Wellman, Inc. Form 10-K

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

Indicate by check mark if disclosure of delinquent filers pursuant to Rule 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes þ No o

Aggregate market value of the voting stock held by non-affiliates of the registrant, computed on the basis of $11.20 per share (the closing price of such stock on June 30, 2003 on the New York Stock Exchange), as of the last day of the registrant’s most recently completed second fiscal quarter: $347,444,698.

The number of shares of the registrant’s Class A Common Stock, $.001 par value, and Class B Common Stock, $.001 par value, outstanding as of March 1, 2004 was 31,889,147 and 0, respectively.

1. Proxy Statement for the 2004 Annual Meeting of Stockholders (to be filed with the Securities and Exchange Commission on or before April 29, 2004) is incorporated by reference in Parts II and III hereof.

We are principally engaged in the manufacture and marketing of high-quality PermaClear® and EcoClear® brand PET (polyethylene terephthalate) packaging resins, Fortrel® brand polyester staple fibers and Wellamid® engineering resins. We believe we are the world’s largest PET plastics recycler, utilizing a significant amount of recycled raw materials in our manufacturing operations.

Subsequent to year-end, on February 10, 2004, we closed on $625 million of new debt financings. This consisted of a five-year $175 million Revolving Credit Facility with an annual interest rate of LIBOR plus 250 basis points on outstanding borrowings, a five-year $185 million First Lien Term Loan with an annual interest rate of LIBOR plus 400 basis points and a six-year $265 million Second Lien Term Loan with an annual interest rate of LIBOR plus 675 basis points. The term loans have a LIBOR floor of 200 basis points. These financings are secured primarily by our domestic assets. The net proceeds from these credit facilities were used to repay substantially all of our existing indebtedness, to satisfy contractual obligations, to pay related costs, and to provide working capital.

We expect to incur approximately $47 million in pre-tax charges, or approximately $0.95 per diluted share after tax, in the first quarter of 2004, resulting from costs associated with our prior financings that were repaid. These charges are principally the result of prepayment penalties associated with repayment of our private placement notes, waiver fees and other expenses related to financings that were repaid, charges associated with the termination of the sale and leaseback transaction, and the write-off of unamortized financing costs. On February 10, 2004 we had approximately $490 million in total outstanding long-term debt, net of original issue discount of approximately $5 million. For additional information related to the new financings, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Capital Resources and Liquidity” and note 10 to the Consolidated Financial Statements.

In December 2003, based on management’s recommendation, our Board of Directors approved the abandonment of the polyester staple fiber spinning and drawing equipment at our Pearl River facility. This spinning and drawing equipment, along with the related polymerization assets, was idled in December 2000, principally because of the expected over-supply of polyester staple fiber in the United States. The Board of Directors’ decision to abandon the polyester staple fiber spinning and drawing equipment was based on the determination that a conversion to PET resin production would be the most profitable use of the related polymerization assets that were idled. Subject to final approval by our Board of Directors, we plan to complete the conversion and begin production using the converted assets in 2006.

As a result of this decision, we recorded a non-cash impairment charge of $135 million ($88 million after tax or $2.79 per diluted share) in the fourth quarter of 2003. This charge represents a reduction in the carrying value of the abandoned polyester staple fiber spinning and drawing assets at our Pearl River facility to their estimated fair value. For additional information on the impairment charge, see note 1 to the Consolidated Financial Statements.

We have historically focused on continuous process improvements and have successfully implemented cost reduction initiatives. Since 1999, we have reduced domestic headcount by 29%, while increasing production by 13% and pounds per employee by 38% over the same period. During 2003, we announced additional cost reduction plans as part of our on-going low cost business strategy and in response to reduced profitability. For additional information on reduced profitability, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The three plans announced in 2003 are as follows:

recorded termination costs of approximately $2 million in our FRPG segment related to this plan, which was fully implemented in 2003. This plan has resulted in approximately $7 million of realized savings in controllable costs in 2003 compared to the prior year.

In July 2003, we announced and implemented reductions in compensation and benefit costs. These compensation and benefit reductions were implemented at all levels, including senior management. As part of this cost reduction effort, some employer contributions to our defined contribution plans were suspended.

In November 2003, we announced a third plan with cost reduction initiatives that included eliminating levels of management, reducing the number of employees, and other organizational and administrative consolidations and changes. We incurred severance and other termination costs of approximately $8 million in the fourth quarter of 2003 associated with this plan.

These last two cost reduction plans resulted in approximately $8 million of realized savings in controllable costs in the second half of 2003 as compared to our cost structure during the second quarter of 2003. In addition, we expect a reduction in controllable costs of approximately $27 million in 2004 compared to 2003 levels, with an additional $6 to $11 million of cost reductions in 2005. By 2005, we expect total cost savings annually of $41 to $46 million as compared to our cost structure in the second quarter of 2003. These plans will result in a total headcount reduction of approximately 400 employees by the end of 2004. Of these reductions, approximately 70% were implemented by the end of 2003. For additional information, see note 8 to the Consolidated Financial Statements.

Our operations are classified into two reportable operating segments: the Packaging Products Group (PPG) and the Fibers and Recycled Products Group (FRPG).

The following table presents the combined net sales and percentage of net sales for our reportable operating segments for each of the three years in the period ended December 31, 2003. In the table, we have eliminated intersegment sales and applied historical exchange rates to the data. These eliminations are not material.

The accounting policies of the reportable operating segments are the same as those described in the summary of significant accounting policies in note 1 to the Consolidated Financial Statements. The following table presents the operating profit (loss) and percentage of operating profit (loss) for our reportable operating segments for each of the three years in the period ended December 31, 2003. In the table, we have eliminated intersegment transactions and applied historical exchange rates to the data. These eliminations are not material.

See note 18 to the Consolidated Financial Statements for reconciliations to corresponding totals in the Consolidated Financial Statements and additional information with regard to our reportable operating segments.


	•	solid-stated and amorphous PET resin for use in the manufacture of soft drink bottles and other food and beverage packaging and

	•	EcoClear® PET resin, utilizing recycled PET materials to meet customers’ recycled content requirements.

These resins are produced domestically at our Palmetto, South Carolina and Pearl River, Mississippi facilities and internationally at our Emmen facility in the Netherlands.

We sell our solid-stated PET resin primarily under the PermaClear® and PermaClear HP® brands.

Customers include North American, South American and European-based manufacturers of various types of plastic containers. Six PPG customers represented approximately 59% of the PPG’s total net sales for 2003. The unexpected loss of any of these customers may result in a temporary reduction in sales and profitability of the PPG.


	•	chemical-based polyester staple fibers for use in apparel, non-woven, home furnishing, and industrial products,

	•	recycled-based polyester and nylon staple fibers for use in home furnishing, non-woven, and industrial products, and

	•	recycled-based nylon and polyester engineering resins for use in the injection molding industry.

Polyester staple fiber, FRPG’s primary product, is multi-strand fiber cut into short lengths to simulate certain properties found in natural fibers, such as cotton and wool, and/or to meet the end product needs of our customers. We market these products under the Fortrel® brand.

Our chemical-based polyester staple fibers are manufactured at our Palmetto facility in Darlington, SC. Customers include integrated textile mills, yarn spinners, and non-woven operations that process polyester staple into yarn and/or fabric for a variety of applications, including apparel, home furnishing and industrial products.

Domestically, we manufacture polyester staple fiber and nylon products from recycled raw materials at our facility in Johnsonville, SC. Our recycling operation in Johnsonville procures these materials and processes them into usable raw materials for our fiber and engineering resins businesses.

In Europe, we manufacture polyester and nylon staple fiber from recycled raw materials at our production facility in Mullagh, Republic of Ireland. These fibers, used primarily in home furnishing, carpet, non-woven and industrial products, are exported primarily to the United Kingdom and continental Europe.

Our Engineering Resins Division, located in Johnsonville, SC, manufactures and markets nylon and polyester engineering resins under the Wellamid®, EcoLon®, and WELLPET® brands to the injection molding industry. We produce these resins using virgin, post-consumer and post-industrial nylon compounded with various additives (glass, minerals, fire retardant, etc.) to impart desired performance characteristics. These resins are used primarily in automotive applications.

Our PermaClear® PET resins are produced by the PPG from purified terephthalic acid (PTA) and monoethylene glycol (MEG). EcoClear® PET resins are produced from a combination of chemical and recycled raw materials. Our chemical-based polyester staple fibers are also manufactured from PTA and MEG. Domestically, we purchase PTA produced by BP Amoco Chemicals Inc., the primary domestic supplier, pursuant to long-term supply contracts. Domestic MEG is purchased under supply contracts with Equistar Chemicals, LP, BASF Corporation, and Dow Chemical. In Europe, we purchase PTA primarily from BP Amoco Chemicals, Inc. and MEG from Diolen Industrial Fibers (formerly Acordis). The prices of PTA and MEG have fluctuated in the past and are likely to continue to do so in the future.

Our recycling-based fibers utilize two categories of recycled PET raw materials: post-consumer containers and post-industrial materials including some under long-term supply contracts. We purchase a portion of these materials from manufacturers that compete with us in the sale of fibers and resins. We obtain our domestic post-consumer PET bottles primarily from curbside recycling and deposit return programs. Post-industrial materials include off-quality or off-spec production, trim and other materials generated from fiber, resin, or film manufacturing processes. The raw material mix for our Johnsonville facility can be varied depending upon market conditions for the respective raw materials. Historically, the raw material mix has been approximately 50% post-consumer PET bottle flake and 50% post-industrial material. The prices of recycled raw materials are variable and determined by worldwide supply and demand.

Our European operations purchase recycled raw materials in various forms throughout Europe. Post-consumer PET containers are primarily purchased from collection programs. These post-consumer containers are processed initially at our recycling facilities near Arnhem, the Netherlands, or Verdun, France.

We believe that we are the world’s largest producer of polyester staple fiber made from recycled feedstocks and one of the world’s largest post-consumer PET bottle recyclers.

For additional information on our raw materials, see “Forward Looking Statements; Risks and Uncertainties.”

Our capital expenditures in 2003 were approximately $15.5 million, compared to $21.7 million and $28.1 million for 2002 and 2001, respectively. In 2002, our capital expenditures included approximately $4.7 million of costs to convert fiber grade chip lines at our Palmetto facility to amorphous PET resin. Since completing the construction of the Pearl River facility in early 2000, our capital expenditures have declined significantly. The following table provides a breakdown of our capital expenditures:

For additional information on capital expenditures expected in 2004, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Outlook.” For additional information on production outage, see note 9 to the Consolidated Financial Statements.

Our markets have historically displayed price and volume cyclicality. We sell to a diverse group of customers. Although no single customer represented more than 10% of our total net sales, six customers represented approximately 34% of our total net sales in 2003.

Approximately 44 employees market the majority of our products. We also utilize representatives or agents for certain sales.

Our PET resins are promoted through various activities, including advertising, sales promotions and market development, into a variety of markets, including carbonated soft drinks, juices, water, and food. We are actively involved with our customers in joint end-use product development efforts to meet the future needs of the food and beverage packaging markets.

Both North American and global PET resins demand continues to grow, driven by new product applications for PET and conversions from other packaging materials to PET. Numerous factors affect the demand for PET resins, including substitution of packaging products from glass, aluminum, and paper into PET, consumer preferences and spending, general economic conditions, weather, and the export/ import trade balance of PET resin into the North American Free Trade Agreement (NAFTA) region. We do not expect a significant increase in imports of PET resins into NAFTA in 2004.

Our polyester staple fibers are also promoted through various activities directed to our customers and to organizations downstream from our customers. These activities include advertising, sales promotion, market analysis and product development. As part of this effort, we encourage downstream purchasers of apparel, home furnishing and other products to specify to their suppliers the use of Fortrel® brand polyester staple fiber in their products.

Numerous factors affect the demand for polyester staple fiber in our markets, including textile product imports, consumer preferences and spending, and retail sales patterns, which are driven by general economic conditions. Imports of products throughout the textile chain continue to impact the United States and European fiber markets, particularly the commodity textile fiber markets, adversely affecting operating results. A downturn in either the U.S., European, or global economy or an increase in imports of textile or polyester staple fiber products into the U.S. could adversely affect our business. Polyester textile fiber demand also may be influenced by the relative price of substitute fibers, most notably cotton.

For additional information, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — General” and “Forward-Looking Statements; Risks and Uncertainties.”

Each of our major markets is highly competitive. We compete in these markets primarily on the basis of product quality, price, customer service, and brand identity.

In North America, our primary competitors in the PET resins business are Eastman Chemical Co. (Voridian), KoSa, Gruppo Mossi and Ghisolfi (M&G), Nan Ya Plastics Corp. (Nan Ya), and DAK Americas. We believe we are currently the fourth-largest producer of PET resins in North America, representing approximately 15% of North American production capacity. In Europe, our main competitors in the PET resins business are Voridian, KoSa, DuPontSA, M&G, and Dow Chemical Co. Our share of the European PET resins market is less than 5%.

Our primary domestic polyester staple fiber competitors are DAK Americas, Nan Ya, and KoSa. We believe we are currently the largest producer of polyester staple fiber in the United States with approximately 30% of U.S. production capacity. Our main European polyester staple fiber competitors are MonteFibre, DuPontSA and Trevira. We are the largest supplier of polyester staple fibers made from recycled materials and the largest supplier of polyester staple fiber for home furnishing and non-woven products. In 2003, we had approximately 19% of EU produced polyester staple fiber shipments.

For additional information on competitors, see Item 7. “Forward-Looking Statements; Risks and Uncertainties.”

We have approximately 66 employees devoted to research, development and technical service activities in our fibers and resins businesses. Research and development costs were approximately $14.9 million, $17.3 million and $14.6 million for 2003, 2002 and 2001, respectively.

We operate in international markets. Since a large portion of our non-U.S. sales are in different currencies, changes in exchange rates may affect profitability and sales levels of these operations. In addition, fluctuations between currencies may also affect our reported financial results. Foreign exchange contracts and borrowings in local currencies are utilized to manage our foreign currency exposure. For additional information on these hedges, see Item 7A. “Quantitative and Qualitative Disclosure about Market Risk” and note 17 to the Consolidated Financial Statements.

Our foreign businesses are subject to certain risks common to foreign operations and investments in foreign countries, including restrictive action by local governments, limitations on repatriating funds and changes in currency exchange rates. See note 18 to the Consolidated Financial Statements and “Forward-Looking Statements; Risks and Uncertainties” for additional information relating to our foreign activities.

The following table provides our approximate number of employees, at December 31, by year, in the U.S. and Europe:

At December 31, 2003, the Union of Needle Trades, Industrial and Textile Employees (UNITE) represented 492 employees, of which 281 were union members, at our Johnsonville, SC operations. This contract expires on May 1, 2005. In our European fiber business, four unions represented 252 of the 463 total employees at year-end 2003. The wage agreements with these unions expire on October 31, 2004. We have entered into an agreement with the unions at our European fiber business at December 31, 2003, whereby approximately 60 persons have accepted voluntary termination. These positions will be eliminated during the first half of 2004. We employ 75 people in our European PET Resins operation, with 50 represented by two unions whose contracts expire on April 30, 2004. We believe that relations with our employees are satisfactory. See “Forward-Looking Statements; Risks and Uncertainties.”

Our facilities are subject to numerous existing and proposed laws and regulations designed to protect the environment from wastes, emissions and hazardous substances. We believe we are either in material compliance with all currently applicable regulations or are operating in accordance with the appropriate variances and compliance schedules or similar arrangements.

For additional information relating to environmental matters, see Item 7. “Management’s Discussion and Analysis of Financial Position and Results of Operations — Environmental Matters,” “Forward-Looking Statements; Risks and Uncertainties,” and note 12 to the Consolidated Financial Statements.

Officers are elected annually by our Board of Directors. Set forth below is certain information with respect to our executive officers.

Thomas M. Duff. Mr. Duff was elected Chairman in December 1999. Prior to December 1999, he was President and has been CEO since 1985.

Keith R. Phillips. Mr. Phillips has been Vice President and Chief Financial Officer since October 1993. He was also Treasurer from October 1993 to March 2001. Mr. Phillips is a certified public accountant.

Michael E. Dewsbury. Mr. Dewsbury has been Vice President, PET Resins Division — U.S. since April 1999. Prior to that, he was Business Manager — PET Resins Division since joining us in September 1991.

Audrey L. Goodman. Ms. Goodman has been Vice President, Treasurer since March 2001. She was Assistant Treasurer from May 1990 to March 2001.

Mark J. Ruday. Mr. Ruday has been Vice President, Chief Accounting Officer and Controller since May 2003. Prior to that, he was the Business Operations Manager for the PET Resins Division — U.S. from March 1998 to May 2003 and was the PPG Controller from November 1995 through March 1998.

Joseph C. Tucker. Dr. Tucker has been Vice President, Fibers and Recycled Products Group since November 2003. Prior to that, he was Vice President, Corporate Development since December 1997 and Vice President and General Manager of PET Resins-Europe from 1995 to 1997.

We make available free of charge, through the “Investor Relations — SEC Documents” section of our Internet website (www.wellmaninc.com), our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the Securities and Exchange Commission (the “SEC”). Once filed with the SEC, such documents may be read and/or copied at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers, including Wellman, Inc., that electronically file with the SEC at http://www.sec.gov.

The location, principal products produced and stated annual production capacity of our major manufacturing facilities are set forth in the table below. Domestically, we have economic ownership of these properties and either own these properties or can acquire title for nominal consideration. We own all of our international properties listed below.


(1)	This includes 200 million pounds of amorphous PET resin capacity for external sales.

(2)	Excludes 300 million pounds of polymerization and polyester staple fiber production capacity. The polyester staple fiber spinning and drawing equipment was abandoned in 2003. See Item 1. “Recent Developments — Impairment Charge.”

In January 2001, we received a document subpoena in connection with a federal grand jury investigation of pricing practices in the polyester staple fiber industry. We cooperated with the investigation by producing documents in response to this subpoena. In September 2002, the U.S. Department of Justice announced the indictment of a former sales manager of one of our competitors for conspiring to fix prices and allocate customers for polyester staple fiber beginning in September 1999 and ending in January 2001. On October 31, 2002, the U.S. Department of Justice announced that it was filing informations against another competitor and one of its former officers as a result of their agreement to plead guilty to participating in a conspiracy to fix prices and allocate customers in the polyester staple fiber industry. On October 2, 2003, the trial of the former sales manager of one of our competitors concluded with a verdict of not guilty on all charges. Neither we nor any of our employees have been charged with any wrongdoing, and we vehemently deny that we or any of our employees have engaged in price fixing or customer allocation.

Following the disclosure of the investigation, the indictment of a competitor’s employee and the informations and guilty pleas of another competitor and its employee, the producers of polyester staple fiber,

including Wellman, have been named in various civil actions asserting claims substantially based on the indictment and informations. These proceedings are summarized below.

Wellman and certain other companies have been named as defendants in 32 federal actions brought by direct purchasers of polyester staple fiber for alleged violation of U.S. antitrust laws. The plaintiffs voluntarily dismissed nine of those lawsuits on October 3, 2003. In each remaining lawsuit, the plaintiffs allege that the defendants engaged in a conspiracy to fix the price of polyester staple fiber in violation of the Sherman Act. In ten of the cases, the plaintiff purports to represent a class of all persons who directly purchased polyester staple fiber and were similarly affected by such alleged conduct. Plaintiffs who do not purport to represent a class have brought 13 of the cases. All of the federal plaintiffs seek damages of unspecified amounts, attorney’s fees and costs and unspecified relief. In addition, certain of the actions claim restitution, injunctions against alleged illegal conduct and other equitable relief. The federal suits were originally filed in the U.S. District Court for the Middle District of Alabama, U.S. District Court for the Northern District of California, U.S. District Court for the Middle District of Georgia, U.S. District Court for the District of New Jersey, U.S. District Court for the Middle District of North Carolina, U.S. District Court for the Western District of North Carolina, U.S. District Court for the District of South Carolina and U.S. District Court for the Western District of Virginia. The Judicial Panel on Multi-District Litigation ruled on April 22, 2003 to transfer all the federal cases, except for two recently filed cases, where transfer has been requested, to the Western District of North Carolina for coordinated or consolidated pretrial proceedings.

On January 20, 2004, a plaintiff who does not purport to represent a class filed a motion seeking leave to amend its complaint adding nine defendants. The proposed new defendants are various corporate entities and individuals, including two Wellman employees. The Court has yet to rule on the matter. On January 30, 2004, another plaintiff who does not purport to represent a class filed a lawsuit, which named as defendants Wellman, certain other companies and a number of individuals, including two Wellman employees.

In addition to the direct purchaser actions discussed above, 38 purported class actions alleging violations of federal antitrust laws, state antitrust or unfair competition laws and certain state consumer protection acts have been filed in one federal court and various state courts on behalf of purported classes of indirect purchasers of polyester staple fiber products. In each lawsuit, the plaintiffs allege that the defendants engaged in a conspiracy to fix prices of polyester staple fiber products. In addition, certain of the actions claim restitution, injunction against alleged illegal conduct and other equitable relief. One indirect purchaser case is pending in the U.S. District Court for the Western District of North Carolina and is subject to the order issued by the Judicial Panel on Multi-District Litigation for coordination or consolidation with the other federal cases. The rest of the indirect purchaser cases were filed in Arizona, California, the District of Columbia, Florida, Kansas, Massachusetts, Michigan, New Mexico, North Carolina, South Dakota, Tennessee, West Virginia and Wisconsin. The case filed in West Virginia was removed to federal court and subsequently remanded to the Circuit Court of Hancock County, West Virginia. The case filed in Wisconsin was removed to federal court and subsequently remanded to the Circuit Court for Dane County, Wisconsin. In all of these cases, the plaintiffs seek damages of unspecified amounts, attorney’s fees and costs and unspecified relief.

Wellman and certain other companies were named in an action filed in the Superior Court of Justice for Ontario, Canada, by a plaintiff purporting to represent a class of direct and indirect purchasers of polyester staple fiber. This complaint asserts claims under Canadian law. It contains three counts that ask for compensatory damages of Cdn. $50 million each. The extent to which these three counts are duplicative and overlapping is unclear. The complaint also contains one count asking for punitive damages of Cdn. $10 million. Additionally, Wellman and certain other companies were also named in an action filed in the Supreme Court of British Columbia, Canada, by a plaintiff purporting to represent a class of direct and indirect purchasers of polyester staple fiber. This complaint also asserts claims under Canadian law and requests compensatory, punitive and special damages, but does not allege a specific dollar amount in damages. Finally, Wellman and certain other corporations were named in an action filed in the Superior Court for Quebec, Canada. This complaint asserts claims under Canadian law seeking compensatory damages of Cdn. $15 million and punitive damages of Cdn. $5 million.

In addition to the foregoing, Wellman may become subject to additional proceedings and lawsuits under federal and state antitrust and unfair competition laws. Furthermore, the federal grand jury investigation is ongoing and additional indictments may result. We intend to vigorously defend against the civil claims and any civil or criminal claims or proceedings that may be brought against us in the future. Because of the uncertainties and complexity of the U.S. Department of Justice investigation and the related civil claims, we have not formed an opinion about whether these proceedings will have a material adverse effect on our consolidated financial position, results of operations, or cash flows.

Our common stock is listed on the New York Stock Exchange (NYSE) under the symbol WLM. The following table shows the high and low sales prices as reported by the NYSE and cash dividends paid per share of common stock for the last two fiscal years.

See note 14 to the Consolidated Financial Statements for information regarding common stock rights associated with our common stock.

In March 2004, we lowered our quarterly dividend rate to $0.05 per share for the dividend payable on March 15, 2004. We determined that this reduced dividend rate is appropriate considering our operating performance in the second half of 2003, our current debt level and focus on debt reduction, and the dividend levels of other companies.

“Securities Authorized for Issuance Under Equity Compensation Plans” in our Proxy Statement for the 2004 Annual Meeting of Stockholders will be filed with the Securities and Exchange Commission on or before April 29, 2004 and is incorporated by reference.

On February 10, 2004, we completed $625 million of new debt financings. These financings consist of a five-year $175 million Revolving Credit Facility with an initial annual interest rate of LIBOR plus 250 basis points on outstanding borrowings, a five-year $185 million First Lien Term Loan with an annual interest rate of LIBOR plus 400 basis points, and a six-year $265 million Second Lien Term Loan with an annual interest rate of LIBOR plus 675 basis points. For additional information, see note 10 to the Consolidated Financial Statements.

On June 27, 2003, we issued to Warburg Pincus Private Equity VIII, L.P. 11,202,143 shares of perpetual convertible preferred stock and two warrants to acquire a total of 2.5 million shares of our common stock that vested on that date. For additional information on the private equity investment, see note 3 to the Consolidated Financial Statements. The offer and sale of these securities were exempt from the registration requirements of the Securities Act of 1933 pursuant to the exemption under Section 4(2).

On June 27, 2003, we entered into a three-year $275 million revolving credit facility with an annual interest rate of LIBOR plus 250 basis points on outstanding borrowings. All borrowings were repaid and commitments under this facility were terminated on February 10, 2004.

On September 17, 2002 and December 20, 2001, we sold to John Hancock Life Insurance Company in private placements senior unsecured notes in the principal amounts of $25.0 million and $40.0 million, respectively. These notes had annual interest rates of 7.46% and 7.55%, respectively, and had maturities in 2009 and 2011, respectively. The offer and sale of these securities were exempt from the registration requirements of the Act pursuant to the exemption under Section 4(2). These notes were repaid in full on February 10, 2004.

On November 16, 2001, we sold to Metropolitan Life Insurance Company in a private placement a senior unsecured note in the principal amount of $35.0 million. This note had interest at a floating rate based on LIBOR and had a maturity date in 2004. The offer and sale of this security were exempt from the registration requirements of the Act pursuant to the exemption under Section 4(2). This note was repaid in full on February 10, 2004.


(1)	Other expense (income), net consisted of the following amounts for the periods indicated:


	(a)	For additional information on anti-dumping duties, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued Dumping and Subsidy Offset Act (CDO) of 2000.”


(2)	Net loss for 2002 includes a cumulative effect of an accounting change of ($197,054) or $(6.16) per diluted share. For additional information, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and note 2 to the Consolidated Financial Statements.

(3)	Net loss for 1999 includes the cumulative effect of an accounting change of $(1,769), or $(0.06) per diluted share, relating to start-up activities.

(4)	Dividends paid were $0.36 per share in 2003, 2002, 2001, 2000, and 1999.

We are principally engaged in the manufacture and marketing of high-quality PermaClear® and EcoClear® brand PET packaging resins, Fortrel® brand polyester staple fibers and Wellamid® engineering resins. We believe we are the world’s largest PET plastics recycler, utilizing a significant amount of recycled raw materials in our manufacturing operations. At December 31, 2003, we had annual operating capacity to manufacture approximately 1.4 billion pounds of PET resins and 0.9 billion pounds of polyester staple fiber at five major production facilities in the United States and Europe.

Our operations are classified into two reportable operating segments: the Packaging Products Group (or PPG) and the Fibers and Recycled Products Group (or FRPG). Our PermaClear® PET resins are produced by the PPG from purified terephtalic acid (PTA) and monoethylene glycol (MEG) and EcoClear® PET resins are produced from a combination of chemical and recycled raw materials. These resins are primarily used in the manufacture of plastic soft drink bottles and other food and beverage packaging. The FRPG produces Fortrel® polyester staple fibers and other polyester and nylon staple fibers that are primarily used in apparel, non-woven, home furnishing and industrial products. These fibers are produced from PTA and MEG and recycled raw materials.

Demand for both North American and global PET resins continues to grow, driven by new product applications for PET and conversions from other packaging materials to PET. Demand for polyester staple fibers is subject to changes in consumer preferences and spending, retail sales patterns, and fiber and textile product imports. Imports of products throughout the textile chain continue to negatively impact the United States fiber markets, resulting in a downward trend for U.S. polyester staple fiber consumption, adversely affecting our operating results.

Our profitability is primarily determined by our raw material margins, which is the difference between net selling prices and raw material costs. Both PET resin and polyester staple fiber raw material margins increase or decrease as a result of supply and demand factors and competitive conditions. Given our substantial unit volumes, the impact on profitability of changes in raw material margins is significant. A $.01 change in raw material margin on approximately 2.2 billion pounds of resin and fiber sales volume results in an annual change of approximately $22 million in pre-tax income.

Selling prices and raw material costs each may be affected by actions of our competitors, global economic and market conditions, export and import activity, and the prices of competing materials.

Seasonal factors, such as weather and the vacation and holiday closings of our facilities or those of our customers, may also affect our operations.

Our accounting policies are more fully described in note 1 of the Consolidated Financial Statements. As disclosed in note 1, the preparation of financial statements in conformity with generally accepted accounting principles requires us to make estimates and assumptions about future events that affect the amounts reported in financial statements and accompanying notes. Actual results could differ significantly from those estimates. We believe the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations and require our most difficult, subjective and complex judgments.

We perform periodic credit evaluations of our customers’ financial condition. We have established an allowance for doubtful accounts based on our evaluation of the credit-worthiness of our customers and the potential risks inherent in their businesses. A considerable amount of judgment is required in assessing the ultimate realization of these receivables, especially in light of the difficult economic conditions facing our customers. These judgments could vary significantly from actual amounts realized, resulting in changes in bad debt expense and allowances. The allowance for doubtful accounts will increase or decrease based on changes in specific events to specific customers. Specific events include bankruptcy filings, changes in the customers’ credit ratings and/or other information. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. We

incurred expenses for uncollectible accounts of $3.5 million and $4.2 million in years ending December 31, 2003 and 2002, respectively.

Inventories are stated at the lower of cost or market. Cost is principally determined by the first-in, first-out method. The physical condition (i.e., quality) of the inventories is also considered in establishing the valuation. These judgments are estimates, which could vary significantly, either favorably or unfavorably, from actual requirements for various reasons, including changes in future economic conditions, customer inventory levels, or competitive conditions that differ from our expectations. Changes in our inventory valuation resulting from such variances would affect our cost of sales.

Property, plant and equipment are carried at cost. Depreciation for assets is provided based on their estimated useful lives and is computed on the straight-line method and the units of production method. Changes in circumstances such as technological advances, changes to our capital strategy, or changes to our business model could result in the actual lives differing from our estimates, in which case our earnings could be affected.

In 2002, we recorded certain assets of our FRPG segment as held for sale. When an asset is held for sale, it is measured at the lower of its carrying amount or estimated fair value less costs of disposal. The fair value of the assets could differ from actual amounts received upon disposal. For additional information on assets held for sale in 2002 and their ultimate disposition, see note 2 to the Consolidated Financial Statements.

In December of 2003, we recorded a pre-tax impairment charge of $135.3 million, or $2.79 per diluted share after tax, in order to reduce the carrying value of our abandoned polyester staple fiber spinning and drawing equipment at our Pearl River facility to its estimated fair value. For additional information, see Item 1. “Recent Developments-Impairment Charge.”

Through December 31, 2001, we amortized goodwill on a straight-line method over periods ranging from 30 to 40 years. Effective January 1, 2002, we were required to adopt SFAS No. 142 “Goodwill and Other Intangible Assets.” See note 2 to the Consolidated Financial Statements. Based on this standard, goodwill is no longer amortized, but is tested at least annually at the reporting unit level for impairment. Goodwill is tested for impairment by comparing the fair value of the reporting unit to its carrying value, including goodwill. The fair value is determined based on the present value of estimated future discounted cash flows. If the fair value exceeds the carrying value, no impairment loss is recognized. If the carrying value exceeds the fair value, the goodwill of the reporting unit is potentially impaired. A comparison is then made between the implied fair value of the goodwill, as defined by SFAS No. 142, and the carrying value of the goodwill. If the implied fair value is less, an impairment loss equal to the difference is recognized. This implied fair value then becomes the new carrying value of the goodwill for future impairment tests.

The estimate of future discounted cash flows is based upon, among other things, certain assumptions about future operating performance. Our estimates of future discounted cash flows may differ from actual cash flows due to, among other things, changes in economic conditions, our business model, or our operating performance.

We record a valuation allowance to reduce our deferred tax assets to the amount that we believe is more likely than not to be realized. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event we were to determine that we would not be able to realize the recorded value of our net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income in the period such determination was made. Likewise, should we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, an adjustment to the deferred tax assets would increase earnings in the period such determination was made.

We have defined benefit plans and defined contribution pension plans that cover substantially all employees. Several statistical and other factors, which attempt to anticipate future events, are used in calculating the expense and liability (asset) related to the defined benefit plans. Key factors include assumptions about the expected rates of return on plan assets and discount rates as determined by management within certain guidelines. We consider market conditions, including changes in investment returns and interest rates, in making these assumptions.

In determining our long-term rate of return on plan assets, our objective is to obtain the highest possible return over the long-term commensurate with the appropriate level of assumed risk. In order to moderate the investment portfolio’s risk and volatility, we forecast financial market returns over a wide range of potential future economic trends. A mix of assets is then selected, with equity securities comprising approximately 50% of the total domestic assets and fixed income securities comprising the other 50% of domestic assets. The expected rate of return on plan assets is a long-term assumption and is reviewed annually. The discount rate reflects the market rate for high-quality fixed income debt instruments at December 31 and is subject to change each year. Holding all other assumptions constant, a one-percentage-point decrease in the assumed rate of return on plan assets would result in an actuarial loss in 2004 of approximately $10 million. Likewise, a one-quarter-percentage-point decrease in the discount rate would increase our projected benefit obligations by approximately $17 million.

Unrecognized actuarial gains or losses are amortized using the “corridor method” as defined by SFAS No. 87 for our domestic defined benefit plans and Dutch plan. As permitted by SFAS No. 87, “Employers’ Accounting for Pensions,” a systematic method of amortization is used to amortize actuarial gains and losses for our Irish defined benefit plans. For the Irish plans, we separately identify actuarial gains and losses on the plans’ assets and projected benefit obligations and use an amortization method, which spreads each year’s actuarial gain or loss over a period of five years without regard to the corridor, subject to the minimum amortization requirements of SFAS No. 87. Unrecognized actuarial gains and losses arise from several factors including experience and assumption changes in the obligations and from the difference between expected returns and actual returns on plan assets.

The actuarial assumptions we used in determining our pension benefits may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of participants. While we believe that the assumptions used are appropriate, differences in actual experience or changes in assumptions may materially affect our financial position or results of operations.

Our operations are subject to extensive laws and regulations governing air emissions, wastewater discharges, and solid and hazardous waste management activities. Our policy is to expense environmental remediation costs when it is both probable that a liability has been incurred and the amount can be reasonably estimated. The accruals represent our best estimate of probable non-capital environmental expenditures. The final resolution of these contingencies could result in expenses different than current accruals, and therefore have an impact on our consolidated financial results in a future reporting period.

In April 1999, a coalition of three polyester fiberfill producers, including us, filed an anti-dumping suit against Korea and Taiwan. The suit alleged that polyester fiberfill producers from these two countries were selling fiberfill in the U.S. at prices lower than their own domestic market prices, resulting in material injury to U.S. polyester fiberfill producers. In March 2000, the Commerce Department determined that both countries were dumping polyester fiberfill into the U.S. In May 2000, the International Trade Commission unanimously ruled that polyester fiberfill imports from Korea and Taiwan materially injured the United States domestic polyester fiberfill industry. As a result of this determination and ruling, anti-dumping duties ranging from 5.7% to 9.5% were imposed on all Taiwanese polyester fiberfill producers, and duties ranging from 8.0% to 14.0% were imposed on most Korean polyester fiberfill producers. These duties are estimates based upon the producer’s past pricing histories. The actual duties are determined retroactively for each year, after year-end, based upon the pricing during that year. Importers of polyester fiberfill from covered producers in these two countries are required to post cash deposits equal to their estimated anti-dumping duties. The actual import duty rates, when determined on a retroactive basis, have been below the estimates for most Korean producers. The total amount of import duties actually owed will depend upon the actual rates and the amount of goods imported.

Import duties are normally retained by the government. However, in October 2000 the U.S. Congress enacted the Continued Dumping and Subsidy Offset Act of 2000 (the “CDO”). Under the CDO, any anti-dumping duties are paid to the injured companies that file claims to that effect. We received $3.4 million and $4.4 million of anti-dumping payments pursuant to the CDO in December 2003 and 2002, respectively.

In January 2003, the World Trade Organization (WTO) declared that the CDO is inconsistent with certain provisions of the WTO agreement on anti-dumping and subsidies. This declaration is merely advisory, however, and has no legal effect. The only body that can alter the CDO is the U.S. Congress. To date, the U.S. Congress has taken no action to do so. There is no action that Korea, Taiwan or the WTO could take that would require us to repay any of the import duties that were distributed to us in 2003 and 2002. For additional information, see “Outlook” below.

In 2001, a proposed Statement of Position, “Accounting for Certain Costs and Activities Related to Property, Plant and Equipment,” was issued. This Statement of Position addresses accounting and disclosure issues related to certain property, plant and equipment costs and activities. Those costs include expenditures related to property, plant and equipment, including those for initial acquisition, construction, improvements, replacements, betterments, additions, and repairs and maintenance (and terms similar to those such as redevelopments, refurbishments, renovations, rearrangements, planned major maintenance activities, turnaround costs, overhauls, retrofits, and rehabilitations). This Statement of Position, once issued, is expected to be applicable for fiscal years beginning after December 15, 2004. As currently written, the new Statement will require us to write-off certain costs previously capitalized that would not be considered under this Statement to be directly identifiable with specific property, plant and equipment and begin charging all such future costs to expense as incurred. This write-off, totaling approximately $5.6 million ($3.6 million after tax or $0.12 per diluted share) at December 31, 2003, would be reported as a cumulative effect of a change in accounting principle. This Statement of Position, as currently written, would not have had a material effect on our 2003 results of operations or financial position.

