either of the Companies are true, complete and correct. There are no Tax Liens on any of the properties or assets, real, personal or mixed, tangible or intangible, of either of the Companies. No deficiency in Taxes of either of the Companies or for any period has been asserted by any taxing authority which remains unpaid at the date hereof. No Tax Returns of either of the Companies covering any period after December 31, 1988 have been audited or are presently the subject of an audit. No written inquiries or notices have been received by either of the Companies from a taxing authority with respect to possible claims for Taxes which have not been resolved prior to the date hereof, and neither of the Companies has any reason to believe that such an inquiry or notice is pending or threatened, and there is no basis for any additional claims or assessments for Taxes. Neither of the Companies has agreed to the extension of the statute of limitations with respect to any Tax Returns or Tax periods. There are no assessments relating to either of the Companies' Tax Returns pending or threatened. Each of the Companies has delivered to the Purchaser copies of the federal and state income (or franchise) Tax Returns filed by each of the Companies for the past three years. KEI has elected, pursuant to Section 1362 of the Code, to be treated as an S corporation, as that term is defined in Section 1361 of the Code, for federal and any applicable state tax purposes, which election is valid and in full force and effect. The Shareholder is a qualifying trust under Section 1361(c)(2) of the Code. Neither of the Companies is nor has ever been, the common parent or a member of any affiliated group of corporations filing a consolidated federal income tax return, and is not a party to any tax sharing agreement or other arrangement pursuant to which it could be liable for the Taxes of any third party. (b) The accrual for Taxes reflected in the Financial Statements accurately reflects the total amount of all unpaid Taxes, whether or not disputed and whether or not presently due and payable, of each of the Companies as of the close of the period covered by the 14 Financial Statements. Adequate accruals and reserves have been made in the Financial Statements and the books and records of each of the Companies for the payment of all unpaid federal, state, local and other Taxes of each of the Companies for all periods through the respective dates thereof, through the Closing Date, whether or not yet due and payable and whether or not disputed by either of the Companies, and nothing has occurred subsequent to the dates of such Financial Statements or such accruals or reserves in such books and records which make such accruals and reserves inadequate. 3.12 Compliance with Applicable Law; Permits; Authorizations . ------------------------------------------------------- (a) General. Neither of the Companies is in default under, nor has ------- either of the Companies failed to comply with or is otherwise in violation of, any law, statute, ordinance, regulation or any order, judgment or decree of any court or other Governmental Authority, and the Real Property is in compliance with all laws, statutes, ordinances, regulations, orders, judgments and decrees of any Governmental Authority except where such default or failure to comply (individually or in the aggregate) could not have a Material Adverse Effect. Neither of the Companies nor the Shareholder has any knowledge of any basis for assertion of any violation of the foregoing or for any claim for compensation or damages or otherwise arising out of any violation of the foregoing. Neither of the Companies nor the Shareholder has received any notification of any asserted present or, since December 31, 1992, past failure to comply with any of the foregoing which has not been satisfactorily responded to in the time period required thereunder. (b) Permits. Set forth in the Disclosure Schedule, is a complete and ------- accurate list of all permits, licenses, approvals, franchises, notices and authorizations issued by any Governmental Authority (collectively the "Permits") and held by either of the Companies. The Permits are all the permits, licenses, approvals, franchises, notices and authorizations required for the conduct of the Business. All the Permits are in full force and effect and neither of the Companies has engaged in any activity which would cause or permit revocation or suspension of any such Permit, and no action or proceeding looking to or contemplating the revocation or suspension of any such Permit is pending or threatened. There are no existing defaults or events of default or events or states of fact which with notice or lapse of time or both would constitute a default by either of the Companies. (c) Environmental. (i) Each of the Companies and the Shareholder, ------------- has duly complied with, and the Business is conducted and has been conducted in compliance with, all Environmental Laws, except where the failure to comply (individually or in the aggregate) could not have a Material Adverse Effect. (ii) Each of the Companies has been issued all required federal, state and local permits, licenses, certificates and approvals relating to (A) air emissions, (B) discharges to surface water or ground water, (C) noise emissions, (D) solid or liquid waste disposal, (E) the use, generation, storage, transportation or disposal of toxic or hazardous substances or wastes (intended hereby and hereafter to include any and all such materials listed in any applicable federal, state or local law, code or ordinance and all rules and regulations promulgated thereunder, as hazardous or potentially hazardous (including, without limitation, (1) any chemical, compound, material or substance that is defined, listed in, or otherwise classified 15 pursuant to, any of the Environmental Laws as a "hazardous substance," "hazardous material," "hazardous waste," "toxic substance" or "toxic pollutant," (2) petroleum, natural gas, natural gas liquids, liquefied natural gas, synthetic gas usable for fuel and drilling fluids, produced waters, and other wastes associated with the exploration, development or production of crude oil, natural gas or geothermal resources and (3) any "medical waste" as defined in any of the Environmental Laws or the disposition of which is regulated by any law, ordinance or regulation) or (F) other environmental matters (collectively, "Hazardous Substances"). (iii) Neither of the Companies nor the Shareholder has received notice of, nor does either of the Companies nor the Shareholder know of any facts which might give rise to, any Environmental Claim made or threatened against or affecting either of the Companies. (iv) Neither of the Companies has generated, treated, transported, stored, recycled, discharged, emitted, disposed of or released any Hazardous Substances, arranged for the generation, treatment, transport, storage, recycling, discharge, emission, disposal or release of any Hazardous Substances, which might give rise to any liability or corrective or remedial obligation under any Environmental Laws, in each case, with respect to the Real Property or any other real property. (v) To the knowledge of each of the Companies or the Shareholder, no polychlorinated biphenyls, radioactive material, urea formaldehyde, lead, asbestos, asbestos-containing material or underground storage tank (active or abandoned) is or has been present at the Real Property. (vi) None of the Real Property, nor any property to which either of the Companies has, directly or indirectly, transported or arranged for the transportation of any Hazardous Substances, is listed on the National Priorities List promulgated pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), on CERCLIS (as referred to in CERCLA) or on any similar federal, state or foreign list of sites requiring investigation or clean-up. 3.13 Contractual and Other Obligations; Customers and Suppliers . ---------------------------------------------------------- (a) Set forth in the Disclosure Schedule hereto is a complete and accurate list of each contract, agreement, license, lease, guarantee or commitment (or other agreement relating to contingent obligations of either of the Companies) (written or oral), by which either of the Companies or any of the assets or properties of either of the Companies is bound (x) with respect to which the outstanding obligation of any party thereto is in excess of $25,000, with respect to which either of the Companies leases any real or personal property used in the conduct of the Business, or which is material to any of the assets or properties of either of the Companies or the Business, (y) with customers of either of the Companies (other than open purchase orders calling for current delivery and obtained in the ordinary course of Business) and involving in excess of $25,000, and (z) in respect of obligations and liabilities of either of the Companies pursuant to uncompleted orders for the purchase by either of the Companies of materials, supplies, equipment or services for the requirements of the Business with respect to which the remaining obligation of either of the Companies arising under any such uncompleted order is in excess of $25,000; all of the foregoing described under clauses (x), (y) and (z) above, together with all other contracts, agreements, purchase orders, insurance policies, plans, contingent obligations, or 16 other instruments or documents to which either of the Companies or any of their respective assets or properties is subject or bound, being herein collectively referred to as the "Contracts" and singularly referred to as a "Contract." (b) Neither of the Companies is in default under any Contract and no claim of such a default has been made and no event has occurred which with the giving of notice or the lapse of time or both would constitute such default under any Contract, except where such default (individually or in the aggregate) could not have a Material Adverse Effect. To the knowledge of each of the Companies and the Shareholder, no other party to any Contract is in default thereunder. Each of the Contracts has been entered into in the ordinary course of business and is at arms' length. Each of the Companies has delivered to the Purchaser true and complete copies of each written, and true and complete written descriptions of each oral, Contract to which it is a party. Each of the Contracts is in full force and effect and is a legal, valid and binding obligation of each party thereto. (c) There exists no actual or, to the knowledge of either of the Companies or the Shareholder, threatened (or facts which might reasonably be anticipated to result in a) termination, cancellation or limitation of, or any material modification or change in, the business relationships of either of the Companies with any of the ten largest customers of either of the Companies in the conduct of the Business (measured by dollar volume of net sales) during the 12-month period ended December 31, 1998 or with any of the ten largest suppliers of either of the Companies in the conduct of the Business (measured by dollar volume of expenditures by each of the Companies, respectively) during the 12- month period ended December 31, 1998. There exists no condition or state of facts or circumstances known to either of the Companies or the Shareholder involving customers or suppliers of or to either of the Companies which could materially affect the Business after the consummation of the transactions contemplated by this Agreement. 3.14 Compensation . Set forth in the Disclosure Schedule, with ------------ respect to each of the Companies, is a complete and accurate list of (a) all agreements, plans, arrangements or commitments with employees, shareholders, consultants, independent contractors, sales representatives, agents or any family members of any employee, shareholder, consultant or agent, with regard to compensation, benefits or perquisites and (b) all full-time and part-time employees and their respective positions, job categories and salaries. All bonuses heretofore granted to employees have been paid in full to such employees. Neither the execution of this Agreement nor the transactions contemplated by this Agreement will result in any liability for severance pay or similar payment requirements to any employee, sales representative, independent contractor, consultant, distributor agent or Affiliate of either of the Companies. 3.15 Employee Benefit Plans . Except as set forth in the Disclosure ---------------------- Schedule, neither of the Companies maintains or sponsors, or contributes to, any pension, profit-sharing, savings, bonus, incentive or deferred compensation, severance pay, medical, life insurance, welfare or other employee benefit plan. All pension, profit-sharing, savings, bonus, incentive or deferred compensation, severance pay, medical, life insurance, welfare or other employee benefit plans within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (hereinafter referred to as "ERISA"), in which the employees participate (such plans and related trusts, insurance and annuity contracts, funding media and related agreements 17 and arrangements being hereinafter referred to as the "Benefit Plans") comply with all requirements of the Department of Labor and the Internal Revenue Service, and with all other applicable law, and neither of the Companies has taken or failed to take any action with respect to the Benefit Plans which might create any liability on the part of either of the Companies or the Purchaser. Each "fiduciary" (within the meaning of Section 3(21)(A) of ERISA) as to each Benefit Plan has complied with all requirements of ERISA and all other applicable laws in respect of each such Benefit Plan. Each of the Companies has furnished to the Purchaser copies of all Benefit Plans and all financial statements, actuarial reports and annual reports and returns filed with the Internal Revenue Service with respect to such Benefit Plans for the three plan years prior to the date hereof, and will furnish the Purchaser with copies of any of the foregoing so filed after the date hereof. Such financial statements and actuarial reports and annual reports and returns are and shall be true, correct and complete and none of the actuarial assumptions underlying such documents have changed since the respective dates thereof. In addition: (i) Neither of the Companies maintains, sponsors or contributes to, nor has ever withdrawn from, maintained, sponsored or contributed to a "defined benefit plan" (within the meaning of Section 3(35) of ERISA) or a "multiemployer plan" (within the meaning of Section 3(37) of ERISA); (ii) Each Benefit Plan intended to be qualified under Section 401(a) of the Code has received a favorable determination letter from the Internal Revenue Service as to its qualification under Section 401(a) of the Code; (iii) No "prohibited transaction" (within the meaning of Section 406 of ERISA or Section 4975(c) of the Code) has occurred with respect to any Benefit Plan; (iv) No provision of any Benefit Plan or of any agreement, and no act or omission of either of the Companies in any way limits, impairs, modifies or otherwise affects the right of either of the Companies or the Purchaser unilaterally to amend or terminate any Benefit Plan after the Closing, subject to the requirements of applicable law; (v) No policy, plan, program, arrangement, understanding or agreement exists which could result in the payment by either of the Companies or the Purchaser of money or any other property or rights or accelerate or provide any other rights or benefits, to any employee of either of the Companies that would not have been required but for the consummation of the transactions contemplated herein; (vi) There are no contributions which are or hereafter will be required to be made to trusts in connection with any Benefit Plan that would constitute a "defined contribution plan" (within the meaning of Section 3(34) of ERISA); (vii) Other than claims in the ordinary course for benefits with respect to the Benefit Plans, there are no actions, suits or claims (including claims for income taxes, interest, penalties, fines or excise taxes with respect thereto) 18 pending with respect to any Benefit Plan, or to the knowledge of either of the Companies or the Shareholder, any circumstances (including without limitation arising out of the operation or termination of any Benefit Plan) which might give rise to any such action, suit or claim (including claims for income taxes, interest, penalties, fines or excise taxes with respect thereto); (viii) All reports, returns and similar documents with respect to the Benefit Plans required to be filed with any Governmental Authority have been so filed on or before their due date, including extensions of each due date, or, if not currently due, will be filed when due; (ix) Neither of the Companies has any obligation to provide health or other welfare benefits to former, retired or terminated employees, except as specifically required under Section 4980B of the Code or Section 601 of ERISA. Each of the Companies has complied with the notice and continuation requirements of Section 4980B of the Code and Section 601 of ERISA and the regulations thereunder; and (x) Neither of the Companies is a party to any agreement, contract or arrangement that would result, separately or in the aggregate, in any payment (whether or not in connection with any termination of employment or otherwise) of any "excess parachute payment" within the meaning of Section 280G of the Code. 3.16 Labor Relations. There have been no violations of any --------------- applicable Federal, state, province or local statutes, laws, ordinances, rules, regulations, orders or directives with respect to the employment of individuals by, or the employment practices or work conditions of, either of the Companies, or the terms and conditions of employment, wages and hours. Neither of the Companies is engaged in any unfair labor practice or other unlawful employment practice and there are no charges of unfair labor practices or other employee- related complaints pending or threatened against each of the Companies before the National Labor Relations Board, the Equal Employment Opportunity Commission, the Occupational Safety and Health Review Commission, the Department of Labor or their Canadian equivalent (including, without limitation, pursuant to the Ontario Human Rights Code, the Occupational Health and Safety Act, the Workplace Safety and Insurance Act (Ontario), the Employment Standards Act or the Pay Equity Act, in each case of the Province of Ontario), if applicable, or any other Governmental Authority. There is no strike, picketing, slowdown or work stoppage or organizational attempt pending, threatened against or involving either of the Companies or the Business. No issue with respect to union representation is pending or threatened with respect to the employees of either of the Companies. No union or collective bargaining unit or other labor organization has ever been certified or recognized by either of the Companies as the representative of any of the employees of either of the Companies. Each of the Companies has complied with the Workers Adjustment and Retraining Notification Act and its Canadian equivalent, if applicable. 3.17 Insurance . Each of the Companies maintains insurance policies --------- covering all of the assets and properties of each of the Companies (including, without limitation, all of the Real Property) and the various occurrences which may arise in connection with the operation of 19 the Business. Such policies are in full force and effect, all premiums due thereon have been paid in full and each of the Companies has complied in all material respects with the provisions of such policies. A complete and accurate list of all insurance policies of each of the Companies is set forth on the Disclosure Schedule. There are no notices of any pending or threatened termination or premium increases with respect to any of such policies. Since December 31, 1993, neither of the Companies has had any casualty loss or other occurrence which may give rise to any claim of any kind not covered by insurance and neither of the Companies nor the Shareholder is aware of any occurrence which may give rise to any claim of any kind not covered by insurance. No third party has filed any claim against either of the Companies for personal injury, property damage or other occurrence of a kind for which liability insurance is generally available which is not fully insured, subject to applicable deductibles. All claims against either of the Companies covered by insurance since December 31, 1993 have been reported to the insurance carrier on a timely basis and are listed on the Disclosure Schedule. 3.18 Conduct of Business; Allowances . Neither of the Companies is ------------------------------- restricted from conducting the Business in any manner or location by agreement or court decree. Neither of the Companies has any obligation outside of the ordinary course of business to make allowances to any customers. The Business is conducted entirely through each of the Companies (and not through any other subsidiary, Affiliate, partner or any other person or entity), and each of the Companies conducts no other business other than the Business. 3.19 Patents, Trademarks, Etc . Set forth on the Disclosure ------------------------ Schedule is a list and brief description of each of the Companies' patents, registered and common law trademarks, service marks, trade names, copyrights and other similar rights and applications for and all contracts, agreements, licenses or other rights with respect to each of the foregoing. Each of the Companies owns all unencumbered right, title and interest in and to all such respective proprietary rights. The proprietary rights listed on the Disclosure Schedule are all such rights necessary to the conduct of the Business as currently conducted; no adverse claims have been made and no dispute has arisen with respect to any of said proprietary rights; the operation of each of the Companies and the use by each of the Companies of its respective proprietary rights do not involve infringement of any patent, trademark, service mark, trade name, copyright, agreement, license or similar right; and neither of the Companies nor the Shareholder has received any notice or has any knowledge of any claimed conflict with respect to any of the foregoing, nor is either of the Companies or the Shareholder aware of any claim or assertion that any of the foregoing proprietary rights are invalid or defective in any way or aware of any facts or prior act upon which such a claim or assertion could be based. Neither the execution of this Agreement nor the consummation of the transactions contemplated by this Agreement will in any way affect the continuation, validity or effectiveness of any such proprietary rights or any contract, agreement, license or other right referred to on the Disclosure Schedule or require the consent, waiver, approval, authorization of, notice to, or designation, registration, declaration or filing with, any party or third party in respect of any such proprietary rights, contract, agreement, license or other right. 3.20 Power of Attorney; Bank Accounts . Neither of the Companies -------------------------------- has granted any power of attorney (revocable or irrevocable) to any person, firm or corporation for any purpose whatsoever. Set forth on the Disclosure Schedule is a complete and accurate list of (i) the name of each institution in which either of the Companies has a bank account, securities 20 account, safe-deposit box, lockbox account or any other account, the title and number of such accounts and the names of all persons authorized to draw thereon or have access thereto and (ii) all marketable securities and all other notes or other obligations evidenced by written instruments and attributable to, or utilized in, any aspect of the Business and reflected in the Financial Statements or thereafter acquired by either of the Companies. 3.21 No Foreign Person . Neither the Shareholder nor either of the ----------------- Kapadias is a foreign person within the meaning of Section 1445(b)(2) of the Code. 3.22 Books and Records . The books and records of each of the ----------------- Companies are complete and correct in all material respects, have been maintained in accordance with GAAP consistently applied and in accordance with good business practices and accurately reflect the basis for the financial position and results of operations of each of the Companies set forth in the Financial Statements. True and complete copies of all of such books and records have been made available for inspection by the Purchaser and its representatives. 3.23 Litigation; Disputes . There are no claims, disputes, actions, -------------------- suits, investigations or proceedings pending or, to the knowledge of either of the Companies or the Shareholder, threatened against or affecting either of the Companies, the Business, any of the Real Property or any of the other properties or assets of either of the Companies, or in respect of any Environmental Claim. None of the matters set forth on the Disclosure Schedule could (individually or in the aggregate), if adversely determined against either of the Companies, have a Material Adverse Effect. To the knowledge of either of the Companies and the Shareholder, there is no reasonable basis for any such claim, dispute, action, suit, investigation or proceeding. Neither of the Companies is in default in respect of any judgment, order, writ, injunction or decree of any Governmental Authority. 3.24 Insider Interests; Intercompany Transactions . No present or -------------------------------------------- former stockholder, partner, principal, officer, director, employee or Affiliate of either of the Companies or any immediate or other family member of any such person or any person, corporation, partnership, trust or other entity in which any such person is an officer, director, principal, partner or stockholder (a) is presently a party to any transaction or arrangement with either of the Companies, (b) owns any interest in any of the assets or properties of either of the Companies, (c) owns any interest in, controls or is an employee, officer, director or agent of, or consultant to any other entity which is a competitor, supplier, customer, vendor, landlord or tenant of either of the Companies or (d) is indebted or liable to, owns any interest in, or owns, holds or has guaranteed any obligation or debt of either of the Companies. 3.25 Year 2000 Compliance . Each of the Companies has conducted a -------------------- review and assessment of its computer hardware and software and has implemented a program to analyze and address the risk that its respective computer hardware and software may be unable to recognize and properly execute data-sensitive functions involving certain dates prior to and any dates after December 31, 1999 (the "Year 2000 Problem"); and each of the Companies' computer hardware and software are and will be able to process all date information prior to and after December 31, 1999, without any errors, aborts, delays or other interruptions in operations associated with the Year 2000 Problem. 21 3.26 Disclosure . No representation or warranty made under this ---------- Agreement (including the Exhibits and the Disclosure Schedule) or any certificate or other document delivered by either of the Companies or the Shareholder or any representative thereof pursuant hereto, and none of the information furnished by either of the Companies or the Shareholder set forth herein, including the Exhibits or Schedules hereto, or in any document delivered by either of the Companies, the Shareholder or any representative thereof to the Purchaser or any representative of the Purchaser, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein not misleading. 3.27 Use of Names. To the knowledge of each of the Companies and ------------ the Shareholder, there are no other persons or businesses having the right to use or using the name "NASCO Supply" or any variants thereof or any other tradename, trademark or service mark under which either of the Companies currently conducts the Business and no person or business has ever attempted to restrain either of the Companies from using such name or any variants thereof. 3.28 Accounts Payable; Indebtedness, Etc. Since December 31, 1998, ----------------------------------- the accounts and notes payable and accrued expenses of each of the Companies have been paid when due and otherwise in the ordinary course of business and in a manner consistent with past practice. 3.29 Location of Business and Assets. Set forth on the Disclosure ------------------------------- Schedule is each location (specifying state, county and city) where each of the Companies (a) has a place of business, (b) owns or leases real property or (c) owns, leases or stores any other property, including inventory, equipment and furniture. SECTION IV. ---------- REPRESENTATIONS, WARRANTIES OF THE SHAREHOLDER AND THE KAPADIAS ------------------------------------ Except as set forth on the Disclosure Schedule attached hereto and made a part hereof, each of the Kapadias and the Shareholder, jointly and severally, hereby represent and warrant to each of the Purchaser and the Issuer, as of the date hereof that: 4.01 Authority. Each of the Kapadias and the Shareholder has all --------- necessary power, authority and legal right to execute and deliver this Agreement and each other instrument or document required to be executed and delivered by either of the Kapadias or the Shareholder pursuant hereto and to perform their respective covenants and agreements hereunder and thereunder, and this Agreement and each other instrument or document required to be executed and delivered by either of the Kapadias or the Shareholder pursuant hereto constitutes a valid and legally binding obligation of either of the Kapadias or the Shareholder, enforceable against either of the Kapadias or the Shareholder in accordance with its terms. 4.02 Ownership of Shares. The Shareholder owns all of the Shares, ------------------- which Shares represent all of the issued and outstanding shares of capital stock of each of the Companies, free and clear of all Liens (including without limitation any restriction on the right to vote, sell or 22 otherwise dispose of the Shares), and the Shareholder has the unrestricted right to transfer the Shares to the Purchaser and, upon transfer of such Shares to the Purchaser hereunder, the Purchaser will acquire good, valid and marketable title to such Shares, free and clear of all Liens. 4.03 No Legal Bar; Conflicts . Neither the execution and delivery ----------------------- of this Agreement or any other instrument or document required to be executed and delivered by either of the Kapadias or the Shareholder pursuant hereto, nor the consummation of the transactions contemplated hereby or thereby, violates any statute, ordinance, regulation, order, judgment or decree of any court or other Governmental Authority or other Permit, or conflicts with or will result in any breach or modification of any of the terms of or constitute a default under or result in the termination of or the creation of any Lien, acceleration right or other right pursuant to the terms of or will in any way affect the continuation, validity or effectiveness of any contract or agreement to which either of the Kapadias or the Shareholder is a party or by which either of the Kapadias or the Shareholder or any of their respective assets or properties is bound or any Permit. No consents, approvals or authorizations of, or filings with, any Governmental Authority or any other person or entity are required in connection with the execution and delivery of this Agreement or any other instrument or document required to be executed and delivered by either of the Kapadias or the Shareholder pursuant hereto, or the consummation of the transactions contemplated hereby or thereby. 4.04 Investment. ---------- (a) Each of the Shareholder and the Kapadias has had access to the Issuer's Annual Report on Form 10-K for the fiscal year ended September 30, 1998 and the Issuer's 1999 Proxy Statement (collectively, the "SEC Documents") and such other information relating to the business and affairs of the Issuer which the either of the Kapadias or the Shareholder has reasonably requested, and all additional information which either of the Kapadias or the Shareholder has considered necessary to verify the accuracy of the information so received. Such person has had the opportunity to ask questions of and receive answers from the Issuer concerning the business and condition (financial and other) of the Issuer and concerning the terms and conditions of the transactions contemplated by this Agreement. (b) Each of the Shareholder and the Kapadias understands and agrees that the Issuer shall issue and deliver to the Shareholder the Purchase Price Common Stock to be delivered pursuant to this Agreement in one or more transactions exempt from the registration requirements of the Securities Act; that for such purpose the Purchaser and the Issuer will rely upon the representations and warranties contained in this Section 4.04; and that such exception from registration may not be available unless such representations and warranties are correct. The Shareholder is an "accredited investor" as such term is defined in Rule 501 under the Securities Act. (c) Each of the Shareholder and the Kapadias understands and agrees that, under existing rules of the Commission, a holder of the Purchase Price Common Stock may be unable to sell its shares of Common Stock, except to the extent that its shares of Common Stock may be sold (i) pursuant to an effective registration statement covering such shares pursuant to the Securities Act, (ii) in transactions exempt from the registration requirements of the Securities 23 Act or (iii) subject to the restrictions contained in Rule 144 under the Securities Act ("Rule 144"). (d) Each of the Shareholder and the Kapadias is familiar with the provisions of Rule 144 under the Securities Act and the limitations upon the availability and applicability of such rule. (e) Each of the Shareholder and the Kapadias is a sophisticated investor familiar with the type of risks inherent in the acquisition of restricted securities such as shares of Common Stock and each of the Kapadias' and the Shareholder's financial position is such that each of the Kapadias and the Shareholder can afford to retain any such shares of Common Stock for an indefinite period of time without realizing any direct or indirect cash return on the investment. (f) The Shareholder intends to acquire the shares of Common Stock payable pursuant to 2.01 hereof or issuable upon conversion of the Note for the Shareholder's own account and not with a view to, or for sale in connection with, the distribution thereof within the meaning of the Securities Act. SECTION V. --------- REPRESENTATIONS, WARRANTIES OF THE PURCHASER AND THE ISSUER ------------------------------- The Purchaser and the Issuer, jointly and severally, hereby represent and warrant to each of the Companies and the Shareholder, as of the date hereof that: 5.01 Organization. The Purchaser is a corporation duly organized, ------------ validly existing and in good standing under the laws of the State of Delaware and has full corporate power and authority to purchase the Shares. The Issuer is a corporation duly organized, validly existing and in good standing under the laws of the State of New Jersey and has full corporate power and authority to issue the Purchase Price Common Stock. 5.02 Authority. The execution and delivery of this Agreement by --------- the Purchaser and the Issuer, the performance by each of the Purchaser and the Issuer of its respective covenants and agreements hereunder and the consummation by the Purchaser and the Issuer of the transactions contemplated hereby have been duly authorized by all necessary corporate action, and this Agreement constitutes a valid and legally binding obligation of each of the Purchaser and the Issuer, enforceable against each of the Purchaser and the Issuer in accordance with its terms. 5.03 No Legal Bar; Conflicts. Neither the execution and delivery ----------------------- of this Agreement by the Purchaser or the Issuer, nor the consummation of the transactions contemplated hereby by the Purchaser or the Issuer, violates or will violate any provision of the certificate of incorporation or by-laws of the Purchaser or the Issuer, respectively, or any statute, ordinance, regulation, order, judgment or decree of any court or other Governmental Authority, or conflicts with or will conflict with or results in or will result in any breach or modification of any of the terms of or constitutes or will constitute a default under or results in or will result in 24 the termination of or the creation of any Lien pursuant to the terms of or will in any way affect the continuation, validity or effectiveness of any contract or agreement to which either of the Purchaser or the Issuer is a party or by which either of the Purchaser or the Issuer or any of their respective assets is bound. 5.04 SEC Documents. Each of the SEC Documents did not, at the time ------------- each such document was filed with the Commission, and does not as of the date hereof, contain any untrue statement of material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. SECTION VI. ---------- COVENANTS OF THE SHAREHOLDER, THE COMPANIES, THE KAPADIAS, THE PURCHASER AND THE ISSUER --------------------------------------------------------- 6.01 Publicity. Prior to the Closing and except as otherwise --------- required by applicable law, each of the Companies, each of the Kapadias, and the Shareholder, on the one hand, and the Purchaser and the Issuer, on the other hand, covenant and agree that any and all publicity (whether written or oral) and notices to third parties concerning the sale of the Shares and other transactions contemplated by this Agreement shall be subject to the prior written approval of the other parties, which approval shall not be unreasonably withheld or delayed. 6.02 Encumbrances. The Shareholder covenants and agrees to cause, ------------ on or prior to the Closing, any and all mortgages, security interests, pledges or similar encumbrances of any kind whatsoever which affect the assets or properties of either of the Companies or the Business (other than leases, but including without limitation those which affect the Real Property, but excluding Permitted Liens) to be released, discharged and terminated in full to the Purchaser's satisfaction; provided, however that the Purchaser and the Issuer shall have satisfied their obligations under Section 1.02 hereof. 6.03 Confidential Information. Each of the Kapadias and the ------------------------ Shareholder acknowledges that after the Closing the Purchaser and each of the Companies could be irreparably damaged if either of the Kapadias' or the Shareholder's confidential knowledge of each of the Companies or the Business were disclosed to or utilized on behalf of any person, firm, corporation or other business entity other than the Purchaser or its Affiliates, and each of the Kapadias and the Shareholder covenants and agrees that no such person will, following the Closing Date, other than in the furtherance of the business of the Purchaser and the Companies, without the prior written consent of the Purchaser, disclose (or permit to be disclosed) or use in any way any such confidential information, unless (i) compelled to disclose such confidential information by judicial or administrative process or, in the opinion of its counsel, by other requirements of law, (ii) such confidential information is available to the public through no fault of such Shareholder or (iii) such confidential information becomes available to such person from a third party who is under no confidential or fiduciary obligation to the Purchaser or either of the Companies with respect to such confidential information. 6.04 Brokers and Finders. (a) Neither the Purchaser nor the ------------------- Issuer shall have any obligation to pay any brokerage, finders of similar fees or other similar compensation to any 25 person, firm, corporation or other entity dealt with by either of the Kapadias, the Shareholder or either of the Companies in connection with this Agreement and the transactions contemplated hereby, the fees, expenses and other amounts owing in connection therewith will be the sole responsibility of the Kapadias and the Shareholder, and the Kapadias and the Shareholder hereby agree to indemnify and save the Purchaser Indemnified Parties and each of the Companies harmless from any and all Damages arising from any claim for any such fee or other compensation. (b) The Kapadias and the Shareholder shall not have any obligation to pay any brokerage, finders or similar fees or other compensation to any person, firm, corporation or other entity dealt with by the Purchaser or the Issuer in connection with this Agreement and the transactions contemplated hereby, and each of the Purchaser and the Issuer hereby agrees to indemnify and save the Kapadias and the Shareholder harmless from any and all Damages arising from any claim for any such fee or other compensation. 6.05 Cash Management. The Kapadias and the Shareholder shall cause --------------- the checking and all other bank accounts of each of the Companies to maintain on deposit sufficient amounts following the Closing Date to pay in full all checks and drafts of each of the Companies drawn on or prior to the Closing Date. 6.06 Acquisition Proposals. (a) Each of the Companies, the --------------------- Kapadias and the Shareholder covenant and agree that, from and after the date of this Agreement and until the earlier to occur of the termination of the Agreement or the Closing, none of them shall directly or indirectly (i) take any action to solicit, initiate or encourage any Company Acquisition Proposal or (ii) engage in negotiations with, or disclose any nonpublic information relating to either of the Companies or the Business or afford access to the properties, books or records of either of the Companies or the Business to any person or entity that may be considering making, or has made, a Company Acquisition Proposal. Each of the Companies, the Kapadias or the Shareholder, as the case may be, shall promptly notify the Purchaser after receipt of a Company Acquisition Proposal or any indication that any person or entity is considering making a Company Acquisition Proposal or any request for nonpublic information relating to either of the Companies or the Business or for access to the properties, books or records of either of the Companies or the Business by any person or entity that may be considering making, or has made, a Company Acquisition Proposal. (b) The Issuer and the Purchaser covenant and agree that, from and after the date of this Agreement and until the earlier to occur of the termination of this Agreement or the Closing, neither they nor any subsidiary or representative of either will, directly or indirectly, initiate any proposal or make any offer, or enter into any agreement or understanding (written or oral), concerning the purchase (whether by merger, purchase of capital stock or purchase of businesses and/or assets) by either of them of another entity (other than the Companies) or negotiate or enter into or entertain discussions with any person or entity (other than the Companies, the Shareholder and the Kapadias) concerning any such purchase. 6.07 HSR Act Filing. The parties hereto recognize that a pre- -------------- merger notification must be filed with the Federal Trade Commission (the "FTC") and the Department of Justice (the "DOJ") pursuant to the HSR Act and each of the Companies and the Shareholder, 26 on the one hand, and the Purchaser, on the other hand, hereby agree to cooperate fully with each other to supply and file the required documentation. The parties hereto agree that, promptly following the execution of this Agreement by all parties (but in no event later than five (5) business days following such execution), the Issuer and each of the Companies will prepare and file with the FTC and the DOJ all required documents under the HSR Act, including a complete notification and report form, will seek early termination of the HSR Act waiting period in connection with such filing, will fully cooperate with each other in connection with the preparation and filing of such documents, and will use their respective best efforts to promptly comply with all formal or informal requests for additional information by the FTC or the DOJ in respect of such filing. 6.08 Correspondence. Each of the Kapadias and the Shareholder -------------- covenant and agree that, subsequent to the Closing, such person will deliver to the Purchaser, promptly after the receipt thereof, all inquiries, correspondence and other materials and items received by such person (other than in M. Kapadia's capacity as an officer of the Companies) from any person or entity relating to either of the Companies or to the operation of the Business or to any of the assets or properties of either of the Companies. SECTION VII. ----------- CONDUCT OF THE COMPANIES PRIOR TO CLOSING ----------------------------------------- Each of the Companies, each of the Kapadias and the Shareholder hereby covenant and agree with the Purchaser and the Issuer that, from and after the date of execution of this Agreement and until the Closing: 7.01 Operation of the Business. Each of the Companies shall at all ------------------------- times operate the Business in the ordinary course of business and in a manner consistent with prior practices and in accordance with the other provisions of this Section VII, unless otherwise agreed by the Purchaser in writing. 7.02 Capital Stock, Etc. Neither of the Companies nor the ------------------ Shareholder will, directly or indirectly, (a) issue, sell, pledge, dispose of, encumber, purchase, acquire, assign or transfer, the Shares (or any of them) or any other stock of any class of either of the Companies or any options, warrants, securities or rights of any kind, convertible into or exercisable or exchangeable for the Shares (or any of them) or other shares of stock of any class of either of the Companies or any other entity, (b) declare or pay any dividend or make any other distribution of any kind in respect of its capital stock (whether in cash, property or otherwise), other than the distribution to the Shareholder of KEI's undistributed net profit for periods prior to the date of the Closing and other than the distribution to the Shareholder of the Building or (c) agree to do any of the foregoing. Neither of the Companies will amend, modify or change its respective articles of incorporation or by-laws, or merge or consolidate with or into any other corporation or other entity, or agree to do any of the foregoing. 7.03 Changes; Contracts; Claims. Neither of the Companies shall -------------------------- make any material change with regard to either of the Companies (other than the distribution to the Shareholder of the Building), the Business or the terms of any Contract, as the case may be, or 27 fail to perform any of its obligations with respect thereto. Neither of the Companies shall enter into any contract or agreement requiring the payment by either of the Companies of $25,000 or more individually or $50,000 or more in the aggregate, other than in the ordinary course of business, without the prior written consent of the Purchaser which consent shall not be unreasonably withheld or delayed. Neither of the Companies shall waive, cancel, sell or otherwise dispose of for less than the fair value thereof any claim or right either of the Companies has against others. 7.04 Preservation of Organization, Employees and Business ---------------------------------------------------- Relationships. Each of the Companies will use its respective best efforts to - ------------- (a) preserve the present business organization of each of the Companies intact; (b) preserve each of the Companies' respective goodwill; (c) keep available the services of the present employees of each of the Companies; and (d) preserve present relationships with entities or persons having commercial dealings with either of the Companies. 7.05 Notice of Adverse Developments; Litigation. Each of the ------------------------------------------ Companies, each of the Kapadias and the Shareholder will promptly, upon becoming aware thereof, notify the Purchaser of (a) any material problems or material adverse developments with respect to either of the Companies or the Business, or (b) any litigation, arbitration or governmental or administrative proceeding pending or overtly threatened against either of the Companies or the Business, or in respect of this Agreement or the consummation of the transactions contemplated hereby. 7.06 Payment of Taxes. Each of the Companies shall file on a ---------------- timely basis (including under applicable extensions) all Tax Returns required to be filed by it and pay all Taxes due and payable with respect to the periods covered by such Tax Returns (whether or not reflected thereon). 7.07 Documents, Etc. Each of the Companies, each of the Kapadias -------------- and the Shareholder will furnish and make available to the Purchaser, its counsel, accountants and authorized representatives, such financial, legal and other documents, records and information relating to either of the Companies or the Business, and shall grant complete access to the Purchaser and its representatives to all of the assets and properties of either of the Companies and to its personnel as the Purchaser, its counsel, accountants and its authorized representatives may from time to time reasonably request. 7.08 No Loans, Advances, Etc. Neither of the Companies shall make ----------------------- or incur any lease, new debt for borrowed money, loans or Lien or otherwise encumber any of the assets or properties owned or used by either of the Companies, or make any bonus or similar payments, distributions, loans or advances to any officer, employee, director or shareholder (or any related parties or other Affiliates thereof) of either of the Companies, other than (i) the distribution to the Shareholder of KEI's undistributed net profit for periods prior to the Closing Date, (ii) borrowings under KEI's bank credit facility to fund the distribution contemplated by clause (i) above, (iii) the Transfer of the Building, (iv) the payment of bonuses to employees or other persons of KEI in an amount not to exceed $570,000 in the aggregate and to the extent accrued on KEI's income statement for its 1998 fiscal year, (v) bonuses paid to either of the Kapadias as 28 officers of KEI, and (vi) other normal and necessary transactions in the ordinary course of business of either of the Companies. 7.09 Books and Records and Interim Financial Statements. Each of -------------------------------------------------- the Companies will maintain its respective books and records in accordance with GAAP, on a basis consistent with past practice, and each of the Companies will furnish to the Purchaser, for each calendar month from and after December 31, 1998, financial statements of each of the Companies, including, without limitation, a statement of operations and a balance sheet, all prepared in accordance with GAAP but without footnotes, within twenty (20) days of the end of each calendar month (commencing with January 1999) ending prior to the Closing Date, and each certified by the Chief Financial Officer or President of each of the Companies as being a true and accurate representation of the financial condition and results of operations of each of the Companies as of their respective dates. 7.10 Compliance with Laws. Each of the Companies shall use its -------------------- respective best efforts to comply in all material respects with all laws, rules and regulations applicable to either of the Companies and the conduct of the Business. 7.11 Sale of Assets. Neither of the Companies will (a) sell, lease -------------- or dispose of any of the assets or properties owned or used by either of the Companies, other than the disposition of assets which are not material (individually or in the aggregate) to the Business in the ordinary course of business consistent with past practice and other than the distribution to the Shareholder of KEI's undistributed net profit for periods prior the Closing Date and other than the Transfer of the Building or (b) fail to maintain the assets and properties of either of the Companies in good condition and repair, normal wear and tear excepted. 7.12 Discharge of Obligations. Each of the Companies shall (i) ------------------------ maintain its respective accounts payable and accrued expenses on a reasonably current basis and (ii) make payments on all normal and recurring installments of debt, leases, contractual obligations and other amounts due third parties, if any, as they become due. 7.13 Revenues; Accounts Receivable; Inventory. Each of the ---------------------------------------- Companies shall not affect any material change in methods or procedures for billing, collection or recording of customer accounts receivable or reserves for doubtful accounts. Each of the Companies shall maintain such levels of Inventory as are necessary and sufficient to operate the Business in the ordinary course. 7.14 Facilities. Each of the Companies shall, taking into account ---------- the fact that the Companies are presently undertaking an upgrade of their respective management information systems, maintain and service facilities in accordance with normal policies, and any repairs, maintenance and improvements to such facilities will be made as necessary in the normal course of business. 7.15 Cooperation. Each of the Companies, each of the Kapadias and ----------- the Shareholder shall cooperate fully with the Purchaser and use their respective best efforts to obtain all consents and approvals necessary for the sale of the Shares and the consummation of the transactions contemplated hereby, including the furnishing of all financial and other 29 information reasonably required by the person or entity whose consent or approval is being sought. SECTION VIII. ------------ CLOSING ------- 8.01 Time and Place of Closing. The closing of the purchase and ------------------------- sale of the Shares (the "Closing") shall be held at 10:00 A.M. at the offices of Haythe & Curley, 237 Park Avenue, New York, New York within five (5) business days after the conditions precedent set forth in Sections IX and X hereof have been satisfied or waived, or, in any event, at such other time, date and place as the parties shall mutually agree (the "Closing Date"). 8.02 Termination. This Agreement may be terminated, and the ----------- transactions contemplated hereby may be abandoned: (a) at any time before the Closing, by written agreement of the Shareholder and the Purchaser; (b) at any time before the Closing, by either the Purchaser or the Shareholder, in writing, in the event that there exists any order, decree, determination or ruling of any Governmental Authority which would cause or construe the consummation of the transactions contemplated by this Agreement to be in violation of any applicable law, or which otherwise restrains, enjoins or prohibits such consummation; (c) without limiting any other right or remedy hereunder or otherwise, at any time before the Closing, by either the Purchaser, on the one hand, or the Shareholder, on the other hand, in writing, without liability to the terminating party on account of such termination, if such terminating party (and, in the case of the Shareholder, the Shareholder, each of the Kapadias and each of the Companies), as the case may be, is not then in material breach of this Agreement and (i) the other party (and in the case of the Shareholder, each of the Kapadias, each of the Companies or the Shareholder), as the case may be, shall fail to timely perform in any material respect any of such person's covenants or agreements contained herein required to be performed prior to the Closing Date or (ii) any of the representations or warranties of the other party(s), contained herein shall not have been true and correct in all material respects on the date such representation or warranty was made or deemed made hereunder; or (d) the Shareholder or the Purchaser may terminate this Agreement at any time after April 30, 1999 and prior to the Closing, effective upon giving written notice to the other parties, provided the failure to consummate the Closing by such date was not caused by the party giving such notice (and in the case of the Shareholder, such failure was not caused by either of the Companies, either of the Kapadias or the Shareholder). 8.03 Effect on Obligations. Termination of this Agreement pursuant --------------------- to Section 8.02 shall terminate all obligations of the parties to each other hereunder, except for the obligations under Sections 6.04 and 13.05 and, provided, however, that, notwithstanding the foregoing, the termination of this Agreement pursuant to clauses (c) or (d) of Section 8.02 shall not relieve any party of any liability with respect to any breach of any representation, warranty, 30 covenant or agreement herein by such party, or limit or preclude any remedy any party may have against such breaching party with respect to any such breach. 8.04 Return of Documentation. Following a termination in ----------------------- accordance with Section 8.02, the Purchaser shall use its best efforts to return all agreements, documents, contracts, instruments and other books and records of either of the Companies provided by the Companies to the Purchaser or any representatives of the Purchaser in connection with the transactions contemplated by this Agreement, and the Shareholder shall use its best efforts to and shall cause each of the Companies to use their respective best efforts to return all agreements, documents, contracts, instruments and other books and records of the Purchaser provided by the Purchaser or any representative of the Purchaser in connection with the transactions contemplated by this Agreement. 8.05 Delivery of Shares. Delivery of the Shares shall be made by ------------------ the Shareholder to the Purchaser at the Closing by delivering one or more original certificates in negotiable form, representing the Shares. Each such certificate evidencing the Shares shall be duly endorsed in blank, or be accompanied by stock transfer powers duly executed in blank, and shall be accompanied by all requisite documentary or stock transfer taxes affixed thereto and cancelled. SECTION IX. ---------- CONDITIONS TO THE SHAREHOLDER'S OBLIGATION TO CLOSE ' --------------------------------------------------- The obligations of the Shareholder to sell the Shares and for it to otherwise consummate the transactions contemplated by this Agreement at the Closing are subject to the following conditions precedent, any or all of which may be waived by the Shareholder in its sole discretion, and each of which the Purchaser hereby agrees to use its best efforts to satisfy at or prior to the Closing: 9.01 No Litigation. No action, suit or proceeding against either ------------- of the Companies, the Business, either of the Kapadias or the Shareholder relating to the consummation of any of the transactions contemplated by this Agreement including, without limitation any governmental action seeking to delay or enjoin any such transactions shall be pending or threatened. 9.02 Representations, Warranties and Covenants. The ----------------------------------------- representations and warranties made by the Purchaser or the Issuer herein shall be true and correct as of the date hereof and as of the date of the Closing with the same force and effect as though such representations and warranties had been made as of the date of the Closing, and on the date of the Closing, each of the Purchaser and the Issuer shall deliver to the Shareholder a certificate dated the date of the Closing to such effect. All the terms, covenants and conditions of this Agreement to be complied with and performed by the Purchaser or the Issuer on or before the date of the Closing shall have been duly complied with and performed, and on the date of the Closing, the Purchaser shall deliver to the Shareholder a certificate dated the date of the Closing to such effect. 31 9.03 Other Certificates. The Companies and the Shareholder shall ------------------ have received such other certificates (including good standing certificates and certified copies of its articles of incorporation and by-laws), instruments and other documents, in form and substance satisfactory to each of the Companies and the Shareholder and their counsel, as they shall have reasonably requested in connection with the transactions contemplated hereby. 9.04 Opinion of the Purchaser's and the Issuer's Counsel. The --------------------------------------------------- Shareholder shall have received an opinion of Haythe & Curley, counsel for the Purchaser and the Issuer, in each case delivered to the Shareholder pursuant to the instructions of each of the Purchaser and the Issuer, dated the date of the Closing, in form and substance satisfactory to the Shareholder and its counsel. 9.05 Employment Agreement. The Kapadia Employment Agreement, -------------------- substantially in the form of Exhibit A hereto, shall have been entered into between M. Kapadia and the Issuer. 9.06 Hart-Scott-Rodino. All waiting periods applicable to the ----------------- transactions contemplated by this Agreement under the HSR Act shall have expired or been terminated. 9.07 Pay-Off of Funded Indebtedness. All of the Funded ------------------------------ Indebtedness shall have been paid in full, all mortgages, security interests and other Liens securing or otherwise arising under or relating to such Funded Indebtedness shall have been released, discharged and terminated in full, in each case in form and substance satisfactory to the Shareholder and its counsel, and all capital stock, assets, property or other collateral of any kind held by any Funded Indebtedness Holder, escrow agent or other person as security for such Funded Indebtedness shall have been delivered to the Companies, the Purchaser or its designees. Any and all personal guarantees by either of the Kapadias to guaranty all or any portion of the Funded Indebtedness shall have been released, discharged and terminated in full, in each case in form and substance satisfactory to each of the Kapadias and their counsel. SECTION X. --------- CONDITIONS TO THE PURCHASER'S OBLIGATION TO CLOSE ' ------------------------------------------------- The obligation of the Purchaser to purchase the Shares and otherwise consummate the transactions contemplated by this Agreement at the Closing is subject to the following conditions precedent, any or all of which may be waived by the Purchaser and the Issuer in their sole discretion, and each of which each of the Companies, the Kapadias and the Shareholder hereby agree to use their respective best efforts to satisfy at or prior to the Closing: 10.01 No Litigation . No action, suit or proceeding against either of ------------- the Companies, the Business, either of the Kapadias, the Shareholder, the Purchaser or the Issuer relating to the consummation of any of the transactions contemplated by this Agreement shall be pending or threatened. 10.02 Representations, . The representations and warranties made by each of the Companies, the Kapadias and Warranties and Covenants the Shareholder herein shall be true and correct at and as of the date hereof and as of the date of the Closing with the same force 32 and effect as though such representations and warranties had been made at and as of the date of the Closing, and on the date of the Closing, each of the Companies, the Kapadias and the Shareholder shall deliver to the Purchaser and the Issuer a certificate dated the date of the Closing to such effect. All the terms, covenants and conditions of this Agreement to be complied with and performed by each of the Companies, the Kapadias and the Shareholder on or before the date of the Closing shall have been duly complied with and performed, and on the date of the Closing, each of the Companies, the Kapadias and the Shareholder shall deliver to the Purchaser a certificate dated the date of the Closing to such effect. 10.03 Other Certificates. The Purchaser and the Issuer shall have ------------------ received such other certificates (including good standing certificates and certified copies of its articles of incorporation and by-laws), instruments and other documents, in form and substance satisfactory to the Purchaser and the Issuer and counsel for the Purchaser and the Issuer, as either the Purchaser or the Issuer shall have reasonably requested in connection with the transactions contemplated hereby. 10.04 Opinions of the Companies. The Purchaser and the Issuer shall ------------------------- have received an opinion of (i) Goldfarb, and the Shareholder's Sturman & Averbach, counsel for KEI and the Shareholder and (ii) McBride Wallace Counsels Laurent & Cord counsel for MCSI, in each case delivered to the Purchaser and the Issuer pursuant to the instructions of each of the Companies and the Shareholder, dated the date of the Closing, in form and substance satisfactory to the Purchaser, the Issuer and their counsel. 10.05 Environmental. The Purchaser shall have obtained, to its sole ------------- satisfaction, satisfactory Phase I, Phase II and other environmental studies. 10.06 Sale of All the Shares. All the Shares, shall be sold and ---------------------- delivered to the Purchaser (or its designee) at the Closing free and clear of all Liens. 10.07 Resignations. Each of the Companies shall have delivered to ------------ the Purchaser resignations of all the officers and directors of each of the Companies, such resignations to be effective as of the Closing. 10.08 Consents. The Purchaser and the Issuer shall have received -------- evidence satisfactory to the Purchaser and the Issuer of receipt by each of the Companies and the Shareholder of the consents of third parties as set forth on the Disclosure Schedule, in each case which consents shall not provide for the acceleration of any liabilities or any other detriment to the Purchaser, the Issuer, either of the Companies or the Business and shall be in form and substance satisfactory to the Purchaser and the Issuer. In addition, the Purchaser and the Issuer shall have obtained all corporate (including the Issuer's Board of Director approval) and all third party consents, including consents of lenders and amendments to existing loan and credit documentation, approvals or authorizations, if any, necessary or desirable for the consummation of the transactions contemplated by this Agreement. 10.09 Transfer of Building. Prior to the Closing, the Shareholder -------------------- shall deliver to the Purchaser evidence, in form and substance satisfactory to the Purchaser, that the Building and 33 all associated indebtedness has been transferred to the Shareholder, the Kapadias or an Affiliate of the Kapadias (the "Transfer"). 10.10 Employment Agreements. The Kapadia Employment Agreement, --------------------- substantially in the form of Exhibit A hereto, shall have been entered into between M. Kapadia and the Issuer. In addition, the Purchaser or its designee shall have entered into employment and other arrangements satisfactory to it with sales and other personnel employed by or rendering services to the Companies, including, without limitation, the Companies' head of sales and the head of MCSI's operations. 10.11 Financing. On or prior to the Closing, the Purchaser shall --------- have obtained financing in amounts and upon terms and rates acceptable to the Purchaser in its sole discretion to enable the Purchaser to consummate the transactions contemplated by this Agreement. 10.12 No Material Adverse Change. Since December 31, 1998, there -------------------------- shall not have been any material adverse or prospective material adverse change in the condition (financial or otherwise), results of operations, assets, properties, business or prospects of either of the Companies, except for (i) the Transfer of the Building and (ii) distributions and dividends permitted by Section 7.08 hereof. 10.13 Hart-Scott-Rodino. All waiting periods applicable ----------------- to the transactions contemplated by this Agreement under the HSR Act shall have expired or been terminated. 10.14 Regulation S-X and Adjusted EBITDA Cetificate. --------------------------------------------- The Purchaser and the Issuer shall have received (i) financial statements for such Adjusted EBITDA Certificate fiscal years of each of the Companies and in such form as may be required by Regulation S-X promulgated by the Commission under the Securities Act ("Regulation S-X"), audited by Carpenter Kuhen & Sprayberry or other independent certified public accountants (mutually agreed to by the parties hereto), accompanied by an unqualified opinion thereon from such accountants, (ii) confirmation that such audited financial statements have been, and the interim financial statements of each of the Companies covering the period since the end of each of the Companies' last fiscal year are, presented in conformity with the accounting rules of Regulation S-X and (iii) the Adjusted EBITDA Certificate. 10.15 Pay-Off of Funded Indebtedness. All of the Funded ------------------------------ Indebtedness shall have been paid in full, all mortgages, security interests and other Liens securing or otherwise arising under or relating to such Funded Indebtedness shall have been released, discharged and terminated in full, in each case in form and substance satisfactory to the Purchaser and its counsel, and all capital stock, assets, property or other collateral of any kind held by any Funded Indebtedness Holder, escrow agent or other person as security for such Funded Indebtedness shall have been delivered to the Companies, the Purchaser or its designees. SECTION XI. ----------- INDEMNIFICATION --------------- 11.01 Indemnification by the Shareholder and the Kapadias. From --------------------------------------------------- and after the Closing Date, the Shareholder and each of the Kapadias, jointly and severally, shall indemnify 34 and hold harmless each of the Purchaser Indemnified Parties from and against any and all Damages which are sustained or incurred by any of the Purchaser Indemnified Parties in connection with or by reason of (a) the breach by either of the Companies, either of the Kapadias or the Shareholder of any of their respective covenants, agreements or obligations hereunder or under any of the other certificates, agreements or other documents delivered by any such person in connection herewith, (b) the breach or inaccuracy of any of the representations or warranties made by either of the Companies, either of the Kapadias or the Shareholder herein (including in any Exhibit or the Disclosure Schedule) or in any certificate, agreement or other document delivered pursuant hereto by either of the Companies, either of the Kapadias or the Shareholder or (c) the matters, including any additional Taxes payable (except to the extent reserved on the Closing Balance Sheet), set forth in Section 3.11 paragraph 1 of the Disclosure Schedule. 11.02 Indemnification by the Purchaser and the Issuer. From and ----------------------------------------------- after the Closing Date, the Purchaser and the Issuer, jointly and severally, shall indemnify and hold harmless each of the Shareholder Indemnified Parties from and against any and all Damages sustained or incurred by any of the Shareholder Indemnified Parties in connection with or by reason of (a) the breach by the Purchaser or the Issuer of any of their respective covenants, agreements or obligations hereunder or under any of the other certificates, agreements or other documents delivered by the Purchaser or the Issuer in connection herewith or (b) the breach or inaccuracy of any of the representations or warranties made by the Purchaser or the Issuer herein or in any certificate, agreement or other document delivered pursuant hereto by the Purchaser or the Issuer. 11.03 Procedure for Indemnification. (a) In the event that any ----------------------------- Shareholder Indemnified Party, on the one hand, or any Purchaser Indemnified Party, on the other hand, shall sustain or incur any Damages in respect of which indemnity may be sought by such party pursuant to this Section XI or any other provision of this Agreement (each, an "Indemnification Matter"), the party indemnified hereunder (the "Indemnitee") shall notify the party(s) providing indemnification (collectively, the "Indemnitor") by sending written notice to the Indemnitor (each, an "Indemnity Notice"). In the case of an Indemnification Matter involving a third-party claim, which, if successful, could result in an indemnity payment hereunder, an Indemnity Notice shall be given within 30 days after the discovery by an Indemnitee of the filing or assertion of any claim against the Indemnitee stating the nature and basis of such claim; provided, however, that any inadvertent delay or failure to notify any Indemnitor of any claim shall not relieve it from any liability except to the extent that the defense of such action is materially prejudiced or materially adversely affected by such delay or failure to notify. (b) In the case of third-party claims, the Indemnitee shall give the Indemnitor a reasonable opportunity (i) to conduct any proceedings or negotiations in connection therewith and necessary or appropriate to defend the Indemnitee (provided such are pursued in a professional and diligent manner), (ii) to take all other reasonable steps or proceedings to settle or defend any such claims, provided that the Indemnitor shall not settle any such claim which is solely for money damages without the prior written consent of the Indemnitee, which consent shall not be unreasonably withheld or delayed, and shall not settle any other such third-party claim without the prior written consent of the Indemnitee (including, without limitation, if such claim seeks or such settlement imposes equitable remedies or injunctive relief on the Indemnitee), and (iii) to employ counsel designated by the Indemnitor and satisfactory to the 35 Indemnitee to contest any such claim or liability in the name of the Indemnitee or otherwise. The Indemnitor shall, within twenty (20) days of receipt of an Indemnity Notice of such claim (the "Indemnity Notice Period"), give written notice to the Indemnitee of its intention to assume the defense of such claim. If defendants in any action include any Indemnitee and any Indemnitor and any Indemnitee shall have been advised by its counsel that there may be legal defenses available to such Indemnitee which are different from or in addition to those available to any Indemnitor, or if a conflict of interest exists between any Indemnitee and any Indemnitor, then in either case, the Indemnitee shall have the right to employ its own counsel in such action, and, in such event (or in the event that the Indemnitor does not timely assume the defense within the Indemnity Notice Period as provided in the immediately succeeding sentence), the reasonable fees and expenses of the Indemnitee's counsel shall be borne by the Indemnitor and shall be paid by the Indemnitor from time to time within thirty (30) days of receipt of appropriate invoices therefor. If the Indemnitor does not deliver to the Indemnitee within the Indemnity Notice Period written notice that the Indemnitor shall assume the defense of any such claim or litigation resulting therefrom pursuant to and in accordance with the provisions of this Section XI, the Indemnitee may defend against any such claim or litigation in such manner as it may reasonably deem appropriate and the Indemnitee may settle such claim or litigation on such terms as it may reasonably deem appropriate, all at the expense of the Indemnitor. The costs and expenses of all proceedings, contests or lawsuits and all other Damages sustained or incurred with respect to such claims, proceedings or litigations shall be borne solely by the Indemnitor. In the event that the Indemnitor does timely assume the defense as provided above, the Indemnitee shall have the right to participate fully in such defense (including, without limitation, with counsel of its choice), at its sole expense (except as otherwise provided herein), and the Indemnitor shall reasonably cooperate with the Indemnitee in connection with such participation, and in all cases the Indemnitor shall keep the Indemnitee fully informed as to all matters concerning each third-party claim and shall promptly notify the Indemnitee in writing of any and all significant developments relating thereto. Within five (5) business days after the occurrence of a final order or other determination with respect to each third-party claim by any court, panel of arbitrator(s) or Governmental Authority having jurisdiction thereof, the Indemnitor shall pay the Indemnitee the amount of Damages sustained or incurred by the Indemnitee which have not theretofore been paid to the Indemnitee as provided above. (c) In the event that an Indemnification Matter does not involve a third-party claim, the Indemnitor shall within thirty (30) days after the date of an Indemnity Notice pay to the Indemnitee the amount of Damages payable pursuant to Section 11.01 or 11.02 hereof, as the case may be, and which are at the time sustained or incurred by the Indemnitee and shall thereafter pay any other Damages payable pursuant to Section 11.01 or 11.02 hereof, as the case may be, and related to the same Indemnity Notice on demand. 11.04 Subrogation . Neither of the Shareholder nor either of the ----------- Kapadias shall be subrogated to any or all rights of any Purchaser Indemnified Party(s) in respect of any customer of or supplier to either of the Companies with respect to any Damages for which the Purchaser Indemnified Party(s) has been indemnified by the Shareholder or the Kapadias hereunder (all of which rights of subrogation are expressly hereby irrevocably and unconditionally waived and released by the Kapadias and the Shareholder). Without limiting the generality of the foregoing, it is expressly understood and agreed that neither the Shareholder nor the Kapadias shall be entitled to any indemnification, right of contribution or other right of recovery from either of the 36 Companies in connection with any claim made by any Purchaser Indemnified Party(s) against the Shareholder or either of the Kapadias hereunder, all of which are hereby irrevocably and unconditionally waived and released by the Shareholder and each of the Kapadias. No Purchaser Indemnified Party shall be required to make any claim against any other person or entity or to take any other action in order to pursue any claim against the Shareholder or either of the Kapadias. 11.05 Validity. The indemnification agreements provided for in -------- this Section XI shall apply notwithstanding any investigation made at any time by or on behalf of any party hereto. 11.06 Time Periods for Representation and Warranty Indemnifications. ------------------------------------------------------------- The representations and warranties contained in or made pursuant to this Agreement shall expire on the fourth anniversary of the Closing, provided that the representations and warranties contained in Sections 3.02, 3.11 and 4.01 hereunder shall survive for the applicable statute of limitations and the representations and warranties contained in Sections 3.04 and 4.02 and all covenants and agreements hereunder shall survive indefinitely, and provided further that if written notice is properly given under this Section XI with respect to any alleged breach or inaccuracy of a representation or warranty to which such party is entitled to be indemnified hereunder prior to the applicable expiration date, such representation or warranty shall continue indefinitely until the applicable claim is finally resolved. 11.07 Indemnity Escrow; Offset . (a) At the Closing, the ------------------------ Purchaser, the Issuer, the Kapadias, the Shareholder and Goldfarb, Sturman & Averbach (the "Escrow Agent") will enter into an escrow agreement (the "Escrow Agreement"), in substantially the form of Exhibit C hereto. The Purchaser and the Issuer, on the one hand, and/or the Kapadias and the Shareholder, on the other hand, as applicable, shall deposit immediately available funds and/or shares of Common Stock (collectively, the "Indemnity Escrow Amount" and, together with all earnings, dividends or proceeds thereon, collectively, the "Indemnity Escrow Deposit") into separate escrow accounts (collectively, the "Escrow Account") in such amounts, if any, and at such times as provided in Section 11.07(b) below. The Indemnity Escrow Deposit will be held, invested and disbursed as provided herein and in the Escrow Agreement. (b) The Purchaser and the Issuer shall have the right (but not the obligation, and such right shall not limit or affect any other right or remedy which it might have hereunder or otherwise), subject to the terms hereof, to satisfy any claims for Damages under Section XI of this Agreement or otherwise by offsetting amounts payable to the Shareholder under the Note by written notice to the Shareholder (each, an "Offset Notice") and/or by recourse to the Indemnity Escrow Deposit, if any, pursuant to and in accordance with the terms of this Agreement and the Escrow Agreement, only on the condition that (i) in the event that the Purchaser and the Issuer offset against interest payments under the Note, then the Purchaser and the Issuer will deposit into the Escrow Account by wire transfer of immediately available funds an amount equal to such offset within 10 Business Days after delivery of the Offset Notice (unless the Shareholder agrees in writing to such offset amount or any portion thereof on or prior to such 10th Business Day, in which event only the disputed portion shall be so deposited into escrow), which escrow amount will be held by the Escrow Agent until, and disposed of in accordance with, the final resolution of the claims giving rise to the interest payment and the Escrow Agreement, and (ii) in 37 the event that the Note is outstanding on the fifth anniversary of the Closing Date, the Shareholder does not elect to convert the Note and there are unresolved offset claims against amounts under the Note as of such date, then the Purchaser and the Issuer will deposit into the Escrow Account on such date by wire transfer of immediately available funds an amount equal to the aggregate amount of such unresolved offset claims (excluding amounts previously funded pursuant to clause (i) above), which escrow amount will be held by the Escrow Agent until, and disposed of in accordance with, the final resolution of such unresolved claims and the Escrow Agreement, and the remaining balance of the Note, if any, shall be paid to the Shareholder on such date. It is understood and agreed that the rights of offset against the Note set forth in this Section 11.07(b) are the only rights of offset available to the Purchaser and the Issuer hereunder. In addition, as a condition to converting the Note into shares of Common Stock, the Shareholder shall deposit into the Escrow Account on the date of such conversion by wire transfer of immediately available funds the applicable amount set forth in the next sentence of this Section 11.07(b), all to satisfy any indemnity claims for Damages which any of the Purchaser Indemnified Parties may have against the Shareholder. The amount of the funding by the Shareholder pursuant to its election to convert the Note shall be (the "Conversion Amount"): $3,000,000 if the Note is converted on or before the second anniversary of the Closing Date, $2,000,000 if the Note is converted following the second anniversary of the Closing Date but on or before the third anniversary of the Closing Date and $1,000,000 if the Note is converted following the third anniversary of the Closing Date but on or before the fourth anniversary of the Closing Date; provided, however, in the event that the aggregate amount of Damages claimed, as of such conversion date, for all indemnity claims that have been made by the Purchaser Indemnified Parties and not finally resolved pursuant to this Agreement or previously funded into the Escrow Account exceed the applicable Conversion Amount (such excess, the "Excess Amount"), then the Issuer shall deposit into the Escrow Account (and not deliver to the Shareholder) a number of shares (the "Escrow Shares") of Common Stock (up to, but not to exceed the total number of shares issuable upon conversion of the Note) equal to the Excess Amount divided by FMV as of the conversion date. On or prior to the date which is 5 Business Days after the fifth anniversary of the Closing Date, each of the Purchaser, the Issuer, the Kapadias and the Shareholder shall instruct the Escrow Agent to remit to the Shareholder from the Escrow Account an aggregate amount equal to (A) the sum of (x) the Conversion Amount, if any (payable in cash), and (y) the Escrow Shares, if any (payable in kind and valued at their FMV as of the fifth anniversary of the Closing Date) less (B) the aggregate amount of all Damages claimed by the Purchaser Indemnified Parties on or prior to such date and not finally resolved pursuant to this Agreement; provided, however, that such payments to the Shareholder shall first be made from the Escrow Shares, if any, and then from the Conversion Amount, if any. Notwithstanding any provision herein or in the Escrow Agreement to the contrary, upon the determination of any claims for Damages payable to the Purchaser Indemnified Parties hereunder, in the event that the Escrow Account contains cash and shares of Common Stock, such payments shall first be made from such cash until no cash remains in the Escrow Account and then from shares of Common Stock in the Escrow Account. In addition, to the extent that any shares of Common Stock have been deposited into the Escrow Account pursuant to this Section 11.07, then any and all dividends or other proceeds relating thereto (including cash, stock or other property) shall be deposited into the Escrow Account and become part of the Indemnity Escrow Deposit. 38 11.08 Limits on Indemnification . The Purchaser Indemnified ------------------------- Parties, on the one hand, and the Shareholder Indemnified Parties, on the other hand, shall not be entitled to indemnification for Damages pursuant to this Section XI, other than Damages arising from the inaccuracy of any of the representations and warranties contained in Sections 3.04 and 4.02 hereof (in which case the limits set forth in this Section 11.08 shall be inapplicable), unless and until the aggregate amount of Damages to which all Purchaser Indemnified Parties or the Shareholder Indemnified Parties, as the case may be, are entitled to indemnification under this Section XI exceeds $25,000, and then only for such excess amount, if any. SECTION XII. ----------- NON-COMPETITION AGREEMENT ------------------------- 12.01 Solicitation of Employees. Prior to the Closing Date, ------------------------- neither of the Kapadias, the Shareholder (including the trust and the Kapadias, but not including any successor trustee of the Shareholder in such successor trustee's personal capacity) nor any of their Affiliates will, directly or indirectly, through any agent or otherwise, solicit the employment of any of the employees of either of the Companies, or discourage any such employees from remaining employed with either of the Companies after the Closing ; provided, however, that notwithstanding anything to the contrary contained in this Section 12.01, nothing contained in this Section 12.01 shall be deemed to limit or restrict the prerogative of either of the Companies (acting through their respective officers, including M. Kapadia) to terminate employees of either of the Companies in the ordinary course of business and consistent with past practice. 12.02 Noncompetition. In consideration of the Purchaser's and the -------------- Issuer's covenants, agreements and payments contemplated hereby, and recognizing the interest of the Purchaser and the Issuer to protect, among other matters, the goodwill of the Companies and of the Business, each of the Kapadias and the Shareholder hereby covenant and agree, for the benefit of the Purchaser, the Issuer and their respective successors and assigns, that neither the Shareholder (including the trust and the Kapadias, but not including any successor trustee of the Shareholder in such successor trustee's personal capacity), neither of the Kapadias nor other Affiliates will, during the period commencing on the Closing Date and ending on the fifth anniversary of the Closing Date: (a) engage, directly or indirectly, whether as principal, consultant, manager, operator, employee, partner, agent, stockholder, limited partner or other investor or owner (other than an investment of not more than one percent (1%) of the stock or equity of any corporation (other than the Issuer or any successor thereto) the capital stock of which is listed on a national securities exchange or whose stock is regularly traded in the over-the-counter market), in any activity or business venture which is in competition with either of the Companies or the Business as now conducted (or any component thereof); or (b) other than in the conduct of the Business for the benefit of the Purchaser Group, use, divulge or transfer to any person, partnership, corporation or other entity any trade secrets, customer lists or other confidential or proprietary information with respect to the Purchaser, either of the Companies or the Business, or any other member of the Purchaser Group; or 39 (c) directly or indirectly, through any agent or otherwise, employ, solicit or entice or endeavor to solicit or entice the employment of any person who is or was during the past three (3) years an employee of the Purchaser Group at any time, either for its, his or her own account or for any individual, firm, corporation or other entity; or (d) directly or indirectly, through any agent or otherwise, solicit or entice or endeavor to solicit or entice away from either of the Companies any customer or supplier of any member of the Purchaser Group at any time, either for its, his or her own account or for any individual, firm, corporation or other entity. SECTION XIII. ------------ MISCELLANEOUS ------------- 13.01 Notices. All notices, requests or instructions hereunder ------- shall be in writing and delivered personally, sent by telecopy, sent by Federal Express or other nationally recognized overnight carrier, or sent by registered or certified mail, postage prepaid, as follows: (1) If to the Shareholder and/or the Kapadias after the Closing: c/o Mr. Madhukar Kapadia 11062 Winnetka Avenue Chatsworth, California 91311 Telecopy No.: (818) 890-6052 with copies to: Goldfarb, Sturman & Averbach 15760 Ventura Boulevard, 19th floor Los Angeles, California 91436 Attention: Zane S. Averbach, Esq. Telecopy No.: (818) 905-7173 (2) If to the Companies, the Shareholder and/or the Kapadias prior to the Closing: c/o Mr. Madhukar Kapadia 11062 Winnetka Avenue Chatsworth, California 91311 Telecopy No.: (818) 890-6052 with copies to: Goldfarb, Sturman & Averbach 15760 Ventura Boulevard, 19th floor Los Angeles, California 91436 Attention: Zane S. Averbach, Esq. Telecopy No.: (818) 905-7173 40 (3) If to the Purchaser, the Issuer (whether before or after the Closing) or to the Companies (after the Closing): Guest Supply, Inc. 4301 U.S. Highway One Monmouth Junction, New Jersey 08852 Attention: President Telecopy No.: (609) 514-7377 with copies to: Haythe & Curley 237 Park Avenue New York, New York 10017 Attention: Bradley P. Cost, Esq. Telecopy No.: (212) 682-0200 Any of the above addresses may be changed at any time by notice given as provided above; provided, however, that any such notice of change of address shall be effective only upon receipt. All notices, requests or instructions given in accordance herewith shall be deemed received on the date of delivery, if hand delivered, telecopied or by overnight courier, and three (3) business days after the date of mailing, if mailed by certified mail, return receipt requested. 13.02 Survival of Representations. Except as provided in Section --------------------------- 11.06 hereof, each representation, warranty, covenant and agreement of the parties hereto herein contained shall survive the Closing, notwithstanding any investigation at any time made by or on behalf of any party hereto. 13.03 Entire Agreement. This Agreement (including Annex A, the ---------------- Exhibits and Schedules hereto) and the documents referred to herein contain the entire agreement among the parties hereto with respect to the transactions contemplated hereby and supersedes all prior agreements, understandings, negotiations and discussions, whether written or oral, of the parties, except for that certain Confidentiality Agreement dated September 15, 1998 between KEI and the Issuer ("Confidentiality Agreement"), which Confidentiality Agreement shall remain in full force and effect until the closing Date occurs, and no amendment or modification hereof shall be effective unless in writing and signed by the party against which it is sought to be enforced. 13.04 Further Assurances. The Shareholder, each of the Kapadias ------------------ and each of the Companies, on the one hand, and the Purchaser and the Issuer on the other hand, shall use such party's best efforts to take such actions as may be necessary or reasonably requested by the other to carry out and consummate, and otherwise give effect to, the transactions contemplated by this Agreement. Without limiting the generality of the foregoing, each of the Purchaser and the Issuer agrees to use its respective best efforts to satisfy the condition set forth in Section 10.11 hereof. 13.05 Expenses. Except as specifically set forth herein, each of -------- the parties hereto shall bear such party's own expenses in connection with this Agreement and the transactions contemplated hereby whether or not the Closing occurs; provided however that, without limiting 41 Section 2.02 hereof, the Companies may pay the expenses of the Shareholder in connection with this Agreement and the transactions contemplated hereby. 13.06 Injunctive Relief. In the event of a breach or threatened ----------------- breach by either the Shareholder or the Kapadias, on the one hand, of its respective obligations hereunder, or by either the Purchaser or the Issuer on the other hand, of its respective obligations hereunder, the parties hereto hereby consent and agree that the non-breaching party shall be entitled to an injunction or similar equitable relief restraining such breaching party from committing or continuing any such breach or threatened breach or granting specific performance of any act required to be performed by the breaching party under any such provision, without the necessity of showing any actual damage or that money damages would not afford an adequate remedy and without the necessity of posting any bond or other security. The parties hereto hereby consent to the exclusive jurisdiction of the Federal courts for the Southern District of California for any proceedings under this Section 13.06 or otherwise. The parties hereto further agree that the service of process or of any other papers upon such person by registered mail at their respective addresses set forth herein shall be deemed good, proper and effective service upon them. Nothing herein shall be construed as prohibiting the Purchaser or the Issuer, on the one hand, or the Shareholder or the Kapadias, on the other hand, from pursuing any other remedies at law or in equity which it or they may have. 13.07 Invalidity. Should any provision of this Agreement be held ---------- by a court or arbitration panel of competent jurisdiction to be enforceable only if modified, such holding shall not affect the validity of the remainder of this Agreement, the balance of which shall continue to be binding upon the parties hereto with any such modification to become a part hereof and treated as though originally set forth in this Agreement. In any event, should one or more of the provisions of this Agreement be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions hereof, and if such provision or provisions are not modified as provided above, this Agreement shall be construed as if such invalid, illegal or unenforceable provisions had never been set forth herein. 13.08 Successors and Assigns. This Agreement shall be binding upon ---------------------- and inure to the benefit of the successors and permitted assigns of each of the Companies, the Shareholder, the Purchaser and the Issuer, respectively, and the legal representatives and heirs of each of the Kapadias. Prior to the Closing, the Purchaser's and the Issuer's rights or interests under this Agreement (but not their respective obligations) may be assigned to any member of the Purchaser Group, and after the Closing, the Purchaser's and the Issuer's rights or interest under this Agreement (but not their respective obligations) may be (a) assigned to any member of the Purchaser Group, (b) assigned in connection with a sale of all or substantially all of the assets of the Purchaser or the Issuer, or direct or indirect consolidated subsidiaries or (c) collaterally assigned to any bank(s) or other financial institution(s) which has extended credit to any member of the Purchaser Group. Except as set forth in Section 2.03(j) hereof, neither of the Kapadias nor the Shareholder may assign any of their respective rights, interests or obligations under this Agreement. Any attempted assignment in violation of this Section 13.08 shall be null and void. For purposes of this Section 13.08, references to this Agreement shall not be deemed to include references to the Kapadia Employment Agreement, the Note or the Purchase Price Common Stock. 42 13.09 Governing Law. The validity of this Agreement and of any of ------------- its terms or provisions, as well as the rights and duties of the parties under this Agreement, shall be construed pursuant to and in accordance with the laws of the State of New Jersey, without regard to the conflicts of laws provisions thereof. 13.10 Counterparts. This Agreement may be executed in ------------ counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. 13.11 Knowledge. Whenever used in this Agreement, the words "to --------- the knowledge of either of the Companies," "to the knowledge of the Shareholder" or similar words or phrases shall mean the knowledge or awareness of either of the Companies, either of the Kapadias or the Shareholder which either of the Companies, either of the Kapadias or the Shareholder would obtain in the exercise of reasonable diligence and after due injury, and shall include, without limitation, the knowledge of the officers and directors of each of the Companies, it being understood and agreed that such knowledge or awareness of either of the Companies on the one hand, either of the Kapadia, on the other hand, or the Shareholder, on the other hand, for purposes hereof, shall also be attributed to the other such parties. 13.12 Interpretation. The parties hereto agree that this Agreement -------------- is the product of negotiations between sophisticated parties and individuals, all of whom were represented by counsel, and each of whom had an opportunity to participate in, and did participate in, the drafting of each provision hereof. Accordingly, ambiguities in this Agreement, if any, shall not be construed strictly or in favor of or against any party hereto but rather shall be given a fair and reasonable construction without regard to the rule of contra ------ proferentum. - ----------- 13.13 Gender and Number. All pronouns used herein shall be deemed ----------------- to refer to the masculine, feminine or neuter, singular or plural, as the identity or number of the person, persons, entity or entities may require. 13.14 Joint and Several Obligations. Except as expressly set ----------------------------- forth herein, the Kapadias and the Shareholder shall be jointly and severally liable for all agreements, covenants and other obligations of the Kapadias, or either of them, and for all agreements, covenants and other obligations of the Shareholder, in any case, as set forth in or arising under this Agreement. In addition, the Issuer shall be jointly and severally liable for all agreements, covenants and other obligations of the Purchaser as set forth in or arising under this Agreement. 13.15 Headings. The headings to the Sections of this Agreement -------- have been inserted solely for convenience of reference and shall not modify, define or limit the express provisions of this Agreement. 13.16 Independence of Covenants and Representations and Warranties. ------------------------------------------------------------ All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitations of, another covenant shall not avoid the occurrence of a default if such action is taken or condition exists. In addition, all representations and warranties hereunder shall be given independent effect so that if a particular representation or warranty 43 proves to be incorrect or is breached, the fact that another representation or warranty concerning the same or similar subject matter is correct or is not breached will not affect the incorrectness of or a breach of a representation and warranty hereunder. The Exhibits and the Disclosure Schedule attached hereto are hereby made part of this Agreement in all respects. Section references in the Disclosure Schedule refer to the specific Section of the Agreement with respect to which the Companies, the Kapadias and the Shareholder are making a disclosure. A disclosure under one Section referenced in the Schedule relates only to the Section of the Agreement referenced, and not to any other Section of the Agreement, unless expressly so stated, or a cross-reference is made from one Section of the Schedule to another Section of the Schedule. * * * 44 IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto as of the date first above written. COMPANIES: KAPADIA ENTERPRISES, INC. By:/s/ Madhukar Kapadia -------------------- Name: Madhukar Kapadia Title:President MACDONALD CONTRACT SALES, INC. By:/s/ Naina Kapadia ----------------- Name: Naina Kapadia Title:Vice President SHAREHOLDER: /s/ Madhukar Kapadia -------------------------------------- Madhukar Kapadia, as Trustee of The Kapadia Family Trust /s/ Naina Kapadia ----------------------------------- Naina Kapadia, as Trustee of The Kapadia Family Trust INDIVIDUALS: /s/ Madhukar Kapadia ----------------------------------- Madhukar Kapadia /s/ Naina Kapadia ----------------------------------- Naina Kapadia 45 PURCHASER: BRECKENRIDGE - REMY CO. By:/s/ Paul T. Xenis ----------------- Name: Paul T. Xenis Title: Vice President ISSUER: GUEST SUPPLY, INC. By:/s/ Paul T. Xenis ----------------- Name: Paul T. Xenis Title: Vice President Annex A Index of Definitions Certain Definitions. The following terms when used herein shall have the meanings assigned to them below (certain other terms are defined elsewhere in this Agreement): "Adjusted EBITDA" shall have the meaning set forth in the definition of "Adjusted EBITDA Certificate" below. "Adjusted EBITDA Certificate" shall mean a certificate signed by Carpenter Kuhen & Sprayberry and addressed to the Shareholder and the Purchaser setting forth the amount of the Companies' combined audited earnings before interest, income taxes, depreciation, amortization, and bonus or similar payments paid by either of the Companies (whether paid during or following the end of the fiscal year ended December 31, 1998) to either or both of the Kapadias or any of their Affiliates for or in respect of the fiscal year ended December 31, 1998 (as determined in accordance with GAAP, consistently applied and as computed from the audited statements of operations of the Companies delivered to the Purchaser and the Issuer pursuant to Section 10.14(i) and after elimination of inter- Company transactions (the "Adjusted EBITDA")). "Affiliate" shall mean, with respect to any person, any other person directly or indirectly controlling (including but not limited to all directors, managers, partners and officers of such person), controlled by, or under direct or indirect common control with such person. "Annual Financial Statements" shall have the meaning set forth in Section 3.05(a) hereof. "Balance Sheet" shall have the meaning set forth in Section 3.05(a) hereof. "Balance Sheet Date" shall mean February 28, 1999. "Benefit Plans" shall have the meaning set forth in Section 3.15 hereof. "Building" shall mean that building and real property located at 12432 Foothill Blvd., Sylmar, California. "Business" shall have the meaning set forth in the recitals hereof. "Business Day" shall mean a day other than a Saturday or Sunday or other day on which commercial banks in New York, New York are authorized or required to close. "Cash Purchase Price" shall have the meaning set forth in Section 2.01 hereof. "CERCLA" shall have the meaning set forth in Section 3.12(c)(vi) hereof. "Closing" shall have the meaning set forth in Section 8.01 hereof. 2 "Closing Adjusted Net Worth" shall mean the Companies' combined adjusted net worth as of the Closing Date (prior to giving effect to the transactions contemplated hereby) and as set forth on the Closing Balance Sheet and calculated as follows: (i) total assets minus (ii) total liabilities plus (iii) Funded Indebtedness and minus (iv) to the extent included in clause (i) above, the net book value of the Building, all as determined in accordance with GAAP, consistently applied and after elimination of inter-Company transactions. "Closing Balance Sheet" shall have the meaning set forth in Section 2.02(c)(i) hereof. "Closing Date" shall have the meaning set forth in Section 8.01 hereof. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Commission" shall mean the U.S. Securities and Exchange Commission. "Common Stock" shall have the meaning set forth in Section 2.01 hereof. "Companies" shall have the meaning set forth in the recitals hereof. "Company Acquisition Proposal" shall mean any offer or proposal for, or any indication of interest in, a merger or other business combination involving either of the Companies or the acquisition of any equity interest in, or all or a substantial portion of the assets of, either of the Companies or the Business, other than the transactions contemplated by this Agreement. "Company Indebtedness" shall mean any obligations and liabilities created, issued or incurred by either of the Companies for (i) borrowed money, including without limitation, Funded Indebtedness, bank loans, mortgages, notes payable, (ii) capital lease obligations, (iii) guarantees of indebtedness of others, (iv) letters of credit and (v) loans from the Shareholder or any Affiliate of the Shareholder, and all principal, interest, fees, prepayment penalties or other amounts due or owing with respect thereto. "Company Indebtedness Holder" shall mean each holder of Company Indebtedness. "Confidentiality Agreement" shall have the meaning set forth in Section 13.03 hereof. "Contracts" shall have the meaning set forth in Section 3.13(a) hereof. "Conversion Price" shall mean $13.275. "Damages" shall mean any and all losses, claims, assessments, demands, damages, liabilities, obligations, costs and expenses, including without limitation, reasonable fees and disbursements of counsel sustained or incurred by the Purchaser Indemnified Parties (or any of them) or the Shareholder Indemnified Parties (or any of them), as the case may be, in any action, dispute, claim or proceeding between any of the Purchaser Indemnified Parties, on the one hand, and any of the Shareholder Indemnified Parties, on the other hand, or involving a third-party claim against any of the Purchaser Indemnified Parties or any of the Shareholder Indemnified Parties, as the case may be, and other out-of-pocket costs and expenses incurred in connection 3 with investigating, preparing or defending or preventing any action, suit or proceeding, commenced or threatened, or any claim whatsoever. "Determination" shall have the meaning set forth in Section 2.02(e) hereof. "Disclosure Schedule" shall mean the Disclosure Schedule attached hereto and made part hereof as provided in Section 13.16 hereof. "Dispute Notice" shall have the meaning set forth in Section 2.02(e) hereof. "Disputed Matters" shall have the meaning set forth in Section 2.02(e) hereof. "DOJ" shall have the meaning set forth in Section 6.07 hereof. "Environmental Claim" means any notice or claim by any person or entity alleging potential liability (including potential liability for investigatory costs, cleanup costs, governmental response costs, natural resource damages, property damages, personal injuries or penalties) arising out of, based on or resulting from (i) the generation, treatment, storage, transportation or recycling of any Hazardous Substance or the presence, or release, discharge, disposal or emission into the environment, of any Hazardous Substances at the Real Property or any other real property, whether or not presently or formerly owned or leased by either of the Companies or any Affiliate of either of the Companies or the Shareholder or (ii) any violation, or alleged violation, of any Environmental Laws. "Environmental Laws" means all federal, state, provincial, local and foreign laws, rules and regulations relating to environmental health and safety matters, the pollution or protection of the environment (including ambient air, surface water, ground water, land surface or subsurface strata) or the protection of human health and safety from environmental hazards, including laws and regulations relating to emissions, discharges, releases or threatened releases of Hazardous Substances, or otherwise relating to the manufacturer, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Substances. "ERISA" shall have the meaning set forth in Section 3.15 hereof. "Financial Statements" shall have the meaning set forth in Section 3.05(a) hereof. "FMV" shall mean the average of the closing price of Common Stock as reported on The New York Stock Exchange for the five Business Days immediately preceding the applicable date of conversion of the Note or the fifth anniversary of the Closing Date, as the case may be. "Funded Indebtedness" shall mean all funded obligations and liabilities created, issued or incurred by either of the Companies for borrowed money from banks and other financial institutions. "Funded Indebtedness Holders" shall mean the banks and other financial institutions holding Funded Indebtedness. "FTC" shall have the meaning set forth in Section 6.07 hereof. 4 "GAAP" shall mean generally accepted accounting principles. "Governmental Authority" shall mean the collective reference to any court, tribunal, government, or governmental or administrative agency, authority or instrumentality, federal, state or local, or domestic or foreign. "Hazardous Substances" shall have the meaning set forth in Section 3.12(c)(ii) hereof. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Incremental Taxes" shall mean the excess of (A) the aggregate amount of any Taxes actually imposed on the Shareholder in respect of or as a result of the purchase of the Shares of KEI and the making of the Section 338(h)(10) election (in the year made) contemplated by Section 2.04, over (B) the aggregate amount of any Taxes that would have been imposed on the Shareholder (in the year made) in respect of or as a result of the purchase of the Shares of KEI in accordance with this Agreement had no Section 338(h)(10) election been made. It is understood and agreed that (i) the amount of Incremental Taxes shall be reduced to reflect any Tax savings attributable to the deductibility of one (or more) Tax in computing the amount of another Tax , (ii) the calculation of the Incremental Taxes shall be based upon the highest individual marginal Federal, state and local income tax rates applicable to the Shareholder for the year of payment and shall take into account the Federal deduction for state and local income taxes and (iii) Incremental Taxes shall not include any Taxes payable by reason of the breach by any party hereto of their covenants and agreements set forth herein. "Indemnification Matter" shall have the meaning set forth in Section 11.03(a) hereof. "Indemnitee" shall have the meaning set forth in Section 11.03(a) hereof. "Indemnitor" shall have the meaning set forth in Section 11.03(a) hereof. "Indemnity Notice" shall have the meaning set forth in Section 11.03(a) hereof. "Indemnity Notice Period" shall have the meaning set forth in Section 11.03(b) hereof. "Independent Auditor" shall have the meaning set forth in Section 2.02(d) hereof. "Interim Financial Statements" shall have the meaning set forth in Section 3.05(a) hereof. "Inventory" shall have the meaning set forth in Section 3.07(b) hereof. "Kapadia Employment Agreement" shall mean the employment agreement between M. Kapadia and KEI, substantially in the form of Exhibit A attached hereto. "Kapadias" shall have the meaning set forth in the recitals hereof. "Liens" shall mean all liens, mortgages, pledges, charges, security interests, covenants, easements, restrictions, adverse claims or other encumbrances of any kind whatsoever and howsoever arising. 5 "Material Adverse Effect" shall mean a material adverse effect individually or in the aggregate on the businesses, properties, assets, condition (financial or other), results of operations or prospects of either of the Companies or the Business. "Permits" shall have the meaning set forth in Section 3.12(b) hereof. "Permitted Encumbrances" shall mean, with respect to the Real Property, (a) laws, rules, regulations and ordinances of general applicability which are not violated by the existing improvements at the Real Property or the current use thereof, (b) easements, rights of way, covenants, conditions and other matters set forth in the Disclosure Schedule and which, individually or in the aggregate, do not materially affect the Real Property or the use thereof, and (c) encumbrances for taxes and assessments either not yet due and payable or being contested in good faith and in a timely and appropriate manner. "Permitted Equipment Liens" shall have the meaning set forth in Section 3.10(a) hereof. "Permitted Liens" shall have the meaning set forth in Section 3.10(a) hereof. "Purchase Price" shall have the meaning set forth in Section 2.01(a) hereof. "Purchase Price Common Stock" shall have the meaning set forth in Section 2.01 hereof. "Purchaser Group" shall mean, collectively, the Issuer, the Purchaser, each of the Companies, and each of the Issuer's subsidiaries (direct or indirect). "Purchaser Indemnified Parties" shall mean the Issuer, the Purchaser, each of the Companies and each of their respective officers, directors and other Affiliates. "Real Property" shall have the meaning set forth in Section 3.09(a) hereof. "Registration Expense" shall have the meaning set forth in Section 2.03(e) hereof. "Registration Notice" shall have the meaning set forth in Section 2.03(a) hereof. "Registration Shares" shall have the meaning set forth in Section 2.03(a) hereof. "Regulation S-X" shall have the meaning set forth in Section 10.14 hereof. "Rule 144" shall have the meaning set forth in Section 4.04(c) hereof. "SEC Documents" shall have the meaning set forth in Section 4.04 hereof. "Securities Act" shall mean the Securities Act of 1933, as amended. "Section 2.03 Transferee" shall mean any trustor or beneficiary of the Shareholder or any other trust established for the benefit of any trustor or beneficiary (or any child thereof) of the Shareholder and/or any charitable organization. "Shareholder Indemnified Parties" shall mean the Shareholder and each of the Kapadias. 6 "Shareholder" shall have the meaning set forth in the recitals hereof. "Shares" shall have the meaning set forth in the recitals hereof. "60-Day Period" shall have the meaning set forth in Section 2.02(c)(i) hereof. "Supplemental Notice" shall have the meaning set forth in Section 2.03(b) hereof "Tax Returns" shall have the meaning set forth in Section 3.11(a) hereof. "Taxes" shall have the meaning set forth in Section 3.11(a) hereof. "30-Day Period" shall have the meaning set forth in Section 2.02(d) hereof. "Transfer" shall have the meaning set forth in Section 10.09 hereof. "Year 2000 Problem" shall have the meaning set forth in Section 3.25 hereof. * * * EX-10.(X) 3 5.18% CONVERTIBLE SUBORDINATED PROMISSORY NOTE EXHIBIT 10.(x) THIS NOTE AND THE SECURITIES INTO WHICH IT MAY BE CONVERTED HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). SUCH SECURITIES MAY NOT BE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR AN OPINION OF COUNSEL TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED. THIS NOTE AND THE SECURITIES INTO WHICH IT MAY BE CONVERTED ARE SUBJECT TO THE TERMS AND CONDITIONS OF THAT CERTAIN STOCK PURCHASE AGREEMENT (THE "STOCK PURCHASE AGREEMENT") DATED AS OF APRIL 23, 1999 BY AND AMONG THE MAKER, THE PAYEE AND THE OTHER PARTIES ON THE SIGNATURE PAGE THERETO, INCLUDING, WITHOUT LIMITATION, THE PROVISIONS OF SECTION 11.07 THEREOF, WHICH PROVIDES UNDER CERTAIN CIRCUMSTANCES, AMONG OTHER MATTERS, FOR OFFSET AGAINST THIS NOTE. 5.18% Convertible Subordinated Promissory Note due April 23, 2004 ------------------- $5,000,000 New York, April 23, 1999 New York Section 1. Payment. ------- Section 1.1. General. FOR VALUE RECEIVED, Guest Supply, Inc., a New ------- Jersey corporation (the "Maker"), hereby promises to pay to Madhukar Kapadia and Naina Kapadia, as Trustees of The Kapadia Family Trust or to the order of any Permitted Transferee (the "Payee"), at 11062 Winnetka Avenue, Chatsworth, California 91311 (or such other address as the Payee shall from time to time designate in writing to the Maker), the principal sum of Five Million Dollars ($5,000,000), in lawful money of the United States of America. For purposes hereof, the term "Permitted Transferee" shall mean any trustor or beneficiary of The Kapadia Family Trust or any other trust established for the benefit of any trustor or beneficiary (or child thereof) and/or any charitable organization. The Maker hereby also promises to pay interest on the unpaid principal amount hereof in like money at such place, from the date hereof until payment of the principal amount hereof has been made in full, at the rate of five and 18/100 percent (5.18%) per annum, payable quarterly on the last day of March, June, September and December each year, commencing on June 30, 1999, which first payment shall include interest accrued from the date hereof. Section 1.2. Principal Payment Due. Subject to the terms of Section --------------------- 11.07 of the Stock Purchase Agreement, the entire principal amount of this Note together with any accrued and unpaid interest thereon shall be all due and payable on April 23, 2004. Section 2. Conversion and Offset. --------------------- 2 (a) The Payee shall have the right at any time after the date hereof and until payment in full of this Note to convert, subject to and in compliance with the terms and provisions hereof, all, but not less than all, of the outstanding principal amount of this Note into the number of shares of Common Stock (as hereinafter defined) equal to the then outstanding principal amount of this Note divided by the Conversion Price (as hereinafter defined). Any outstanding and unpaid interest thereon accrued through the Conversion Date (as hereinafter defined) shall be paid in cash at the time of delivery of certificates representing the Common Stock into which this Note shall be converted. Upon the surrender hereof, accompanied by the Payee's written request in the form attached hereto as Annex A for conversion of this Note (the "Conversion Notice"), the Maker shall issue and deliver to the Payee within twenty (20) business days after the surrender of this Note pursuant hereto, one or more certificates evidencing the shares of Common Stock into which this Note shall be converted. All shares of Common Stock issued upon conversion shall be deemed issued as of the close of business on the Conversion Date. The "Conversion Date" is the date this Note is surrendered for conversion pursuant to this paragraph; provided, however, that if such date is a date on which banks in New York City are generally not open for business, then the Conversion Date shall be the next date on which such banks are open. The term "Common Stock" shall mean the class of stock which, at the date of execution of this Note, is designated common stock, without par value, of the Maker, and stock of any class or classes into which such Common Stock or any such other class may thereafter be changed or reclassified and which has voting powers which are the same as the voting powers of the Common Stock and which has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Maker and is entitled to receive distributions in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Maker after payments of all debts and obligations of the Maker and all preferences. The term "Conversion Price" shall mean, as of the date of execution of this Note, $13.275, subject to adjustment as provided herein. In case, by reason of the operation hereof, this Note shall be convertible into any other shares of stock, other securities, property or cash of the Maker or any other corporation, any reference herein to the conversion of this Note shall be deemed to refer to and include conversion of this Note into such other shares, securities, property, or cash. (b) It is understood and agreed that, notwithstanding anything to the contrary contained herein, under certain circumstances and upon certain terms and conditions, the Maker has the right under Section 11.07 of the Stock Purchase Agreement to offset against this Note (c) The conversion terms shall be subject to adjustment from time to time upon the occurrence of certain events while this Note remains outstanding, as follows: (i) If the Maker at any time shall consolidate with or merge into or sell or convey all or substantially all of its assets to any other entity, this Note shall thereafter be convertible into such kind and amount of shares of stock, other securities, property, cash or any combination thereof receivable upon such consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock into which this Note would have been converted had it been converted immediately prior to such consolidation, merger, sale, or conveyance, subject to adjustments equivalent to the adjustments provided in this Note. In the event of a consolidation or merger of another entity into the Maker in which the Maker is the continuing corporation and in which there is a reclassification or change (including a change to the right to receive, or a change into, 3 as the case may be, shares of stock, other securities, property, cash or any combination thereof) of the shares of Common Stock, this Note shall thereafter be convertible solely into the kind and amount of shares of stock, other securities, property, cash or any combination thereof receivable upon such consolidation or merger by a holder of the number of shares of Common Stock into which this Note would have been converted had it been converted immediately prior to such consolidation or merger. The foregoing provisions shall similarly apply to successive transactions of a similar nature by any such successor or purchaser. Without limiting the generality of the foregoing, the adjustment provisions of this Note shall apply to such securities of such successor or purchaser after any such consolidation, merger, sale or conveyance. (ii) In case the Maker shall (A) declare a dividend or make a distribution on the outstanding shares of Common Stock in shares of Common Stock, (B) subdivide or reclassify the outstanding shares of Common Stock into a greater number of shares, or (C) combine or reclassify the outstanding shares of Common Stock into a smaller number of shares, the Payee after such time shall be entitled to receive upon surrender hereof for conversion the number of shares of Common Stock which the Payee would have owned or been entitled to receive had this Note been converted immediately prior to such time. Such adjustment shall be made successively whenever any event specified above shall occur. All calculations under this paragraph shall be made to the nearer cent or to the nearer one- hundredth of a share, as the case may be. (iii) In case the Maker shall hereafter issue rights or warrants to all holders of its Common Stock entitling such holders to subscribe for or purchase shares of Common Stock at a price per share less than the Conversion Price then in effect, the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the date of the issuance of such rights or warrants by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding on the date of the issuance of such rights or warrants plus the number of shares of Common Stock which the aggregate exercise price of the shares of Common Stock called for by all such rights or warrants would purchase at such Conversion Price, and the denominator of which shall be the number of shares of Common Stock outstanding on the date of the issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase. Such adjustment shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights or warrants. All calculations under this paragraph shall be made to the nearer cent or to the nearer one-hundredth of a share, as the case may be. (iv) The Maker agrees that its issuance of this Note shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock upon the conversion of this Note. During the period within which this Note may be converted into shares of Common Stock, the Maker shall at all times have authorized and reserved a sufficient number of shares of Common Stock to provide for the conversion of this Note in accordance with the terms hereof. 4 (v) The issuance of certificates for shares of Common Stock upon the conversion of this Note shall be made without charge for any tax in respect of the issuance of such certificates, and such certificates shall be issued in the names of, or in such names as may be directed by, the Payee; provided, however, that the Maker shall not be required to pay any additional tax which may be payable in respect of any transfer involved in the issuance and delivery of any such certificates in names other than that of the Payee. (vi) No fractional shares of Common Stock or scrip representing fractional shares shall be issued upon the conversion of this Note. If the conversion of this Note results in a fraction of a share, an amount equal to such fraction multiplied by the then current market value of the Common Stock shall be paid in cash to the Payees by the Maker on or prior to the Conversion Date. (vii) The shares of Common Stock issuable by the Maker upon the conversion of this Note shall be issued without compliance with the registration requirements of the Securities Act, and the Payee may be unable to sell its shares of Common Stock except (A) pursuant to an effective registration statement covering the Common Stock pursuant to the Securities Act, (B) in a bona fide private placement to a purchaser who shall be subject to the same restrictions on any resale or (C) subject to the restrictions contained in Rule 144 under the Securities Act (viii) Each certificate representing shares of Common Stock of the Maker issued upon conversion of this Note shall, if applicable, contain upon its face or upon the reverse side thereof a legend to the following effect: "The Shares represented by this Certificate have not been registered under the Securities Act of 1933, as amended (the "Act"), and may not be transferred in violation of the Act." Notwithstanding the foregoing, if the conditions to the applicability of Rule 144(k) under the Securities Act (or its successor) are all satisfied (i) prior to the issuance of such certificates, the Maker shall not place the first sentence of such legend on the certificates, or (ii) after the issuance of such certificates, the Maker shall promptly reissue certificates without the first sentence of such legend upon the request of the Payee or the holder of this Note. Section 3. Subordination. ------------- Section 3.1 Agreement to Subordinate. The Maker agrees, and Payee ------------------------ and each other holder of this Note by accepting this Note agrees, that the payment of the principal of and interest hereon is subordinated in right of payment, to the extent and in the manner provided in this Section 3, to the prior payment in full of all Senior Indebtedness (including, without limitation, any interest accruing subsequent to an event specified in clause (b) of Section 4, whether or not such interest is an allowed claim enforceable against the debtor in a case under Bankruptcy Law). The term "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. As used herein, the term "Senior Indebtedness" means, collectively, the Bank Group Indebtedness and Senior Noteholder Indebtedness. As used herein: 5 (a) "Bank Group Agreements" means collectively, the following --------------------- agreements: (i) the Bank Group Credit Agreement, (ii) the "Revolving Credit Notes", the "Letters of Credit" and "Lender Hedge Agreements" (as those terms are defined in the Bank Group Credit Agreement), and (iii) any and all documents, instruments, and agreements executed and delivered in connection therewith; (b) "Bank Group Indebtedness" means all debts, liabilities and ----------------------- obligations of the Borrower (or any Person constituting the Borrower) to the Bank Group Agent and any of the Banks under the Bank Group Agreements, including, without limitation, the net amount due any Bank under any "Lender Hedge Agreement" and the "Letter of Credit Outstandings " (as such quoted terms are defined in the Bank Group Credit Agreement), whether now existing or hereafter arising, whether direct, indirect, absolute or contingent, or due or to become due, provided that for purposes hereof, the aggregate principal amount of the Revolving Credit Notes issued pursuant to the Bank Group Credit Agreement shall not exceed $35,000,000; (c) "Bank Group Credit Agreement" means the Amended and Restated --------------------------- Revolving Credit Agreement among Maker, Guest Packaging, Inc. ("GPI"), Guest Distribution, Inc. ("GDI"), Breckenridge - Remy Co. ("BRC") and Kapadia Enterprises, Inc. ("KEI" and, collectively with Maker, GPI, GDI and BRC, the "Borrower"), as joint and several obligors and PNC Bank, National Association, as agent (in such capacity, the "Bank Group Agent"), and PNC Bank, National Association, First Union National Bank and Fleet Bank, N.A. (collectively, with any other lender which becomes a party thereto, the "Banks" and individually, a "Bank"); (d) "Make-Whole Amount" has the meaning ascribed thereto in the Senior ----------------- Note Purchase Agreements. (e) "Senior Noteholder Indebtedness" means all debts, liabilities and ------------------------------ obligations of the Borrower (or any Person constituting the Borrower) to the Senior Noteholders under the terms of the Senior Note Purchase Agreements and Senior Notes, whether now existing or hereafter arising, whether direct, indirect, absolute or contingent or due or to become due, provided that for purposes hereof, the aggregate amount of the principal thereof shall not exceed $25,000,000; (f) "Senior Note Purchase Agreements" means, collectively, (i) the ------------------------------- Note Purchase Agreements dated as of December 3, 1997 by and among GSI, GPI, GDI, BRC and KEI and the Senior Noteholders as amended by Amendment No. 1 to Senior Note Purchase Agreements, and (ii) the Senior Notes and all other documents, instruments, and agreements executed and delivered in connection therewith; (g) "Senior Notes" means, collectively, the "Series A Notes", "Series ------------ B Notes" and "Series C Notes" as such terms are defined in Schedule B to the Senior Note Purchase Agreements; and (h) "Senior Noteholders" means, collectively, J. ROMEO & CO., as ------------------ nominee for MONY Life Insurance Company (formerly The Mutual Life Insurance Company of New York), AUER & CO., as nominee for AUSA LIFE INSURANCE COMPANY, INC., GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY and NATIONWIDE LIFE INSURANCE COMPANY and any successor holder of any of the Senior Notes. 