In January 2003, the FASB issued Interpretation No. 46 (or FIN 46), “Consolidation of Variable Interest Entities,” which requires a variable interest entity to be consolidated by the primary beneficiary which is the entity subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements of FIN 46 apply to older entities in the first fiscal year or interim period beginning after December 15, 2003. Certain of the disclosure requirements apply to all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The adoption of FIN 46 did not have a significant impact on our financial statements.

In November 2002, the FASB issued Interpretation No. 45 (or FIN 45), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” This interpretation requires certain guarantees to be recorded at fair value upon origination versus when a loss becomes probable. The adoption of FIN 45 had no impact on our financial statements.

Total net sales from continuing operations for 2003 increased $95.3 million, or 9.4%, to $1,109.3 million from $1,014.0 million in 2002 due to the following:

PPG sales volume increased due to the previously mentioned continued demand growth in the PET resin market. Sales volumes decreased in the FRPG due to the declining U.S. textile industry.

Total cost of sales from continuing operations for 2003 increased $130.0 million, or 14.4%, to $1,028.7 million from $898.7 million in 2002 due to the following:

Higher raw material costs for the PPG were the result of increased unit costs due to temporary supply pressures and higher crude oil and natural gas costs. The FRPG experienced the same higher unit costs for raw materials, but this effect was offset in part by lower production volumes. Total plant added costs for the FRPG were lower as a result of our on-going cost reduction efforts and lower production levels.

As a result of the foregoing, gross profit decreased $34.6 million, or 30.0%, to $80.6 million compared to $115.2 million in 2002. The gross profit margin was 7.3% in 2003 compared to 11.4% in 2002.

Selling, general and administrative expenses were $66.6 million, or 6.0% of net sales, in 2003 compared to $64.6 million, or 6.4% of net sales, in 2002. The increase in 2003 is due primarily to consulting fees associated with our on-going cost reduction program ($1.7 million) and increased new product development costs in our FRPG ($0.7 million).

In December 2003, based on management’s recommendation, our Board of Directors approved the abandonment of the polyester staple fiber spinning and drawing equipment at our Pearl River facility. As a result of this decision, we recorded a non-cash impairment charge of $135.3 million in the fourth quarter of 2003. This charge represents a reduction in the carrying value of the abandoned polyester staple fiber spinning and drawing assets at our Pearl River facility to their estimated fair value. For additional information on the impairment charge, see note 1 to the Consolidated Financial Statements.

We have historically focused on continuous process improvements and have successfully implemented cost reduction initiatives. Since 1999, we have reduced domestic headcount by 29%, while increasing production by 13% and pounds per employee by 38% over the same period. During 2003, we announced three cost reduction plans as part of our on-going low cost business strategy and in response to reduced profitability as a result of increased raw material costs, declines in PET resin prices in our PPG, and continuing declines in our FRPG business.

In January 2003, the FRPG commenced a plan to restructure its operations, which included a reduction in the number of employees and other cost savings initiatives at our three fiber manufacturing facilities. We recorded termination costs of $1.8 million in our FRPG segment related to this plan, which was fully implemented in 2003. This plan has resulted in approximately $7 million of realized savings in controllable costs in 2003 compared to the prior year.

In November 2003, we announced a third plan with cost reduction initiatives that included eliminating levels of management, reducing the number of employees, and other organization and administrative consolidations and changes. We incurred severance and other termination costs of $8.3 million in the fourth quarter of 2003 associated with this plan.

These last two cost reduction plans resulted in approximately $8 million of realized savings in controllable costs in the second half of 2003 compared to our cost structure during the second quarter of 2003. For additional information on restructurings in 2003, see note 8 to the Consolidated Financial Statements.

We recorded a charge for expected losses on accounts receivable of $3.5 million and $4.2 million in 2003 and 2002, respectively. Additional bad debt expense was recorded in 2003 primarily due to a bankruptcy where we were a sole source supplier and not named as a critical vendor. Our textile customer base continues to face competitive challenges from imports of textile and apparel finished goods that adversely affect their profitability.

Other expense (income) for 2003 consisted of the following: legal costs related to the Department of Justice investigation of the polyester staple fiber industry of $6.0 million; non-capitalizable financing costs of $2.2 million; accelerated stock option vesting of $1.2 million; and proceeds received under the CDO of $(3.4) million. For additional information on the legal proceedings, see Item 3 — “Legal Proceedings” and note 16 to the Consolidated Financial Statements. For additional information on the new financing arrangements, see Item 1 — “Recent Developments — Closing of $625 Million Financing Arrangements” and note 10 to the Consolidated Financial Statements. For additional information on the private equity investment, see note 3 to the Consolidated Financial Statements. For additional information on the CDO, see “Continued Dumping and Subsidy Offset Act of 2000” above.

Other expense (income) for 2002 consisted of legal costs related to the Department of Justice investigation of the polyester staple fiber industry of $5.1 million and proceeds received under the CDO of $(4.4) million.

As a result of the foregoing, we reported an operating loss of $141.0 million in 2003, compared to operating income of $45.7 million in 2002.

Net interest expense was $10.1 million in 2003 compared to $10.3 million in 2002.

Our effective tax rate for 2003 on the loss from continuing operations was 36.0% compared to 25.5% on earnings from continuing operations in 2002. The principal items affecting our rate were foreign earnings, which are taxed at rates lower than U.S. rates, and the loss from continuing operations.

As a result of the foregoing, the net loss attributable to common stockholders from continuing operations was $96.7 million in 2003, compared to net earnings attributable to common stockholders of $26.4 million in 2002.

We reported net earnings attributable to common stockholders from discontinued operations of $0.1 million, or $0.00 per diluted share, in 2003, compared to a net loss attributable to common stockholders from discontinued operations of $23.7 million, or $0.73 per diluted share, in 2002. In March 2002, we adopted a plan to sell our partially oriented yarn (POY) business, which was sold in June 2002, and our small recycled fine denier polyester staple fiber business, which was sold in March 2003. For additional information, see note 2 to the Consolidated Financial Statements.

In 2002, we completed our initial assessment of goodwill using the two-step approach described in SFAS No. 142, “Goodwill and Other Intangible Assets,” and determined that the goodwill related to our FRPG segment was impaired. As a result, the carrying value of this goodwill was reduced by $197.1 million to its implied fair value. The reduction was recorded as a cumulative effect of an accounting change in our 2002 financial statements. For additional information, see note 2 to the Consolidated Financial Statements.

As a result of the private equity investment, we recorded accretion of the preferred stock liquidation preference and of the discount related to the valuation of the common stock warrants of $5.9 million in 2003. In addition, we incurred a non-cash beneficial conversion charge of $4.2 million in the fourth quarter of 2003 as a result of the preferred stock becoming convertible into common stock. For additional information on the private equity investment, see note 3 to the Consolidated Financial Statements.

As a result of the foregoing, we reported a net loss attributable to common stockholders of $106.7 million, or $3.38 per diluted share, in 2003, compared to a net loss attributable to common stockholders of $194.3 million, or $6.07 per diluted share, in 2002.

Total net sales from continuing operations for 2002 increased $4.4 million, or 0.4%, to $1,014.0 million from $1,009.6 million in 2001 due to the following:

Total costs of sales from continuing operations for 2002 decreased $3.5 million, or 0.4%, to $898.7 million from $902.2 million due to the following:

Lower raw material costs were the result of lower unit costs, partially offset by higher production volumes. Plant costs were higher in the aggregate as a result of higher production levels, but were lower on a unit-cost basis. During 2001, our operations were negatively impacted by a production outage that increased our costs by approximately $9.9 million, or $0.20 per diluted share, and lowered our volumes. For additional information on the production outage, see note 9 to the Consolidated Financial Statements.

As a result of the foregoing, gross profit increased 7.4% to $115.2 million in 2002 compared to $107.3 million in 2001. The gross profit margin was 11.4% in 2002 compared to 10.6% in 2001.

Selling, general and administrative expenses were $64.6 million, or 6.4% of sales, in 2002 compared to $68.9 million, or 6.8% of sales, in 2001. Expenses for 2001 included amortization of goodwill totaling $8.4 million. Effective January 1, 2002, we adopted SFAS No. 142, “Goodwill and Other Intangible Assets,” which requires that goodwill amortization be discontinued and replaced with annual tests of impairment. For additional information, see note 2 to the Consolidated Financial Statements. Excluding the amortization expense for goodwill from the prior year, selling, general and administrative expenses increased in 2002 by $4.1 million. The increase in 2002 was due primarily to costs associated with new strategic initiatives of $3.2 million.

We recorded a charge for expected losses on accounts receivable of $4.2 million in 2002. Our textile customer base faces competitive challenges from imports of textile and apparel finished goods that continue to adversely affect their profitability. Two of our FRPG customers filed unexpected bankruptcy proceedings in January 2003. Our trade accounts receivable balances from these customers were $5.6 million at December 31, 2002, of which $1.6 million was collected in January 2003. The reserve was established based on the expected uncollectibility of the trade accounts receivables.

Other expense (income) for 2002 consisted of legal costs related to the Department of Justice Investigation of the polyester staple fiber industry of $5.1 million and proceeds received under the CDO of $(4.4) million. For additional information on the legal proceedings, see Item 3 — “Legal Proceedings” and note 16 to the Consolidated Financial Statements. For additional information, see “Continued Dumping and Subsidy Offset Act of 2000” above.

Other expense (income) for 2001 consisted of the following: legal costs related to the Department of Justice Investigation of the polyester staple fiber industry of $3.8 million; property damage and other costs associated with a production outage of $9.9 million; and income from property damage claims and business interruption insurance of ($10.6) million. For additional information on the production outage, see note 9 to the Consolidated Financial Statements.

As a result of the foregoing, we reported operating income of $45.7 million in 2002 compared to $35.2 million in 2001.

Net interest expense was $10.3 million in 2002 compared to $18.0 million in 2001. The decrease was due to a lower average debt balance and lower average interest rates during 2002.

Our effective tax rate for 2002 on income from continuing operations was 25.5% compared to 22.3% in 2001. The principal item affecting our rate was foreign earnings, which are taxed at rates lower than U.S. rates. The amount of foreign earnings declined in 2002 compared to 2001; however, this was offset by the elimination of the amortization of non-deductible goodwill.

As a result of the foregoing, net earnings from continuing operations were $26.4 million, or $0.82 per diluted share, for the 2002 period compared to $13.4 million, or $0.42 per diluted share, for 2001.

We reported a net loss from discontinued operations of $23.7 million, or $0.73 per diluted share, and $5.0 million, or $0.16 per diluted share, for 2002 and 2001, respectively. We adopted a plan in March 2002 to sell our POY business and our small recycled fine denier polyester staple fiber business, the assets of which

were previously reported as part of our FRPG. On June 18, 2002 we sold our POY business and reported a loss on disposal. For additional information, see note 2 to the Consolidated Financial Statements.

As required by SFAS No. 142, we completed our initial assessment of goodwill using the two-step approach described in the Statement and determined that the goodwill related to our FRPG segment was impaired. As a result, the carrying value of this goodwill was reduced by $197.1 million to its implied fair value. The reduction was recorded as a cumulative effect of accounting change in our first quarter 2002 financial statements. For additional information, see note 2 to the Consolidated Financial Statements.

As a result of the foregoing, we reported a net loss of $194.3 million, or $6.07 per diluted share, for 2002, compared to net earnings of $8.4 million, or $0.26 per diluted share, for 2001.

The following statements are forward-looking statements and should be read in conjunction with “Forward-Looking Statements; Risks and Uncertainties” below.

We expect that our operating results for the first half of 2004 will be better than our operating results from the last half of 2003, both excluding impairment charges, charges related to our new financing, restructuring charges and other income (loss). We believe this improvement will result primarily from our cost reduction programs and improvements in PET resin margins.

We reduced controllable costs by $8 million in the second half of 2003 compared to our cost structure in the second quarter of 2003. We expect that our cost reduction programs will reduce our 2004 controllable costs by an additional $27 million. Controllable costs in first quarter of 2004 are expected to be $4 million lower than fourth quarter of 2003. We expect the cost reduction programs we have announced to result in cumulative annual savings of $41 million to $46 million by the end of 2005 compared to our cost structure in the second quarter of 2003.

We expect PET resins margins to improve in 2004 over the last half of 2003 since increased capacity utilization is expected to result in increased margins in the industry. Capacity utilization should improve because increased demand should exceed the minimal capacity additions expected in 2004. NAFTA PET resins demand is expected to grow at 8 — 10% as a result of growth in both traditional markets and new applications. We expect capacity utilization to continue to increase in 2005 and 2006 since projected demand growth is greater than announced capacity additions.

We successfully implemented two selling price increases; one in our domestic PET resins business on January 1, 2004 and one in our domestic fibers business on February 15, 2004. We have announced two additional price increases in PET resin; one on March 1, 2004 and one on April 1, 2004, totaling nine cents per pound. These increases are primarily in response to actual and projected increases in raw material costs. Given the competitive nature of our business and other market influences, there can be no assurance that these increases will be fully realized.

We expect the poor economic conditions in the domestic fibers market to continue as imports throughout the textile chain, especially from China, continue to adversely impact this market. The impact of textile and apparel imports from Asia, especially from China, may increase starting in 2005 when quotas on all textile and apparel imports into the United States will be eliminated as of January 1, 2005 pursuant to the GATT (now known as the World Trade Organization Agreement) Uruguay Round Agreement enacted in 1994. We expect to receive a payment under the Continued Dumping and Subsidy Offset Act in the fourth quarter of 2004. We expect that the amount of the payment will be less than the amount we received in 2003 and there is no certainty that we will receive any payment.

We expect to incur approximately $47 million in pre-tax charges in the first quarter of 2004, resulting from costs associated with our prior financings that were repaid. These charges are principally the result of prepayment penalties associated with the repayment of our private placement notes, waiver fees, and other expenses related to financings that were repaid, charges associated with the termination of the sale and leaseback transaction, and the write-off of unamortized financing costs.

On October 22, 2003, our preferred stock became convertible to common stock. This means that our diluted earnings per share (EPS) will be the lesser of (a) earnings (loss) from continuing operations divided by the weighted average shares outstanding on an “if converted” basis, or (b) earnings (loss) from continuing operations less the fair market value of the accretion of the preferred stock divided by the weighted average common shares outstanding. Assuming the fair market value of the accretion equals the increase in the liquidation preference, we expect accretion to be approximately $3.1 million per quarter in 2004.

Net cash used in operations, including both continuing and discontinued operations, was $16.8 million for 2003, compared to net cash provided by operations, including both continuing and discontinued operations, of $128.3 million for 2002. The change is primarily due to reduced earnings from continuing operations in 2003, higher accounts receivable in 2003, and an aggressive inventory reduction program in 2002. The increase in accounts receivable is due primarily to higher volumes in our PPG, increased net selling prices in both the PPG and the FRPG, and a reduction in the amounts sold under our receivables securitization program at December 31, 2003.

Net cash used in investing activities amounted to $14.4 million in 2003 compared to $20.1 million in 2002. Capital expenditures were $15.5 million in 2003 compared to $21.7 million in 2002. For information about expected capital expenditures in 2004, see “Outlook” above.

Net cash provided by financing activities amounted to $236.8 million in 2003 compared to net cash used in financing activities of $110.1 million in 2002. The major components of the financing activities were:


	•	In 2003, there were additional borrowings principally under the revolving credit facility of $239.4 million, which was offset by $100.1 million of principal repayments of industrial revenue bonds and private placements. In 2002, we issued a private placement note for $25 million and repaid approximately $124 million in debt principally related to our revolving credit agreement.

	•	In 2003, we received approximately $126 million in gross proceeds from the sale of preferred stock and issuance of common stock warrants. For additional information, see note 3 to the Consolidated Financial Statements. In June 2003, simultaneously with the closing of the private equity investment, we refinanced our $275 million senior revolving credit facility. The new $275 million three-year floating rate facility, which was scheduled to mature in June 2006, had no scheduled principal payments. The cost of these facilities was approximately $17.3 million.

	•	In each of 2003 and 2002, there were $11.5 million in dividend payments.

On February 10, 2004, we completed $625 million of new debt financings. These financings consist of a five-year $175 million Revolving Credit Facility with an initial annual interest rate of LIBOR plus 250 basis points on outstanding borrowings, a five-year $185 million First Lien Term Loan with an annual interest rate of LIBOR plus 400 basis points, and a six-year $265 million Second Lien Term Loan with an annual interest rate of LIBOR plus 675 basis points. The Term Loans have a LIBOR floor of 200 basis points. These financings are secured primarily by our domestic assets.

The net proceeds from these credit facilities were used to repay substantially all of our balance sheet debt, repurchase accounts receivable, purchase PET resin assets located at our Palmetto facility, prepay a raw material contract, terminate swap agreements, pay prepayment penalties, pay expenses associated with the new financing transaction, and provide working capital. On February 10, 2004, we had approximately $490 million in total outstanding long-term debt, net of original issue discount of approximately $5 million.

The new financing provides us with substantial financial flexibility, with approximately $100 million in available liquidity at closing and no significant debt maturities until 2009. For additional information related to the new financings, see note 10 to the Consolidated Financial Statements.


(1)	In February 2004, we entered into a new $175 million five-year revolving credit facility secured by our domestic accounts receivables, domestic inventory and other related intangibles. Our borrowing capacity is based on our domestic accounts receivable and inventory, but can not exceed $175 million. Our initial annual interest rate for amounts drawn under the facility is LIBOR or the prime rate plus 250 basis points. We terminated our $275 million unsecured senior revolving credit facility simultaneously with entering into the new facility.

(2)	In February 2004, we borrowed $185 million under a five-year First Lien Term Loan which is primarily secured by our domestic real property, plant and equipment. Our annual interest rate is LIBOR plus 400 basis points and is paid quarterly. There is a LIBOR floor of 200 basis points. Principal is due in a single principal payment on February 10, 2009.

(3)	In February 2004, we borrowed $265 million under a six-year Second Lien Term Loan which is secured by a second priority interest in substantially all of our domestic assets. Our annual interest rate is LIBOR plus 675 basis points and is paid quarterly. There is a LIBOR floor of 200 basis points. Principal is due in a single principal payment on February 10, 2010.

In addition to our debt commitments, we have entered into other commitments and contractual obligations that obligated us to make specified payments in the future. The following table summarizes the total amounts due as of February 10, 2004 under all debt agreements, commitments and other contractual obligations. The table indicates the years in which payments are due under the contractual obligations.


(4)	See Table I for details of the debt agreements, which indicates our long-term debt at February 10, 2004. The amounts relating to Debt Agreements in Table II include $5.3 million of original issue discount.

(5)	These amounts are as of December 31, 2003.

As of February 11, 2004, we do not have any material relationships with unconsolidated entities or financial partnerships, often referred to as special purpose entities, for the purpose of facilitating off-balance sheet arrangements.

Our debt agreements contain financial and restrictive covenants. The financial covenants require that we maintain available liquidity of $55 million under the revolving credit facility or maintain a Fixed Charge Coverage Ratio currently of at least 1.0:1.0. The Fixed Charge Coverage Ratio, as defined in the Revolving Credit Facility, is the trailing four quarters earnings before interest, taxes, depreciation and amortization compared to the sum of cash taxes, cash interest expense, capital expenditures and certain payments related to our equity for the same period. There are certain liquidity thresholds, which must be maintained in order for us to make certain capital expenditures over certain threshold amounts or to settle lawsuits or pay judgments. Other restrictions relate to the amount of capital expenditures, asset sales, the incurrence or guarantee of additional debt, acquisitions, sale or discount of receivables, certain payments and investments, affiliate and subsidiary transactions, payment of dividends and repurchase of stock, and excess cash.

We expect to incur approximately $47 million in pre-tax charges, or $0.95 per diluted share after tax, in the first quarter of 2004, resulting from costs associated with the financings that were repaid. These charges are principally the result of prepayment penalties associated with repayment of our private placement notes, waiver fees and other expenses related to financings that were repaid, charges associated with the termination of the sale and leaseback transaction, and the write-off of unamortized financing costs.

In March, 2004, we lowered our quarterly common stock dividend to $0.05 per share for the dividend payable on March 15, 2004. We determined that this reduced dividend rate is appropriate considering our operating performance in the second half of 2003, our current debt level and focus on debt reduction, and the dividend levels of other companies.

The financial resources available to us at February 10, 2004 included approximately $100 million available under our revolving credit facility and internally generated funds. We believe these financial resources and other credit facilities will provide us with sufficient liquidity to meet our foreseeable needs for working capital, capital expenditures and dividends.

Our operations are subject to extensive laws and regulations governing air emissions, wastewater discharges and solid and hazardous waste management activities. We take a proactive approach in addressing the applicability of these laws and regulations as they relate to our manufacturing operations and in proposing and implementing any remedial plans that may be necessary. We have identified certain situations that will require future capital and non-capital expenditures to maintain or improve compliance with current environmental laws and regulations. The majority of these situations are found at our largest manufacturing facilities and primarily deal with groundwater remediation, quality of air emissions and wastewater treatment processes.

Our policy is to expense environmental remediation costs when it is both probable that a liability has been incurred and the amount can be reasonably estimated. While it is often difficult to reasonably quantify future environmental-related expenditures, we currently estimate our future non-capital expenditures related to environmental matters to range between $2.9 million and $13.7 million. In connection with these expenditures, we have accrued undiscounted liabilities of approximately $6.5 million and $9.3 million at December 31, 2003 and 2002, respectively, which are reflected as other noncurrent liabilities in our Consolidated Balance Sheets. These accruals represent our best estimate of probable non-capital environmental expenditures. In addition, aggregate future capital expenditures related to environmental matters are expected to range from $3.6 million to $7.5 million. These non-capital and capital expenditures are expected to be incurred during the next 10 to 20 years. For additional information, including changes in the accrued undiscounted liabilities, see notes 1 and 12 to the Consolidated Financial Statements.

We base the measurement of liability on an evaluation of currently available facts with respect to each individual situation and take into consideration factors such as existing technology, presently enacted laws and regulations and prior experience in remediation of contaminated sites. As assessments and remediation progress at individual sites, we review these liabilities periodically and adjust them to reflect additional technical and legal information that becomes available.

We believe we are either in material compliance with all currently applicable regulations or are operating in accordance with the appropriate variances and compliance schedules or similar arrangements. Subject to

the imprecision in estimating future environmental costs, we believe that compliance with current laws and regulations will not require significant capital expenditures or have a material adverse effect on our consolidated financial position or results of operations. See “Forward-Looking Statements; Risks and Uncertainties.”

Statements contained in this Form 10-K that are not historical facts, including those made in the “Outlook” section above, are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In addition, words such as “believes,” “expects,” “anticipates,” and similar expressions are intended to identify forward-looking statements. These statements are made as of the date of this report based upon current expectations, and we undertake no obligation to update this information. These forward-looking statements involve certain risks and uncertainties, including, but not limited to: reduced raw material margins; the financial condition of our customers; fiber and textile imports; availability and cost of raw materials; the impact of a governmental investigation of pricing practices in the polyester staple fiber industry; availability of financing, changes in financial markets, interest rates, credit ratings, and foreign currency exchange rates; regulatory changes; tax risks; U.S., European, Asian and global economic conditions; prices and volumes of imports; work stoppages; levels of production capacity and profitable operation of assets; prices of competing products; natural disasters and acts of terrorism; and maintaining the operations of our existing production facilities. Actual results may differ materially from those expressed herein. Results of operations in any past period should not be considered indicative of results to be expected in future periods. Fluctuations in operating results may result in fluctuations in the price of our common stock.

In addition to those described above, the more prominent risks and uncertainties inherent in our business are set forth below. However, this section does not discuss all possible risks and uncertainties to which we are subject, nor can it be assumed necessarily that there are no other risks and uncertainties, which may be more significant to us.

Raw material margin, which is the difference between our net selling price and the cost of our raw material, is an extremely important factor in determining our operating results. Selling prices are influenced by competition and capacity utilization, which is the demand for product divided by its supply. Demand for our product is determined principally by growth in end use markets, substitution of our product for other products, economic conditions, and their competitive cost position. Worldwide supply is expanding for both resins and fiber. Any reduction of selling prices, our not achieving announced selling price increases or any significant expansion in supply over demand could reduce our operating results. Any increase in raw material costs (see “Our operations are dependent on the availability and cost of our raw materials” below) without a corresponding increase in selling price would reduce our operating results. A material change in demand, supply, general economic conditions or uncertainties regarding future economic prospects could have a material adverse effect on our operating results.

Our customers include the manufacturers of plastic containers and textile mills, yarn spinners, and the injection molding industry. The PPG has six customers that represented approximately 59% of the PPG’s total net sales in 2003. The FRPG does not have any single customer that has a material effect on the segment. If our customers have financial difficulties, this could affect our operating results by decreasing our sales and/or resulting in the uncollectibility of accounts receivable.

The U.S. and European fiber and textile markets continue to be severely impacted by imports, principally from Asian countries. Imports of fiber and fiber products continue to cause an over-supply which decreases fiber margins. The price and volume of imports have and are expected to continue to significantly impact the operating results of our businesses.

The impact of textile and apparel imports from Asia, especially from China, may increase starting in 2005 when quotas on all textile and apparel imports into the United States will be eliminated as of January 1, 2005

pursuant to the GATT (now known as the World Trade Organization Agreement) Uruguay Round Agreement enacted in 1994.

Our operations are substantially dependent on the availability and cost of our two primary raw materials, PTA and MEG. We currently rely on a single producer for our domestic supply of PTA and a limited number of sources for MEG. The effect of the loss of any producer, a disruption in their businesses or a failure to meet our product needs on a timely basis would depend primarily upon the length of time necessary to find a suitable alternative source. At a minimum, temporary shortages in needed raw materials could have a material adverse effect on our results of operations. We cannot be sure that the precautions we have taken would be adequate or that an alternative source of supply could be located or developed in a timely manner.

The prices of PTA and MEG, purchased pursuant to long-term contracts, have fluctuated in the past and may fluctuate in the future. Recycled raw materials are purchased from many different suppliers, including some under long-term supply contracts. The prices of recycled raw materials are variable and determined by worldwide supply and demand.

The U.S. Department of Justice is investigating pricing practices in the polyester staple fiber industry, and we have been named in various civil actions that allege that we conspired to fix the price of polyester staple fiber. See Item 3 — Legal Proceedings.

Certain events relating to the Company or the bank markets could reduce our access to financing and/or increase our financing costs.

If current business conditions deteriorated or other events occurred that resulted in a breach of our covenants, all of our debt would become due and payable. If the institutions participating in the Revolving Credit Facility could not fund due to a disruption in the bank market, we would have to refinance our Revolving Credit Facility in other markets.

If any of these events occur, there is no certainty the debt could be refinanced and, if it were refinanced, we would probably incur increased costs. If this occurred, our ability to borrow at competitive costs may be influenced by our public debt ratings.

A portion of our operating results occurs in entities where the functional currency is not the U.S. dollar. When these currencies weaken against the dollar, our profitability and the value of our investment in the foreign subsidiary decreases. In addition, our foreign subsidiaries conduct business in currencies other than their functional currency. Changes in the relative strength of these currencies can adversely affect the profitability of the foreign subsidiaries in their functional currency. A portion of the net assets of these subsidiaries is denominated in other than their functional currency. While we reduce our foreign currency exposure by using appropriate hedges, our foreign subsidiaries still have net assets denominated in currencies other than their functional currency and may experience foreign exchange losses. As a result, a material change in foreign currency exchange rates could affect our operating results.

Domestic producers of polyester staple fiber produced in the United States and the European Union; and PET Resin produced in the European Union benefit from favorable rules and regulations that affect imports of selected products from certain countries. We have previously discussed the imposition of anti-dumping duties on polyester fiberfill imports into the United States from Korea and Taiwan (See “Continued Dumping and Subsidy Offset Act (CDO) of 2000” above). Imports of polyester staple fiber into the European Union from India, Korea, Indonesia, Belarus, Thailand, India, and Australia are subject to anti-dumping and countervailing duties which may be as high as 35% of the selling price of polyester staple fiber. PET Resin products being imported into the European Union from Indonesia, Korea, India, Taiwan, Malaysia, and Thailand

currently have anti-dumping and countervailing duties of up to 223 euros/ton (approximately $.12/lb.). In addition, some of the goods produced using our products benefit from favorable federal and/or state regulations. Adverse changes in any of these rules or regulations could affect the demand for our products and adversely affect our operating results.

We have entered into global tax planning initiatives in the normal course of our business. These initiatives are subject to normal review by tax authorities. It is possible that additional liabilities may be proposed by tax authorities as a result of these reviews and that some of the reviews could be resolved unfavorably.

Our inability to maintain our low cost position and efficiently operate our manufacturing facilities may reduce our operating results. Failure to achieve our announced controllable cost reductions, or our inability to efficiently operate our production facilities after implementation, may reduce our operating results. In addition, we have certain non-controllable costs where the expense we incur may change based on external factors and increases in these costs may reduce our operating results. Examples of these costs are energy, insurance and pension costs. Energy costs are impacted by changes in petrochemical costs and as these increase, our cost of natural gas, electricity, steam and oil increases and may reduce our operating results by increasing our raw material and production costs. Insurance costs change depending on the market and our experience and pension costs are impacted by the changes in the equity and debt markets.

Actual costs and future estimated costs for identified environmental situations may change. Given the inherent uncertainties in evaluating environmental exposures due to unknown conditions, changing government regulations and legal standards regarding liability and evolving related technologies, we could have higher future environmental expenditures.

We do not hold or issue derivative financial instruments for trading purposes. We use derivative financial instruments to manage our exposure to fluctuations in interest rates and foreign exchange rates. For additional discussion of our use of such instruments, see notes 1, 2, 10 and 17 to the Consolidated Financial Statements.

Because our obligations under our new revolving credit facility and term loans bear interest at floating rates, our earnings and cash flows are affected by changes in prevailing interest rates. Our interest rate on our revolving credit facility changes based on the amount borrowed and LIBOR. Based on our borrowings at the start of the new facility, a 10% increase in LIBOR would result in an increased interest cost of $.05 million. Our term debt has a LIBOR floor of 2% so any increase in LIBOR will have no effect until LIBOR exceeds 2%. A 10% (20 basis points) increase in LIBOR when it is 2% or above increases our interest expense by approximately $.9 million on the term loans. These changes in interest rates would increase interest expense, reduce operating income and reduce cash flow by the increase in the interest expense. To reduce this exposure we have entered into a $50 million swap that has been designated as a cash flow hedge, where we have effectively fixed our interest rate on $50 million of our new debt.

We use foreign currency debt and foreign currency purchase and sale contracts with terms of less than one year to hedge our exposure to changes in foreign currency exchange rates. These financial instruments are primarily used to hedge certain accounts receivable denominated in foreign currencies. If foreign currency exchange rates at December 31, 2003 and 2002 adversely changed by 10%, the fair value of these financial instruments outstanding at December 31, 2003 and 2002 would decline by approximately $1.2 million and $4.1 million, respectively. However, such loss in fair value would be substantially offset by an increase in the fair value of our underlying exposure. Our sensitivity analysis of the effects of changes in foreign currency exchange rates does not factor in any potential changes in any underlying hedged amount or changes in sales levels affected by changes in local currency prices.

All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.

Wellman, Inc. and its subsidiaries (the Company) is an international manufacturing company operating primarily in the United States, Ireland and the Netherlands. The Company primarily manufactures high-quality PermaClear® and EcoClear® brand PET (polyethylene terephthalate) packaging resins, Fortrel® brand polyester staple fibers and Wellamid® engineering resins. The principal markets for PET resins are North American, South American, and European-based manufacturers of various types of plastic containers. The principal markets for polyester and nylon staple fibers are apparel, home furnishings, carpet and industrial manufacturers in the United States, Mexico, and Europe.

The consolidated financial statements include the accounts of Wellman, Inc. and subsidiaries. All material intercompany transactions have been eliminated.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Sales to customers are recorded when both title and risk of ownership of the goods transfer to the customer. Provisions for discounts and rebates to customers are recorded at the time of sale. Shipping and handling costs are included in cost of sales.

The Company considers all short-term investments purchased with a maturity of three months or less to be cash equivalents for purposes of the Consolidated Statements of Cash Flows.

The Company records all of its derivative instruments as either assets or liabilities on its balance sheet at their respective fair values. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and on the type of hedging relationship. The Company formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. For those derivative instruments that qualify as hedging instruments, the Company must designate the hedging instrument, based on the exposure being hedged, as either a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation. For fair value hedges, the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings during the period of the change in fair values. For cash flow hedges, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) and reclassified into earnings (loss) in the same period or periods during which the hedged transaction affects earnings (loss), with the ineffective portion, if any, being recognized in current earnings (loss) during the period of the change.

The Company performs periodic credit evaluations of its customers and generally does not require collateral. A reserve for uncollectible accounts receivable is established based on the Company’s evaluation of the credit-worthiness of its customers and the potential risks inherent in their businesses.

Inventories are stated at the lower of cost or market. Costs for inventories are principally determined using the first-in, first-out (FIFO) method.

Property, plant and equipment is carried at cost. Depreciation for assets is provided based on their estimated useful lives and is computed using the straight-line and units of production methods. Estimated useful lives are 30 to 40 years for buildings and improvements and 3 to 20 years for machinery and equipment.

For idle equipment where the Company utilizes the straight-line depreciation method, the Company either records depreciation at a reduced rate or does not record depreciation on the assets. The following table provides the amount of reduced depreciation for assets depreciated using the straight-line depreciation method during the periods noted and the net book value of the assets that were idle at the end of those periods:

In December 2003, based on management’s recommendation, the Company’s Board of Directors approved the abandonment of the polyester staple fiber spinning and drawing equipment at its Pearl River facility. This spinning and drawing equipment, along with the related polymerization assets, was idled in December 2000, principally because of the expected over-supply of polyester staple fiber in the United States. These assets were depreciated using the units of production method, and as a result, no depreciation has been recorded related to these assets since that date. The Board of Directors’ decision to abandon the polyester staple fiber spinning and drawing equipment was based on the determination that a conversion to PET resin production would be the most profitable use of the related polymerization assets with a net book value of $43,267 at December 31, 2003 that were idled. Subject to final approval by the Company’s Board of Directors, the Company plans to complete the conversion and begin production using the converted assets in 2006.

As a result of this decision, the Company recorded a non-cash impairment charge of $135.3 million ($87.9 million after tax or $2.79 per diluted share) in the fourth quarter of 2003. This charge represents a reduction in the carrying value of the abandoned polyester staple fiber spinning and drawing assets at its Pearl River facility to their estimated fair value. In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, when an asset is abandoned and no longer in use, it should be recorded at the lower of its carrying amount or fair value.

Expenditures, which materially increase productivity, change capacities, or extend useful lives are capitalized in property, plant and equipment. Routine maintenance, repairs and replacement costs are charged to expense in the period incurred. The Company does not accrue for major maintenance and repairs. Periodically, the Company conducts a complete shutdown and inspection of equipment (turnaround) at its facilities to perform necessary repairs and replacements. Costs associated with these turnarounds are capitalized and are generally amortized over the period until the next turnaround.

Effective January 1, 2002, the Company was required to adopt Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” In

accordance with SFAS No. 144, when an asset is held for sale, it is measured at the lower of its carrying amount or fair value less costs of disposal. The fair value of an asset is the amount at which that asset could be bought or sold in a current transaction between willing parties. Judgment is required in determining the fair value of the assets, and the fair value could differ from the actual amount received upon disposal.

Effective January 1, 2002, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets.” With the adoption of SFAS No. 142, the Company no longer amortizes goodwill but instead tests goodwill for impairment at least annually at the reporting unit level. Goodwill is tested for impairment by comparing the fair value of the reporting unit to its carrying value, including goodwill. The fair value is determined based on the present value of estimated future discounted cash flows. If the fair value exceeds the carrying value, no impairment loss is recognized. If the carrying value exceeds the fair value, the goodwill of the reporting unit is potentially impaired. A comparison is then made between the implied fair value of the goodwill, as defined by SFAS No. 142, and the carrying value of the goodwill. If the implied fair value is less, an impairment loss equal to the difference is recognized. This implied fair value then becomes the new carrying value of the goodwill for future impairment tests.

The estimate of future discounted cash flows is based upon, among other things, certain assumptions about future operating performance. Estimates of future discounted cash flows may differ from actual cash flows due to, among other things, changes in economic conditions, the Company’s business model, or the Company’s operating performance.

The Company has elected to follow Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations, in accounting for its employee stock options. Under APB 25, any difference between the exercise price of the Company’s employee stock options and the market price of the underlying stock on the date of grant is recognized as compensation expense over the vesting period of the options (intrinsic value method).

Income taxes have been provided using the liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities. Deferred income taxes resulting from such differences are recorded based on the enacted tax rates that will be in effect when the differences are expected to reverse.

Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Liabilities are recorded when environmental assessments and/or remedial efforts are probable and the costs can be reasonably estimated. Expenditures that relate to an existing condition caused by past operations and that do not contribute to current or future revenue generation are expensed or charged to the aforementioned liability.

The financial statements of foreign subsidiaries have been translated into U.S. dollar equivalents in accordance with SFAS Statement No. 52, “Foreign Currency Translation.” All balance sheet accounts have been translated using the exchange rates in effect at the balance sheet date. Income statement amounts have been translated using the average exchange rate for the year. The gains and losses resulting from the changes in exchange rates from year to year have been reported in other comprehensive income (loss). The effect on

the Consolidated Statements of Operations of transaction gains and losses is insignificant for all years presented.

Accumulated other comprehensive income (loss) is comprised of foreign currency translation adjustments, minimum pension liability adjustments, and the effective portion of the gain (loss) for derivatives designated and accounted for as cash flow hedges. Substantially all of the earnings associated with the Company’s investments in foreign entities are considered to be permanently invested, and no provision for U.S. federal and state income taxes on those earnings or translation adjustments has been provided.

The components of and changes in other comprehensive income (loss) are as follows:

Advertising costs are charged to expense as incurred. Such costs were approximately $1,066, $1,200, and $2,100 for 2003, 2002, and 2001, respectively.

Research and development costs are expensed as incurred. Such costs were approximately $14,900, $17,300 and $14,600 for 2003, 2002, and 2001, respectively.

Debt issuance costs are amortized using the interest method over the life of the associated debt.

The Company has received various grants, including capital and operating grants, from the state of Mississippi and other local authorities in connection with the construction of its Pearl River facility. The capital grants without stipulated operating requirements have been recorded as a reduction of property, plant and equipment. The capital grants with stipulated operating requirements have been recorded as deferred revenue and are included in income as the requirements stipulated in the grant are satisfied. The operating grants are recorded as a reduction of operating expenses in the period the reduction occurs. See note 16.

The Company grants stock options for a fixed number of shares to employees and directors. Prior to 1998, the exercise price was equal to or greater than the fair value of the shares at the date of grant. Beginning with options granted in 1998, the exercise price is equal to the average of the highest and lowest sales prices of the

Company’s common stock over a period of 20 days prior to the date of the grant. Since the Company accounts for stock option grants in accordance with APB Opinion No. 25, “Accounting for Stock Issued to Employees,” it recognizes compensation expense over the vesting period for the difference between the exercise price and the fair value of the shares at the date of grant. The difference between the employee purchase price and the fair value of restricted stock awarded under the Deferred Compensation and Restricted Stock Plan is considered to be compensatory. The amount of non-cash compensation expense recognized in 2003, 2002, and 2001 under these plans was not material. See note 14.

Certain 2002 and 2001 amounts have been reclassified to conform to the 2003 presentation.

In January 2003, the FASB issued Interpretation No. 46 (or FIN 46), “Consolidation of Variable Interest Entities” which requires a variable interest entity to be consolidated by the primary beneficiary which is the entity subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements of FIN 46 apply to older entities in the first fiscal year or interim period beginning after December 15, 2003. Certain of the disclosure requirements apply to all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The adoption of FIN 46 did not have a significant impact on the Company’s financial statements.

Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets.” This accounting standard addresses financial accounting and reporting for goodwill and other intangible assets and requires that goodwill amortization be discontinued and replaced with annual tests of impairment. Other intangible assets continue to be amortized over their estimated useful lives, whereas intangibles with indefinite lives are not amortized, but are tested annually for impairment. In accordance with SFAS No. 142, goodwill amortization was discontinued as of January 1, 2002. In addition, the Company completed its initial assessment of goodwill using the two-step approach described in SFAS No. 142. Goodwill was tested for impairment by comparing the fair value of the reporting units to their carrying value, including goodwill. The fair value was determined based on the present value of estimated future discounted cash flows. Since the carrying value of the Fibers and Recycled Products Group (or FRPG) assets exceeded their fair value, a comparison was then made between the implied fair value of the goodwill, as defined by SFAS No. 142, and the carrying value of the goodwill. Goodwill related to the FRPG was determined to be impaired and, as required by this Statement, was reduced by $197,054 to its implied fair value. The reduction was recorded as a cumulative effect of an accounting change. Goodwill was previously evaluated for impairment by comparing the entity level unamortized goodwill balance to projected

undiscounted cash flows, which did not result in an indicated impairment. The Company did not have any intangible assets with indefinite lives at December 31, 2003 or 2002.

A reconciliation of previously reported financial statement information to adjusted amounts reflecting the elimination of goodwill amortization for the comparable periods prior to the adoption of SFAS No. 142 is as follows:

The changes in the net carrying value of goodwill by reportable operating segments for the year ended December 31, 2003 are as follows:

Other intangible assets and related amortization expense as of and for the year ended December 31, 2003 were not significant.

Effective January 1, 2002, the Company adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,” and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, “Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” for a disposal of a segment of a business.

As a result of its review of strategic alternatives, in March 2002, the Company adopted a plan to sell its partially oriented yarn (POY) business and its small recycled fine denier polyester staple fiber business with manufacturing facilities located in Fayetteville, North Carolina and Marion, South Carolina, respectively. These businesses are reported as discontinued operations in the Company’s financial statements.

In June 2002, the Company sold the property, plant and equipment and inventory of its POY business. The aggregate sales price was $1,682 in cash (including the reimbursement of certain business expenses) and the assumption of certain liabilities. The total loss on disposal of the assets of the Company’s POY business for the year ended December 31, 2002 was $16,237, net of taxes. The net loss is included in discontinued operations in the Company’s Consolidated Statements of Operations.

In March 2003, the Company sold the assets of its small recycled fine denier polyester staple fiber business with a manufacturing facility in Marion, South Carolina. The net cash proceeds totaled $1,070. The total loss on disposal of assets was $4,360, net of taxes. An impairment loss of $4,699, net of taxes, was

recorded in the first quarter of 2002. A gain of $339, net of taxes, was recognized during the first quarter of 2003 and included in discontinued operations in the Company’s Consolidated Statements of Operations.

Effective January 1, 2001, the Company adopted SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended. This Statement required the Company to recognize all of its derivative instruments as either assets or liabilities on its balance sheet at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as either a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation.

As described below, the Company only utilized fair value hedges at January 1, 2001. For derivative instruments that are designated and qualify as a fair value hedge (i.e., hedging the exposure to changes in the fair value of an asset or a liability or an identified portion thereof that is attributable to a particular risk), the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings during the period of the change in fair values. For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) and reclassified into income in the same period or periods during which the hedged transaction affects income. The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, if any, is recognized in current income during the period of change.

The Company utilizes interest rate swaps to manage the interest rate characteristics of certain debt. At January 1, 2001, the Company had interest rate swaps relating to $50,000 of its fixed-rate debt, which exactly matched the terms of the underlying debt instruments. These swaps, effectively converted the fixed-rate debt to floating-rate debt, qualified and were accounted for as fair value hedges.

The Company operates in international markets and utilizes derivatives to minimize the effect of changes in currency exchange rates. The Company’s European businesses use foreign exchange contracts with maturities of less than twelve months to reduce the exchange risk associated with sales and accounts receivable denominated in other foreign currencies. Contracts that are identified as hedging underlying receivables are fair value hedges, whereas contracts that are identified as hedging future sales are cash flow

hedges. The notional amount of the Company’s fair value contracts was approximately $14,000 at January 1, 2001, and the fair value of these contracts was $633. The changes in the fair value hedges were offset by changes in the fair value of the underlying receivables. There were no cash flow hedge contracts at January 1, 2001.

There was no cumulative effect of adoption of Statement No. 133 at January 1, 2001, and the impact on net earnings in 2001 was not material.

On June 27, 2003, the Company received from Warburg Pincus Private Equity VIII, L.P. (“Warburg Pincus VIII”), a global private equity fund, $126,025 in proceeds from the issuance of 11,202,143 shares of perpetual convertible preferred stock (the Preferred Stock) and two warrants to acquire a total of 2,500,000 shares of the Company’s common stock that vested on that date. Based on a quoted market price, the Company valued the preferred stock at $121,137 and the warrants at $4,888. Net proceeds from this transaction were used primarily to pay down existing debt.

The Company entered into a definitive securities purchase agreement with Warburg Pincus VIII on February 12, 2003 that provided for the issuance of these securities. Upon execution of the securities purchase agreement, Warburg Pincus VIII invested $20,000 in a convertible subordinated note. From the date of its issuance, the note accrued $649 of interest, and both the note and the accrued interest were converted into preferred stock on June 27, 2003.

The initial liquidation preference of the Preferred Stock is $126,025, increasing by 8.5% per year compounded quarterly for the first five years unless the Company’s consolidated net income for 24 consecutive quarters (excluding any changes in accounting principle after September 30, 2002, any beneficial conversion charges and any preferred stock dividends) is greater than $160,000. If that occurs, the accretion rate will become 7.25% and the holders of the Preferred Stock will participate with the common stock dividend. After the fifth anniversary, the holders of the Preferred Stock will be able to elect to receive cash dividends or continue to increase their liquidation preference. The rate will increase to 8.75% per year compounded quarterly at that time. If the holders of the Preferred Stock are not participating in the common stock dividend, or if the common stock dividend is less than $0.045 per share per quarter, then the rate will increase to 10% per year compounded quarterly. The Preferred Stock is also entitled to participate in any extraordinary dividends, and if there is a change of control within the first five years, then the liquidation preference of the Preferred Stock is adjusted as if it had been owned for five years.

The conversion price of the Preferred Stock is $11.25 per share. The conversion price will be reduced on the fourth anniversary of the issuance of the Preferred Stock if the volume-weighted average price of the Company’s common stock for the immediately preceding 60 consecutive trading days does not equal or exceed $23.00. The reduction will be equal to the excess of $23.00 over such average price, but the conversion price will not be reduced by more than $4.50. The Company can require conversion of the preferred stock at any time after the fifth anniversary of the preferred stock if the closing price of the Company’s common stock exceeds 125% of the conversion price for 30 consecutive trading days.

The Preferred Stock may be converted into shares of the Company’s common stock at any time. The Preferred Stock became convertible in the fourth quarter of 2003 when the Company publicly reported cash earnings per share, as defined in the definitive securities purchase agreement, of less than $1.50 for the trailing four calendar quarters ending September 30, 2003, which is a conversion event, as defined in the definitive securities purchase agreement.

One warrant to purchase 1,250,000 shares of the Company’s common stock expires on February 12, 2010 and another similar warrant to purchase the same number of shares expires on June 27, 2010.

As a result of this investment, assuming exercise of all warrants for cash, Warburg Pincus VIII owns approximately 31% of the Company’s outstanding voting securities on an if-converted basis (assuming a

conversion price of $11.25 per share) and has the right to appoint two members to the Company’s Board of Directors. This amount is subject to increase under certain conditions to a maximum of approximately 49% of the Company’s outstanding common stock during the next five years.

The Preferred Stock was initially reflected on the financial statements of the Company at $121,137, which is a discount of $4,888 from its initial liquidation value of $126,025. Since, at the end of the seventh year, the holders of the Preferred Stock can require the Company to remarket the Preferred Stock by increasing its dividend rate until its market value is its liquidation value, the discount will be accreted and recorded as a reduction of earnings attributable to common stockholders ratably for a period of seven years from the date of issuance. The warrants are immediately included in the computation of diluted earnings per share using the treasury stock method, and therefore become dilutive only when the market price of the Company’s common stock is above their exercise price.

The initial convertible subordinated investment of $20,000 was issued with a conversion price per share less than the closing price of the Company’s common stock at the date of issuance. As a result, the Company incurred a non-cash beneficial conversion feature amount (“BCF”) of $1,867 in connection with the issuance of the note that was converted to Preferred Stock. This is the difference between the market price of the Company’s common stock on the date of issuance and the conversion price on that date multiplied by the number of shares issued as if the note were converted on that date. The Company also incurred a BCF of $2,359 as a result of issuing 9,366,667 shares of Preferred Stock since the effective conversion price, after adjusting for the value assigned to the warrants, was less than the market price on the date of issuance. These BCF amounts totaling $4,226 resulted in a non-cash increase in the loss attributable to common stockholders in the fourth quarter of 2003 when the Preferred Stock became convertible into common stock.

During 1999, the Company sold certain production equipment to a trust in connection with a sale and leaseback transaction. The lease has been classified as an operating lease. The lease, which was scheduled to expire in July 2004, contains purchase and lease renewal options at projected future fair market values and has a residual value guarantee of approximately $127,300. The net book value of the equipment sold totaled approximately $118,000. The gain realized from this sale, totaling approximately $32,000, has been deferred and is being credited to income as reductions in rental expense ratably over the lease term. The gross rent expense approximates the amount of interest expense incurred by the trust that owns the equipment. Interest expense for the trust is determined by indices that approximate LIBOR and/or commercial paper (which have a close correlation) and by a fee that is based on the Company’s credit worthiness as determined by the rating agencies. The net rent expense is the gross rent expense reduced by the amortization of the deferred gain relating to the sale of the equipment. Gross rent expense totaled approximately $11,247 and $8,661 for 2003 and 2002, respectively. In June 2003, the Company amended its sale and leaseback transaction with substantially similar terms, such that the lessor is a voting interest entity.

In September 2002, the Company replaced its existing receivables purchase agreement. Under the new agreement, the Company may sell without recourse up to $80,000 in an undivided interest in certain of its domestic trade accounts receivable, on a revolving basis, through an unconsolidated receivables subsidiary.

At December 31, 2003 and 2002, trade accounts receivable of approximately $27,800 and $64,200, respectively, were sold. The sales of trade accounts receivable have been reflected as a reduction of accounts receivable in the Company’s Consolidated Balance Sheet. The discounts incurred by the Company on the sale of the trade accounts receivable during 2003 and 2002 of approximately $1,024 and $1,336, respectively, were charged to selling, general, and administrative expenses.

Subsequent to year-end, on February 10, 2004, the Company closed on $625,000 of new debt financings. As part of this transaction, the Company exercised its option to repurchase the assets of the sale and leaseback transaction. The assets, with a fair value of approximately $150,000, will be recorded at their fair market

values and depreciated over an estimated useful life of 20 years. In addition, the Company terminated its asset securitization program and repurchased the net receivables.

Other expense, net consisted of the following amounts for the periods indicated:

During 2003, the Company announced various cost reduction plans in order to improve profitability, reduce debt, and enhance stockholder value. These cost reduction efforts were in response to reduced profitability as a result of increased raw material costs, declines in PET resin prices in our PPG, and continuing declines in our FRPG businesses. The three plans announced in 2003 are as follows.

In January 2003, the FRPG commenced a plan to restructure its operations, which included a reduction in the number of employees and other cost savings initiatives at the Company’s three fiber manufacturing facilities. The Company recorded termination costs of $1,847 in its FRPG segment related to this plan, which was fully implemented in 2003. These costs were reflected in operating income (loss) in the Consolidated Statements of Operations. The following represents changes in the accruals since the plan was adopted.

In July 2003, the Company announced and implemented reductions in compensation and benefit costs. These compensation and benefit reductions were implemented at all levels of the Company, including senior management. As part of this cost reduction effort, some employer contributions to the Company’s defined contribution plans were suspended.

In November 2003, the Company announced a third plan with Company-wide cost reduction initiatives that included eliminating levels of management, reducing the number of employees, and other organizational and administrative consolidations and changes. The Company incurred severance and contract termination costs of $8,086 in the fourth quarter of 2003 associated with this plan, of which $6,159 related to the FRPG and $1,927 related to the PPG. In addition, a curtailment loss of $232 was recorded as a restructuring charge in the FRPG. This curtailment loss occurred in two of the Company’s foreign defined benefit plans associated with the early terminations and was reflected in operating income (loss) in our Consolidated Statements of Operations. The following represents changes in the accruals since the plan was adopted.

The above accrual balance at December 31, 2003 should be fully paid out during the first half of 2004. In addition, the Company expects to incur approximately $1,500 of additional severance costs in its FRPG related to this plan through its completion in 2005.

In May 2001, the Company experienced a production outage at its Palmetto Plant in Darlington, South Carolina, which resulted in a temporary shutdown of the entire facility. The power outage caused lost production volumes of approximately 80 million pounds, split equally between its two reportable operating segments. Total costs and property damage associated with this outage was approximately $9,900 ($6,433 after tax or $0.20 per diluted share). During the second quarter of 2001, the Company reduced its property damage expense for that portion of the insurance claim by approximately $3,400 ($2,185 after tax or $0.07 per diluted share). In the fourth quarter of 2001, the Company settled its property damage and business interruption insurance claims and recorded additional income of approximately $7,200 ($4,697 after tax or

$0.15 per diluted share). These costs and the related income from business interruption insurance were reflected in other expense, net in 2001.

The table above provides the detail of the Company’s debt, which was unsecured as of December 31, 2003. Substantially all of this debt was repaid on February 10, 2004. The terms of the new financings are described following a summary of the terms of the debt existing at December 31, 2003.

In June 2003, the Company refinanced its $275,000 senior revolving credit facility. The new $275,000 three-year floating rate facility (the “Credit Facility”), which was scheduled to mature in June 2006, had no scheduled principal payments.

In February 2000, the Company borrowed $50,000 pursuant to an 8.41% senior note due February 2003. In conjunction with this financing, the Company entered into interest rate swaps, which effectively converted the total amount of this fixed-rate debt to floating-rate debt. During 2002, the Company terminated these swaps which resulted in a gain of $1,464. This gain was recognized as a reduction in interest expense over the remaining life of the debt. The debt was repaid on its maturity date.

In December 2001, the Company borrowed $40,000 pursuant to a 7.55% senior note due December 2011. In conjunction with this financing, the Company entered into interest rate swaps that effectively converted the $40,000 of fixed-rate debt to floating-rate debt at an effective interest rate of six-month LIBOR plus 1.42%. In October 2003, the Company terminated these swaps, which resulted in a gain of $4,105 that will be recognized as a reduction of interest expense over the remaining life of the debt.

In November 2001, the Company borrowed $35,000 pursuant to a senior note. The note had a floating interest rate based on LIBOR with a single principal payment due in November 2004.

In September 2002, the Company borrowed $25,000 pursuant to a 7.46% senior note due September 2009.

The Company redeemed $9,500 and $40,180 of its Industrial Revenue Development Bonds in March 2003 and August 2003, respectively. Financing for these redemptions was provided by cash from operations and the revolving credit facility.

On February 10, 2004, the Company completed $625,000 of new debt financings. These financings consist of a five-year, $175,000 Revolving Credit Facility with an initial annual interest rate of either LIBOR or the prime rate plus 250 basis points on outstanding borrowings, a five-year, $185,000 First Lien Term Loan with an annual interest rate of LIBOR plus 400 basis points, and a six-year, $265,000 Second Lien Term Loan with an annual interest rate of LIBOR plus 675 basis points. The First and Second Lien Term Loans have a LIBOR floor of 200 basis points. The First Lien Term Loan may be prepaid for 102% and 101% of its face amount in the first and second year after its issuance, respectively. The Second Lien Term Loan may be prepaid at 103%, 102% and 101% of its face amount in the third, fourth and fifth years after its issuance, respectively and was issued at 98% of its face value.

The net proceeds from these new credit facilities were used to repay substantially all of the Company’s balance sheet debt, repurchase accounts receivable, purchase PET resin assets located at its Palmetto facility, prepay a raw material contract, terminate swap agreements, pay prepayment penalties, pay expenses associated with the new financing transaction, and provide working capital. At February 10, 2004, the Company had approximately $490,000 in total outstanding long-term debt, net of $5,300 of original issue discount.

The new Revolving Credit Facility is collateralized by a first lien on the Company’s domestic accounts receivable, inventory, and related intangibles. Availability under the Revolving Credit Facility is determined by the eligible accounts receivable and inventory. Borrowings under the First Lien Term loan are primarily collateralized by a first priority security interest in the Company’s real property, plant and equipment. Borrowings under the Second Lien Term loan are collateralized by a second priority security interest in substantially all of the Company’s domestic assets.

These debt agreements contain financial and restrictive covenants. The financial covenants require that the Company maintain available liquidity of $55,000 under the revolving credit facility or maintain a Fixed Charge Coverage Ratio currently of at least 1.0:1.0. The Fixed Charge Coverage Ratio, as defined in the Revolving Credit Facility, is the trailing four quarters earnings before interest, taxes, depreciation and amortization compared to the sum of cash taxes, cash interest expense, capital expenditures and certain payments related to the Company’s equity for the same period. There are certain liquidity thresholds, which must be maintained in order for the Company to make certain capital expenditures over certain threshold amounts or to settle lawsuits or pay judgments. Other restrictions relate to the amount of capital expenditures, asset sales, the incurrence or guarantee of additional debt, acquisitions, sale or discount of receivables, certain payments and investments, affiliate and subsidiary transactions, payment of dividends and repurchase of stock, and excess cash.

During 2003, 2002 and 2001, the Company capitalized interest of $214, $303 and $1,531, respectively, as part of the cost of capital projects under construction. Interest expense (net) includes interest income of $3,150, $3,480 and $1,563 for 2003, 2002 and 2001, respectively.

For financial reporting purposes, earnings (loss) from continuing operations before income taxes are as follows:

The 2002 current federal benefit of $20,238 is related to a net operating loss carryback attributable to the Job Creation and Worker Assistance Act enacted in March 2002. This Act increased the carryback period on net operating losses generated in 2001 from 2 years to 5 years, resulting in a refund of $20,238 in 2002.

The difference between the provision for income taxes and income taxes computed at the statutory income tax rate on income from continuing operations is explained as follows:

As a result of the adoption of SFAS No. 142, “Goodwill and Other Intangible Assets”, goodwill is no longer amortized for book purposes. Therefore, this item no longer increases the effective tax rate.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effects of these differences are as follows:

At December 31, 2003, the Company had a federal net operating loss (NOL) of approximately $344,018 available for carryforward which begins to expire in 2019 and $4,678 of federal tax credit carryforwards which begin to expire in 2018. Additionally, the Company had approximately $563,777 of state NOLs available for carryforward which begin to expire in 2004. The Company also had foreign NOLs of approximately $17,013 that may be carried forward indefinitely. The valuation allowance, which is primarily attributable to state and foreign NOLs and federal tax credits, increased by $2,259 during 2003.

Deferred taxes have not been provided for approximately $180,584 of undistributed earnings of foreign subsidiaries, which are permanently reinvested outside the United States. The Company intends to reinvest such undistributed earnings for an indefinite period except for distributions upon which incremental taxes would not be material. If all such earnings were distributed, the Company would be subject to both U.S. income taxes (subject to a potential adjustment for foreign tax credits) and foreign withholding taxes. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable because of the complexities associated with its hypothetical calculation.

The Company’s operations are subject to extensive laws and regulations governing air emissions, wastewater discharges and solid and hazardous waste management activities. As discussed in note 1, the Company’s policy is to expense environmental remediation costs when it is both probable that a liability has been incurred and the amount can be reasonably estimated. While it is often difficult to reasonably quantify future environmental-related expenditures, the Company currently estimates its future non-capital expenditures related to environmental matters to range between approximately $2,935 and $13,680 on an undiscounted basis. In connection with these expenditures, the Company has accrued undiscounted liabilities of approximately $6,544 and $9,250 at December 31, 2003 and 2002, respectively, which are reflected as other noncurrent liabilities in the Company’s Consolidated Balance Sheets. These accruals represent management’s best estimate of probable non-capital environmental expenditures. In addition, aggregate future capital expenditures related to environmental matters are expected to range from approximately $3,600 to $7,500. These non-capital and capital expenditures are expected to be incurred over the next 10 to 20 years.

The final resolution of these contingencies could result in expenses different than current accruals, and therefore could have an impact on the Company’s consolidated financial results in a future reporting period.

However, management believes the ultimate outcome will not have a significant effect on the Company’s consolidated results of operations, financial position, or liquidity.

The following represents changes in accrued undiscounted liabilities for environmental remediation costs:

The changes in remediation costs for the period January 1, 2001 to December 31, 2003 were primarily the result of more current information reducing the expected costs associated with the Company’s European environmental costs and the expected costs associated with groundwater remediation at one of the Company’s South Carolina plants.

There are no environmental matters from which a material loss is reasonably possible in addition to amounts currently accrued.

The Company has defined benefit plans and defined contribution pension plans that cover substantially all employees. The Company also has an employee stock ownership plan (ESOP) covering substantially all domestic employees. The defined contribution plan and the ESOP provide for Company contributions based on the earnings of eligible employees. Expense related to the defined contribution plan amounted to $3,814, $5,152 and $6,019 for the years ended December 31, 2003, 2002 and 2001, respectively. Expense related to the ESOP amounted to $841, $1,679 and $2,647 for the years ended December 31, 2003, 2002 and 2001, respectively. In conjunction with the Company’s cost reduction efforts, certain company contributions were suspended in 2003. All ESOP shares are considered outstanding for the Company’s earnings per share computations. Dividends paid on ESOP shares are included in the overall dividends.

Benefits under the European businesses’ defined benefit plans are based on employees’ compensation and length of service, while benefits under defined benefit plans covering domestic employees are based on employees’ compensation and length of service or at stated amounts based on length of service. The Company’s policy is to fund amounts, which are actuarially determined to provide the plans with sufficient assets to meet future benefit payment requirements. Substantially all of the assets of the plans are invested in equity securities, debt securities, money market instruments, and insured products.

Net periodic pension cost (benefit) is determined using assumptions as of the beginning of each year. Funding status of the plans is determined using assumptions as of the end of the year. Unrecognized net actuarial gains or losses are amortized using the “corridor method” as defined by SFAS No. 87, “Employers’ Accounting for Pensions,” for the Company’s domestic defined benefit plans and Dutch plan. As permitted by SFAS No. 87, a systematic method of amortization is used to amortize actuarial gains and losses for its Irish defined benefit plans. For the Irish plans, the Company separately identifies actuarial gains and losses on the plans’ assets and projected benefit obligations and uses an amortization method, which spreads each year’s actuarial gain or loss over a period of five years, without regard to the corridor, subject to the minimum amortization requirements of SFAS No. 87.

The following table summarizes information on the Company’s domestic and foreign defined benefit plans:

In 2003, the Company recognized a curtailment loss of $232 as a result of early terminations in two of the Company’s foreign defined benefit plans.

The accumulated benefit obligation for all defined benefit pension plans was $104,838 and $86,507 at December 31, 2003 and 2002, respectively.

Components of net periodic cost (benefit) and significant weighted-average assumptions were as follows:

The assumptions used in computing the net periodic pension costs reflect current discount rates and anticipated future returns on plan assets and expected compensation increases. The discount rate is determined by reviewing the rates of return on high quality fixed income investments currently available with maturity dates corresponding with the maturity of the pension benefits. The expected return on plan assets is based on the expected long term rate of return on plan assets taking into account the plans’ asset allocation (primarily between equity and debt securities), giving appropriate consideration to historical plan returns. The rate of compensation increase is determined by taking into consideration future economic conditions, such as inflation and the Company’s expected future compensation levels when compared to historical performance.

The Company’s domestic pension plans’ weighted-average asset allocations at December 31, 2003 and 2002, by asset category are as follows:

In determining the Company’s long-term rate of return on plan assets, management’s objective is to obtain the highest possible return over the long-term commensurate with the appropriate level of assumed risk. In order to moderate the investment portfolio’s risk and volatility, the Company develops a forecast of financial market returns over a wide range of potential future economic trends.

The Company contributed $3,950 to its domestic defined benefit plans in 2003. The Company expects to contribute $3,935 to its domestic defined benefit plans in 2004.

The following benefit payments for the Company’s domestic defined benefit plans, which reflect expected future service, as appropriate, are expected to be paid:

The Company has stock option plans for employees (the Plans) that authorize the grant of non-qualified stock options (NQSOs). For all options granted in connection with the Plans, the option period extends for 11 years from the date of grant with the shares vesting at 20% per year over the first five years. The exercise price for options granted prior to 1998 is equal to the fair value of the Company’s common stock at the date of grant. For options granted after 1997, the exercise price is equal to the average of the highest and lowest sales prices of the Company’s common stock over a period of 20 days prior to the date of the grant. In addition, the Company has a Directors Stock Option Plan. Each year during the term of this Plan, each eligible director is granted an option for 1,000 shares on the eighth business day after the Company publicly announces its annual earnings. The option period extends for 11 years from the grant date with the shares being 100% vested one

year after the grant date. The exercise price is equal to the average of the highest and lowest sales price of the Company’s common stock over a period of 20 days prior to the date of the grant.

The Company has elected to follow Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25), and related Interpretations in accounting for its employee stock options. Under APB 25, any difference between the exercise price of the Company’s employee stock options and the market price of the underlying stock on the date of grant is recognized as compensation expense over the vesting period of the options. The alternative fair value accounting provided for under FASB Statement No. 123, “Accounting for Stock-Based Compensation,” requires use of option valuation models for determining compensation expense.

Pro forma information regarding net earnings (loss) and earnings (loss) per common share is required by Statement 123, which also requires that the information be determined as if the Company has accounted for its employee stock options granted subsequent to December 31, 1994 under the fair value method of that Statement. The fair value for these options was estimated as of the date of grant using a Black-Scholes option pricing model with the following assumptions for 2003, 2002 and 2001, respectively: risk-free interest rate of 3.82%, 3.82% and 4.96%; a dividend yield of 1.36%, 1.36% and 1.29%; volatility factors of the expected market price of the Company’s common stock of .468, .470 and .470; and a weighted-average expected life of the option of 8 years. The weighted-average fair value of options granted in 2003 was $4.05 for employees and $5.05 for directors, in 2002 it was $8.29 for employees and $7.82 for directors, and in 2001 it was $10.26 for both employees and directors. The differences in weighted average fair values in 2003 and 2002 are attributable to different grant dates.

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period. The Company’s pro forma information follows:

In June 2003, the Company recognized all of the remaining deferred compensation associated with its employee stock options. In accordance with the change in control provisions of the Company’s stock option plans, the stock options became fully vested in June 2003 as a result of the private equity investment. For additional information on the private equity investment, see note 3. Deferred compensation associated with stock options issued to employees in August 2003 is reflected in the 2003 amounts above.

A summary of the Company’s stock option activity and related information for the three years ended December 31, 2003 follows:

At December 31, 2003, 2002, and 2001, options for 3,428,825, 2,334,636 and 2,126,028 shares, respectively, were exercisable. At December 31, 2003, 629,455 shares were available for future option grants. The following summarizes information related to stock options outstanding at December 31, 2003:

The Company also has a deferred compensation and restricted stock plan (Restricted Stock Plan). Pursuant to the Restricted Stock Plan, (prior to December 31, 2002) certain officers, directors and managers of the Company were required to defer a certain portion of their compensation and could elect to defer additional compensation that is exchanged for restricted stock. The Restricted Stock Plan was amended effective December 31, 2002 to no longer provide for either mandatory or voluntary deferral by directors and mandatory and voluntary deferrals with respect to officers and managers was limited to bonus payments. Shares granted are subject to certain restrictions on transferability. The exercise price for restricted stock awards granted is 85% of the average of the highest and lowest sales prices of the common stock as reported on the New York Stock Exchange on the last day of the prior calendar quarter and on each of the 15 days before and after that date. A total of 1,000,000 shares of common stock are reserved for issuance under the Restricted Stock Plan. During 2003 and 2002, participants purchased 15,538 and 31,172 shares of common stock, respectively, at an average price of approximately $11.29 and $12.44 per share. Also, upon termination of the

Directors Retirement and Deferred Compensation Plans during 1998, directors elected to rollover amounts under these plans to the Restricted Stock Plan resulting in the issuance of 59,441 shares of common stock. The amount of non-cash compensation expense associated with purchases during 2003 and 2002 was not material.

On August 31, 2001, the Board of Directors authorized and declared a dividend of one common stock purchase right for each outstanding share of common stock under the stockholder rights plan (the Plan). The Plan provides each stockholder of record one common stock purchase right for each share of common stock. The rights are represented by the common stock certificates and are not separately traded from the common stock and are not currently exercisable. The rights become exercisable only if a person acquires beneficial ownership of 20% or more of the Company’s common stock or announces a tender offer or exchange offer that would result in beneficial ownership of 20% or more of the Company’s common stock, at which time each right would enable the holder to buy shares of the common stock at a discount to the then market price. The Company may redeem the rights for $.01 per right, subject to adjustment, at any time before the acquisition by a person or group of 20% or more of the Company’s common stock. The rights have a 10-year term. On February 12, 2003, the Board of Directors of the Company amended the terms of the Plan to provide that the rights are not exercisable in connection with the private equity investment. For additional information on the private equity investment, see note 3.

Although the Rights should not interfere with a business combination approved by the Board of Directors, they may cause substantial dilution to a person or group that attempts to acquire the Company on terms not approved by the Board, except pursuant to an offer conditioned on a substantial number of Rights being acquired.

The following table sets forth the computation of basic and diluted earnings (loss) attributable to common stockholders per common share for the years indicated:

The Company has commitments and contingent liabilities, including legal proceedings, environmental liabilities (see note 12), commitments relating to certain state incentives, and various operating lease commitments.

In January 2001, the Company received a document subpoena in connection with a federal grand jury investigation of pricing practices in the polyester staple fiber industry. The Company cooperated with the investigation by producing documents in response to this subpoena. In September 2002, the U.S. Department of Justice announced the indictment of a former sales manager of one of the Company’s competitors for conspiring to fix prices and allocate customers for polyester staple fiber beginning in September 1999 and ending in January 2001. On October 31, 2002, the U.S. Department of Justice announced that it was filing informations against another competitor and one of its former officers as a result of their agreement to plead guilty to participating in a conspiracy to fix prices and allocate customers in the polyester staple fiber industry. On October 2, 2003, the trial of the former sales manager of one of the Company’s competitors concluded with a verdict of not guilty on all charges. Neither the Company nor any of its employees has been charged with any wrongdoing, and the Company vehemently denies that it or any of its employees have engaged in price fixing or customer allocation.

Following the disclosure of the investigation, the indictment of a competitor’s employee, the informations and guilty pleas of another competitor and its employee, the Company, along with certain other companies, has been named as a defendant in 64 actions brought by direct and indirect purchasers of polyester staple fiber for violations of federal, state and Canadian antitrust laws. In each lawsuit, the plaintiffs allege that the defendants engaged in a conspiracy to fix the price of polyester staple fiber in violation of the Sherman Act, state antitrust, state unfair competition and/or Canadian antitrust laws. Some of these actions seek certification of a class including all persons who directly or indirectly purchased polyester staple fiber similarly affected by such alleged conduct. The plaintiffs in most cases seek damages of unspecified amounts, attorney’s fees and costs and unspecified relief. In addition, certain of the actions claim restitution, injunctions against alleged illegal conduct and other equitable relief.

The producers of polyester staple fiber, including the Company, may become subject to additional proceedings and lawsuits under federal and state antitrust and unfair competition laws. Furthermore, the federal grand jury investigation is ongoing and additional indictments may result. The Company intends to vigorously defend against the civil claims and any civil or criminal claims or proceedings that may be brought against it in the future. If a material adverse judgment occurs, the Company’s consolidated financial position, results of operations, and cash flows may be adversely impacted.

In order to receive certain state grants, the Company agreed to meet certain conditions, including capital expenditures and employment levels at its Pearl River facility. During 2003 and 2002, the Company recognized grant income of $1,500 and $6,000, respectively. The Company had deferred grant income of $1,500 at December 31, 2002. The deferred income was included in other current liabilities in the Company’s Consolidated Balance Sheet at December 31, 2002.

Approximate minimum rental commitments under noncancelable leases during each of the next five years and thereafter are as follows: 2004 — $7,756; 2005 — $5,709; 2006 — $2,742; 2007 — $1,928; 2008 — $1,722; and thereafter — $5,529.

Rent expense for cancelable and noncancelable operating leases was $11,567, $10,182 and $10,113 for the years ended December 31, 2003, 2002 and 2001, respectively.

The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of this ordinary course litigation will not have a material adverse effect, if any, on the Company’s consolidated financial position, results of operations, and cash flows.

The Company utilizes derivative instruments, principally swap and forward contracts, to enhance its ability to manage risk including interest rates and foreign currency fluctuations, which exist as part of its ongoing business. These contracts hedge transactions and balances for periods consistent with the related exposures. The Company does not utilize financial instruments for trading or other speculative purposes.

The Company utilizes interest rate swaps to manage the interest rate characteristics of certain debt. At January 1, 2001 the Company had interest rate swaps related to $50,000 of its fixed-rate debt, which exactly matched the terms of the underlying debt instruments. These swaps, effectively converting the fixed-rate debt to floating-rate debt, qualified and were accounted for as fair value hedges. The Consolidated Balance Sheet at December 31, 2001 reflected $2,556 for the fair market value of the swaps in other assets, offset by a corresponding change in the fair value of the underlying debt. These swaps were terminated during 2002, resulting in a gain of $1,464. This gain was recognized as a reduction in interest expense over the remaining life of the debt. During 2002, the Company entered into interest rate swaps that effectively converted $40,000 of its fixed-rate debt to floating-rate debt at an effective interest rate of six-month LIBOR + 1.42% (approximately 3.5% at December 31, 2002). The Company estimated it would have received $5,331 if these swaps had been terminated at December 31, 2002. These swaps qualified as fair value hedges under SFAS 133. These swaps were terminated during 2003, resulting in a gain of $4,105. This gain will be recognized as a reduction in interest expense over the remaining life of the debt. Subsequent to 2003, the Company closed on $625,000 of new debt financings and used the net proceeds to repay substantially all of its existing indebtedness and certain contractual obligations. The remaining gain from the termination of these swaps will be recognized in 2004 with the repayment of the debt. For additional information on the financing, see note 10.

As part of the restructuring of the sale leaseback transaction in June of 2003, the Company entered into three swaps, each with a notional amount of $50,000, that were designated as cash flow hedges. These swaps hedged the Company’s exposure to variability in cash flows attributable to rent expense paid in relation to the sale leaseback. The effective portion of the gain or loss related to the swaps was reported as a component of other comprehensive income (loss). The remaining ineffective portion of the gain or loss on the hedges was reported in earnings in 2003 as a reduction of rent expense. The Company reflected the payment that it would be required to make to terminate these swaps as a non current liability of $16,760 at December 31, 2003. During the second half of 2003 the Company’s loss was reduced by $3,216 and equity (other comprehensive income) was increased by $2,875.

In February 2004, the Company terminated two of the three swaps and exercised its option to purchase the assets under the sale leaseback transaction. The loss incurred upon termination of the two swaps will be recognized in the Company’s earnings (loss) during the first quarter of 2004. The remaining hedge with a notional amount of $50,000 was redesignated as a cash flow hedge against the new debt entered into in February 2004. For additional information on the financing transaction, see note 10.