6 Unless otherwise expressly provided, all references to any agreements, documents or instruments in this Section 3 shall be deemed references to those agreements, documents or instruments as the same may be amended, modified, supplemented, waived or otherwise modified from time to time in accordance with the provisions of those agreements, documents or instruments. This Section 3 is intended to be for the benefit of the Banks, the Senior Noteholders and all other persons who, in reliance upon such provisions, become holders of, or continue to hold, Senior Indebtedness, and such provisions are made for the benefit of, and shall be enforceable directly by, the Banks, the Senior Noteholders and all other holders of Senior Indebtedness. Section 3.2 Securities Subordinated to Prior Payment of All Senior ------------------------------------------------------ Indebtedness on Dissolution, Liquidation or Reorganization of the Maker. Upon - ----------------------------------------------------------------------- any distribution of assets of the Maker (whether cash, securities or other property) to creditors of the Maker in a liquidation or dissolution of the Maker or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Maker or its property: (a) holders of Senior Indebtedness shall be entitled to receive payment in full of the Senior Indebtedness, including, without limitation, principal, Make-Whole Amounts, and interest (including any interest accruing subsequent to an event specified in clause (b) of Section 4, whether or not such interest is an allowed claim enforceable against the debtor in a case under Bankruptcy Law) to the date of payment on the Senior Indebtedness in cash or cash equivalents before Payee or any other holder of this Note shall be entitled to receive any payment (including, without limitation, any payment into the Escrow Account as contemplated by Section 4 of this Note and Section 11.07 of the Stock Purchase Agreement) of principal of or interest on this Note; and (b) until the Senior Indebtedness is paid in full in cash or cash equivalents, any distribution to which Payee or any other holder of this Note would be entitled but for this Section 3 shall be made to holders of Senior Indebtedness as their interests may appear. Section 3.3 No Payment on Note in Certain Circumstances. ------------------------------------------- (a) Upon the maturity of any Senior Indebtedness by lapse of time, acceleration (unless waived) or otherwise, all such Senior Indebtedness shall first be paid in full in cash or cash equivalents before any payment (including, without limitation, any payment into the Escrow Account as contemplated by Section 4 of this Note and Section 11.07 of the Stock Purchase Agreement) is made by the Maker on account of the principal of or interest on this Note and, until the Senior Indebtedness is paid in full in cash or cash equivalents, any distribution to which Payee or any other holder of this Note would be entitled but for this Section 3 shall be made to holders of Senior Indebtedness as their interests may appear. (b) The Maker may not pay principal of or interest on this Note (including, without limitation, any payment into the Escrow Account as contemplated by Section 4 of this Note and Section 11.07 of the Stock Purchase Agreement) if: 7 (i) a default in any payment of principal, interest, or premium, if any, on Senior Indebtedness occurs and is continuing, or (ii) the Maker receives a notice of an event of default other than a payment default under any Senior Indebtedness permitting an acceleration thereof and such default is continuing (it being agreed that the Maker shall give such notice to the Payee promptly following receipt thereof); provided, however, that only one such notice relating to any event of default on Senior Indebtedness may be given pursuant to this Section 3.03(b)(2) during any 360-day period; or (iii) the maturity of this Note is accelerated. Unless otherwise prohibited by this Section 3, the Maker may resume payments on this Note (i) when the default described in clause (1) above is cured or waived, or (ii) the earlier of the date on which the event of default described in clause (2) above is cured or waived or the date which is 179 days after the notice of such default is given. Section 3.4. Acceleration of Securities. If maturity of this Note is -------------------------- accelerated or Maker receives a notice of default under any Senior Indebtedness, the Maker shall promptly notify the holders of Senior Indebtedness of such acceleration or other notice. Section 3.5 When Distribution Must Be Paid Over. In the event that ----------------------------------- the Maker shall make any payment to Payee or any other holder of this Note on account of the principal of or interest on this Note at a time when such payment is prohibited by Section 3.2 or 3.3, such payment shall be held by the Payee or such holder, in trust for the benefit of, and shall be paid forthwith over and delivered to, the holders of Senior Indebtedness or their representative (a "Representative"), as their respective interests may appear, for application to the payment of all Senior Indebtedness remaining unpaid to the extent necessary to pay all Senior Indebtedness in full in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness. Section 3.6 Subrogation. After all Senior Indebtedness is paid in ----------- full and until this Note is paid in full, the Payee or any other holder of this Note shall be subrogated to the rights of holders of Senior Indebtedness to receive distributions applicable to Senior Indebtedness to the extent that distributions otherwise payable to the Payee or any other holder of this Note have been applied to the payment of Senior Indebtedness. Section 3.7 Relative Rights. This Section 3 defines the relative --------------- rights of Payee and any other holder of this Note and the holders of Senior Indebtedness. Nothing in this Section 3 shall: (a) impair, as between the Maker and Payee or any other holder of this Note, the obligation of the Maker to pay principal of and interest on this Note in accordance with its terms; (b) affect the relative rights of Payee or any other holder of this Note and creditors of the Maker other than holders of Senior Indebtedness; or 8 (c) prevent Payee or any other holder of this Note from exercising its available remedies upon a default or event of default, subject to the rights of holders of Senior Indebtedness to receive distribution otherwise payable to Payee or any other holder of this Note. Section 3.8 Subordination May Not Be Impaired by Maker. No right of ------------------------------------------ any holder of Senior Indebtedness to enforce the subordination of the indebtedness evidenced by this Note shall be impaired by any act or failure to act by the Maker or by its failure to comply with this Section 3. Section 3.9 Distributions. Whenever a distribution is to be made to ------------- holders of Senior Indebtedness, the distribution may be made and the notice given to PNC Bank, National Association, as Collateral Agent (or any successor Collateral Agent of which the holders of all Senior Indebtedness have given notice to Payee in writing or directly to the holders of all Senior Indebtedness as they shall direct in writing). Section 4. Events of Default and Remedies. The Payee shall have the ------------------------------ right, without demand or notice, to accelerate this Note and to declare the entire unpaid balance hereof and the obligations evidenced hereby immediately due and payable and to seek and obtain payment of this Note upon the occurrence of any of the following events of default: (a) the Maker fails to pay any installment of principal payable under this Note or interest thereon within twenty (20) days after the due date therefor; provided that, without limiting the terms and conditions of Section 11.07 of the Stock Purchase Agreement, it shall not constitute an event of default hereunder if the Maker exercises its rights of offset under Section 11.07 of the Stock Purchase Agreement, provided that the Maker also complies with all escrow requirements applicable to it set forth in such Section 11.07, or (b) the Maker admits in writing its inability to pay its debts generally as they become due, files a case or petition in bankruptcy or a case or petition to take advantage of any bankruptcy, reorganization or insolvency act, makes an assignment for the benefit of creditors, or consents to the appointment of a receiver for itself or for all or substantially all of its property or, on a petition in bankruptcy filed against it, is adjudicated a bankrupt, which judgment, order or decree shall not be appealed within the permitted time period from the date of entry thereof and subsequently vacated. Upon such declaration by the Payee, the obligations evidenced by this Note shall be immediately due and payable. If the indebtedness evidenced by this Note shall not be paid on the date when due (subject to the proviso set forth in clause (a) above), thereafter the unpaid principal balance of such indebtedness shall bear interest at the rate per annum set forth in Section 1.1 above plus 3% until the past due portion of the indebtedness (including all accrued and unpaid interest) is paid, but in no event shall such rate of interest exceed the highest rate permitted by applicable law. The parties hereto agree that the failure timely to make a payment hereunder would cause harm to the Payee, and it is impracticable and extremely difficult to fix the actual damages that would be sustained should the Maker fail timely to make a required payment hereunder. Accordingly, the Maker shall pay to the Payee an amount equal to 5% of any delinquent payment due under this Note as a late payment fee and/or liquidated damages. The parties agree that the foregoing liquidated damages are reasonable considering all the facts and circumstances existing as of the date hereof and constitute the parties' good faith estimate of the actual damages reasonably expected to result from the failure to pay timely. 9 In the event of any event of default hereunder, the Maker agrees to pay to the Payee all expenses incurred by the Payee, including, without limitation, reasonable fees and disbursements of counsel, incurred by the Payee in the enforcement and collection of this Note. Section 5. Miscellaneous. ------------- Section 5.1 Notices. All communications provided for hereunder shall ------- be in writing and shall be delivered personally or sent by Federal Express or sent by registered or certified mail, postage prepaid, as set forth below: If to the Payee: c/o Mr. Madhukar Kapadia 11062 Winnetka Avenue Chatsworth, California 91311 Telecopy No.: (818) 890-6052 If to the Maker: Guest Supply, Inc. 4301 U.S. Highway One Monmouth Junction, New Jersey 08852 Attention: President Telecopy No.: (609) 514-7377 or to such other addresses and numbers as any party hereto shall specify to the others in writing. All notices shall be deemed received on the date of delivery, if hand delivered or sent by Federal Express, and five days after the date of mailing, if mailed. Section 5.2. Severability. If any term or provision of this Note ------------ shall be held invalid, illegal or unenforceable, the validity of all other terms and provisions hereof shall in no way be affected thereby. Section 5.3. Captions. The several captions to sections and -------- subsections herein are inserted for convenience only and shall be ignored in interpreting the provisions of this Note. Section 5.4. Governing Law. This Note shall be governed by and ------------- construed in accordance with the laws of the State of New Jersey and shall be binding upon the successors and assigns of the Maker and inure to the benefit of the Payee and the Payee's legal representatives and heirs. * * * GUEST SUPPLY, INC. By:/s/ Paul T. Xenis ----------------- Name: Paul T. Xenis Title: Vice President EX-10.(Y) 4 EMPLOYMENT AGREEMENT DATED AS OF 4/23/99 EXHIBIT 10.(y) EMPLOYMENT AGREEMENT -------------------- EMPLOYMENT AGREEMENT dated the 23rd day of April, 1999, by and between GUEST SUPPLY, INC., a New Jersey corporation (the "Company"), and MADHUKAR KAPADIA (the "Employee"). W I T N E S S E T H: ------------------- WHEREAS, the Company, Breckenridge-Remy Co., a Delaware corporation and wholly-owned subsidiary of the Company ("BRC"), and certain other parties (which parties include the Employee) have entered into a Stock Purchase Agreement dated as of the date hereof (the "Purchase Agreement"), providing, inter alia, for the purchase by BRC of all of the shares of capital stock of - ----- ---- Kapadia Enterprises, Inc., a California corporation ("KEI"), and MacDonald Contract Sales, Inc., a Canadian corporation ("MCSI"); and WHEREAS, the Company wishes to retain the services of the Employee, and the Employee wishes to serve in the employ of the Company, upon the terms and conditions hereinafter set forth and as set forth in that certain Employee Confidentiality and Invention Assignment Agreement dated as of the date hereof, between the Employee and the Company and in the form attached hereto as Annex A (the "Employee Confidentiality Agreement"), which Employee Confidentiality Agreement is hereby incorporated by reference herein in its entirety. NOW, THEREFORE, in consideration of the premises and the mutual agreements hereinafter set forth, the parties hereto hereby agree as follows: 1. Employment. ---------- 1.1 The Company agrees to employ the Employee, and the Employee agrees to serve in the employ of the Company, for the term set forth in Section 1.2, in the position and with the responsibilities, duties and authorities set forth in Section 2 and on the other terms and conditions set forth in this Agreement. 1.2 The term of the Employee's employment under this Agreement (the "Term") shall commence on the date hereof and shall terminate on the third anniversary of the date hereof (the "Expiration Date"), unless sooner terminated in accordance with this Agreement. 2. Position, Duties. The Employee shall serve in the position of ---------------- Vice President - Textiles of the Company. The Employee shall perform, faithfully and diligently, such duties, and shall have such responsibilities appropriate to such executive position and as shall be consistent with such executive position, and such other duties as shall be consistent with such executive position as shall be assigned to him from time to time by the President of the Company. The Employee shall report directly to the President of the Company. The Employee shall devote his complete and undivided attention to the performance of his duties and responsibilities hereunder during the normal working hours of executive employees of the Company. The offices at which the Employee shall conduct his services shall be in the San Fernando Valley area of California. 3. Salary. During the Term of this Agreement, in consideration of ------ the performance by the Employee of the services set forth in Section 2 and his observance of the other covenants set forth herein, the Company shall pay the Employee, and the Employee shall accept, a base salary at the rate of $200,000 per annum, payable in accordance with the standard payroll practices of the Company. The Employee shall be entitled to such bonuses and such increases in base salary during the Term hereof as shall be determined by the Board of Directors of the Company in its sole discretion based on the performance of the Company, the performance of the Employee and increases in the cost of living. 4. Expense Reimbursement and Perquisites. (a) During the Term of ------------------------------------- this Agreement, (i) the Company shall reimburse the Employee for all reasonable and necessary out-of-pocket expenses incurred by him in connection with the performance of his duties hereunder, upon the presentation of proper accounts therefor in accordance with the Company's policies and (ii) the Employee shall be entitled to such perquisites as may be made available from time to time to senior executive employees of the Company. (b) Without limiting the generality of the foregoing, during the Term of this Agreement, (i) the Employee shall be entitled to six (6) weeks of paid vacation annually and (ii) the Employee shall be paid a monthly automobile allowance of $750. 5. Benefits. During the Term of this Agreement, the Employee will be -------- eligible to participate in all employee benefit plans and programs offered by the Company from time to time to employees of comparable seniority, including but not limited to employee stock option or stock purchase plans, group hospitalization, surgical and major medical insurance plans, subject to the provisions of such plans and programs as in effect from time to time. 6. Termination of Employment. ------------------------- 6.1 Death. In the event of the death of the Employee during the Term ----- of this Agreement, the Company shall pay to the estate or other legal representative of the Employee the base salary provided for in Section 3 (at the annual rate then in effect) accrued to the date of the Employee's death and not theretofore paid to the Employee. Rights and benefits of the estate or other legal representative of the Employee under the benefit plans and programs of the Company shall be determined in accordance with the provisions of such plans and programs. Neither the estate or other legal representative of the Employee nor the Company shall have any further rights or obligations under this Agreement. 6.2 Disability. If the Employee shall become incapacitated by reason ---------- of sickness, accident or other physical or mental disability and shall be unable to perform his normal duties hereunder for a cumulative period of six (6) months in any period of twelve (12) consecutive months, the employment of the Employee hereunder may be terminated by the Company or the Employee. In the event of such termination, the Company shall pay to the 2 Employee the base salary provided for in Section 3 (at the annual rate then in effect) accrued to the date of such termination and not theretofore paid to the Employee. Rights and benefits of the Employee under the benefit plans and programs of the Company shall be determined in accordance with the provisions of such plans and programs. Neither the Employee nor the Company shall have any further rights or obligations under this Agreement, except as provided in the Employee Confidentiality Agreement. 6.3 Due Cause. The employment of the Employee hereunder may be --------- terminated by the Company at any time for Due Cause (as hereinafter defined). In the event of such termination, the Company shall pay to the Employee the base salary provided for in Section 3 (at the annual rate then in effect) accrued to the date of such termination and not theretofore paid to the Employee. Rights and benefits of the Employee under the benefit plans and programs of the Company or its direct or indirect corporate parents, as the case may be, shall be determined in accordance with the provisions of such plans and programs. For purposes hereof, "Due Cause" shall mean (i) the continuing willful neglect or willful misconduct in the Employee's discharge of his duties and responsibilities under this Agreement after written notice thereof from the Company to the Employee, (ii) the Employee's breach of his duty of loyalty to the Company or any subsidiary of the Company, (iii) any material violation by the Employee of his obligations under this Agreement and under the Employee Confidentiality Agreement, (iv) the Employee's repeated failure to follow the appropriate directions of the Board of Directors of the Company after written notice thereof from the Company to the Employee or (v) the Employee's commission of (x) a felony or (y) any crime or offense involving moral turpitude; provided, however, the Employee shall be given written notice by a majority of the Board of Directors of the Company that it intends to terminate the Employee's employment for Due Cause, which written notice shall specify the act or acts upon the basis of which the majority of the Board of Directors of the Company intends so to terminate the Employee's employment, and the Employee shall then be given the opportunity, within fifteen (15) days of his receipt of such notice, to have a meeting with the Board of Directors of the Company to discuss such act or acts. Any termination pursuant to this Section 6.3 shall not prejudice the rights hereunder or otherwise of either party hereto. 6.4 Other Termination by the Company. The Company may terminate the -------------------------------- Employee's employment at any time for whatever reason it deems appropriate; provided, however, that in the event that such termination is not pursuant to Sections 6.1, 6.2 or 6.3, (a) the Company shall continue to pay to the Employee the base salary provided for in Section 3 (at the annual rate then in effect) for the remainder of the Term and (b) the Employee shall be entitled to continue to participate for the remainder of the Term in all employee benefit plans and programs in which the Employee participated on the date of termination and to receive all prerequisites received at the date of termination, including the right to exercise any stock options granted to the Employee pursuant to any stock option plan of the Company prior to the Expiration Date. Neither the Employee nor the Company shall have any further rights or obligations under this Agreement, except as provided in the Employee Confidentiality Agreement. 7. Successors and Assigns. ---------------------- 7.1 Assignment by the Company. The Company shall require any ------------------------- successors (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or 3 substantially all of the business and/or assets of the Company to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. As used in this Section, the "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law and this Agreement shall be binding upon, and inure to the benefit of, the Company, as so defined. 7.2 Assignment by the Employee. The Employee may not assign this -------------------------- Agreement or any part thereof without the prior written consent of a majority of the Board of Directors of the Company; provided, however, that nothing herein shall preclude one or more beneficiaries of the Employee from receiving any amount that may be payable following the occurrence of his legal incompetency or his death and shall not preclude the legal representative of his estate from receiving such amount or from assigning any right hereunder to the person or persons entitled thereto under his will or, in the case of intestacy, to the person or persons entitled thereto under the laws of intestacy applicable to his estate. The term "beneficiaries", as used in this Agreement, shall mean a beneficiary or beneficiaries so designated to receive any such amount or, if no beneficiary has been so designated, the legal representative of the Employee (in the event of his incompetency) or the Employee's estate. 8. Governing Law. This Agreement shall be deemed a contract made ------------- under, and for all purposes shall be construed in accordance with, the laws of the State of California applicable to contracts to be performed entirely within such State. 9. Entire Agreement. Except as set forth in Section XII of the ---------------- Purchase Agreement and the Employee Confidentiality Agreement, this Agreement contains all the understandings and representations between the parties hereto pertaining to the subject matter hereof and supersedes all undertakings and agreements, whether oral or in writing, if any there be, previously entered into by them with respect thereto. 10. Amendment, Modification, Waiver. No provision of this Agreement ------------------------------- may be amended or modified unless such amendment or modification is agreed to in writing and signed by the Employee and by a duly authorized representative of the Company other than the Employee. Except as otherwise specifically provided in this Agreement, no waiver by either party hereto of any breach by the other party hereto of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of a similar or dissimilar provision or condition at the same or any prior or subsequent time, nor shall the failure of or delay by either party hereto in exercising any right, power or privilege hereunder operate as a waiver thereof to preclude any other or further exercise thereof or the exercise of any other such right, power or privilege. 11. Arbitration. Any controversy or claim arising out of or relating ----------- to this Agreement, except as otherwise provided in the Employee Confidentiality Agreement, or any breach thereof, shall be settled by binding arbitration held in Los Angeles County, California in Los Angeles County, California in accordance with the rules of the Judicial Arbitration and Mediation Services then in effect and judgment upon such award rendered by the arbitrator may be entered in any court having jurisdiction thereof. 4 12. Attorneys' Fees and Costs. All attorneys' fees, costs and -------------------------- expenses incurred by the prevailing party in connection with any dispute hereunder shall be borne by the non-prevailing party. 13. Notices. Any notice to be given hereunder shall be in writing ------- and delivered personally or sent by certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the address indicated below or at such other address as such party may subsequently designate by like notice: If to the Company: 4301 U.S. Highway One South Post Office Box 902 Monmouth Junction, New Jersey 08852-0902 Attention: President If to the Employee: Mr. Madhukar Kapadia 11062 Winnetka Avenue Chatsworth, California 91311 14. Severability. Should one or more of the provisions of this ------------ Agreement be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions hereof, and this Agreement shall be construed as if such invalid, illegal or unenforceable provisions had never been set forth herein. 15. Withholding. Anything to the contrary notwithstanding, all ----------- payments required to be made by the Company hereunder to the Employee or his beneficiaries, including his estate, shall be subject to withholding of such amounts relating to taxes as the Company may reasonably determine it should withhold pursuant to any applicable law or regulation. In lieu of withholding such amounts, in whole or in part, the Company, may, in its sole discretion, accept other provision for payment of taxes as permitted by law, provided it is satisfied in its sole discretion that all requirements of law affecting its responsibilities to withhold such taxes have been satisfied. 16. Survivorship. The respective rights and obligations of the ------------ parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. 17. Titles. Titles of the sections of this Agreement are intended ------ solely for convenience and no provision of this Agreement is to be construed by reference to the title of any section. * * * 5 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. /s/ Madhukar Kapadia ------------------------------ Madhukar Kapadia GUEST SUPPLY, INC By:/s/ Paul T. Xenis ------------------------------ Name: Paul T. Xenis Title: Vice President 6 ANNEX A GUEST SUPPLY, INC. EMPLOYEE CONFIDENTIALITY AND INVENTION ASSIGNMENT AGREEMENT ------------------------------ In consideration of my employment by Guest Supply, Inc., a New Jersey corporation (the "Company"), and in consideration of the Company entering into that certain Employment Agreement dated as of the date hereof, between the Company and me (the "Employment Agreement"), I agree to the following: The terms and conditions of this Employee Confidentiality and Invention Assignment Agreement (this "Agreement") shall become effective automatically, without further act or deed by me or the Company, upon the closing of the transactions contemplated by the Stock Purchase Agreement dated as of April 23, 1999 by and among Breckenridge-Remy Co., a Delaware corporation (the "Purchaser"), the Company, MacDonald Contract Sales, Inc., an Ontario corporation ("MCSI"), me, Naina Kapadia and Kapadia Enterprises, Inc., a California corporation ("KEI"), (the "Purchase Agreement"). Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms set forth in the Purchase Agreement or the Employment Agreement. I. Confidentiality of Company and Customer Information; Nonsolicitation -------------------------------------------------------------------- A. I understand that my position with the Company is one of trust and confidence because of my access to trade secrets and confidential and proprietary information of or about the Company or any other member of the Purchaser Group (including such access during my employment with the Company prior to the date this Agreement becomes effective) and each of their respective customers, vendors, consultants, independent contractors, agents, representatives, or others with whom the Company or any such other member of the Purchaser Group has a business relationship (referred to collectively as "Clients" or "the Company's Clients" and shall include, without limitation, the clients of the Company prior to the date this Agreement becomes effective). I shall protect and keep in the strictest confidence, and, unless required by the Company in connection with my employment or with the Company's express written consent or by judicial order, shall not disclose to any party the trade secrets and confidential and proprietary information of the Company, any other member of the Purchaser Group and their respective Clients. B. Unless necessary in the course of my employment with the Company or with the Company's express written consent, I will not, either during or after my employment, directly or indirectly, use or disclose for my own benefit or the benefit of another, any of the Company's or any member of the Purchaser Group's trade secrets and confidential and proprietary information, whether or not the information is acquired, learned, attained, or developed by myself alone or in conjunction with others. C. I also agree that all correspondence, notes, records, drawings, memoranda, training manuals, customer and vendor lists, mailing or contract lists or other documents that are made or compiled by me or which are available to me while employed at the Company (including employment with KEI prior to the date of this Agreement) concerning my employment and my dealings with any Clients shall be the exclusive property of the Company. D. Because my solicitation of the Company's Clients under certain circumstances would necessarily involve the use or disclosure of trade secrets and confidential and proprietary information protected under this Agreement, I agree that during the term of my employment by the Company, and for a period of one (1) year after the termination of such employment, I will not, either directly or indirectly, for myself or for any other person or entity, solicit or take away any Clients with respect to the same or similar business services provided by the Company. E. If I should terminate my employment with the Company or if the Company shall terminate my employment for any reason, for one (1) year after the termination of such employment, I will not directly or indirectly hire or solicit the employment of any person from the Company or any other member of the Purchaser Group, whether such person is an employee of the Company or any other member of the Purchaser Group. F. For purposes of this agreement "trade secrets and confidential and proprietary information" means information that has been created, discovered, developed, or otherwise become known to the Company or any other member of the Purchaser Group, including, without limitation, information made known to me during the period of or arising out of my employment with the Company (including employment with KEI prior to the date of this Agreement) and/or in which property rights have been assigned or otherwise conveyed to the Company or any other member of the Purchaser Group, which information has economic or other value to any other person, whether or not engaged in the business of Company, who can obtain economic value from its disclosure or use, including, without limitation, such information as the Company's techniques and processes, business products and services, marketing, sales and financial strategies and other information, forecasts, data, source codes, object codes, subroutines, know-how, formulas, improvements, inventions, product designs and techniques, all information concerning the products or projects of the Company and other members of the Purchaser Group and/or any improvements therein, all information concerning projects in development or marketing plans for any such products or projects, and all information in any way concerning the products, projects, activities, business or affairs (financial and other) of customers and suppliers of the Company or any member of the Purchaser Group which is furnished to me by the Company or any member of the Purchaser Group or any of their agents or customers or suppliers, as such, and the identity of any supplier or Client, and information about or related to any of the foregoing; provided, however, that "trade secrets and confidential and proprietary information" shall not include information which becomes generally available to the public other than as a result of disclosure by me. 2 II. Assignment of Inventions; Copyright Agreements ---------------------------------------------- A. I will promptly disclose to the Company in writing, all inventions, discoveries and innovations, whether patentable or unpatentable, including but not limited to processes, methods, formulas, and techniques, as well as improvements and know-how related thereto, reduced to practice by me while in the Company's employ, either solely or jointly with others during my employment (collectively, "Company Inventions"). This Agreement shall not apply to any invention which qualifies fully under the provisions of Section 2870 of the California Labor Code which includes inventions developed entirely on my own time without using the Company's equipment, supplies, facilities or trade secret information, except for those ideas and inventions that either; (i) relate, at the time of conception or reduction to practice of the invention, to the Company's business, or actual or demonstrably anticipated research or development of the Company, or (ii) result from any work performed by me for the Company (including employment with the Company prior to the date this Agreement becomes effective). B. I hereby assign to the Company all of my rights, title and interest in and to all such Company Inventions and to applications for United States and/or foreign letters patent and to United States and/or foreign letters patent granted upon such Company Inventions. C. Any and all Company Inventions shall be the Company's exclusive property as against me, and I shall promptly deliver to an appropriate representative of the Company as designated by the Board of Directors of the Company all papers, drawings, models, data and other material relating to any Company Inventions made, developed or created by me as aforesaid. I will acknowledge and deliver promptly to the Company (without charge to the Company but at its expense) such written instruments and do such other acts, such as giving testimony in support of my inventorship, as may be necessary or advisable in the opinion of the Company to direct issuance of United States and/or foreign patents, trademarks or copyrights to the Company with respect to such Company Inventions as are to be the Company's exclusive property as against me or to vest in the Company all right and title to such Company Inventions as against me. D. I agree that all works and materials which I have or shall create or author as an employee of the Company within the scope of my employment (including employment with the Company prior to the date this Agreement becomes effective) shall be considered works for hire and the copyright therein will vest in the Company. With respect to any works which I have created at the instance of the Company on a basis other than for hire, I hereby assign to the Company my entire right, title and interest in and to all such works, to the copyright therein, to any registrations thereon, and to any renewal or termination rights therein, and in all cases together with all goodwill associated therewith, without any additional remuneration. III. Conflicting Employment ---------------------- Without limiting the provisions of the Purchase Agreement, including, without limitation, Section XII thereof, I agree that during the period of my employment with the Company, I will not, without the express written consent of the Company (acting through its Board of Directors), engage in any employment or business which is competitive with KEI or MCSI, or any such 3 employment or business which is otherwise in conflict with my duties or obligations under the Employment Agreement, during the term of this Agreement. IV. Company Records and Documents ----------------------------- I will, upon termination of my employment, transfer and return to the Company all things belonging to the Company or any other member of the Purchaser Group, and all agreements, contracts, correspondence and other documents, records, notebooks, diskettes or other software media, and similar repositories of or containing trade secrets and confidential and proprietary information of or about the Company or any other member of the Purchaser Group or any of the Clients, including copies thereof then in my possession, whether prepared by me or others. V. Miscellaneous ------------- A. Upon the expiration or termination of the Employment Agreement for any reason, I and you understand and agree that my employment shall be "at will", and therefore, my employment can terminate with or without cause, and with or without written notice, at any time, at my option or the Company's option. I and you further understand and agree that this at-will employment relationship as defined above will remain in effect throughout my employment with the Company other than during the term of the Employment Agreement, unless it is modified by a specific, express written employment contract signed by a duly authorized representative of the Company (other than me) and me. B. The Company may assign this Agreement to any other member of the Purchaser Group engaged in the Business (as defined in the Purchase Agreement), or to any successor to all or substantially all of the business and/or assets of the Company and, upon any such assignment, this Agreement shall be binding upon, and inure to the benefit of, the applicable assignee and the Company. As used in this Agreement, the term "Company" shall mean the Company as hereinbefore defined and any permitted assignee as aforesaid including any successor to the Company's business and/or assets as aforesaid which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. C. This agreement and the Employment Agreement replace any previous agreement relating to the same or similar subject matter which I may have entered into with the Company concerning my employment with the Company. This agreement may not be changed in any detail by any verbal statement, representation, or other agreement made by any other employee of the Company, except as expressly stipulated in a writing signed by a duly authorized representative of the Company (other than me). D. The laws of the State of California will govern the interpretation, validity and effect of this Agreement. Any provision of this Agreement which is rendered unenforceable by a court of competent jurisdiction shall be ineffective only to the extent of such prohibition or invalidity and shall not invalidate or otherwise render ineffective any or all of the remaining portions of this Agreement. 4 E. I acknowledge and agree that the Company will be irreparably injured in the event of a breach or threatened breach of any of the provisions of this Agreement. Therefore, in the event of a breach or threatened breach by me of any of the provisions of this Agreement, I hereby consent and agree that the Company shall be entitled to an injunction or similar equitable relief from any court of competent jurisdiction restraining me from committing or continuing any such breach or threatened breach or granting specific performance of any act required to be performed by me under any of such provisions, without the necessity of showing any actual damage or that money damages would not afford an adequate remedy and without the necessity of posting any bond or other security, each of which I hereby agree to waive as a defense in any such suit or proceeding. F. I agree to pay all reasonable costs, including, without limitation, attorneys fees and expenses incurred by the Company in connection with any suit or other proceeding under this Agreement in which the Company prevails and the Company hereby agrees to pay all reasonable costs including, without limitation, attorneys fees and expenses incurred by me in connection with any suit or proceeding under this Agreement in which I prevail. The parties hereto agree that the availability of arbitration in Section 13.07 of the Purchase Agreement or Section 11 of the Employment Agreement shall not be used by any party as grounds for the dismissal of any injunctive or other equitable actions instituted by the Company pursuant to this Agreement. Nothing herein shall be construed as prohibiting any party hereto from pursuing any other remedies at law or in equity which it may have. Date: April 23, 1999 MADHUKAR KAPADIA: /s/ Madhukar Kapadia -------------------------------------- Madhukar Kapadia 11062 Winnetka Avenue Chatsworth, California 91311 GUEST SUPPLY, INC. By:/s/ Paul T. Xenis -------------------------------------- Name: Paul T. Xenis Title: Vice President 5 EX-10.(Z) 5 AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT EXHIBIT 10.(z) AMENDED and RESTATED REVOLVING CREDIT AGREEMENT dated as of April 21, 1999 among GUEST SUPPLY, INC., GUEST PACKAGING, INC., BRECKENRIDGE-REMY CO., GUEST DISTRIBUTION SERVICES, INC. and KAPADIA ENTERPRISES, INC., Jointly and Severally, as the Borrower PNC BANK, NATIONAL ASSOCIATION FIRST UNION NATIONAL BANK, and FLEET BANK, N.A. as Lenders and PNC BANK, NATIONAL ASSOCIATION, as Agent TABLE OF CONTENTS ----------------- Page ---- ARTICLE 1. DEFINITIONS................................................... 1 Section 1.1 Defined Terms........................................ 1 Section 1.2 Other Definitional Provisions........................ 17 ARTICLE 2. AMOUNT AND TERMS OF COMMITMENTS............................... 17 Section 2.1 Revolving Credit Commitments......................... 17 Section 2.2 Revolving Credit Note................................ 17 Section 2.3 Procedure for Revolving Credit Borrowings............ 18 Section 2.4 Commitment and Other Fees............................ 19 Section 2.5 Termination/Reduction of Commitments................. 19 Section 2.6 Prepayments.......................................... 20 Section 2.7 Conversion and Continuation Options.................. 20 Section 2.8 Minimum Amounts of Tranches/Number of Tranches....... 21 Section 2.9 Interest Rates and Payment Dates..................... 21 Section 2.10 Inability to Determine Interest Rate................. 22 Section 2.11 Payments/Funding..................................... 23 Section 2.12 Change in Legality................................... 24 Section 2.13 Increased Costs...................................... 24 Section 2.14 Indemnity............................................ 27 Section 2.15 Letters of Credit.................................... 28 Section 2.16 Purpose of Loans..................................... 31 ARTICLE 3 REPRESENTATIONS AND WARRANTIES................................. 31 Section 3.1 Financial Condition.................................. 31 Section 3.2 No Material Adverse Change........................... 32 Section 3.3 Corporate Existence; Compliance with Law............. 32 Section 3.4 Corporate Power; Authorization; Enforceable Obligations........................................ 32 Section 3.5 No Legal Bar......................................... 33 Section 3.6 No Material Litigation............................... 33 Section 3.7 No Default........................................... 33 Section 3.8 Ownership of Property; Liens......................... 34 Section 3.9 Intellectual Property................................ 34 Section 3.10 No Burdensome Restrictions........................... 34 Section 3.11 Taxes................................................ 34 Section 3.12 Federal Regulations.................................. 34 Section 3.13 Investment Company Act; Public Utility Holding Company Act; Other Regulations............ 35 Section 3.14 Subsidiaries......................................... 35 Section 3.15 Employee Grievances.................................. 35 Section 3.16 ERISA................................................ 35 i Page ---- ARTICLE 4 CONDITIONS PRECEDENT........................................... 36 Section 4.1 Conditions to Effective Date......................... 36 Section 4.2 Conditions to Each Loan.............................. 38 ARTICLE 5 AFFIRMATIVE COVENANTS.......................................... 39 Section 5.1 Financial Statements................................. 39 Section 5.2 Certificates; Other Information...................... 40 Section 5.3 Payment of Obligations............................... 40 Section 5.4 Conduct of Business and Maintenance of Existence..... 41 Section 5.5 Maintenance of Property; Insurance................... 41 Section 5.6 Inspection of Property; Books and Records; Discussions....................................... 41 Section 5.7 Notices.............................................. 41 Section 5.8 ERISA Compliance..................................... 42 Section 5.9 Taxes and Claims..................................... 42 Section 5.10 Environmental Matters................................ 43 Section 5.11 Hedging Transactions................................. 43 Section 5.12 Foreign Subsidiaries................................. 43 Section 5.13 Landlord Waivers and Consents........................ 43 ARTICLE 6 NEGATIVE COVENANTS............................................. 44 Section 6.1 Limitation on Indebtedness........................... 44 Section 6.2 Limitation on Liens.................................. 44 Section 6.3 Limitation on Contingent Obligations................. 45 Section 6.4 Limitations on Fundamental Changes................... 46 Section 6.5 Limitation on Sale of Assets......................... 46 Section 6.6 Limitation on Investments, Loans and Advances........ 46 Section 6.7 Limitation on Optional Payments and Modifications of Debt Instruments................. 47 Section 6.8 Transactions with Affiliates......................... 48 Section 6.9 Fiscal Year.......................................... 48 Section 6.10 Limitation on Conduct of Business.................... 48 Section 6.11 Tangible Net Worth................................... 48 Section 6.12 Fixed Charge Coverage Ratio.......................... 48 Section 6.13 Funded Debt to EBITDA................................ 48 Section 6.14 Capital Expenditures................................. 48 Section 6.15 Obligor Tangible Assets.............................. 48 Section 6.16 ERISA Obligations.................................... 49 Section 6.17 Restricted Payments.................................. 49 ARTICLE 7 EVENTS OF DEFAULT.............................................. 49 Section 7.1 Events of Default.................................... 49 ARTICLE 8 THE AGENT...................................................... 52 Section 8.1 Actions.............................................. 52 Section 8.2 Exculpation.......................................... 53 ii Section 8.3 Successor............................................ 53 Section 8.4 Credit Decisions..................................... 53 Section 8.5 Notices, etc. from Agent............................. 54 Section 8.6 Security Documents................................... 54 ARTICLE 9 PURCHASING LENDER.............................................. 54 Section 9.1 Purchasing Lender.................................... 54 Section 9.2 Disclosure of Information............................ 55 Section 9.3 Pledges to Federal Reserve Bank...................... 56 ARTICLE 10 MISCELLANEOUS................................................. 56 Section 10.1 Amendments and Waivers.............................. 56 Section 10.2 Notices............................................. 58 Section 10.3 No Waiver; Cumulative Remedies...................... 60 Section 10.4 Survival of Representations and Warranties.......... 60 Section 10.5 Payment of Expenses and Taxes....................... 60 Section 10.6 Successors and Assigns.............................. 61 Section 10.7 Set-off/Sharing..................................... 61 Section 10.8 Original Agreement.................................. 62 Section 10.9 Counterparts........................................ 62 Section 10.10 Severability........................................ 63 Section 10.11 Integration......................................... 63 Section 10.12 Governing Law....................................... 63 Section 10.13 Submission To Jurisdiction; Waivers................. 63 Section 10.14 Acknowledgments..................................... 64 Section 10.15 Waivers of Jury Trial............................... 64 iii Exhibits - -------- Exhibit A Revolving Credit Note Exhibit B Borrowing Base Certificate Exhibit C Issuance Request Exhibit D Form of Letter of Credit Exhibit E Form of Letter of Credit Exhibit F Opinion of Counsel Exhibit G Security Agreement Exhibit H Leasehold Mortgage Exhibit I Collateral Agency and Intercreditor Agreement Exhibit J Omitted Exhibit K Environmental Indemnity Exhibit L Landlord's Waiver & Consent Schedules - --------- Schedule I Commitments Schedule II Consents ((S) 3.4(b)) Schedule III Litigation ((S) 3.6) Schedule IV Intellectual Property ((S) 3.9) Schedule V Subsidiaries ((S) 3.14) Schedule VI Employee Grievances ((S) 3.15) Schedule VII ERISA Plans ((S) 3.16) Schedule VIII Liens ((S) 6.2(g)) AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT ----------------------------------------------- AMENDED and RESTATED REVOLVING CREDIT AGREEMENT, dated as of April 21, 1999 among GUEST SUPPLY, INC. ("GSI"), a New Jersey corporation, GUEST PACKAGING, INC., a New Jersey corporation, BRECKENRIDGE-REMY CO., a Delaware corporation, and GUEST DISTRIBUTION SERVICES, INC., a Delaware corporation and KAPADIA ENTERPRISES, INC., a California corporation, jointly and severally as co-borrowers and co-obligors (collectively, the "Borrower"), PNC BANK, NATIONAL ASSOCIATION, FIRST UNION NATIONAL BANK and FLEET BANK, N.A. (each a "Lender" and, collectively, the "Lenders") and PNC BANK, NATIONAL ASSOCIATION as agent for the Lenders (in such capacity, the "Agent"). W I T N E S S E T H: ------------------- WHEREAS, GSI, Guest Packaging, Inc., Breckenridge-Remy Co. and Guest Distribution Services, Inc., and Agent entered into a Revolving Credit Agreement (the "Original Agreement") dated December 3, 1997; and WHEREAS, the Borrower has requested the Lenders to extend a new credit facility to Borrower; and WHEREAS, the Lenders have agreed, upon the terms and conditions set forth herein, to extend such credit facility to the Borrower; and WHEREAS, the Borrower and Lenders have agreed that the Original Agreement will be terminated and amounts outstanding thereunder will be repaid simultaneously with the making of the initial loan hereunder. NOW, THEREFORE, in consideration of the premises, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Lenders, the Agent and the Borrower hereby agree as follows: ARTICLE 1. DEFINITIONS Section 1.1 Defined Terms. As used in this Agreement, the following ------------- terms shall have the following meanings: "Affiliate" as to any Person, any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" of a Person means the power, directly or indirectly, either to (a) vote 10% or more of the securities having ordinary voting power for the election of directors of such Person or (b) direct or cause the direction of the management and policies of such Person whether by contract or otherwise. "Agent" (a) PNC Bank, National Association; or (b) such other bank or financial institution as shall have been subsequently appointed as successor Agent pursuant to Section 8.3 of this Agreement. "Agreement" this Revolving Credit Agreement, as amended, supplemented or otherwise modified from time to time. "Applicable Fee Rate" means a rate per annum determined in accordance with the Pricing Schedule. "Applicable Margin" means a rate per annum determined in accordance with the Pricing Schedule. "Assignment and Acceptance" as defined in Section 9.1. "Available Commitment" at any time with respect to Revolving Credit Loans for each Lender, an amount equal to (i) the amount of such Lender's Commitment at such time to make Revolving Credit Loans minus (ii) the sum of (a) ----- the aggregate principal amount of all then outstanding Revolving Credit Loans made by such Lender and (b) the amount of such Lender's Percentage of the Letter of Credit Outstandings at such time. "Board" the Board of Governors of the Federal Reserve System of the United States. "Borrowing Base"means (1), for the period from the date hereof to September 30, 2000 an amount equal to the sum of (x) 80% of the value of Eligible Receivables for the most recent Calculation Period plus (y) 20% of the ---- aggregate amount of Letter of Credit Outstandings (less the then aggregate amount of all unpaid and outstanding Reimbursement Obligations) during such Calculation Period (provided, however, that if the value of "x" is less than "y," then the Borrowing Base shall exclude the amount calculated pursuant to clause (y)) plus (z) the lesser of $10,000,000 and 20% of the aggregate value of ---- unsold inventory of each Person constituting the Borrower for the most recent Calculation Period and (2) for each Calculation Period thereafter (beginning October, 2000) an amount equal to the sum of (x) 80% of the value of Eligible Receivables for the most recent Calculation Period plus (y) 20% of the aggregate ---- amount of Letter of Credit Outstandings (less the then aggregate amount of all unpaid and outstanding Reimbursement Obligations) during such Calculation Period, provided, however, that if the value of "x" is less than "y," then the Borrowing Base shall exclude the amount calculated pursuant to clause (y). "Borrowing Base Certificate" a certificate in the form of Exhibit B hereto to be delivered by the Borrower for each Calculation Period. 2 "Borrowing Date" any Business Day specified in a notice pursuant to Section 2.3 as a date on which a Borrower requests the Lenders to make Loans. "Business Day" a day other than Saturday, Sunday or other day on which commercial banks in New Jersey are authorized or required by law to be closed and, in the case of Eurodollar Loans, a day which is also a Working Day. "CAPEX" for any period, the cost attributed in accordance with GAAP consistent with those applied in preparation of the financial statements referred to in Section 5.1 hereof to acquisitions during such period by GSI and/or its consolidated Subsidiaries of any asset, tangible or intangible, or replacements or substitutes therefor or additions thereto which are treated as a non current asset on such financial statements, including, without limitation, the acquisition or construction of assets having a useful life of more than one year. "Calculation Period" each successive calendar month, beginning March 1, 1999. "Capital Lease Obligations" of any Person for any period, the obligations of such Person to pay rent and other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, for such period, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP. "Capital Stock" any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants or options to purchase any of the foregoing. "Change in Control" means the acquisition by any Person, or two or more Persons acting in concert (other than any individuals who are members of GSI's senior management on the Effective Date or any entity, if and so long as, the majority of equity and voting interests in which is owned by one or more of such individuals), of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of greater than 50% of the outstanding shares of voting stock of GSI. "Closing Date" the date on which the Lenders make the initial Loan. "Code" the Internal Revenue Code of 1986, as amended from time to time. "Collateral Agency and Intercreditor Agreement" means the Collateral Agency and Intercreditor Agreement in the form annexed hereto as Exhibit I to be executed by the Agent, the Lenders, the Senior Noteholders and each Person constituting the Borrower. "Commitment" for each Lender at any time from and including the Effective Date to but excluding the Maturity Date the lesser of (i) the amount set forth opposite such Lender's name in Schedule I under the heading "Commitment" as such amount may be adjusted pursuant to Sections 2.5 or 9.1 and (ii) the product of such Lender's Percentage and the Borrowing Base 3 for the then immediately preceding Calculation Period; (subject to an aggregate sublimit for all Lenders of $1,000,000 for Letters of Credit). "Commitment Reduction Date" means April 1, 2002 and April 1, 2004. "Consolidated Current Liabilities" at a particular date, the sum of all amounts which would, in conformity with GAAP, be included under current liabilities on a consolidated balance sheet of GSI as at such date. "Consolidated EBITDA" means, for any fiscal period, the sum of (i) Consolidated Net Income (Loss) for such period (but excluding extraordinary nonrecurring items) plus, (ii) Consolidated Interest Expense, plus (iii) depreciation, plus (iv) amortization of intangible assets and plus (v) federal, state, local and foreign income taxes; all computed and calculated in accordance with GAAP. "Consolidated Intangibles" at a particular date, all assets of GSI, determined on a consolidated basis at such date, that would be classified as intangible assets in accordance with GAAP, but in any event including, without limitation, unamortized organization and reorganization expense, patents, trade or service marks, franchises, trade names and goodwill. "Consolidated Interest Expense" for any period, the total interest expense for such period (including, without limitation, that attributable to Capital Lease Obligations in accordance with GAAP) of GSI and its consolidated Subsidiaries with respect to all outstanding Indebtedness of GSI and its consolidated Subsidiaries. "Consolidated Net Income" for any period, the consolidated net income (or net loss) of GSI and its consolidated Subsidiaries for such period, determined in accordance with GAAP. "Consolidated Obligor Tangible Assets" means, at any time, Consolidated Tangible Assets at such time, excluding, however, in the determination thereof any assets for any Subsidiary of GSI unless such Subsidiary is one of the Persons constituting the Borrower at such time or has guaranteed payment of the Obligations pursuant to Section 6.6(f). "Consolidated Tangible Assets" means, at any time, (a) the total assets of GSI and its consolidated Subsidiaries as would be shown on a consolidated balance sheet of GSI and its Consolidated Subsidiaries as of such time prepared in accordance with GAAP, minus (b) to the extent included in clause (a), the net book value of all Consolidated Intangibles deducting any reserves applicable thereto). "Consolidated Tangible Net Worth" at a particular date, (a) the sum of all amounts which would be included under shareholders' equity on a consolidated balance sheet of GSI and its consolidated Subsidiaries determined in accordance with GAAP as at such date minus (b) Consolidated Intangibles as at such date. ----- 4 "Contingent Obligation" as to any Person any guarantee of payment, collection or performance by such Person of any Indebtedness or other obligation of any other Person, or any agreement to provide financial assurance with respect to the financial condition, or the payment of the obligations of, such other Person (including, without limitation, purchase or repurchase agreements, reimbursement agreements with respect to letters of credit or acceptances, indemnity arrangements, grants of security interests to support the obligations of another Person, keepwell agreements and take-or-pay or through-put arrangements) which has the effect of assuring or holding harmless any third Person against loss with respect to one or more obligations of such other Person; provided, however, that the term Contingent Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business or indemnities entered into in the ordinary course of business in connection with the sale of inventory or licensing of intellectual property or other proprietary information. The amount of any Contingent Obligation of any Person shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made and (b) the maximum amount for which such contingently liable Person may be liable pursuant to the terms of the instrument embodying such Contingent Obligation, unless such primary obligation and the maximum amount for which such contingently liable Person may be liable are not stated or determinable, in which case the amount of such Contingent Obligation shall be such contingently liable Person's maximum reasonably anticipated liability in respect thereof as determined by the contingently liable Person in good faith. "Contractual Obligation" as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. "Controlled Group" as set forth in Section 1563(a) of the Code. "CPLTD" for any period, the sum of (i) the current portion of Capital Lease Obligations of GSI and its consolidated Subsidiaries and any permitted prepayments of Subordinated Debt of GSI and its consolidated Subsidiaries, and (ii) all other amounts which were, or would be, in conformity with GAAP included under current portion of long term debt on the consolidated balance sheet of GSI for the relevant period then ended; provided that the calculation of CPLTD shall not include the current portion of any Loans. "Default" any of the events specified in Section 7.1, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "Dollar" and "$" lawful currency of the United States of America. "Effective Date" as set forth in Section 4.1. "Eligible Receivables" all accounts receivable of each of the Persons constituting the Borrower other than accounts receivable (i) which have remained unpaid for more than 90 days after the date of their creation; (ii) which are owed by any Person where 50% or more of the 5 receivables owed by such Person would be excluded by reason of clause (i) of this definition (the "50% Rule"); (iii) which are owed by any Affiliate of any Person constituting the Borrower to any Person constituting the Borrower or another Affiliate; (iv) which are payable by any Person not incorporated in a jurisdiction which is part of the United States of America or any state thereof; (v) as to which the goods which gave rise to the receivable have been or are being returned or as to which a credit has been claimed; (vi) as to which (collectively, "Contras") the account party has (or claimed the right to) set off against or has netted out (or claimed the right to) amounts due such account party by any Person constituting the Borrower; (vii) as to which there are accrued and unpaid late charges, to the extent of such late charges (provided, that this clause (vii) shall not derogate from the provisions of clause (i) above); (viii) which are payable by any Person which is the subject of any voluntary or involuntary bankruptcy or insolvency proceeding (state or federal), which has made a general assignment for the benefit of creditors or had a receiver, trustee or other similar official appointed with respect to all or a substantial portion of its properties or which has ceased doing business; or (ix) which Lender deems to be otherwise unacceptable in its reasonable judgement. "Environmental Indemnity" shall mean the Environmental Indemnity Agreement in the form of Exhibit K hereto, to be executed and delivered by the Borrower, as the same may be amended, supplemented or modified from time to time. "Environmental Liabilities" shall mean any and all claims, demands, penalties, fines, liabilities, settlements, damages, losses, costs and expenses (including, without limitation, reasonable attorneys' and reasonable consultants' fees and disbursements, remedial investigation and feasibility study costs, clean-up costs and other response costs under the Environmental and Safety Laws, currently in existence or which may be enacted in the future, laboratory fees, court costs and litigation expenses) of whatever kind or nature, known or unknown, contingent or otherwise, arising out of or in any way related to (i) the presence, disposal or release of any Hazardous Materials which are on, from or which affect the Mortgaged Property or any part thereof, including, without limitation, soil, water, vegetation, buildings, equipment, personal property, or which affect Persons, animals or otherwise; (ii) any personal injury (including wrongful death) or property damage (real or personal) arising out of or related to such Hazardous Materials or damage to wetlands whether or not relating to Hazardous Materials; (iii) any lawsuit brought or threatened, settlement reached, or government order or directive relating to such Hazardous Materials; and/or (iv) any violation of any Requirement of Law or requirements or demands of any Governmental Authority, which are based upon or in any way related to such Hazardous Materials and which are paid or incurred by the Agent or any Lender. "Environmental and Safety Laws" shall mean all Requirements of Law ----------------------------- relating to the environment and workplace safety including, without limitation, the Clean Air Act ("CAA"), the Clean Water Act ("CWA"), the Toxic Substances Control Act ("TSCA"), the Hazardous Materials Transportation Act ("HMTA"), the Resource Conservation and Recovery Act, as amended ("RCRA"), the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), as modified by the Superfund Amendments and Reauthorization Act of 1986 ("SARA"), the Emergency Planning and Community Right to Know Act ("EPCRA"), the Noise Control Act ("NCA"), the Occupational Safety and Health Act ("OSHA"), the Safe Drinking 6 Water Act and the Federal Insecticide, Fungicide and Rodenticide Act, as any such Requirements of Laws may be amended, supplemented or otherwise modified from time to time. "ERISA" means the Employee Retirement Income Security Act of 1974 (and any sections of the Code amended by it), as the same from time to time may be amended, supplemented or modified, and all regulations promulgated thereunder. "ERISA Affiliate" means each trade or business (whether or not incorporated) which together with any Person constituting the Borrower would be deemed to be a single employer under Section 414 of the Code. "Eurodollar Loans" Loans whose rate of interest is based upon the Eurodollar Rate. "Eurodollar Rate"shall mean, with respect to any Tranche for any Interest Period, the interest rate per annum determined by the Agent by dividing (the resulting quotient rounded upwards, if necessary, to the nearest 1/100th of 1% per annum) (i) the rate of interest determined by the Agent in accordance with its usual procedures (which determination shall be conclusive absent manifest error) to be the average of the London interbank offered rates for U.S. Dollars quoted by the British Bankers' Association as set forth on Dow Jones Markets Service (formerly known as Telerate) display page 3750 (or appropriate successor or, if the British Bankers' Association or its successor ceases to provide such quotes, a comparable replacement determined by the Agent) two (2) Business Days prior to the first day of such Interest Period for an amount comparable to such Tranche and having a borrowing date and a maturity comparable to such Interest Period by (ii) a number equal to 1.00 minus the Euro-Rate Reserve Percentage. The Eurodollar Rate may also be expressed by the following formula: Eurodollar Rate = Average of London interbank offered rates on Dow Jones Markets Service display page 3750 as quoted by British Bankers' Association or appropriate successor ---------------------------------------- 1.00 - Euro-Rate Reserve Percentage The Eurodollar Rate shall be adjusted with respect to any Tranche outstanding on the effective date of any change in the Euro-Rate Reserve Percentage as of such effective date. The Agent shall give prompt notice to the Borrower of the Eurodollar Rate as determined or adjusted in accordance herewith, which determination shall be conclusive absent manifest error. "Euro-Rate Reserve Percentage" shall mean the maximum percentage (expressed as a decimal rounded upward to the nearest 1/100 of 1%) as determined by the Agent which is in effect during any relevant period, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the reserve requirements (including supplemental, marginal and emergency reserve requirements) with respect to eurocurrency funding (currently referred to as "Eurocurrency Liabilities") of a member bank in such System. 