The Company operates in international markets and uses foreign exchange contracts with maturities of less than twelve months to hedge existing foreign exchange exposures. Foreign currency contracts require the Company at a future date to either buy or sell foreign currency in exchange for U.S. dollars and other currencies. The Company had contracts with notional amounts of $11,506 and $31,657 at December 31, 2003 and 2002, respectively, that were designated as cash flow hedges. The fair value of these contracts was approximately $141 and $1,025 at December 31, 2003 and 2002, respectively. At December 31, 2003 and 2002, these forward contracts resulted in an unrealized gain in accumulated other comprehensive income (loss) of $74 and $1,020, respectively, which will be realized when the underlying transaction gain or loss is recognized in earnings.

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of foreign currency and interest rate contracts described above and in note 10 and temporary cash

investments and trade accounts receivable. The counterparties to the contractual arrangements are a diverse group of major financial institutions with which the Company also has other financial relationships. The Company is exposed to credit loss in the event of nonperformance by these counterparties. However, the Company does not anticipate nonperformance by the other parties, and no material loss would be expected from nonperformance by any one of such counterparties. The Company places its temporary cash investments with high credit quality institutions. Concentration of credit risk with respect to trade accounts receivable is managed by an in-house professional credit staff or is insured. The Company performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral. Four of the Company’s customers comprise approximately 25% of its total accounts receivable. In addition, approximately 46% of total accounts receivable are included in the FRPG customer base. Approximately 25% of the Company’s total accounts receivable is in the U.S. textile business, which continues to face competitive challenges presented by the imports of textile and apparel fiber and finished goods. A down turn in the financial condition of any of these customers may have a negative impact on the Company’s results of operations.

The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments.

Cash and cash equivalents, accounts receivable and accounts payable: The carrying amounts reported in the consolidated balance sheets approximate their fair value.

Interest rate instruments: The fair value of interest rate instruments is the estimated amount that the Company would receive or pay to terminate the agreements at the reporting date, taking into account current interest rates and the current creditworthiness of the counterparties.

All of the Company’s estimates of fair value and termination cost/benefit for its derivative financial instruments are based on readily available dealer quotes as to the amounts the Company would receive or pay to terminate the contracts.

The following table summarizes the carrying amounts and estimated fair values of the Company’s financial instruments at December 31, 2003 and 2002:

The Company’s operations are classified into two reportable operating segments: the Packaging Products Group (PPG) and the Fibers and Recycled Products Group (FRPG).


	•	solid-stated and amorphous PET resin for use in the manufacture of soft drink bottles and other food and beverage packaging and

	•	EcoClear® PET resin, utilizing recycled PET materials to meet customers’ recycled content PET resin requirements.


	•	chemical-based polyester staple fibers for use in apparel, non-woven, home furnishing, and industrial products,

	•	recycled-based polyester and nylon staple fibers for use in home furnishing, non-woven and industrial products, and

	•	recycled-based nylon and polyester engineering resins for use in the injection molding industry.

Generally, the Company evaluates segment profit (loss) on the basis of operating profit (loss) less certain charges for research and development costs, administrative costs, and amortization expenses in a manner consistent with how it allocates charges in its Management Incentive Compensation Plan for the Executive Group. Intersegment transactions, which are not material, have been eliminated and historical exchange rates have been applied to the data. The accounting policies of the reportable operating segments are the same as those described in the Summary of Significant Accounting Policies in note 1.

As discussed in note 2, the Company sold the assets of its small recycled fine denier polyester staple fiber business during the first quarter of 2003 and its POY business during 2002. These assets, which were previously reported as part of the Company’s FRPG, were reported as discontinued operations in the Company’s financial statements.

Following are reconciliations to corresponding totals in the accompanying consolidated financial statements:


(1)	Corporate assets include cash, prepaid expenses, construction in progress and other assets not allocated to the segments.

Net sales and operating income (loss) for the years ended December 31, 2003, 2002 and 2001 and long-lived assets at the end of each year, classified by the major geographic areas in which the company operates, are as follows:

Revenues are attributed to countries based on the location where the products were produced.

Quarterly financial information for the years ended December 31, 2003 and 2002 is summarized as follows:


(1)	Certain amounts have been reclassified to conform to the 2003 full-year presentation.


(2)	Other expense (income), net consisted of the following amounts for the periods indicated:


(3)	Quarterly net loss includes an impairment charge of $135,307 ($87,950 after tax). For additional information on the impairment charge, see note 1 to the Consolidated Financial Statements.

(4)	Quarterly net earnings (loss) includes restructuring charges. For additional information on restructuring charges in 2003, see note 8.

(5)	Quarterly net loss includes a cumulative effect of an accounting change of $197,054, or $6.16 per diluted share, for the impairment of goodwill. For additional information, see note 2.

We have audited the accompanying consolidated balance sheets of Wellman, Inc. as of December 31, 2003 and 2002, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2003. Our audits also included the financial statement schedules listed in the Index at Item 8. These financial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We did not audit the financial statements and schedules of a wholly owned subsidiary of the Company, which statements reflect total assets constituting 10% and 9% as of December 31, 2003 and 2002, respectively and net sales of 10%, 9% and 9% for each of the three years in the period ended December 31, 2003 of the related consolidated totals. Those financial statements and schedules were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to data included for such wholly owned subsidiary, is based solely on the report of other auditors.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Wellman, Inc. at December 31, 2003 and 2002, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, based on our audits and the report of other auditors, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.

As discussed in note 2 to the Consolidated Financial Statements, in 2002 the Company changed its method of accounting for goodwill and other intangible assets and for the impairment or disposal of long-lived assets. In 2001, the Company changed its method of accounting for derivative instruments and hedging activities.

(a) Based on an evaluation of the effectiveness of the Company’s disclosure controls and procedures as of December 31, 2003, both the Chief Executive Officer and the Chief Financial Officer of the Company concluded that there is a reasonable assurance that the Company’s disclosure controls and procedures, as defined in Rules 13a-14(c) and 15d-14(c) promulgated under the Securities Exchange Act of 1934, are effective.

(b) There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. There were no corrective actions with regard to significant deficiencies and material weaknesses.

“Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance and Other Information” in our Proxy Statement for the 2004 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission on or before April 29, 2004 are incorporated by reference.

“Compensation of Directors and Officers” in our Proxy Statement for the 2004 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission on or before April 29, 2004 is incorporated by reference. Such incorporation by reference shall not be deemed to specifically incorporate by reference the information referred to in Item 402(a)(8) of Regulation S-K.

“Introduction” and “Election of Directors” in our Proxy Statement for the 2004 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission on or before April 29, 2004 are incorporated by reference.

“Principal Accountant Fees and Services” in our Proxy Statement for the 2004 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission on or before April 29, 2004 are incorporated by reference.

The consolidated financial statements included in Item 8 are filed as part of this annual report.

The consolidated financial statement schedules included in Item 8 is filed as part of this annual report.

Pursuant to Item 601(b)(4)(iii) of Regulation S-K, we have not filed herewith any instrument with respect to long-term debt which does not exceed 10% of our consolidated assets. We hereby agree to furnish a copy of any such instrument to the Securities and Exchange Commission upon request.

(1) The Company filed a Form 8-K on October 23, 2003 for the purpose of disclosing its financial results for the third quarter of 2003.

(2) The Company filed a Form 8-K on November 4, 2003 to furnish a press release, announcing additional cost cutting actions and the postponement of the modification of its Pearl River assets to enable these assets to produce PET resins.

(3) The Company filed a Form 8-K on December 19, 2003 which announced that it was in the process of obtaining additional financing including the refinancing of its synthetic lease and other obligations that mature in the next year. A reconciliation of net earnings from continuing operations to net earnings before interest, taxes, depreciation and amortization, adjusted for certain items as defined in the Company’s Revolving Credit Facility, was attached as Exhibit 99.1.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 15, 2004.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities indicated on March 15, 2004.

68 EX-4.(A)(1) 3 b49002wiexv4wxayx1y.txt EX-4.(A)(1) CREDIT AGREEMENT DATED AS OF 2/10/2004 EXECUTION COPY EXHIBIT 4(a)(1) ================================================================================ CREDIT AGREEMENT AMONG WELLMAN, INC., AND THE OTHER BORROWERS NAMED HEREIN AS BORROWERS, WITH WELLMAN, INC., AS FUNDS ADMINISTRATOR, THE LENDERS SIGNATORY HERETO FROM TIME TO TIME, AS LENDERS, AND DEUTSCHE BANK TRUST COMPANY AMERICAS, AS ADMINISTRATIVE AGENT AND COLLATERAL AGENT DEUTSCHE BANK SECURITIES INC., AS LEAD ARRANGER AND BOOKRUNNER JP MORGAN CHASE BANK, AS SYNDICATION AGENT GENERAL ELECTRIC CAPITAL CORPORATION, LASALLE BUSINESS CREDIT, LLC, AS CO-DOCUMENTATION AGENTS DATED AS OF FEBRUARY 10, 2004 ================================================================================ TABLE OF CONTENTS ARTICLE 1 DEFINITIONS.................................................................................... 2 1.1 General Definitions............................................................................ 2 1.2 Accounting Terms and Determinations............................................................ 35 1.3 Other Interpretive Provisions.................................................................. 36 ARTICLE 2 LOANS.......................................................................................... 36 2.1 Commitments; Delivery of Notes................................................................. 36 2.2 Borrowing Mechanics; Interim Advances.......................................................... 37 2.3 Settlements Among the Agents and the Lenders................................................... 39 2.4 Mandatory Payment; Mandatory Reduction of Commitments.......................................... 41 2.5 Payments and Computations...................................................................... 42 2.6 Maintenance of Account......................................................................... 43 2.7 Statement of Account........................................................................... 44 2.8 Withholding and Other Taxes.................................................................... 44 2.9 Affected Lenders............................................................................... 47 2.10 Sharing of Payments............................................................................ 48 ARTICLE 3 LETTERS OF CREDIT.............................................................................. 49 3.1 Issuance of Letters of Credit.................................................................. 49 3.2 Procedure for Issuance......................................................................... 50 3.3 Terms of Letters of Credit..................................................................... 51 3.4 Lenders' Participation......................................................................... 51 3.5 Maturity of Drawings; Interest Thereon......................................................... 52 3.6 Payment of Amounts Drawn Under Letters of Credit; Funding of L/C Participations................ 52 3.7 Nature of Issuing Bank's Duties................................................................ 53 3.8 Obligations Absolute........................................................................... 54 ARTICLE 4 INTEREST, FEES AND EXPENSES.................................................................... 55 4.1 Interest on LIBOR Rate Loans................................................................... 55 4.2 Interest on Prime Rate Loans................................................................... 55 4.3 Notice of Continuation and Notice of Conversion................................................ 56 4.4 Interest After Event of Default................................................................ 58 4.5 Unused Line Fees............................................................................... 58 4.6 Letter of Credit Fees.......................................................................... 58 4.7 Reimbursement of Expenses...................................................................... 59 4.8 Authorization to Charge Borrowers' Accounts.................................................... 59 4.9 Indemnification in Certain Events.............................................................. 59 4.10 Calculations and Determinations................................................................ 60

i ARTICLE 5 CONDITIONS PRECEDENT........................................................................... 60 5.1 Conditions to Initial Credit Event............................................................. 60 5.2 Conditions to Each Credit Event................................................................ 62 ARTICLE 6 REPRESENTATIONS AND WARRANTIES................................................................. 62 6.1 Organization and Qualification................................................................. 62 6.2 Solvency....................................................................................... 63 6.3 Rights in Collateral; Priority of Liens........................................................ 63 6.4 Company Power and Authority.................................................................... 63 6.5 No Violation................................................................................... 63 6.6 Consents....................................................................................... 63 6.7 Financial Data................................................................................. 64 6.8 Locations of Officers, Records and Inventory................................................... 64 6.9 Fictitious Business Names...................................................................... 64 6.10 Subsidiaries................................................................................... 64 6.11 No Judgments or Litigation..................................................................... 65 6.12 Environmental Matters.......................................................................... 65 6.13 Labor Matters.................................................................................. 66 6.14 Compliance with Law............................................................................ 66 6.15 ERISA.......................................................................................... 66 6.16 Intellectual Property.......................................................................... 67 6.17 Licenses and Permits........................................................................... 67 6.18 Title to Property.............................................................................. 68 6.19 Governmental Regulations....................................................................... 68 6.20 Borrowers' Taxes and Tax Returns............................................................... 68 6.21 Status of Accounts............................................................................. 69 6.22 Material Contracts and Restrictions............................................................ 69 6.23 Affiliate Transactions......................................................................... 69 6.24 Accuracy and Completeness of Information....................................................... 69 6.25 Recording Taxes and Fees....................................................................... 70 6.26 No Adverse Change or Event..................................................................... 70 6.27 Perfection Certificates........................................................................ 70 6.28 Representations and Warranties in Documents.................................................... 70 6.29 Indebtedness................................................................................... 71 6.30 Transactions................................................................................... 71 6.31 Insurance...................................................................................... 71 6.32 Use of Proceeds; Margin Stock, Etc............................................................. 71 6.33 Anti-Terrorism Law............................................................................. 71 6.34 Accounts....................................................................................... 72 ARTICLE 7 AFFIRMATIVE COVENANTS.......................................................................... 73 7.1 Financial Information.......................................................................... 73 7.2 Certain Collateral............................................................................. 75 7.3 Corporate Existence and Compliance with Laws................................................... 75

ii 7.4 ERISA.......................................................................................... 76 7.5 Books and Records.............................................................................. 76 7.6 Collateral Records............................................................................. 77 7.7 Security Interests............................................................................. 77 7.8 Insurance; Casualty Loss....................................................................... 77 7.9 Borrower's Taxes............................................................................... 78 7.10 Environmental Matters.......................................................................... 79 7.11 Use of Proceeds................................................................................ 79 7.12 Fiscal Year.................................................................................... 79 7.13 Notification of Certain Events................................................................. 79 7.14 Intellectual Property.......................................................................... 80 7.15 Maintenance of Property........................................................................ 80 7.16 Further Assurances............................................................................. 80 7.17 Annual Meetings with Lenders................................................................... 80 7.18 Interest Rate Protection....................................................................... 81 7.19 Additional Security............................................................................ 81 ARTICLE 8 NEGATIVE COVENANTS............................................................................. 82 8.1 Minimum Consolidated Fixed Charge Coverage Ratio............................................... 82 8.2 Capital Expenditures........................................................................... 82 8.3 No Additional Indebtedness..................................................................... 83 8.4 No Liens; Judgments............................................................................ 85 8.5 No Sale of Assets.............................................................................. 87 8.6 No Corporate Changes........................................................................... 87 8.7 No Guaranties.................................................................................. 87 8.8 No Restricted Payments......................................................................... 88 8.9 No Investments................................................................................. 88 8.10 No Affiliate Transactions...................................................................... 90 8.11 Limitation on Transactions Under ERISA......................................................... 90 8.12 Material Amendments of Term Loan Facilities.................................................... 91 8.13 Additional Restrictive Covenants............................................................... 91 8.14 New Collateral Locations....................................................................... 91 8.15 New Accounts................................................................................... 91 8.16 No Excess Cash................................................................................. 91 8.17 Voluntary Prepayment of Debt................................................................... 92 8.18 Limitation on Preferred Stock of Subsidiaries.................................................. 92 8.19 Embargoed Person............................................................................... 92 8.20 No Accounting Changes.......................................................................... 92 8.21 Insurance Subsidiary........................................................................... 93 8.22 Anti-Terrorism Law; Anti-Money Laundering...................................................... 93 ARTICLE 9 EVENTS OF DEFAULT AND REMEDIES................................................................. 93 9.1 Events of Default.............................................................................. 93 9.2 Acceleration and Cash Collateralization........................................................ 95 9.3 Remedies....................................................................................... 96

iii 9.4 Actions in Concert............................................................................. 97 ARTICLE 10 THE AGENT...................................................................................... 97 10.1 Appointment of Agent........................................................................... 97 10.2 Nature of Duties of Agent...................................................................... 97 10.3 Lack of Reliance on the Agent.................................................................. 98 10.4 Certain Rights of the Agent.................................................................... 98 10.5 Reliance by the Agent.......................................................................... 98 10.6 Indemnification of Agent....................................................................... 99 10.7 The Agent in its Individual Capacity........................................................... 99 10.8 Holders of Notes............................................................................... 99 10.9 Successor Agent................................................................................ 99 10.10 Collateral Matters............................................................................. 100 10.11 Actions with Respect to Defaults............................................................... 102 10.12 Delivery of Information........................................................................ 102 10.13 Other Agents................................................................................... 102 ARTICLE 11 MISCELLANEOUS.................................................................................. 102 11.1 SUBMISSION TO JURISDICTION; WAIVERS............................................................ 102 11.2 JURY TRIAL..................................................................................... 103 11.3 GOVERNING LAW.................................................................................. 103 11.4 Delays; Partial Exercise of Remedies........................................................... 104 11.5 Notices........................................................................................ 104 11.6 Assignability.................................................................................. 104 11.7 Confidentiality................................................................................ 107 11.8 Indemnification................................................................................ 107 11.9 Entire Agreement; Successors and Assigns....................................................... 108 11.10 Amendments, Etc................................................................................ 108 11.11 Nonliability of Agent and Lenders.............................................................. 110 11.12 Counterparts................................................................................... 110 11.13 Effectiveness.................................................................................. 110 11.14 Severability................................................................................... 110 11.15 Headings Descriptive........................................................................... 110 11.16 Maximum Rate................................................................................... 110 11.17 Right of Setoff................................................................................ 111 11.18 Defaulting Lender.............................................................................. 111 11.19 Rights Cumulative.............................................................................. 113 11.20 Third Party Beneficiaries...................................................................... 113 11.21 Joint and Several Liability of Borrowers....................................................... 113 11.22 Appointment and Authorization of Funds Administrator........................................... 114