7 "Event of Default" as defined in Section 7.1. "Federal Funds Rate" for any period, a fluctuating interest rate per annum (based on a 360 day year) equal for each day during such period to the average of the rates of interest charged on overnight federal funds transactions, with member banks of the Federal Reserve System only, as published for any day which is a Business Day by the Federal Reserve Bank of New York (or, in the absence of such publication, as reasonably determined by the Agent). "Fixed Charge Coverage Ratio" means, as of the last day of any fiscal quarter of GSI, the ratio of (i) the sum of (x) earnings before tax of GSI and its consolidated Subsidiaries, (y) Consolidated Interest Expense, plus (z) rent expense under operating leases of GSI and its consolidated Subsidiaries for the four consecutive fiscal quarters of GSI and its consolidated Subsidiaries ending on such date to (ii) the sum of (x) Consolidated Interest Expense, (y) rent expense under operating leases of GSI and its consolidated Subsidiaries plus (z) CPLTD for such period. "Funded Debt" for any Person, at any date of determination, for GSI and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP); obligations created, issued or incurred for borrowed money (whether by loan or the issuance and sale of debt securities or otherwise but excluding Subordinated Debt), all Contingent Obligations relating to obligations created, issued or incurred for borrowed money, all Capital Lease Obligations and all reimbursement and other obligations of each such Person in respect of letters of credit, acceptances and similar obligations issued or created for the account of such Person. "GAAP" generally accepted accounting principles in the United States of America consistent with those utilized in preparing the audited financial statements referred to in Section 5.1(a). "Governmental Authority" any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Hazardous Materials" shall mean, without limitation, any flammable material, explosives, radioactive materials, gasoline, petroleum products, asbestos, urea formaldehyde, polychlorinated biphenyls, hazardous materials, hazardous wastes, hazardous or toxic substances, or related materials as defined in the Environmental and Safety Laws. "Hedging Agreements" shall mean, collectively, each interest rate swap, cap, collar or other hedging agreement entered into by any one or more Persons constituting the Borrower pursuant to Section 5.11. "Indebtedness" of any Person at any date (without duplication): (a) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (other than current trade liabilities incurred 8 in the ordinary course of business and payable in accordance with customary practices), (b) any other indebtedness of such Person which is evidenced by a note, bond, debenture or similar instrument, (c) all Capital Lease Obligations of such Person, (d) all reimbursement and other obligations of such Person in respect of letters of credit, acceptances and similar obligations issued or created for the account of such Person, (e) all liabilities secured by any Lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof, (f) net liabilities of such Person under interest rate cap and or collar agreements, interest rate swap agreements, foreign currency exchange agreements and other hedging agreements or arrangements, (g) all Contingent Obligations of such Person, and (h) withdrawal liabilities of such Person or any Commonly Controlled Entity under a Plan. The Indebtedness of any Person shall include any Indebtedness of any partnership in which such Person is a general partner. "Indemnified Liabilities" has the meaning ascribed thereto in Section 10.5. "Intellectual Property" has the meaning ascribed thereto in Section 3.9. "Interest Payment Date" (a) as to any Loan, the first day of each calendar month to occur while such Loan is outstanding, beginning on the first day of the first full calendar month occurring after the date of such Loan, and (b) in addition, as to any Eurodollar Loan the last day of each Interest Period with respect thereto. Interest shall accrue from and including the first day of an Interest Period to but excluding the last day of such Interest Period. "Interest Period" with respect to any Eurodollar Loan: (a) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such Eurodollar Loan and ending one, two, three, six or twelve months thereafter, as selected by the Borrower in its notice of borrowing or notice of conversion, given with respect thereto, subject to availability; and 9 (b) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Loan and ending one, two, three, six or twelve months thereafter, as selected by the Borrower by irrevocable notice to the Agent given not less than three Business Days prior to the last day of the then current Interest Period with respect thereto, subject to availability; provided that, the foregoing provisions relating to Interest Periods are subject to the following: (1) if any Interest Period would end on a day other than a Business Day such Interest Period shall be extended to the next Business Day unless, in the case of a Eurodollar Loan, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day; (2) in the case of a Eurodollar Loan, if an Interest Period commences on the last day in a calendar month that is a Business Day, such Interest Period shall end on the last day that is a Business Day in the month that is the specified number of months after the month in which such Interest Period commenced; (3) an Interest Period that otherwise would extend beyond the Maturity Date shall end on the Maturity Date; and (4) Borrower shall elect Interest Periods for Eurodollar Loans so as to create, if necessary, a principal amount of Prime Rate Loans on each Commitment Reduction Date sufficient to permit any prepayments required pursuant to Section 2.6(c) without requiring the prepayment of outstanding Eurodollar Loans. "Issuance Request" a certificate duly executed by a Responsible Officer of any Person constituting the Borrower in substantially the form of Exhibit C hereto, and delivered to the Issuer (with a copy to the Agent) requesting the issuance of a Letter of Credit described therein. "Issuer" PNC. "Kapadia Subordinated Note" means the 5.18% Convertible Subordinated Promissory Note due April 23, 2004 in the original principal amount of $5,000,000 issued by GSI to Madhukar Kapadia and Naina Kapadia, as Trustees of the Kapadia Family Trust. "Land" shall have the meaning ascribed thereto in the Leasehold Mortgage. "Leasehold Mortgage" means the Mortgage and Security Agreement in the form of Exhibit H hereto, to be executed and delivered by GSI, as mortgagor, as the same may be amended, supplemented or modified from time to time. 10 "Lender Hedge Agreements" shall mean, collectively, each Hedging Agreement entered into pursuant to Section 5.11 hereof by one or more Persons constituting the Borrower and any Lender. "Letter of Credit" has the meaning set forth in Section 2.15(a) hereof. "Letter of Credit Availability" at any time, the lesser of (a) $1,000,000 minus any Letter of Credit Outstanding(s) and (b) the then Available Commitment for Revolving Credit Loans and Letters of Credit. "Letter of Credit Outstandings" at any time, an amount equal to the sum of (a) the aggregate undrawn, available amount at such time of all Letters of Credit then outstanding plus (b) the then aggregate amount of all unpaid and outstanding Reimbursement Obligations. "Lien" any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), other charge or security interest; or any preference, priority or other agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any Capital Lease Obligations having substantially the same economic effect as any of the foregoing). A precautionary filing of a financing statement by a lessor of property (other than with respect to a Capital Lease Obligation) covering only such property shall not constitute a Lien. "Loan" any loan made by the Lenders pursuant to this Agreement (whether denominated as a Prime Rate Loan, Eurodollar Loan or otherwise). "Loan Documents" this Agreement, the Notes, the Environmental Indemnity, the Security Documents and each other agreement or instrument executed and delivered pursuant hereto or thereto (other than any Lender Hedge Agreements). "Material Adverse Effect" a material adverse effect on (a) the business, operations, property or condition (financial or otherwise) of GSI and the Subsidiary Borrowers, taken as a whole, or (b) the validity or enforceability of (i) this Agreement, any of the Notes or the other Loan Documents or (ii) the rights or remedies of the Lender hereunder or thereunder. "Maturity Date" April 21, 2005. "Mortgaged Lease" means the lease agreement dated as of October 28, 1985 between GSI and Shore Point Distributors, as landlord, which is the subject of the Leasehold Mortgage. "Mortgaged Property" has the meaning ascribed thereto in the Leasehold Mortgage. "Multiemployer Plan" a Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. 11 "Notes" the collective reference to the Revolving Credit Notes. "Note Purchase Agreements" the collective reference to the Note Purchase Agreement dated as of December 3, 1997 among Borrower and The Mutual Life Insurance Company of New York, the Note Purchase Agreement dated as of December 3, 1997 among Borrower and Great West Life & Annuity Insurance Company, the Note Purchase Agreement dated as of December 3, 1997 among Borrower and AUSA Life Insurance Company, Inc. and the Note Purchase Agreement dated as of December 3, 1997 among Borrower and Nationwide Life and Annuity Insurance Company; pursuant to which the Borrower issued the Senior Notes, as the same may be amended, modified or supplemented, from time to time. "Obligations" all obligations (monetary or otherwise) of the Borrower to the Lenders and/or the Agent arising under or in connection with this Agreement (including, without limitation, the Reimbursement Obligations, the Letters of Credit and the net amount owed to any Lender pursuant to any Lender Hedge Agreement), the Notes and the other Loan Documents. The nominal amount with respect to which any Lender Hedge Agreements are entered into shall not constitute Obligations for any purpose. "Obligor Fixed Charge Coverage Ratio" means, as of the last day of any fiscal quarter of GSI, the ratio of (i) the sum of (x) earnings before tax of the Borrower and each Subsidiary which has guaranteed the Obligations pursuant to Section 6.6, (y) Consolidated Interest Expense of the Borrower and each Subsidiary which has guaranteed the Obligations pursuant to Section 6.6, plus (z) rent expense under operating leases of the Borrower and each Subsidiary which has guaranteed the Obligations pursuant to Section 6.6 for the four consecutive fiscal quarters of GSI ending on such date to (ii) the sum of (x) Consolidated Interest Expense (but excluding Consolidated Interest Expense of any Subsidiary of GSI which is not a Person constituting the Borrower or which has not guaranteed the Obligations pursuant to Section 6.6), (y) rent expense under operating leases of the Borrower and each Subsidiary which has guaranteed the Obligations pursuant to Section 6.6 plus (z) CPLTD for such period (but excluding CPLTD of any Subsidiary of GSI which is not a Person constituting the Borrower or which has not guaranteed the Obligations pursuant to Section 6.6). "Payment Office" as specified in Section 2.11(a). "PBGC" the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA, and any entity succeeding to any or all of its functions under ERISA. "Percentage" of any Lender means, at any time, with respect to Revolving Credit Loans, the percentage set forth opposite such Lender's name on Schedule I hereto under the heading "Revolving Credit Loans." "Permitted Investments" (a) marketable direct obligations issued or unconditionally guaranteed by the United States of America or issued by any agency thereof and backed by the 12 full faith and credit of the United States of America, in each case maturing within six months from the date of acquisition thereof; (b) marketable general obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within six months from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings generally obtainable from either Standard & Poor's Corporation or Moody's Investors Service, Inc.; (c) without limiting the provisions of subsection (d) of this definition, commercial paper maturing no more than six months from the date of acquisition thereof and, at the time of acquisition, having a rating of A-1 (or the equivalent) or higher from Standard & Poor's Corporation and P-1 (or the equivalent) or higher from Moody's Investors Service, Inc.; (d) commercial paper maturing no more than six months from the date of acquisition thereof and issued by (i) the holding company of any Lender or (ii) the holding company of any other bank that has (A) combined capital, surplus and undivided profits (less any undivided losses) of not less than $250 million, (B) a Keefe Bank Watch Rating of C or better and (C) commercial paper having a rating of A-2 (or the equivalent) from Standard & Poor's Corporation or P-2 (or the equivalent) or higher from Moody's Investors Service, Inc.; (e) domestic and Eurodollar certificates of deposit, time or demand deposits or bankers' acceptances maturing within six months from the date of acquisition issued or guaranteed by or placed with, and money market deposit accounts issued or offered by: (i) any Lender, (ii) any other commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia having combined capital, surplus and undivided profits (less any undivided losses) of not less than $500 million, (iii) any branch located in the United States of America of a commercial bank organized under the laws of the United Kingdom or Canada having combined capital, surplus and undivided profits (less any undivided losses) of not less than $500 million or (iv) any domestic commercial bank the deposits of which are guaranteed by the Federal Deposit Insurance Corporation, provided that (A) the full amount of the deposits of the Person making such Permitted Investment are so guaranteed and (B) the aggregate amount 13 of all Permitted Investments under this clause (iv) does not exceed $500,000; and (f) fully collateralized repurchase agreements with a term of not more than 30 days for underlying securities of the type described in subsections (a) and (b) of this definition, entered into with any institution meeting the qualifications specified in clause (d) or subclauses (i) through (iii) of clause (e) of this definition; provided, in each case, that such obligations are payable in Dollars. "Person" an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "Plan" any employee benefit plan which is subject to ERISA and which covers the employees or former employees of any Person constituting the Borrower or an ERISA Affiliate, under which any Person constituting the Borrower or an ERISA Affiliate has any obligation or liability or under which such Person or an ERISA Affiliate has made contributions within the preceding five years. References herein to a Plan shall include any Multiemployer Plan. "PNC" PNC Bank, National Association. "Pricing Schedule" means the Schedule identified as such, attached hereto and made a part hereof. "Prime Rate" means the rate of interest per annum publicly announced from time to time by PNC as its prime rate. The Prime Rate is not intended to be the lowest rate of interest charged by PNC in connection with extensions of credit to debtors. "Prime Rate Loans" means, collectively, Loans whose interest rate is based on the Prime Rate. "Purchasing Lender" as defined in Section 9.1. "Regulation U" Regulation U of the Board of Governors of the Federal Reserve System as in effect from time to time. "Reimbursement Obligation" as defined in Section 2.15(h) hereof. "Reportable Event" any event set forth in Section 4043(b) of ERISA or the regulations thereunder. "Required Lenders" means the Lenders holding 66 2/3% of the aggregate Commitments, if no Loans are outstanding, and, otherwise, Lenders holding 66 2/3% of outstanding Loans and Letter of Credit Outstandings. 14 "Requirement of Law" as to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Responsible Officer" in such Person's capacity as such, the chief executive officer of any Person constituting the Borrower and the president of such Person (if not the chief executive officer) and, with respect to financial matters, the chief financial officer or corporate controller of such Person. "Revolving Credit Loans" as defined in Section 2.1(a). "Revolving Credit Note" as defined in Section 2.2. "Revolving Loan Commitment" as to any Lender, the obligation of such Lender to make Revolving Credit Loans to the Borrower hereunder. "Security Agreements" collectively, each Security Agreement in the form of Exhibit G hereto, to be executed and delivered by each Person constituting the Borrower to the Agent, as the same may be amended, supplemented or modified from time to time. "Security Documents" the collective reference to the Security Agreements, the Leasehold Mortgage (and related agreement with Shore Point Distributors), the Collateral Agency and Intercreditor Agreement, any stock pledges delivered pursuant to Section 5.12 and any guarantees delivered pursuant to Section 6.6. "Senior Notes" the collective reference to the $15,000,000 7.31% Series A Senior Notes due November 15, 2009, the $5,000,000 7.20% Series B Senior Notes due November 15, 2007 and $5,000,000 6.95% Series C Senior Notes due November 15, 2003 as the same may be amended, modified or supplemented from time to time. "Senior Noteholders" means, collectively the holders of the Senior Notes. "Senior Note Purchase Agreements" means, collectively, the Note Purchase Agreements dated as of December 3, 1997 by and among the Borrower and the Senior Noteholders as amended by Amended No. 1 to Senior Note Purchase Agreements dated as of the date hereof. "Stock Purchase Agreement" means the Stock Purchase Agreement dated as of April 23, 1999 by and among Kapadia Enterprises, Inc., MacDonald Contract Sales, Inc., Madhukar Kapadia and Naina Kapadia, as Trustees of the Kapadia Family Trust, Madhukar Kapadia, Naina Kapadia, Breckenridge-Remy Co. and GSI. "Subordinated Debt" means (i) the Kapadia Subordinated Note and (ii) any other unsecured Indebtedness of any Person constituting the Borrower (a) no part of the principal of 15 which is stated to be payable or is required to be paid (whether by way of mandatory sinking fund, mandatory redemption, mandatory prepayment or otherwise) prior to September 30, 2005, and the payment of the principal of and interest on which and other obligations of the Borrower in respect thereof are subordinated to the prior payment in full of the principal of and interest (including post-petition interest) on the Notes and all other Obligations hereunder on terms and conditions approved in writing by the Required Lenders and (b) otherwise containing terms, covenants and conditions satisfactory in form and substance to the Required Lenders, as evidenced by their prior written approval thereof. "Subsidiary" as to any Person (a "Parent") (a) any other Person in which the Parent owns or controls, directly or indirectly, more than 50% of the Capital Stock of such Person, (b) any other Person of which such percentage of Capital Stock shall at the time be owned or controlled by the Parent or one or more of its Subsidiaries as defined in clause (a) or by one or more such Subsidiaries, or (c) any other Person of which Capital Stock having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such Person are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Parent. "Subsidiary Borrower" means Guest Packaging, Inc., Breckenridge-Remy Co., Guest Distribution Services, Inc. or Kapadia Enterprises, Inc., as the case may be, and, collectively, the "Subsidiary Borrowers." "Taxes" for any period, the amount of taxes on income which would, in conformity with GAAP, be set forth on the income statements of GSI and its consolidated Subsidiaries net of the amount of any net operating losses used in determining the amount of such Taxes. "Title Company" means Chicago Title Insurance Company. "Tranche" the collective reference to Eurodollar Loans whose Interest Periods begin on the same date and end on the same later date (whether or not such Loans originally were made on the same day). "Type" as to any Loan, its nature as a Prime Rate Loan or a Eurodollar Loan. "Working Day" any Business Day on which dealings in foreign currencies and exchange between banks may be carried on in London, England. Section 1.2 Other Definitional Provisions. ----------------------------- (a) Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in the other Loan Documents or any certificate or other document made or delivered pursuant hereto. 16 (b) As used herein and in the Notes, and any certificate or other document made or delivered pursuant hereto, accounting terms relating to GSI and its Subsidiaries not defined in Section 1.1 and accounting terms partly defined in Section 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP. (c) The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, subsection, Schedule and Exhibit references are to this Agreement unless otherwise specified. (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. ARTICLE 2. AMOUNT AND TERMS OF COMMITMENTS Section 2.1 Revolving Credit Commitments. ---------------------------- (a) Subject to the terms and conditions of this Agreement, each Lender severally agrees to make revolving credit loans ("Revolving Credit Loans") to the Borrower from time to time from the date hereof to but excluding the Maturity Date in an aggregate principal amount at any one time outstanding for the Borrower not to exceed the then Available Commitment of such Lender. The Borrower may borrow and prepay the Revolving Credit Loans in whole or in part, and reborrow Revolving Credit Loans, all in accordance with the terms and conditions hereof. All then outstanding Revolving Credit Loans shall be paid in full on the Maturity Date. (b) The Revolving Credit Loans may from time to time be Eurodollar Loans, Prime Rate Loans or a combination thereof, as determined by the Borrower and notified to the Agent in accordance with Section 2.3 and Section 2.10, provided that no Revolving Credit Loan shall be made as a Eurodollar Loan after the day that is one month prior to the Maturity Date. Section 2.2 Revolving Credit Note. The Revolving Credit Loans made --------------------- by each Lender shall be evidenced by a promissory note of the Borrower, substantially in the form of Exhibit A, with appropriate insertions as to date and principal amount (each a "Revolving Credit Note"), payable to the order of such Lender and in a principal amount equal to such Lender's Revolving Loan Commitment. Each Lender is hereby authorized to record the date, Type and amount of each Revolving Credit Loan, each continuation thereof, each conversion of all or a portion thereof to another Type, the date and amount of each payment or prepayment of principal thereof and, in the case of Eurodollar Loans, the length of each Interest Period with respect thereto, on the schedule annexed to and constituting a part of each Revolving Credit Note, and any such recordation shall constitute prima facie evidence of the accuracy of the information so recorded. Each Revolving Credit Note shall (x) be dated the Closing Date, (y) be stated to mature on the Maturity Date and (z) provide for the payment of interest in accordance with Section 2.9. 17 Section 2.3 Procedure for Revolving Credit Borrowings. ----------------------------------------- (a) The Borrower may borrow under the Commitment for Revolving Credit Loans prior to the Maturity Date on any Business Day. The Borrower shall give the Agent irrevocable notice (which notice must be received by the Agent prior to 10:00 a.m., New Jersey time, three Business Days prior to the requested Borrowing Date, if all or any part of the requested Revolving Credit Loans are to be initially Eurodollar Loans and one Business Day prior to the requested Borrowing Date in the case of Prime Rate Loans), specifying (1) the amount to be borrowed, (2) the requested Borrowing Date, (3) whether the borrowing is to be of Eurodollar Loans or Prime Rate Loans or a combination thereof and (4) if the borrowing is to be entirely or partly of Eurodollar Loans, the amount of such Loans and the length of the initial Interest Period therefor. Each Revolving Credit Loan shall be in an amount equal to (x) in the case of Prime Rate Loans, $50,000 or a whole multiple thereof (or, if less, the then Available Commitment) and (y) in the case of Eurodollar Loans $500,000 or a whole multiple of $10,000 in excess thereof. The Agent shall promptly notify the Lenders of its receipt of any such irrevocable notice of borrowing from the Borrower. (b) On or before 12:00 noon New Jersey time on the Business Day specified in the Borrower's notice of borrowing, each Lender shall provide the Agent with funds at the Payment Office in an amount equal to such Lender's Percentage of the requested borrowing. The proceeds of each borrowing shall be made available by the Agent to the Borrower pursuant to Section 2.11(d). No Lender's obligation to make any Loan shall be affected by any other Lender's failure to make any Loan. Neither the Agent nor any Lender shall have any liability for the failure of any Lender (other than itself) to fund a Loan. (c) With respect to any Loan, unless the Agent shall have been notified in writing by any Lender prior to the date of making such Loan that such Lender does not intend to make available to the Agent such Lender's portion of the Loan to be made on such date, the Agent may (but shall not be obligated to) assume that such Lender has made such amount available to the Agent on that date and, in reliance on such assumption, the Agent may make available to the Borrower a corresponding amount. If such amount is not made available by such Lender to the Agent on the date of making such Loan, such Lender shall be obligated to pay such amount to the Agent and shall pay to the Agent on demand interest on such amount at the Federal Funds Rate for the number of days from and including the date of making such Loan to the date on which such Lender's portion of the Loan becomes immediately available to the Agent. The Agent shall also be entitled to recover such amount, with interest thereon at the rate per annum then applicable to the Loans comprising such borrowing, upon demand, from the Borrower. A statement of the Agent submitted to any Lender with respect to any amounts owing under this Section 2.3(c) shall be conclusive and binding in the absence of demonstrable error. Nothing in this Section 2.3(c) shall be deemed to relieve any Lender from its obligation to fulfill its Commitments hereunder. Section 2.4 Commitment and Other Fees. ------------------------- (a) The Borrower agrees to pay to the Agent for the benefit of and disbursement to the Lenders a commitment fee in respect of the Commitments to make 18 Revolving Credit Loans, for the period from and including the date hereof to the Maturity Date, computed at a rate per annum equal to the Applicable Fee Rate for each calendar quarter, calculated on the basis of a 360-day year for the actual days elapsed, on the average daily amount of the aggregate Available Commitments during the period for which payment is made, payable quarterly in arrears on the last day of each March, June, September and December and on the Maturity Date or such earlier date as the Commitments shall terminate as provided herein, commencing on the first of such dates to occur after the date hereof. As soon as practicable the Agent shall notify the Borrower and the Lenders of each determination of the Applicable Fee Rate. (b) On the Effective Date, the Borrower shall pay to the Agent for the benefit of and disbursement to the Lenders a nonrefundable facility fee equal to $50,000 which shall be distributed by the Agent to the Lenders pro rata based on their commitments. (c) The Borrower agrees to pay to the Agent, for its own account, the amounts set forth in the letter agreement dated April __, 1999 between the Borrower and PNC in consideration of PNC's acting as Agent hereunder. The Agent's compensation shall be paid on the dates set forth in said letter. Section 2.5 Termination/Reduction of Commitments. ------------------------------------ (a) GSI shall have the right, upon not less than five Business Days' written notice to the Agent, to terminate the Revolving Loan Commitments or, from time to time, to reduce the amount of such Commitments, provided that at no time may the Revolving Loan Commitments be reduced by the Borrower to an amount less than the sum of the outstanding principal amount of Revolving Credit Loans and Letter of Credit Outstandings. Any such reduction shall be in an amount equal to $1,000,000 or a whole multiple of $50,000 in excess thereof and shall reduce permanently the Revolving Loan Commitments then in effect. Any such reduction in the Revolving Loan Commitment shall be binding on the Subsidiary Borrowers whether or not they have notice thereof. (b) On the first Commitment Reduction Date, the aggregate Commitments shall be automatically reduced to $25,000,000. On the second Commitment Reduction Date, the aggregate Commitments shall be automatically reduced to $15,000,000. (c) Each reduction in the Revolving Loan Commitments, whether voluntary or automatic, shall be permanent and irrevocable. All reductions in the Revolving Loan Commitments shall be made pro rata to the Revolving Loan --- ---- Commitments of the Lenders. The Agent shall promptly notify each Lender of the amount of any reduction of its Revolving Loan Commitment. Section 2.6 Prepayments. ----------- (a) From time to time the Borrower may prepay the Loans, in whole or in part, subject to the provisions of Section 2.14 but otherwise without premium or penalty, upon at least two Business Days' irrevocable notice to the Agent (except in the case of prepayments 19 required pursuant to Section 2.6(c) for which no notice is required), specifying the date and amount of prepayment. Prepayments of Eurodollar Loans shall be subject to the provisions of Section 2.14. Partial prepayments shall be in an aggregate principal amount of $100,000 or a whole multiple of $10,000 in excess thereof in the case of Prime Rate Loans and $500,000 or a whole multiple thereof in the case of Eurodollar Loans or if such prepayment would reduce the principal amount of such Eurodollar Tranche below $500,000, in an aggregate principal amount equal to the outstanding principal amount of such Tranche. All prepayments shall be allocated to the Lenders based on their respective Percentages. (b) If any notice of prepayment is given, the amount specified in such notice shall be due and payable on the date specified therein. Prepayments of the Loans shall be accompanied by payment of accrued interest to the payment date on the principal amount prepaid. (c) In the event (i) the aggregate outstanding principal amount of the Revolving Credit Loans and Reimbursement Obligations and (ii) Letter of Credit Outstandings (excluding Reimbursement Obligations) exceeds the Revolving Loan Commitments on any Commitment Reduction Date or at the end of any Calculation Period, the Borrower shall, on such date (if a Commitment Reduction Date) and otherwise on the first Business Day after such excess is established by the Agent in writing, prepay the Revolving Credit Loans and Reimbursement Obligations in an amount equal to such excess (together with interest on the amount prepaid to the date of prepayment). If such excess is greater than the outstanding principal amount of Revolving Credit Loans and Reimbursement Obligations, the Borrower shall, in addition, post cash collateral with the Agent to secure repayment of the Letter of Credit Outstandings in an amount equal to the balance of such excess. Any such prepayments shall be made on the due date established pursuant to this Section 2.6(c) and shall be subject to the provisions of Section 2.14. (d) The Agent shall disburse all prepayments of the Loans to the Lenders on a pro rata basis. Section 2.7 Conversion and Continuation Options. The Borrower shall ----------------------------------- have the right at any time upon prior irrevocable notice to the Agent (i) not later than 12:00 noon, New Jersey time, on any Business Day, to convert any Eurodollar Loan to a Prime Rate Loan, (ii) not later than 10:00 a.m., New Jersey time, three Business Days prior to conversion or continuation, to convert any Prime Rate Loan into a Eurodollar Loan or to continue any Eurodollar Loan as a Eurodollar Loan for any additional Interest Period, and (iii) not later than 10:00 a.m., New Jersey time, three Business Days prior to conversion, to convert the Interest Period with respect to any Eurodollar Loan to another permissible Interest Period, subject in each case to the following: (a) a Eurodollar Loan may not be converted at a time other than the last day of the Interest Period applicable thereto; (b) any portion of a Loan maturing or required to be repaid in less than one month may not be converted into or continued as a Eurodollar Loan; 20 (c) No Eurodollar Loan may be continued as such and no Prime Rate Loan may be converted to a Eurodollar Loan when any Event of Default has occurred and is continuing; (d) any portion of a Eurodollar Loan that cannot be converted into or continued as a Eurodollar Loan by reason of Section 2.7(b) or 2.7(c) or otherwise automatically shall be converted at the end of the Interest Period in effect for such Loan to a Prime Rate Loan; (e) on the last day of any Interest Period for Eurodollar Loans, if the Borrower has failed to give notice of conversion or continuation as described in this subsection or if such conversion or continuation is not permitted pursuant to Section 2.7(d) or otherwise, such Loans shall be converted to Prime Rate Loans on the last day of such then expiring Interest Period; (f) accrued interest on a Loan (or portion thereof) being converted shall be paid by the Borrower at the time of conversion. Section 2.8 Minimum Amounts of Tranches/Number of Tranches. All ---------------------------------------------- borrowings, conversions and continuations of Loans hereunder and all selections of Interest Periods hereunder shall be in such amounts and be made pursuant to such elections that, after giving effect thereto, the aggregate principal amount of the Loans comprising each Eurodollar Tranche shall be equal to $500,000 or a whole multiple of $10,000 in excess thereof. No more than five Eurodollar Tranches may be outstanding at any time. Section 2.9 Interest Rates and Payment Dates. -------------------------------- (a) Subject to the provisions of Section 2.9(c), each Prime Rate Loan shall bear interest at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 360 days and twelve 30-day months) equal to the Prime Rate less the Applicable Margin. ---- (b) Subject to the provisions of Section 2.9(c), each Eurodollar Loan shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a rate per annum equal to the Eurodollar Rate for the Interest Period in effect for such Eurodollar Loan plus the Applicable Margin in effect for such Interest Period. (c) If all or a portion of (A) the principal amount of any Loan, (B) any interest payable thereon or (C) any commitment fee or other amount payable hereunder shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall, upon notice to the Borrower from the Agent, bear interest at a rate per annum which is (1) in the case of overdue principal, the rate that otherwise would be applicable thereto pursuant to the foregoing provisions of this subsection plus 3% per annum or such other lower rate as a court may impose, or 21 (2) in the case of overdue interest or fees or other amounts, the Prime Rate plus 3% per annum or such other lower rate as a court may impose, in each case from the date of such nonpayment until such amount is paid in full (as well as after, to the extent permitted by law, as before judgment). In no event shall any interest to be paid pursuant to this Agreement exceed the maximum rate permitted by law. (d) Interest shall be payable in arrears on each Interest Payment Date, provided that interest accruing on overdue amounts pursuant to Section 2.9(c) shall be payable on demand. (e) As soon as practicable the Agent shall notify the Borrower and the Lenders of (A) each determination of a Eurodollar Rate and Applicable Margin and (B) the effective date and the amount of each change in the interest rate on a Loan. Each determination of an interest rate by the Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrower and the Lenders in the absence of clearly demonstrable error. At the request of the Borrower, the Agent shall deliver to the Borrower a statement showing the quotations used by the Agent in determining any interest rate pursuant to Sections 2.9(a), (b) or (c). Section 2.10 Inability to Determine Interest Rate. If prior to the ------------------------------------ first day of any Interest Period: (a) the Agent shall have determined (which determination shall be conclusive and binding upon the Borrower) that adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period, or (b) a Lender notifies the Agent and Borrower that the Eurodollar Rate determined or to be determined for such Interest Period will not adequately and fairly reflect the cost to such Lender of making or maintaining the Eurodollar Loans during such Interest Period, or (c) The Agent shall have determined (which determination shall be conclusive and binding upon the Borrower) that Dollar deposits in the principal amounts of the Eurodollars Loans to which such Interest Period is to be applicable are not generally available in the London Interbank Market, the Agent shall give notice thereof to the Borrower by fax or telephone as soon as practicable thereafter. If such notice is given (A) any Eurodollar Loans requested to be made on the first day of such Interest Period shall be made as Prime Rate Loans, and (B) any Loans that were to have been converted to or continued as Eurodollar Loans on the first day of such Interest Period shall be converted to or continued as Prime Rate Loans. Until such notice has been withdrawn by the Agent, no Loans shall be made as or converted to or continued as Eurodollar Loans. 22 Section 2.11 Payments/Funding. ---------------- (a) All payments (including prepayments) made by the Borrower hereunder and under the Notes, whether on account of principal, interest, fees, Reimbursement Obligations or otherwise, shall be made without set off or counterclaim and shall be made prior to 12:00 noon, New Jersey time, on the due date thereof to the Agent, for the account of the Lenders in Dollars and in immediately available funds to the Agent's account at such address as the Agent shall give notice to the Borrower and the Lenders (the "Payment Office"). Except for payments received by the Agent for the account of the Agent in its capacity as such, or for the account of a specific Lender in accordance with the provisions of this Agreement, the Agent shall, within one Business Day of funds collection, distribute like funds relating to the payment of principal, interest or fees pro rata to the Lenders (based on their Percentages) to which such --- ---- payment is due and payable for their accounts and at the addresses as each such Lender shall specify in its notice to the Agent made in accordance with Section 10.2 of this Agreement. If the Agent fails to so distribute funds within the time set forth in the preceding sentence, the Agent shall pay interest on the amount to be distributed at a rate equal to the Federal Funds Rate from the date such funds were to be distributed to the date of distribution. Unless the Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Lenders hereunder that the Borrower will not make such payment in full, the Agent may (but shall not be obligated to) assume that the Borrower has made such payment in full to the Agent on such date, and the Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent the Borrower shall not have so made such payment in full to the Agent, each Lender shall repay to the Agent forthwith on demand the amount distributed to such Lender together with interest thereon, at the rate equal to the Federal Funds Rate, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Agent. (b) If any principal payment hereunder (other than payments on Eurodollar Loans) becomes due and payable on a day other than a Business Day, such payment date shall be extended to the next succeeding Business Day, and interest thereon shall be payable at the then applicable rate during such extension. If any payment on a Eurodollar Loan becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day (and interest shall accrue during such extension of time) unless the result of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Business Day. (c) If on any date a payment is due hereunder, the Borrower shall pay less than the amount stated to be due or on any date the Agent shall receive any payment under any Security Document or pursuant to any proceeding to enforce the Obligations of any Person constituting the Borrower, such proceeds shall be distributed to the Lenders pro rata based on their respective Percentages and shall be applied first to costs of collection incurred by each Lender, second to accrued and unpaid interest, third to principal and then to the payment of any other amounts due hereunder or the other Loan Documents. 23 (d) The Agent shall fund each Loan by depositing the amount thereof in the joint account (the "Account") of GSI and the Subsidiary Borrowers (account no. 8002751648) at the Agent's office at Two Tower Center Boulevard, East Brunswick, New Jersey 08817; provided that the proceeds of each Loan shall first be applied to principal prepayments or payments due on the date of such Loan (without derogating from the Borrower's obligation to repay) and proceeds of any conversion or continuation of a Loan to or as a particular Type shall be applied by the Agent solely to effect such conversion or continuation. Each Lender is hereby authorized to debit the accounts of each Person constituting the Borrower for all payments due hereunder; provided the foregoing shall not derogate from the Borrower's obligation to pay or restrict any Lender's recourse to any particular fund or source of monies; and provided further, each Lender agrees not to debit such accounts for amounts payable pursuant to Sections 2.13, 2.14 or 10.5 unless an Event of Default has occurred and is continuing. The Borrower agrees to maintain its primary depository accounts with PNC's office at Two Tower Center Boulevard, East Brunswick, New Jersey 08817. Section 2.12 Change in Legality. Notwithstanding any other provision ------------------ herein, if any change in any Requirement of Law or in the interpretation or application thereof by a Governmental Authority shall make it unlawful for a Lender to make or maintain Eurodollar Loans as contemplated by this Agreement, (a) the Commitment of such Lender hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and convert Loans to Eurodollar Loans forthwith shall be canceled and (b) such Loans then outstanding as Eurodollar Loans, if any, automatically shall be converted to Prime Rate Loans on the respective last days of the then current Interest Periods with respect to such Loans or within such earlier period as required by law. If any such conversion of a Eurodollar Loan occurs on a day which is not the last day of the then current Interest Period with respect thereto, the Borrower shall pay to such Lender such amounts, if any, as may be required pursuant to Section 2.14. Section 2.13 Increased Costs. --------------- (a) If the adoption of, or any change in, any Requirement of Law or in the interpretation or application thereof by a Governmental Authority or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof: (1) shall subject any Lender to any tax of any kind whatsoever with respect to this Agreement, any Note or any Eurodollar Loan made by it, or change the basis of taxation of payments to such Lender in respect thereof (except for the imposition of and changes in the rate of tax on the overall net income of the Lender); (2) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of a Lender which is not otherwise included in the determination of the Eurodollar Rate hereunder, including, without limitation, the imposition of 24 any reserves with respect to Eurocurrency Liabilities under Regulation D of the Board; or (3) shall impose on a Lender any other condition; and the result of any of the foregoing is to increase the cost to such Lender, by an amount which such Lender deems to be material, of making, converting into, continuing or maintaining Eurodollar Loans hereunder or to reduce any amount receivable hereunder in respect thereof then, in any such case, the Borrower shall promptly pay such Lender, upon its demand, any additional amounts necessary to compensate such Lender for such increased cost or reduced amount receivable. If a Lender becomes entitled to claim any additional amounts pursuant to this subsection, it shall promptly notify the Agent and the Borrower of the event by reason of which it has become so entitled. A certificate as to any additional amounts payable pursuant to this subsection submitted by a Lender to the Borrower and Agent shall be conclusive in the absence of clearly demonstrable error. This covenant shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder. (b) In the event that a Lender shall have determined that any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by such Lender or any corporation controlling such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made subsequent to the date hereof does or shall have the effect of reducing the rate of return on such Lender's or such corporation's capital as a consequence of its obligations hereunder to a level below that which such Lender or such corporation could have achieved but for such change or compliance (taking into consideration Lender's or such corporation's policies with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time, after submission by such Lender to the Borrower (with a copy to the Agent) of a written request therefore, the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction. (c) In the event that by reason of any change in any Requirement of Law (including, without limitation, the lapse or termination of any treaty) or in the interpretation thereof, or the adoption of any new law, regulation or requirement by any Governmental Authority, or the imposition of any requirement of any central bank whether or not having the force of law, (i) the Agent or any Lender shall, with respect to this Agreement, the Loans, the Letters of Credit (or risk participations therein), the Reimbursement Obligations (or risk participations therein), the Notes or its obligation to make Loans or issue and/or own risk participations in Letters of Credit under this Agreement, be subjected to any withholding or other tax, levy, impost, charge, fee, duty or deduction of any kind whatsoever (other than franchise taxes imposed by the jurisdiction in which the Agent or such Lender is domiciled and other than any tax generally imposed or based upon the net income or branch profits of the Agent or such Lender) (collectively, "Taxes") or (ii) any change shall occur in the taxation of the Agent or such Lender with respect to any Loan, any Reimbursement Obligation (or any risk participation therein), the interest payable thereon or any fees payable hereunder or referred to herein (other than franchise taxes imposed by the jurisdiction in which the Agent or such Lender is domiciled and other than any change which affects, and to the extent that it affects, the taxation of the net 25 income or branch profits of the Agent or such Lender), and if any such measures or any other similar measure shall result in an increase in the cost to the Agent or such Lender of making or maintaining any Loan or any Letter of Credit or a reduction in the amount of principal, interest or fees receivable by the Agent or such Lender in respect thereof, the Agent or such Lender promptly after learning of the imposition of such cost or reduction in any amount shall notify the Borrower and the Agent (if applicable) stating the reasons therefor. The Borrower shall thereafter pay to the Agent or such Lender, upon demand from time to time, as additional consideration hereunder, such additional amounts as will fully compensate the Agent or such Lender for such increased costs or reduced amounts and shall promptly provide the Agent or such Lender, as the case may be, with official tax receipts or other evidence of the payment of any taxes paid by the Borrower. A certificate as to the increased costs or reduced amounts setting forth the calculations therefor, shall be submitted promptly by the Agent or such Lender to the Borrower and the Agent (if applicable) and, in the absence of demonstrable error, shall be conclusive and binding as to the amount thereof. If the Agent or Lender receives any additional amounts from the Borrower pursuant to this subsection (c) if requested by Borrower, the Agent or such Lender shall (at the Borrower's expense) use its best efforts to obtain a refund, reduction, deduction or credit for any Taxes with respect to the additional amounts paid under this subsection (c). If the Agent or such Lender actually receives or enjoys the benefit of any such refund, reduction, deduction or credit for any such Taxes, the Agent or such Lender shall reimburse the Borrower if and to the extent, but only the extent, that the Agent or such Lender determines that it has actually received (i) a refund of taxes or other amounts (together with any interest actually received thereon from the respective Governmental Authority) which refund is attributable to the Taxes with respect to which such additional amounts were paid; or (ii) an effective net reduction (through a reduction, deduction, credit or otherwise) in any taxes or other amounts otherwise payable by the Agent or such Lender (including any taxes imposed on or measured by the net income of the Agent or such Lender), which reduction is attributable to the Taxes with respect to such additional amounts were paid. If, at any time after the Agent or such Lender makes a payment to the Borrower pursuant to the preceding sentence, the Agent or such Lender determines that it was not entitled to the full amount of any refund (together with the interest thereon) reimbursed to the Borrower as aforesaid or that its taxes are not reduced by a credit or deduction for the full amount of Taxes reimbursed to the Borrower as aforesaid, the Borrower upon the demand of the Agent or such Lender will promptly pay to the Agent or such Lender the amounts so refunded to which the Agent or such Lender was not so entitled, or the amount by which the taxes of the Agent or such Lender were not so reduced, as the case may be. Section 2.14 Indemnity. --------- (a) The Borrower agrees to indemnify each Lender and to hold each Lender harmless from any loss or expense which such Lender may sustain or incur as a consequence of (1) default by the Borrower in payment when due of any portion of the principal amount of or interest on any Eurodollar Loan, (2) default by Borrower in making a borrowing of, conversion into or continuation of Eurodollar Loans after Borrower has given a notice requesting the same in accordance with the provisions of this Agreement, 26 (3) default by Borrower in making any prepayment after Borrower has given a notice thereof in accordance with the provisions of this Agreement, or (4) the making of a payment (other than scheduled repayments) or a prepayment of Eurodollar Loans on a day which is not the last day of an Interest Period with respect thereto, including, without limitation, in each case, any such loss or expense arising from the reemploy ment of funds obtained by such Lender or from fees payable to terminate the deposits from which such funds were obtained. If the Borrower prepays all or any part of any advance which is accruing interest at a fixed rate on other than the last day of the applicable interest period, the Borrower shall also pay to the Lender, on demand therefor, the Cost of Prepayment. "Cost of Prepayment" means an amount equal to the present value, if positive, of the product of (a) the difference between (i) the yield, on the beginning date of the applicable interest period minus (ii) the yield, on the prepayment date, of ----- a U.S. Treasury obligation with a maturity similar to the remaining maturity of the applicable interest period, and (b) the principal amount to be prepaid, and (c) the number of years, including fractional years from the prepayment date to the end of the applicable interest period. The yield on any U.S. Treasury obligation shall be determined by reference to Federal Reserve Statistical Release H.15(519) "Selected Interest Rates." For purposes of making present value calculations, the yield to maturity of a similar maturity U.S. Treasury obligation on the prepayment date shall be deemed the discount rate. The Cost of Prepayment shall also apply to any payments made after acceleration of the maturity of any Note. (b) For the purpose of calculation of all amounts payable to a Lender under this subsection such Lender shall be deemed to have actually funded its relevant Eurodollar Loan through the purchase of a deposit bearing interest at the Eurodollar Rate in an amount equal to the amount of that Eurodollar Loan and having a maturity comparable to the relevant Interest Period; provided, -------- however, that each Lender may fund each of its Eurodollar Loans in any manner it - ------- sees fit, and the foregoing assumption shall be utilized only for the calculation of amounts payable under this subsection. This covenant shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder. Section 2.15 Letters of Credit. ----------------- (a) By delivering to the Agent an Issuance Request on a Business Day, prior to the Maturity Date and not less than three Business Days prior to the requested date of issuance, Borrower may request that the Issuer issue an irrevocable letter of credit or a documentary letter of credit each in substantially the form of Exhibits D and E, respectively, attached hereto, with such insertions with respect to required presentation of documentation or certifications upon a draw as may be requested by the Borrower and approved by the Issuer, or in such other form as may be requested by the Borrower and approved by the Issuer and the Required Lenders (each a "Letter of Credit"), in support of financial obligations of the Borrower incurred in the ordinary course of business and which are described in such Issuance Request. Upon receipt of each Issuance Request, the Agent shall promptly notify the Lenders thereof. The stated amount of any 27 Letter of Credit requested to be issued pursuant to an Issuance Request shall be denominated in Dollars. (b) Each Letter of Credit shall by its terms: (i) be issued in a stated amount which (A) is at least $10,000, and (B) when added to the Letter of Credit Outstandings does not exceed (or would not exceed) the then Letter of Credit Availability and (C) when added to all Revolving Credit Loans and Letter of Credit Outstandings does not exceed the amount of the then Revolving Loan Commitment; (ii) be stated to expire on a date (its "Stated Expiry Date") no later than the earlier of 12 months from its date of issuance or the then Maturity Date, whichever occurs first; and (iii) on or prior to its Stated Expiry Date (A) terminate immediately upon notice to the Issuer from the beneficiary thereunder that all obligations covered thereby have been terminated, paid, or otherwise satisfied in full, or (B) reduce in part immediately and to the extent the beneficiary thereunder has notified the Issuer that the obligations covered thereby have been paid or otherwise satisfied in part. (c) Subject to the terms and conditions of this Agreement, the Issuer shall issue Letters of Credit in accordance with the Issuance Requests made therefor. The Issuer will make available the original of each Letter of Credit which it issues in accordance with the Issuance Request therefor to the beneficiary thereof. (d) The Borrower agrees to pay to the Agent for the account of the Issuer, with respect to each Letter of Credit, the following fees: (i) an issuance fee of $75 for manual Letters of Credit and $45 for automated Letters of Credit; (ii) $45 for each amendment to a Letter of Credit; (iii) an amount equal to 1/4 of 1% ($50 minimum) of the amount of each draw under a Letter of Credit; (iv) a processing fee of $30 and (v) $75 in the case of each draw which the Borrower authorizes the Issuer to honor notwithstanding the failure of the beneficiary of a Letter of Credit to present any or all documents required by such Letter of Credit (it being agreed that the Borrower shall be required to reimburse the Issuer for any draws so authorized). It is understood that the foregoing charges are currently the Issuer's standard charges relating to Letters of Credit of the type contemplated hereby and that such charges may be changed by the Issuer from time to time. Any changes in such fees and charges shall be binding on the Borrower on the date each change therein is established by the Issuer. (e) To the extent of its Percentage, each Lender agrees to and shall be deemed to have irrevocably purchased a participation in each Letter of Credit on the date of issuance thereof. Each Lender shall make available to the Issuer, regardless of whether any Default or Event of Default shall have occurred and is continuing, an amount equal to its respective Percentage of each drawing on each Letter of Credit in same day or immediately available funds not later than 4:00 p.m. New Jersey time on each Disbursement Date (as hereinafter defined) for each such drawing provided such Lender has received notice pursuant to Section 2.15(g) by 11:00 a.m. New Jersey time; and by 10:00 a.m. on the next Business Day if such notice is not received by 11:00 a.m. In the event that any Lender fails to make available to the Issuer the amount of such Lender's Percentage of any drawing on a Letter of Credit as provided herein, the Issuer shall be entitled to recover such amount on demand from such Lender together with interest at the daily average Federal Funds Rate for the first three Business Days after the Disbursement Date and thereafter at the Prime Rate. 28 (f) The Agent shall distribute to each Lender that has paid all amounts payable by it under this Section 2.15 with respect to any Letter of Credit issued by Issuer such Lender's Percentage of all payments received by the Agent from the Borrower in reimbursement of drawings honored by Issuer under such Letter of Credit promptly after such payments are received. (g) The Issuer will notify the Borrower and the Agent promptly of the presentment for payment of any Letter of Credit (on the date of presentment, if possible, and otherwise on the next Business Day, it being agreed that such notice may be made by phone), together with notice of the date (the "Disbursement Date") such payment shall be made and the Agent will promptly notify the Lenders of such matters. Subject to the terms and provisions of such Letter of Credit, the Issuer shall make such payment to the beneficiary (or its designee) of such Letter of Credit. The Borrower shall (by payment to the Payment Office for distribution by the Agent) on the Disbursement Date, reimburse the Issuer for all amounts which have been disbursed under such Letter of Credit. To the extent the Issuer and the Lenders are not reimbursed in full in accordance with this Section 2.15(g), the Reimbursement Obligation shall accrue interest at a rate per annum equal to the Prime Rate, payable on demand. (h) The Borrower's obligation (a "Reimbursement Obligation") under Section 2.15(g) to reimburse the Lenders with respect to each drawing under each Letter of Credit (including interest thereon), and each Lender's obligation to fund each drawing, shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment which any Person constituting the Borrower or any Lender may have or have had against any Lender or any beneficiary of a Letter of Credit, including, without limitation, any defense based upon the