iv ANNEXES ANNEX I Lenders; Commitments; Lending Offices ANNEX II Closing Document List EXHIBITS EXHIBIT A Form of Assignment and Assumption Agreement EXHIBIT B Form of Note EXHIBIT C Form of Notice of Borrowing EXHIBIT C-1 Form of Notice of Continuation/Conversion EXHIBIT C-2 Form of Letter of Credit Request EXHIBIT D Form of Compliance Certificate EXHIBIT E Form of Borrowing Base Certificate SCHEDULES SCHEDULE A Closing Document List SCHEDULE B, PART 6.1 Jurisdictions Qualified to Do Business SCHEDULE B, PART 6.8 Principal Places of Business; Chief Executive Offices; Locations of Books and Records; Other Locations of Collateral SCHEDULE B, PART 6.10 Subsidiaries SCHEDULE B, PART 6.11 Outstanding Judgments; Orders; Waivers SCHEDULE B, PART 6.15 ERISA Matters SCHEDULE B, PART 6.18 Real Property SCHEDULE B, PART 6.20 Tax Matters SCHEDULE B, PART 6.23 Affiliate Transactions SCHEDULE B, PART 6.26 Certain Events SCHEDULE B, PART 6.29 Existing Indebtedness SCHEDULE B, PART 6.31 Insurance SCHEDULE B, PART 6.34 Bank Accounts SCHEDULE B, PART 8.4 Existing Liens SCHEDULE B, PART 8.9 Investments v CREDIT AGREEMENT This Credit Agreement is dated as of February 10, 2004 and entered into by and among Wellman, Inc., a Delaware corporation ("WELLMAN"), Prince, Inc., a Delaware corporation ("PRINCE"), Wellman of Mississippi, Inc., a Delaware corporation ("WELLMAN MISSISSIPPI"), Carpet Recycling of Georgia, Inc., a Georgia corporation ("CARPET"), ALG, Inc., a Delaware corporation ("ALG"), PermaClear East Incorporated, a Delaware corporation ("PERMACLEAR"), PTA Resources, LLC, a Delaware limited liability company ("PTA RESOURCES"), Wellman Resins, LLC, a Delaware limited liability company ("RESINS") and Fiber Industries, Inc., a Delaware corporation ("FIBER" and, together with Wellman, Prince, Wellman Mississippi, Carpet, ALG, PermaClear, PTA Resources and Resins, each individually referred to herein as a "BORROWER" and collectively as "BORROWERS" with Wellman acting in its capacity as Funds Administrator for the Borrowers), each of the Lenders from time to time party hereto and Deutsche Bank Trust Company Americas, acting in its capacity as administrative agent (the "ADMINISTRATIVE AGENT") and collateral agent ("COLLATERAL AGENT") for the Lenders hereunder (in its capacities as Administrative Agent and Collateral Agent, the "AGENT"). Capitalized terms used in this Credit Agreement shall have the meanings ascribed to them in SECTION 1.1. RECITALS WHEREAS, Borrowers have requested that Lenders extend credit facilities to Borrowers of up to one hundred seventy five million Dollars ($175,000,000) in the aggregate for the purpose of (a) refinancing certain indebtedness of Borrowers, (b) providing working capital financing for Borrowers and for general corporate purposes and (c) funding other purposes permitted hereunder; WHEREAS, Borrowers have agreed to secure all of their obligations under the credit facilities provided herein by granting to Agent, for the benefit of Agent and Lenders, a security interest in and lien upon all of their existing and after-acquired Accounts, Inventory, certain Investment Property and certain general intangibles; WHEREAS, KHL, Inc., a Delaware corporation ("KHL"), Warehouse Associates, Inc. USA, a South Carolina corporation ("Warehouse"), Finwell, Inc., a Delaware corporation ("FINWELL"), MRF, Inc., a Delaware corporation ("MRF"), Josdav Inc., a Delaware corporation ("JOSDAV"), FIISB, Inc., a Delaware corporation ("FIISB"), Wellman Exports, V.I. Inc., a United States Virgin Islands corporation, ("EXPORT") and MED Resins, Inc., a Delaware corporation ("MED RESINS" and together with KHL, Warehouse, Finwell, MRF, Josdav, Export, FIISB and certain other material Domestic Subsidiaries, the "SUBSIDIARY GUARANTORS"), are willing to (a) guarantee all of the Obligations of Borrowers to Agent and Lenders and (b) secure their respective guarantees by granting to Agent, for the benefit of Agent and Lenders, a security interest in and lien upon all of their respective existing and after-acquired Accounts, Inventory, certain Investment Property and certain general intangibles; and WHEREAS, based on the foregoing, Lenders are willing to make such credit facilities available to Borrowers subject to the terms and condition set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, and for other good and valuable consideration, the parties hereto agree as follows: ARTICLE 1 DEFINITIONS 1.1 GENERAL DEFINITIONS. As used herein, the following terms shall have the meanings herein specified: "ACCOUNTS" shall mean, with respect to any Person, all of such Person's accounts, whether existing now or in the future, including, without limitation, (a) all accounts receivable of such Person or other accounts of such Person created by, or arising from or related to the sales of goods or rendition of services made by such Person whether under its own name, under any of its trade names, or through any of its divisions, or in the name of any other Person, (b) all unpaid seller's rights of such Person (including rescission, replevin, reclamation and stoppage in transit) relating to the foregoing or arising therefrom, (c) all rights of such Person to any goods represented by any of the foregoing, including returned or repossessed goods, (d) all reserves and credit balances held by such Person with respect to any such accounts receivable or account debtors and (e) all Guarantees or collateral for any of the foregoing. "ACCUMULATED FUNDING DEFICIENCY" shall have the meaning ascribed to that term in Section 302 of ERISA. "ACT OF BANKRUPTCY" shall have the meaning ascribed to that term in the definition of "Eligible Accounts Receivable". "ACQUISITION" shall mean, with respect to any Credit Party, any transaction or series of related transactions resulting in (a) the acquisition by such Credit Party of all or substantially all of the assets of any other Person, or of any business or division of any other Person, (b) the acquisition by such Credit Party of all of the issued and outstanding Capital Securities of any other Person, including, without limitation, by means of a merger of such other Person with and into such Credit Party (or a Wholly-Owned Subsidiary of such or any Credit Party formed solely for the purpose of consummating such acquisition) or otherwise causing any Person (other than any Person that is at such time a Credit Party) to become a Wholly-Owned Subsidiary of such Credit Party, or (c) a merger, consolidation or any other combination of such Credit Party with any other Person (other than any Person that is at such time a Credit Party), PROVIDED that such Credit Party is the surviving Person. "ACQUISITION TARGET" shall mean a Person whose Capital Securities or assets, as the case may be, are acquired in an Acquisition permitted under SECTION 8.9(g). "ADJUSTED LIBOR RATE" shall mean, for any Interest Period, the rate obtained by dividing (a) the LIBOR Rate for such Interest Period by (b) a percentage equal to 1 MINUS the stated maximum rate (stated as a decimal) of all reserves, if any, required to be maintained against "Eurocurrency liabilities" as specified in Regulation D (or against any other category of liabilities which includes deposits by reference to which the interest rate on LIBOR Rate Loans 2 is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Lender to United States residents). "AFFILIATE" shall mean, with respect to any Person, any Person which directly or indirectly through one or more intermediaries Controls, is Controlled by, or is under common Control with, such Person, or any Person who is a director or officer of such Person or any Subsidiary of such Person. "AGENT" shall have the meaning ascribed to that term in the preamble to this Credit Agreement and shall include any successor Agent appointed pursuant to SECTION 10.9. "APPLICABLE LENDING OFFICE" shall mean, with respect to each Lender, such Lender's LIBOR Lending Office in the case of a LIBOR Rate Loan, and such Lender's Domestic Lending Office in the case of a Prime Rate Loan. "APPLICABLE MARGIN" shall mean, at any time with respect to any LIBOR Rate Loan, 2.50% per annum, and at any time with respect to any Prime Rate Loan, 1.25% per annum, PROVIDED that from and after any Start Date to and including any corresponding End Date, the Applicable Margin with respect to LIBOR Rate Loans and Prime Rate Loans, respectively, shall be a percentage per annum equal to the applicable percentage per annum set forth below opposite the Leverage Ratio as of the Test Date for such Start Date, the Borrower shall have the Leverage Ratio indicated below:
Applicable Margin Prime LIBOR LEVERAGE RATIO Rate Loan Rate Loans -------------- --------- ---------- Level I Greater than 6.50 to 1.00 1.25% 2.75% Level II Equal to or less than 6.50 to 1.00 but greater 1.25% 2.50% than 4.00 to 1.00 Level III Equal to or less than 4.00 to 1.00 but greater 1.00% 2.25% than 3.00 to 1.00 Level IV Equal to or less than 3.00 to 1.00 1.00% 2.00%
PROVIDED, that, notwithstanding the foregoing, if the Borrowers shall fail to deliver the financial statements that are required to be delivered pursuant to SECTION 7.1(b), from the date which is three Business Days after the date on which such financial statements were so required to be delivered until the date of actual delivery thereof, the Applicable Margin shall be a percentage per annum equal to the applicable percentage amount set forth above with respect to LEVEL I. If a Default or an Event of Default shall exist at the time any reduction in the Applicable Margin is to be implemented, that reduction shall be deferred until the date on which such Default or Event of Default is cured or waived. "APPLICABLE MARGIN PERIOD" shall mean each period which shall commence on the first Business Day of the month following the date on which the financial statements and compliance 3 certificate are delivered pursuant to SECTION 7.1(b) and which shall end on the earlier of (i) the date of actual delivery of the next financial statements and compliance certificate pursuant to SECTION 7.1(b), and (ii) the latest date on which the next financial statements and compliance certificate are required to be delivered pursuant to SECTION 7.1(b), PROVIDED that the first Applicable Margin Period shall commence on the first Business Day of the month following the delivery of the financial statements in respect of the Fiscal Quarter ending on March 31, 2005. "APPROVED SECURED DERIVATIVE TRANSACTION LIABILITIES" shall mean, with respect to any Lender, Liabilities of the Borrowers to such Lender or any Affiliate of such Lender in respect of one or more Derivative Transactions permitted pursuant to SECTION 8.3(b) which are secured by the Collateral, PROVIDED, that, prior to entering into any such Derivative Transaction, (a) Wellman shall have delivered written notice thereof to the Agent stating, subject to the following proviso, the maximum amount of the Borrowers' Liabilities in respect thereof which are to be secured by the Collateral and (b) such Lender shall have received written notice from the Agent confirming such amount; PROVIDED, further, that, in no event shall the aggregate Liabilities of the Borrowers in respect of Derivative Transactions with Lenders or any Affiliates of such Lenders which constitute "Secured Obligations" (as such term is defined in the Security Agreement) be greater than $15.0 million. Unless otherwise expressly provided to the contrary, the amount of the obligations of any Credit Party in respect of a Derivative Transaction shall be calculated by reference to the mark to market termination value of the relevant Derivative Transaction as of the last day of the preceding month or as of the day most recently requested by the Agent. "ASSET SALE" means any direct or indirect sale, issuance, conveyance, lease (other than operating leases and subleases and licenses and sublicenses entered into in the ordinary course of business), assignment, transfer or other disposition for value (including, without limitation, pursuant to any amalgamation, merger or consolidation or pursuant to any Sale and Leaseback Transaction) by any Borrower or by any Subsidiary to any Person other than any Borrower or any Subsidiary (any such transaction, a "DISPOSITION") of (i) any of the stock of any of the Borrowers or any Subsidiary (other than the issuance by Wellman of Capital Securities), (ii) substantially all of the assets of any division or line of business of any Borrower or of any Subsidiary, or (iii) any other assets of any Borrower or of any Subsidiary other than in the ordinary course of business (excluding transfers of assets under Tax Reduction Agreements). "ASSIGNMENT AND ASSUMPTION AGREEMENT" shall mean an assignment and assumption agreement substantially in the form of Exhibit A entered into by an assigning Lender and an assignee Lender, and which has been accepted by the Agent, in accordance with SECTION 11.6. "ATTRIBUTABLE INDEBTEDNESS" means, as of the date of determination thereof, without duplication (i) when used with respect to any Sale and Leaseback Transaction, as at the time of determination, the present value (discounted at a rate equivalent to the applicable Borrower's then-current weighted average cost of funds for borrowed money as at the time of determination, compounded on a semi-annual basis) of the total obligations of the lessee for rental payments during the remaining term of the lease included in any such Sale and Leaseback Transaction and (ii) the principal balance outstanding under any synthetic lease, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing product to which such Person is a party, 4 where such transaction is considered borrowed money indebtedness for tax purposes but is classified as an operating lease in accordance with GAAP. "AUDITORS" shall mean a nationally-recognized firm of independent certified public accountants selected by the Borrowers and satisfactory to the Agent in its sole discretion. For purposes of this Credit Agreement, the Borrowers' current firm of independent certified public accountants, Ernst & Young LLP, shall be deemed to be satisfactory to the Agent. "AVAILABILITY" means the result of (a) the lesser of (i) the Borrowing Base and (ii) the Line of Credit minus (b) Total Exposure. "AVERAGE NORMALIZED AVAILABILITY" means, as of any date of determination, the average Availability for the preceding 30 day period, PROVIDED that any payment made or received by Wellman or any Subsidiary outside of the ordinary course of business during such period (to the extent approved by the Agent) shall, for purposes of calculating such average, be deemed to have been paid on the first day of such period and consequently as having changed Availability on each day of such period. "BANKRUPTCY DEFAULT" shall mean a Default which is such by virtue of SECTION 9.1(e)(ii). "BORROWER" and "BORROWERS" shall have the meanings ascribed to such terms in the preamble to this Credit Agreement. "BORROWER'S ACCOUNT" and "BORROWERS' ACCOUNTS" shall have the meanings ascribed to such terms in SECTION 2.6. "BORROWER TAXES" shall have the meaning ascribed to that term in SECTION 6.20(b). "BORROWING" shall mean a borrowing consisting of Loans of the same Type advanced, continued or converted on the same day by the Lenders or the Agent. "BORROWING BASE" shall mean: (a) Subject to CLAUSE (b) below, at any time, the amount equal at such time to: (i) eighty-five percent (85%) of the Value of Eligible Accounts Receivable of each Borrower, PLUS (ii) the lesser of seventy percent (70%) of the Value of Eligible Inventory of each Borrower and eighty-five percent (85%) of the Net Orderly Liquidation Value of Eligible Inventory of each Borrower; PROVIDED that the amount calculated pursuant to this CLAUSE (ii) shall not exceed 50% of the Borrowing Base; MINUS 5 (iii) the net amount of all Approved Secured Derivative Transaction Liabilities (if greater than zero), MINUS (iv) the amount of any reserves established by the Agent pursuant to CLAUSE (b) below. (b) The Agent at any time in the exercise of its Permitted Discretion shall be entitled to (i) establish and increase or decrease reserves against Eligible Accounts Receivable and Eligible Inventory, (ii) impose additional restrictions (or eliminate any such additional restrictions) to the standards of eligibility set forth in the respective definitions of "Eligible Accounts Receivable" and "Eligible Inventory" and (iii) establish and increase or decrease a reserve in the amount of interest payable by the Borrowers hereunder, including interest on Loans and drawings under Letters of Credit, PROVIDED, that such reserve shall not at any time exceed the aggregate of accrued but unpaid interest at such time. Promptly after determining that any action under this CLAUSE (b) is necessary or desirable, the Agent shall use its reasonable best efforts to consult with the Funds Administrator as to the need to take such action, it being understood that Agent's failure to consult shall not in any way restrict the Agent from taking such action or impose any liability on the Agent as a consequence of such failure. "BORROWING BASE CERTIFICATE" shall have the meaning ascribed to that term in SECTION 7.1(f). "BUSINESS DAY" shall mean any day other than a Saturday, Sunday or legal holiday on which commercial banks in NEW YORK, NEW YORK, are generally closed. When used in connection with LIBOR Rate Loans, this definition will also exclude any day on which commercial banks are not open for dealing in Dollar deposits in the London (England, U.K.) interbank market. When used in connection with any Letter of Credit, this definition will also exclude any day on which the applicable Issuing Bank is not open for the general conduct of its business. "CAPITAL EXPENDITURES" shall mean, of any Person for any period, the sum of (a) all expenditures to the extent required to be included in the property, plant and equipment reflected in the consolidated balance sheet of such Person in accordance with GAAP PLUS, without duplication, (b) the entire principal amount of any debt (including obligations under capitalized leases) assumed or incurred by such Person in connection with any such expenditures, PROVIDED that Capital Expenditures of any Person shall not in any event include the purchase price paid in connection with an Acquisition permitted pursuant to SECTION 8.9(g) to the extent allocable to property, plant or equipment, but shall include the purchase price paid for any other Acquisition to the extent so allocable. For purposes of SECTION 8.2 only, expenditures from insurance proceeds and any other payments received (or, to the extent that an unaffiliated insurance company has confirmed in writing the coverage and amount of insurance proceeds to be paid, insurance payments expected to be received) on account of any Casualty Loss applied to the repair or replacement of the property affected by such Casualty Loss shall not constitute Capital Expenditures. For purposes of this Credit Agreement, amounts paid in respect of the Financing Transactions shall not be considered Capital Expenditures. 6 "CAPITAL SECURITY" shall mean, with respect to any Person, (a) any share of capital stock of or other unit of ownership interest in such Person and (b) any security convertible into, or any option, warrant or other right to acquire, any share of capital stock of or other unit of ownership interest in such Person. "CAPITALIZED LEASE OBLIGATION" means obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligations shall be the capitalized amount of such obligations determined in accordance with GAAP. "CASH EQUIVALENTS" means (i) marketable direct obligations issued or unconditionally guaranteed or insured by the United States government or issued by any agency or instrumentality thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof; (ii) marketable direct obligations issued by any state of the United States or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having the highest rating obtainable from either S&P or Moody's; (iii) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, rated at least A-1 by S&P or at least P-1 by Moody's; (iv) time deposits, certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof issued by any commercial bank organized under the laws of the United States or any state thereof or the District of Columbia that (a) is "adequately capitalized" (as defined in the regulations of its primary Federal banking regulator) and (b) has Tier 1 capital (as defined in such regulations) of not less than $100.0 million; (v) repurchase agreements with respect to, and which are fully secured by a perfected security interest in, obligations of a type described in clause (i) or clause (ii) above and are with any commercial bank described in clause (iv) above; (vi) with respect to a Foreign Subsidiary, obligations of foreign Persons (including foreign sovereign nations, political subdivisions or public instrumentalities thereof) correlative in type, maturity and rating to those set forth in clauses (i) through (v) above; (vii) shares of any money market mutual fund that has substantially all of its assets invested continuously in the types of investments referred to in clauses (i) and (vi) above; and (vii) demand deposit accounts maintained in the ordinary course of business. "CASUALTY LOSS" shall have the meaning ascribed to that term in SECTION 7.8. "CHANGE OF CONTROL" means the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of Wellman to any Person or group of related Persons for purposes of Section 13(d) of the Exchange Act (a "GROUP"), together with any Affiliates thereof (other than the Permitted Holder); (ii) the approval by the holders of Capital Securities of Wellman of any plan or proposal for the liquidation or dissolution of Wellman; 7 (iii) any Person or Group (other than the Permitted Holder) shall become the owner, directly or indirectly, beneficially or of record, of shares representing more than 50% of the voting stock of Wellman; (iv) the replacement of a majority of the Board of Directors of Wellman over a two-year period from the directors who constituted the Board of Directors of Wellman at the beginning of such period, and such replacement shall not have been approved by a vote of at least a majority of the Board of Directors of Wellman then still in office who either were members of such Board of Directors at the beginning of such period or whose election as a member of such Board of Directors was previously so approved; or (v) any Borrower ceases to be a Wholly-Owned Subsidiary of Wellman except as otherwise permitted hereunder. "CLOSING DATE" shall mean the date on which the initial Credit Event occurs. "CLOSING DOCUMENT LIST" shall mean the Closing Document List attached hereto as ANNEX II. "CODE" shall mean the Internal Revenue Code of 1986, as amended, and the regulations issued thereunder. "COLLATERAL" shall mean any and all assets and rights and interests in or to property of each Borrower and each of the other Credit Parties, whether real or personal, tangible or intangible, on which a Lien is granted or purported to be granted to Agent or any Lender pursuant to the Credit Documents. "COLLATERAL ACCESS AGREEMENTS" shall mean any landlord waivers, mortgagee waivers, bailee letters and any similar usage, access or acknowledgment agreements of any Person, such as a warehouseman, processor, lienholder or lessor, in possession of any assets of any Borrower or any other Credit Party, in each case in form and substance reasonably satisfactory to the Agent. "COLLATERAL DOCUMENTS" shall mean the Security Agreement, the Control Agreements, the Intercreditor Agreement and all other contracts, instruments and other documents now or hereafter executed and delivered in connection with this Credit Agreement, pursuant to which Liens are granted or are purported to be granted to the Agent in the Collateral for the benefit of some or all of the Agent, the Lenders and the Issuing Banks. "COMMITMENT" of any Lender shall, subject to SECTION 11.18(c)(ii), mean the amount set forth opposite such Lender's name on ANNEX I, under the heading "Commitment," as such amount may be reduced from time to time or terminated pursuant to the terms of this Credit Agreement. "COMMON STOCK" of any Person means any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or non-voting) 8 of, such Person's common stock, whether outstanding on the Closing Date or issued after the Closing Date, and includes, without limitation, all series and classes of such common stock. "CONCENTRATION ACCOUNT" shall have the meaning ascribed to that term in SECTION 2.5(b)(ii). "CONCENTRATION ACCOUNT BANK" shall have the meaning ascribed to that term in SECTION 2.5(b)(ii). "CONSOLIDATED CASH INTEREST EXPENSE" means, for any period, Consolidated Interest Expense, but excluding, however, interest income or interest expense not received or paid in cash, amortization of discount, expenses incurred on or before the Closing Date related to the Financing Transactions and deferred financing costs net of amounts received under Interest Rate Agreements. "CONSOLIDATED EBITDA" means, with respect to any Person, for any period, the sum (without duplication) of: (1) Consolidated Net Income; and (2) to the extent Consolidated Net Income has been reduced thereby: (a) all income taxes of such Person and its Subsidiaries paid or accrued in accordance with GAAP for such period (other than income taxes attributable to extraordinary gains or losses or taxes attributable to sales or dispositions outside the ordinary course of business); (b) Consolidated Interest Expense; (c) Consolidated Non-cash Charges; (d) certain non-recurring fees, cash charges and other cash expenses made or incurred in connection with the Transactions to the extent paid within ninety (90) days of the Closing Date; and (e) specifically identified legal expenses included in the projections provided by the Borrowers to the Agent and Lenders on or prior to the Closing Date to the extent approved by the Agent; in each case as determined on a consolidated basis for such Person and its Subsidiaries in accordance with GAAP. "CONSOLIDATED ENTITY" shall mean the Borrowers and each of their respective Subsidiaries which are such by virtue of CLAUSE (a) of the definition thereof. "CONSOLIDATED FIXED CHARGE COVERAGE RATIO" shall mean, as determined as of any date for any period ending on such date, the ratio of (a) Consolidated EBITDA for such period, to (b) the sum of the following, in each case of the Consolidated Entity, as determined without 9 duplication in accordance with GAAP for such period, (i) net cash payments with respect to income taxes, (ii) Consolidated Cash Interest Expense, (iii) Capital Expenditures (except for Capital Expenditures financed with the proceeds of Indebtedness other than the Loans, to the extent permitted pursuant to SECTION 8.2), iv) scheduled payments of principal on Indebtedness (other than repayments in the ordinary course of the Loans which do not permanently reduce the Total Commitments and other than Guarantee Obligations in respect of operating leases of any Borrower or its Subsidiaries), and (v) Restricted Payments paid in cash for such period except to the extent such payments reduce Consolidated EBITDA for such period. "CONSOLIDATED INTEREST EXPENSE" shall mean the aggregate consolidated interest expense (net of consolidated interest income) of the Consolidated Entity in respect of Indebtedness determined on a consolidated basis in accordance with GAAP, including amortization of original issue discount on any Indebtedness and of all fees payable in connection with the incurrence of such Indebtedness, including, without limitation, aggregate fees payable in respect of Letters of Credit pursuant to SECTION 4.6 (in each case, to the extent included in interest expense), the interest portion of any deferred payment obligation and the interest component of any Capital Lease Obligations. "CONSOLIDATED NET INCOME" means, with respect to any Person, for any period, the aggregate of the net income (or loss) of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; PROVIDED that (a) the net income of any other Person in which such Person or any of its Subsidiaries has an interest (which interest does not cause the net income of such other Person to be consolidated with the net income of such Person and its Subsidiaries in accordance with GAAP) shall be included only to the extent of the amount of dividends or distributions actually paid to such Person or such Subsidiary by such other Person during such period; (b) the net income of any Subsidiary of such Person that is subject to any Payment Restriction shall be excluded to the extent such Payment Restriction would prevent the payment of an amount that otherwise could have been paid to such Person or to a Subsidiary of such Person not subject to any Payment Restriction; and (c) there shall be excluded from Consolidated Net Income: (i) all gains and losses realized on any Asset Sale, net of related tax costs or tax benefits, as the case may be, or abandonments or reserves relating thereto, (ii) all gains and losses realized on the purchase or other acquisition by such Person or any of its Subsidiaries of any Securities of such Person or any of its Subsidiaries, (iii) all extraordinary gains and losses, (iv) all deferred financing costs written off or premiums paid in connection with the early extinguishment of any Indebtedness, in each case, incurred by Wellman or any of its Subsidiaries in connection with the Transactions, 10 (v) income or loss attributable to discontinued operations (including, without limitation, operations disposed of during such period whether or not such operations were classified as discontinued), (vi) in the case of a successor to the referent Person by consolidation or merger or as transferee of the referent Person's assets, any earnings of such successor prior to such consolidation, merger or transfer of assets, and (vii) the cumulative effect of a change in accounting principles. "CONSOLIDATED NON-CASH CHARGES" means, with respect to any Person, for any period, the aggregate depreciation, amortization and other non-cash expenses of such Person and its Subsidiaries reducing Consolidated Net Income of such Person and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP (excluding any such charges constituting an extraordinary item or loss or any such charge to the extent that it requires an accrual of or a reserve for cash charges for any future period). "CONTINUATION" shall have the meaning ascribed to that term in SECTION 4.3. "CONTROL" shall mean, with respect to any Person, the possession, directly or indirectly, of the power to (a) vote ten percent (10%) or more of the securities having ordinary voting power for the election of directors or managers of such Person or (b) direct or cause the direction of management and policies of a business, whether through the ownership of voting securities, by contract or otherwise either alone or in conjunction with others or any group. The words "CONTROLLING" and "CONTROLLED" have correlative meanings. "CONTROL AGREEMENT" shall mean an agreement in writing, in form and substance reasonably satisfactory to Agent, by and among Agent, the applicable Credit Party and any financial institution, securities intermediary, commodity intermediary or other Person who has custody, control or possession of any receipts on Accounts, deposits or investment property of such Credit Party, pursuant to which such financial institution, securities intermediary, commodity intermediary or such other Person acknowledges that such financial institution, securities intermediary, commodity intermediary or other Person has custody, control or possession of such receipts, deposits or investment property on behalf of Agent, that it will comply with entitlement orders originated by Agent with respect to such receipts, deposits or investment property, or other instructions of Agent, or (as the case may be) apply any amounts distributed on account of such assets as directed by Agent, in each case, without the further consent of such Credit Party and including such other terms and conditions as Agent may reasonably require. "CONVERT," "CONVERSION" and "CONVERTED" each shall refer to a conversion of Loans of one Type into Loans of another Type pursuant to SECTION 4.3. "COVERED TAXES" shall have the meaning ascribed to that term in SECTION 2.8(a). "CREDIT AGREEMENT" shall mean this credit agreement, dated as of the Closing Date, as the same may be modified, amended, extended, restated, amended and restated or supplemented from time to time. 11 "CREDIT DOCUMENTS" shall mean, collectively, this Credit Agreement, the Notes, Letters of Credit, each L/C Application, each of the Collateral Documents, each Subsidiary Guaranty, the Fee Letter and all other documents, agreements, instruments, opinions and certificates now or hereafter executed and delivered in connection herewith or therewith, as the same may be modified, amended, extended, restated, amended and restated or supplemented from time to time. "CREDIT EVENT" shall mean (a) the making of a Loan and/or (b) the issuance of any Letter of Credit. "CREDIT PARTY" OR "CREDIT PARTIES" shall mean, individually or collectively as the context requires, each Borrower and each other Subsidiary party to the Credit Documents. "DBTCo LOAN ACCOUNT" shall have the meaning ascribed to that term in SECTION 2.5(c). "DBTCo." shall mean Deutsche Bank Trust Company Americas, a New York banking corporation, acting in its individual capacity, and its successors and assigns. "DEFAULT" shall mean an event, condition or default which with the giving of notice, the passage of time or both would (if not cured, waived or otherwise remedied during such time) be an Event of Default. "DEFAULTING LENDER" shall have the meaning ascribed to that term in SECTION 11.18(b). "DEPOSITORY ACCOUNTS" shall have the meaning ascribed to that term in SECTION 2.5(b)(i). "DERIVATIVE TRANSACTION" shall mean (a) an interest-rate transaction, including an interest-rate swap, basis swap, forward rate agreement, interest rate option (including a cap, collar, and floor), and any other instrument linked to interest rates that gives rise to similar credit risks (including when-issued securities and forward deposits accepted), (b) an exchange-rate transaction (other than a spot-rate exchange), including a cross-currency interest-rate swap, a forward foreign-exchange contract, a currency option, and any other instrument linked to exchange rates that gives rise to similar credit risks, (c) an equity derivative transaction that gives rise to a contingent cash payment obligation (other than as a result of an event which would constitute a Change of Control), including an equity-linked swap, an equity-linked option, a forward equity-linked contract, and any other instrument linked to equities that gives rise to similar credit risk and (d) a commodity (including precious metal) derivative transaction, including a commodity-linked swap, a commodity-linked option, a forward commodity-linked contract, and any other instrument linked to commodities that gives rise to similar credit risks. "DISQUALIFIED CAPITAL SECURITIES" means any Capital Securities which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event (other than an event which would constitute a Change of Control), (i) matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the sole option of the holder thereof, in whole or in part, on a date on or prior to one year after the Expiration Date, or (ii) is convertible into or exchangeable for (whether at the option of the issuer or the holder thereof) (a) debt securities or (b) any Capital Securities referred 12 to in clause (i) above, in each case at any time on a date on or prior to one year after the Expiration Date; PROVIDED that only the portion of Capital Securities which so matures or is mandatorily redeemable, is so convertible or exchangeable or is so redeemable at the option of the holder thereof prior to such final Maturity Date shall be deemed to be Disqualified Capital Securities. "DOLLARS" and the sign "$" shall each mean the lawful money of the United States of America. "DOMESTIC LENDING OFFICE" shall mean, with respect to any Lender, the office of such Lender specified as its "Domestic Lending Office" opposite its name on ANNEX II, as such annex may be amended from time to time, or in the relevant Assignment and Assumption Agreement. "DOMESTIC SECURITY AGREEMENT" shall mean a security agreement in substantially the form of the Security Agreement executed as of the Closing Date, as hereafter amended, supplemented or otherwise modified from time to time in accordance with its terms. "DOMESTIC SUBSIDIARY" shall mean any Subsidiary of the Borrowers that is not a Foreign Subsidiary. "DOMESTIC SUBSIDIARY GUARANTY" means a guaranty in substantially the form of the Guaranty executed as of the Closing Date, as hereafter amended, supplemented or otherwise modified from time to time in accordance with its terms. "EFFECTIVE DATE" shall mean, as applied to an L/C Notice of Drawing, the Business Day on which the Agent receives such L/C Notice of Drawing if such notice is received by it not later than 11:00 A.M. (New York City time) on such day and, if received after such time, the next succeeding Business Day. "ELIGIBLE ACCOUNTS RECEIVABLE" shall mean Accounts of a Borrower payable in Dollars. In determining the amount to be so included, the face amount of such Accounts shall exclude any such Accounts that the Agent determines in its Permitted Discretion to be ineligible pursuant to the definition of the term "Borrowing Base" set forth herein. Unless otherwise approved in writing by the Agent, no Account of any Borrower shall be deemed to be an Eligible Account Receivable if: (a) it arises out of a sale made by such Borrower to an Affiliate of such or any other Borrower; or (b) the Account is unpaid more than (i) 60 days after the original payment due date and/or (ii) 90 days after the original invoice date unless such Account is subject to credit insurance issued by an insurer and on terms and in an amount reasonably acceptable to Agent or is guaranteed or supported by a guarantor or support provider reasonably acceptable to the Agent on terms and conditions acceptable to the Agent; or (c) it is from the same account debtor (or any Affiliate thereof) and fifty percent (50%) or more, in face amount, of all Accounts from such account debtor (and any Affiliate thereof) are ineligible pursuant to CLAUSE (b) above; or 13 (d) the Account, when aggregated with all other Accounts of such account debtor (and any Affiliate thereof), exceeds fifteen percent (15%) in face value of all Accounts of the Borrowers combined then outstanding, to the extent of such excess, PROVIDED that Accounts insured in a manner satisfactory to the Agent, guaranteed by a guarantor reasonably acceptable to the Agent or supported or secured by an irrevocable letter of credit in form and substance satisfactory to the Agent, issued by a financial institution satisfactory to the Agent, in each case, duly transferred, assigned or pledged to the Agent (together with sufficient documentation to permit direct draws by or direct payments to the Agent), shall be excluded for the purposes of such calculation to the extent of the face amount of such letter of credit or, in the case of insurance or guarantees, as determined by the Agent in its sole discretion; or (e) (i) the account debtor is also a creditor of such Borrower, (ii) the account debtor has disputed its liability on, or the account debtor has made any claim with respect to, such Account or any other Account due from such account debtor to such Borrower, which has not been resolved or (iii) the Account otherwise is or may reasonably be expected to become subject to any right of setoff by the account debtor; PROVIDED that any Account deemed ineligible pursuant to this CLAUSE (e) shall only be ineligible to the extent of the amount owed by such Borrower to the account debtor, the amount of such dispute or claim, or the amount of such setoff, as applicable; or (f) the account debtor has commenced a voluntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or made an assignment for the benefit of creditors, or if a decree or order for relief has been entered by a court having jurisdiction over the account debtor in an involuntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or if any other petition or other application for relief under the federal bankruptcy laws has been filed by or against the account debtor, or if the account debtor has filed a certificate of dissolution under applicable state law or shall be liquidated, dissolved or wound-up, or shall authorize or commence any action or proceeding for dissolution, winding-up or liquidation, or if the account debtor has failed, suspended business, declared itself to be insolvent, is generally not paying its debts as they become due or has consented to or suffered a receiver, trustee, liquidator or custodian to be appointed for it or for all or a significant portion of its assets or affairs (any such act or event an "ACT OF BANKRUPTCY"), unless the payment of Accounts from such account debtor is secured by assets of, or guaranteed by, in either case in a manner satisfactory to the Agent, a Person with respect to which an Act of Bankruptcy has not occurred and that is acceptable to the Agent or, if the Account from such account debtor arises subsequent to a decree or order for relief with respect to such account debtor under the federal bankruptcy laws, as now or hereafter in effect, the Agent shall have determined that the timely payment and collection of such Account will not be impaired; or (g) the sale is to an account debtor outside of the United States, Canada or Puerto Rico, unless (i) such account debtor has supplied such Borrower with an irrevocable letter of credit in form and substance reasonably satisfactory to the Agent, issued by a financial institution satisfactory to the Agent and which has been duly transferred to the Agent or (ii) such Account is subject to credit insurance issued by an insurer and on terms and in an amount reasonably acceptable to Agent or is guaranteed or supported by a guarantor or support provider reasonably acceptable to the Agent on terms and conditions acceptable to the Agent; or 14 (h) the sale to the account debtor is on a bill-and-hold, guarantied sale, sale-and-return, sale on approval or consignment basis or made pursuant to any other written agreement providing for repurchase or return; or (i) the account debtor is the United States of America, any State or any political subdivision, department, agency or instrumentality thereof, unless such Borrower duly assigns its rights to payment of such Account to the Agent pursuant to the Assignment of Claims Act of 1940 (31 U.S.C. Section 3727 et seq.) or complies with any similar State or local law as Agent shall require; or (j) the goods giving rise to such Account have not been shipped and delivered to and accepted by the account debtor (with FOB plant shipments deemed to be accepted by the applicable account debtor until Wellman or any Subsidiary has been notified of non-acceptance) or the services giving rise to such Account have not been performed by such Borrower and accepted by the account debtor or the Account otherwise does not represent a final sale; or (k) the Agent does not have a valid and perfected first priority security interest in such Account or the Account does not otherwise conform in all material respects to the representations and warranties contained in the Credit Agreement, any Security Agreement or any of the other Collateral Documents; or (l) the Accounts are subject to any adverse security deposit, progress payment or other similar advance made by or for the benefit of the applicable account debtor to the extent of such security deposit, progress payment or other similar advance; or (m) the Accounts are evidenced by or arise under any instrument or chattel paper unless such instruments or chattel paper have been pledged to Agent containing such endorsement as Agent shall reasonably require; or (n) the account debtor has a presence in a State requiring the filing of Notice of Business Activities Report or similar report in order to permit such Borrower to seek judicial enforcement in such State of payment of such Account unless such Borrower has qualified to do business in such State or has filed a Notice of Business Activities Report or equivalent report for the then current year or such failure to file and inability to seek judicial enforcement is capable of being remedied without any material delay or material cost; or (o) the Account consists of progress billings (such that the obligation of the account debtor with respect to such Account is conditioned upon such Borrower's satisfactory completion of any further performance under the agreement giving rise thereto). "ELIGIBLE INVENTORY" shall mean Inventory of a Borrower that consists of raw materials, work in process and finished goods. In determining the amount to be so included, the amount of such Inventory shall exclude any Inventory that the Agent determines in its Permitted Discretion to be ineligible pursuant to the definition of the term "Borrowing Base" set forth herein. Unless otherwise approved in writing by the Agent, no Inventory of any Borrower shall be deemed Eligible Inventory if: 15 (a) the Inventory has been returned or rejected by such Borrower's customers; or (b) the Inventory is not owned solely by such Borrower or such Borrower does not have good, valid and marketable title thereto; or (c) the Inventory is not stored on property that is either (i) owned or leased by such or any other Borrower or (ii) owned or leased by a warehouseman that has contracted with such Borrower to store Inventory on such warehouseman's property (PROVIDED that, with respect to Inventory of any Borrower, (A) stored on property leased by a Borrower, such Borrower shall have delivered to the Agent a Collateral Access Agreement executed by the lessor of such property, (B) stored on property owned or leased by a warehouseman, such Borrower shall have delivered to the Agent a Collateral Access Agreement executed by such warehouseman) and (C) stored on property owned by such Borrower which is subject to a mortgage in favor of any Person other than Agent or any Lender, such Borrower shall have delivered to the Agent a Collateral Access Agreement executed by the mortgagee of such property or an intercreditor agreement in form and substance reasonably satisfactory to the Agent; provided that in the case of CLAUSE (A) and (B), the Agent may reserve an amount equal to ninety (90) days rent from the Borrowing Base to the extent that a Collateral Access Agreement is not delivered with respect to such property; or (d) the Inventory is not subject to a valid and perfected first priority security interest in favor of the Agent except, with respect to Eligible Inventory stored at sites described in CLAUSE (c)(ii) of this sentence, for Liens for normal and customary charges; or (e) the Inventory is obsolete or slow moving (in each case as determined by the Agent) or the Inventory does not otherwise conform in all material respects to the representations and warranties contained in the Credit Agreement, the Security Agreement or any of the other Collateral Documents; or (f) the Inventory was not manufactured in accordance with or does not meet all standards imposed by all Requirements of Law or by any government agency, or department or division thereof, having regulatory authority over such goods or their manufacture, use or sale; or (g) the Inventory consists of spare parts for equipment, packaging and shipping materials or supplies used or consumed in a Borrower's business; or (h) the Inventory is purchased or sold on consignment unless a consignment agreement in form and substance satisfactory to the Agent is in place and appropriate financing statements have been filed; or (i) the Inventory is located outside the United States of America or Canada (PROVIDED that, with respect to Inventory in Canada, Agent has determined that it has a valid and perfected first priority security interest in such Inventory); or (j) the Inventory is subject to a license agreement or other arrangement with a third party which, in Agent's determination, restricts the ability of Agent to exercise its rights 16 under any of the Credit Documents with respect to such Inventory unless such third party has entered into an agreement in form and substance reasonably satisfactory to Agent permitting Agent to exercise its rights with respect to such Inventory or Agent has otherwise agreed to allow such Inventory to be eligible in Agent's Permitted Discretion; or (k) the Inventory consists of work in process not classified as amorphous resin. "END DATE" shall mean, for any Applicable Margin Period, the last day of such Applicable Margin Period. "ENVIRONMENT" means ambient air, surface water and groundwater (including potable water, navigable water and wetlands), the land surface or subsurface strata, natural resources, the workplace or as otherwise defined in any Environmental Law. "ENVIRONMENTAL CLAIM" means any accusation, allegation, notice of violation, claim, demand, abatement order or other order or direction by any Governmental Authority or any Person for any response or corrective action, any damage, including, without limitation, personal injury (including sickness, disease or death), tangible or intangible property damage, investigation, remediation or other cost recovery, contribution, indemnity, consequential damages, damage to the environment, nuisance, pollution, contamination or other adverse effects on the Environment, or for fines or penalties, in each case arising under any Environmental Law, including without limitation, relating to, resulting from or in connection with Hazardous Materials and relating to any Borrower, any of its Subsidiaries or any of their respective properties or predecessors in interest. "ENVIRONMENTAL LAWS" means the common law and all United States statutes, ordinances, orders, rules, regulations, judgments or decrees relating to (i) pollution or protection of the Environment and public health and welfare, including, without limitation, those relating to the Release or threatened Release of Hazardous Materials, (ii) the generation, use, storage, transportation or disposal of Hazardous Materials, or (iii) occupational safety and health, including, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (42 U.S.C. Section 9601 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. Section 1801 et seq.), the Resource Conservation and Recovery Act of 1976 (42 U.S.C. Section 6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. Section 136 et seq.), the Occupational Safety and Health Act (29 U.S.C. Section 651 et seq.) and the Emergency Planning and Community Right-to-Know Act (42 U.S.C. Section 11001 et seq.), each as amended or supplemented, and regulations promulgated pursuant thereto, each as in effect as of the date of determination. When used with reference to Foreign Subsidiaries, "Environmental Laws" shall mean the statutes, ordinances, orders, rules, regulations, judgments or decrees of the applicable foreign jurisdictions relating to the categories described in CLAUSES (i), (ii) and (iii) above. "ENVIRONMENTAL LIEN" means a Lien in favor of a Governmental Authority or other Person for any liability, damages, costs or any other obligation under an Environmental Law. 17 "EQUIPMENT" shall mean, with respect to any Person, all of such Person's equipment, including machinery, equipment, office equipment and supplies, computers and related equipment, furniture, furnishings, tools, tooling, jigs, dies, fixtures, manufacturing implements, fork lifts, trucks, trailers, motor vehicles, and other equipment. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, and all final or temporary regulations promulgated thereunder and published, generally applicable rulings entitled to precedential effect. "ERISA AFFILIATE" shall mean any Person required at any relevant time to be aggregated with any Borrower or any Subsidiary of any Borrower under Sections 414(b), (c), (m) or (o) of the Code. "EVENT OF DEFAULT" shall have the meaning ascribed to that term in ARTICLE 9 of this Credit Agreement. "EXPENSES" shall mean all present and future reasonable expenses incurred by or on behalf of the Agent, in its capacity as Agent, in connection with the Credit Agreement, any other Credit Document or otherwise, whether incurred heretofore or hereafter, which expenses shall include, without being limited to, the cost of record searches, the reasonable fees and expenses of attorneys (including the allocated cost of internal counsel) and paralegals, all reasonable costs and expenses incurred by the Agent in opening bank accounts and lockboxes, depositing checks, receiving and transferring funds, and any reasonable charges imposed on the Agent due to insufficient funds of deposited checks and the Agent's standard fee relating thereto, collateral examination fees and expenses, reasonable fees and expenses of accountants, appraisers, field examiners or other consultants, experts or advisors employed or retained by the Agent, reasonable fees and expenses incurred by the Agent in connection with the initial assignments of the Loans, fees and taxes relative to the filing of financing statements, costs of preparing and recording any other Collateral Documents, all expenses and costs referred to in ARTICLE 4 of this Credit Agreement, all other reasonable fees and expenses required to be paid pursuant to the Fee Letter and all reasonable fees and expenses incurred in connection with releasing Collateral and the amendment or termination of any of the Credit Documents. "EXPIRATION DATE" shall mean the earlier of (a) February 10, 2009 and (b) the date of the termination or reduction to zero (0) of the Commitments. "EXPOSURE" shall have the meaning ascribed to that term in the definition of "Majority Lenders". "FEDERAL FUNDS RATE" shall mean, for any period, a fluctuating interest rate per annum equal, for each day during such period, to the weighted average of the rates on overnight Federal Funds transactions with members of the Federal Reserve System arranged by Federal Funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three Federal Funds brokers of recognized standing selected by it. 18 "FEE LETTER" shall mean that certain letter agreement dated January __, 2004 between the Agent and Wellman and providing for the payment of certain fees in connection with this Credit Agreement. "FEES" shall mean the Unused Line Fee, the Letter of Credit Fees and the Issuing Bank Fees, and, without duplication, all fees payable by the Borrowers under the Fee Letter. "FINANCIAL STATEMENTS" shall mean the consolidated balance sheets, statements of income, cash flows and shareholder's equity of the Consolidated Entity for the period specified. "FINANCING TRANSACTIONS" means, collectively, (i) the repayment of Wellman's outstanding amounts under its existing $275 million revolving credit facility and the termination of such facility, (ii) the repayment and retirement of Wellman's (a) $35 million in outstanding indebtedness to The Metropolitan Life Insurance Company due in November 2004, (b) $40 million in outstanding indebtedness to John Hancock Life Insurance Company and others due in December 2011 and (c) $25 million in outstanding indebtedness to John Hancock Life Insurance Company and others due in September 2009, (iii) the repayment and retirement of Wellman's $150 million synthetic lease facility of PermaClear maturing in July 2004, (iv) the repayment of all outstanding amounts under and the termination of Wellman's existing accounts receivables facility, (v) the prepayment of a raw material contract for no more than $81 million and the purchase of the stock of the entity holding such raw material contract for not more than $5 million, and (vi) the termination of certain swap agreements of approximately $12.0 million (the agreements, contracts, facilities or arrangements set forth in clauses (i) through (vi) above, each a "REFINANCED FACILITY"). "FIRST LIEN CREDIT AGREEMENT" shall have the meaning given such term in the definition of First Lien Credit Facility. "FIRST LIEN CREDIT FACILITY" means the term loan credit agreement providing for $185.0 million in term loans (the "FIRST LIEN CREDIT AGREEMENT") to be entered into on the date hereof, between Wellman, the lenders party thereto in their capacities as lenders thereunder and DBTCA, as administrative agent, together with the related documents thereto (including, without limitation, any guarantee, collateral and security agreements and/or documents), in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented or otherwise modified from time to time, including any agreement extending the maturity of, refinancing, replacing or otherwise restructuring (including adding Subsidiaries of Wellman as additional guarantors thereunder) all or any portion of the Indebtedness under such agreement or any successor or replacement agreement and whether by the same or any other agent, lender or group of lenders. "FIRST LIEN CREDIT FACILITY AGENT" shall mean the Administrative Agent (as defined in the First Lien Credit Agreement). "FIRST LIEN CREDIT FACILITY COLLATERAL" means the collateral securing Wellman's obligations under the First Lien Credit Facility. "FISCAL QUARTER" shall mean any of the quarterly accounting periods of Borrowers, ending on March 31, June 30, September 30 and December 31 of each year. 19 "FISCAL YEAR" shall mean any of the annual accounting periods of Borrowers ending on December 31 of each year. "FIXED RATE DIFFERENCE" shall have the meaning given such term in SECTION 7.18. "FOREIGN LENDER" shall mean any Lender or Issuing Bank organized under the laws of a jurisdiction outside of the United States. "FOREIGN SUBSIDIARY" shall mean each Subsidiary of a Borrower that is incorporated or organized under the laws of and conducts substantially all of its business in any jurisdictions other than the United States, any State thereof, the United States Virgin Islands or Puerto Rico. "FUNDING BANK" shall have the meaning ascribed to that term in SECTION 4.9. "FUNDS ADMINISTRATOR" shall mean Wellman in its capacity as borrowing agent and funds administrator for the Borrowers hereunder and under each of the other Credit Documents. "GAAP" shall mean generally accepted accounting principles in the United States as in effect from time to time. "GOVERNING DOCUMENTS" shall mean, as to any Person, the certificate or articles of incorporation and by-laws or other organizational or governing documents of such Person. "GOVERNMENTAL AUTHORITY" shall mean 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. "GUARANTY" of any Person means any liability, contingent or otherwise, of such Person (other than an endorsement for collection or deposit and standard contractual indemnities, in each case, in the ordinary course of business) (a) to pay any liability of any other Person or to otherwise protect, or having the practical effect of protecting, the holder of any such Liability against loss (whether such obligation arises by virtue of such Person being a partner of a partnership or participant in a joint venture or by agreement to pay, to keep well, to maintain solvency, assets, level of income or other financial condition, to purchase assets, goods, securities or services or to take or pay, or otherwise) or (b) incurred in connection with the issuance by a third Person of a Guaranty of any liability of any other Person (whether such obligation arises by agreement to reimburse or indemnify such third Person or otherwise). The word "Guarantee" when used as a verb has the correlative meaning. "GUARANTEE OBLIGATIONS" shall mean, as to any Person, without duplication, any direct or indirect obligation of such Person guaranteeing or intended to guarantee any Indebtedness, dividend, Capitalized Lease Obligation or operating lease, any other lease or other obligation ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent: (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor; (ii) to advance or supply funds (a) for the purchase or payment of any such primary obligation, or (b) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor; (iii) to 20 purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation; or (iv) otherwise to assure or hold harmless the owner of such primary obligation against loss in respect thereof, PROVIDED, however, that the term Guarantee Obligations shall not include endorsements of instruments for deposit or collection in the ordinary course of business or guarantees in respect of trade payables of Wellman and its Subsidiaries. The amount of any Guarantee Obligation at any time shall be deemed to be an amount equal to the lesser at such time of (x) the stated or determinable amount of the primary obligation in respect of which such Guarantee Obligation is made or (y) the maximum amount for which such Person may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation; or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof; PROVIDED, however, as to any Derivative Transaction, such amount shall be calculated by reference to the mark to market termination value of the relevant Derivative Transaction as of the last day of the preceding month or as of the day most recently requested by the Agent. "GUARDWELL" shall mean Guardwell Insurance Company, a Vermont corporation. "HAZARDOUS MATERIALS" means any pollutant, contaminant, waste, chemical, material or substance or constituent, including without limitation, any petroleum or petroleum products, radioactive materials, asbestos in any form that is or could become friable and require abatement, transformers or other equipment that contain dielectric fluid containing polychlorinated biphenyls, and radon gas, subject to regulation or which could give rise to liability under Environmental Laws. "HIGHEST LAWFUL RATE" shall mean, at any time when any Obligations shall be outstanding hereunder, the maximum nonusurious interest rate, that then may be contracted for, taken, reserved, charged or received on the Obligations owing under this Credit Agreement or any of the other Credit Documents, under (a) the laws of the State of New York (or the law of any other jurisdiction whose laws may be mandatorily applicable notwithstanding other provisions of this Credit Agreement and the other Credit Documents) or (b) if higher, applicable federal laws, in any case after taking into account, to the extent permitted by applicable law, any and all relevant payments or charges under this Credit Agreement and any other Credit Documents executed in connection herewith, and any available exemptions, exceptions and exclusions. "IMMATERIAL SUBSIDIARY" shall mean as of any date of determination, any Subsidiary of a Borrower that, as of the most recently ended fiscal quarter, has gross assets of less than $5.0 million. "INDEBTEDNESS" means, with respect to any Person, without duplication (i) all indebtedness, obligations and liabilities of such Person for borrowed money, (ii) that portion of obligations with respect to Capitalized Lease Obligations that is properly classified as a liability on a balance sheet of such Person in conformity with GAAP, 21 (iii) notes payable and drafts accepted representing extensions of credit, whether or not representing obligations for borrowed money, of such Person, (iv) any indebtedness, obligation or liability of such Person owed for all or any part of the deferred purchase price of property or services, conditional sale obligations and obligations under title retention agreements (excluding any such obligations incurred under ERISA), which purchase price is (a) due more than six months (or a longer period of up to one year, if such terms are available from suppliers in the ordinary course of business) from the date of incurrence of the obligation in respect thereof or (b) evidenced by a note or similar written instrument, (v) all indebtedness, obligations and liabilities (other than those constituting an operating lease) secured by any Lien on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of that Person, (vi) Guarantee Obligations of such Person, (vii) guarantees and other contingent obligations in respect of indebtedness referred to in clauses (i) through (v) above, (viii) all Disqualified Capital Securities issued by such Person with the amount of Indebtedness represented by such Disqualified Capital Securities being equal to the greater of its voluntary or involuntary liquidation preference and its maximum fixed repurchase price, but excluding accrued dividends, if any, (ix) Attributable Indebtedness of such Person; and (x) the mark to market termination value, if any, of all Derivative Transactions to the extent such transactions should be reflected on the balance sheet of such Person. For purposes hereof, the "maximum fixed repurchase price" of any Disqualified Capital Securities which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Securities as if such Disqualified Capital Securities were purchased on any date on which Indebtedness shall be required to be determined pursuant to this Credit Agreement, and if such price is based upon, or measured by, the fair market value of such Disqualified Capital Securities, such fair market value to be determined reasonably and in good faith by the Board of Directors of the issuer of such Disqualified Capital Securities. Notwithstanding the foregoing, "Indebtedness" shall not include trade payables and accrued liabilities incurred in the ordinary course of business for the purchase of goods or services which are not secured by a Lien other than a Permitted Lien and which are not overdue by more than 180 days. Indebtedness shall not include deferred payments on intercompany sales pursuant to appropriate transfer pricing terms and which are paid within forty-five (45) days. For purposes of this Credit Agreement, "Indebtedness" shall not include the net obligations under the Option if (i) such obligations are not payable prior to two years after the maturity of the Loans, (ii) such 22 obligations are subordinated on terms satisfactory to the Agent and (iii) the Agent has a perfected security interest in the Option for the benefit of the Lenders. "INTELLECTUAL PROPERTY" shall mean, with respect to any Person, all of such Person's now owned and hereafter arising or acquired: patents, patent rights, patent applications, copyrights, works which are the subject matter of copyrights, copyright registrations, trademarks, trade names, trade styles, trademark and service mark applications, and licenses and rights to use any of the foregoing; all extensions, renewals, reissues, divisions, continuations, and continuations-in-part of any of the foregoing; all rights to sue for past, present and future infringement of any of the foregoing; inventions, trade secrets, formulae, processes, compounds, drawings, designs, blueprints, surveys, reports, manuals, and operating standards; goodwill (including any goodwill associated with any trademark or the license of any trademark); customer and other lists in whatever form maintained; and trade secret rights, copyright rights, rights in works of authorship, domain names and domain name registrations; software and contract rights relating to software, in whatever form created or maintained. "INTERCOMPANY INDEBTEDNESS" means any Indebtedness of a Borrower or any Subsidiary Guarantor or Wholly-Owned Subsidiary of a Borrower that is not a Subsidiary Guarantor that, in the case of a Borrower, is owing to any other Borrower, any Subsidiary Guarantor or Wholly-Owned Subsidiary of a Borrower that is not a Subsidiary Guarantor and that, in the case of any such Subsidiary, is owing to a Borrower or any Subsidiary Guarantor or Wholly-Owned Subsidiary of a Borrower that is not a Subsidiary Guarantor; provided that if as of any date any Person other than a Borrower or a Subsidiary Guarantor or Wholly-Owned Subsidiary of a Borrower that is not a Subsidiary Guarantor owns or holds such Indebtedness, or holds any Lien in respect thereof, such Indebtedness shall no longer be Intercompany Indebtedness permitted to be incurred pursuant to SECTION 8.3(d). "INTERCREDITOR AGREEMENT" that certain Intercreditor Agreement, dated as of the Closing Date, by and among the Agent, the First Lien Credit Facility Agent and the Second Lien Credit Facility Agent. "INTEREST PERIOD" shall mean a period, commencing, in the case of the first Interest Period applicable to a LIBOR Rate Loan, on the date of the making of, or conversion into, such Loan, and, in the case of each subsequent, successive Interest Period applicable thereto, on the last day of the immediately preceding Interest Period. The duration of each such Interest Period shall be one, two, three or six (and if available to all Lenders, nine or twelve) months, in each case as the Funds Administrator may, in an appropriate Notice of Borrowing, Notice of Continuation or Notice of Conversion, select; PROVIDED that the Funds Administrator may not select any Interest Period that ends after the Expiration Date. Whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, PROVIDED that if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day. "INTEREST RATE AGREEMENT" means any agreement evidencing an interest rate transaction, including an interest rate swap, basis swap, forward rate agreement, interest rate 23 option (including a cap, collar or floor), and any other instrument linked to interest rates that gives rise to similar credit risks. "INTERIM ADVANCE" shall mean a Loan made by the Agent to the Borrowers pursuant to SECTION 2.2(b)(i). "INTERIM ADVANCE PERIOD" shall have the meaning ascribed to that term in SECTION 2.2(b)(i). "INTERNAL REVENUE SERVICE" or "IRS" shall mean the United States Internal Revenue Service and any successor agency. "INVENTORY" shall mean, with respect to any Person, all of such Person's inventory, including: (a) all raw materials, work in process, parts, components, assemblies, supplies and materials used or consumed in such Person's business; (b) all goods, wares and merchandise, finished or unfinished, held for sale or lease or leased or furnished or to be furnished under contracts of service; and (c) all goods returned or repossessed by such Person. "INVESTMENT" means, with respect to any Person, any direct or indirect loan or other extension of credit (including, without limitation, a Guarantee Obligation) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition by such Person of any Capital Securities, bonds, notes, debentures or other securities or evidences of Indebtedness issued by, any other Person. "Investment" shall exclude extensions of trade credit in the ordinary course and deposits to secure leases by the Company and its Subsidiaries in the ordinary course of business of the Company or such Subsidiary, in each case, as the case may be. In determining the aggregate amount of Investments outstanding at any particular time, without duplication (a) the amount of any Investment represented by a Guaranty shall be taken at not less than the principal amount of the Liabilities to which such Guaranty is applicable and still outstanding; (b) there shall be deducted in respect of each such Investment (but not in excess of the amount of such Investment) any amount received after the Closing Date in cash in respect of such Investment but in no event in connection with the Transactions as a return of capital, dividend, interest or otherwise; and (c) there shall not be deducted from the original amount of any Investment, and such Investment shall be deemed to continue to be "outstanding" in such original amount notwithstanding, any (i) decrease in the market value thereof or (ii) amount thereof that may have been forgiven, released, cancelled or otherwise nullified or held to be invalid. Notwithstanding the foregoing, for purposes of determining the aggregate amount of Investments in Foreign Subsidiaries, "Investment" shall also include the transfer of assets, whether by dividend on Capital Securities, redemption of such Capital Securities or otherwise, in each case, net of such transfers received after the Closing Date by Borrowers and Domestic Subsidiaries from Foreign Subsidiaries but in no event in connection with the Transactions. "INVESTMENT PROPERTY" shall have the meaning given such term under Article 9 of the UCC. 24 "ISSUING BANK" shall mean DBTCo. or (a) any Lender or (b) any Affiliate of a Lender that, in either case, is acceptable to the Agent and has agreed to issue a Letter of Credit for the account of the Borrowers under this Credit Agreement. "ISSUING BANK FEES" shall have the meaning ascribed to that term in SECTION 4.6(b). "L/C INTEREST RATE" shall have the meaning ascribed to that term in SECTION 3.5(b). "L/C NOTICE OF DRAWING" shall mean the date on which the Issuing Bank provides Agent with notice that a drawing has been made under a Letter of Credit. "L/C PARTICIPATION" shall have the meaning ascribed to that term in SECTION 3.4. "L/C PARTICIPATION FUNDING AMOUNT" shall have the meaning ascribed to that term in SECTION 3.6(b)(i)(A). "L/C PARTICIPATION FUNDING DATE" shall have the meaning ascribed to that term in SECTION 3.6(b)(ii). "L/C PARTICIPATION FUNDING NOTICE" shall have the meaning ascribed to that term in SECTION 3.6(b)(i)(A). "LENDER" shall, subject to SECTION 11.18(c)(ii), mean (a) each Person listed as a "Lender" on the signature pages hereof and (b) each Person that has been assigned any or all of the rights and obligations of a Lender pursuant to SECTION 11.6(c). "LETTER OF CREDIT" shall mean all letters of credit (whether commercial or stand-by and whether for the purchase of inventory, equipment or otherwise) issued for the account of any Borrower by an Issuing Bank pursuant to ARTICLE 3 of this Credit Agreement and all amendments, renewals, extensions or replacements thereof. "LETTER OF CREDIT FEES" shall have the meaning ascribed to that term in SECTION 4.6(a)(i). "LETTER OF CREDIT OBLIGATIONS" shall mean, at any time, the sum of (a) the aggregate undrawn face amounts of all Letters of Credit outstanding at such time, PLUS (b) the aggregate unreimbursed amount of all drawings under Letters of Credit. "LETTER OF CREDIT REQUEST" shall have the meaning ascribed to that term in SECTION 3.2(a). "LEVERAGE RATIO" shall mean, as at the last day of any Fiscal Quarter, the ratio of Total Debt as of the last day of such Fiscal Quarter to Consolidated EBITDA for the twelve month period ending as of the last day of such Fiscal Quarter. "LIABILITY" of any Person shall mean (in each case, whether with full or limited recourse) any indebtedness, liability, obligation, covenant or duty of or binding upon, or any term or condition to be observed by or binding upon, such Person or any of its assets, of any 25 kind, nature or description, direct or indirect, absolute or contingent, due or not due, contractual or tortious, liquidated or unliquidated, whether arising under contract, Requirement of Law, or otherwise, whether now existing or hereafter arising, and whether for the payment of money or the performance or non-performance of any act. "LIBOR LENDING OFFICE" shall mean, with respect to any Lender, the office of such Lender specified as its "LIBOR Lending Office" opposite its name on ANNEX I or in the relevant Assignment and Acceptance Agreement (or, if no such office is specified, its Domestic Lending Office), or such other office or Affiliate of such Lender as such Lender may from time to time specify to the Funds Administrator and the Agent. "LIBOR MARGIN" shall mean, at any time, the Applicable Margin for LIBOR Rate Loans at such time. "LIBOR RATE" shall mean, with respect to any Interest Period, (a) the rate per annum for Dollar deposits approximately equal to the principal amount of the LIBOR Rate Loans for which the LIBOR Rate is being determined and with maturities comparable to the Interest Period for which such LIBOR Rate would apply, which appears on the Telerate Page 3750 at approximately 11:00 A.M., London time, on the day that is two (2) Business Days prior to the first day of such Interest Period and (b) if no such rate so appears on the Telerate Page 3750, an interest rate per annum equal to the rate (rounded upward to the nearest whole multiple of one-sixteenth (1/16) of one percent (1.00%) per annum, if such rate is not such a multiple) of the offered quotation, if any, to first class banks in the London (U.K.) interbank market by Deutsche Bank for Dollar deposits of amounts in immediately available funds comparable to the principal amount of the LIBOR Rate Loans for which the LIBOR Rate is being determined with maturities comparable to the Interest Period for which such LIBOR Rate will apply as of approximately 10:00 A.M. (New York City time) two (2) Business Days prior to the commencement of such Interest Period. The term "TELERATE PAGE 3750" shall mean the display designated as Page 3750 on the Telerate Services (or such other page as may replace such page on such service for the purpose of displaying a comparable rate). "LIBOR RATE LOAN" shall mean a Loan that bears, or is to bear, interest by reference to the LIBOR Rate. "LIEN(s)" shall mean (a) any lien, claim, charge, pledge, security interest, deed of trust, mortgage, other encumbrance or other arrangement (other than a deposit consisting solely of a Letter of Credit) having the practical effect of the foregoing or other preferential arrangement of any other kind and shall include the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement and (b) in addition, in the case of any investment property, any contract or other arrangement, express or implied, under which any Person has the right to control such investment property. "LINE OF CREDIT" shall mean, at any time, an amount equal to the aggregate amount, at such time, of the Commitments. "LOANS" shall mean amounts advanced by Agent or a Lender pursuant to SECTION 2.1, 2.2(b), 2.2(c), 3.6 or any other provision of this Credit Agreement. 26 "LOCKBOXES" shall have the meaning ascribed to that term in SECTION 2.5(b)(i). "MAJORITY LENDERS" shall mean, at any time, those Lenders having more than 50% of the aggregate amount of the Commitments or, if the Commitments shall have expired or been terminated, Lenders having more than 50% of the aggregate amount of the outstanding Exposures; and for this purpose, a Lender's "EXPOSURE" shall mean (assuming that any Interim Advances have been settled) the aggregate amount of such Lender's outstanding Loans PLUS such Lender's Proportionate Share of outstanding Letter of Credit Obligations. "MANDATORILY REDEEMABLE OBLIGATION" shall mean a Liability of any Borrower or any Subsidiary of any Borrower, or a Liability of another Person Guaranteed by any Borrower or any Subsidiary of any Borrower, to the extent that, in either case, it is redeemable, payable or required to be purchased or otherwise retired or extinguished (a) at a fixed or determinable date, whether by operation of sinking fund or otherwise, (b) at the option of any Person other than such Borrower or such Subsidiary or (c) upon the occurrence of a condition not solely within the control of such Borrower or such Subsidiary, such as a redemption required to be made out of future earnings. "MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on (a) the business, operations, results of operations, assets, liabilities or condition (financial or otherwise) of the Credit Parties taken as a whole or a substantial portion of the Collateral, (b) any Credit Party's ability to perform its material obligations under the Credit Documents to which it is a party or (c) the rights and remedies of the Agent, the Lenders or any Issuing Bank under any Credit Document. "MATERIAL CONTRACT" shall mean any contract, lease, license indenture, agreement, commitment or other arrangement (other than the Credit Documents), whether written or oral, to which any Borrower or any Subsidiary of any Borrower is a party with respect to which breaches, performances, nonperformances, cancellations or failures to renew or replace by any party thereto singly or in the aggregate would reasonably be expected to have a Material Adverse Effect. "MULTIEMPLOYER PLAN" shall mean a "multiemployer plan" as defined in Sections 3(37) or 400l(a)(3) of ERISA and (a) which is, or within the immediately preceding six (6) years was, contributed to by any Borrower, any Subsidiary of any Borrower or any ERISA Affiliate or (b) with respect to which any Borrower or any Subsidiary of any Borrower may incur any liability. "NET ORDERLY LIQUIDATION VALUE" shall mean (a) the "net orderly liquidation value" determined by a valuation company acceptable to the Agent after performance of an Inventory valuation to be done at the Agent's request and the Borrowers' expense, less the amount estimated by such valuation company for marshalling, reconditioning, carrying, and sales expenses designed to maximize the resale value of such Inventory and assuming that the time required to dispose of such Inventory is customary with respect to such Inventory; or (b) if no such Inventory valuation has been requested by the Agent, the value customarily attributed to Inventory in the appraisal industry for Inventory of similar quality and quantity, and similarly dispersed (under similar and relevant circumstances under standard asset-based lending 27 procedures), at the time of the valuation, less the amount customarily estimated in the appraisal industry at the time of any determination for marshalling, recondition, carrying, and sales expenses designed to maximize the resale value of such Inventory and assuming that the time required to dispose of such Inventory is customary with respect to such Inventory. "NOTE" shall mean a promissory note of the Borrowers payable to the order of any Lender, in the form of EXHIBIT B, evidencing the aggregate Indebtedness of the Borrowers to such Lender resulting from the Loans made by such Lender or acquired by such Lender pursuant to SECTION 11.6. "NOTICE OF BORROWING" shall have the meaning ascribed to that term in SECTION 2.2(a)(i). "NOTICE OF CONTINUATION" shall have the meaning ascribed to that term in SECTION 4.3(a). "NOTICE OF CONVERSION" shall have the meaning ascribed to that term in SECTION 4.3(b). "OBLIGATIONS" shall mean (a) the unpaid principal of and interest on the Loans and the Notes, (b) the obligation of the Borrowers to pay to an Issuing Bank the amounts of all drawings together with interest accrued thereon at the L/C Interest Rate, made under Letters of Credit of such Issuing Bank, (c) the Fees, (d) the Expenses, (e) all other Liabilities of the respective Credit Parties to the Agent, the Collateral Agent and any Lender (in its capacity as such and not in its capacity as an Issuing Bank), which may arise under, out of, or in connection with, the Credit Agreement, the Notes, any other Credit Document, and (f) all other Liabilities of the respective Borrowers to an Issuing Bank under all its L/C Applications and Letters of Credit. As used in CLAUSES (a), (b) AND (c) and wherever else the determination of the amount of "interest" is relevant, "interest" shall include interest accruing on or after the filing of, or what would have accrued but for the filing of, any petition in bankruptcy, or the commencement of any insolvency, reorganization, or like proceeding, relating to any Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding. "OPTION" means an option agreement on terms and in form and substance satisfactory to the Agent between Wellman and a Foreign Subsidiary relating to the value of the common stock of Wellman pursuant to which any settlement is deferred until at least two years beyond the final maturity of this Credit Agreement. "OTHER TAXES" shall have the meaning ascribed to that term in SECTION 2.8(b). "PAYMENT" shall have the meaning ascribed to that term in SECTION 2.10. "PAYMENT RESTRICTION" means any encumbrance or restriction on the ability of any Subsidiary of any Borrower to (a) pay dividends or make any other distributions on its Capital Securities or any other interest or participation in, or measured by, its profits; (b) make loans or advances or pay any Indebtedness or other obligation owed to any Borrower or to any Subsidiary of any Borrower; or (c) transfer any of its property or assets to any Borrower or to any Subsidiary of any Borrower. 28 "PBGC" shall mean the Pension Benefit Guaranty Corporation and any Person succeeding to the functions thereof. "PEARL RIVER PROJECT" shall mean the conversion of certain assets located at Wellman's facility located in Hancock County, Mississippi from the production of fiber products to the production of resin products. "PERMITTED DISCRETION" shall mean the Agent's judgment exercised in good faith based upon its consideration of any factor which the Agent believes in good faith: (a) will or could adversely affect the value of any Collateral, the enforceability or priority of the Agent's Liens thereon or the amount which the Agent, the Lenders or any Issuing Bank would be likely to receive (after giving consideration to delays in payment and costs of enforcement) in the liquidation of such Collateral; (b) suggests that any collateral report or financial information delivered to the Agent by any Person on behalf of any Borrower is incomplete, inaccurate or misleading in any material respect; or (c) materially increases the likelihood of a bankruptcy, reorganization or other insolvency proceeding involving any Borrower or any Subsidiary of any Borrower. In exercising such judgment, the Agent may consider such factors already included in or tested by the definition of Eligible Accounts Receivable or Eligible Inventory, as well as any of the following: (i) the changes in collection history and dilution with respect to the Accounts; (ii) changes in demand for, pricing of, or product mix of Inventory; (iii) changes in any concentration of risk with respect to the respective Borrowers' Accounts or Inventory; and (iv) any other factors that change the credit risk of lending to any Borrower on the security of any Borrowers' Accounts or Inventory. The burden of establishing lack of good faith hereunder shall be on the Borrowers. "PERMITTED HOLDER" shall mean Warburg Pincus VIII, L.P. and its Affiliates. "PERMITTED LIEN" shall have the meaning given such term in SECTION 8.4. "PERMITTED RESTRICTIVE COVENANT" shall mean (a) any covenant or restriction contained in any Credit Document, (b) any covenant or restriction binding upon any Person at the time such Person becomes a Subsidiary of any Borrower if the same is not created in contemplation thereof, (b) any covenant or restriction of the type contained in SECTION 8.4 that is contained in any contract evidencing or providing for the creation of or concerning Indebtedness secured by any asset so long as such covenant or restriction is limited to the property purchased therewith or assets secured thereby and proceeds thereof, (d) any covenant or restriction described in SECTION 8.13, but only to the extent such covenant or restriction is there identified by specific reference to the provision of the contract in which such covenant or restriction is contained or (e) any covenant or restriction that (i) is not more burdensome than an existing Permitted Restrictive Covenant permitted by CLAUSE (b), (c) OR (s) above; (ii) is contained in a contract constituting a renewal, extension or replacement of the Contract in which such existing Permitted Restrictive Covenant is contained; and (iii) is binding only on the Person or Persons bound by such existing Permitted Restrictive Covenant. "PERSON" shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, 29 entity, party or government (including any division, agency or department thereof), and, as applicable, the successors, heirs and assigns of each. "PLAN" shall mean any employee benefit plan (within the meaning of Section 3(3) of ERISA), whether oral or written, maintained or contributed to by any Borrower, any Subsidiary of any Borrower or any ERISA Affiliate, or with respect to which any Borrower, any Subsidiary of any Borrower or any ERISA Affiliate, may incur liability. "PLEDGE AGREEMENT" shall mean the Pledge Agreement of even date herewith by and among the Collateral Agent, the Borrowers and the Subsidiary Guarantors, as such agreement may be amended, restated or otherwise modified and in effect. "PREFERRED STOCK" of any Person means any Capital Securities of such Person that has preferential rights (as compared to any other Capital Securities of such Person) with respect to dividends or redemptions or upon liquidation. "PRIME LENDING RATE" shall mean the rate that Deutsche Bank announces from time to time in New York, New York as its prime lending rate in the United States, as in effect from time to time. The Prime Lending Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. Deutsche Bank, DBTCo. and each of the other Lenders may make commercial loans or other loans at rates of interest at, above or below the Prime Lending Rate. "PRIME RATE LOAN" shall mean a Loan that bears, or is to bear, interest by reference to the Prime Lending Rate. "PRO FORMA BORROWING BASE CERTIFICATE" shall have the meaning given such term in SECTION 2.4(e). "PROHIBITED TRANSACTION" shall mean any transaction that is prohibited under Code Section 4975 or ERISA Section 406 and not exempt under Code Section 4975 or ERISA Section 408. "PROPORTIONATE SHARE" shall, subject to SECTION 11.18(c)(ii), mean, with respect to any Lender, a fraction (expressed as a percentage), the numerator of which shall be the amount of such Lender's Commitment and the denominator of which shall be the Total Commitments or, if the Commitments have been terminated, a fraction the numerator of which shall be the principal amount of such Lender's Exposure and the denominator of which shall be the aggregate amount of all Exposures of all Lenders then outstanding. "PURCHASE MONEY LIENS" shall mean Liens on any item of Equipment or Real Property of any Credit Party acquired after the date of this Credit Agreement to secure the purchase price thereof, PROVIDED that: (a) each such Lien shall attach only to the property to be acquired and proceeds thereof; and (b) the debt incurred in connection with such acquisitions shall not exceed the amount of the purchase price of such items of Equipment or Real Property then being financed. 30 "REAL PROPERTY" means, collectively, all right, title and interest (including any leasehold estate) in and to any and all parcels of or interests in real property owned, leased or operated by any Person, whether by lease, license or other means, together with, in each case, all easements, hereditaments and appurtenances relating thereto, all improvements and appurtenant fixtures and equipment, all general intangibles and contract rights and other property and rights incidental to the ownership, lease or operation thereof. "REAL PROPERTY ASSETS" means interests in Real Property, including improvements and fixtures attached thereto or used in the operation thereof, in each case owned or leased (as lessee) by any Borrower or any of its Domestic Subsidiaries. "REDUCED RATE" shall have the meaning ascribed to that term in SECTION 2.8(e), relating to backup withholding tax. "REGULATION D" shall mean Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor thereto. "REIMBURSEMENT AGREEMENT" shall have the meaning ascribed to that term in CLAUSE (b) of the definition of "L/C APPLICATION." "RELEASE" means any release, spill, emission, leaking, pumping, pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping, leaching or migration of Hazardous Materials into the indoor or outdoor environment (including, without limitation, the abandonment or disposal of any barrels, containers or other closed receptacles containing any Hazardous Materials), including, without limitation, the movement of any Hazardous Material through the air, soil, surface water, groundwater or property. "REPORTABLE EVENT" shall mean any of the events described in Section 4043 of ERISA and the regulations thereunder, for which notice to the PBGC has not been waived. "REQUIREMENT OF LAW" shall mean, as to any Person, the Governing Documents of such Person, and any law, treaty, rule, regulation, direction, ordinance, criterion or guideline or determination of a court or other Governmental Authority or determination of an arbitrator, 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" means any of the chairman of the board of directors, the president, any executive vice president, senior vice president, the controller, chief financial officer, any vice president, the treasurer, the assistant treasurer, chief accounting officer or the secretary or any other similar officer or position. "RESTRICTED PAYMENT" means, with respect to any Person, (a) any payment with respect to or on account of any of the Capital Securities of such Person, including any dividend or other distribution on, any payment of interest on or principal of, and any payment on account of any purchase, redemption, retirement, exchange, defeasance or conversion of, or on account of any claim relating to or arising out of Wellman's offer, sale or purchase of, any such Capital Securities and (b) any optional payment or prepayment on or redemption, retirement, (including by making payments to a sinking or analogous fund), repurchase, defeasance or other acquisition 31 of, any Subordinated Indebtedness. For the purposes of this definition, a "payment" shall include the transfer of any asset or the incurrence of any Indebtedness or other Liability (the amount of any such payment to be the fair market value of such asset or the amount of such obligation, respectively) but shall not include the issuance by such Person to the holders of a class or series of a class of its Capital Securities of the same class and, if applicable, series, other than, in the case of any Borrower or any Subsidiary of any Borrower, Mandatorily Redeemable Obligations. "RETIREE WELFARE PLAN" means, at any time, a welfare plan (as defined in Section 3(1) of ERISA) that provides for continuing coverage or benefits for any participant or any beneficiary of a participant after such participant's termination of employment, other than continuation coverage provided pursuant to Section 4980B of the Code and at the sole expense of the participant or the beneficiary of the participant. "SALE AND LEASEBACK TRANSACTION" means with respect to any Person an arrangement with any bank, insurance company or other lender or investor or to which such lender or investor is a party providing for the leasing by such Person of any property or asset of such Person which has been or is being sold or transferred by such Person to such lender or investor or to any Person to whom funds have been or are to be advanced by such lender or investor on the security of such property or asset "SECOND LIEN CREDIT AGREEMENT" shall have the meaning given such term in the definition of Second Lien Credit Facility. "SECOND LIEN CREDIT FACILITY" means the term loan credit agreement providing for $265.0 million in term loans (the "SECOND LIEN CREDIT AGREEMENT") to be entered into on the date hereof, between Wellman, the lenders party thereto in their capacities as lenders thereunder and DBTCA, as administrative agent, together with the related documents thereto (including, without limitation, any guarantee, collateral and security agreements and/or documents), in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented or otherwise modified from time to time, including any agreement extending the maturity of, refinancing, replacing or otherwise restructuring (including adding Subsidiaries of Wellman as additional guarantors thereunder) all or any portion of the Indebtedness under such agreement or any successor or replacement agreement and whether by the same or any other agent, lender or group of lenders. "SECOND LIEN CREDIT FACILITY AGENT" shall mean the Administrative Agent (as defined in the Second Lien Credit Agreement). "SECOND LIEN CREDIT FACILITY COLLATERAL" means the collateral securing Wellman's obligations under the Second Lien Credit Facility. "SECURED PARTIES" has the meaning provided in the respective Collateral Documents to the extent defined therein and shall include any Person who is granted a security interest in any Credit Document. "SECURITY AGREEMENT" shall mean the Security Agreement, of even date herewith, among the Agent, the Borrowers and the Subsidiary Guarantors, as such agreement may be amended, restated or otherwise modified and in effect. 32 "SERVING AFFILIATE" shall mean an Affiliate of a Lender that is an Issuing Bank. "SETTLEMENT DATE" shall have the meaning ascribed to that term in SECTION 2.3(b)(i). "SOLVENT" means with respect to any Person (i) the sum of the assets, at a fair valuation (determined on a going concern basis), of such Person exceeds its debts; (ii) such Person has not incurred, nor intends to, nor believes that it will, incur debts beyond its ability to pay such debts as such debts mature; and (iii) such Person has sufficient capital with which to conduct its business. For purposes of this definition "debt" means any liability on a claim, and "claim" means (y) any right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured (including all obligations, if any, under any Plan or the equivalent for unfunded past service liability, and any other unfunded medical and death benefits) or (z) any right to an equitable remedy for breach of performance if such breach gives rise to a payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured. In computing the amount of contingent or unliquidated liabilities at any time, such liabilities will be computed at the amount which, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "START DATE" shall mean, with respect to any Applicable Margin Period, the first day of such Applicable Margin Period. "SUBORDINATED INDEBTEDNESS" shall mean Indebtedness of Wellman or any of its Subsidiaries which is expressly subordinated in right of payment to the Loans or the Guarantee of such Subsidiary Guarantor, as the case may be. "SUBSIDIARY" means, with respect to any Person, any corporation, association or other business entity of which more than 50% of the total voting power of shares of stock or other equity interest entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereto is at the time owned, directly or indirectly, by that Person. "SUBSIDIARY GUARANTOR" shall mean any Domestic Subsidiary of Wellman that is party to the Subsidiary Guaranty. "SUBSIDIARY GUARANTY" shall mean the Subsidiary Guaranty, of even date herewith, among the Agent and the Subsidiary Guarantors. "TAX REDUCTION AGREEMENT" means an agreement entered into between Wellman or any of its Subsidiaries with a local Governmental Authority relating to the transfer or acquisition of an asset for the purpose of obtaining tax relief; PROVIDED that Wellman or such Subsidiary may at any time repossess such asset for nominal net consideration; and PROVIDED, further, that such agreements may also be similar to those currently in effect between Wellman or certain Subsidiary Guarantors and Darlington and Florence Counties in South Carolina. "TAX TRANSFEREE" shall have the meaning ascribed to that term in SECTION 2.8(a). 33 "TAXES" shall have the meaning ascribed to that term in SECTION 2.8(a). "TERMINATION EVENT" shall mean (a) a Reportable Event with respect to any Title IV Plan or Multiemployer Plan; (b) the withdrawal of any Borrower, any Subsidiary of any Borrower or any ERISA Affiliate from a Title IV Plan during a plan year in which such entity was a "substantial employer" as defined in Section 4001(a)(2) of ERISA; (c) the providing of notice of intent to terminate a Title IV Plan in a distress termination described in Section 4041(c) of ERISA or the treatment of any amendment as a termination under Section 4041(e) of ERISA; (d) the institution by the PBGC of proceedings to terminate a Title IV Plan or Multiemployer Plan; (e) any event or condition (i) that might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Title IV Plan or Multiemployer Plan, or (ii) that may result in termination of a Multiemployer Plan pursuant to Section 4041A of ERISA; or (f) the partial or complete withdrawal within the meaning of Sections 4203 and 4205 of ERISA, of any Borrower, any Subsidiary of any Borrower or any ERISA Affiliate from a Multiemployer Plan. "TEST DATE" shall mean, with respect to any Start Date, the last day of the most recent fiscal quarter of the Consolidated Entity ended immediately prior to such Start Date. "TITLE IV PLAN" shall mean an employee pension benefit plan as defined in Section 3(2) of ERISA (other than a Multiemployer Plan) for which the funding requirements under Section 412 of the Code or Section 302 of ERISA is, or within the immediately preceding six (6) years was, in whole or in part, the responsibility of any Borrower, any Subsidiary of any Borrower or any ERISA Affiliate. "TOTAL COMMITMENTS" shall mean the aggregate of the Commitments of all the Lenders, which in the aggregate shall not exceed $175,000,000. "TOTAL DEBT" shall mean, as at the last day of any Fiscal Quarter, the aggregate amount of all Indebtedness of the Consolidated Entity determined in accordance with GAAP as of the last day of such Fiscal Quarter. "TOTAL EXPOSURE" shall mean, at any time, an amount equal to the sum of (a) the Letter of Credit Obligations and (b) the principal amount of outstanding Loans. "TRANSACTIONS" means, collectively, (i) the closing of and the borrowings under the First Lien Credit Facility, (ii) the closing of and incurrence of the initial Loans hereunder, (iii) the closing of and the borrowings under the Second Lien Credit Facility, (iv) the Financing Transactions and (v) the payment of fees, expenses, commissions and transaction costs in connection with the foregoing. "TYPE" shall mean, with respect to any Loan, whether such Loan is a LIBOR Rate Loan or a Prime Rate Loan. "UCC" shall mean the Uniform Commercial Code as in effect from time to time in the State of New York; PROVIDED that if, with respect to any financing statement or by reason of any provisions of law, the perfection or the effect of perfection or non-perfection of the Liens granted to the Agent pursuant to the applicable Credit Document is governed by the Uniform 34 Commercial Code as in effect in a jurisdiction of the United States other than the State of New York. "UCC" shall mean the Uniform Commercial Code as in effect from time to time in such other jurisdiction for purposes of the provisions of this Credit Agreement, each Credit Document and any financing statement relating to such perfection or effect of perfection or non-perfection. "UNFUNDED PENSION LIABILITY" means, at any time, the aggregate amount, if any, of the sum of (a) the amount by which the present value of all accrued benefits under each Title IV Plan exceeds the fair market value of all assets of such Title IV Plan allocable to such benefits in accordance with Title IV of ERISA, all determined as of the most recent valuation date for each such Title IV Plan using the actuarial assumptions for funding purposes in effect under such Title IV Plan, and (b) for a period of 5 years following a transaction which might reasonably be expected to be covered by Section 4069 of ERISA, the liabilities (whether or not accrued) that could be avoided by any Borrower, Subsidiary of any Borrower or any ERISA Affiliate as a result of such transaction. "UNUSED LINE FEE" shall have the meaning ascribed to that term in SECTION 4.5. "VALUE" shall mean, as determined by Agent in good faith, (a) with respect to Eligible Accounts Receivable, the gross face amount of Eligible Accounts Receivable less the sum of (i) sales, excise or similar taxes included in the amount thereof and (ii) returns, discounts, claims, credits, charges and allowances (exclusive of those paid in cash to the extent included in dilution) of any nature at any time issued, owing, granted, outstanding, available or claimed with respect thereto and (b) with respect to Eligible Inventory, the lower of (i) cost computed on a first-in first-out basis in accordance with GAAP or (ii) market value. "WELFARE PLAN" means a Plan described in Section 3(1) of ERISA. "WHOLLY-OWNED SUBSIDIARY" shall mean, with respect to any Person, any Subsidiary of such Person all of the Capital Securities of which (except directors' qualifying shares and, in the case of Foreign Subsidiaries, other nominal amounts of shares held by a Person other than such Person) are, directly or indirectly, owned or Controlled by such Person or one or more Wholly-Owned Subsidiaries of such Person or by such Person and one or more of such Subsidiaries. 