occurrence of any Default or Event of Default, any draft, demand or certificate or other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient, or any failure to apply or misapplication by the beneficiary of the proceeds of any disbursement, or the legality, validity, form, regularity, or enforceability of such Letter of Credit. (i) The Borrower assumes all risks of the acts, omissions or misuse of any Letter of Credit by the beneficiary thereof. Except to the extent of its own gross negligence or willful misconduct, the Issuer shall not be responsible for: (1) the form, validity, sufficiency, accuracy, genuineness, or legal effect of any Letter of Credit or any document submitted by any party in connection with the application for and issuance of a Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (2) the form, validity, sufficiency, accuracy, genuineness or legal effect of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof in whole or in part; 29 (3) failure of the beneficiary to comply fully with conditions required in order to demand payment under a Letter of Credit; (4) errors, omissions, interruptions or delays in transmission or delivery of any information or messages, by mail, cable, telegraph, telex or otherwise; (5) any loss or delay in the transmission or otherwise of any document or draft required in order to make a disbursement under a Letter of Credit or of the proceeds thereof; (6) errors in interpretation of technical terms; (7) any misapplication by a beneficiary of the proceeds of any disbursement under any Letter of Credit; and (8) any consequences arising from causes beyond the control of the Issuer including, without limitation, acts of any Governmental Authority. None of the foregoing shall affect, impair or prevent the vesting of any of the rights or powers granted to the Issuer hereunder. (j) In addition to amounts payable as elsewhere provided in this Section 2.15, the Borrower hereby agrees to protect, indemnify, pay and save the Issuer harmless from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including, without limitation, reasonable attorneys' fees) which the Issuer may incur or be subject to as a consequence, direct or indirect, of (i) the issuance of the Letters of Credit, other than as a result of the gross negligence or wilful misconduct of the Issuer as determined by a court of proper jurisdiction, or (ii) the failure of the Issuer to honor a drawing under any Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure -- ---- or de facto Governmental Authority. -- ----- Section 2.16 Purpose of Loans. The proceeds of the Revolving Credit ---------------- Loans shall be used first to repay all amounts outstanding under the Original Agreement. After repayment of all such amounts, proceeds of Revolving Credit Loans may be used to finance (i) the purchase price and other amounts to be paid by GSI pursuant to the Stock Purchase Agreement and (ii) working capital needs of the Borrower (including, without limitation, payment of Reimbursement Obligations) and for general corporate purposes. ARTICLE 3 REPRESENTATIONS AND WARRANTIES To induce the Agent and the Lenders to enter into this Agreement and to make the Loans, the Borrower hereby represents and warrants to the Agent and the Lenders that as of the Effective Date: 30 Section 3.1 Financial Condition. ------------------- (a) The consolidated balance sheets of GSI and its consolidated Subsidiaries as at September 30, 1998 and the related consolidated statements of income and of cash flows for the fiscal period ended on each such date, copies of which have heretofore been furnished to each Lender, and present fairly in all material respects the consolidated financial condition of GSI and its consolidated Subsidiaries as at such dates, and the consolidated results of their operations and their consolidated cash flows for the fiscal years then ended. (b) All such financial statements, including the related schedules, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by such accountants and as disclosed therein). (c) Neither GSI nor any of its consolidated Subsidiaries had, at the date of the most recent balance sheet delivered to the Agent pursuant to Section 3.1(a) or 5.1 hereof, any material Contingent Obligation, material contingent liability or material liability for taxes, or any material long-term lease or material unusual forward or long-term commitment, including, without limitation, any interest rate or foreign currency swap or exchange transaction or other financial derivative, except as reflected in the foregoing statements or in the notes thereto or would not reasonably be expected to have a Material Adverse Effect. (d) During the period from September 30, 1998, to and including the Effective Date hereof there has been no sale, transfer or other disposition by GSI or any of its consolidated Subsidiaries of any material part of its business or property (other than in the ordinary course of business) and no purchase or other acquisition of any business or property (including any Capital Stock of any other Person (other than as contemplated by the Stock Purchase Agreement), in any case, other than in the ordinary course of business) material in relation to the consolidated financial condition of the Borrower and its consolidated Subsidiaries at September 30, 1998. (e) As of the date hereof, the outstanding principal amount of the Senior Notes is $25,000,000. (f) As of the date hereof, the Senior Noteholders are J. ROMEO & CO., as nominee for MONY Life Insurance Company (formerly The Mutual Life Insurance Company of New York), AUER & Co, as nominee for AUSA LIFE INSURANCE COMPANY, INC., GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY and NATIONWIDE LIFE INSURANCE COMPANY. Section 3.2 No Material Adverse Change. Since September 30, 1998, -------------------------- there has been no development or event which has had or could reasonably be expected to have a Material Adverse Effect. Section 3.3 Corporate Existence; Compliance with Law. Each of GSI ---------------------------------------- and its Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the corporate power and authority, and the legal right, to 31 own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged, (c) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification except where the failure to so qualify or be in good standing therewith would not have a Material Adverse Effect and (d) is in compliance with all Requirements of Law except where the failure to comply therewith would not, in the aggregate, have a Material Adverse Effect. Section 3.4 Corporate Power; Authorization; Enforceable Obligations. ------------------------------------------------------- (a) Each Person constituting the Borrower has the corporate power and authority, and the legal right, to make, deliver and perform this Agreement, the Notes and each other Loan Document to which it is a party and to borrow hereunder and has taken all necessary corporate action to authorize the borrowings on the terms and conditions of this Agreement, the Notes and each other Loan Document to which it is a party and to authorize the execution, delivery and performance of this Agreement, the Notes and each other Loan Document to which it is a party. GSI and Breckenridge-Remy Co. ("BRC") have the corporate power and authority, and the legal right, to make, deliver and perform the Stock Purchase Agreement and, in the case of GSI, the Kapadia Subordinated Note and related Escrow Agreement and have taken all necessary corporate action to authorize the execution, delivery and performance of the Stock Purchase Agreement, Kapadia Subordinated Note and related Escrow Agreement. (b) Except for consents, authorizations, approvals, notices and filings described on Schedule II, all of which have been obtained, made or waived, no consent or authorization of, approval by, notice to, filing with or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the borrowings hereunder or with the execution, delivery, performance, validity or enforceability of this Agreement or the Notes or any other Loan Document, the Stock Purchase Agreement, Kapadia Subordinated Note or related Escrow Agreement. (c) This Agreement has been, and each Note and each other Loan Document to which it is a party will be, duly executed and delivered on behalf of each Person constituting the Borrower. The Stock Purchase Agreement, Kapadia Subordinated Note and related Escrow Agreement will be duly executed and delivered on behalf of GSI and BRC as the case may be. (d) This Agreement constitutes, and each Note and each other Loan Document when executed and delivered will constitute, a legal, valid and binding obligation of each Person constituting the Borrower enforceable against each such Person in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). The Stock Purchase Agreement, Kapadia Subordinated Note and related Escrow Agreement constitute, a legal, valid and binding obligation of GSI and, in the case of the Stock Purchase Agreement, BRC enforceable against each such Person in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, 32 reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). Section 3.5 No Legal Bar. The execution, delivery and performance of ------------ this Agreement and the Notes, the borrowings hereunder and the use of the proceeds thereof will not violate any Requirement of Law or Contractual Obligation of any Person constituting the Borrower or of any of their respective Subsidiaries and will not result in, or require, the creation or imposition of any Lien on any of its or their respective properties or revenues pursuant to any such Requirement of Law or Contractual Obligation. Section 3.6 No Material Litigation. Except as set forth on Schedule ---------------------- III or disclosed in writing to the Lenders, no litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of the any Person constituting the Borrower, threatened by or against any Person constituting the Borrower or any of their respective Subsidiaries or against any of its or their respective properties or revenues (a) with respect to this Agreement, the Notes or any of the transactions contemplated hereby, or the Stock Purchase Agreement, or (b) which if adversely determined would have a Material Adverse Effect. Section 3.7 No Default. No Person constituting the Borrower nor any ---------- of their respective Subsidiaries is in default under or with respect to any of their respective Contractual Obligations (including, without limitation, the Mortgaged Lease) in any respect which would reasonably be expected to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. Section 3.8 Ownership of Property; Liens. Each Person constituting ---------------------------- the Borrower and their respective Subsidiaries has good record and marketable title in fee simple to, or a valid leasehold interest in, all its real property, and good title to, or a valid leasehold interest in, all its other property, and none of such property is subject to any Lien except as permitted by Section 6.2. Section 3.9 Intellectual Property. Each Person constituting the --------------------- Borrower and each of their respective Subsidiaries owns, or is licensed to use, all trademarks, tradenames, copyrights, patents, technology, know-how and processes necessary for the conduct of its business as currently conducted (collectively, the "Intellectual Property") except where the failure to own or license any such Intellectual Property would not have a Material Adverse Effect. Except as set forth on Schedule IV, no claim has been asserted in writing and is pending by any Person challenging or questioning the use of any such Intellectual Property or the validity or effectiveness of any such Intellectual Property which would have a Material Adverse Effect, nor does any Person constituting the Borrower know of any valid basis for any such claim which, if asserted, would have a Material Adverse Effect. To the best of the knowledge of the Borrower, the use of such Intellectual Property by each Person constituting the Borrower and their respective Subsidiaries does not infringe the rights of any Person. 33 Section 3.10 No Burdensome Restrictions. No Requirement of Law or -------------------------- Contractual Obligation of any Person constituting the Borrower or any of their respective Subsidiaries has a Material Adverse Effect. Section 3.11 Taxes. Each Person constituting the Borrower and their ----- respective Subsidiaries has filed or caused to be filed all tax returns which, to the knowledge of such Person, are required to be filed and has paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its property and all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority (other than any the amount or validity of which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of such Person constituting the Borrower or its respective Subsidiaries, as the case may be); no tax Lien has been filed, and, to the knowledge of such Person, no claim is being asserted, with respect to any such tax, fee or other charge in any case which would have a Material Adverse Effect. Section 3.12 Federal Regulations. No part of the proceeds of any ------------------- Loans will be used for "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation U of the Board as now and from time to time hereafter in effect or for any purpose which violates the provisions of any Regulations of the Board. If requested by any Lender at any time, each Person constituting the Borrower will furnish to such Lender a statement in conformity with the requirements of FR Form U-1 referred to in Regulation U. Section 3.13 Investment Company Act; Public Utility Holding Company ------------------------------------------------------ Act; Other Regulations. No Person constituting the Borrower is (a) an - ---------------------- "investment company," or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended, or (b) a "holding company" as defined in, or otherwise subject to regulation under, the Public Utility Holding Company Act of 1935. No Person constituting the Borrower is subject to regulation under any federal or state statute or regulation which limits its ability to incur Indebtedness. Section 3.14 Subsidiaries. All the Subsidiaries of GSI as of the ------------ Effective Date are listed on Schedule V to this Agreement. None of the Capital Stock of any such Subsidiary is subject to a Lien in favor of any Person (except Liens permitted by the first sentence of Section 6.2(a) or granted pursuant to Section 5.12). Section 3.15 Employee Grievances. Except as set forth on Schedule VI ------------------- hereof, as of the Effective Date no Person constituting the Borrower nor any of their Subsidiaries is a party to any collective bargaining agreement or, to the best knowledge of such Person, subject to any current effort to organize, and there are no actions or proceedings pending or, to the best of the knowledge of such Person, threatened against it or its Subsidiaries, by or on behalf of, or with, its employees, other than employee grievances arising in the ordinary course of business which are not, in the aggregate, material. 34 Section 3.16 ERISA. ----- (a) Except as set forth in Schedule VII hereof, as of the Effective Date no Person constituting the Borrower nor any of their Subsidiaries have any Plan (including without limitation any Multiemployer Plan) or have made or make any payments to any Plan. (b) Each Person constituting the Borrower and each Subsidiary of such Person is and has at all times been in substantial compliance with all applicable provisions of ERISA, except where a failure to be in such compliance would not have a Material Adverse Effect. (c) No Person constituting the Borrower has engaged in a transaction in connection with which such Person or any ERISA Affiliate could be subject to a material liability for either a civil penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the Code. (d) There has been no termination of a Plan or trust created under any Plan that would give rise to a material liability to the PBGC on the part of any Person constituting the Borrower or any ERISA Affiliate. No material liability to the PBGC has been or is expected to be incurred with respect to any Plan by any Person constituting the Borrower or any ERISA Affiliate. The PBGC has not instituted proceedings to terminate any Plan. There exists no condition or set of circumstances which presents a material risk of termination or partial termination of any Plan by the PBGC. Each Person constituting the Borrower and each ERISA Affiliate have paid all premiums to the PBGC when due. (e) Full payment has been made of all amounts which are required under the terms of each Plan to have been paid as contributions to such Plan as of the last day of the most recent fiscal year of such Plan ended on or before the date of this Agreement, and no accumulated funding deficiency (as defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived, exists with respect to any Plan. No Person constituting the Borrower nor any ERISA Affiliate has failed to make a required installment under Section 412(m) of the Code or any other payment required under Section 412 of the Code on or before the due date. (f) The value of the benefit liabilities (as defined in Section 4001(a)(16) of ERISA) of each Plan (based on the actuarial assumptions contained in Title IV of ERISA) does not exceed the fair market value of the assets of such Plan. No Person constituting the Borrower nor any ERISA Affiliate is required to provide security to a Plan under Section 401(a)(29) of the Code. (g) No Person constituting the Borrower nor any ERISA Affiliate has made a complete or partial withdrawal from a Multiemployer Plan. To the best knowledge of each Person constituting the Borrower the liability to which such Person or any ERISA Affiliate would become subject under ERISA if such Person and all ERISA Affiliates were to withdraw completely from all Multiemployer Plans as of the most recent valuation date, together with any secondary liability for withdrawal liability such Person and any ERISA Affiliate may have as of 35 the date hereof, would not have a Material Adverse Effect. To the best knowledge of each Person constituting the Borrower no such Multiemployer Plan is in reorganization (as such term is defined in Section 4241 of ERISA) or is insolvent (as such term is defined in Section 4245 of ERISA). ARTICLE 4 CONDITIONS PRECEDENT Section 4.1 Conditions to Effective Date. This Agreement shall ---------------------------- become effective on the date (the "Effective Date") on which each condition listed in Section 4.2(a)-(e) is satisfied and each of the following shall have occurred: (a) The Agent shall have received counterparts of (i) this Agreement, executed and delivered by a duly authorized officer of each Person constituting the Borrower and each Lender, (ii) each Security Document executed by each Person party thereto, (iii) the Stock Purchase Agreement, the Kapadia Subordinated Note and all related documents executed by the parties thereto and in form and substance reasonably satisfactory to the Agent and the Lenders, and (iv) the Mortgaged Lease. Each Lender shall have received a Revolving Credit Note conforming to the requirements hereof and executed by a duly authorized officer of each Person constituting the Borrower. (b) The Agent shall have received a certificate of the Secretary or an Assistant Secretary of each Person constituting the Borrower dated as of the Effective Date and certifying (1) that attached thereto is a true, complete and correct copy of resolutions duly adopted by the Board of Directors of such Person authorizing (x) the execution, delivery and performance of this Agreement and the Notes and the other Loan Documents and (y) the borrowings contemplated hereunder and that such resolutions have not been amended, modified, revoked or rescinded and (2) as to the incumbency and specimen signature of each officer executing any Loan Documents on behalf of such Person constituting the Borrower; and such certificate and the resolutions attached thereto shall be in form and substance satisfactory to the Agent. (c) The Agent shall have received the executed legal opinion of Haythe & Curley, Jameson Moore Peskin & Spicer and California counsel, counsel to the Persons constituting the Borrower, substantially in the form of Exhibit F. Such legal opinion shall cover such matters incident to the transactions contemplated by this Agreement as the Agent and the Lenders reasonably may require. (d) The Borrower shall have paid to the Agent, for distribution to the Lenders, a non-refundable facility fee of $50,000. Such fee shall be distributed as follows: $15,000 to First Union National Bank, $25,000 to PNC and $10,000 to Fleet Bank, N.A.. (e) Omitted. (f) The Borrower shall have paid all fees of counsel to the Agent submitted on the date hereof. This condition precedent does not derogate from the Borrower's continuing obligations under Section 10.5. 36 (g) The Kapadia Subordinated Note issued by GSI pursuant to the Stock Purchase Agreement shall be in a principal amount not exceeding $5,000,000 and be in form and substance reasonably satisfactory to the Lenders. (h) With respect to the transactions contemplated by the Stock Purchase Agreement, the Lenders (i) shall have received copies of the most recent audited financial statements of Kapadia Enterprises, Inc. ("KEI") and be satisfied with the financial condition of KEI as set forth therein and (ii) shall have received a written report from KPMG summarizing due diligence procedures and findings in form and substance satisfactory to the Lenders. (i) The Lenders shall have received Agent's Year 2000 readiness assessment survey of GSI and its Subsidiaries and the Lenders shall be reasonably satisfied with the results thereof. (j) Omitted. (k) Prior to or concurrently with the execution of this Credit Agreement, Borrower, at its sole cost and expense, shall have obtained and delivered to the Agent a title policy (or a commitment to issue such title policy, marked to closing) issued by the Title Company, insuring the priority of the Lien of the Leasehold Mortgage in a form acceptable to the Agent and containing only such exceptions as shall be consented to by the Agent. (l) The Lender shall have received such other materials, documents and papers regarding the Mortgaged Property, the Borrower or the Loan as the Lender may reasonably require. (m) The Agent shall have received all UCC Financing Statements required to perfect any security interests and other evidence of the Liens granted pursuant to the Security Instruments. (n) All corporate and other proceedings, and all documents, instruments and other legal matters in connection with the transactions contemplated by this Agreement and the other Loan Documents shall be reasonably satisfactory in form and substance to the Lenders, and the Agent and the Lenders shall have received such other documents and legal opinions in respect of any aspect or consequence of the transactions contemplated hereby or thereby as they may reasonably request. Section 4.2 Conditions to Each Loan. The obligation of the Lenders ----------------------- to make any Loan requested to be made on any date (including, without limitation, the initial Loan) or to issue any Letter of Credit (including, without limitation, the initial Letter of Credit) is subject to the satisfaction of the following conditions precedent: (a) Each of the representations and warranties made by each Person constituting the Borrower in or pursuant to the Loan Documents shall be true and correct in all material respects on and as of such date as if made on and as of such date except for representations and warranties which speak as of another date, in which case such representations and warranties shall have been true in all material respects as of such date (it being agreed that for purposes of this Section 4.2 (a) the date referred to in Section 3.2 shall refer to the date of the 37 then most recent audited financial statements of GSI and its consolidated Subsidiaries delivered to the Agent. (b) No Default or Event of Default shall have occurred and be continuing on such date or after giving effect to the Loans or Letters of Credit requested to be made or issued on such date. (c) The Agent shall have received a Borrowing Base Certificate for the then most recently ended Calculation Period. (d) The Agent and the Lenders shall have received all fees due and owing pursuant to Sections 2.4. (e) No notice of, or any other document or instrument creating, any federal tax Lien or Lien under Section 412 of the Code or Section 4068 of ERISA shall have been issued, recorded or filed with respect to the assets of the Borrower or any of its Subsidiaries and no Lender shall have informed the Agent or the Borrower that such Lender has processed any such Lien or has notice thereof. (f) And, in the case of each Loan the proceeds of which are to be used to fund amounts due under the Stock Purchase Agreement, all conditions precedent to the obligations of GSI or Breckenridge-Remy Co. thereunder shall have been satisfied and not waived or amended. Each borrowing hereunder shall constitute a representation and warranty by the Borrower as of the date of such Loan that the conditions contained in subsections (a) through (e) of this Section 4.2 have been satisfied. ARTICLE 5 AFFIRMATIVE COVENANTS Each Person constituting the Borrower hereby agrees that, so long as the Commitments remain in effect, any Note remains outstanding and unpaid or any other amount is owing to the Agent or any Lender hereunder, each Person constituting the Borrower shall and shall cause their respective Subsidiaries (including, without limitation, MacDonald Contract Sales, Inc. and Guest International (Canada), Ltd.) to (except the Subsidiary Borrowers and MacDonald Contract Sales, Inc. and Guest International (Canada), Ltd.) in the case of delivery of financial information, reports and notices other than Borrowing Base Certificates in the case of Subsidiary Borrowers): Section 5.1 Financial Statements. Furnish to the Agent (with -------------------- sufficient copies for each Lender): (a) as soon as available, but in any event within 105 days after the end of each fiscal year of GSI, a copy of the consolidated balance sheet of GSI and its consolidated Subsidiaries as at the end of such year and the related consolidated statements of income and retained earnings and of cash flows for such year, setting forth in each case in comparative form 38 the figures for the previous year, certified by and reported on without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit, by KPMG Peat Marwick & Co. or other independent certified public accountants of nationally recognized standing reasonably acceptable to the Required Lenders together with the consolidating balance sheet of GSI and its consolidated Subsidiaries as at the end of such year, setting forth in comparative form the figures for the previous year, certified by a Responsible Officer as being fairly stated in all material respects when considered in relation to the consolidated financial statements of GSI and its consolidated Subsidiaries; and (b) as soon as available, but in any event not later than 50 days after the end of each of the first three quarterly periods of each fiscal year of GSI, the unaudited consolidated and consolidating balance sheet of GSI and its consolidated Subsidiaries as at the end of such quarter and the related unaudited consolidated statements of income and retained earnings and of cash flows of GSI and its consolidated Subsidiaries for such quarter and the portion of the fiscal year through the end of such quarter, setting forth in each case in comparative form the figures for the previous year, certified by a Responsible Officer as being fairly stated in all material respects when considered in relation to the consolidated financial statements of GSI and its consolidated Subsidiaries (subject to normal year-end audit adjustments); all such financial statements to be complete and correct in all material respects and to be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by such accountants or officer, as the case may be, and disclosed therein). Section 5.2 Certificates; Other Information. Furnish to the Agent ------------------------------- (with sufficient copies for each Lender): (a) concurrently with the delivery of the financial statements referred to in Sections 5.1(a) and 5.1(c), the following: a certificate of a Responsible Officer of GSI stating that, to the best of such Officer's knowledge, each Person constituting the Borrower during such period have observed or performed all of their respective covenants and other agreements, and satisfied every condition, contained in this Agreement and in the Notes and the other Loan Documents to which they are a party to be observed, performed or satisfied by them, and that such Officer has obtained no knowledge of any Default or Event of Default, except as specified in such certificate. (b) not later than 30 days prior the beginning of each fiscal year of GSI, a copy of the quarter to quarter projections by GSI of the operating budget and cash flow budget of GSI and its Subsidiaries for such fiscal year, such projections to be accompanied by a certificate of a Responsible Officer of GSI to the effect that such projections have been prepared on the basis of assumptions deemed reasonable at the time of preparation and that such Officer has no reason to believe they are incorrect or misleading in any material respect; (c) within five days after the same are sent, copies of all financial statements and reports which GSI sends to its stockholders generally, and within five days after the same are filed, copies of all financial statements and reports which GSI may make to, or file 39 with, the Securities and Exchange Commission or any successor or analogous Governmental Authority; (d) within seven days after the end of each Calculation Period, a Borrowing Base Certificate for such Calculation Period which certificate shall include, inter alia, an accounts receivable aging report for each Person ----- ---- constituting the Borrower as of the end of the Calculation Period covered by such certificate; and (e) promptly, such additional financial and other information as the Agent from time to time reasonably may request. Section 5.3 Payment of Obligations. Pay, discharge or otherwise ---------------------- satisfy at or before maturity or before they become delinquent, as the case may be, all its obligations of whatever nature, except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the relevant Person constituting the Borrower or its Subsidiaries, as the case may be or except for immaterial amounts incurred in the ordinary course of business. Section 5.4 Conduct of Business and Maintenance of Existence. ------------------------------------------------ Continue to engage in businesses related to the businesses now conducted by it and preserve, renew and keep in full force and effect its corporate existence and take all reasonable action to maintain all rights, privileges and franchises necessary or desirable in the normal conduct of its business except as otherwise permitted pursuant to Section 6.4; comply with all Contractual Obligations and Requirements of Law (excluding, for purposes of this subsection, Requirements of Law specifically addressed in other subsections of this Article 5) except to the extent that failure to comply therewith would not, in the aggregate, have a Material Adverse Effect. Section 5.5 Maintenance of Property; Insurance. Keep all property ---------------------------------- useful and necessary in its business in good working order and condition, ordinary wear and tear excepted; maintain with financially sound and reputable insurance companies (rated A or better by A.M. Best & Co.) insurance on all its property in at least such amounts and against at least such risks (but including in any event general liability, product liability and business interruption) as is maintained by the Borrower on the date hereof; and furnish to the Agent proof reasonably satisfactory to the Agent of the annual renewal thereof (within 30 days of such renewal) and, upon written request, such other information as to the insurance carried as Agent may reasonably request. Section 5.6 Inspection of Property; Books and Records; Discussions. ------------------------------------------------------ Keep proper books of record and account in which full, true and correct entries in conformity with prudent business practices and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities; and permit representatives of the Agent and each Lender during normal business hours and upon reasonable notice (unless an Event of Default has occurred and is continuing, in which case no such notice from the Agent or any Lender shall be required) to visit and inspect any of its properties, examine and make abstracts from any of its books and records and conduct asset/system reviews and/or appraisals (such 40 asset/system reviews and appraisals to be at the Lenders' expense if no Default or Event of Default exists and otherwise at the Borrower's sole cost and expense; provided that the Borrower shall not be required to pay for more than two appraisals during the term hereof) at any reasonable time and as often as may reasonably be desired and to discuss the business, operations, properties and financial and other condition of any Person constituting the Borrower and its Subsidiaries with officers and employees of such Person and its Subsidiaries and with its independent certified public accountants. Without limiting the generality of the foregoing, GSI shall provide the Agent and its representatives sufficient access to the Mortgaged Property to permit a Phase I environmental site assessment in compliance with ASTM E1527-97 to be conducted (provided that the cost of providing such assessment shall not be charged to Borrower). Section 5.7 Notices. Promptly give notice to the Agent of: ------- (a) the occurrence of any Default or Event of Default of which the Borrower has knowledge; (b) any (i) default or event of default under any Contractual Obligation of any Person constituting the Borrower or any of its Subsidiaries or (ii) litigation, investigation or proceeding which may exist at any time between any Person constituting the Borrower or any of its Subsidiaries and any Governmental Authority, which in either case, if not cured or if adversely determined, as the case may be, would have a Material Adverse Effect; (c) any litigation or proceeding affecting any Person constituting the Borrower or any of its Subsidiaries in which the amount involved is $500,000 or more and not covered by insurance or in which injunctive or similar relief is sought; and (d) the occurrence of any event having a Material Adverse Effect. Each notice pursuant to this subsection shall be accompanied by a statement of a Responsible Officer of the relevant Person constituting the Borrower setting forth details of the occurrence referred to therein and stating what action such Person proposes to take with respect thereto. Section 5.8 ERISA Compliance. Comply with all the applicable ---------------- provisions of ERISA now or hereafter in effect with respect to each of its Plans except where the failure to comply would not have a Material Adverse Effect. Notify the Lender of the following events, as soon as possible and in any event within thirty days after the Borrower knows or has reason to know thereof: (i) the occurrence of any Reportable Event with respect to any Plan; (ii) the occurrence of a prohibited transaction (as defined in Section 406 of ERISA or Section 4975 of the Code) with respect to any Plan, (iii) the institution of proceedings or the taking or expected taking of any other action by the PBGC or any Person constituting the Borrower or any ERISA Affiliate to terminate or withdraw or partially withdraw from any Plan and, with respect to a Multiemployer Plan, the Reorganization or Insolvency of such Plan (as such terms are defined in ERISA), (iv) the failure of any Person constituting the Borrower or any ERISA Affiliate to make a required installment under Section 412 (m) of the Code or any other payment required under 41 Section 412 of the Code on or before the due date or (v) the adoption of an amendment with respect to a Plan so that any Person constituting the Borrower or any ERISA Affiliate is required to provide security to the Plan under Section 401(a)(29) of the Code, and in addition to such notice, deliver to the Lender a certificate signed by a Responsible Officer setting forth the details relating thereto, and the action that such Person and the ERISA Affiliate propose to take with respect thereto and when known, any action taken or threatened by the Internal Revenue Service or the PBGC, together wit a copy of any notice to the PBGC or the Internal Revenue Service or any notice delivered by the PBGC or the Internal Revenue Service. Section 5.9 Taxes and Claims. Pay and discharge all taxes, ---------------- assessments and governmental charges or levies imposed upon it or the Mortgaged Property or upon its income or profits, or upon any property belonging to it and which upon non-payment could become a Lien on any portion of the Mortgaged Property, prior to the date on which penalties attach thereto; provided that, subject to any more restrictive provisions contained in the Loan Documents, Borrower shall not be required to pay or cause to be paid any such tax, assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings and for which adequate reserves are being maintained; provided, however, Borrower shall immediately pay and discharge or cause to be paid and discharged any such contested taxes, assessments and governmental charges or levies upon the commencement of any proceeding to foreclose, sell or otherwise execute on the Lien thereof against the Mortgaged Property or [GSI's] interest therein. Section 5.10 Environmental Matters. --------------------- (a) Borrower shall defend, indemnify and hold harmless the Agent and all Lenders from and against any and all Environmental Liabilities. (b) Borrower shall not cause or permit (or allow any subtenant to cause or permit) (i) the Mortgaged Property, or any part thereof, to be used to generate, manufacture, refine, transport, treat, store, handle, dispose, transfer, produce or process Hazardous Materials in violation of the Environmental and Safety Laws. (c) The provisions of this Section 5.10 shall be in addition to any other obligation and liability the Borrower may have to the Agent and the Lenders, and shall survive the transactions contemplated herein, the termination of this Credit Agreement and the repayment of all Obligations. Section 5.11 Hedging Transactions. Within 30 days of the Effective -------------------- Date, enter into interest rate hedging transactions in form and substance and with counterparties acceptable to the Lenders with respect to at least 50% of the projected Loans from the Effective Date to the third anniversary of the Effective Date. Section 5.12 Foreign Subsidiaries. If at any time (i) the tangible -------------------- assets of any one or more of the foreign Subsidiaries of GSI are equal to or exceed five percent (5%) of the aggregate tangible assets of GSI and all of its Subsidiaries and (ii) the Collateral Agent has not released all Collateral pursuant to Section 14 of the Collateral Agency and Intercreditor Agreement; GSI will pledge, or cause to be pledged, to the Collateral Agent for the benefit of the 42 Lenders and Senior Noteholders, within 60 days of the Required Lenders' request (delivered to the Agent and the Borrower), 65% of the Capital Stock of such foreign Subsidiary or Subsidiaries pursuant to a stock pledge agreement in form and substance reasonably satisfactory to the Required Lenders, and deliver the stock certificates so pledged and related stock powers (or take such other action as is required to effect and perfect such pledge) and a favorable opinion of counsel to such foreign Subsidiary addressed (and in form and substance reasonably satisfactory) to the Collateral Agent, the Lenders and the Senior Noteholders. Section 5.13 Landlord Waivers and Consents. Borrower shall use ----------------------------- reasonable efforts to obtain a Landlord's Waiver and Consent substantially in the form of Exhibit L hereto from each lessor of each location at which any Person constituting the Borrower maintains any Collateral (as defined in the Security Agreements) and which has not been obtained prior to the Effective Date. ARTICLE 6 NEGATIVE COVENANTS Each Person constituting the Borrower hereby agrees that, so long as the Commitments remain in effect, any Note remains outstanding and unpaid or any other amount is owing to the Agent or any Lender hereunder, it shall not, and shall not permit any of their respective Subsidiaries (including, without limitation, MacDonald Contract Sales, Inc. and Guest International (Canada), Ltd.) to, directly or indirectly (except as to the Subsidiary Borrowers, MacDonald Contract Sales, Inc. and Guest International (Canada), Ltd. or any other Subsidiary of GSI, the covenants set forth in Sections 6.11, 6.12, 6.13 and 6.14): Section 6.1 Limitation on Indebtedness. Create, incur, assume or -------------------------- suffer to exist any Indebtedness, except: (a) Indebtedness (i) in respect of the Loans, the Notes and other obligations of such Person constituting the Borrower under this Agreement and (ii) arising with respect to Hedging Agreements; (b) Existing Indebtedness under the Senior Notes and Senior Note Purchase Agreements; (c) Indebtedness of any Person constituting the Borrower owing to another Person constituting the Borrower or any Subsidiary of the Borrower and of any Subsidiary of GSI to any Person constituting the Borrower; (d) Subordinated Debt; (e) Indebtedness of a Person which becomes a Subsidiary after the date hereof, provided that such Indebtedness existed at the time such Person became a Subsidiary and was not created in anticipation thereof; (f) Capital Lease Obligations plus purchase money indebtedness existing on the Effective Date plus additional Capital Lease Obligations and purchase money indebtedness 43 provided the aggregate amount of such additional Capital Lease Obligations and purchase money indebtedness does not increase in any fiscal year during the term of this Agreement by more than $1,000,000 over the amount thereof in the prior fiscal year; and (g) Contingent Obligations in accordance with Section 6.3 of this Agreement. Section 6.2 Limitation on Liens. Create, incur, assume or suffer to ------------------- exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, except for: (a) Liens securing Indebtedness owed to any Lender or Senior Noteholder and permitted by Section 6.1(a) and (b); provided such Liens are governed by the Collateral Agency and Intercreditor Agreement. Liens securing Indebtedness permitted by Section 6.1(e) and (f); provided, that, in the case of Liens securing Indebtedness permitted by Section 6.1(f) such Liens shall not encumber any property not financed by such Indebtedness, and in the case of any Liens permitted by Section 6.1(e), such Liens shall not encumber any property not encumbered by such Lien at the time it was created, such Liens existed at the time such Person became a Subsidiary and were not created in anticipation of the acquisition, and any such Lien does not by its terms secure any Indebtedness other than Indebtedness existing immediately prior to the time such Person becomes a Subsidiary; (b) Subject to more restrictive provisions in Loan Documents relating to the Mortgaged Property, Liens for taxes not yet due or which are being contested in good faith by appropriate proceedings, provided that adequate reserves with respect thereto are maintained on the books of the relevant Person constituting the Borrower or its Subsidiaries, as the case may be, in conformity with GAAP; (c) carriers', warehousemen's, mechanics', materialmen's, repairmen's, landlords' or other like Liens arising in the ordinary course of business which secure amounts not overdue for a period of more than 60 days or which are being contested in good faith by appropriate proceedings; (d) pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation and deposits securing liability to insurance carriers under insurance or self- insurance arrangements; (e) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (f) Subject to more restrictive provisions in the Loan Documents relating to the Mortgaged Property, easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and which do not in any case materially detract from the value of the property subject thereto or 44 materially interfere with the ordinary conduct of the business of the relevant Person constituting the Borrower or such Subsidiary; and (g) Liens listed on Schedule VIII, provided that no such Lien is amended after the date of this Agreement to cover any additional property or to secure additional Indebtedness. Section 6.3 Limitation on Contingent Obligations. Create, incur, ------------------------------------ assume or suffer to exist any Contingent Obligation, except guarantees and indemnities made in the ordinary course of its business by any Person constituting the Borrower of obligations of any Person constituting the Borrower or any of their respective Subsidiaries and except Letter of Credit Reimbursement Obligations, provided, in any case those obligations are not otherwise prohibited under this Agreement. Section 6.4 Limitations on Fundamental Changes. Enter into any ---------------------------------- merger, consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer or otherwise dispose of, all or substantially all of its property, business or assets, or make any material change in its present method of conducting business, except: (a) any Subsidiary of GSI may be merged or consolidated with or into GSI (provided that GSI shall be the continuing or surviving corporation) or with or into any one or more wholly owned Subsidiaries of GSI (provided that the wholly owned Subsidiary or Subsidiaries or the Subsidiary Borrower, if it is a party to such merger or consolidation, shall be the continuing or surviving corporation) and after giving effect to any of such transactions, no Default or Event of Default shall exist; and (b) any wholly owned Subsidiary of GSI may sell, lease, transfer or otherwise dispose of any or all of its assets (upon voluntary liquidation or otherwise) to GSI or any wholly-owned Subsidiary of GSI and GSI may sell, lease, transfer or otherwise dispose of any or all of its assets to any Person constituting the Borrower; and (c) sales of assets in accordance with Section 6.5 of this Agreement. Without limiting the generality of the foregoing, GSI shall not terminate or assign the Mortgaged Lease without the prior written consent of the Lenders. Section 6.5 Limitation on Sale of Assets. Convey, sell, lease, ---------------------------- assign, transfer or otherwise dispose of any of its property, business or assets (including, without limitation, Capital Stock of any Person constituting the Borrower (other than GSI), receivables and leasehold interests), whether now owned or hereafter acquired, except: (a) obsolete or worn out property disposed of in the ordinary course of business; (b) the sale or other disposition of any property (other than inventory) provided, that, the aggregate book value of all assets so sold or disposed of in any period of 45 twelve consecutive months shall not exceed 2% of Consolidated Tangible Assets of GSI as at the beginning of such twelve-month period; (c) the sale of inventory in the ordinary course of business; (d) the sale or discount without recourse of accounts receivable only in connection with the compromise thereof or the assignment of past-due accounts receivable for collection; and (e) as otherwise contemplated by Section 6.4 of this Agreement. Section 6.6 Limitation on Investments, Loans and Advances. Purchase, --------------------------------------------- hold or acquire beneficially any Capital Stock, other securities or evidences of indebtedness of, make or permit to exist any loans or advances to, or make or permit to exist any investment or acquire any interest whatsoever in, any other Person, except: (a) extensions of trade credit to customers in the ordinary course of business; (b) Permitted Investments; (c) capital contributions, loans and advances by any Person constituting the Borrower or any Subsidiary of the Borrower to any Person constituting the Borrower or a domestic Subsidiary of the Borrower and loans and advances by any foreign Subsidiary of the Borrower to any other foreign Subsidiary of the Borrower; (d) loans and advances in the form of cash by any Person constituting the Borrower to the foreign Subsidiaries of the Borrower in an aggregate amount not to exceed $500,000 in outstanding principal amount at any time; (e) loans and advances to employees or directors of any Person constituting the Borrower not to exceed $100,000 in aggregate principal amount outstanding at any time; (f) as permitted by Section 6.17; and (g) so long as no Default or Event of Default has occurred and is continuing, (i) GSI (or any of its wholly-owned Subsidiaries) may purchase Capital Stock of any Person not a Subsidiary for consideration consisting solely of the Capital Stock of GSI (and cash in accordance with clauses (ii) or (iii) below, as applicable); provided the acquired Person has not incurred net losses in its two fiscal years immediately preceding the date of acquisition and is not, at the time of acquisition, operating at a net loss; (ii) GSI or any wholly-owned Subsidiary of GSI may purchase Capital Stock of any Person not a Subsidiary for a cash purchase price not exceeding $3,000,000 in the aggregate for all such purchases occuring prior to April 30, 2000; and (iii) after April 30, 2000, GSI or any wholly-owned Subsidiary of GSI may purchase Capital Stock of any Person not a Subsidiary so long as, after consummating such acquisition, the Available Commitment is not less than $5,000,000; provided in each case referred to in clause 46 (i), (ii) and (iii), GSI has given the Agent 30 days prior written notice of the proposed purchase; giving effect to such acquisition shall not give rise to an Event of Default, simultaneously with such acquisition, any Person becoming a domestic Subsidiary guarantees payment of the Obligations pursuant to a written agreement in favor of, and otherwise in form and substance satisfactory to, the Required Lenders, and in the case of any acquisition referred to in clause (iii), GSI shall have provided the Agent with projections of the acquired Person's financial performance after giving effect to such acquisition in form and covering such periods as is reasonably requested by Agent. Section 6.7 Limitation on Optional Payments and Modifications of Debt --------------------------------------------------------- Instruments. Make any optional payment or prepayment on or redemption, - ----------- defeasance or purchase of any Subordinated Debt, or amend, modify or change, or consent or agree to any amendment, modification or change to any of the terms relating to the payment or prepayment or principal of or interest on, any such Indebtedness, other than any amendment, modification or change which would extend the maturity or reduce the amount of any payment of principal thereof or which would reduce the rate or extend the date for payment of interest thereon; and provided that nothing herein shall prohibit the conversion of the Kapadia Subordinated Note into Capital Stock of GSI pursuant to the terms thereof or the payment of the Kapadia Subordinated Note at maturity (subject to the subordination provisions contained therein) . Section 6.8 Transactions with Affiliates. Enter into any ---------------------------- transaction, including, without limitation, any purchase, sale, lease or exchange of property or the rendering of any service, with any Affiliate unless such transaction is (a) not otherwise prohibited under this Agreement, and (b) upon fair and reasonable terms no less favorable to the relevant Person constituting the Borrower, than it would obtain in a comparable arm's length transaction with a Person which is not an Affiliate. Section 6.9 Fiscal Year. Permit the fiscal year of the Borrower to ----------- end on a day other than the first Friday closest to October 1 of each year. Section 6.10 Limitation on Conduct of Business. Enter into any --------------------------------- business either directly or through any Subsidiary except for businesses in which GSI and its Subsidiaries are engaged on the date of this Agreement and business related to such existing businesses. Section 6.11 Tangible Net Worth. Permit Consolidated Tangible Net ------------------ Worth at the end of any fiscal quarter of GSI to be less than the sum of (i) $28,000,000 plus (ii) 50% of the aggregate, cumulative Consolidated Net Income (but excluding net losses for purposes of this calculation), if any, for each fiscal year end occurring after the Closing Date. Section 6.12 Fixed Charge Coverage Ratio. Permit the Fixed Charge --------------------------- Coverage Ratio for the period of four consecutive fiscal quarters preceding any date of determination to be less than 1.35 to 1. Section 6.13 Funded Debt to EBITDA. Permit the ratio of Funded Debt of --------------------- GSI and its consolidated Subsidiaries to Consolidated EBITDA for the period of four consecutive fiscal quarters preceding any date of determination to be greater than: 3.50 to 1 through October 1, 1999; 47 3.25 to 1 during its fiscal year ending September 29, 2000; 2.75 to 1.0 for its fiscal year ending September 28, 2001; 2.50 to 1.0 for its fiscal year ending September 27, 2002; or 2.25 to 1.0 thereafter. Section 6.14 Capital Expenditures. Permit expenditures of GSI and its -------------------- consolidated Subsidiaries for CAPEX in any fiscal year to exceed $5,000,000. Section 6.15 Obligor Tangible Assets. Permit the ratio of (a) ----------------------- Consolidated Obligor Tangible Assets to (b) Consolidated Tangible Assets to be less than 0.9 to 1.0, unless at such time the Obligor Fixed Charged Coverage Ratio is 1.1 to 1.0 or greater. Section 6.16 ERISA Obligations. Be or become obligated to the PBGC, ----------------- in any material respect, other than in respect of annual premium payments. Section 6.17 Restricted Payments. Make any purchase, redemption or ------------------- other acquisition of the Capital Stock of GSI (i) at an aggregate cost in any fiscal year of GSI in excess of an amount equal to 50% of Consolidated Net Income for such fiscal year, (ii) at any time while an Event of Default has occurred and is continuing or (iii) if giving effect to such purchase, redemption or other acquisition would cause the occurrence of a Default or Event of Default. ARTICLE 7 EVENTS OF DEFAULT Section 7.1 Events of Default. If any of the following events (each, ----------------- an "Event of Default") shall occur and be continuing: (a) (i) The Borrower shall fail to pay any principal of any Note or Reimbursement Obligation when due in accordance with the terms thereof or hereof; or (ii) the Borrower shall fail to pay any interest on any Note or Reimbursement Obligation, or any other amount payable hereunder, or any Person constituting the Borrower shall fail to pay any net amount due by it under any Lender Hedge Agreement, in each case within five days after any such interest or other amount becomes due in accordance with the terms thereof or hereof (and, in the case of any Lender Hedge Agreement, notice of such failure shall have been given to the Agent in writing); or (b) Any representation or warranty made or deemed made by any Person constituting the Borrower or any other party to a Loan Document herein or in any other Loan Document or which is contained in any certificate, document or financial or other statement furnished at any time under or in connection with this Agreement shall prove to have been incorrect in any material respect on or as of the date made or deemed made; or (c) Any Person constituting the Borrower shall default in the observance or performance of any agreement contained in Article 6; or (d) Any Person constituting the Borrower or any other Party to a Loan Document shall default in the observance or performance of any other agreement contained in 48 this Agreement (other than as provided in Sections 7.1(a), (b) or (c)) or any other Loan Document, and such default shall continue unremedied for a period of 30 days; or (e) GSI or any of its Subsidiaries shall: (1) default in any payment of principal of or interest on any Indebtedness (other than the Notes or Reimbursement Obligations or in respect of any Lender Hedge Agreement) or in the payment of any Contingent Obligation in either case in excess of $500,000, beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness or Contingent Obligation was created (it being understood that the exercise by GSI of its right of offset with respect to interest and principal payments under (and in compliance with) Section 2(b) of the Kapadia Subordinated Note and Section 11.07 of the Stock Purchase Agreement shall not constitute a Default or Event of Default); or (2) default in the observance or performance of any other agreement or condition relating to any such Indebtedness or Contingent Obligation or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Contingent Obligation (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity or such Contingent Obligation to become payable; or (f) (1) GSI or any of its Subsidiaries shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization, conservatorship or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or GSI or any of its Subsidiaries shall make a general assignment for the benefit of its creditors; or (2) there shall be commenced against GSI or any of its Subsidiaries any case, proceeding or other action of a nature referred to in clause (1) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (3) there shall be commenced against GSI or any of its Subsidiaries any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (4) GSI or any of its Subsidiaries shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (1), (2) or (3) above; or (5) 49 GSI or any of its Subsidiaries shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (g) One or more judgments or decrees shall be entered against GSI or any of its Subsidiaries involving in the aggregate a liability (not paid or fully covered by insurance) of $500,000 or more and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 60 days from the entry thereof; or (h) (i) Any Reportable Event, which the Required Lenders determine in good faith (which determination shall be final and conclusive) constitutes grounds for the termination of any Plan or Plans by PBGC or for the appointment by the appropriate United States District Court of a trustee to administer or liquidate any Plan or Plans, shall have occurred and be continuing thirty (30) days after written or telegraphic or telephonic notice to such effect shall have been given to the Borrower by the Lender; or (ii) a decision shall have been made by the Board of Directors (or any committee thereof), any authorized officer or other employee of any Person constituting the Borrower, or any trustee or trustees of any Plan or Plans to terminate any Plan or Plans or to file a termination notice with respect to any Plan or Plans; or (iii) a trustee shall be appointed by the appropriate United States District Court to administer any Plan or Plans, or any Plan or Plans shall be terminated; or (iv) PBGC shall institute proceedings to terminate any Plan or Plans or to appoint a trustee to administer any Plan or Plans; or (v) any Person constituting the Borrower or any ERISA Affiliate shall fail with respect to any Plan or Plans to meet the minimum funding standards established in the Code, or shall obtain a waiver of such minimum funding standards; or (vi) any Person constituting the Borrower or any ERISA Affiliate shall completely or partially withdraw from a Plan; or (vii) any Person constituting the Borrower or any ERISA Affiliate shall make a decision to cease operations at a facility or facilities where such cessation would result in a separation from employment of more than 20% of the total number of employees who are participants under a Plan; where in the case of any one or more of the events described in the preceding clauses (i) through (vii) the aggregate outstanding amount of unfunded vested liabilities under such Plan if a single employer plan (including unfunded vested liabilities which arise or might arise as a result of the termination of or withdrawal from such Plan) or the allocable portion of such outstanding unfunded vested liabilities under a Multiemployer Plan shall exceed (either singly or in the aggregate in the case of any such liability arising out of one or more of the events described in the preceding clauses (i) through (vii) under more than one such Plan) 2% of the Consolidated Tangible Net Worth of GSI and shall in good faith be determined by the Required Lenders (which determination shall be final and conclusive) to have a Material Adverse Effect; or (i) A Change in Control shall occur; or (j) Any Subsidiary (other than a Subsidiary Borrower) of any Person constituting the Borrower shall take any action set forth in Article 6 which the Borrower has undertaken not to permit; or (k) Any Subsidiary (other than a Subsidiary Borrower) of any Person constituting the Borrower shall fail to take any action set forth in Article 5 which the Borrower has undertaken to cause and such failure shall not be remedied for a period of 30 days; or 50 (l) An Event of Default under (and as defined in) any other Loan Document shall occur; then, and in any such event, (A) if such event is an Event of Default specified in clause (1) or (2) of Section 7.1(f) above with respect to any Person constituting the Borrower, automatically the Commitments shall immediately terminate and the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the Notes shall immediately become due and payable, and (B) if such event is any other Event of Default, any one or more of the following actions may be taken: (i) the Agent may (with the consent of the Required Lenders) and shall (upon the request of the Required Lenders), by written notice to the Borrower, declare the Commitments to be terminated forthwith, whereupon the Commitments shall immediately terminate; (ii) the Agent may (with the consent of the Required Lenders) and shall (upon the request of the Required Lenders), by written notice to the Borrower, declare the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the Notes to be due and payable forthwith, whereupon the same shall immediately become due and payable and (iii) the Agent may (with the consent of the Required Lenders) and shall (upon the request of the Required Lenders but subject to the provisions of Article 8), proceed to enforce the rights and remedies of the Secured Party under the Security Documents. Except as expressly provided above in this Section, presentment, demand, protest and all other notices of any kind are hereby expressly waived. ARTICLE 8 THE AGENT Section 8.1 Actions. Subject to the terms of the Collateral Agency ------- and Intercreditor Agreement, each Lender authorizes the Agent to act on behalf of such Lender under this Agreement, the other Loan Documents and any other related instruments and, in the absence of other written instructions from the Lenders received from time to time by the Agent (with respect to which the Agent agrees that it will, subject to the last two sentences of this Section 8.1, comply in good faith except as otherwise advised by counsel), to exercise such powers hereunder and thereunder as are specifically delegated to or required of the Agent by the terms hereof and thereof, together with such powers as may be reasonably incidental thereto. Each Lender agrees (which agreement shall survive any termination of this Agreement) to indemnify the Agent, pro rata --- ---- according to such Lender's Percentage, from and against any and all liabilities, obligations, damages, penalties, actions, judgements, suits, costs, expenses or disbursements of any kind or nature whatsoever which may at any time be imposed on, incurred by, or asserted against the Agent in any way relating to or arising out of this Agreement, the Revolving Notes, the Letters of Credit, any of the other Loan Documents and any other related instruments, including, without limitation, the reimbursement of the Agent for all reasonable out-of-pocket expenses (including, without limitation, syndication costs and attorneys' fees) incurred by the Agent hereunder or in connection herewith or in enforcing the obligations of the Borrower or any Lender under this Agreement, under any of the other Loan Documents or any other related instruments, in all cases as to which the Agent is not reimbursed by the Borrower; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, damages, penalties, actions, judgements, suits, costs, expenses or disbursements determined by a court of proper jurisdiction in a final proceeding to have resulted from the Agent's gross negligence or willful misconduct. The Agent shall not be required to take any action hereunder or under any other related 51 instruments, or to prosecute or defend any suit in respect of this Agreement or any such instrument, unless indemnified to its satisfaction by the Lenders against costs, liability, and expense. If any indemnity in favor of the Agent shall become impaired, it may call for additional indemnity and cease to do the acts indemnified against until such additional indemnity is given. The Agent may delegate its duties hereunder to affiliates, agents or attorneys-in-fact selected in good faith by the Agent. Each Lender's obligation to indemnify the Agent as set forth above shall be unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment which such Lender may have or have had against the Agent, any other Lender, the Borrower, any Subsidiary or any other Person. Section 8.2 Exculpation. The Agent shall have no duties or ----------- responsibilities except those expressly set forth in this Agreement. Neither the Agent nor any of its directors, officers, employees, or agents (collectively, the "Related Parties") shall be liable to any Lender for any action taken or omitted to be taken by it under this Agreement, the other Loan Documents or any other related instrument, or in connection herewith or therewith, except for its own willful misconduct or gross negligence, nor shall the Agent or any Related Parties be responsible for any recitals or representations or warranties herein or therein, or for the effectiveness, enforceability, validity or due execution of this Agreement, the other Loan Documents or any other related instruments, nor shall the Agent or any Related Parties be obligated to make any inquiry respecting the performance by the Borrower of its obligations hereunder or thereunder. The Agent shall be entitled to rely upon advice of counsel concerning legal matters and upon any notice, consent, certificate, statement or writing which it believes to be genuine and to have been presented by a proper Person. The Agent may at any time request instructions from the Lenders with respect to any actions or approvals which, by the terms of this Agreement, the Agent is permitted or required to take or grant, and the Agent shall be absolutely entitled to refrain from taking any action or to withhold any approval and shall not be under any liability whatsoever to any Person for refraining from taking any action or withholding any approval under this Agreement or any of the other Loan Documents until it has received instructions from the Required Lenders. No Lender shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting hereunder or under any of the other Loan Documents in accordance with instructions from the (i) Required Lenders, or (ii) all of the Lenders to the extent required hereunder. Section 8.3 Successor. The Agent may resign as such at any time upon --------- at least ten days' prior notice to the Borrower and all Lenders, and the Agent may be removed at any time by written notice from the Required Lenders. If the Agent at any time shall resign or be removed, the Required Lenders may appoint another Lender as a successor Agent. If the Required Lenders do not make such appointment within thirty days, the resigning or removed Agent shall appoint a new Agent from among the Lenders or, if no Lender accepts such appointment, from among commercial banking institutions or trust institutions generally; provided such successor agent shall be a domestic commercial bank having a combined capital and surplus in excess of $500,000,000. Upon the acceptance of any appointment as Agent by a successor Agent, such successor Agent shall thereupon become the Agent hereunder and shall be entitled to receive from the prior Agent such documents of transfer and assignment as such successor Agent may reasonably request, and the resigning or removed Agent shall (i) be discharged from its duties and obligations under this Agreement and the other related instruments 52 and (ii) entitled to the continued benefit of this Article 8 with respect to all actions taken by it prior to its removal or resignation. Section 8.4 Credit Decisions. Each Lender represents and ---------------- acknowledges to the Agent that it has, independently of the Agent and each other Lender, and based on the financial information referred to in this Agreement and the other Loan Documents and such other documents, information and investigations as it has deemed appropriate, made its own credit decision to enter into this Agreement. Each Lender also acknowledges that it will, independently of the Agent and each Lender, and based on such documents, information and investigations as it shall deem appropriate at any time, continue to make its own credit decisions as to exercising or not exercising from time to time any rights and privileges available to it under this Agreement, the Loan Documents or any other related instruments. Section 8.5 Notices, etc. from Agent. The Agent shall give prompt ------------------------ notice to each Lender of each notice or request given to the Agent by the Borrower or by the Agent to the Borrower pursuant to the terms of this Agreement. The Agent will promptly distribute to each Lender each instrument received for its account and copies of all other communications received by the Agent from the Borrower for distribution to the Lenders by the Agent in accordance with the terms of this Agreement. Section 8.6 Security Documents. Each Lender hereby (i) authorizes ------------------ the Agent to enter into the Security Documents (including, without limitation, the Collateral Agency and Intercreditor Agreement) and to take all action contemplated thereby and (ii) confirms its appointment of PNC as Collateral Agent under the Collateral Agency and Intercreditor Agreement. Each Lender hereby confirms its agreement to be bound by the terms and conditions of the Collateral Agency and Intercreditor Agreement and the other Security Documents. Each Lender agrees that no Lender shall have any right individually to seek to realize upon the collateral granted for the benefit of the Lenders and Senior Noteholders pursuant to any of the Security Documents, it being understood and agreed that such rights and remedies may be exercised by the Agent for the benefit of the Agent, the Lenders and Senior Noteholders upon the terms of the Security Documents. ARTICLE 9 PURCHASING LENDER Section 9.1 Purchasing Lender. (a) Each Lender, in the ordinary ----------------- course of its commercial banking business and in accordance with applicable law, at any time may sell, assign and delegate to any Affiliate of such Lender and/or, with the consent of the Agent and the Borrower (which in each case shall not be unreasonably withheld), to one or more additional banks or financial institutions (each, a "Purchasing Lender") all or any part of such Lender's rights and obligations under this Agreement, the Notes and the other Loan Documents (provided, that any such sale, assignment and delegation shall be made with respect to each Loan and Commitment of such Lender hereunder) pursuant to an agreement ("Assignment and Acceptance") executed by the Purchasing Lender and such Lender. Such Assignment and Acceptance shall specify an effective date which is not less than five Business Days after the date of execution thereof. Upon such execution, delivery, and acceptance, from and after the effective date determined pursuant to such Assignment and Acceptance, (A) the Purchasing Lender 53 thereunder shall be a party hereto and, to the extent of the Commitments assigned and Loans sold pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender hereunder with a Commitment as set forth therein, and (B) the assigning Lender thereunder shall, to the extent of the Commitments assigned pursuant to such Assignment and Acceptance, 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 assigning Lender shall cease to be a party hereto). Such Assignment and Acceptance shall be deemed to amend this Agreement to the extent, and only to the extent, necessary to reflect the addition of such Purchasing Lender as a Lender and the resulting adjustment of Commitments arising from the purchase by such Purchasing Lender of all or a portion of the rights and obligations of such assigning Lender under this Agreement and the Notes. On or prior to the effective date determined pursuant to such Assignment and Acceptance, the Borrower, at its own expense, shall execute and deliver to the assigning Lender and Purchasing Lender in exchange for the surrendered Revolving Credit Note, a new Revolving Credit Note to the order of such Purchasing Lender in an amount equal to the Commitment assumed by it pursuant to such Assignment and Acceptance and, if the assigning Lender has retained a Commitment hereunder, a new Note to the order of the assigning Lender in an amount equal to the Commitment retained by it hereunder. Such new Note or Notes shall be dated the Closing Date and otherwise shall be in the form of the Note or Notes replaced thereby. The Note or Notes surrendered by the assigning Lender shall be returned to the Borrower marked "replaced." The assigning Lender shall provide the Agent with a copy of each Assignment and Acceptance. (b) If, pursuant to this Agreement, any interest in this Agreement or any other Loan Documents is assigned to any transferee which is organized under the laws of any jurisdiction other than the United States or any State thereof, the transferor Lender shall cause such transferee, concurrently with the effectiveness of such transfer, (i) to represent to the transferor Lender (for the benefit of the transferor Lender, the Agent and the Borrower) that under applicable law and treaties no taxes will be required to be withheld by the Agent, the Borrower or the transferor Lender with respect to any payments to be made to such transferee in respect of the Loans, (ii) to furnish to the transferor Lender, the Agent and the Borrower Form W-8ECI or W-8BEN (Ownership Exemption or Reduced Rate Certificate) (wherein such transferee claims entitlement to complete exemption from U.S. federal withholding tax on all interest payments hereunder) and (iii) to agree (for the benefit of the transferor Lender, the Agent and the Borrower) to provide the transferor Lender, the Agent and the Borrower a new Form W-8ECI or W-8BEN upon the expiration or obsolescence of any previously delivered form and comparable statements in accordance with applicable U.S. laws and regulations and amendments duly executed and completed by such transferee, and to comply from time to time with all applicable U.S. laws and regulations with regard to such withholding tax exemption. Section 9.2 Disclosure of Information. Each Person constituting the ------------------------- Borrower authorizes the Lenders to disclose to any Purchasing Lender and any prospective Purchasing Lender any and all information relating to each Person constituting the Borrower and its Affiliates which has been furnished to the Agent and the Lenders by or on behalf of each Person constituting the Borrower; provided that any such Purchasing Lender agrees to keep any 54 information relating to any Person constituting the Borrower received hereunder confidential except as may be required by any Requirement of Law. Section 9.3 Pledges to Federal Reserve Bank. Nothing herein shall ------------------------------- prohibit any Lender from pledging or assigning any Note to any Federal Reserve Bank in accordance with applicable law. ARTICLE 10 MISCELLANEOUS Section 10.1 Amendments and Waivers. (a) Subject to the provisions ---------------------- of the Collateral Agency and Intercreditor Agreement, no amendment or waiver of any provision of this Agreement, or any of the other Loan Documents, nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Required Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent, unless in writing and signed by all the Lenders, shall do any of the following: (A) waive any of the conditions specified in Section 4.1 (though the Agent alone may defer the fulfillment of such conditions until the date of the applicable borrowing), (B) increase the amount or extend the term of the Commitments of the Lenders or subject the Lenders to any additional obligations, (C) reduce the principal of, or interest on, the Loans, the Reimbursement Obligations or any of the Notes, or reduce any fees payable hereunder, (D) postpone any date fixed for any payment in respect of principal of, or interest on, the Loans, the Reimbursement Obligations or any of the Notes, as the case may be, or fees payable hereunder, (E) change any of the components which shall be required for the Lenders or any Lender to take any action hereunder, (i.e., the Percentage of the Commitments, or the aggregate unpaid principal amount of the Loans, or the number of Lenders), (F) release all or any substantial portion of the collateral subject to any Security Document (other than as required by Section 14 of the Collateral Agency and Intercreditor Agreement and other than any such collateral which is permitted to be disposed of pursuant to the terms hereof or any release which is consented to by all of the "Secured Parties" (as defined in the Collateral Agency and Intercreditor Agreement)) or (G) amend this Section 10.1; and provided, further, that no amendment, waiver or consent shall, unless in writing and signed by the Agent in addition to the Lenders hereinabove required to take such action, affect the rights or duties of the Agent under this Agreement. Without derogating from the foregoing, no amendment to this Agreement shall be effective unless signed by each Person constituting the Borrower. (b) The liability of each Person constituting the Borrower hereunder shall be absolute and unconditional irrespective of: (1) any change in the time, manner, or place of payment or in any other term of, or any other amendment or waiver of, or any consent to departure from any of the Loan Agreement, any of the Loan Documents or any Obligations; (2) any change in the name, Capital Stock, Certificate of Incorporation or by-laws, as the case may be, of any Person constituting the Borrower; 55 (3) the insolvency of, or the voluntary or involuntary bankruptcy, assignment for the benefit of creditors, reorganization or other similar proceedings affecting any Person constituting the Borrower or any of their respective assets; or (4) any other circumstance or claim which might otherwise constitute a defense available to, or a discharge of, any Person constituting the Borrower in respect of the Obligations. (c) No payment made by any Person constituting the Borrower, or received or collected by the Agent or any of the Lenders, from any Person constituting the Borrower by virtue of any action or proceeding or set-off or application at any time in reduction of or in payment of the Obligations shall be deemed to modify, release or otherwise affect the liability of any Person constituting the Borrower under the Loan Documents. Notwithstanding any such payments received or collected by the Agent or any of the Lenders in connection with the Obligations, each Person constituting the Borrower shall remain liable for the Obligations until all Obligations are paid in full. The joint and several obligation of each Person constituting the Borrower shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Obligations is rescinded or must otherwise be returned by the Agent or the Lenders upon the insolvency, bankruptcy or reorganization of any Person constituting the Borrower or otherwise, all as though such payment had not been made. (d) The obligations and liabilities of each Person constituting the Borrower hereunder shall not be released, discharged, limited or in any way affected by anything done, suffered or permitted by the Agent or Lenders in connection with any monies or credit advanced by the Agent or Lenders to any Person constituting the Borrower or any security therefor, including, without limitation, any loss of, or in respect of, any security received by the Agent or any of the Lenders from any Person constituting the Borrower. It is agreed that the Lenders and/or the Agent, without releasing, discharging, limiting or otherwise affecting in whole or in part the obligations and liabilities of any Person constituting the Borrower hereunder, may, without limiting the generality of the foregoing: (A) grant time, renewals, extensions, indulgences, releases and discharges to any Person constituting the Borrower; (B) take or abstain from taking security or collateral for the Obligations or from perfecting security or collateral for the Obligations; (C) release, discharge, compromise or otherwise deal with (with or without consideration) any and all collateral, mortgages, indemnities, guaranties or other security given by any Person constituting the Borrower with respect to the Obligations; (D) accept compromises from any Person constituting the Borrower; (E) after an Event of Default, apply all monies at any time received from any Person constituting the Borrower or from any guaranties, indemnities or any 56 collateral upon such part of the Obligations as the Lenders and/or Agent may see fit or change any such application in whole or in part from time to time as the Agent or such Lenders may see fit; or (F) otherwise deal with each Person constituting the Borrower and all other Persons and collateral as the Lenders and/or Agent may see fit; (e) neither the Agent nor any of the Lenders shall be bound or obligated to exhaust recourse against any Person constituting the Borrower or other Persons or any security, guarantee, indemnity, mortgage or collateral it may hold or take any other action before being entitled to payment from each Person constituting the Borrower hereunder and each Person constituting the Borrower hereby waives any requirement that would otherwise compel the Agent or the Lenders to do any of the foregoing. Section 10.2 Notices. All notices, requests and demands to or upon ------- the respective parties hereto to be effective shall be in writing (or by telex, fax or similar electronic transfer confirmed in writing), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made (a) when delivered by hand or (b) if given by mail, three Business Days after deposited in the mails by certified mail, return receipt requested, postage prepaid, or (c) if by telex, fax or similar electronic transfer, when sent and receipt has been confirmed, addressed as follows. Notwithstanding the foregoing, any notice, demand or request to or upon the Agent pursuant to Section 2.3 or Section 2.7 may be given to the Agent by telephone, provided that the Borrower immediately follows such telephone instructions with a delivery of written notice received by the Agent prior to the extension of Credit requested by one of the methods of delivery otherwise authorized herein. If to the Borrower: Guest Supply, Inc. 4301 U.S. Highway One Box 902 Monmouth Junction, New Jersey 08852-0902 Attention: Paul Xenis Phone: 609-514-9696 Fax: 609-514-7377 with a copy to: Haythe & Curley 237 Park Avenue New York, New York 10017 Attention: Bradley P. Cost, Esq. Phone: 212-880-6000 Fax: 212-682-0200 57 If to the Agent: PNC Bank, National Association 2 Tower Center Boulevard, 16/th/ Floor East Brunswick, New Jersey 08816-1094 Attention: Oliver B. Taylor Phone: 732-220-3440 Fax: 732-220-3621 If to the Lenders: PNC Bank, National Association 2 Tower Center Boulevard 16/th/ Floor East Brunswick, New Jersey 08816-1094 Attention: Oliver B. Taylor Phone: 732-220-3440 Fax: 732-220-3621 and First Union National Bank 370 Scotch Road West Trenton, New Jersey 08628 Attention: Richard F. Newman, Senior Vice President Phone: 908-598-3888 Fax: 908 598-3085 and Fleet Bank, N. A. 1125 Route 22 West Bridgewater. New Jersey 08807 Attention: Craig W. Heal, Vice President Phone: (908) 253-4427 Fax: (908) 253-4118 provided that any notice, request or demand to or upon the Agent pursuant to - -------- Section 2.3, Section 2.5, Section 2.8, Section 2.9(a), Section 2.10 or Section 2.18(a) shall not be effective until received. Any party may change its address for notices by notice to the other parties hereto in the manner provided in this subsection. Any notice to the Borrower or given by the Borrower shall be binding upon, and deemed received or given by, all Persons constituting the Borrower if given by any Person constituting the Borrower (in the case of notices from the Borrower) or delivered to any Person constituting the Borrower at the address set forth herein (or such other address noticed to the Lender as provided herein) and no separate notice to or by any other Person constituting the Borrower shall be necessary for the binding effect or deemed receipt of a notice to or by the Borrower. 58 Section 10.3 No Waiver; Cumulative Remedies. ------------------------------ (a) No failure to exercise and no delay in exercising, on the part of the Agent or any Lender, any right, remedy, power or privilege hereunder shall operate as a waiver thereof. (b) No single or partial exercise of any right, remedy, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. (c) The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. Section 10.4 Survival of Representations and Warranties. All ------------------------------------------ representations and warranties made hereunder and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the Notes. Section 10.5 Payment of Expenses and Taxes. The Borrower agrees jointly ----------------------------- and severally: (a) to pay or reimburse the Agent for all its reasonable out-of- pocket costs and expenses incurred in connection with the negotiation, preparation and execution of, and any proposed or effective amendment, supplement or modification to, this Agreement and the Notes and the other Loan Documents and any other documents prepared in connection herewith or therewith, and the consummation of the transactions contemplated hereby and thereby, including, without limitation, the reasonable fees and disbursements of counsel to the Agent; (b) to pay or reimburse the Agent and each Lender for all reasonable out-of-pocket costs and expenses incurred by each of them in connection with the enforcement or preservation of any rights under this Agreement, the Notes, the other Loan Documents and any such other documents, including, without limitation, reasonable fees and disbursements of counsel to the Agent and each Lender; (c) to pay, indemnify, and hold the Agent and each Lender harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other similar taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, the Notes, the other Loan Documents and any such other documents; and (d) to pay, indemnify, and hold the Agent and each Lender harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions (whether sounding in contract, in tort or on any other ground), judgments, suits, reasonable out-of-pocket costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of, or in any other way arising out of or 59 relating to, (i) this Agreement, the Notes, the other Loan Documents or any other documents contemplated by or referred to herein or therein, (ii) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of any Loan, (iii) any investigation, litigation or proceeding relating to any acquisition or proposed acquisition by GSI or any of its Subsidiaries of all or a portion of the Capital Stock or all or substantially all of the assets of any Person, regardless of whether any Lender is a party thereto or (iv)any action taken or omitted to be taken by the Agent or any Lender with respect to any of the foregoing; (all the foregoing, collectively, the "Indemnified Liabilities"), and if and to the extent that the foregoing undertaking may be unenforceable for any reason, the Borrower hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law; provided, that the Borrower shall have no obligation hereunder to the Agent or any Lender with respect to Indemnified Liabilities arising from the gross negligence or willful misconduct of the Agent or such Lender. The agreements in this subsection shall survive repayment of the Notes and all other amounts payable hereunder. Section 10.6 Successors and Assigns. This Agreement shall be binding upon ---------------------- and inure to the benefit of the Borrower, the Agent, the Lenders, all future holders of the Notes and their respective successors and assigns, except that no Person constituting the Borrower may assign, transfer or delegate any of their rights or obligations under this Agreement without the prior written consent of the Lenders other than pursuant to the operation of law by reason of a transaction permitted by Section 6.4. Section 10.7 Set-off/Sharing. --------------- (a) In addition to any rights and remedies of the Agent and Lenders provided by law, each Lender shall have the right, without prior notice to any Person constituting the Borrower, any such notice being expressly waived by each Person constituting the Borrower to the extent permitted by applicable law, upon any amount becoming due and payable by any Person constituting the Borrower hereunder or under the Notes or the other Loan Documents (whether at the stated maturity, by acceleration or otherwise) to set-off and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Lender or any branch or agency of such Lender to or for the credit or the account of any Person constituting the Borrower. Each Lender agrees promptly to notify the Borrower and Agent after any such set-off and application made by such Lender, provided that the failure to give such notice shall not affect the validity of such set-off and application. (b) Subject to the terms of the Collateral Agency and Intercreditor Agreement, each of the Lenders agree among themselves that with respect to all amounts received by them which are applicable to the payment or satisfaction of all or part of the Loans or Reimbursement Obligations, interest thereon, any fees or any other amount payable hereunder or under the other Loan Documents, equitable adjustment will be made so that, in effect, all such amounts will be shared among the Lenders in proportion to their respective Percentages, whether received by 60 voluntary payment, by the exercise of the right of setoff or banker's lien, by counterclaim or by the enforcement of their rights hereunder or under the other Loan Documents. (c) Subject to the terms of the Collateral Agency and Intercreditor Agreement, if any Lender shall, through the exercise of any right of counterclaim, setoff, banker's lien or otherwise, receive payment or reduction of a proportion of the aggregate amount of the Loans or interest thereon due to such Lender, or any other amount payable hereunder, as the case may be, which is greater than the proportion received by any other Lender or Lenders in respect to the aggregate amount of any Loan or Reimbursement Obligation and interest thereon due such Lender, or with respect to any other amount payable hereunder, that Lender receiving such proportionately greater payment shall notify the other Lenders and the Agent of such receipt and purchase participations (which it shall be deemed to have done simultaneously upon the receipt of such excess payment) in the Loans and Reimbursement Obligations held by the other Lender or Lenders so that all such recoveries of principal and interest with respect to the Loans shall be proportionate to each Lender's respective Percentage; provided that if all or part of such proportionately greater payment received by such purchasing Lender is thereafter recovered from such Lender, those purchases shall be rescinded and the purchase prices paid for such participations shall be returned to the purchasing Lender to the extent of such recovery, together with a pro rata portion (based on the amount of each participation) of the interest thereon (or other amounts), if any, recovered from the purchasing Lender. (d) The Borrower expressly consents to the arrangement described in this Section 10.7. Section 10.8 Original Agreement. On the Effective Date, the commitment of ------------------ the Lenders under the Original Agreement to extend credit to the Borrower shall terminate and the Original Agreement and all security and other agreements entered into connection therewith shall terminate. Section 10.9 Counterparts. This Agreement may be executed by one or more ------------ of the parties to this Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Section 10.10 Severability. Any provision of this Agreement which is ------------ prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Section 10.11 Integration. This Agreement represents the agreement of the ----------- Borrower, the Agent and the Lenders with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Agent or any Lender relative to subject matter hereof not expressly set forth or referred to herein or in the other Loan Documents. 61 Section 10.12 Governing Law. This Agreement and the Notes and the rights ------------- and obligations of the parties under this Agreement and the Notes shall be governed by, and construed and interpreted in accordance with, the law of the State of New Jersey. Section 10.13 Submission To Jurisdiction; Waivers. Each Person ----------------------------------- constituting the Borrower hereby irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to or arising out of this Agreement and the other Loan Documents to which it is a party, or the conduct of any party with respect thereto, or for recognition and enforcement of any judgement in respect thereof, to the nonexclusive general jurisdiction of the Courts of the State of New Jersey, the courts of the United States of America for the District of New Jersey, and appellate courts from any thereof; (b) consents that any such action or proceeding may be brought in such courts and waives to the fullest extent permitted by law any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the Borrower at the address set forth in Section 10.1 or at such other address of which the Lender shall have been notified pursuant thereto; (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and (e) waives, to the maximum extent permitted by law, any right it may have to claim or recover in any legal action or proceeding referred to in this subsection any special, exemplary, punitive or consequential damages. Section 10.14 Acknowledgments. Each Person constituting the Borrower --------------- hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the Notes and the other Loan Documents; (b) neither the Agent nor any Lender has any fiduciary relationship to any Person constituting the Borrower, and the relationship between the Agent and the Lenders, on one hand, and each Person constituting the Borrower, on the other hand, is solely that of debtor and creditor; and (c) no joint venture exists among any Person constituting the Borrower, the Agent or any Lender. 62 Section 10.15 Waivers of Jury Trial. EACH PERSON CONSTITUTING THE --------------------- BORROWER, THE AGENT AND EACH LENDER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR THE NOTES OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. Borrowers: --------- GUEST SUPPLY, INC. By:______________________ Name: Title: GUEST PACKAGING, INC. By:______________________ Name: Title: BRECKENRIDGE-REMY CO. By:______________________ Name: Title: GUEST DISTRIBUTION SERVICES, INC. By:______________________ Name: Title: KAPADIA ENTERPRISES, INC. By:______________________ Name: Title: By:______________________ Name: Title: 63 Lenders: ------- PNC BANK, NATIONAL ASSOCIATION By:______________________ Name: Title: FIRST UNION NATIONAL BANK By:______________________ Name: Title: FLEET BANK, N.A. By:______________________ Name: Title: Agent: ----- PNC BANK, NATIONAL ASSOCIATION By:______________________ Name: Title: 64 PRICING SCHEDULE "Applicable Margin" means for any date, the rates set forth below in the row opposite such term and in the column corresponding to the "Pricing Level" that applies at such date: - ----------------------------------------------------------------------- Level I Level II Level III Level IV Level V - ----------------------------------------------------------------------- Applicable Eurodollar plus .75% plus 1.00% plus 1.25 plus 1.50 plus 1.75 Margin - ----------------------------------------------------------------------- Applicable Prime Rate .50% .25 .00% .00% .00% Margin - ----------------------------------------------------------------------- Applicable Fee Rate .15% .15% .25% .25% .25% - ----------------------------------------------------------------------- For purposes of this Schedule, the following terms have the following meanings: "Level I Pricing" applies at any date if the ratio of Funded Debt to EBITDA on such date is less than 1.75:1. "Level II Pricing" applies at any date if (i) the ratio of Funded Debt to EBITDA in effect on such date is less than 2.25:1 and (ii) Level I Pricing does not apply. "Level III Pricing: applies at any date if (i) the ratio of Funded Debt to EBITDA in effect on such date is less than 2.75:1 and (ii) neither Level I Pricing nor Level II Pricing applies. "Level IV Pricing" applies at any date if (i) the ratio of Funded Debt to EBITDA in effect on such date is less than 3.25:1 and (ii) none of Level I Pricing, Level II Pricing and Level III Pricing applies. "Level V Pricing" applies at any date if, on such date, the ratio of Funded Debt to EBITDA is equal to or greater than 3.25:1.00. Exhibit C [Form of Issuance Request] PNC Bank, National Association Two Tower Center Boulevard East Brunswick, New Jersey 08816 _______ __, 199_ Attention: __________________ Request for Issuance of Letter of Credit under Amended and Restated Revolving Credit Agreement dated as of April 21, 1999 ----------------------------------------------------- Dear Sirs: Pursuant to Section 2.15 of that certain Amended and Restated Revolving Credit Agreement dated as of April 21, 1999 among Guest Supply, Inc., certain Subsidiaries, PNC Bank, National Association, First Union National Bank, and Fleet Bank, N.A., as Lenders, and PNC Bank, National Association, as Agent (as modified, amended or supplemented from time to time, the "Agreement;" the terms defined in the Agreement being used herein as therein defined), the undersigned requests that the Issuer issue a [Letter of Credit/documentary Letter of Credit] on ____________, 199_, to ________________, as beneficiary, for the account of the undersigned, in the face amount of _________________ (U.S.$_____________), and with an expiration date of _____________, 19__ [not more than earlier of 12 months or Maturity Date]. The undersigned hereby certifies that (i) the Letter of Credit is to be issued to support financial obligations of the undersigned incurred in the ordinary course of business and relate to ____________; (ii) the face amount of the Letter of Credit requested hereby when added to the Letter of Credit Outstandings will not exceed the Letter of Credit Availability on the requested issuance date; (iii) the face amount of the Letter of Credit requested hereby when added to all Revolving Credit Loans and Letter of Credit Outstandings does not exceed the aggregate amount of the Revolving Loan Commitment; (iv) the representations and warranties made by the Borrower in or in connection with the Agreement are true, correct and complete in all material respects on and as of the date hereof to the same extent as though made on and as of the date hereof (except for representations and warranties which speak as of another date, in which case such representations and warranties were true in all material respects as of such date); (v) no Default or Event of Default has occurred and is continuing under the Agreement or will result from the issuance of the Letter of Credit requested by this certificate; and (vi) the undersigned has performed in all material respects all agreements and satisfied all conditions under the Agreement to be performed by the undersigned on or before the date hereof. [If the Letter of Credit requested is a documentary Letter Credit, include the following: Drafts To Be Drawn At: ____ Sight ____ Other: ______________________ Commercial Invoices: ____________________________ Copies Bills of Lading/1/: Insurance/2/: Other/3/: Covering/4/: __________________________ /1/ Indicate whether "Ocean Bills of Lading," "Railway Bills of Lading," "Truck Bills of Lading," "Airway Bill," "Parcel Post," etc. Unless indicated otherwise, Lender will require (a) Ocean Bills of Lading: a full set of clean, on board Ocean Bills of Lading to shipper's order, blank endorsed and marked notify (buyer's name and address) and "freight collect" or "freight prepaid," (b) Air Way Bills: consigned to buyer, (c) Railway or Truck Bills of Lading: consigned to buyer, or (d) Parcel Post Receipt: addressed to buyer. /2/ If insurance is to be covered by you, indicate "Insurance covered by buyer;" if the insurance is to be covered by the beneficiary, indicate "Insurance Policy or Certificate Required," and in addition, the risks that are to be covered. /3/ Indicate particulars of any other document that may be required including the number of copies. /4/ Indicate commodity to be shipped and quantity. Be as brief as possible. If necessary, mention contract or sales or order number(s) indicating whether they are your numbers or those of the beneficiary. Preferably, details such as grades, quantity and base prices, etc. should be omitted. Shipping terms should also be indicated here, i.e., "F.O.B. - vessel -(Port of Shipment)" or "C.I.F. - (Port of Destination)." In addition, the latest shipping date, a particular shiipping line, or a particular vessel may also be mentioned here. 2 Shipment/5/: From: To: In Transit To: Partial Shipment: ____ Allowed ____ Not Allowed Transhipments: ____ Allowed ____ Not Allowed Special Conditions/6/: Documents must be presented for negotiation ____ days after the date of bills of lading.] Capitalized terms used herein without definition shall have the meanings set forth in the Agreement. Dated: _______ __, 199_. [ ]/*/ By:__________________________ Name: Title: ___________________________ /5/ Insert name of loading port, or name of city (if unknown, name of country). Indicate the name of the destination of the goods; if destination is other than the port of entry, mention the port of entry, e.g., "to New York in transit to Toronto." If port of entry is not known, general terms such as "North American Port" or "U.S. East Coast Port," etc. may be used. /6/ If the amount of the credit represents a percentage of the total cost of the goods, so indicate, e.g., "representing 60% of invoice order," etc. Any other special condition should also be listed. /*/ Insert corporate name of requesting entity. 3 Exhibit D [Form of Documentary Letter of Credit] _________________, 19__ IRREVOCABLE DOCUMENTARY LETTER OF CREDIT PNC Bank, National Association ___________________________ ___________________________ LETTER OF CREDIT NO. ______________ [Addressee Beneficiary] Attention: _____________ Gentlemen: We hereby issue this Documentary Letter of Credit No. ____________ ("Letter of Credit") at the request of and for the account of [______________]/*/, in the aggregate amount of U.S. _______________ and _____/100 Dollars (U.S.$_______________.__), (the "Stated Amount") which is available to you by your draft[s] (in the form of Annex A attached hereto) when presented and accompanied by the original of this Documentary Letter of Credit and the following documents: Commercial Invoices: _______________ Copies Bills of Lading: Insurance: _______________________ /*/ Insert corporate name of account party. Other: Covering: Shipment: From: To: In Transit To: Partial Shipment: ____ Allowed ____ Not Allowed [The/All] draft[s] must be marked "Drawn under PNC Bank, National Association Documentary Bank Letter of Credit No. ____________ dated __________, 19__" and purportedly signed by your duly authorized officer. Such draft[s] together with the required documentation must be presented to us at our office located at ________________________________, Attention: __________________, on or before the earlier of (x) ____________, 19__, and (y) the date you notify us in writing that the obligations covered by this Letter of Credit have been terminated, paid or otherwise satisfied in full (the earlier of such dates, the "Expiration Date"). The Stated Amount shall also be irrevocably reduced in part upon your written notice to us that the obligations covered by this Documentary Letter of Credit have been paid or otherwise satisfied in part (such reduction being in the amount set forth in your notice). Your draft[s] for payment under this Documentary Letter of Credit may be made by you on or prior to the Expiration Date hereof at any time during our business hours at our aforesaid address on a Business Day. As used herein, the term "Business Day" shall mean a day on which we are open for the purpose of conducting a banking business at our above address. If your draft is presented to us by you on a Business Day on or prior to the Expiration Date in accordance with the terms of this Documentary Letter of Credit (i) after 10:00 a.m. but before 1:00 p.m. New Jersey time payment shall be made to you of the amount specified in your draft (which specified amount shall not exceed the Stated Amount) in immediately available funds, not later than 10:00 a.m. New Jersey time on the next Business Day, or (ii) after 1:00 p.m. New Jersey time but prior to our close of business on that Business Day, payment shall be made to you of the amount specified in your draft (which specified amount shall not exceed the Stated Amount) in immediately available funds, not later than 3:00 p.m. New Jersey time on the next Business Day. 2 If a draft made by you hereunder does not conform, in any instance, to the terms and conditions of this Documentary, Letter of Credit, we shall give you prompt notice that your demand for payment was not effected in accordance with the terms and conditions of this Documentary Letter of Credit and that we will upon your instructions hold any documents at your disposal or return the same to you. Upon your being notified by us that your demand for payment was not effected in conformity with this Documentary Letter of Credit, you may correct any such nonconforming demand for payment hereunder to the extent that you are entitled to do so. You shall be assessed a handling charge of $__________ for each set of documents presented to us for payment under this Documentary Letter of Credit in which discrepancies are noted by us after our examination thereof and it becomes necessary for us to send documents to or otherwise communicate with [name of account party] for approval of payment under this Documentary Letter of Credit. The handling charge shall be deducted from any remittance made by us to you under this Documentary Letter of Credit. Only you may make a drawing under this Documentary Letter of Credit. Upon our payment to you or to your account as you have demanded hereunder, we shall be fully discharged of our obligation under this Documentary Letter of Credit with respect to such draft. By paying to you the amount demanded in accordance herewith, we make no representation as to the correctness of the amount demanded. This Documentary Letter of Credit may not be transferred or assigned. This Documentary Letter of Credit shall be promptly surrendered to us by you on the Expiration Date if no demand for payment has been made hereunder. This Documentary Letter of Credit sets forth in full our entire undertaking, and such undertaking shall not in any way be modified, amended, amplified or limited by reference to any other document, instrument or agreement referred to herein or otherwise, except only the draft referred to herein in the form of Annex A hereto and the Uniform Customs referred to below, and any such reference shall not be deemed to incorporate herein by reference any document, instrument or agreement except for such draft and the Uniform Customs. [This Documentary Letter of Credit is subject to the Uniform Customs and Practices for Documentary Credits, 1993 Revision, International Chamber of Commerce Publication No. 500, (the "Uniform Customs") which is incorporated herein by reference.] This Documentary Letter of 3 Credit shall be deemed to be a contract made under the laws of the State of New York and shall [, as to matters not governed by the Uniform Customs,] be governed by and construed in accordance with the laws of said State. Very truly yours, PNC BANK, NATIONAL ASSOCIATION By:__________________________________ Name: Title: 4 CERTIFICATE FOR DRAWING Annex A to PNC Bank, National Association Documentary Letter of Credit No. ______________ DRAWN UNDER PNC BANK, NATIONAL ASSOCIATION DOCUMENTARY LETTER OF CREDIT NO. _____________ DATED _________, 19__. PNC Bank, National Association Two Tower Center Boulevard East Brunswick, New Jersey 08816 Attention: ________________________ The undersigned, [Name], [Title], a duly authorized officer acting on behalf of _______________________ (the "Beneficiary"), hereby certifies to PNC Bank, National Association (the "Issuer"), with reference to Documentary Letter of Credit No. ________________ (the "Letter of Credit") issued by the Issuer in favor of the Beneficiary, as follows: 1. Payment to the Beneficiary under the Letter of Credit is requested in an amount equal to U.S. $____________. 2. The amount requested hereby does not exceed the Stated Amount under the Letter of Credit. 3. The Letter of Credit has not terminated or expired. 4. Payment of the amount demanded hereby should be made by [wire transfer on the Federal Reserve wire system in immediately available funds/certified or bank check] to account number _________ located at ____________. Said [wire transfer/check] shall be made payable to the order of the Beneficiary. IN WITNESS WHEREOF, the Beneficiary has executed and delivered this certificate this ___ day of _______________ 1995. [Beneficiary] By:______________________ Name: Title: Exhibit E [Form of Standby Letter of Credit] _______ __, 199_ IRREVOCABLE LETTER OF CREDIT PNC Bank, National Association _____________________________ _____________________________ IRREVOCABLE LETTER OF CREDIT NO. _________________ [Addressee Beneficiary] Attention: _______________ Gentlemen: We hereby establish, effective immediately, by order of and for the account of [_________________]/*/, our irrevocable standby Letter of Credit No. _______________ ("Letter of Credit") in the aggregate amount of U.S. ____________________ and ____/100 Dollars (U.S. $_______________.__) (such amount being herein called the "Stated Amount") in your favor. You may demand payment under this Letter of Credit one time only and such demand will be duly honored by us upon your presentation to us of your certificate in the form of Annex A attached hereto marked "Drawn under PNC Bank, National Association Irrevocable Letter of Credit No. _________ dated ______________, 19__" and purportedly signed by your duly authorized officer, together with the original of this Letter of Credit and all amendments, if any, thereto, at our office located at ________________________, Attention: __________________, on or before the earlier of (x) _____________, 19__ and (y) the date you notify us in writing that the obligations covered by this Letter of Credit have been terminated, paid or otherwise satisfied in full (the earlier of such dates, the "Expiration Date"). The Stated Amount shall also be irrevocably reduced in part upon your written notice to us that the ____________________________ /*/ Insert corporate name of account party. obligations covered by this Letter of Credit have been paid or otherwise satisfied in part (such reduction being in the amount set forth in your notice). Your demand for payment under this Letter of Credit may be made by you on or prior to the Expiration Date hereof at any time during our business hours at our address set forth above on a Business Day. As used herein, the term "Business Day" shall mean a day on which we are open for the purpose of conducting a banking business at the above address. If your demand for payment is presented to us by you on a Business Day on or prior to the Expiration Date in accordance with the terms of this Letter of Credit (i) after 10:00 a.m. but before 1:00 p.m. New Jersey time, payment shall be made to you of the amount specified in your demand for payment (which specified amount shall not exceed the Stated Amount) in immediately available funds, not later than 10:00 a.m. New Jersey time on the next Business Day, or (ii) after 1:00 p.m. New Jersey time on a Business Day but prior to our close of business on that Business Day, payment shall be made to you of the amount specified in your demand for payment (which specified amount shall not exceed the Stated Amount) in immediately available funds, not later than 3:00 p.m. New Jersey time on the next Business Day. If a demand for payment made by you hereunder does not, in any instance, conform to the terms and conditions of this Letter of Credit, we shall give you prompt notice that your demand for payment was not effected in accordance with the terms and conditions of this Letter of Credit, stating the reasons therefor, and that we will upon you instructions hold any documents at your disposal or return the same to you. Upon your being notified by us that your demand for payment was not effected in conformity with this Letter of Credit, you may correct any such nonconforming demand for payment hereunder to the extent that you are entitled to do so. Only you may make a drawing under this Letter of Credit. Upon our payment to you or to your account as you have demanded hereunder, we shall be fully discharged of our obligation under this Letter of Credit with respect to such demand for payment and we shall not thereafter be obligated to make any further payment to you or any other person. By paying to you the amount demanded in accordance herewith, we make no representation as to the correctness of the amount demanded. This Letter of Credit may not be transferred or assigned. This Letter of Credit shall be promptly surrendered to us by you on the Expiration Date if no demand for payment has been made hereunder. This Letter of Credit sets forth in full our entire undertaking, and such undertaking shall not in any way be modified, amended, amplified or limited by reference to any other document, instrument or agreement referred to herein or otherwise, except only the certificate referred to herein in the form of Annex A hereto and the Uniform Customs referred to below, and any such reference shall not be deemed to incorporate herein by reference any document, instrument or agreement except for such certificate and the Uniform Customs. 2 [This Letter of Credit is subject to the Uniform Customs and Practices for Documentary Credits, 1993 Revision, International Chamber of Commerce Publication No. 500, (the "Uniform Customs"), which is incorporated herein by reference.] This Letter of Credit shall be deemed to be a contract made under the laws of the State of New Jersey and shall [, as to matters not governed by the Uniform Customs,] be governed by and construed in accordance with the laws of said State. Very truly yours, PNC BANK, NATIONAL ASSOCIATION By:______________________ Name: Title: 3 CERTIFICATE FOR DRAWING Annex A to PNC Bank, National Association Irrevocable Letter of Credit No. ____________ DRAWN UNDER PNC BANK, NATIONAL ASSOCIATION IRREVOCABLE LETTER OF CREDIT NO. __________ DATED _______________, 19__. PNC Bank, National Association Two Tower Center Boulevard East Brunswick, New Jersey 08816 Attention: __________________ The undersigned, [name] , [title] , a duly authorized officer acting -------- --------- on behalf of ______________________ (the "Beneficiary"), hereby certifies to PNC Bank, National Association (the "Issuer"), with reference to Irrevocable Letter of Credit No. ____________ (the "Letter of Credit") issued by the Issuer in favor of the Beneficiary, as follows: 1. Payment to the Beneficiary under the Letter of Credit is demanded in an amount equal to U.S. $____________. 2. The amount requested hereby does not exceed the Stated Amount under the Letter of Credit. 3. The Letter of Credit has not terminated or expired. 4. Payment of the amount demanded hereby should be made by [wire transfer on the Federal Reserve wire system in immediately available funds/certified or bank check] to account number ____________ located at _____________. Said [wire transfer/check] shall be made payable to the order of the Beneficiary. IN WITNESS WHEREOF, the Beneficiary has executed and delivered this certificate this ____ day of _____________ 19__. [Beneficiary] By:______________________ Name: Title: SCHEDULE I ---------- Closing Date to First Commitment Reduction Date LENDER FACILITY PERCENTAGE COMMITMENT ------ -------- ---------- ---------- PNC Revolving Credit .50 $17,500,000 First Union Revolving Credit .30 $10,500,000 Fleet Bank Revolving Credit .20 $ 7,000,000 ------------------------------- Total $35,000,000 First Commitment Reduction Date to Second Commitment Reduction Date LENDER FACILITY PERCENTAGE COMMITMENT ------ -------- ---------- ---------- PNC Revolving Credit .50 $12,500,000 First Union Revolving Credit .30 $ 7,500,000 Fleet Bank Revolving Credit .20 $ 5,000,000 ------------------------------- Total $25,000,000 Second Commitment Reduction Date and Thereafter LENDER FACILITY PERCENTAGE COMMITMENT ------ -------- ---------- ---------- PNC Revolving Credit .50 $ 7,500,000 First Union Revolving Credit .30 $ 4,500,000 Fleet Bank Revolving Credit .20 $ 3,000,000 ------------------------------- Total $15,000,000 The Percentage of any Lender as of any date shall be equal to a fraction (expressed as a decimal) the numerator of which shall be, in the case of outstanding Loans, the outstanding principal amount of Loans and Letter of Credit Outstandings held by such Lender and the denominator of which shall be the aggregate outstanding principal amount of all Loans and Letter of Credit Outstandings held by all Lenders. If no Loans are outstanding, the Percentage of any Lender as of any date shall be equal to a fraction (expressed as a decimal) the numerator of which shall be the aggregate principal amount of Loans such Lender is committed to fund and the denominator of which shall be the aggregate principal amount of Loans all Lenders are committed to fund. REVOLVING CREDIT NOTE East Brunswick, New Jersey $17,500,000 April 21, 1999 FOR VALUE RECEIVED, the undersigned, GUEST SUPPLY, INC., a New Jersey corporation, GUEST PACKAGING, INC., a New Jersey corporation, BRECKENRIDGE-REMY CO., a Delaware corporation, GUEST DISTRIBUTION SERVICES, INC., a Delaware corporation and KAPADIA ENTERPRISES, INC. a California corporation (collectively, the "Borrower"), hereby jointly and severally, unconditionally promise to pay to the order of PNC Bank, National Association ("PNC") at the Payment Office, in lawful money of the United States of America and in immediately available funds, the principal amount of SEVENTEEN MILLION FIVE HUNDRED THOUSAND AND 00/100 ($17,500,000) DOLLARS, or, if less, the aggregate unpaid principal amount of all Revolving Credit Loans made by PNC to the Borrower pursuant to Section 2.1 of the Credit Agreement on the dates and in the amounts specified in the Credit Agreement. The Borrower further agrees to pay interest on the unpaid principal amount outstanding hereunder from time to time from and including the date hereof in like money at such office at the rates and on the dates specified in the Credit Agreement. The holder of this Note is authorized to endorse on the schedule annexed hereto and made a part hereof or on a continuation thereof which shall be attached hereto and made a part hereof (the "Grid") the date, Type and amount of each Revolving Credit Loan made pursuant to the Credit Agreement, each continuation thereof, each conversion of all or a portion thereof to another Type, the date and amount of each payment or prepayment of principal thereof and, in the case of Eurodollar Loans, the length of each Interest Period with respect thereto, which endorsement shall constitute rebuttable presumptive evidence of the accuracy of the information endorsed; provided, however, that -------- ------- the failure to make any such endorsement shall not affect the obligations of the Borrower in respect of such Revolving Credit Loan. This Note is one of the Revolving Credit Notes referred to in the Revolving Credit Agreement dated the date hereof among the Borrower, PNC, First Union National Bank, and Fleet Bank, N.A., as Lenders, and PNC, as Agent (as the same may hereafter be amended, modified or supplemented from time to time, the "Credit Agreement") is entitled to the benefits thereof, is secured as provided therein and is subject to optional and mandatory prepayment as set forth therein. Upon the occurrence and during the continuance of any one or more of the Events of Default specified in the Credit Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable, all as provided therein. All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind. Terms defined in the Credit Agreement are used herein with their defined meanings unless otherwise defined herein. This Note shall be governed by, and construed and interpreted in accordance with, the laws of the State of New Jersey. GUEST SUPPLY, INC. By:____________________________ Name: Title: GUEST PACKAGING, INC. By:____________________________ Name: Title: BRECKENRIDGE-REMY CO. By:____________________________ Name: Title: GUEST DISTRIBUTION SERVICES, INC. By:____________________________ Name: Title: KAPADIA ENTERPRISES, INC. By:______________________ Name: Title: By:______________________ Name: Title: 2 Schedule 1 To Revolving Credit Note dated April 21, 1999 made by Guest Supply, Inc., Guest Packaging, Inc. Breckenridge-Remy Co., Guest Distribution Services, Inc., and Kapadia Enterprises, Inc. as joint and several obligors to PNC Bank, National Association Loans, Conversions and Payments of Loans Amount of Unpaid Amount of Principal Interest Interest Principal Notation Date Loans Repaid Rate Period Balance of Loans Made By 3 REVOLVING CREDIT NOTE East Brunswick, New Jersey $10,500,000 April 21, 1999 FOR VALUE RECEIVED, the undersigned, GUEST SUPPLY, INC., a New Jersey corporation, GUEST PACKAGING, INC., a New Jersey corporation, BRECKENRIDGE-REMY CO., a Delaware corporation, and GUEST DISTRIBUTION SERVICES, INC., a Delaware corporation and KAPADIA ENTERPRISES, INC., a California corporation (collectively, the "Borrower"), hereby jointly and severally, unconditionally promise to pay to the order of First Union National Bank ("FUNB") at the Payment Office, in lawful money of the United States of America and in immediately available funds, the principal amount of TEN MILLION FIVE HUNDRED THOUSAND AND 00/100 ($10,500,000) DOLLARS, or, if less, the aggregate unpaid principal amount of all Revolving Credit Loans made by FUNB to the Borrower pursuant to Section 2.1 of the Credit Agreement on the dates and in the amounts specified in the Credit Agreement. The Borrower further agrees to pay interest on the unpaid principal amount outstanding hereunder from time to time from and including the date hereof in like money at such office at the rates and on the dates specified in the Credit Agreement. The holder of this Note is authorized to endorse on the schedule annexed hereto and made a part hereof or on a continuation thereof which shall be attached hereto and made a part hereof (the "Grid") the date, Type and amount of each Revolving Credit Loan made pursuant to the Credit Agreement, each continuation thereof, each conversion of all or a portion thereof to another Type, the date and amount of each payment or prepayment of principal thereof and, in the case of Eurodollar Loans, the length of each Interest Period with respect thereto, which endorsement shall constitute rebuttable presumptive evidence of the accuracy of the information endorsed; provided, however, that -------- ------- the failure to make any such endorsement shall not affect the obligations of the Borrower in respect of such Revolving Credit Loan. This Note is one of the Revolving Credit Notes referred to in the Revolving Credit Agreement dated the date hereof among the Borrower, PNC Bank, National Association ("PNC"), FUNB and Fleet Bank, N.A., as Lenders, and PNC, as Agent (as the same may hereafter be amended, modified or supplemented from time to time, the "Credit Agreement") is entitled to the benefits thereof, is secured as provided therein and is subject to optional and mandatory prepayment as set forth therein. Upon the occurrence and during the continuance of any one or more of the Events of Default specified in the Credit Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable, all as provided therein. All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind. Terms defined in the Credit Agreement are used herein with their defined meanings unless otherwise defined herein. This Note shall be governed by, and construed and interpreted in accordance with, the laws of the State of New Jersey. GUEST SUPPLY, INC. By:____________________________ Name: Title: GUEST PACKAGING, INC. By:____________________________ Name: Title: BRECKENRIDGE-REMY CO. By:____________________________ Name: Title: GUEST DISTRIBUTION SERVICES, INC. By:____________________________ Name: Title: KAPADIA ENTERPRISES, INC. By:______________________ Name: Title: By:______________________ Name: Title: 2 Schedule 1 To Revolving Credit Note dated April 21, 1999 made by Guest Supply, Inc., Guest Packaging, Inc. and Breckenridge-Remy Co. Guest Distribution Services, Inc., and Kapadia Enterprises, Inc. as joint and several obligors to First Union National Bank Loans, Conversions and Payments of Loans Amount of Unpaid Amount of Principal Interest Interest Principal Notation Date Loans Repaid Rate Period Balance of Loans Made By 3 REVOLVING CREDIT NOTE East Brunswick, New Jersey $7,000,000 April 21, 1999 FOR VALUE RECEIVED, the undersigned, GUEST SUPPLY, INC., a New Jersey corporation, GUEST PACKAGING, INC., a New Jersey corporation, BRECKENRIDGE-REMY CO., a Delaware corporation, and GUEST DISTRIBUTION SERVICES, INC., a Delaware corporation and KAPADIA ENTERPRISES, INC., a California corporation (collectively, the "Borrower"), hereby jointly and severally, unconditionally promise to pay to the order of Fleet Bank, N.A. ("Fleet") at the Payment Office, in lawful money of the United States of America and in immediately available funds, the principal amount of SEVEN MILLION AND 00/100 ($7,000,000) DOLLARS, or, if less, the aggregate unpaid principal amount of all Revolving Credit Loans made by Fleet to the Borrower pursuant to Section 2.1 of the Credit Agreement on the dates and in the amounts specified in the Credit Agreement. The Borrower further agrees to pay interest on the unpaid principal amount outstanding hereunder from time to time from and including the date hereof in like money at such office at the rates and on the dates specified in the Credit Agreement. The holder of this Note is authorized to endorse on the schedule annexed hereto and made a part hereof or on a continuation thereof which shall be attached hereto and made a part hereof (the "Grid") the date, Type and amount of each Revolving Credit Loan made pursuant to the Credit Agreement, each continuation thereof, each conversion of all or a portion thereof to another Type, the date and amount of each payment or prepayment of principal thereof and, in the case of Eurodollar Loans, the length of each Interest Period with respect thereto, which endorsement shall constitute rebuttable presumptive evidence of the accuracy of the information endorsed; provided, however, that -------- ------- the failure to make any such endorsement shall not affect the obligations of the Borrower in respect of such Revolving Credit Loan. This Note is one of the Revolving Credit Notes referred to in the Revolving Credit Agreement dated the date hereof among the Borrower, PNC Bank, National Association ("PNC"), Fleet and First Union National Bank, as Lenders, and PNC, as Agent (as the same may hereafter be amended, modified or supplemented from time to time, the "Credit Agreement") is entitled to the benefits thereof, is secured as provided therein and is subject to optional and mandatory prepayment as set forth therein. Upon the occurrence and during the continuance of any one or more of the Events of Default specified in the Credit Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable, all as provided therein. All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind. Terms defined in the Credit Agreement are used herein with their defined meanings unless otherwise defined herein. This Note shall be governed by, and construed and interpreted in accordance with, the laws of the State of New Jersey. GUEST SUPPLY, INC. By:____________________________ Name: Title: GUEST PACKAGING, INC. By:____________________________ Name: Title: BRECKENRIDGE-REMY CO. By:____________________________ Name: Title: GUEST DISTRIBUTION SERVICES, INC. By:____________________________ Name: Title: KAPADIA ENTERPRISES, INC. By:______________________ Name: Title: By:______________________ Name: Title: 2 Schedule 1 To Revolving Credit Note dated April 21, 1999 made by Guest Supply, Inc., Guest Packaging, Inc. and Breckenridge-Remy Co. Guest Distribution Services, Inc., and Kapadia Enterprises, Inc. as joint and several obligors to Fleet Bank, N.A. Loans, Conversions and Payments of Loans Amount of Unpaid Amount of Principal Interest Interest Principal Notation Date Loans Repaid Rate Period Balance of Loans Made By 3 REVOLVING CREDIT NOTE East Brunswick, New Jersey $10,500,000 April 21, 1999 FOR VALUE RECEIVED, the undersigned, GUEST SUPPLY, INC., a New Jersey corporation, GUEST PACKAGING, INC., a New Jersey corporation, BRECKENRIDGE-REMY CO., a Delaware corporation, and GUEST DISTRIBUTION SERVICES, INC., a Delaware corporation and KAPADIA ENTERPRISES, INC., a California corporation (collectively, the "Borrower"), hereby jointly and severally, unconditionally promise to pay to the order of First Union National Bank ("FUNB") at the Payment Office, in lawful money of the United States of America and in immediately available funds, the principal amount of TEN MILLION FIVE HUNDRED THOUSAND AND 00/100 ($10,500,000) DOLLARS, or, if less, the aggregate unpaid principal amount of all Revolving Credit Loans made by FUNB to the Borrower pursuant to Section 2.1 of the Credit Agreement on the dates and in the amounts specified in the Credit Agreement. The Borrower further agrees to pay interest on the unpaid principal amount outstanding hereunder from time to time from and including the date hereof in like money at such office at the rates and on the dates specified in the Credit Agreement. The holder of this Note is authorized to endorse on the schedule annexed hereto and made a part hereof or on a continuation thereof which shall be attached hereto and made a part hereof (the "Grid") the date, Type and amount of each Revolving Credit Loan made pursuant to the Credit Agreement, each continuation thereof, each conversion of all or a portion thereof to another Type, the date and amount of each payment or prepayment of principal thereof and, in the case of Eurodollar Loans, the length of each Interest Period with respect thereto, which endorsement shall constitute rebuttable presumptive evidence of the accuracy of the information endorsed; provided, however, that -------- ------- the failure to make any such endorsement shall not affect the obligations of the Borrower in respect of such Revolving Credit Loan. This Note is one of the Revolving Credit Notes referred to in the Revolving Credit Agreement dated the date hereof among the Borrower, PNC Bank, National Association ("PNC"), FUNB and Fleet Bank, N.A., as Lenders, and PNC, as Agent (as the same may hereafter be amended, modified or supplemented from time to time, the "Credit Agreement") is entitled to the benefits thereof, is secured as provided therein and is subject to optional and mandatory prepayment as set forth therein. Upon the occurrence and during the continuance of any one or more of the Events of Default specified in the Credit Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable, all as provided therein. All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind. Terms defined in the Credit Agreement are used herein with their defined meanings unless otherwise defined herein. This Note shall be governed by, and construed and interpreted in accordance with, the laws of the State of New Jersey. GUEST SUPPLY, INC. By:____________________________ Name: Title: GUEST PACKAGING, INC. By:____________________________ Name: Title: BRECKENRIDGE-REMY CO. By:____________________________ Name: Title: GUEST DISTRIBUTION SERVICES, INC. By:____________________________ Name: Title: KAPADIA ENTERPRISES, INC. By:______________________ Name: Title: By:______________________ Name: Title: 2 Schedule 1 To Revolving Credit Note dated April 21, 1999 made by Guest Supply, Inc., Guest Packaging, Inc. and Breckenridge-Remy Co. Guest Distribution Services, Inc., and Kapadia Enterprises, Inc. as joint and several obligors to First Union National Bank Loans, Conversions and Payments of Loans Amount of Unpaid Amount of Principal Interest Interest Principal Notation Date Loans Repaid Rate Period Balance of Loans Made By 3 REVOLVING CREDIT NOTE East Brunswick, New Jersey $7,000,000 April 21, 1999 FOR VALUE RECEIVED, the undersigned, GUEST SUPPLY, INC., a New Jersey corporation, GUEST PACKAGING, INC., a New Jersey corporation, BRECKENRIDGE-REMY CO., a Delaware corporation, and GUEST DISTRIBUTION SERVICES, INC., a Delaware corporation and KAPADIA ENTERPRISES, INC., a California corporation (collectively, the "Borrower"), hereby jointly and severally, unconditionally promise to pay to the order of Fleet Bank, N.A. ("Fleet") at the Payment Office, in lawful money of the United States of America and in immediately available funds, the principal amount of SEVEN MILLION AND 00/100 ($7,000,000) DOLLARS, or, if less, the aggregate unpaid principal amount of all Revolving Credit Loans made by Fleet to the Borrower pursuant to Section 2.1 of the Credit Agreement on the dates and in the amounts specified in the Credit Agreement. The Borrower further agrees to pay interest on the unpaid principal amount outstanding hereunder from time to time from and including the date hereof in like money at such office at the rates and on the dates specified in the Credit Agreement. The holder of this Note is authorized to endorse on the schedule annexed hereto and made a part hereof or on a continuation thereof which shall be attached hereto and made a part hereof (the "Grid") the date, Type and amount of each Revolving Credit Loan made pursuant to the Credit Agreement, each continuation thereof, each conversion of all or a portion thereof to another Type, the date and amount of each payment or prepayment of principal thereof and, in the case of Eurodollar Loans, the length of each Interest Period with respect thereto, which endorsement shall constitute rebuttable presumptive evidence of the accuracy of the information endorsed; provided, however, that -------- ------- the failure to make any such endorsement shall not affect the obligations of the Borrower in respect of such Revolving Credit Loan. This Note is one of the Revolving Credit Notes referred to in the Revolving Credit Agreement dated the date hereof among the Borrower, PNC Bank, National Association ("PNC"), Fleet and First Union National Bank, as Lenders, and PNC, as Agent (as the same may hereafter be amended, modified or supplemented from time to time, the "Credit Agreement") is entitled to the benefits thereof, is secured as provided therein and is subject to optional and mandatory prepayment as set forth therein. Upon the occurrence and during the continuance of any one or more of the Events of Default specified in the Credit Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable, all as provided therein. All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind. Terms defined in the Credit Agreement are used herein with their defined meanings unless otherwise defined herein. This Note shall be governed by, and construed and interpreted in accordance with, the laws of the State of New Jersey. GUEST SUPPLY, INC. By:____________________________ Name: Title: GUEST PACKAGING, INC. By:____________________________ Name: Title: BRECKENRIDGE-REMY CO. By:____________________________ Name: Title: GUEST DISTRIBUTION SERVICES, INC. By:____________________________ Name: Title: KAPADIA ENTERPRISES, INC. By:______________________ Name: Title: By:______________________ Name: Title: 2 Schedule 1 To Revolving Credit Note dated April 21, 1999 made by Guest Supply, Inc., Guest Packaging, Inc. and Breckenridge-Remy Co. Guest Distribution Services, Inc., and Kapadia Enterprises, Inc. as joint and several obligors to Fleet Bank, N.A. Loans, Conversions and Payments of Loans Amount of Unpaid Amount of Principal Interest Interest Principal Notation Date Loans Repaid Rate Period Balance of Loans Made By 3 EX-10.