1.2 ACCOUNTING TERMS AND DETERMINATIONS. All accounting terms used herein but not expressly defined in this Credit Agreement shall have the respective meanings given to them in accordance with GAAP as applied and in effect on the date hereof in the USA. Except as otherwise expressly provided herein (including without limitation, any modification to the terms hereof pursuant to SECTION 8.20), all computations and determinations for purposes of determining compliance with the financial requirements of this Credit Agreement shall be made in accordance with GAAP in effect in the USA on the date hereof and on a basis consistent with the presentation of the most recent financial statements delivered pursuant to, or otherwise referred to in, the first sentence of SECTION 6.7. Notwithstanding the foregoing sentence, the financial statements required to be delivered pursuant to SECTION 7.1 shall be prepared in accordance with GAAP in the USA as in effect on the respective dates of their preparation. If any Borrower shall change its method of inventory accounting to the last in first out method, all calculations necessary to determine compliance with the covenants contained herein shall be made as if such method of inventory accounting had not been so changed. 35 1.3 OTHER INTERPRETIVE PROVISIONS. Terms not otherwise defined herein which are defined in the UCC shall have the meanings given them in the UCC. The words "hereof" "herein" and "hereunder" and words of similar import when used in this Credit Agreement shall refer to this Credit Agreement as a whole and not to any particular provision of this Credit Agreement, and references to Article, Section, Annex, Schedule, Exhibit and like references are references to this Credit Agreement unless otherwise specified. Any item or list of items set forth following the word "including," "include" or "includes" is set forth only for the purpose of indicating that, regardless of whatever other items are in the category in which such item or items are "included," such item or items are in such category, and shall not be construed as indicating that the items in the category are limited to such items or to items similar to such items. Except as otherwise specified herein, all references herein (a) to any Person shall be deemed to include such Person's successors and assigns, (b) to any Requirement of Law defined or referred to herein shall be deemed references to such Requirement of Law or any successor Requirement of Law as the same may have been or may be amended or supplemented from time to time, (c) to any Credit Document or Collateral Document defined or referred to herein shall be deemed references to such Credit Document or Collateral Document (and, in the case of any Note or any other instrument, any instrument issued in substitution therefor) as the terms thereof may have been or may be amended, supplemented, waived or otherwise modified from time to time, provided that, in the case of any L/C Application or Letter of Credit, any such amendment, supplement, waiver or other modification shall have been approved in writing by the Agent and (d) to any other document, agreement, instrument or contract shall include references to all amendments, supplements, waivers or other modifications thereto to the extent not otherwise prohibited under the terms of this Credit Agreement. Whenever the context so requires, the neuter gender includes the masculine or feminine, the masculine gender includes the feminine, and the singular number includes the plural, and vice versa. Except as otherwise specified herein, all references to the time of day shall be deemed to be to New York City time as then in effect. ARTICLE 2 LOANS 2.1 COMMITMENTS; DELIVERY OF NOTES. (a) Subject to the terms and conditions set forth in this Credit Agreement, on and after the Closing Date and to and excluding the Expiration Date, each of the Lenders severally agrees to make from time to time revolving loans to the Borrowers hereunder (the "LOANS"); PROVIDED that no such Loan shall be made for the account of any Borrower if after giving effect to the making of such Loan and the simultaneous application of the proceeds thereof, (i) the aggregate amount of the Exposure of such Lender would exceed the Commitment of such Lender or (ii) the Total Exposure for all Borrowers would exceed the lesser of (A) the Total Commitments and (B) subject to SECTION 2.2(b), the Borrowers' Borrowing Base. (b) At the request of any Lender through the Agent, the Borrowers hereby agree to execute and deliver to each Lender a Note to evidence the Loans to the Borrowers by such Lender. 36 2.2 BORROWING MECHANICS; INTERIM ADVANCES. (a) Except as provided in SECTIONS 2.2(b), 2.3(b) AND 3.6(a), Borrowings shall be made on notice from the Funds Administrator to the Agent, given not later than 12:00 Noon (New York City time) on the Business Day on which a proposed Borrowing consisting of Prime Rate Loans is requested to be made and on the third Business Day prior to the date of any proposed Borrowing consisting of LIBOR Rate Loans is requested to be made. (i) Each Notice of Borrowing shall be given by, alternatively, telephone, facsimile or electronic E-mail transmission, and, if by telephone or electronic E-mail transmission, confirmed in writing on the same Business Day to the extent requested by Agent, substantially in the form of EXHIBIT C (the "NOTICE OF BORROWING"). Each Notice of Borrowing shall be irrevocable (subject to SECTION 4.3(c)) by and binding on the Funds Administrator and the Borrowers. (ii) The Funds Administrator shall notify the Agent in writing of the names of the officers of the Funds Administrator authorized to request Loans on behalf of the Borrowers and specifying which of those officers are also, or, if none are, the other officers that are, authorized to direct the disbursement of Loans in a manner contrary to standing disbursement instructions, and shall provide the Agent with a specimen signature of each such officer. In the absence of a specification of those officers who are authorized to vary standing disbursement instructions, the Agent may assume that each officer authorized to request Loans also has such authority. The Agent shall be entitled to rely conclusively on the authority of such officers of the Funds Administrator to request Loans on behalf of the Borrowers, or to vary standing disbursement instructions, until the Agent receives written notice to the contrary. The Agent shall have no duty to verify the authenticity of the signature appearing on any Notice of Borrowing or other writing delivered pursuant to this SECTION 2.2(a) and, with respect to an oral or electronic E-mail request for Loans, the Agent shall have no duty to verify the identity of any individual representing himself as one of the officers of the Funds Administrator authorized to make such request on behalf of the Borrowers. Neither the Agent nor any of the Lenders shall incur any liability to the Funds Administrator or any of the Borrowers as a result of (A) acting upon any telephonic or electronic E-mail notice referred to in this SECTION 2.2(a) if the Agent believes in good faith such notice to have been given by a duly authorized officer of the Funds Administrator or other individual authorized to request Loans on behalf of the Borrowers or to direct the disbursement thereof in a manner contrary to standing disbursement instructions, or (B) otherwise acting in good faith under this SECTION 2.2(a) and an advance made and disbursed pursuant to any such telephonic or electronic E-mail notice shall be deemed to be a Loan for all purposes of this Credit Agreement. (iii) In its Notice of Borrowing, the Funds Administrator may request one or more Borrowings on a single day. Each such Borrowing shall, unless otherwise specifically provided herein, consist entirely of Loans of the same Type and shall, in the case of a Borrowing of LIBOR Rate Loans, be in an aggregate 37 amount for all Lenders of not less than $2,000,000 or an integral multiple of $500,000 in excess thereof. The right of the Funds Administrator to choose LIBOR Rate Loans is subject to the provisions of SECTION 4.3(c). (b) (i) In the event the Borrowers are unable to comply with (A) the Borrowing Base limitation set forth in CLAUSE (ii)(B) of the PROVISO to SECTION 2.1(a) or (B) the conditions precedent set forth in SECTION 5.2 to a Credit Event, the Lenders authorize the Agent, in its sole discretion, to make Loans ("INTERIM ADVANCES") to the Borrowers during the period commencing on the date the Agent first receives a Notice of Borrowing requesting an Interim Advance until the earliest of (1) the twentieth (20th) Business Day after such date, (2) the date the Borrowers are again able to comply with such Borrowing Base limitation and conditions precedent, or obtains an amendment or waiver with respect thereto and (3) the date the Majority Lenders instruct the Agent, or the Agent determines, to cease making Interim Advances (in each case, the "INTERIM ADVANCE PERIOD"). (i) The Agent shall not, in any event, (A) make any Interim Advance during any Interim Advance Period if, after giving effect to such Interim Advance, Total Exposure would exceed one hundred ten percent (110%) of Total Exposure on the first day of such Interim Advance Period (calculated without giving effect to Interim Advances made on such day) and (B) make any Interim Advance if, after giving effect to such Interim Advance, Total Exposure would exceed the Line of Credit. (ii) All amounts received by the Agent during an Interim Advance Period on account of the Obligations, whether in the form of payments from any Borrower, collections on the Collateral or otherwise, shall, so long as any Interim Advances made during such Interim Advance Period are outstanding, be applied by the Agent, FIRST, to the repayment of such Interim Advances and, SECOND, in accordance with SECTION 2.5(d). (c) The failure of any Lender to make the Loan to be made by it as part of any Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its Loan on the date of such Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Loan to be made by such other Lender on the date of any Borrowing. (d) In addition to being evidenced, as provided in SECTION 2.6, by the Borrowers' Accounts, each Lender's Loans and the Borrowers' joint and several obligations to repay such Loans with interest in accordance with the terms of this Credit Agreement shall be evidenced by this Credit Agreement, the records of such Lender and such Lender's Note. The records of each Lender shall be prima facie evidence of such Lender's Loans and accrued interest thereon and of all payments made in respect thereof. (e) Each Lender shall be entitled to earn interest at the then applicable rate of interest, calculated in accordance with ARTICLE 4, on outstanding Loans which it has funded to the Agent; PROVIDED that in the case of interest accrued but unpaid at the time of a Bankruptcy Default and interest accruing thereafter and during a Bankruptcy Default, such Lender shall be entitled to receive only its Proportionate Share of amounts actually received by the Agent in 38 respect of such interest; FURTHER PROVIDED that if any amount received by the Agent in respect of such interest and distributed by it is thereafter recovered from the Agent, such Lender shall, upon request, repay to the Agent its Proportionate Share of the amount so recovered to the extent received by it, but without interest (unless the Agent is required to pay interest on the amount recovered, in which case such Lender shall be required to pay interest at a like rate). (f) Notwithstanding the obligation of the Funds Administrator to send written confirmation of a Notice of Borrowing made by telephone or electronic E-mail transmission if and when requested by the Agent, in the event that the Agent agrees to accept a Notice of Borrowing made by telephone or electronic E-mail transmission, such Notice of Borrowing shall be binding on the Funds Administrator and each Borrower whether or not written confirmation is sent by the Funds Administrator or requested by the Agent. The Agent may act prior to the receipt of any requested written confirmation, without any liability whatsoever, based upon telephonic or electronic E-mail notice believed by the Agent in good faith to be from the Funds Administrator or its agents. The Agent's records of the terms of any telephonic or electronic E-mail transmission Notices of Borrowing shall be conclusive on the Funds Administrator, each Borrower and the Lenders in the absence of gross negligence, bad faith or willful misconduct on the part of the Agent in connection therewith. 2.3 SETTLEMENTS AMONG THE AGENTS AND THE LENDERS. (a) Except as provided in SECTION 2.3(b), the Agent shall give to each Lender prompt notice of each Notice of Borrowing by telecopy or facsimile transmission. No later than 3:00 P.M. (New York City time) (i) with respect to Prime Rate Loans, on the date of receipt of each Notice of Borrowing requesting a Prime Rate Loan (unless such Notice of Borrowing specifies the Closing Date as the date of Borrowing, in which case no later than 12:00 Noon (New York City time) on the Closing Date) and (ii) with respect to LIBOR Rate Loans, on the date for which a LIBOR Rate Loan has been requested, each Lender will make available for the account of its Applicable Lending Office, to the Agent at the address of the Agent set forth on ANNEX I, in immediately available funds, its Proportionate Share of such Borrowing requested to be made. Unless the Agent shall have been notified by any Lender prior to the date of Borrowing that such Lender does not intend to make available to the Agent its portion of the Borrowing to be made on such date, the Agent may assume that such Lender will make such amount available to the Agent on the Settlement Date and the Agent, in reliance upon such assumption, may but shall not be obligated to make available the amount of the Borrowing to be provided by such Lender. If and to the extent such Lender shall not have so made available to the Agent its Proportionate Share on such date and the Agent shall have so made available to the Borrowers a corresponding amount on behalf of such Lender, the Agent may recover such amount on demand from such Lender in accordance with SECTION 11.18. If such Lender does not pay such corresponding amount promptly upon the Agent's demand therefor, the Agent may promptly notify the Funds Administrator and the Borrowers shall immediately repay such corresponding amount to the Agent together with accrued interest thereon at the applicable rate or rates provided in SECTIONS 4.1, 4.2, AND 4.4. (b) Unless the Majority Lenders have instructed the Agent to the contrary, the Agent on behalf of the Lenders may but shall not be obligated to make Prime Rate Loans under 39 SECTION 2.2 without prior notice of the proposed Borrowing to the Lenders, subject to the following settlement arrangements: (i) The amount of each Lender's Proportionate Share of Loans shall be computed weekly (or more frequently in the Agent's discretion) and shall be adjusted upward or downward on the basis of the amount of outstanding Loans as of 5:00 P.M. (New York City time) on the last Business Day of the period specified by the Agent (such date, the "SETTLEMENT Date"). The Agent shall deliver to each of the Lenders promptly after the Settlement Date a summary statement of the amount of outstanding Loans for such period. The Lenders shall transfer to the Agent, or, subject to SECTION 11.18(c)(i), the Agent shall transfer to the Lenders, such amounts as are necessary so that (after giving effect to all such transfers) the amount of Loans made by each Lender shall be equal to such Lender's Proportionate Share of the aggregate amount of Loans outstanding as of such Settlement Date. During a Bankruptcy Default, amounts required to be transferred by the Lenders to the Agent shall, instead of constituting Loans to the Borrowers, be in the form of participations purchased by the Lenders in the outstanding Loans of DBTCo., acting as Agent. If the summary statement is received by the Lenders prior to 12:00 Noon (New York City time) on any Business Day, each Lender shall make the transfers described above in immediately available funds no later than 3:00 P.M. (New York City time) on the day such summary statement was received; and if such summary statement is received by the Lenders after 12:00 Noon (New York City time) on such day, each Lender shall make such transfers no later than 3:00 P.M. (New York City time) on the next succeeding Business Day. The obligation of each of the Lenders to transfer such funds shall be irrevocable and unconditional and without recourse to or warranty by the Agent. Each of the Agent and the Lenders agrees to mark its books and records on the Settlement Date to show at all times the dollar amount of its Proportionate Share of the outstanding Loans. (ii) To the extent that the settlement described above shall not yet have occurred, upon repayment of Loans by the Borrowers, the Agent may first apply such amounts repaid directly to the amounts made available by the Agent pursuant to this SECTION 2.3(b). (iii) Because the Agent on behalf of the Lenders may be advancing and/or may be repaid Loans prior to the time when the Lenders will actually advance and/or be repaid Loans, interest with respect to Loans shall be allocated by the Agent to each Lender and the Agent in accordance with the amount of Loans actually advanced by and repaid to each Lender and the Agent and shall accrue from and including the date such Loans are so advanced to but excluding the date such Loans are either repaid by the Borrowers in accordance with SECTION 2.4 or actually settled by the applicable Lender as described in this SECTION 2.3(b). 40 2.4 MANDATORY PAYMENT; MANDATORY REDUCTION OF COMMITMENTS. (a) Except during an Interim Advance Period, the amount by which the Total Exposure in respect of the Borrowers would exceed the Borrowing Base at any time, shall be immediately due and payable upon any Borrower becoming aware of such overadvance without the necessity of any notice or demand. Repayments of such excess amounts shall be applied, FIRST, to the repayment of Loans, SECOND, to the payment of outstanding reimbursement obligations with respect to Letters of Credit, and, THIRD, to the securing, with cash or Cash Equivalents as provided in the second paragraph of SECTION 9.2 (but without the requirement of any demand provided for in such paragraph), of the Letter of Credit Obligations (in each case to the extent the same are such by virtue of CLAUSE (a) of the definition thereof). (b) (i) On the Expiration Date, the Commitment of each Lender shall automatically reduce to zero and may not be reinstated. (ii) The Borrowers may reduce or terminate the Line of Credit at any time and from time to time in whole or in part by reducing or terminating the Commitments, any such reduction or termination to be pro rata on the amounts at the time of the Commitments; PROVIDED that each such reduction must be in an amount not less than $5,000,000 (and in increments of $1,000,000); and PROVIDED FURTHER that (A) if the Borrowers seek to reduce the Line of Credit to an amount less than $50,000,000, then the Line of Credit shall at the option of the Agent be reduced to zero and the Credit Agreement shall be terminated and (B) once reduced the amount of any such reductions in the Line of Credit may not be reinstated. (iii) The amount by which Total Exposure exceeds the aggregate amount of the Commitments at any time shall be immediately due and payable without the necessity of any notice or demand. Repayments of such excess amounts shall be applied, FIRST, to the repayment of Loans, SECOND, to the payment of outstanding reimbursement obligations with respect Letters of Credit, and, THIRD, to the securing, with cash or Cash Equivalents as provided in the second paragraph of SECTION 9.2 (but without the requirement of any demand provided for in such paragraph), of the Letter of Credit Obligations (in each case to the extent the same are such by virtue of CLAUSE (a) of the definition thereof). (c) If any Borrower issues Capital Securities, no later than the Business Day following the date of receipt of the proceeds thereof, the issuing Borrower shall prepay the Loans (without any reduction in the Commitments) in accordance with SECTION 2.5(d) in an amount equal to all such proceeds, net of fees, costs and expenses incurred in connection therewith, PROVIDED that the foregoing shall not be applicable to issuances of Capital Securities to employees or directors of the Credit Parties or the exercise of options by such employees or directors, in each case, in the ordinary course of business. (d) Simultaneously with any Change of Control, the Commitments shall be reduced to zero and the Borrowers shall prepay, in full, the outstanding principal amount of any outstanding Loans (and cash collateralize any outstanding Letter of Credit Obligations in an 41 amount equal to 105% of the Letter of Credit Obligations), together with all accrued interest, fees, and other expenses incurred by Agent, the Issuing Bank or the Lenders as a result of such prepayment. (e) On the Business Day on which any Asset Sale occurs, the Funds Administrator shall deliver to Agent a Borrowing Base Certificate prepared on a pro forma basis (a "PRO FORMA BORROWING BASE CERTIFICATE") giving effect to such Asset Sale and setting forth the value of the Eligible Inventory and Eligible Accounts Receivables previously included in the Borrowing Base and disposed of in such Asset Sale. On such Business Day, Borrowers shall prepay the Loans in an amount equal to the change in the Borrowing Base as reflected in such Pro Forma Borrowing Base Certificate. 2.5 PAYMENTS AND COMPUTATIONS. (a) (i) The Borrowers shall, subject, in the case of payments in respect of Letters of Credit, to SECTION 2.5(a)(ii), make each payment under the Credit Documents and under the Notes not later than 2:00 P.M. (New York City time) on the day when due in Dollars to the Agent at its address designated in or pursuant to SECTION 11.5 in immediately available funds. The obligations of the Borrowers to the Lenders with respect to such payments shall be discharged by making such payments to the Agent pursuant to this SECTION 2.5 or by the Agent, in its discretion, adding such payments to the principal amount of the Loans outstanding by charging such payments to the applicable Borrower's Account pursuant to SECTION 2.6. (ii) Amounts payable by the Borrowers in respect of any Letter of Credit should be made by the Borrowers to the Agent until the Funds Administrator shall have received notice from the Agent that the Agent has received payments equal to the aggregate amount of all drawings thereunder, PLUS interest thereon from the date such drawings were disbursed at the L/C Interest Rate. (b) (i) The Borrowers shall have established and shall maintain, at one or more financial institutions selected by such Borrower and acceptable to the Agent, one or more lockboxes (with respect to each Borrower, such Borrower's "LOCKBOXES") and depository accounts ("DEPOSITORY ACCOUNTS") and shall instruct all account debtors on the Accounts of such Borrower to remit all payments to such Borrower's Lockboxes or Depository Accounts; PROVIDED, however, it shall be permissible for the Borrowers to maintain a consolidated Lockbox or Depository Account. Each Borrower, the Agent and the applicable financial institutions shall have entered into a Control Agreement providing, among other things, that all receipts in the Lockboxes or Depository Accounts, as applicable, shall be transferred by the end of each day to the Concentration Account. All amounts received by any Borrower from any account debtor, shall upon receipt be deposited into a Concentration Account. (ii) Each Borrower, the Agent and one or more financial institutions selected by such Borrower and acceptable to the Agent (each a "CONCENTRATION ACCOUNT BANK") shall enter into a Control Agreement, providing, among other things, that (A) Borrowers will open an account at each Concentration Account Bank (each a "CONCENTRATION ACCOUNT") and (B) all receipts and other amounts 42 received in the Lockboxes and Depository Accounts of each Borrower shall be transferred by the end of each day to the appropriate Concentration Account. (iii) The closing of any Lockbox, Depository Account or Concentration Account and the termination of any related account agreement shall require in each case the prior written consent of the Agent which will not be unreasonably withheld. (c) Upon the terms and subject to the conditions set forth in the applicable Account Agreement, all available amounts held in each Concentration Account shall be wired each Business Day into an account (the "DBTCO LOAN ACCOUNT") maintained by the Agent at DBTCo and applied in accordance WITH SECTION 2.5(d). (d) (i) Prior to the occurrence of a Bankruptcy Event, all amounts received by the Agent for distribution hereunder shall, subject to SECTION 2.2(b)(iii), be distributed in the following order and, if to Lenders, according to each Lender's Proportionate Share with respect to each category set forth below: FIRST, to the payment of any Fees, Expenses or other Obligations due and payable to the Agent under any of the Credit Documents, including amounts advanced by the Agent on behalf of the Lenders pursuant to SECTION 2.3(b); SECOND, to the ratable payment of any Fees and other Obligations due and payable to the Lenders under any of the Credit Documents, other than to a Lender in its capacity as an Issuing Bank and other than those Obligations specifically referred to in this SECTION 2.5(d)(i). THIRD, to the ratable payment of interest due on the Loans; FOURTH, to the ratable payment of principal due on the Loans; FIFTH, to the ratable payment of other Liabilities not specifically referred to in this SECTION 2.5(d) due and payable to the Lenders (in their capacities as such, and not in their capacity as an Issuing Bank) under the Credit Documents; and SIXTH, to the ratable payment of other Liabilities not specifically referred to in this SECTION 2.5(d) due and payable to the Issuing Banks under L/C Applications and Letters of Credit. (ii) Each Person receiving a payment from the Agent pursuant to SECTION 2.5(d)(i) shall, for all purposes of this Credit Agreement and other Credit Documents, be deemed to have applied that payment in the order specified in SECTION 2.5(d)(i). 2.6 MAINTENANCE OF ACCOUNT. The Agent shall maintain a separate account on its books and records in the name of the Funds Administrator (the "BORROWERS' ACCOUNTS") in 43 which each Borrower will be charged or credited with (a) the proceeds, if any, of each Loan received by or for the account of such Borrower, (b) payments made to the Agent on account of the Obligations of such Borrower, whether from collection of proceeds of Collateral or otherwise, (c) the aggregate face amount of all outstanding Letters of Credit (or an appropriate allocation thereof, if the Letters of Credit are issued for the direct benefit of more than one Borrower) issued for the benefit of such Borrower, and (d) all other Fees, Expenses and other Obligations attributable to such Borrower as determined by Agent. The Agent will use its best efforts to give the Funds Administrator three (3) days advance notice of such Fees, Expenses and other Obligations in reasonable detail, PROVIDED that the failure to provide such notice shall not result in any liability of the Agent or affect any of the Agent's rights hereunder. In no event shall prior recourse to any Accounts or other Collateral be a prerequisite to the Agent's right to demand payment of any Obligation upon its maturity. 2.7 STATEMENT OF ACCOUNT. After the end of each month, the Agent shall send the Funds Administrator a statement accounting for the charges, loans, advances and other transactions occurring among and between the Agent, the Lenders, the Funds Administrator and the Borrowers during that month. The monthly statements shall, absent manifest error, be an account stated, which is final, conclusive and binding on the Borrowers; provided that any failure to so record any transaction or any error in so recording shall not limit or otherwise affect any Borrower's duty to pay the Obligations. 2.8 WITHHOLDING AND OTHER TAXES. (a) Any and all payments by the Borrowers hereunder, under the Notes or in respect of Letters of Credit which are made to or for the benefit of any Lender (whether in its capacity as a Lender or an Issuing Bank, and as used in SECTION 2.8, the term "LENDER" shall mean a Lender in each such capacity, and shall also include each Serving Affiliate of such Lender) or the Agent shall be made, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings and penalties, interests and all other liabilities with respect thereto (collectively, "TAXES"), excluding, (i) in the case of each such Lender or the Agent, Taxes imposed on its net income (including any Taxes imposed on branch profits) and franchise taxes imposed on it by the jurisdiction under the laws of which such Lender, or the Agent (as the case may be) is organized or any political subdivision thereof, (ii) in the case of each such Lender, Taxes imposed on its net income (including any Taxes imposed on branch profits) and franchise Taxes imposed on it by the jurisdiction of such Lender's Applicable Lending Office or any political subdivision thereof, (iii) in the case of any Foreign Lender, any Taxes that are in effect and that would apply to a payment hereunder, under the Notes or in respect of Letters of Credit made to such Foreign Lender as of the Closing Date, and (iv) if any Person acquires any interest in this Credit Agreement, any Note or any L/C Participation pursuant to the provisions hereof, or a Lender or the Agent changes the office in which any Loan or any L/C Participation is made, accounted for or booked, to an office outside the United States, or a Lender if an Issuing Bank, changes the office at which any Letter of Credit is maintained to an office outside the United States (any such Person, or such Lender or the Agent in that event, being referred to as a "TAX TRANSFEREE"), any Taxes to the extent that they are in effect and would apply to a payment to such Tax Transferee as of the date of the acquisition of such interest or change in office, as the case may be, except to the extent Covered Taxes (as defined below) would have resulted from such payments made hereunder, under the 44 Notes or in respect of Letters of Credit made to a Lender or the Agent immediately prior to such acquisition of such interest or such change in office (all such nonexcluded Taxes being hereinafter referred to as "COVERED TAXES"). If any Borrower shall be required by law to deduct or withhold any Covered Taxes from or in respect of any sum payable hereunder, under any Note or in respect of any Letter of Credit to or for the benefit of any Lender, the Agent or any Tax Transferee, (A) the sum payable shall be increased as may be necessary so that after making all required deductions or withholdings of Covered Taxes (including deductions or withholdings of Covered Taxes applicable to additional sums payable under this SECTION 2.8) such Lender, the Agent or such Tax Transferee, as the case may be, receives an amount equal to the sum it would have received had no such deductions or withholdings been made, (B) such Borrower shall make such deductions or withholdings and (C) such Borrower shall pay the full amount so deducted or withheld to the relevant taxation authority or other authority in accordance with applicable law. (b) In addition, each Borrower agrees to pay any present or future stamp, recording, documentary, excise, privilege, property, intangible or similar levies that arise at any time or from time to time (i) from any payment made under any and all Credit Documents, (ii) from the transfer of the rights of any Lender under any Credit Documents to any transferee or (iii) from the execution or delivery by the Funds Administrator or any Borrower of, or from the filing or recording or maintenance of, or otherwise with respect to the exercise by the Agent or the Lenders of their rights under, any and all Credit Documents (hereinafter referred to as "OTHER TAXES"). (c) The Borrowers will jointly and severally indemnify each Lender, the Agent, and any Tax Transferee for the full amount of (i) Covered Taxes imposed on or with respect to amounts payable hereunder, under any Note or in respect of any Letter of Credit, (ii) Other Taxes and (iii) any Taxes imposed by any jurisdiction on amounts payable under this SECTION 2.8, paid by such Lender, the Agent or such Tax Transferee, as the case may be, and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto whether or not such Taxes were correctly or legally asserted by the relevant taxing or other Governmental Authority. Payment under this indemnification shall be made within thirty (30) days from the date such Lender, the Agent or such Tax Transferee certifies and sets forth in reasonable detail the calculation thereof as to the amount and type of such Taxes. Any such certificate submitted by such Lender, the Agent or such Tax Transferee in good faith to the Funds Administrator shall, absent manifest error, be final, conclusive and binding on all parties. (d) Within 60 days after the date of payment of any Covered Taxes or Other Taxes, the Funds Administrator will furnish to the Agent, at its address referred to in SECTION 11.5, the original or a certified copy of a receipt evidencing payment thereof. (e) On or before the Closing Date, each Foreign Lender shall deliver to the Agent and the Funds Administrator (i) two valid, duly completed copies of IRS Form W-8BEN or W-8ECI or successor applicable form, as the case may be, and any other required form, certifying in each case that such Foreign Lender is entitled to receive payments under this Credit Agreement, the Notes or any Letter of Credit payable to it without deduction or withholding of any United States federal income taxes or with such withholding imposed at a reduced rate (the "REDUCED RATE") and (ii) a valid, duly completed IRS Form W-8BEN or W-9 or successor applicable form, as the case may be, to establish an exemption from United States backup 45 withholding tax. Each such Foreign Lender shall also deliver to the Agent and the Funds Administrator two further copies of said Forms or other manner of required certification, as the case may be, on or before the date that any such form expires or becomes obsolete or otherwise is required to be resubmitted as a condition to obtaining an exemption from a required withholding of United States federal income tax or entitlement to having such withholding imposed at the Reduced Rate or after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Funds Administrator and the Agent, and such extensions or renewals thereof as may reasonably be requested by the Funds Administrator and the Agent, certifying (A) in the case of a Form W-8BEN or W-8ECI, that such Foreign Lender is entitled to receive payments under this Credit Agreement, the Notes or any Letter of Credit payable to it without deduction or withholding of any United States federal income taxes or with such withholding imposed at a Reduced Rate, unless in any such case any change in a tax treaty to which the United States is a party, or any change in law or regulation of the United States or official interpretation thereof has occurred after the Closing Date and prior to the date on which any such delivery would otherwise be required that renders all such forms inapplicable or that would prevent such Foreign Lender from duly completing and delivering any such form with respect to it, and such Foreign Lender advises the Funds Administrator and the Agent that it is not capable of receiving payments without any deduction or withholding of United States federal income tax or with such withholding at the Reduced Rate, as the case may be, or (B) in the case of a Form W-8BEN or W-9, or otherwise establishing an exemption from United States backup withholding tax. (f) If a Tax Transferee that is organized under the laws of a jurisdiction outside of the United States acquires an interest in this Credit Agreement or any Note or L/C Participation or a Lender changes the office through which Loans or any L/C Participation are made, accounted for or booked, to an office outside the United States or a Foreign Lender if an Issuing Bank, changes the office at which any Letter of Credit is maintained to an office outside the United States, the transferor, or the applicable Lender, in the case of a change of office, shall cause such Tax Transferee to agree that, on or prior to the effective date of such acquisition or change, as the case may be, it will deliver to the Funds Administrator and the Agent (i) two valid, duly completed copies of IRS Form W-8BEN or W-8ECI or successor applicable form, as the case may be, and any other required form, certifying in each case that such Tax Transferee is entitled to receive payments under this Credit Agreement, the Notes and any Letter of Credit payable to it without deduction or withholding of United States federal income tax or with such withholding imposed at a Reduced Rate and (ii) a valid, duly completed IRS Form W-8BEN or W-9 or successor applicable form, as the case may be, to establish an exemption from United States backup withholding tax. Each Tax Transferee further undertakes to deliver two further copies of the said Forms or other manner of required certification, as the case may be, on or before the date that any such form expires or becomes obsolete or otherwise is required to be resubmitted as a condition to obtaining an exemption from a required withholding of United States federal income tax or entitlement to having such withholding imposed at the Reduced Rate or after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Funds Administrator and the Agent, and such extensions or renewals thereof as may reasonably be requested by the Funds Administrator and the Agent, certifying (A) in the case of a Form W-8BEN or W-8ECI that such Tax Transferee is entitled to receive payments under this Credit Agreement, the Notes and any Letter of Credit without deduction or withholding of any United States federal income taxes or with such withholding imposed at the 46 Reduced Rate, unless any change in treaty, law or regulation or official interpretation thereof has occurred after the effective date of such acquisition or change and prior to the date on which any such delivery would otherwise be required that renders all such forms inapplicable or that would prevent such Tax Transferee from duly completing and delivering any such form with respect to it, and such Tax Transferee advises the Funds Administrator and the Agent that it is not capable of receiving payments without any deduction or withholding of United States federal income tax or with such withholding at the Reduced Rate, as the case may be, or (B) in the case of a Form W-8BEN or W-9, or otherwise establishing an exemption from United States backup withholding tax. (g) If any Taxes for which any Borrower would be required to make payment under this SECTION 2.8 are imposed, the applicable Lender or the Agent, as the case may be, shall use its best efforts to avoid or reduce such Taxes by taking any appropriate action (including assigning its rights hereunder to a related entity or a different office) which would not in the sole opinion of such Lender or the Agent be otherwise disadvantageous to such Lender or the Agent, as the case may be. (h) Without prejudice to the survival of any other agreement of the Borrowers hereunder, the agreements and obligations of the Borrowers contained in this SECTION 2.8 shall survive the payment in full of the Obligations. (i) Each Lender shall cause each of its Serving Affiliates that is a Foreign Lender to take the actions required to be taken by such Serving Affiliate as a Foreign Lender under SECTION 2.8(e), (f) AND (g). 2.9 AFFECTED LENDERS. If any Borrower is obligated to pay to any Lender (whether in its capacity as a Lender or an Issuing Bank) or any Serving Affiliate of such Lender any amount under SECTIONS 2.8 OR 4.9, or if any Lender is a Defaulting Lender, the Borrowers may, if no Default or Event of Default then exists, replace such Lender or Serving Affiliate with another lender reasonably acceptable to the Agent, and such Lender hereby agrees to be so replaced or to cause such Serving Affiliate to be replaced, subject to the following: (a) (i) The obligations of the Borrowers hereunder to the Lender to be replaced (in its capacity as a Lender, and including such increased or additional costs incurred from the date of notice to the Funds Administrator of such increase or additional costs through the date such Lender is replaced hereunder) shall be paid in full to such Lender concurrently with such replacement; and (ii) the obligations of the Borrowers hereunder to the Lender to be replaced in its capacity as an Issuing Bank, or to its Serving Affiliate in such capacity, shall continue until (A) each Letter of Credit issued by that Person has expired or been drawn in full, (B) all outstanding reimbursement obligations with respect to Letters of Credit, together with interest thereon at the L/C Interest Rate, shall have been paid in full, and (C) all Liabilities under each L/C Application, to the extent due, have been paid in full and, to the extent not due, been secured to the satisfaction of such Person, to the extent due, have been paid in full and, to the extent not due, been secured to the satisfaction of such Person. 47 (b) If such replacement is a result of increased costs under SECTIONS 2.8 or 4.9, the replacement Lender shall be a bank or other financial institution that is not subject to such increased costs which caused the Borrowers' election to replace any Lender hereunder, and each such replacement Lender shall execute and deliver to the Agent such documentation satisfactory to the Agent pursuant to which such replacement Lender is to become a party hereto, conforming to the provisions of SECTION 11.6, with a Commitment equal to that of the Lender being replaced and shall make Loans in the aggregate principal amount equal to the aggregate outstanding principal amount of the Loans of the Lender being replaced; (c) Upon such execution of such documents referred to in CLAUSE (b) and repayment of the amounts referred to in CLAUSE (a), the replacement lender shall be a "Lender" with a Commitment as specified herein above and the Lender being replaced shall cease to be a "Lender" hereunder, except with respect to indemnification provisions under this Credit Agreement, which shall survive as to such replaced Lender and except to the extent such Lender continues to be an Issuing Bank pursuant to SECTION 2.9(a)(ii); (d) The Agent shall reasonably cooperate in effectuating the replacement of any Lender under this SECTION 2.9, but at no time shall the Agent be obligated to initiate any such replacement; (e) Any Lender replaced under this SECTION 2.9 shall be replaced at the Borrowers' sole cost and expense and at no cost or expense to the Agent or any of the Lenders; and (f) If the Borrowers propose to replace any Lender pursuant to this SECTION 2.9 because the Lender seeks reimbursement under either SECTION 2.8 OR 4.9, then it must also replace any other Lender who seeks similar levels of reimbursement (as a percentage of such Lender's Commitment) under such Sections. 2.10 SHARING OF PAYMENTS. (a) (i) If any Lender (including a Lender in its capacity as an Issuing Bank) shall obtain any payment (whether voluntary, involuntary, and whether through the exercise of any right of set-off by virtue of its claim in any applicable bankruptcy, insolvency or other similar proceeding being deemed secured by a Liability owed by it to any Credit Party, including a claim deemed secured under Section 506 of the Bankruptcy Code, or otherwise) (each a "PAYMENT"), on account of (A) the Loans made by it, (B) its L/C Participations or (C) any of the other Obligations due and payable to it in excess of its Proportionate Share of payments on account of the Loans or L/C Participations or such other Obligations obtained by all the Lenders, such Lender shall forthwith purchase from the other Lenders such participations in the Loans made by them, in their participation in Letters of Credit or their other such Obligations as shall be then due and payable as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; HOWEVER, PROVIDED that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and each such Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery together with an amount equal to such Lender's ratable share (according to the proportion of (1) the amount of such Lender's required repayment to (2) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in 48 respect to the total amount so recovered. Each Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this SECTION 2.10 may, to the fullest extent permitted by law, exercise all of its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of such Borrower in the amount of such participation. (ii) For purposes of this SECTION 2.10, the unreimbursed drawings under Letters of Credit issued by an Issuing Bank shall be deemed to constitute "Loans" made by such Issuing Bank, and such Issuing Bank agrees that it shall apply all Payments received by it in its capacity as an Issuing Bank to the payment or the collateralization of the Liabilities of the Borrowers to it that constitute unreimbursed drawings under Letters of Credit issued by it before applying them to any other Liabilities due it. (b) If an Issuing Bank is an Affiliate of a Lender, such Lender shall cause such Affiliate to comply with the provisions of SUBSECTION (a) of SECTION 2.10 as fully as though such Affiliate were a Lender subject to such subsection. ARTICLE 3 LETTERS OF CREDIT 3.1 ISSUANCE OF LETTERS OF CREDIT. (a) The Funds Administrator may from time to time request the Agent to direct an Issuing Bank to issue a Letter of Credit for the account of a Borrower. All such Letters of Credit shall be denominated in Dollars. No such request shall be granted if, after such issuance: (i) (A) Total Exposure would exceed the lesser of (1) the Line of Credit and (2) the Borrowing Base or (B) Letter of Credit Obligations would exceed $20,000,000 or (C) any Lender's Exposure would exceed its Commitment; (ii) (A) (1) any order, judgment or decree of any Governmental Authority or arbitrator shall enjoin or restrain such Borrower from procuring, such Issuing Bank from issuing, or a Lender from acquiring an L/C Participation in, such Letter of Credit, or (2) any Requirement of Law applicable to such Borrower, such Issuing Bank or a Lender or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over such Borrower, such Issuing Bank or a Lender shall prohibit, or request that, any such Person refrain from procuring, issuing or acquiring an L/C Participation in, such Letter of Credit, as applicable, or, from performing its obligations under such Letter of Credit or its L/C Participation thereunder, as applicable; (B) any Requirement of Law applicable to such Issuing Bank or a Lender or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over such Issuing Bank or a Lender shall impose upon such Issuing Bank or such Lender (1) any restriction or reserve or capital requirement or (2) any cost or expense 49 with respect to, in the case of such Issuing Bank, such Letter of Credit and, in the case of such Lender, such L/C Participation (for which such Issuing Bank or such Lender shall not otherwise be compensated) not in effect as of the Closing Date, and which such Issuing Bank or such Lender deems in good faith to be material to it; (iii) any Lender is a Defaulting Lender, unless the Agent and Issuing Bank have entered into satisfactory arrangements with the Borrowers to eliminate the Agent's and such Issuing Bank's risk with respect to such Lender, including cash collateralization of such Lender's Proportionate Share of Letter of Credit Obligations; or (iv) Agent has determined that any of the conditions set forth in SECTION 5.2 shall not be satisfied. (b) The Agent may assume, as to any Borrower, any Issuing Bank and any Lender, that none of the conditions specified in SECTION 3.1(a) are applicable as to such Person, unless the Agent shall have received a notice from such Person specifically entitled "Notice under SECTION 3.1(a)," specifying the condition or conditions that are applicable to such Person. Any such notice shall continue in effect until the Agent shall have received from the Person originally sending such notice a subsequent notice, entitled "Revocation of Notice under SECTION 3.1(a)," stating that the condition or conditions specified in such Person's earlier notice are no longer applicable. 