(A)(A) 6 FORM OF SECURITY AGREEMENT DATED AS OF 4/21/99 EXHIBIT 10.(a)(a) SECURITY AGREEMENT ------------------ This SECURITY AGREEMENT, dated as of April 21, 1999, is made by Guest Supply, Inc., a New Jersey corporation (the "Pledgor"), in favor of PNC Bank, National Association, as Collateral Agent (the "Collateral Agent") for the benefit of the Secured Parties, as such term is defined in the Collateral Agency and Intercreditor Agreement dated as of April 21, 1999 (as the same may be amended, modified or supplemented from time to time, the "Collateral Agency and Intercreditor Agreement") by and among Pledgor, Guest Packaging, Inc., Guest Distribution Services, Inc., Breckenridge-Remy Co. and Kapadia Enterprises, Inc., PNC Bank, National Association in its capacity as Agent for the Lenders party to the Revolving Credit Agreement, the Lenders, and J. ROMEO & CO., as nominee for MONY Life Insurance Company (formerly The Mutual Life Insurance Company of New York), AUER & Co., as nominee for AUSA Life Insurance Company, Inc., Great-West Life & Annuity Insurance Company and Nationwide Life and Annuity Insurance Company, each in its capacity as a Senior Noteholder under the Senior Note Purchase Agreements. W I T N E S S E T H : - - - - - - - - - - WHEREAS, all financial accommodations outstanding as of the date hereof and to be made in the future to the Borrower Group by the Secured Parties pursuant to the terms and conditions of the Secured Party Agreements are to be secured by, among other collateral, the assignment, grant and pledge by the Pledgor to the Collateral Agent for the benefit of the Secured Parties of a continuing security interest in all of the (i) Accounts, (ii) Contracts and contract rights, (iii) Chattel Paper, (iv) Documents, (v) Equipment, (vi) General Intangibles, (vii) Instruments, (viii) Inventory and (ix) Fixtures of the Pledgor, whether now owned or hereafter acquired; and WHEREAS, one of the conditions precedent to the obligation of the Secured Parties to maintain the credit facilities described in the Secured Party Agreements is that the Pledgor execute and deliver this Security Agreement to the Collateral Agent for the benefit of the Secured Parties. NOW, THEREFORE, in consideration of the premises, to induce the Secured Parties to maintain the credit facilities described in the Secured Party Agreements and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Pledgor hereby agrees with the Collateral Agent and the Secured Parties, as follows: 1. Defined Terms. (a) Unless otherwise defined herein, terms which ------------- are defined in the Collateral Agency and Intercreditor Agreement and used herein are used herein as defined in the Collateral Agency and Intercreditor Agreement. (b) The following terms which are defined in the UCC (as such term is defined below) on the date hereof are used herein as so defined: Accounts, Account debtor, Chattel Paper, Documents, Equipment, Fixtures, General Intangibles, Goods, Instruments, Inventory, Proceeds and Products. (c) The following terms shall have the following meanings: "Borrower Group" means, collectively, Guest Supply, -------------- Inc., Guest Packaging, Inc., Guest Distribution Services, Inc., Breckenridge- Remy Co., Kapadia Enterprises, Inc. and any other Person which may become a Borrower under the Revolving Credit Agreement or an obligor under the Senior Notes. "Collateral" shall have the meaning assigned to it in ---------- Section 2 of this Security Agreement; "Contracts" means all contracts to which the Pledgor --------- is now or hereafter becomes a party, including, in each case, without limitation, (a) all rights of the Pledgor to receive moneys due and to become due to it thereunder or in connection therewith, (b) all rights of the Pledgor to damages arising out of, or for, breach or default in respect thereof, (c) all rights of the Pledgor to terminate the contracts, to perform thereunder and to compel performance and to otherwise exercise all remedies thereunder, and (d) any other rights or benefits arising under any other contract entered into by the Pledgor; "Lenders" means, collectively, PNC Bank, National ------- Association, First Union National Bank and Fleet Bank, N.A. "Obligations" means all indebtedness, liabilities and ----------- obligations (whether denominated as principal, fees, interest or otherwise including amounts that, but for the initiation of any proceeding under any insolvency or bankruptcy law, would become due) of (i) any Person constituting the Borrower Group to the Collateral Agent and/or any of the Secured Parties, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with the Secured Party Agreements, and (ii) the Pledgor to the Collateral Agent and or any of the Secured Parties whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with this Security Agreement or the Collateral Agency and Intercreditor Agreements; "Revolving Credit Agreement" means the Amended and -------------------------- Restated Revolving Credit Agreement dated as of April 21, 1999 among Guest Supply, Inc., Guest Packaging, Inc., Guest Distribution Services, Inc., Breckenridge-Remy Co. and Kapadia Enterprises, Inc. and PNC Bank, National Association, as Agent, and the Lenders. 2 "Security Agreement" means this Security Agreement, as ------------------ amended, supplemented or otherwise modified from time to time; and "Secured Parties" means, collectively, the Agent under --------------- the Revolving Credit Agreement, the Lenders and the Senior Noteholders. "Senior Note Purchase Agreements" means, collectively ------------------------------- (i) the Note Purchase Agreements dated as of December 3, 1997 by and among the Borrower Group and the Senior Noteholders as amended by Amendment No. 1 to Senior Note Purchase Agreements, and (ii) the Senior Notes and all other documents, instruments, and agreements executed and delivered in connection therewith. "UCC" means the Uniform Commercial Code as from time --- to time in effect in the State of New Jersey; provided, that if by reason of mandatory provisions of law, the perfection or the effect of perfection or non- perfection of any Lien on any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than New Jersey, "UCC" means the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or the effect of perfection or non-perfection. References to sections of the UCC shall be construed as necessary to refer to any successor sections of the UCC. 2. Grant of Security Interest. As collateral security for the prompt -------------------------- and complete payment and performance when due (whether at stated maturity, by acceleration or otherwise) of the Obligations, and subject in all respects to the Collateral Agency and Intercreditor Agreement, the Pledgor hereby mortgages, pledges, assigns, hypothecates and grants to the Collateral Agent, for the benefit of the Collateral Agent and the Secured Parties, a continuing security interest in all of the following property now owned or at any time hereafter acquired by the Pledgor or in which the Pledgor now has or at any time in the future may acquire any right, title or interest (collectively, the "Collateral"): ---------- (i) all Accounts; (ii) all Chattel Paper; (iii) all Contracts and contract rights, including without limitation all of Pledgors rights and remedies under, and all monies and claims for monies due or to become due under the Stock Purchase Agreement (as defined in the Revolving Credit Agreement) and Escrow Agreement dated as of April 23, 1999 by and among Madhukar Kapadia, Naima Kapadia, as Trustees of The Kapadia Family Trust, Breckenridge-Remy Co., Guest Supply Inc. and Goldfarb Sturman and Averbach, as Escrow Agent; (iv) all Documents; (v) all General Intangibles, including, without limitation, all trade secrets, tradenames, copyrights, copyright applications, patent 3 applications, patents, trademarks, trademark registrations and applications therefor; (vi) all Instruments; (vii) all Equipment (viii) all Inventory; (ix) any and all deposits (general or special, including, but not limited to, Indebtedness evidenced by certificates of deposit, whether matured or unmatured but not including trust accounts) and any other Indebtedness at any time held or owing by the Collateral Agent or any Lender to or for the credit or the account of the Pledgor; (x) any and all claims or payments made under any insurance policy; (xi) all interest of the Pledgor in any goods the sale or lease of which shall have given or shall give rise to, and in all guaranties and other property securing the payment of or performance under, any Accounts, Contracts, General Intangibles or any Chattel Paper or Instruments referred to above; (xii) any and all personal property of any Person of any kind or description subject to a separate mortgage, pledge or security interest in favor of the Pledgor or in which the Pledgor now or hereafter has or acquires a security interest securing any indebtedness, pursuant to any written agreement or instrument other than this Security Agreement; (xiii) all replacements, substitutions, additions or accessions to or for any of the foregoing; (xiv) to the extent related to the property described above, all books, correspondence, credit files, records, invoices and other papers and documents, including, without limitation, to the extent so related, all tapes, cards, computer runs, computer programs and electronic, magnetic or other archival systems or papers and documents in the possession or control of the Pledgor or any computer or service bureau from time to time acting for the Pledgor; (xv) all property or interests in property of the Pledgor which now may be owned or hereafter may come into the possession, custody or control of the Collateral Agent or any Secured Party, or any agent or affiliate of the Collateral Agent or any Secured Party (whether for safekeeping, deposit, custody, pledge, transmission, collection or otherwise), including, without limitation, all rights and interests of the Pledgor in respect of any and all 4 (a) notes, drafts, letters of credit, stocks, bonds, and debt and equity securities, whether or not certificated, and warrants, options, puts, calls and other rights to acquire or otherwise relating to the same, (b) cash, and (c) proceeds of loans, advances and other financial accommodations; and (xvi) to the extent not otherwise included, all Proceeds and products of any and all of the foregoing. The Liens and security interests granted to the Collateral Agent pursuant to this Section 2 shall be subject in all respects to the Collateral Agency and Intercreditor Agreement. 3. Rights of Collateral Agent; Limitations on Collateral Agent's ------------------------------------------------------------- Obligations. - ----------- (a) Pledgor Remains Liable under Accounts and Contracts. Anything --------------------------------------------------- herein to the contrary notwithstanding, the Pledgor shall remain liable under each of the Accounts and Contracts to observe and perform all the conditions and obligations to be observed and performed by it thereunder, all in accordance with the terms of any agreement giving rise to each such Account and in accordance with and pursuant to the terms and provisions of each such Contract. Neither the Collateral Agent nor any Secured Party shall have any obligation or liability under any Account (or any agreement giving rise thereto) or Contract by reason of or arising out of this Security Agreement or the receipt by the Collateral Agent or any Secured Party of any payment relating to such Account or Contract pursuant hereto, nor shall the Collateral Agent or any Secured Party be obligated in any manner to perform any of the obligations of the Pledgor under or pursuant to any Account (or any agreement giving rise thereto) or under or pursuant to any Contract, to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by any of them or as to the sufficiency of any performance by any party under any Account (or any agreement giving rise thereto) or under any Contract, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to them or to which they may be entitled at any time or times. (b) Notice to Account Debtors and Contracting Parties. After the ------------------------------------------------- occurrence and during the continuance of an Event of Default, upon the request of the Collateral Agent at any time, the Pledgor shall notify Account debtors on the Accounts and the parties to the Contracts that the Accounts and the Contracts have been assigned to the Collateral Agent and the Secured Parties and that payments in respect thereof shall be made directly to the Collateral Agent for the benefit of the Secured Parties. Prior to the occurrence of an Event of Default, the Collateral Agent may, with the consent of Pledgor (which consent shall not be unreasonably withheld or delayed) and, after the occurrence and during the continuance of an Event of Default, the Collateral Agent may, at any time, in its own name or in the names of others communicate with Account debtors on the Accounts and the parties to the Contracts to verify with them to its satisfaction the existence, amount and terms of any Accounts or Contracts. The costs relating to the foregoing matters, including reasonable attorneys' fees and out of pocket expenses shall be borne solely by the Pledgor whether incurred by the Collateral Agent, the Secured Parties or the Pledgor. 5 (c) Analysis of Accounts. Upon reasonable notice to the Pledgor, the -------------------- Collateral Agent, on behalf of the Secured Parties shall have the right to make test verifications of the Accounts in any manner and through any medium that it reasonably considers advisable, and the Pledgor shall furnish all such assistance and information as the Collateral Agent may require in connection therewith. At any time and from time to time, upon the Collateral Agent's request and at the expense of the Pledgor, the Pledgor shall furnish to the Collateral Agent reports showing reconciliations, aging and test verifications of, and trial balances for, the Accounts. 4. Representations and Warranties. The Pledgor hereby represents and ------------------------------ warrants that: (a) Title; No Other Liens. The Pledgor has good and marketable title --------------------- to the Collateral, subject to no Liens except the Lien granted hereby. No security agreement, financing statement or other public notice with respect to all or any part of the Collateral is on file or of record in any public office except such as may have been filed pursuant hereto or pursuant to the Collateral Agency and Intercreditor Agreement or as to which UCC-3 termination statements have been received and filed or which have expired and not been renewed. Informational filings with respect to leased equipment and certain unexpired filings of Chemical Bank New Jersey, N.A. filed in 1994 (Pledgor representing that it owes no monies to, and has no commitment to lend from, Chemical Bank New Jersey, N.A.) shall not constitute a breach of this representation. (b) Perfected First Priority Liens. When appropriate financing ------------------------------ statements have been filed by the Collateral Agent in the jurisdictions listed on Schedule A hereto against the Pledgor, the Liens granted pursuant to this Security Agreement will constitute perfected Liens (to the extent such Liens can be perfected by filing) on the Collateral in favor of the Collateral Agent and the Secured Parties, which are prior to all other Liens on the Collateral, and which are enforceable as such against all creditors of the Pledgor. (c) Accounts. The amount represented by the Pledgor to the -------- Collateral Agent from time to time as owing by each Account Debtor or by all Account Debtors in respect of the Accounts will at such time be the correct amount actually owing by such Account Debtor or Debtors thereunder. The place(s) where the Pledgor keeps its books and records concerning the Accounts is as set forth on Schedule B hereto. (d) Contracts. No consent of any Person (other than the Pledgor), --------- including, without limitation, any Governmental Authority, to any Contract is required, or purports to be required, in connection with the execution, delivery and performance of this Security Agreement in respect of rights described in clause (a) of the definition of "Contracts" and, to Pledgor's actual knowledge, no such consent with respect to any other rights described in the definition of Contracts (other than Contracts to which Pledgor is a party, as lessee) is required or purports to be required, in connection with the execution, delivery and performance of this Security Agreement. To the best knowledge of the Pledgor each Contract is in full force and effect and constitutes a valid and legally enforceable obligation of the parties thereto, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar 6 laws affecting that enforcement of creditor's rights generally. No consent or authorization of, filing with or other act by or in respect of any Governmental Authority is required in connection with the execution, delivery, performance, validity or enforceability of any of the Contracts by any party thereto other than those which have been duly obtained, made or performed, are in full force and effect and do not subject the scope of any such Contract to any adverse limitation, either specific or general in nature. Neither the Pledgor nor (to the best of the Pledgor's knowledge) any other party to any Contract is in default in the performance or observance of any of the terms thereof. The Pledgor has fully performed all its material obligations under each Contract required to be performed as of the date hereof. To the best knowledge of the Pledgor the right, title and interest of the Pledgor in, to and under each Contract are not subject to any defense, offset, counterclaim or claim which would materially adversely affect the value of such Contract as Collateral, nor have any of the foregoing been asserted or alleged against the Pledgor as to any Contract. The Pledgor has made available to the Collateral Agent and Secured Parties a complete and correct copy of each Contract, including all amendments, supplements and other modifications thereto. (e) Inventory and Equipment. The Inventory and Equipment is kept, ----------------------- from time to time, at the locations listed on Schedule C hereto. (f) Chief Executive Office. The Pledgor's chief executive ---------------------- office is as set forth on Schedule B annexed hereto. (g) Other Places of Business. The Pledgor's other places of business ------------------------ are as set forth on Schedule B annexed hereto, and if no other places of business are set forth on Schedule B then Pledgor has no other place of business other than its chief executive office as set forth in Section 4(f) above. (h) Trade Names. Certain Accounts may be and/or certain of the ----------- Pledgor's invoices may be, from time to time, rendered to customers under the trade names listed on Schedule B (which together with any new trade names used after the date hereof are referred to collectively, as the "Trade Names" and ----------- each individually, as a "Trade Name"). As to such Trade Names and the related ---------- Accounts, the Pledgor hereby warrants and agrees that: (i) each Trade Name is a trade name and style (and not the name of an independent corporation or other legal entity) by which the Pledgor may identify and sell certain of its goods or services and conduct a portion of its business and Pledgor has filed or made all public or other notices in any jurisdiction required to lawfully operate under such Trade Names. (ii) all Accounts, Chattel Paper, Instruments and Proceeds thereof and returned merchandise which arise from the sale of goods invoiced under the Trade Names are and shall be (x) owned solely by the Pledgor and (y) subject to the security interest and other terms of this Security Agreement; 7 (iii) new Trade Names may only be used by the Pledgor after the Collateral Agent is given thirty (30) days prior written notice of the use of any such new Trade Name, which notice shall set forth the name of such new Trade Name; and (iv) the Pledgor does not use any Trade Name other than the Trade Names listed on Schedule B hereto. (i) Rolling Stock. The Pledgor does not own any railroad cars, ------------- locomotives or other rolling stock used or intended for use in interstate commerce. (j) Patents, Trademarks, Copyrights. Except as set forth on Schedule ------------------------------- D, the Pledgor does not own, license or have rights in or to any trademark, patent or copyright and has not filed and is not in the process of filing any application with any Governmental Authority to obtain any of the foregoing. Except as set forth on Schedule D, the Pledgor does not need or require a license or right to use any patent, copyright, trademark or service mark to conduct its business. 5. Covenants. The Pledgor covenants and agrees that, from and after --------- the date of this Security Agreement until the Obligations are paid in full: (a) Further Documentation; Pledge of Instruments and Chattel Paper. -------------------------------------------------------------- At any time and from time to time, upon the written request of the Collateral Agent and at the sole expense of the Pledgor, the Pledgor will promptly and duly execute and deliver such further instruments and documents and take such further action as the Collateral Agent may reasonably request for the purpose of obtaining or preserving the full benefits of this Security Agreement and the rights and powers herein granted, including, without limitation, the filing of documents with the Office of Patents and Trademarks and the filing of any financing or continuation statements under the UCC in effect in any jurisdiction with respect to the Liens created hereby. The Pledgor also hereby authorizes the Collateral Agent, or any agent acting for the benefit and on behalf of the Collateral Agent and the Secured Parties to file any such financing or continuation statement without the signature of the Pledgor to the extent permitted by applicable law. A carbon, photographic or other reproduction of this Security Agreement shall be sufficient as a financing statement for filing in any jurisdiction. If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any Instrument or Chattel Paper, such Instrument or Chattel Paper shall, after the occurrence and during the continuance of an Event of Default, be immediately delivered to the Collateral Agent, duly endorsed in a manner satisfactory to the Collateral Agent to be held as Collateral pursuant to this Security Agreement. (b) Indemnification. The Pledgor agrees to pay, and to save the --------------- Collateral Agent and the Secured Parties harmless from, any and all liabilities, costs and expenses (including without limitation, reasonable legal fees and expenses) (i) with respect to, or resulting from, any delay in paying, any and all excise, sales or other taxes which may be payable or determined to be payable with respect to any of the Collateral, (ii) with respect to, or resulting from, any delay in complying with any Requirement of Law applicable to any of the Collateral, (iii) with respect to fees, taxes or other costs incurred with respect to recording UCC financing 8 statements or other public recordings or notices of security interests, or (iv) in connection with any of the transactions contemplated by this Security Agreement or the enforcement of the Collateral Agent's and the Secured Parties' rights hereunder, except those liabilities, costs and expenses arising out of the Collateral Agent's or the Secured Parties' gross negligence or willful misconduct. In any suit, proceeding or action brought by the Collateral Agent and the Secured Parties' under any Account for any sum owing thereunder or to enforce any provisions of any Account or Contract the Pledgor will save, indemnify and keep the Collateral Agent and the Secured Parties' harmless from and against all expense, loss or damage suffered by the Collateral Agent and the Secured Parties' in such action commenced in connection with the enforcement of any provision of any Account or Contract except for expenses, loss or damage arising out of the gross negligence or willful misconduct of the Collateral Agent (in the case of indemnified amounts which would otherwise be owing to the Collateral Agent) or the applicable Secured Party seeking indemnification. (c) Maintenance of Records. The Pledgor will keep and maintain at ---------------------- its own cost and expense, complete records of the Collateral, including, without limitation, a record of all payments received and all credits granted with respect to the Collateral. The Pledgor will mark its books and records pertaining to the Collateral to evidence this Security Agreement and the security interests granted hereby. For the Collateral Agent's and the Secured Parties' further security, the Collateral Agent and the Secured Parties shall have a security interest in all of the Pledgor's books and records pertaining to the Collateral. Upon reasonable notice from Collateral Agent to Pledgor prior to an Event of Default and upon demand after the occurrence and during the continuance of an Event of Default, the Pledgor shall make available all such books and records to the Collateral Agent or the Secured Parties or to their respective representatives during normal business hours at the request of the Collateral Agent. (d) Right of Inspection. The Collateral Agent and the Secured ------------------- Parties shall at all times have full and free access during normal business hours, upon reasonable prior notice, to all the books, correspondence and records of the Pledgor and the Collateral Agent and the Secured Parties or their respective representatives may examine the same and make photocopies thereof, and the Pledgor agrees to render to the Collateral Agent and the Secured Parties such clerical and other assistance as may be reasonably requested with regard thereto. The Collateral Agent and the Secured Parties shall also have the right, during normal business hours and subject to any landlord's rights, to enter into and upon any premises where any of the Inventory is located for the purpose of inspecting the same, observing its use or otherwise protecting its interests therein. (e) Compliance with Laws, etc. The Pledgor will comply with all -------------------------- Requirements of Law applicable to the Collateral or any part thereof except where the failure so to comply would not have a Material Adverse Effect (as defined in the Revolving Credit Agreement). (f) Compliance with Terms of Contracts, etc. The Pledgor will ---------------------------------------- perform and comply in all material respects with all its obligations under any agreements, documents and other instruments relating to the Collateral except where the failure to so perform will not have a Material Adverse Effect. 9 (g) Payment of Obligations. The Pledgor will pay, as the same become ---------------------- due, all obligations (including without limitation, any and all lease obligations and warehouse charges), taxes and governmental fees, charges or levies imposed upon the Collateral or in respect of its income or profits therefrom, as well as all claims of any kind (including, without limitation, claims for labor, materials and supplies) against or with respect to the Collateral; provided, that it may protest the payment of, and withhold payment during such protest of, any such obligations, taxes, fees, charges or levies or claims if it is acting in good faith and reserves in conformity with GAAP with respect thereto have been provided on its books unless such protest violates Section 5(h) below. (h) Limitation on Liens on Collateral. The Pledgor will not create, --------------------------------- incur or permit to exist, will defend the Collateral against, and will take such other action as is necessary to remove, any Lien or claim on or to the Collateral, other than the Liens created hereby and Liens for taxes not yet due and payable and will defend the right, title and interest of the Collateral Agent and the Secured Parties in and to any of the Collateral against the claims and demands of all Persons whomsoever except Persons claiming under this Security Agreement. (i) Limitations on Dispositions of Collateral. Except for disposal ----------------------------------------- of obsolete items, the Pledgor will not sell, transfer, lease or otherwise dispose of any Collateral, except as permitted by the Revolving Credit Agreement and Senior Note Purchase Agreements. (j) Limitations on Modifications, Waivers and Extensions of Contracts ----------------------------------------------------------------- and Agreements Giving Rise to Accounts. The Pledgor will not (i) amend, modify, - -------------------------------------- terminate or waive any provision of any Contract or any agreement giving rise to any Account with a value equal to or in excess of $________ in any manner which could reasonably be expected to materially adversely affect the value of such Contract or Account as Collateral, or, in the case of any Contract or agreement giving rise to any Account with a value of less than $_____ in any manner which could reasonably be expected to materially adversely affect the value of Pledgor's Contracts or Accounts as Collateral taken as a whole, (ii) except in the exercise of prudent business judgment, fail to exercise promptly and diligently each and every right which it may have under each Contract, or agreement giving rise to an Account or (iii) fail to deliver to the Collateral Agent (after request by it) a copy of each material demand, notice or document received by it relating in any way to any Contract. (k) Limitations on Discounts, Compromises and Extensions of Accounts ---------------------------------------------------------------- and Contracts. Other than in the ordinary course of business as generally - ------------- conducted by the Pledgor over a period of time, and in any event, after the occurrence and during the continuance of an Event of Default, the Pledgor will not grant any extension of the time of payment of any of the Accounts or payments of any amounts due under any of the Accounts or payments of any amounts due under any Contract, compromise, compound or settle the same for less than the full amount thereof, release, wholly or partially, any Person liable for the payment thereof, or allow any credit or discount whatsoever thereon. (l) Maintenance of Equipment. The Pledgor will maintain each item ------------------------ of Equipment in good operating condition, ordinary wear and tear and immaterial impairments of 10 value and damage by the elements excepted, and will provide all maintenance, service and repairs reasonably necessary for such purpose. (m) Maintenance of Insurance. The Pledgor will maintain, with ------------------------ financially sound and reputable companies, insurance policies (i) insuring the Inventory and Equipment against loss by fire, explosion, theft, such other casualties as may be reasonably satisfactory to the Collateral Agent and (ii) insuring the Pledgor and the Collateral Agent against liability for personal injury and property damage relating to such Inventory and Equipment, such policies to be in such form and amounts and having such coverage as may be reasonably satisfactory to the Collateral Agent, with losses payable to the Pledgor and the Collateral Agent, provided, that all payments to be made to the Collateral Agent under such policies in an aggregate amount not exceeding $1,000,000 in any calendar quarter may be used by Pledgor to repair or replace damaged or destroyed Inventory or Equipment. The Collateral Agent shall be provided all evidence and documents necessary to demonstrate the use of such insurance proceeds. All such insurance shall (i) provide that no cancellation, material reduction in amount or material change in coverage thereof shall be effective until at least 30 days after receipt by the Collateral Agent of written notice thereof, (ii) name the Collateral Agent as loss payee, (iii) provide that the Collateral Agent shall have the right, but not the obligation, to pay premiums thereon, and (iv) be reasonably satisfactory in all other respects to the Collateral Agent. Upon the request of the Collateral Agent, the Pledgor shall deliver to the Collateral Agent a report of a reputable insurance broker with respect to such insurance during each calendar year and such supplemental reports with respect thereto as the Collateral Agent may from time to time reasonably request. (n) Further Identification of Collateral. The Pledgor will furnish ------------------------------------ to the Collateral Agent from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Collateral Agent may reasonably request, all in reasonable detail. (o) Notices. The Pledgor will advise the Collateral Agent promptly, ------- in reasonable detail, by written notice (i) of any Lien (other than Liens created or permitted hereby) on, or material claim asserted against, any of the Collateral and (ii) of the occurrence of any other event which could reasonably be expected to have any material adverse effect on the aggregate value of the Collateral or on the Liens created hereunder. (p) Changes in Locations, Name, etc. The Pledgor will not (i) change ------------------------------- the location of its chief executive office or other places of business from that specified in Sections 4(f) and 4(g), respectively, or remove its books and records from the location specified in Section 4(c), (ii) permit any of the Inventory to be kept at a location other than that listed in Schedule C hereto, or (iii) change its name, taxpayer identification number, identity or corporate structure to such an extent that any financing statement filed by the Collateral Agent, or any agent acting for the benefit and on behalf of the Collateral Agent, in connection with this Security Agreement would become misleading, unless it shall have given the Collateral Agent at least 30 days prior written notice thereof. 11 (q) Limitation on Assignments. Pledgor will not, without the consent ------------------------- of Collateral Agent, agree to any provision in any Contract or other agreement constituting Collateral, which purports to limit Pledgor's rights to pledge or assign the right to payment of monies due or to become due thereunder. 6. Appointment as Attorney-in-Fact. ------------------------------- (a) Powers. The Pledgor hereby irrevocably constitutes and appoints ------ the Collateral Agent for the benefit of the Collateral Agent and the Secured Parties, with full power of substitution, as its true and lawful attorney-in- fact with full irrevocable power and authority in the place and stead of the Pledgor and in the name of the Pledgor or in its own name, from time to time in the Collateral Agent's discretion, for the purpose of carrying out the terms of this Security Agreement, to execute UCC-1 Financing Statements in the Pledgor's name as debtor and, upon the occurrence and during the continuance of any Event of Default, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Security Agreement, and without limiting the generality of the foregoing, the Pledgor hereby gives the Collateral Agent for the benefit for the Collateral Agent and the Secured Parties, the power and right (but not the obligation), on behalf of the Pledgor, without notice to or assent by the Pledgor, to do the following: (i) in the case of any Collateral, at any time when any Event of Default shall have occurred and be continuing, in the name of the Pledgor or its own name, or otherwise, to open mail addressed to the Pledgor, to take possession of and endorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any Account, Instrument, General Intangible or Contract or contract right or with respect to any other Collateral and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Collateral Agent for the purpose of collecting any and all such moneys due under any such Account, Instrument, General Intangible or contract right or with respect to any other Collateral whenever payable; (ii) to pay or discharge taxes and Liens levied or placed on the Collateral, to effect any repairs or any insurance called for by the terms of this Security Agreement and to pay all or any part of the premiums therefor and the costs thereof; and (iii) upon the occurrence and during the continuance of any Event of Default, (A) to direct any party liable for any payment under any of the Collateral to make payment of any and all moneys due or to become due thereunder directly to the Collateral Agent or the Collateral Agent and the Secured Parties; (B) to ask or demand for, collect, receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Collateral; (C) to sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, notices and other documents in connection with any of the Collateral; (D) to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any thereof and to enforce any other right in respect of any Collateral; (E) to defend any suit, action or proceeding brought against the Pledgor with respect to any Collateral; (F) to settle, compromise or adjust any suit, action or proceeding 12 described in clause (E) above and in connection therewith, to give such discharges or releases as the Collateral Agent may deem appropriate; and (G) generally, to sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Collateral Agent was the absolute owner thereof for all purposes, and to do at the Collateral Agent's option and the Pledgor's expense, at any time, or from time to time, all acts and things which the Collateral Agent deems necessary to protect, preserve or realize upon the Collateral and the Liens granted hereunder and to effect the intent of this Security Agreement, all as fully and effectively as the Pledgor might do. The Pledgor hereby ratifies all that said attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney is a power coupled with an interest and shall be irrevocable. (b) Other Powers. The Pledgor also authorizes the Collateral Agent, ------------ for the benefit of the Collateral Agent and the Secured Parties, at any time and from time to time, to execute, in connection with the sale provided for in Section 9 hereof, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral. (c) No Duty on Collateral Agent's Part. The powers conferred on the ---------------------------------- Collateral Agent and the Secured Parties hereunder are solely to protect their interests in the Collateral and shall not impose any duty upon the Collateral Agent and the Secured Parties to exercise any such powers. Each Secured Party shall be accountable only for amounts that it actually receives as a result of the exercise of such powers. None of the Collateral Agent or the Secured Parties or any of their respective officers, directors, employees or agents shall be responsible to the Pledgor for any act or failure to act hereunder, except for their own gross negligence or willful misconduct. (d) Trademarks and Licences. The Pledgor further grants to the ----------------------- Collateral Agent for the benefit of the Collateral Agent and the Secured Parties an irrevocable, non-exclusive license at no charge to use the trademarks, patents, copyrights and licenses used by Pledgor in connection with the sale of goods including, without limitation, those listed on Schedule D annexed hereto associated with the Collateral in connection with any foreclosure or liquidation together with the right to grant a nonexclusive sublicense without charge to any buyer of such Collateral for the purpose of resale. All such licenses and rights to sublicense include all computer programs and other Collateral used in connection with such trademarks. 7. Performance by Collateral Agent of Pledgor's Obligations. If the -------------------------------------------------------- Pledgor fails to perform or comply with any of its agreements contained herein and the Collateral Agent shall perform or comply, or otherwise cause performance or compliance, with such agreement, the expenses of the Collateral Agent incurred in connection with such performance or compliance, together with interest thereon at a rate per annum equal to the highest interest rate prescribed in the Credit Agreement, shall be payable by the Pledgor to the Collateral Agent on demand and shall constitute Obligations secured hereby. 8. Proceeds. If an Event of Default shall occur and be continuing, -------- all proceeds of Collateral received by the Pledgor consisting of cash, checks and cash equivalents (other than the payment prior to the occurrence of an Event of Default of interest accrued on Accounts or 13 Instruments) shall be held by the Pledgor in trust for the Collateral Agent, for the benefit of the Collateral Agent and the Secured Parties, segregated from other funds of the Pledgor, and shall, forthwith upon receipt by the Pledgor, be turned over to the Collateral Agent in the exact form received by the Pledgor (duly endorsed by the Pledgor to the Collateral Agent, if required). Any and all such proceeds of Collateral received by the Collateral Agent (whether from the Pledgor or otherwise) may, in the sole discretion of the Collateral Agent, be held by the Collateral Agent as collateral security for, and/or then or at any time thereafter may be applied by the Collateral Agent against, the Obligations then due and payable, such application to be in such order as is required by the Collateral Agency and Intercreditor Agreement.. Any balance of such proceeds remaining after the Obligations shall have been paid in full shall be paid over to the Pledgor or to whomsoever may be lawfully entitled to receive the same. 9. Remedies. If an Event of Default shall occur and be continuing, -------- the Collateral Agent and the Secured Parties may exercise, in addition to all other rights and remedies granted to the them in this Security Agreement and in any other instrument or agreement securing, evidencing or relating to the Obligations, all rights and remedies of a secured party under the UCC or any other applicable laws. Without limiting the generality of the foregoing, the Collateral Agent and the Secured Parties, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law) to or upon the Pledgor or any other Person (all and each of which demands, presentments, protests, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase, or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing) in one or more parcels at public or private sale or sales, at any exchange, broker's board or office of the Collateral Agent or any of the Secured Parties or elsewhere upon such terms and conditions as they may deem advisable and at such prices as they may deem best, for cash or on credit or for future delivery without assumption of any credit risk. The Secured Parties 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 the whole or any part of the Collateral so sold. The Pledgor further agrees, at the Collateral Agent's request, to assemble the Collateral and make it available to the Collateral Agent at places which the Collateral Agent shall reasonably select, whether at the Pledgor's premises or elsewhere. Subject to the terms of the Collateral Agency and Intercreditor Agreement, the Collateral Agent shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses of every kind incurred therein or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of the Collateral Agent and the Secured Parties hereunder, including, without limitation, reasonable attorneys' fees and disbursements, to the payment in whole or in part of the Obligations, in such order as is required by the Collateral Agency and Intercreditor Agreement, and only after such application and after the payment to the Collateral Agent of any other amount required by any provision of law, including, without limitation, any provision of the UCC, need the Collateral Agent account for the surplus, if any, to the Pledgor. To the extent permitted by applicable law, the Pledgor waives all claims, damages and demands it may acquire against the Collateral Agent or the Secured Parties arising out of the exercise by the Collateral Agent and the Secured Parties of any of their respective rights hereunder except any arising out of their gross negligence or willful misconduct. If any notice of 14 a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least 10 days before such sale or other disposition. 10. Limitation on Duties Regarding Preservation of Collateral. The --------------------------------------------------------- Collateral Agent's sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under the UCC or otherwise, shall be to deal with it in the same manner as the Collateral Agent deals with similar property for its own account. Neither the Collateral Agent, any of the Secured Parties or any of their respective directors, officers, employees or agents shall be liable for failure to demand, collect or realize upon all or any part of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of the Pledgor or otherwise. 11. Powers Coupled with an Interest. All authorizations and agencies ------------------------------- herein contained with respect to the Collateral are coupled with an interest and are irrevocable. 12. Severability. Any provision of this Security Agreement which is ------------ prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 13. Section Headings. The section headings used in this Security ---------------- Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. 14. No Waiver; Cumulative Remedies. None of the Collateral Agent or ------------------------------ the Secured Parties shall by any act (except by a written instrument pursuant to Section 15 hereof), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Event of Default or in any breach of any of the terms and conditions hereof. No failure to exercise, nor any delay in exercising, on the part of the Collateral Agent or the Secured Parties, of any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Collateral Agent or the Secured Parties of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Collateral Agent and the Secured Parties would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any rights or remedies provided by law. 15. Waivers and Amendments; Successors and Assigns; Governing Law. ------------------------------------------------------------- (a) None of the terms or provisions of this Security Agreement may be waived, amended, supplemented or otherwise modified except by a written instrument executed by the Pledgor and the Collateral Agent. It is understood that the Collateral Agent's ability to grant waivers other accommodation hereunder is governed by the Collateral Agency and Intercreditor Agreement. 15 (b) This Security Agreement shall be binding upon the successors and assigns of the Pledgor and shall inure to the benefit of the Collateral Agent and the Secured Parties and their respective successors and assigns. This Security Agreement shall be governed by, and be construed and interpreted in accordance with, the laws of the State of New Jersey (without regard to conflicts of law principles thereof), except to the extent that the validity, perfection or enforcement of the security interests hereunder, or remedies hereunder, in respect of any particular Collateral located outside the boundaries of the State of New Jersey are governed by the laws of a jurisdiction other than the State of New Jersey. 16. Notices. Unless otherwise specified herein, all notices, ------- requests, consents, approvals, demands or other communications to or from the parties hereto shall be in writing and shall be deemed to have been duly given and made, when personally delivered by courier or, if mailed, three Business Days after the date when sent by registered or certified mail, postage prepaid, or if telecopied, when sent to the telecopier number set forth herein. Any such notice, request, demand or other communication shall be delivered or addressed as follows: (i) if to the Pledgor to it at c/o Guest Supply, Inc., 4301 U.S. Highway One, Box 902, Monmouth Junction, New Jersey 08852-0902, Attention: Paul Xenis, Phone: 609-514-9696, Fax: 609-514-7377 with a copy to: Haythe & Curley, 237 Park Avenue, New York, New York 10017, Attention: Bradley P. Cost, Esq., Phone: 212-880-6000, Fax: 212-682-0200 and (ii) if to the Collateral Agent to its office located at 2 Tower Center Boulevard, 16/th/ Floor, East Brunswick, New Jersey 08816-1094, Attention: Oliver B. Taylor, telephone: 732-220-3440, telecopier: 732-220-3621, or at such other address as either party hereto may designate by written notice to the other party hereto. 17. Jurisdiction. The Pledgor hereby irrevocably submits to the ------------ jurisdiction of any court of the State of New Jersey or Federal court sitting in the State of New Jersey in any action or proceeding arising out of or relating to this Agreement and the Pledgor hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such court of the State of New Jersey, or to the extent permitted by law, in such Federal court. The Pledgor hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding. The Pledgor also irrevocably consents to the service of any and all process in any such action or proceeding arising out of or in connection with this Agreement by the mailing of copies of such process to the Pledgor at the address and in the manner specified in Section 16 hereof. The Pledgor agrees that a final and non-appealable judgment (or a judgment whose time to appeal has expired) in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. THE PLEDGOR AND THE COLLATERAL AGENT HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING (INCLUDING ANY COUNTERCLAIM) IN ANY COURT ARISING ON, OUT OF, OR IN ANY WAY RELATING TO THIS AGREEMENT OR ANY AMENDMENT OR SUPPLEMENT HERETO OR THERETO OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. 18. Pledge and Assignment Absolute. All rights of the Collateral ------------------------------ Agent and the Secured Parties, the pledge and assignment hereunder and all obligations of the Pledgor hereunder, shall be absolute and unconditional, irrespective of: 16 (i) any lack of validity or enforceability of the Credit Agreement or any of the Senior Note Purchase Agreements, any other document or any other agreement or instrument relating thereto; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations or any other amendment or waiver of or any consent to any departure from the Credit Agreement or any of the Senior Note Purchase Agreements; (iii) any exchange, release or non-perfection of any other Collateral, or any release or amendment or waiver of or consent to departure from this Agreement or any other Collateral Document; or (iv) any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Pledgor. 19. Indemnity and Expenses. (a) The Pledgor agrees to indemnify the ---------------------- Collateral Agent from and against any and all claims, losses and liabilities growing out of or resulting from this Agreement (including, without limitation, enforcement of this Agreement), except claims, losses or liabilities resulting from the Collateral Agent's gross negligence or willful misconduct. (b) The Pledgor will upon demand pay to the Collateral Agent the amount of any and all reasonable expenses, including, without limitation, the reasonable fees and disbursements of its counsel and of any experts and agents, which the Collateral Agent may incur in connection with (i) the administration of this Agreement, (ii) the custody, preservation, or use of, or the sale of, collection from, or other realization upon, any of the Collateral, (iii) the exercise or enforcement of any of the rights of the Collateral Agent hereunder, or (iv) the failure by the Pledgor to perform or observe any of the provisions hereof. IN WITNESS WHEREOF, the Pledgor has caused this Security Agreement to be duly executed and delivered as of the date first above written. GUEST SUPPLY, INC. By:___________________________ Name: Title: 17 CERTIFICATE OF ACKNOWLEDGMENT STATE OF __________ ) : ss.: COUNTY OF _________ ) Before me, the undersigned, a Notary Public in and for the county aforesaid, on this _____ day of ___________ 1999, personally appeared ____________________, to me known personally, and who, being by me duly sworn, deposes and says that he is the ________________________ of Guest Supply, Inc. and that the seal affixed to the foregoing instrument is the corporate seal of said corporation, and that said instrument was signed and sealed on behalf of said corporation by authority of its Board of Directors, and said ____________________ acknowledged said instrument to be the free act and deed of said corporation. _________________ Notary Public 18 Schedule A ---------- Jurisdictions for filing UCC-1's (Section 4(b)) ----------------------------------------------- 19 Schedule B ---------- a)65535 Location of Pledgor's books and records concerning Accounts: b)65535 Location of Pledgor's chief executive office: c)65535 Location of Pledgor's other places of business: d)65535 Trade Names: 20 Schedule C ---------- Location(s) of the Pledgor's Inventory: Locations of Equipment: 21 Schedule D ---------- Patents, Trademarks, Copyrights 22 EX-10.(B)(B) 7 AMENDMENT NO. 1 TO NOTE PURCHASE AGREEMENTS Exhibit 10.(b)(b) ================================================================================ Guest Supply, Inc. and certain other Obligors $15,000,000 Series A Senior Notes due November 15, 2009 $5,000,000 Series B Senior Notes due November 15, 2007 $5,000,000 Series C Senior Notes due November 15, 2003 AMENDMENT NO. 1 TO NOTE PURCHASE AGREEMENTS Dated as of April 21, 1999 ================================================================================ Guest Supply, Inc. and certain other Obligors $15,000,000 Series A Senior Notes due November 15, 2009 $5,000,000 Series B Senior Notes due November 15, 2007 $5,000,000 Series C Senior Notes due November 15, 2003 AMENDMENT NO. 1 TO NOTE PURCHASE AGREEMENTS As of April 21, 1999 To each of the Current Noteholders Named in Annex 1 hereto: Ladies and Gentlemen: Each of GUEST SUPPLY, INC., a New Jersey corporation (together with its successors and assigns, the "Company"), BRECKENRIDGE-REMY CO., a Delaware corporation (together with its successors and assigns, "Breckenridge-Remy"), GUEST DISTRIBUTION SERVICES, INC., a Delaware corporation (together with its successors and assigns, "Guest Distribution"), and GUEST PACKAGING, INC., a New Jersey corporation (together with its successors and assigns, "Guest Packaging") (the Company, Breckenridge-Remy, Guest Distribution and Guest Packaging are referred to herein, collectively, as the "Original Obligors"), and KAPADIA ENTERPRISES, INC., a California corporation (together with its successors and assigns, "Kapadia") (Kapadia, the Original Obligors and any other Person that at any time becomes an Obligor pursuant to Section 9.6 of the Note Purchase Agreements are referred to herein, collectively, as the "Obligors"), agrees with you as follows: 1. PRELIMINARY STATEMENTS 1.1 Original Note Issuance, etc. Pursuant to the separate Note Purchase Agreements, each dated as of December 3, 1997, among the Original Obligors and the purchasers named in Annex 1 thereto (as in effect immediately prior to giving effect to the Amendments provided for by this Agreement, the "Original Note Purchase Agreements" and, as may be amended pursuant to this Agreement and as may be further amended, restated or otherwise modified from time to time, the "Note Purchase Agreements"), on December 3, 1997 the Original Obligors issued and sold: (a) $15,000,000 aggregate principal amount of their joint and several 7.06% 1 Series A Senior Notes due November 15, 2009 (as in effect immediately prior to giving effect to the Amendments provided for by this Agreement, the "Original Series A Notes" and, as may be amended pursuant to this Agreement and as may be further amended, restated or otherwise modified from time to time, the "Series A Notes," such terms to include any notes issued in substitution therefor pursuant to Section 13 of any of the Note Purchase Agreements); (b) $5,000,000 aggregate principal amount of their joint and several 6.95% Series B Senior Notes due November 15, 2007 (as in effect immediately prior to giving effect to the Amendments provided for by this Agreement, the "Original Series B Notes" and, as may be amended pursuant to this Agreement and as may be further amended, restated or otherwise modified from time to time, the "Series B Notes," such terms to include any notes issued in substitution therefor pursuant to Section 13 of any of the Note Purchase Agreements); and (c) $5,000,000 aggregate principal amount of their joint end several 6.70% Series C Senior Notes due November 15, 2003 (as in effect immediately prior to giving effect to the Amendments provided for by this Agreement, the "Original Series C Notes" and, as may be amended pursuant to this Agreement and as may be further amended, restated or otherwise modified from time to time, the "Series C Notes," such terms to include any notes issued in substitution therefor pursuant to Section 13 of any of the Note Purchase Agreements). The Original Series A Notes, the Original Series B Notes and the Original Series C Notes are referred to herein, collectively, as the "Original Notes" and the Series A Notes, the Series B Notes and the Series C Notes are referred to herein, collectively, as the "Notes." The entire original principal amount of the Original Notes is outstanding as of the date hereof. The register kept by the Company for the registration and transfer of the Notes indicates that each of the Persons named in Annex 1 hereto (collectively, the "Current Noteholders") is currently a holder of the aggregate principal amount of Notes of the Series indicated in such Annex. 1.2 Nasco Acquisition. The Company, Breckenridge-Remy, Kapadia, MacDonald Contract Sales, Inc., an Ontario corporation ("MCSI"), Madhukar Kapadia and Naina Kapadia, as Trustees under the Kapadia Family Trust (the "Shareholder") (the owner of all of the issued and outstanding shares of capital stock of each of Kapadia and MCSI), Madhukar Kapadia and Naina Kapadia have entered into a Stock Purchase Agreement, made as of April 23, 1999 (the "Acquisition Agreement"), providing, among other things, for the sale by the Shareholder, and the acquisition by Breckenridge- Remy, of all of the issued and outstanding shares of capital stock of each of Kapadia and MCSI. Such acquisition is referred to herein as the "Nasco Acquisition." Upon consummation of the Nasco Acquisition, (i) Kapadia will be a Domestic Subsidiary and therefore will be a Restricted Subsidiary in accordance with clause (b) of the definition of "Restricted Subsidiary" and (ii) MCSI will be a Foreign Subsidiary and in accordance with clause (c) of the definition of "Restricted Subsidiary" and Section 22 of the Note Purchase Agreements is hereby 2 designated by the Company as a Restricted Subsidiary. 1.3 Subordinated Note. A portion of the purchase price under the Acquisition Agreement is to be paid in the form of a 5.18% convertible subordinated promissory note made by the Company in favor of the Shareholder in the principal amount of $5,000,000 (the "Subordinated Note"). The Subordinated Note will be in the form of Exhibit G. 1.4 New Credit Agreement. In connection with the Nasco Acquisition, the Obligors are entering into an Amended and Restated Credit Agreement, dated as of the date hereof (as may be amended, restated or otherwise modified from time to time, the "New Credit Agreement"), among the Obligors, each of the banks listed on the signature pages thereto (the "Banks") and PNC Bank, National Association ("PNC"), as agent for the Banks (the "Bank Group Agent"). A portion of the purchase price under the Acquisition Agreement is to be financed by a loan (the "Acquisition Loan") under the New Credit Agreement. 1.5 Intercreditor Agreement; Collateral Documents. In connection with the Nasco Acquisition and the New Credit Agreement, the Banks have required that each of the Obligors grant Liens on certain property of the Obligors securing, among other obligations, the obligations of the Obligors under the New Credit Agreement, and it is proposed that such Liens shall also equally and ratably secure the obligations of the Obligors under the Note Purchase Agreements and the Notes, all subject to the terms of a Collateral Agency and Intercreditor Agreement, dated as of the date hereof (as may be amended, restated or otherwise modified from time to time, the "Intercreditor Agreement"), in the form of Exhibit C, among the Obligors, PNC in its capacity as Bank Group Agent, the Banks, each of the Current Noteholders, and PNC in its capacity as collateral agent (the "Collateral Agent"). As used herein, the term "Collateral Documents" has the meaning specified in the Intercreditor Agreement. 2. DEFINED TERMS. Capitalized terms used herein and not otherwise defined have the meanings ascribed to them in the Note Purchase Agreements. 3. REQUEST FOR CONSENT TO AMENDMENTS. The Obligors request that each of you consent to the amendments to the Original Note Purchase Agreements and the Original Notes provided for by this Amendment No. 1 to Note Purchase Agreements (as may be amended, restated or otherwise modified from time to time, this "Agreement"). 3 4. REPRESENTATIONS AND WARRANTIES OF OBLIGORS To induce you to enter into this Agreement and to consent to the Amendments, each Obligor represents and warrants as follows: 4.1 Full Disclosure. Except as disclosed in Exhibit D, the New Financing Documents, the SEC Documents and the documents, certificates and other writings delivered to you by or on behalf of any one or more of the Obligors in connection with the transactions contemplated by the Acquisition Agreement, the New Financing Documents and the New Credit Agreement, taken as a whole, do not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading in light of the circumstances under which they were made (provided, that with respect to any projected financial information or forecasted information contained therein, the Obligors represent and warrant only that such projections and forecasts have been made in good faith and are based on reasonable assumptions). Except as expressly described in Exhibit D, or in one of the documents, certificates, financial statements or other writings delivered to you by or on behalf of any one or more of the Obligors, since September 30, 1998, there has been no change in the financial condition, operations, business, properties or prospects of the Company or any Subsidiary except changes that individually or in the aggregate would not reasonably be expected to have a Material Adverse Effect. Subject to the qualification with respect to forward-looking information set out in Part II, Item 7 of the Company's annual report on Form 10-K for the fiscal year ended September 30, 1998, there is no fact known to any Obligor that would reasonably be expected to have a Material Adverse Effect that has not been set forth herein or in the other documents, certificates and other writings delivered to you by or on behalf of any one or more of the Obligors specifically for use in connection with the transactions contemplated hereby. The term "SEC Documents" means the Company's annual report on Form 10-K for the fiscal year ended September 30, 1998, the Company's quarterly report on Form 10-Q for the quarter ended January 1, 1999, and the Company's proxy statement for its January 21, 1999 meeting of shareholders, each as filed by the Company with the Securities and Exchange Commission. Copies of each of the SEC Documents have previously been delivered to each of the Current Noteholders pursuant to Section 7.1(d) of the Note Purchase Agreements. 4.2 No Defaults. No event has occurred and no condition exists that, upon the execution and delivery of the New Financing Documents and the effectiveness of the Amendments, and upon the consummation of the Nasco Acquisition and the transactions under the Acquisition Agreement, the New Financing Documents and the New Credit Agreement, would constitute a Default or an Event of Default. 4 4.3 Debt; Pro Forma Calculations. Annex 2 correctly lists all Debt of the Company and its Subsidiaries that will be outstanding as of the date of the Nasco Acquisition after giving effect to the Amendments, the Acquisition Loan and the closing of the Nasco Acquisition. Such Annex also sets forth the Company's pro forma calculations (as of the dates and for the periods indicated in such Annex) of its projected application of each of Sections 10.1 through 10.4, inclusive, of the Note Purchase Agreements, in each case after giving effect to the Acquisition Loan and the closing of the Nasco Acquisition. 4.4 Organization; Power and Authority; Authorization. (a) Each Obligor is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, and is duly qualified as a foreign corporation and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Each Obligor has the corporate power and authority to own or hold under lease the properties it purports to own or hold under lease, to transact the business it transacts, to execute and deliver this Agreement, the Collateral Documents and the Intercreditor Agreement and to perform the provisions of the Financing Documents. This Agreement, the Collateral Documents and the Intercreditor Agreement are referred to herein, collectively, as the "New Financing Documents." The New Financing Documents, the Note Purchase Agreements and the Notes are referred to herein as the "Financing Documents." (b) The New Financing Documents have been duly authorized by all necessary corporate action on the part of each Obligor party thereto, and each New Financing Document, and before and after giving effect to the Amendments each Financing Document, constitutes a legal, valid and binding obligation of each such Obligor, enforceable against such Obligor in accordance with its terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). (c) Except for consents, authorizations, approvals, notices and filings described in Exhibit E, all of which have been obtained, made or waived, no consent or authorization of, approval by, notice to, filing with or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the execution and delivery of the New Financing Documents and the Acquisition Agreement and the documents related thereto or the performance of the Financing Documents, the Acquisition Agreement and such other documents by any Obligor party thereto. 5 5. AMENDMENTS. 5.1 Amendments to Original Note Purchase Agreements. Subject to Section 5.2, each of the Original Note Purchase Agreements and each of the Original Notes are hereby amended in the manner specified in Exhibit A (collectively, the "Amendments"). 5.2 Effectiveness of Amendments. The Amendments and Section 7.1 hereof shall become effective at such time as each Obligor and each Current Noteholder shall have indicated their written consent to the Amendments by executing and delivering the applicable counterparts of this Agreement, provided that the willingness of the Current Noteholders to consent to the Amendments is subject to satisfaction of the conditions set forth in Exhibit B. 6. EXPENSES. Whether or not the Amendments become effective, the Obligors will promptly (and in any event within 30 days of receiving any statement or invoice therefor) pay all fees, expenses and costs relating to the New Financing Documents and the other documents referred to herein, including, but not limited to, (a) the cost of reproducing the New Financing Documents and the other documents delivered in connection therewith and (b) the reasonable fees and disbursements of your special counsel (namely, Hebb & Gitlin, A Professional Corporation) incurred in connection with the preparation, negotiation and delivery of the New Financing Documents and such other documents. Nothing in this Section 6 shall limit the Obligors' obligations under Section 15.1 of the Note Purchase Agreements. 6 7. MISCELLANEOUS. 7.1 Joinder of Kapadia as an Obligor. Kapadia, by the execution and delivery of this Agreement, becomes jointly and severally liable as an Obligor, under each of the Notes and each of the Note Purchase Agreements, for the due and punctual performance and observance of all of the covenants and other obligations in the Notes and the Note Purchase Agreements to be performed or observed by the Obligors, including, without limitation, the due and punctual payment of the principal and Make-Whole Amount, if any, of, and interest on and all other amounts in respect of, each Note (whether such principal, Make-Whole Amount, interest or other amounts are currently outstanding or to be incurred in the future) and (b) for the due and punctual performance and observance of all the covenants in the Notes and the Note Purchase Agreements to be performed or observed by the Obligors; subject to Section 5.2, immediately upon the execution and delivery by Kapadia of this Agreement to one or more of the Current Noteholders, Kapadia shall be deemed to have become an Obligor for purposes of all of the Financing Documents, including, without limitation, for purposes of the definition of "Obligors" set forth in each Note Purchase Agreement and each Note. 7.2 Part of Note Purchase Agreements, Future References, etc. This Agreement shall be construed in connection with and as a part of each of the Note Purchase Agreements and, except as expressly amended by this Agreement, all terms, conditions and covenants contained in the Note Purchase Agreements and the Notes are hereby ratified and shall be and remain in full force and effect. Any and all notices, requests, certificates and other instruments executed and delivered after the execution and delivery of this Agreement may refer to the Note Purchase Agreements and the Notes without making specific reference to this Agreement, but nevertheless all such references shall include this Agreement unless the context otherwise requires. 7.3 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto. 7 7.4 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE. [Remainder of page intentionally left blank; next page is signature page.] 8 If you are in agreement with the foregoing, please so indicate by signing the acceptance below on the accompanying counterpart of this Agreement and return it to the Company, whereupon the foregoing shall become a binding agreement among you and the Obligors. Very truly yours, GUEST SUPPLY, INC. By___________________________________ Name: Title: BRECKENRIDGE-REMY CO. By___________________________________ Name: Title: GUEST DISTRIBUTION SERVICES, INC. By___________________________________ Name: Title: GUEST PACKAGING, INC. By___________________________________ Name: Title: [Signature page for Amendment No. 1 to Note Purchase Agreements of GUEST SUPPLY, INC. and certain other Obligors with regard to their joint and several Series A Senior Notes due 2009, Series B Senior Notes due 2007 and Series C Senior Notes due 2003] KAPADIA ENTERPRISES, INC. By___________________________________ Name: Title: [Signature page for Amendment No. 1 to Note Purchase Agreements of GUEST SUPPLY, INC. and certain other Obligors with regard to their joint and several Series A Senior Notes due 2009, Series B Senior Notes due 2007 and Series C Senior Notes due 2003] The foregoing is hereby agreed to. J. ROMEO & CO., as nominee for MONY LIFE INSURANCE COMPANY By___________________________________________ Name: Title: [Signature page for Amendment No. 1 to Note Purchase Agreements of GUEST SUPPLY, INC. and certain other Obligors with regard to their joint and several Series A Senior Notes due 2009, Series B Senior Notes due 2007 and Series C Senior Notes due 2003] The foregoing is hereby agreed to. AUER & CO., as nominee for AUSA LIFE INSURANCE COMPANY, INC. By___________________________________________ Name: Title: [Signature page for Amendment No. 1 to Note Purchase Agreements of GUEST SUPPLY, INC. and certain other Obligors with regard to their joint and several Series A Senior Notes due 2009, Series B Senior Notes due 2007 and Series C Senior Notes due 2003] The foregoing is hereby agreed to. GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY By___________________________________________ Name: Title: By___________________________________________ Name: Title: [Signature page for Amendment No. 1 to Note Purchase Agreements of GUEST SUPPLY, INC. and certain other Obligors with regard to their joint and several Series A Senior Notes due 2009, Series B Senior Notes due 2007 and Series C Senior Notes due 2003] The foregoing is hereby agreed to. NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY By___________________________________________ Name: Title: [Signature page for Amendment No. 1 to Note Purchase Agreements of GUEST SUPPLY, INC. and certain other Obligors with regard to their joint and several Series A Senior Notes due 2009, Series B Senior Notes due 2007 and Series C Senior Notes due 2003] ANNEX 1 CURRENT NOTEHOLDERS ================================================================================ Name of Current Noteholder Series and Aggregate Principal Amount of Notes Held ================================================================================ MONY Life Insurance Company (formerly Series A; $10,000,000 The Mutual Life Insurance Company of New York) (Note held in the nominee name of J. ROMEO & Co.) - ------------------------------------------------------------------------------- AUSA Life Insurance Company, Inc. Series A; $5,000,000 (Note held in the nominee name of AUER & Co.) - ------------------------------------------------------------------------------- Great-West Life & Annuity Insurance Series B; $5,000,000 Company Nationwide Life and Annuity Insurance Series C; $5,000,000 Company ================================================================================ Annex 1-1 ANNEX 2 OUTSTANDING DEBT; PRO FORMA COVENANT CALCULATIONS The Debt of the Company and its Subsidiaries that will be outstanding as of the date of the Nasco Acquisition after giving effect to the Amendments, the Acquisition Loan and the closing of the Nasco Acquisition is as follows: 1. $25,000,000 aggregate principal amount of the Notes 2. $22,000,000 aggregate principal amount of loans under the New Credit Agreement 3. $5,000,000 Subordinated Note Pro forma calculations are attached to this Annex and incorporated herein. Annex 2-1 EXHIBIT A AMENDMENTS (S)1. The introductory sentence of each of the Original Note Purchase Agreements is hereby amended and restated in its entirety to read as follows: " Each of GUEST SUPPLY, INC., a New Jersey corporation (together with its successors and assigns, the "Company"), BRECKENRIDGE-REMY CO., a Delaware corporation (together with its successors and assigns, "Breckenridge- Remy"), GUEST DISTRIBUTION SERVICES, INC., a Delaware corporation (together with its successors and assigns, "Guest Distribution"), GUEST PACKAGING, INC., a New Jersey corporation (together with its successors and assigns, "Guest Packaging") and KAPADIA ENTERPRISES, INC., a California corporation (together with its successors and assigns, "Kapadia") (the Company, Breckenridge-Remy, Guest Distribution, Guest Packaging and Kapadia, together with any other Person that at any time becomes an Obligor pursuant to Section 9.6, are referred to herein, collectively, as the "Obligors") agrees with you as follows: " (S)2. Section 1 of each of the Original Note Purchase Agreements is hereby amended and restated in its entirety to read as follows: " 1. ORIGINAL NOTES; AMENDED NOTES. 1.1 Original Notes. Pursuant to the Original Note Purchase Agreements, on December 3, 1997 the Original Obligors issued and sold: (a) $15,000,000 aggregate principal amount of their joint and several 7.06% Series A Senior Notes due November 15, 2009 (as in effect immediately prior to giving effect to the First Amendments, the "Original Series A Notes"); (b) $5,000,000 aggregate principal amount of their joint and several 6.95% Series B Senior Notes due November 15, 2007 (as in effect immediately prior to giving effect to the First Amendments, the "Original Series B Notes"); and (c) $5,000,000 aggregate principal amount of their joint end several 6.70% Series C Senior Notes due November 15, 2003 (as in effect immediately prior to giving effect to the First Amendments, the "Original Series C Notes"). The Original Series A Notes, the Original Series B Notes and the Original Series C Notes, collectively, are referred to herein as the "Original Notes." Exhibit A-1 1.2 Notes Amended Pursuant to Amendment No. 1. Pursuant to the Amendment No. 1 to the Note Purchase Agreements, dated as of the First Amendment Date ("Amendment No. 1"), among the Obligors and certain holders of Original Notes, on the First Amendment Date: (a) the Original Series A Notes were amended and restated in their entirety to be $15,000,000 aggregate principal amount of the Obligors' joint and several 7.31% Series A Senior Notes due November 15, 2009 (as may be amended, restated or otherwise modified from time to time, the "Series A Notes," such term to include any notes issued in substitution therefor pursuant to Section 13 of any of the Note Purchase Agreements); (b) the Original Series B Notes were amended and restated in their entirety to be $5,000,000 aggregate principal amount of the Obligors' joint and several 7.20% Series B Senior Notes due November 15, 2007 (as may be amended, restated or otherwise modified from time to time, the "Series B Notes," such term to include any notes issued in substitution therefor pursuant to Section 13 of any of the Note Purchase Agreements); and (c) the Original Series C Notes were amended and restated in their entirety to be $5,000,000 aggregate principal amount of the Obligors' joint and several 6.95% Series C Senior Notes due November 15, 2003 (as may be amended, restated or otherwise modified from time to time, the "Series C Notes," such term to include any notes issued in substitution therefor pursuant to Section 13 of any of the Note Purchase Agreements). The Series A Notes, the Series B Notes and the Series C Notes, collectively, are referred to herein as the "Notes." The Notes shall be substantially in the respective forms set out in Exhibit 1A, Exhibit 1B and Exhibit 1C (each as amended pursuant to the First Amendments). Certain capitalized terms used in this Agreement are defined in Schedule B; references to a "Schedule" or an "Exhibit" are, unless otherwise specified, to a Schedule or an Exhibit attached to this Agreement; references to a "Section" are, unless otherwise specified, to a Section of this Agreement. " (S)3. Section 7.1 of each of the Original Note Purchase Agreements is hereby amended by adding the following new clause (b-1) immediately after clause (b) thereof to read as follows: " (b-1) Projections -- not later than 30 days prior to the beginning of each fiscal year of the Company, a copy of the quarter to quarter projections by the Company of the operating budget and cash flow budget of the Company and its Subsidiaries for such fiscal year, such projections to be accompanied by a certificate of a Senior Financial Exhibit A-2 Officer to the effect that such projections have been prepared on the basis of assumptions deemed reasonable at the time of preparation and that such Senior Financial Officer has no reason to believe they are incorrect or misleading in any Material respect;" (S)4. Section 8 of each of the Original Note Purchase Agreements is hereby amended by adding a new Section 8.5A immediately after Section 8.5 thereof to read as follows: " 8.5A Unscheduled Revolver Commitment Reduction. (a) Effectiveness of this Section. Notwithstanding anything else in this Section 8.5A, this Section 8.5A shall cease to be effective at such time as the Intercreditor Agreement terminates pursuant to Section 14 thereof or by agreement of the parties thereto. (b) Notice of Unscheduled Revolver Commitment Reduction. The Company will, at least 30 days but not more than 60 days prior to any Unscheduled Revolver Commitment Reduction, give written notice of such Unscheduled Revolver Commitment Reduction to each holder of Notes (by telecopy transmission and, simultaneously with the sending of such telecopied notice, by sending a copy of such notice to each such holder via an overnight courier of national reputation). Such notices shall contain and constitute an offer to prepay Notes as described in clause (c) of this Section 8.5A and shall be accompanied by the certificate described in clause (g) of this Section 8.5A. If the Company shall not have received a written response to such first notice from each holder of Notes within ten days after the transmission of such telecopy thereof, then the Company will immediately send a second such written notice via an overnight courier of national reputation to each holder of Notes who shall have not previously responded to the Company. (c) Offer to Prepay Notes. The offer to prepay Notes contemplated by clause (b) of this Section 8.5A shall be a written offer to prepay, in accordance with and subject to this Section 8.5A, the Section 8.5A Prepayment Percentage of the principal amount of the Notes held by each holder (in this case only, "holder" in respect of any Note registered in the name of a nominee for a disclosed beneficial owner shall mean such beneficial owner) on a date specified in such offer (the "Proposed Section 8.5A Prepayment Date"), together with interest as provided below. Such Proposed Section 8.5A Prepayment Date shall be not less than 30 days and not more than 60 days after the date of the first notice referred to in clause (a) of this Section 8.5A (if the Proposed Section 8.5A Prepayment Date shall not be specified in such first notice, the Proposed Section 8.5A Prepayment Date shall be the 30th day after the date of such notice), but in any event shall not be later than the date of the related Unscheduled Revolver Commitment Reduction. Exhibit A-3 (d) Acceptance, Rejection. A holder of Notes may accept the offer to prepay made pursuant to this Section 8.5A by causing a notice of such acceptance to be delivered to the Company at least ten days prior to the Proposed Section 8.5A Prepayment Date. A failure by a holder of Notes to respond (by such time) to an offer to prepay made pursuant to this Section 8.5A shall be deemed to constitute an acceptance of such offer by such holder. (e) Prepayment. Prepayment of the Notes to be prepaid pursuant to this Section 8.5A shall be at 100% of the Section 8.5A Prepayment Percentage of the principal amount of such Notes, at par and without payment of any Make-Whole Amount or any premium, together with interest on such Notes accrued to the date of prepayment. The prepayment shall be made on the Proposed Section 8.5A Prepayment Date except as provided in clause (f) of this Section 8.5A. (f) Deferral Pending Unscheduled Revolver Commitment Reduction. The obligation of the Obligors to prepay Notes pursuant to the offers required by clause (b) and accepted in accordance with clause (d) of this Section 8.5A is subject to the occurrence of the Unscheduled Revolver Commitment Reduction in respect of which such offers and acceptances shall have been made. In the event that such Unscheduled Revolver Commitment Reduction does not occur on the Proposed Section 8.5A Prepayment Date in respect thereof, the prepayment shall be deferred until and shall be made on the date on which such Unscheduled Revolver Commitment Reduction occurs. The Company shall keep each holder of Notes reasonably and timely informed of (i) any such deferral of the date of prepayment, (ii) the date on which such Unscheduled Revolver Commitment Reduction and the prepayment are expected to occur, and (iii) any determination by the Company that efforts to effect such Unscheduled Revolver Commitment Reduction have ceased or been abandoned (in which case the offers and acceptances made pursuant to this Section 8.5A in respect of such Unscheduled Revolver Commitment Reduction shall be deemed rescinded). In the event that such Unscheduled Revolver Commitment Reduction is deferred for 60 or more days after the Proposed Section 8.5A Prepayment Date, the offers and acceptances made pursuant to this Section 8.5A in respect of such Unscheduled Revolver Commitment Reduction shall be deemed rescinded. If any such offers and acceptances are deemed rescinded pursuant to this clause (f), then all requirements of this Section 8.5A (including, without limitation, the requirement to give notice and make offers pursuant to clauses (b) and (c)) with respect to any Unscheduled Revolver Commitment Reduction (including, without limitation, with respect to such deferred Unscheduled Revolver Commitment Reduction) occurring after such rescission shall be reinstated. (g) Officer's Certificate. Each offer to prepay the Notes pursuant to this Section 8.5A shall be accompanied by a certificate, executed by a Senior Financial Officer and dated the date of such offer, specifying: (i) the Proposed Section 8.5A Prepayment Date; (ii) that such offer is made pursuant to this Section 8.5A; (iii) the Exhibit A-4 Section 8.5A Prepayment Percentage; (iv) the principal amount of each Note offered to be prepaid; (v) the interest that would be due on each Note offered to be prepaid, accrued to the Proposed Section 8.5A Prepayment Date; (vi) that the conditions of this Section 8.5A have been fulfilled; and (vii) in reasonable detail, the nature and date or proposed date of the Unscheduled Revolver Commitment Reduction. " (S)5. Sections 8.1(a), 8.1(b), 8.1(c) and 8.6 of each of the Original Note Purchase Agreements are hereby amended by deeming each reference therein to "Section 8.5" to include a reference to Section 8.5A as well as Section 8.5. (S)6. Section 10.3 of each of the Original Note Purchase Agreements is hereby amended and restated in its entirety to read as follows: " 10.3 Fixed Charge Coverage. The Company will not permit the Fixed Charge Coverage Ratio for the period of four consecutive fiscal quarters preceding any date of determination to be less than 1.35 to 1.0. " Exhibit A-5 (S)7. Section 10.4 of each of the Original Note Purchase Agreements is hereby amended and restated in its entirety to read as follows: " 10.4 Leverage Ratio. The Company will not, at any time, permit the ratio of (a) Consolidated Debt to (b) Consolidated Capitalization to be greater than the then applicable ratio specified in the following table: =============================================================================== If such time is then the applicable ratio is - ------------------------------------------------------------------------------- before the First Amendment Date 0.6 to 1.0 - ------------------------------------------------------------------------------- on or after the First Amendment 0.7 to 1.0 Date but before October 2, 1999 - ------------------------------------------------------------------------------- on or after October 2, 1999 but 0.65 to 1.0 before July 1, 2000 - ------------------------------------------------------------------------------- on or after July 1, 2000 but 0.625 to 1.0 before September 30, 2000 - ------------------------------------------------------------------------------- on or after September 30, 2000 0.6 to 1.0 =============================================================================== . " (S)8. Section 10.8(h) of each of the Original Note Purchase Agreements is hereby amended and restated in its entirety to read as follows: " (h) (i) any Lien extending, renewing or replacing any Lien permitted by clause (g) of this Section 10.8, provided that (A) the principal amount of Indebtedness secured by such Lien immediately prior to such extension, renewal or replacement is not increased, (B) such Lien is not extended to any property other than the property subject to such Lien immediately prior to such extension, renewal or replacement, and (C) immediately before, and immediately after giving effect to, such extension, renewal or replacement, no Default or Event of Default exists or would exist; and (ii) Liens on the Collateral (as such term is defined in the Intercreditor Agreement) under the Collateral Documents, securing (among other obligations) the obligations of the Obligors under the Note Purchase Agreements and the Notes and under the New Credit Agreement, which Liens and the benefits thereof are subject to the terms of the Intercreditor Agreement; and " Exhibit A-6 (S)9. Section 10 of each of the Original Note Purchase Agreements is hereby amended by adding a new Section 10.14 at the end thereof to read as follows: " 10.14 Subordinated Debt. The Obligors will not, and will not permit any of their respective Subsidiaries to, make any optional payment or prepayment on or redemption, defeasance or purchase of any Subordinated Debt, or amend, modify or change, or consent or agree to any amendment, modification or change to any of the terms relating to the payment or prepayment of principal of or interest on, any such Indebtedness, other than any amendment, modification or change which would extend the maturity or reduce the amount of any payment of principal thereof or which would reduce the rate or extend the date for payment of interest thereon; and provided that nothing herein shall prohibit (i) the conversion of the Kapadia Subordinated Note into Capital Stock of the Company pursuant to the terms thereof or (ii) subject to the subordination provisions in Section 3 thereof, the payment of the Kapadia Subordinated Note at its April 23, 2004 scheduled maturity. As used in this Section 10.14, the terms "Subordinated Debt," "Indebtedness," "Kapadia Subordinated Note" and "Capital Stock" have the meanings ascribed to such terms in the New Credit Agreement as in effect on the First Amendment Date (and for purposes of determining such meanings each defined term directly or indirectly used in such definitions in the New Credit Agreement shall also have the meaning ascribed to such term in the New Credit Agreement as in effect on the First Amendment Date). In the case of any such Subordinated Debt, the payment of the principal, interest and other obligations in respect thereof shall be subordinated to the prior payment in full of the principal of and interest (including post-petition interest) and Make-Whole Amount on the Notes and all other obligations of the Obligors under the Notes and the Note Purchase Agreements on terms and conditions approved in writing by the Required Holders and, in any event, on terms and conditions no less favorable to the holders of the Notes than to the holders of the Obligations (as such term is defined in the New Credit Agreement), provided the foregoing requirements of this sentence shall be deemed to be satisfied with respect to the Subordinated Debt evidenced by the Kapadia Subordinated Note so long as it is in the form of Exhibit G to Amendment No. 1. " (S)10. Clause (d) of Section 11 of each of the Original Note Purchase Agreements is hereby amended and restated in its entirety to read as follows: " (d) any Obligor or any Subsidiary defaults in the performance of or compliance with any term contained herein (other than those referred to in paragraphs (a), (b) and (c) of this Section 11) or contained in any other Financing Document, and such default is not remedied within 30 days after the earlier of (i) a Senior Financial Officer obtaining actual knowledge of such default and (ii) the Company receiving written notice of such default from any holder of a Note; or " Exhibit A-7 (S)11. Clauses (ii) and (iii) of Section 11(f) of each of the Original Note Purchase Agreements are hereby amended and restated in their entirety to read as follows: " (ii) the Company or any Restricted Subsidiary is in default in the performance of or compliance with any term of any evidence of any Indebtedness (other than Indebtedness under the Financing Documents) or Securities and as a consequence of such default or condition any of such Indebtedness or Securities has become, or has been declared (or one or more Persons are entitled to declare any of such Indebtedness or Securities to be), due and payable before its stated maturity or before its regularly scheduled date or dates of payment, or (iii) as a consequence of the occurrence or continuation of any event or condition (other than the right of the holder of Indebtedness or Securities to convert such Indebtedness or Securities into equity interests), (x) the Company or any Restricted Subsidiary has become obligated to purchase or repay Indebtedness or Securities before its or their regular maturity or before its or their regularly scheduled dates of payment, or (y) one or more Persons have the right to require the Company or any Restricted Subsidiary so to purchase or repay such Indebtedness; " (S)12. Section 11 of each of the Original Note Purchase Agreements is hereby amended by substituting "; or" in place of the period at the end of clause (k) thereof and by adding the following new clause (l) immediately after such clause (k) to read as follows: " (l) any event of default under and as defined in the New Credit Agreement shall exist. " (S)13. Schedule B to each of the Original Note Purchase Agreements is hereby amended by amending and restating each of the following definitions in their entirety to read as follows: "Consolidated Tangible Net Worth" means, at any time, (a) the sum of (i) the par value (or value stated on the books of the corporation) of the Capital Stock (but excluding treasury stock and Capital Stock subscribed and unissued) of the Company and the Restricted Subsidiaries plus (ii) the amount of the paid-in capital and retained earnings of the Company and the Restricted Subsidiaries, in each case as such amounts would be shown on a consolidated balance sheet of the Company and the Restricted Subsidiaries as of such time prepared in accordance with GAAP, minus Exhibit A-8 (b) to the extent included in clause (a), (i) the net book value of all Intangible Assets of the Company and the Restricted Subsidiaries (after deducting any reserves applicable thereto), provided, that if such time is on or after the First Amendment Date but before October 1, 2000 then solely for purposes of determining Consolidated Tangible Net Worth as such term is used in Section 10.1 (and not as such term is used in the definition of Consolidated Capitalization), Intangible Assets shall be deemed not to include goodwill attributable to the Nasco Acquisition (as such term is defined in Amendment No. 1), and (ii) all Restricted Investments of the Company and the Restricted Subsidiaries. "Default Rate" means, with respect to any Note, a rate per annum from time to time equal to the greater of (a) 9.31% in the case of a Series A Note, 9.20% in the case of a Series B Note or 8.95% in the case of a Series C Note or (b) 2.0% over the rate of interest publicly announced by Chase Manhattan Bank, N.A. (or its successor) from time to time in New York, New York as its "base" or "prime" rate. "Financing Documents" means the Notes, the Note Purchase Agreements, the Intercreditor Agreement and the Collateral Documents. "Fixed Charge Coverage Ratio" has the meaning ascribed to such term in the New Credit Agreement as in effect on the First Amendment Date (and for purposes of determining such meaning each defined term directly or indirectly used in such definition in the New Credit Agreement shall also have the meaning ascribed to such term in the New Credit Agreement as in effect on the First Amendment Date). "New Credit Agreement" means the Amended and Restated Revolving Credit Agreement, dated the First Amendment Date, among the Obligors, PNC Bank, National Association, First Union National Bank, Fleet Bank, N.A., and PNC Bank, National Association, as agent, as modified, amended, or supplemented from time to time. "Notes" is defined in Section 1.2. Each reference to Notes shall be deemed to include any Allonges with respect thereto. "Series A Notes" is defined in Section 1.2. "Series B Notes" is defined in Section 1.2. "Series C Notes" is defined in Section 1.2. Exhibit A-9 (S)14. Schedule B to each of the Original Note Purchase Agreements is hereby amended by adding each of the following new definitions in its appropriate alphabetical order in such Schedule: "Amendment No. 1" is defined in Section 1.2. "Collateral Documents" has the meaning ascribed to such term in the Intercreditor Agreement. "First Amendment Date" means April 23, 1999. "First Amendments" means the amendments to the Original Note Purchase Agreements and the Original Notes effected by Amendment No. 1. "Intercreditor Agreement" means the Collateral Agency and Intercreditor Agreement, dated as of the First Amendment Date, among the Obligors, PNC Bank, National Association, in its capacity as agent under the New Credit Agreement, the banks named therein, certain holders of Notes named therein, and PNC Bank, National Association, in its capacity as collateral agent thereunder, as such agreement may be amended, restated, supplemented or otherwise modified from time to time. "Kapadia" is defined in the introductory sentence of this Agreement. "Original Note Purchase Agreements" means the separate Note Purchase Agreements, each dated as of December 3, 1997, under which the Original Notes were issued and sold by the Original Obligors. "Original Notes" is defined in Section 1.1. "Original Obligors" means the Company, Breckenridge-Remy, Guest Distribution and Guest Packaging. "Original Series A Notes" is defined in Section 1.1. "Original Series B Notes" is defined in Section 1.1. "Original Series C Notes" is defined in Section 1.1. "Proposed Section 8.5A Prepayment Date" is defined in Section 8.5A(c). "Revolver Commitment Amount" means, at any time, the aggregate amount of the Revolver Commitments at such time. The Revolver Commitment Amount shall not be deemed to be reduced as a result of the failure of a borrowing base or other condition of borrowing to be satisfied. Exhibit A-10 "Revolver Commitment" means the "Commitment" of each of the "Lenders" (as such terms are defined in the New Credit Agreement as in effect on the First Amendment Date) or any substantially similar commitment of one or more banks or other lenders to make revolving loans from time to time to the Company under the New Credit Agreement or any replacement revolving credit facility, which commitments may be subject to any borrowing base and other customary conditions contained in credit facilities of the same general type as the New Credit Agreement. "Section 8.5A Prepayment Percentage" means, with respect to any Unscheduled Revolver Commitment Reduction, the ratio (expressed as a percentage) of (a) the amount of such Unscheduled Revolver Commitment Reduction to (b) the Revolver Commitment Amount immediately prior to giving effect to such Unscheduled Revolver Commitment Reduction. "Unscheduled Revolver Commitment Reduction" means any reduction in the Revolver Commitment Amount (whether as a result of the permanent reduction thereof pursuant to Section 2.5(a) of the New Credit Agreement, an amendment, restatement, other modification, termination or replacement of or to the New Credit Agreement or otherwise) such that (a) prior to April 1, 2002 the Revolver Commitment Amount is less than $35,000,000, (b) prior to April 1, 2004 the Revolver Commitment Amount is less than $25,000,000 or (c) prior to April 21, 2005 the Revolver Commitment Amount is less than $15,000,000. (S)15. Schedule B to each of the Original Note Purchase Agreements is hereby amended by deleting the definitions of the following terms therein: "Consolidated Fixed Charges" "Consolidated Income Available for Fixed Charges" "Consolidated Interest Expense" "Consolidated Long-Term Rentals" (S)16. The forms of Series A Note, Series B Note and Series C Note set forth as Exhibits 1A, 1B and 1C, respectively, to each of the Original Note Purchase Agreements are hereby amended and restated in their entirety to read as set forth in Attachments 1A, 1B and 1C, respectively, to this Exhibit A. Each Existing Note is hereby amended and restated to conform to such applicable amended and restated form (including, without limitation, as to the increase, commencing on the First Amendment Date, of each of the fixed interest rates set forth therein by 0.25% per annum) without any further action on the part of the Obligors or the Exhibit A-11 Current Noteholders (including, without limitation, any requirement that any holder surrender its outstanding Original Notes to the Company). (S)17. The form of Allonge set forth as Exhibit 9.6(b) to each of the Original Note Purchase Agreements is hereby amended and restated in its entirety to read as set forth in Attachment 9.6(b) to this Exhibit A. Exhibit A-12 ATTACHMENT 1 TO EXHIBIT A [FORM OF SERIES A NOTE] GUEST SUPPLY, INC. and certain other Obligors 7.31% Series A Senior Note due November 15, 2009 No. AR-__ [Date] $____________ PPN: 401630 A* 9 For value received, the undersigned, GUEST SUPPLY, INC., a New Jersey corporation (herein called the "Company"), BRECKENRIDGE-REMY CO., a Delaware corporation, GUEST DISTRIBUTION SERVICES, INC., a Delaware corporation, GUEST PACKAGING, INC., a New Jersey corporation, and KAPADIA ENTERPRISES, INC., a California corporation (collectively, the "Obligors"), hereby jointly and severally promise to pay to ________________________, or registered assigns, the principal sum of ________________________ DOLLARS ($____________) on November 15, 2009, with interest (computed on the basis of a 360-day year of twelve 30- day months) (a) on the unpaid balance thereof at the rate of 7.31% per annum (provided, prior to but not including the First Amendment Date (as such term is defined in the Amendment No. 1 to Note Purchase Agreements referred to below) such rate shall be 7.06% per annum), payable semiannually, on the 15th day of May and November in each year, commencing with the May 15 or November 15 next succeeding the date hereof, until the principal hereof shall have become due and payable, and (b) to the extent permitted by law on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest and any overdue payment of any Make-Whole Amount (as defined in the Note Purchase Agreements referred to below), payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) 9.31% (provided, prior to but not including the First Amendment Date such rate shall be 9.06%) or (ii) 2.0% over the rate of interest publicly announced by Chase Manhattan Bank, N.A. (or its successor) from time to time in New York, New York as its "base" or "prime" rate. Subject to Section 14.2 of the Note Purchase Agreements, payments of principal of, interest on and any Make-Whole Amount with respect to this Note are to be made in lawful money of the United States of America at the principal office of the Company in Monmouth Junction, New Jersey, or at such other place as the Company shall have designated by written notice to the holder of this Note as provided in the Note Purchase Agreements referred to below. Attachment 1-1 This Note is one of a series of joint and several senior notes (together with the other two series of joint and several senior notes issued pursuant thereto, and as may from time to time be further amended, restated, supplemented or otherwise modified, herein called the "Notes") issued pursuant to separate Note Purchase Agreements, dated as of December 3, 1997 (as amended pursuant to the Amendment No.1 to Note Purchase Agreements, dated as of April 21, 1999, and as may from time to time be further amended, restated, supplemented or otherwise modified, herein called the "Note Purchase Agreements"), among the Obligors and the respective Purchasers named therein, and is entitled to the benefits thereof. Each holder of this Note will be deemed, by its acceptance hereof, (i) to have agreed to the confidentiality provisions set forth in Section 20 of the Note Purchase Agreements and (ii) to have made the representation set forth in the last sentence of Section 6.1 and the representation set forth in Section 6.2 of the Note Purchase Agreements. This Note is a registered Note and, as provided in the Note Purchase Agreements, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Obligors may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Obligors will not be affected by any notice to the contrary. The Obligors will make required prepayments of principal on the dates and in the amounts specified in the Note Purchase Agreements. This Note is also subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note Purchase Agreements, but not otherwise. If an Event of Default, as defined in the Note Purchase Agreements, occurs and is continuing, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price (including any applicable Make-Whole Amount) and with the effect provided in the Note Purchase Agreements. THIS NOTE AND THE NOTE PURCHASE AGREEMENTS SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK, EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE. GUEST SUPPLY, INC. By___________________________________ Attachment 1-2 Name: Title: BRECKENRIDGE-REMY CO. By___________________________________ Name: Title: GUEST DISTRIBUTION SERVICES, INC. By___________________________________ Name: Title: GUEST PACKAGING, INC. By___________________________________ Name: Title: KAPADIA ENTERPRISES, INC. By___________________________________ Name: Title: [Add signature blocks for any additional Obligors.] Attachment 1-3 ATTACHMENT 2 TO EXHIBIT A [FORM OF SERIES B NOTE] GUEST SUPPLY, INC. and certain other Obligors 7.20% Series B Senior Note due November 15, 2007 No. BR-__ [Date] $____________ PPN: 401630 A@ 7 For value received, the undersigned, GUEST SUPPLY, INC., a New Jersey corporation (herein called the "Company"), BRECKENRIDGE-REMY CO., a Delaware corporation, GUEST DISTRIBUTION SERVICES, INC., a Delaware corporation, GUEST PACKAGING, INC., a New Jersey corporation, and KAPADIA ENTERPRISES, INC., a California corporation (collectively, the "Obligors"), hereby jointly and severally promise to pay to ________________________, or registered assigns, the principal sum of ________________________ DOLLARS ($____________) on November 15, 2007, with interest (computed on the basis of a 360-day year of twelve 30- day months) (a) on the unpaid balance thereof at the rate of 7.20% per annum (provided, prior to but not including the First Amendment Date (as such term is defined in the Amendment No. 1 to Note Purchase Agreements referred to below) such rate shall be 6.95% per annum), payable semiannually, on the 15th day of May and November in each year, commencing with the May 15 or November 15 next succeeding the date hereof, until the principal hereof shall have become due and payable, and (b) to the extent permitted by law on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest and any overdue payment of any Make-Whole Amount (as defined in the Note Purchase Agreements referred to below), payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) 9.20% (provided, prior to but not including the First Amendment Date such rate shall be 8.95%) or (ii) 2.0% over the rate of interest publicly announced by Chase Manhattan Bank, N.A. (or its successor) from time to time in New York, New York as its "base" or "prime" rate. Subject to Section 14.2 of the Note Purchase Agreements, payments of principal of, interest on and any Make-Whole Amount with respect to this Note are to be made in lawful money of the United States of America at the principal office of the Company in Monmouth Junction, New Jersey, or at such other place as the Company shall have designated by written notice to the holder of this Note as provided in the Note Purchase Agreements referred to below. Attachment 2-1 This Note is one of a series of joint and several senior notes (together with the other two series of joint and several senior notes issued pursuant thereto, and as may from time to time be further amended, restated, supplemented or otherwise modified, herein called the "Notes") issued pursuant to separate Note Purchase Agreements, dated as of December 3, 1997 (as amended pursuant to the Amendment No. 1 to Note Purchase Agreements, dated as of April 21, 1999, and as may from time to time be further amended, restated, supplemented or otherwise modified, herein called the "Note Purchase Agreements"), among the Obligors and the respective Purchasers named therein, and is entitled to the benefits thereof. Each holder of this Note will be deemed, by its acceptance hereof, (i) to have agreed to the confidentiality provisions set forth in Section 20 of the Note Purchase Agreements and (ii) to have made the representation set forth in the last sentence of Section 6.1 and the representation set forth in Section 6.2 of the Note Purchase Agreements. This Note is a registered Note and, as provided in the Note Purchase Agreements, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Obligors may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Obligors will not be affected by any notice to the contrary. The Obligors will make required prepayments of principal on the dates and in the amounts specified in the Note Purchase Agreements. This Note is also subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note Purchase Agreements, but not otherwise. If an Event of Default, as defined in the Note Purchase Agreements, occurs and is continuing, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price (including any applicable Make-Whole Amount) and with the effect provided in the Note Purchase Agreements. THIS NOTE AND THE NOTE PURCHASE AGREEMENTS SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK, EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE. GUEST SUPPLY, INC. By___________________________________ Name: Attachment 2-2 Title: BRECKENRIDGE-REMY CO. By___________________________________ Name: Title: GUEST DISTRIBUTION SERVICES, INC. By___________________________________ Name: Title: GUEST PACKAGING, INC. By___________________________________ Name: Title: KAPADIA ENTERPRISES, INC. By___________________________________ Name: Title: [Add signature blocks for any additional Obligors.] Attachment 2-3 ATTACHMENT 3 TO EXHIBIT A [FORM OF SERIES C NOTE] GUEST SUPPLY, INC. and certain other Obligors 6.95% Series C Senior Note due November 15, 2003 No. CR-__ [Date] $____________ PPN: 401630 A# 5 For value received, the undersigned, GUEST SUPPLY, INC., a New Jersey corporation (herein called the "Company"), BRECKENRIDGE-REMY CO., a Delaware corporation, GUEST DISTRIBUTION SERVICES, INC., a Delaware corporation, GUEST PACKAGING, INC., a New Jersey corporation, and KAPADIA ENTERPRISES, INC., a California corporation (collectively, the "Obligors"), hereby jointly and severally promise to pay to ________________________, or registered assigns, the principal sum of ________________________ DOLLARS ($____________) on November 15, 2003, with interest (computed on the basis of a 360-day year of twelve 30- day months) (a) on the unpaid balance thereof at the rate of 6.95% per annum (provided, prior to but not including the First Amendment Date (as such term is defined in the Amendment No. 1 to the Note Purchase Agreements referred to below) such rate shall be 6.70% per annum), payable semiannually, on the 15th day of May and November in each year, commencing with the May 15 or November 15 next succeeding the date hereof, until the principal hereof shall have become due and payable, and (b) to the extent permitted by law on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest and any overdue payment of any Make-Whole Amount (as defined in the Note Purchase Agreements referred to below), payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) 8.95% (provided, prior to but not including the First Amendment Date such rate shall be 8.70%) or (ii) 2.0% over the rate of interest publicly announced by Chase Manhattan Bank, N.A. (or its successor) from time to time in New York, New York as its "base" or "prime" rate. Subject to Section 14.2 of the Note Purchase Agreements, payments of principal of, interest on and any Make-Whole Amount with respect to this Note are to be made in lawful money of the United States of America at the principal office of the Company in Monmouth Junction, New Jersey, or at such other place as the Company shall have designated by written notice to the holder of this Note as provided in the Note Purchase Agreements referred to below. Attachment 3-1 This Note is one of a series of joint and several senior notes (together with the other two series of joint and several senior notes issued pursuant thereto, and as may from time to time be further amended, restated, supplemented or otherwise modified, herein called the "Notes") issued pursuant to separate Note Purchase Agreements, dated as of December 3, 1997 (as amended pursuant to the Amendment No 1. to Note Purchase Agreements, dated as of April 21, 1999, and as may from time to time be further amended, restated, supplemented or otherwise modified, herein called the "Note Purchase Agreements"), among the Obligors and the respective Purchasers named therein, and is entitled to the benefits thereof. Each holder of this Note will be deemed, by its acceptance hereof, (i) to have agreed to the confidentiality provisions set forth in Section 20 of the Note Purchase Agreements and (ii) to have made the representation set forth in the last sentence of Section 6.1 and the representation set forth in Section 6.2 of the Note Purchase Agreements. This Note is a registered Note and, as provided in the Note Purchase Agreements, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Obligors may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Obligors will not be affected by any notice to the contrary. The Obligors will make required prepayments of principal on the dates and in the amounts specified in the Note Purchase Agreements. This Note is also subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note Purchase Agreements, but not otherwise. If an Event of Default, as defined in the Note Purchase Agreements, occurs and is continuing, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price (including any applicable Make-Whole Amount) and with the effect provided in the Note Purchase Agreements. THIS NOTE AND THE NOTE PURCHASE AGREEMENTS SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK, EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE. GUEST SUPPLY, INC. By___________________________________ Name: Attachment 3-2 Title: BRECKENRIDGE-REMY CO. By___________________________________ Name: Title: GUEST DISTRIBUTION SERVICES, INC. By___________________________________ Name: Title: GUEST PACKAGING, INC. By___________________________________ Name: Title: KAPADIA ENTERPRISES, INC. By___________________________________ Name: Title: [Add signature blocks for any additional Obligors.] Attachment 3-3 ATTACHMENT 9.6(b) TO EXHIBIT A [FORM OF ALLONGE] [Date] ALLONGE FOR VALUE RECEIVED, the undersigned, ________________________ [ADDITIONAL OBLIGOR], a[n] ____________ corporation, hereby promises to pay to _______________________ or registered assigns the outstanding principal balance of the [7.31% Series A Senior Note due November 15, 2009] / [7.20% Series B Senior Note due November 15, 2007] / [6.95% Series C Senior Note due November 15, 2003] (the "Note") issued jointly and severally by Guest Supply, Inc. and certain other Obligors, to which this Allonge is attached, in accordance with the terms of such Note, and as required by Section 9.6 and other provisions of each of the separate Note Purchase Agreements, dated as of December 3, 1997 (as amended pursuant to Amendment No. 1 to Note Purchase Agreements, dated as of April 21, 1999, and as may from time to time be further amended, restated or otherwise modified) among Guest Supply, Inc. and certain other Obligors and each of the Purchasers named on Schedule A thereto. The undersigned agrees that it is and shall be jointly and severally liable for the payment of the principal, Make-Whole Amount, if any, and accrued interest on such Note as one of the "Obligors" as such term is defined in the Note and as if the undersigned had been an original co-maker of such Note. [ADDITIONAL OBLIGOR] By___________________________________ Name: Title: Attahment 9.6(b)-1 EXHIBIT B CONDITIONS The willingness of the Current Noteholders to consent to the Amendments is subject to satisfaction of the following conditions: 1. The warranties and representations of the Obligors contained in the New Financing Documents shall be true in all material respects. 2. Each Current Noteholder shall have received opinions in form and substance satisfactory to you, dated the First Amendment Date, (a) from Haythe & Curley, counsel for the Obligors, substantially in the form of Exhibit F1 and covering such other matters incident to the transactions contemplated hereby as you or your counsel may reasonably request (and the Obligors hereby instruct such counsel to deliver such opinion to you); (b) from Jamieson, Moore, Peskin & Spicer, New Jersey counsel for the Obligors, substantially in the form of Exhibit F2 and covering such other matters incident to such transactions as you or your counsel may reasonably request (and the Obligors hereby instruct such counsel to deliver such opinion to you); (c) from Goldfarb, Sturman & Averbach, California counsel for Kapadia, substantially in the form of Exhibit F3 and covering such other matters incident to such transactions as you or your counsel may reasonably request (and Kapadia hereby instructs such counsel to deliver such opinion to you); (d) from Hebb & Gitlin, your special counsel in connection with such transactions, substantially in the form set forth in Exhibit F4 and covering such other matters incident to such transactions as you may reasonably request. 3. Each Current Noteholder shall have received copies (certified as true and complete by an officer of the Company) of the Acquisition Agreement, the Subordinated Note, the New Credit Agreement, the Collateral Documents and such other documents related thereto as the Current Noteholders may reasonably request. 4. The Acquisition Agreement and the Subordinated Note shall be in form and substance satisfactory to each Current Noteholder. 5. The Intercreditor Agreement shall be in form and substance satisfactory to each Current Noteholder, the Intercreditor Agreement shall have been executed and delivered by Exhibit B-1 each of the intended parties thereto and each Current Noteholder shall have received a fully executed original counterpart thereof. 6. Kapadia shall have executed and delivered to each Current Noteholder an Allonge (in the form of Attachment 9.6(b) to Exhibit A to this Agreement) with respect to each Note held by such Current Noteholder. 7. Each Current Noteholder shall have received such evidence as it may reasonably request to the effect that prior to or simultaneously with the granting of such consent to the Amendments: (a) the Acquisition Loan is closing in accordance with the provisions of the New Credit Agreement, including, without limitation, satisfaction of the conditions set forth in Article 4 thereof; (b) the Nasco Acquisition is closing in accordance with the provisions of the Acquisition Agreement, including, without limitation, satisfaction of the conditions set forth in Section IX thereof; and (c) the Subordinated Note is being executed and delivered by the Company pursuant to Acquisition Agreement. 8. The Obligors shall have paid on or before the First Amendment Date the fees, charges and disbursements of special counsel for the Current Noteholders referred to in paragraph 6(c), above, to the extent reflected in a statement of such counsel rendered to the Company at least one Business Day prior to the First Amendment Date. 9. The Current Noteholders shall have received copies of the most recently audited financial statements of Kapadia and be satisfied with the financial condition of Kapadia as set forth therein. 10. The Current Noteholders shall have received copies of the most recent projections of the Company and its Subsidiaries as referred to in item (S)3 of Exhibit A to this Agreement. 11. All proceedings taken in connection with the Amendments, the Nasco Acquisition, the New Financing Documents and the New Credit Agreement and all documents and papers relating thereto shall be satisfactory to the Current Noteholders. The Current Noteholders shall have received copies of such documents and papers as they may reasonably request in connection therewith, all in form and substance reasonably satisfactory to the Current Noteholders. Exhibit B-2 EXHIBIT C [FORM OF INTERCREDITOR AGREEMENT] Exhibit C-1 EXHIBIT D DISCLOSURE MATERIALS None. Exhibit D-1 EXHIBIT E GOVERNMENTAL FILINGS, ETC. Uniform commercial code filings, real estate recordations and any other filings or recordations necessary to perfect the Liens under the Collateral Documents (as specified therein). Appropriate filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the waiting period thereunder having expired). Exhibit E-1 Exhibit F1 [FORM OF OPINION OF COUNSEL FOR THE OBLIGORS] Exhibit F1-1 Exhibit F2 [FORM OF OPINION OF NEW JERSEY COUNSEL FOR THE OBLIGORS] Exhibit F2-1 Exhibit F3 [FORM OF OPINION OF CALIFORNIA COUNSEL FOR THE OBLIGORS] Exhibit F3-1 Exhibit F4 [FORM OF OPINION OF SPECIAL COUNSEL FOR THE CURRENT NOTEHOLDERS] Exhibit F4-1 Exhibit G [FORM OF SUBORDINATED NOTE] EX-99 8 GUEST SUPPLY, INC. PRESS RELEASE EXHIBIT 99 FOR IMMEDIATE RELEASE - -------------------------------------------------------------------------------- Guest Supply, Inc. Contact: 4301 U.S. Highway One Richard Sampson P.O. Box 902 (419) 824-2488 Monmouth Junction, NJ 08852 Guest Supply, Inc. (609) 514-9696 - -------------------------------------------------------------------------------- Guest Supply Acquires Nasco Supply Company Monmouth Junction, New Jersey, April 26, 1999... Guest Supply, Inc. (NYSE:GSY ) said today that it has completed the previously announced acquisition of Nasco Supply Company. With revenue in excess of $65 million, Nasco, headquartered in Chatsworth, California, is one of the largest suppliers of textile products to the lodging industry. Commenting on the acquisition, Clifford W. Stanley, President and CEO of Guest Supply said, "The acquisition of Nasco is a major step in furthering Guest Supply's strategic mission of being the leading supplier in the $2.4 billion market for hotel housekeeping supplies. We are extremely excited about the many opportunities this business combination presents. Together, Guest Supply and Nasco will be the largest supplier of textiles to the lodging industry. Nasco's strong management, experienced sales team, complete product line, broad customer base, and expertise in textiles will be complimented by Guest Supply's direct sales/distribution network and national account relationships. Many cross selling opportunities will be available to both the Guest Supply and Nasco sales forces. The increased volume resulting from the acquisition will enhance economies of scale at every level of the business from procurement through customer delivery. While completely integrating the companies will take several months, we do expect the acquisition to be accretive to earnings in fiscal 1999." This press release contains forward-looking information about the Company's projected operating results and the Company's plan for achieving such results. The Company's ability to achieve its projected results is dependent on many factors, which are outside of management's control. Some of the most significant factors include an unanticipated downturn in the lodging industry resulting in lower demand for the Company's products, the unanticipated loss of or decline in sales to a major customer, unanticipated difficulties with the integration of Nasco Supply, failure to secure new business and unforeseen inefficiencies at the Company's manufacturing facility. In addition, difficulties in completing remediation of Year 2000 issues by the Company, its customers or suppliers may have a material adverse effect on the Company and its operations. Accordingly, there can be no assurances that any anticipated future results will be achieved. Guest Supply, Inc. is a leading supplier of personal care amenities and other operating supplies to the lodging industry and a manufacturer of health and beauty aid products for consumer products companies and retailers. -----END PRIVACY-ENHANCED MESSAGE-----