3.2 PROCEDURE FOR ISSUANCE. (a) The Funds Administrator may from time to time request the Agent to direct the issuance of a Letter of Credit by delivering to the Agent, with a copy to the applicable Issuing Bank, a Letter of Credit Request in the form of EXHIBIT C-2 to this Credit Agreement, not later than 1:00 P.M (New York City time) at least five (5) Business Days (or such shorter period as may be agreed to by the Agent and the applicable Issuing Bank) in advance of the proposed date of issuance. Prior to date of issuance or in conjunction with the submission of a Letter of Credit Request, the Funds Administrator shall provide to the Agent and the applicable Issuing Bank a precise description of the format of the Letter of Credit or information and documents adequate to allow for the Issuing Bank to prepare the requested Letter of Credit and shall specify that the only drawings permitted under the Letter of Credit shall be sight drawings. The Issuing Bank shall not issue any Letter of Credit until it has received authorization to do so from the Agent. Promptly after the issuance or amendment of any standby Letter of Credit, the Issuing Bank shall notify the Agent and the Funds Administrator, in writing, of such issuance or amendment and such notice shall be accompanied by a copy of such issuance and amendment. Upon receipt of such notice, the Agent shall promptly notify the Lenders, in writing, of such issuance or amendment, and if so requested by a Lender the Agent shall provide such Lender with copies of such issuance or amendment. With regards to commercial Letters of Credit, the Issuing Bank shall on the first Business Day of each week, provide to the Agent by facsimile a report detailing the daily aggregate outstanding commercial Letters of Credit for the previous week. (b) The transmittal by the Funds Administrator of each Letter of Credit Request shall be deemed to be a representation and warranty made by each of the Borrowers, 50 both at the time of such transmittal and at the time of the issuance of the requested Letter of Credit, that the Letter of Credit may be issued in accordance with and will not violate any of the requirements of SECTION 3.1. 3.3 TERMS OF LETTERS OF CREDIT. The Agent shall not direct the issuance of any Letter of Credit unless: (a) if it is a standby Letter of Credit, its term does not exceed one year from the date of issuance (except that any such Letter of Credit may provide for annual renewals on terms reasonably acceptable to the Agent and the Issuing Bank); (b) if it is a commercial Letter of Credit, its term does not exceed 120 days; (c) in the case of any Letter of Credit, it expires no later than thirty (30) Business Days prior to the Expiration Date. 3.4 LENDERS' PARTICIPATION. (a) Immediately upon issuance by any Issuing Bank of a Letter of Credit, each Lender shall be deemed to have irrevocably and unconditionally acquired from such Issuing Bank, without recourse or warranty, an undivided interest and participation (an "L/C PARTICIPATION"), to the extent of such Lender's Proportionate Share, in such Issuing Bank's rights to be paid the principal amount of, together with interest accrued on, drawings under such Letter of Credit and in any security therefor or Guaranty pertaining thereto. (b) (i) Each Issuing Bank shall, subject to SECTION 3.4(c), remit to the Agent, for the account of each Lender such Lender's Proportionate Share of each payment of principal and interest (to the extent such interest does not exceed the L/C Interest Rate) received by such Issuing Bank on account of any drawing under such Letter of Credit (A) with respect to which such Issuing Bank has delivered an L/C Notice of Drawing to the Agent during a Bankruptcy Default and (B) that is received by such Issuing Bank on or after the date of such L/C Notice of Drawing; PROVIDED, that in the event that any such payment received by any Issuing Bank shall be required to be returned by such Issuing Bank, such Lender shall return to such Issuing Bank the portion thereof previously distributed by it to the Agent, but without interest thereon (unless such Issuing Bank is required to pay interest on the amount returned, in which case such Lender shall be required to pay interest at the same rate). (ii) (A) Payments required to be made by any Issuing Bank to the Agent for the account of a Lender, together with interest thereon at the rate specified in SECTION 3.4(b)(ii)(B), shall be made to the Agent, if the amount in respect of which the payment is to be made to the Agent is received by such Issuing Bank on or before 1:00 P.M. (New York City time) of such Issuing Bank's time on a Business Day, on the day received and, if received after such time, on or before 11:00 A.M. (New York City time) of such Issuing Bank's time, on the next succeeding Business Day. (B) Interest shall be payable by each Issuing Bank on amounts required to be paid by it to the Agent pursuant to SECTION 3.4(b)(ii)(a) from the date such payments are due until such amounts are paid in full at, 51 for the first three Business Days, the Federal Funds Rate, and, thereafter, the Prime Lending Rate. (c) Until an Issuing Bank shall have received from a Lender, or the Agent on behalf of such Lender, payment in full of the amount required to be paid by such Lender to such Issuing Bank pursuant to SECTION 3.6(b)(ii), such Issuing Bank may hold all amounts otherwise payable by it to the Agent for the account of such Lender pursuant to SECTION 3.4(b)(i) as collateral to secure such Lender's obligation to make such payment to it. 3.5 MATURITY OF DRAWINGS; INTEREST THEREON. (a) Drawings under any Letter of Credit shall, notwithstanding anything to the contrary contained therein, mature and become due and payable, and shall be repaid to the Agent for the account of the applicable Issuing Bank by the Borrowers in full, together with interest accrued thereon, from the date and at the rate specified in SECTION 3.5(b), on the Effective Date of the L/C Notice of Drawing in respect of such drawing. (b) Borrowers shall, notwithstanding anything to the contrary contained in any Letter of Credit, pay interest on the outstanding principal amount of each drawing under such Letter of Credit at a rate per annum equal to the rate set forth in SECTION 4.2 (the "L/C INTEREST RATE") from the date such drawing is disbursed by the applicable Issuing Bank to the date such drawing is reimbursed by the Borrowers. Interest on each such drawing shall be payable when such drawing shall be due (whether at maturity, by reason of acceleration or otherwise) and, prior to such time, on demand. 3.6 PAYMENT OF AMOUNTS DRAWN UNDER LETTERS OF CREDIT; FUNDING OF L/C PARTICIPATIONS. In the event of any drawing under any Letter of Credit, the applicable Issuing Bank may deliver an L/C Notice of Drawing to the Agent and the Agent shall: (a) unless a Bankruptcy Default exists, treat each L/C Notice of Drawing on its Effective Date as a Notice of Borrowing requesting Prime Rate Loans in a principal amount equal to the amount of such drawing PLUS interest on the amount of such drawing at the L/C Interest Rate from the day such drawing was disbursed until the date of such L/C Notice of Drawing (unless such drawing was disbursed and repaid on the same day, in which case interest shall be payable for such day); and each such L/C Notice of Drawing shall have the same force and effect as a Notice of Borrowing given by the Funds Administrator for and on behalf of the Borrowers, except that the conditions to borrowing specified in SECTION 2.2 and SECTION 5.2 (other than that a Bankruptcy Default shall not exist) shall not apply; (b) (i) (A) during a Bankruptcy Default, on the Effective Date of an L/C Notice of Drawing, notify (an "L/C PARTICIPATION FUNDING NOTICE") each Lender of the amount of such drawing, and of interest accrued thereon at the L/C Interest Rate from the date specified in such L/C Notice of Drawing as the date such drawing was disbursed by the applicable Issuing Bank to the L/C Participation Funding Date and of such Lender's Proportionate Share of such amount (an "L/C PARTICIPATION FUNDING AMOUNT"). (B) The Agent shall give an L/C Participation Funding Notice to each Lender not later than 3:00 P.M. (New York City time) time on the 52 day the Agent receives an L/C Notice of Drawing, if such Notice of Drawing was received by it at or before 12:00 Noon (New York City time) on a Business Day and, if not, not later than 12:00 Noon (New York City time) on the next succeeding Business Day. (ii) Each Lender shall make available to the Agent for the benefit of the applicable Issuing Bank an amount equal to such Lender's L/C Participation Funding Amount in immediately available funds, not later than 1:00 P.M. (New York City time) on the Business Day (the "L/C PARTICIPATION FUNDING DATE") next succeeding the date of the applicable L/C Participation Funding Notice, together with interest on such amount from the L/C Participation Funding Date until such amount is paid in full at, for the first three Business Days, the Federal Funds Rate and, thereafter, the Prime Lending Rate. (iii) In the event that any Lender fails to make available to the Agent such Lender's L/C Participation Funding Amount as provided in SECTION 3.6(b)(ii), the Agent may, but shall not be obligated to, fund the amount of such Lender's L/C Participation Funding Amount and recover such amount on demand from such Lender in accordance with SECTION 11.18. (iv) The Agent shall distribute to each Lender which has paid all amounts payable by it under this SECTION 3.6(b) with respect to any Letter of Credit such Lender's Proportionate Share of all payments subsequently received by the Agent from or for the account of the Borrowers in reimbursement of the principal amount of all drawings thereunder PLUS interest thereon from the date such drawings were disbursed at the L/C Interest Rate, provided that in the event that any such payment received by the Agent for the account of any Issuing Bank shall be required to be returned by the Agent, such Lender shall return to the Agent the portion thereof previously distributed by the Agent to it, but without interest thereon (unless the Agent or such Issuing Bank is required to pay interest on the amount returned, in which case the Lender shall be required to pay interest at the same rate). (v) If a Bankruptcy Default occurs at or after the time the Agent receives an L/C Notice of Drawing and before the Agent has given the applicable L/C Participation Funding Notice, or, if it has given such notice, before all of the Lenders have funded their L/C Participation Funding Amounts, a Bankruptcy Default shall be deemed to "exist", and the provisions of SECTION 3.6(b) shall be applicable. 3.7 NATURE OF ISSUING BANK'S DUTIES. In determining whether to pay under any Letter of Credit, the Issuing Bank issuing such Letter of Credit shall be responsible only to determine that the documents and certificates required to be delivered under such Letter of Credit have been delivered and that they comply on their face with the requirements of such Letter of Credit. As between the Borrowers, any Issuing Bank and each Lender, the Borrowers assume all risks of the acts and omissions of any Issuing Bank, or misuse of any Letter of Credit by the respective beneficiaries of such Letter of Credit. In furtherance and not in limitation of the 53 foregoing, neither any Issuing Bank, the Agent nor any of the Lenders shall be responsible (a) for the form, validity, sufficiency, accuracy, genuineness or legal effects of any document submitted by any party in connection with the application for and issuance of or any drawing honored under any Letter of Credit even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged, (b) for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any Letter of Credit, or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason, (c) for failure of the beneficiary of any Letter of Credit to strictly comply with conditions required in order to draw upon such Letter of Credit, (d) for errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex, telecopy, facsimile or otherwise, whether or not they be in cipher, (e) for errors in interpretation of technical terms, (f) for any loss or delay in the transmission or otherwise of an document required in order to make a drawing under any Letter of Credit, or of the proceeds thereof and (g) for the misapplication by the beneficiary of any Letter of Credit of the proceeds of any drawing honored under such Letter of Credit. Any action taken or omitted to be taken by any Issuing Bank under or in connection with any Letter of Credit shall not create any liability on the part of the Agent or any Lender to any Borrower. 3.8 OBLIGATIONS ABSOLUTE. The joint and several obligations of the Borrowers to reimburse each Issuing Bank for drawings honored under a Letter of Credit issued by such Issuing Bank, together with interest as herein provided, and the obligations of the Lenders under SECTION 3.6 shall be unconditional and irrevocable and shall be paid strictly in accordance with the terms of this Credit Agreement, without any reduction or deduction whatsoever, including any reduction or deduction for any set-off, recoupment or counterclaim, under all circumstances including the following circumstances: (a) any lack of validity or enforceability of any Letter of Credit; (b) the existence of any claim, set-off, defense or other right which any Borrower or any Affiliate of any Borrower may have at any time against a beneficiary or any transferee of any Letter of Credit (or any Persons for whom any such beneficiary or transferee may be acting), the applicable Issuing Bank, any Lender or any other Person, whether in connection with this Credit Agreement, the transactions contemplated herein or any unrelated transaction; (c) any draft, demand, certificate or any other documents presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (d) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Credit Documents; (e) payment by the applicable Issuing Bank under any Letter of Credit against presentation of a demand, draft or certificate or other document which does not comply with the terms of such Letter of Credit (provided that the foregoing shall not be construed to excuse the Issuing Bank from liability to any Borrower to the extent of any direct damages (as opposed to consequential damages) suffered by any Borrower that are caused by the Issuing Bank's failure 54 to exercise care when determining whether drafts and other documents under a Letter of Credit comply with the terms thereof); (f) failure of any drawing under a Letter of Credit or any non-application or misapplication by the beneficiary of the proceeds of any drawing; or (g) the fact that a Default or an Event of Default shall have occurred and be continuing; PROVIDED that no payment by a Borrower or a Lender to any Issuing Bank shall constitute a waiver or release by such Borrower or such Lender of any right it may have against such Issuing Bank, including, in the case of a Borrower, a claim that such Issuing Bank acted with willful misconduct or gross negligence as determined by a court of competent jurisdiction in determining whether documents presented under a Letter of Credit complied with the terms of such Letter of Credit. ARTICLE 4 INTEREST, FEES AND EXPENSES 4.1 INTEREST ON LIBOR RATE LOANS. Subject to the provisions of SECTION 4.4, each LIBOR Rate Loan shall bear interest on its unpaid principal amount at a rate per annum equal to the applicable Adjusted LIBOR Rate PLUS the Applicable Margin, as the same may be adjusted pursuant to the provisions of the definition of Applicable Margin. Such interest shall be payable on the last day of each Interest Period with respect to such LIBOR Rate Loan (or, in the case of Interest Periods in excess of three months, on each 90 day anniversary of the making of such LIBOR Rate Loan and the last day of such Interest Period), at the date of Conversion of such LIBOR Rate Loan (or a portion thereof) to a Prime Rate Loan and at maturity of such LIBOR Rate Loan, and after maturity of such LIBOR Rate Loan (whether by acceleration or otherwise), upon demand. The Agent upon determining the Adjusted LIBOR Rate for any Interest Period shall promptly notify the Funds Administrator and the Lenders by telephone (confirmed promptly in writing) or in writing thereof. Each determination by the Agent of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error. 4.2 INTEREST ON PRIME RATE LOANS. Subject to the provisions of SECTION 4.4, each Prime Rate Loan shall bear interest on its unpaid principal amount at a rate per annum equal to the Prime Lending Rate PLUS the Applicable Margin, as the same may be adjusted pursuant to the provisions of the definition of Applicable Margin. Such interest shall be payable quarterly as of the end of each Fiscal Quarter, at the date of conversion of such Prime Rate Loan (or a portion thereof) to a LIBOR Rate Loan and at maturity of such Prime Rate Loan, and after maturity of such Prime Rate Loan (whether by acceleration or otherwise), upon demand. In the event of any change in said Prime Lending Rate, the rate hereunder shall change, effective as of the day the Prime Lending Rate changes. Each determination by the Agent of any interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error. 55 4.3 NOTICE OF CONTINUATION AND NOTICE OF CONVERSION. (a) With respect to any Borrowing consisting of LIBOR Rate Loans, the Borrowers may (so long as no Default or Event of Default has occurred and is continuing, subject to the provisions of SECTION 4.3(c)), elect to maintain such Borrowing or any portion thereof as consisting of LIBOR Rate Loans by selecting a new Interest Period for such Borrowing, which new Interest Period shall commence on the last day of the immediately preceding Interest Period. Each selection of a new Interest Period (a "CONTINUATION") shall be made by notice given not later than 12:00 Noon (New York City time) on the third Business Day prior to the date of any such Continuation relating to LIBOR Rate Loans, by the Funds Administrator to the Agent. Such notice by the Funds Administrator of a Continuation (a "NOTICE OF CONTINUATION") shall be in substantially the form of EXHIBIT C-1, specifying (i) the date of such Continuation, (ii) the aggregate amount of Loans subject to such Continuation and (iii) the duration of the selected Interest Period, all of which shall be specified in such manner as is necessary to comply with all limitations on Loans outstanding hereunder. The Borrowers may elect to continue more than one Borrowing consisting of LIBOR Rate Loans by combining such Borrowings into one Borrowing and selecting a new Interest Period pursuant to this SECTION 4.3(A); PROVIDED that each of the Borrowings so combined shall consist of Loans having Interest Periods ending on the same date. If the Borrowers shall fail to select a new Interest Period for any Borrowing consisting of LIBOR Rate Loans in accordance with this SECTION 4.3(A), such Loans will automatically, on the last day of the then existing Interest Period therefor, Convert into Prime Rate Loans. (b) The Borrowers may on any Business Day (so long as no Default or Event of Default has occurred and is continuing), upon notice (each such notice, a "NOTICE OF CONVERSION") given by the Funds Administrator to the Agent, and subject to the provisions of SECTION 4.3(c), Convert the entire amount of or a portion of all Loans of one Type comprising the same Borrowing into Loans of another Type; HOWEVER PROVIDED that any Conversion of any LIBOR Rate Loans into Loans of another Type shall be made on, and only on, the last day of an Interest Period for such LIBOR Rate Loans and, upon Conversion of any Loans into Loans of another Type, the Borrowers shall pay accrued interest to the date of Conversion on the principal amount Converted. Each such Notice of Conversion shall be given not later than 12:00 Noon (New York City time) on the Business Day prior to the date of any proposed Conversion into Prime Rate Loans and on the third Business Day prior to the date of any proposed Conversion into LIBOR Rate Loans. Subject to the restrictions specified above, each Notice of Conversion shall be in substantially the form of EXHIBIT C-1 hereto specifying (i) the requested date of such Conversion, (ii) the Type of Loans to be Converted, (iii) the portion of such Type of Loan to be Converted, (iv) the Type of Loan such Loans are to be Converted into and (v) if such Conversion is into LIBOR Rate Loans, the duration of the Interest Period of such Loan. Each Conversion shall be in an aggregate amount for the Loans of all Lenders of not less than $2,000,000 or any integral multiple of $1,000,000 in excess thereof. The Borrowers may elect to Convert the entire amount of or a portion of all Loans of one Type comprising more than one Borrowing into Loans of another Type by combining such Borrowings into one Borrowing consisting of Loans of another Type; PROVIDED that if the Borrowings so combined consist of LIBOR Rate Loans, such Loans shall have Interest Periods ending on the same date. 56 (c) Notwithstanding anything contained in SUBSECTIONS (A) AND (B) above or elsewhere in this Credit Agreement to the contrary, (i) (A) if the Agent is unable to determine the LIBOR Rate for LIBOR Rate Loans comprising any requested Borrowing, Continuation or Conversion, the right of the Borrowers to select or maintain LIBOR Rate Loans for such Borrowing or any subsequent Borrowing shall be suspended until the Agent shall notify the Funds Administrator and the Lenders that the circumstances causing such suspension no longer exist, and each Loan comprising such Borrowing shall be a Loan of a Type that is unaffected by such circumstances, as selected by the Borrowers pursuant to this Credit Agreement; (B) if a Lender shall, at any time, notify the Agent that, because of a change in applicable law after the date such Lender became a Lender, it has become unlawful for such Lender to participate in any requested Borrowing, Continuation or Conversion of LIBOR Rate Loans, to continue its LIBOR Rate Loans, or to comply with its obligations hereunder in respect thereof, that Lender's obligation to participate in any such requested Borrowing, Continuation or Conversion shall be discharged by such Lender's making its participation therein in the form of a Prime Rate Loan, and any of such Lender's LIBOR Rate Loans not otherwise being converted shall be converted into Prime Rate Loans on the earlier of (1) the last day of the applicable Interest Period and (2) the last day such Lender may lawfully continue to maintain LIBOR Rate Loans, PROVIDED that any Prime Rate Loan that, but for this CLAUSE (B), would have been a LIBOR Rate Loan shall constitute part of the Borrowing of which any such LIBOR Rate Loan was or would have been a part; (ii) if the Majority Lenders shall, at least one Business Day before the date of any requested Borrowing, Continuation or Conversion, notify the Agent that the LIBOR Rate for Loans comprising such Borrowing will not adequately reflect the cost to such Lenders of making or funding their respective Loans for such Borrowing, the right of the Borrowers to select LIBOR Rate Loans for such Borrowing shall be suspended until the Agent shall notify the Funds Administrator and the Lenders that the circumstances causing such suspension no longer exist, and each Loan comprising such Borrowing shall be a Loan of a Type that is unaffected by such circumstances, as selected by the Borrowers pursuant to this Credit Agreement; and (iii) the Borrowers shall borrow, prepay, convert and continue Loans in a manner such that (A) the aggregate principal amount of LIBOR Rate Loans having the same Interest Period shall at all times be not less than $2,000,000, (B) there shall not be, at any one time, more than eight Interest Periods in effect with respect to LIBOR Rate Loans and (C) no payment of LIBOR Rate Loans will have to be made prior to the last day of an applicable Interest Period in order to repay the Loans in the amounts and on the date specified in SECTION 2.4(b). 57 (d) Each Notice of Continuation and Notice of Conversion shall be irrevocable (subject to SECTION 4.3(c)) by and binding on the Borrowers. 4.4 INTEREST AFTER EVENT OF DEFAULT. At the election of Agent or the Majority Lenders, Interest on any amount of overdue interest on or overdue principal of the Loans, and interest on the amount of principal under the Loans outstanding as of the date an Event of Default occurs, and at all times thereafter until the earlier of the date upon which (a) all Obligations have been paid and satisfied in full or (b) such Event of Default shall not be continuing, shall be payable on demand at a rate per annum equal to the rate at which the Loans are bearing interest pursuant to SECTION 4.2 above, PLUS two percent (2.0%). In the event of any change in said applicable interest rate, the rate hereunder shall change, effective as of the day the applicable interest rate changes, so as to remain two percent (2.0%) per annum above the then applicable interest rate. 4.5 UNUSED LINE FEES. The Borrowers shall pay to the Agent, for the ratable benefit of the Lenders, a non-refundable fee (the "UNUSED LINE FEE") equal to one half of one percent (0.50%) per annum of the unused portion of the Line of Credit (with any outstanding Letter of Credit Obligations constituting usage of the Line of Credit). The Unused Line Fee shall accrue daily from the Closing Date until the Expiration Date, and shall be due and payable quarterly in arrears, on the first Business Day of each Fiscal Quarter and on the Expiration Date. 4.6 LETTER OF CREDIT FEES. (a) The Agent shall be entitled to charge to the account of the Funds Administrator on the first Business Day of the month immediately succeeding each Fiscal Quarter, a fee for the ratable benefit of the Lenders for distribution to each Lender, in an amount equal to the LIBOR Margin for Loans with respect to all Letters of Credit on the daily undrawn amounts outstanding during the immediately preceding Fiscal Quarter; PROVIDED that from the date an Event of Default occurs, and at all times thereafter until the earlier of the date upon which (A) all Obligations have been paid and satisfied in full and (B) such Event of Default shall not be continuing, such fee shall be equal to two (2%) percent per annum above the LIBOR Margin, otherwise applicable hereunder and shall be payable on demand (such fees, the "LETTER OF CREDIT FEES"); and (b) The Agent shall be entitled to charge to the account of the Funds Administrator on the first Business Day of the month immediately succeeding each Fiscal Quarter, a fee for the benefit of the Issuing Bank equal to the greater of (X) $500 per annum and (Y) 0.25% per annum with respect to all Letters of Credit on the daily undrawn amounts outstanding during the immediately preceding Fiscal Quarter (the "FRONTING FEE"). In addition to the Fronting Fee, the Agent shall be entitled to charge the account of the Funds Administrator, as and when incurred, the customary charges, fees, costs and expenses of the Issuing Bank for the issuance, transfer, amendment or payment of any Letter of Credit (the "ISSUING BANK FEES"). Each determination of the Fronting Fee and Issuing Bank Fees shall be made by the Issuing Bank and provided in writing to the Agent and shall be conclusive and binding for purposes of Agent's right to collect and distribute such fees, absent manifest error. 58 4.7 REIMBURSEMENT OF EXPENSES. (a) From and after the Closing Date, the Borrowers shall promptly reimburse the Agent for all Expenses of the Agent as the same are incurred by the Agent and upon receipt of invoices therefor and, if requested by the Funds Administrator, such reasonable backup materials and information as any Borrower shall reasonably request. (b) The Borrowers shall pay to each Lender, upon request, such amount or amounts as such Lender determines in good faith are necessary to compensate it for any breakage loss, cost or expense incurred by it as a result of (i) any payment, prepayment or conversion of a LIBOR Rate Loan on a date other than the last day of an Interest Period for such LIBOR Rate Loan or (ii) a LIBOR Rate Loan for any reason not being made or converted, or any payment of principal thereof or interest thereon not being made, on the date therefor determined in accordance with the applicable provisions of this Credit Agreement. At the election of such Lender, and without limiting the generality of the foregoing, but without duplication, such compensation on account of breakage losses may include an amount equal to the excess of (A) the interest that would have been received from the Borrowers under and in accordance with the terms of this Credit Agreement on any amounts to be reemployed during an Interest Period or its remaining portion over (B) the interest component of the return that such Lender determines it could have obtained had it placed such amount on deposit in the interbank Dollar market selected by it for a period equal to such Interest Period or its remaining portion. 4.8 AUTHORIZATION TO CHARGE BORROWERS' ACCOUNTS. Each Borrower hereby authorizes the Agent to charge the account of any Borrower maintained with the Agent with the amount of all Fees, Expenses and other payments to be paid hereunder, under the Fee Letter and under the other Credit Documents as and when such payments become due and agrees that it shall pay interest thereon from the date such amount is to be charged to such Borrower's Account to the date the same is paid (whether by the making of a Loan or otherwise) at the then applicable rate for Prime Rate Loans. Each Borrower confirms that any charges which the Agent may so make to such Borrower's Account as herein provided will be made as an accommodation to the Borrowers and solely at the Agent's discretion. The Agent will use its best efforts to give the Funds Administrator three (3) days advance notice of such Fees, Expenses and other payments in reasonable detail, PROVIDED that the failure to provide such notice shall not result in any liability of the Agent. 4.9 INDEMNIFICATION IN CERTAIN EVENTS. If after the Closing Date, either (a) any change in or in the interpretation of any law or regulation is introduced, including with respect to reserve requirements, applicable to DBTCo., Deutsche Bank or any other banking or financial institution from whom any of the Lenders borrows funds or obtains credit (a "FUNDING BANK"), the Agent or any of the Lenders, or (b) the Agent, a Funding Bank or any of the Lenders complies with any future guideline or request from any central bank or other Governmental Authority or (c) the Agent, a Funding Bank or any of the Lenders determines that the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof has or would have the effect described below, or the Agent, a Funding Bank or any of the Lenders complies with any request or directive regarding capital adequacy (whether of not having the 59 force of law) of any such authority, central bank or comparable agency, and in the case of any event set forth in this CLAUSE (c), such adoption, change or compliance has or would have the direct or indirect effect of reducing the rate of return on any of the Lenders' capital as a consequence of its obligations hereunder or under any L/C Participation to a level below that which such Lender could have achieved but for such adoption, change or compliance (taking into consideration the Agent's or such Funding Bank's or Lender's policies as the case may be with respect to capital adequacy) by an amount deemed by such Lender to be material, or any of the foregoing events described in CLAUSES (a), (b) OR (c) increases the cost to the Agent, or any of the Lenders of (i) funding or maintaining the Line of Credit, or (ii) acquiring or maintaining any L/C Participation in any Letter of Credit, or reduces the amount receivable in respect thereof, or in respect of such Letter of Credit, by the Agent, the Issuing Bank of such Letter of Credit or any Lender, then the Borrowers shall upon demand by the Agent, pay to the Agent, for the account of each applicable Lender or, as applicable, an Issuing Bank or a Funding Bank, additional amounts sufficient to indemnify such Person against such increase in cost or reduction in amount receivable. A certificate as to the amount of such increased cost and setting forth in reasonable detail the calculation thereof shall, if requested by the Funds Administrator, be submitted to the Funds Administrator by the Person making such claim, and shall be conclusive absent manifest error; PROVIDED, HOWEVER, in no event shall any party seek indemnification for any amounts described in this SECTION 4.9 if such amounts arose more than 180 days prior to the date on which reimbursement is being sought. 4.10 CALCULATIONS AND DETERMINATIONS. (a) All calculations of (I) interest hereunder and (II) Fees, shall be made by the Agent, on the basis of a year of 360 days, or, if such computation would cause the interest and fees chargeable hereunder to exceed the Highest Lawful Rate, 365/366 days, in each case to the extent applicable for the actual number of days elapsed (including the first day but excluding the last day) occurring in the period for which such interest or fees are payable. (b) In making the determinations contemplated by ARTICLE 4, the Agent and each Lender may make such estimates, assumptions, allocations and the like that such Person in good faith determines to be appropriate. (c) Each determination by the Agent of an interest rate or payment hereunder shall be conclusive and binding for all purposes, absent manifest error. ARTICLE 5 CONDITIONS PRECEDENT 5.1 CONDITIONS TO INITIAL CREDIT EVENT. The initial Credit Event is subject to the satisfaction or waiver, immediately prior thereto or concurrently therewith, of the following conditions precedent: (a) CLOSING DOCUMENT LIST. The Agent and the Lenders shall have received each of the agreements, opinions, reports, approvals, consents, certificates and other documents set forth on the Closing Document List attached hereto as SCHEDULE A, all in form and substance 60 reasonably satisfactory to Agent and the Lenders and, where applicable, each duly executed by the Person(s) specified thereon. (b) FEES AND EXPENSES. The Agent and each of the Lenders shall have received payment in full of those Fees and Expenses, including those referred to in the Fee Letter and in ARTICLE 4 and any other Fees payable to the Lenders, payable to them on or before the Closing Date (or an irrevocable authorization to pay such Fees or Expenses out of the proceeds of the Loans), PROVIDED that any such Expense in excess of $25,000 shall be evidenced by an invoice. (c) UNUSED AVAILABILITY. After giving pro forma effect to the funding of the initial Loans, the issuance of the initial Letters of Credit, if any, and the payment of all costs, fees and expenses incurred by or for the account of the Borrowers in connection with the execution and delivery of this Credit Agreement and the other Credit Documents, there shall be unused availability under the lesser of (I) the Borrowing Base and (II) the Line of Credit of at least $60,000,000. (d) APPROVALS. All necessary governmental (domestic and foreign) and third party approvals in connection with the Transactions and the transactions contemplated by the Credit Documents and otherwise referred to herein or therein shall have been obtained and remain in effect, and all applicable waiting periods shall have expired without any action being taken by any competent authority which restrains, prevents or imposes materially adverse conditions upon the consummation of all or any part of such Transactions or the other transactions contemplated by the Credit Documents and otherwise referred to herein or therein. Additionally, there shall not exist any judgment, order, injunction or other restraint issued or filed or a hearing seeking injunctive relief or other restraint pending or notified prohibiting or imposing materially adverse conditions upon all or any part of the Transactions or the transactions contemplated by the Credit Documents. (e) LITIGATION. No litigation by any entity (private or governmental) shall be pending or, to the best knowledge of any Borrower, threatened with respect to this Credit Agreement, any other Credit Document or any documentation executed in connection herewith or the transactions contemplated hereby (including, without limitation, the Transactions), or which Agent or the Majority Lenders shall determine would reasonably be expected to have a Material Adverse Effect. (f) INSURANCE. Agent shall be satisfied with the insurance coverage in effect on the Closing Date pertaining to the assets of the Borrowers and their Subsidiaries, and shall have received evidence satisfactory to it that Agent shall have been named as a loss payee and additional insured on all such policies of insurance covering Collateral. (g) CORPORATE PROCEEDINGS. All corporate and legal proceedings and all instruments and agreements in connection with the Transaction and the other transactions contemplated by this Credit Agreement shall be satisfactory in form and substance to Agent and, except as otherwise agreed by Agent, shall have been consummated without any waiver of any conditions or other provisions set forth therein and Agent shall have received all information and copies of all documents and papers, including records of corporate proceedings, governmental 61 approvals, good standing certificates and bring-down telegrams or certificates, if any, which Agent or the Majority Lenders reasonably may have requested in connection therewith, such documents and papers where appropriate to be certified by a Responsible Officer or by proper corporate or Governmental Authorities. (h) TERM LOAN FACILITIES. (i) Wellman shall have closed the First Lien Credit Facility and borrowed $185.0 million under such First Lien Credit Facility; (ii) Wellman shall have closed the Second Lien Credit Facility and borrowed $265.0 million under such Second Lien Credit Facility; and (iii) Wellman shall have consummated the Financing Transactions, repaid all amounts outstanding under each of the Refinanced Facilities, terminated any and all commitments with respect thereto and any and all Liens and/or other security interests granted or created thereunder shall have been released and/or terminated, and, in each case, Wellman shall have provided to the Agent satisfactory evidence of such. 5.2 CONDITIONS TO EACH CREDIT EVENT. On the date of each Credit Event (including the initial Credit Event), both immediately before and immediately after giving effect thereto and to the application of the proceeds therefrom, the following statements shall be true (and each request for a Credit Event, shall constitute a representation and warranty by each Borrower that on the date of such Credit Event, immediately before and immediately after giving effect thereto and to the application of the proceeds therefrom, such statements are true): (a) The representations and warranties contained in this Credit Agreement and in each other Credit Document are true and correct in all material respects on and as of the date of such Credit Event as though made on and as of such date, except to the extent that such representations and warranties are expressly made as of a specific date (in which event such representations and warranties shall have been true and correct in all material respects on and as of such specified date); (b) No event has occurred and is continuing, or would result from such Credit Event or the application of the proceeds thereof, which would constitute a Default or an Event of Default; (c) In the case of the issuance of any Letter of Credit, none of the events set forth in SECTION 3.1 has occurred and is continuing or would result from the issuance of such Letter of Credit. ARTICLE 6 REPRESENTATIONS AND WARRANTIES To induce the Agent and the Lenders to enter into this Credit Agreement and each Issuing Bank to issue Letters of Credit, each Borrower, with respect to itself, each of the other Borrowers and each of their respective Subsidiaries, hereby represents and warrants to the Agent, the Lenders and each Issuing Bank: 6.1 ORGANIZATION AND QUALIFICATION. Each Borrower and each Subsidiary of each Borrower (a) is duly organized, validly existing and in good standing under the laws of the state of its organization, (b) has the power and authority to own its properties and assets and to 62 transact the businesses in which it presently is, or proposes to be, engaged and (C) is duly qualified and is authorized to do business and is in good standing in each jurisdiction where it presently is, or proposes to be, engaged in business except to the extent where failure to be so qualified or authorized or in good standing would not reasonably be expected to have a Material Adverse Effect. As of the Closing Date, with respect to each Borrower and each Subsidiary of each Borrower, SCHEDULE B, PART 6.1 lists the exact legal name of each such Person, the State of incorporation of each such Person, all jurisdictions in which each such Person is qualified to do business as foreign corporations, and in the case of each Domestic Subsidiary, the organizational identification number and the federal employer identification number of each such Person. 6.2 SOLVENCY. Each Credit Party (other than Immaterial Subsidiaries) is Solvent. 6.3 RIGHTS IN COLLATERAL; PRIORITY OF LIENS. Each Borrower and each Subsidiary of each Borrower owns the property provided in the scope of the Lien granted by it as Collateral under the Credit Documents, free and clear of any and all Liens in favor of third parties, except for Permitted Liens. Upon the proper filing of the UCC financing statements, and the taking of the other actions specified, in the Closing Document List, the Liens granted pursuant to the Credit Documents will constitute the valid and enforceable first, prior and perfected Liens on the Collateral, except Permitted Liens. 6.4 COMPANY POWER AND AUTHORITY. Each of the Credit Parties has the power and authority to execute, deliver and perform the terms and provisions of each of the Credit Documents to which it is a party and has taken all necessary action to authorize the execution, delivery and performance by it of such Credit Documents. Each of the Credit Parties has duly executed and delivered each of the Credit Documents to which it is a party, and each such Credit Document constitutes the legal, valid and binding obligation of such party enforceable in accordance with its terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws generally affecting creditors' rights and by equitable principles (regardless of whether enforcement is sought in equity or at law). 6.5 NO VIOLATION. Neither the execution, delivery or performance by any Borrower or any of its Subsidiaries of any of the Credit Documents to which it is a party, nor compliance by it with the terms and provisions thereof, nor consummation of the transactions contemplated therein, (i) will contravene in any material respect any Requirement of Law, (ii) will conflict or be inconsistent with or result in any breach of any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any Lien upon any of the properties or assets of any Borrower or any such Subsidiary pursuant to the terms of any indenture, mortgage, deed of trust, credit agreement or loan agreement, or any other agreement, contract or instrument, to which a Borrower or such Subsidiary is a party or by which it or any of its property or assets is bound or to which it may be subject, except for any such conflict, breach or Lien which would not individually or in the aggregate reasonably be expected to have a Material Adverse Effect, or (iii) will violate or conflict with the Governing Documents of any Credit Party. 6.6 CONSENTS. No order, consent, approval, license, or authorization or validation of, or filing with or other act by or in respect of, any Governmental Authority or any other Person is 63 required in connection with any Credit Event hereunder, the grant of the Liens pursuant to the Credit Documents, the continuing operations of any Borrower and any Subsidiary of any Borrower or with the Transactions, the execution, delivery, performance, validity or enforceability of this Credit Agreement, the Notes or the other Credit Documents, except for the filing of the UCC financing statements and consents or authorizations which have been obtained or filings which have been made and which, in each case, are in full force and effect. 6.7 FINANCIAL DATA. The Borrowers have furnished or caused to be furnished to the Lenders the following Financial Statements, which have been prepared in accordance with GAAP consistently applied (except as otherwise disclosed therein) throughout the periods involved (except as to the unaudited statements, the absence of footnotes and subject to year-end audit adjustments): (a) balance sheets as of, and statements of income, cash flows and shareholders equity for the fiscal year ended December 31, 2002 audited by independent certified public accountants and accompanied by an unqualified opinion thereof; and (b) an unaudited balance sheet as of, and unaudited statements of income, cash flows and shareholders equity for the period ending September 30, 2003. The Borrowers have furnished or caused to be furnished to the Lenders projections of the consolidated financial condition and results of operations of the Consolidated Entity through the fiscal years ending December 31, 2008. The projections delivered to the Lenders on or prior to the date hereof and any projections delivered to the Lenders after the date hereof in accordance with SECTION 7.1(d) hereof represent the Borrowers' good faith estimate of the future financial performance of the Consolidated Entity for the periods set forth therein, it being understood by the Agent and the Lenders that projections as to future events are not to be viewed as facts and that the actual results during the periods covered by the Projections may differ from the projected results set forth therein. 6.8 LOCATIONS OF OFFICERS, RECORDS AND INVENTORY. As of the Closing Date, the address of the principal place of business and chief executive office of each Credit Party is set forth on SCHEDULE B, PART 6.8. As of the Closing Date, the books and records of each Borrower and each Subsidiary of each Borrower, and all of their respective chattel paper and records of Accounts, are maintained exclusively at such locations. As of the Closing Date, there is no location at which any Credit Party has any Collateral (except for vehicles and Inventory in transit in the ordinary course of business) other than those locations identified on SCHEDULE B, PART 6.8. As of the Closing Date, to the extent any such locations are not owned, SCHEDULE B, PART 6.8 also sets forth the purpose of such location (e.g., warehouse, processing plant, sales office, etc.), the legal names of the owners and/or operators thereof; and the address and phone numbers of such owners and/or operators. As of the Closing Date, none of the receipts received by any Borrower from any warehouseman or processor states that the goods covered thereby are to be delivered to bearer or to the order of a named person or to a named person and such named person's assigns. 6.9 FICTITIOUS BUSINESS NAMES. No Borrower and no Subsidiary of any Borrower has used any corporate or fictitious name during the five (5) years preceding the date hereof, other than the corporate name under which it has executed this Credit Agreement. 6.10 SUBSIDIARIES. As of the Closing Date, the only Subsidiaries of each Borrower are those listed on SCHEDULE B, PART 6.10. As of the Closing Date, a Borrower or a wholly-owned Subsidiary of a Borrower is the record and beneficial owner of all of the issued and outstanding 64 Capital Securities of each of the Subsidiaries listed on SCHEDULE B, PART 6.10. As of the Closing Date, there are no proxies, irrevocable or otherwise, with respect to such Capital Securities of any Subsidiary, and no Capital Securities of any Subsidiary of any Borrower are or may become required to be issued by reason of any options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exchangeable for, Capital Securities of any Subsidiary of any Borrower, and there are no contracts, commitments, understandings or arrangements by which any Subsidiary of any Borrower is or may become bound to issue additional Capital Securities convertible into or exchangeable for such Capital Securities. As of the Closing Date, all of such shares listed on SCHEDULE B, PART 6.10 are owned by a Borrower or a Subsidiary of a Borrower free and clear of any Liens. 6.11 NO JUDGMENTS OR LITIGATION. As of the Closing Date, no judgments, orders, writs or decrees ("JUDGMENT") are outstanding against any Credit Party or any Subsidiary of any Credit Party, and there is not pending or, to the knowledge of any Credit Party, threatened any material litigation, except as set forth on SCHEDULE B, PART 6.11. Since the date hereof, there has not been any change, development or event with respect to any of the matters disclosed on SCHEDULE B, PART 6.11 which, when taken together with the matters disclosed on SCHEDULE B, PART 6.11, would reasonably be expected to have a Material Adverse Effect. No Judgment has been entered against any Credit Party which shall not within 30 days have been vacated, discharged or stayed pending appeal (in each case without payment of such Judgment by any Credit Party) and which, if paid in full, would result in Average Normalized Availability of less than $65.0 million. No Judgment has been entered against any Credit Party, which, if settled with a single payment or bonded pending appeal, would reasonably be expected to require such Credit Party to make a payment which would result in Average Normalized Availability of less than $65.0 million. There is not pending or, to the knowledge of any Borrower or any Credit Party, threatened any litigation, contested claim, investigation, arbitration, or governmental proceeding by or against any Credit Party or any Subsidiary of any Credit Party (i) with respect to any Credit Document seeking to enjoin any such Credit Party's performance thereof or (ii) which would reasonably be expected to have a Material Adverse Effect. 6.12 ENVIRONMENTAL MATTERS. Except for such failures and noncompliances of the types described herein which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect: (a) Each Borrower and each of its Subsidiaries is in compliance with all applicable Environmental Laws and no Borrower nor any of its Subsidiaries is liable for any damages, costs, penalties, fines, or forfeitures under such Environmental Laws; there are no pending or, to the knowledge of any Borrower, threatened Environmental Claims against the any Borrower or any of its Subsidiaries or any Real Property Assets owned or operated by any Borrower or any of its Subsidiaries; and there are no facts, circumstances, conditions or occurrences on any Real Property Assets at any time owned or operated by any Borrower or any of its Subsidiaries or, to the knowledge of any Borrower, on any property adjoining or in the vicinity of any such Real Property Assets that would reasonably be expected (i) to form the basis of an Environmental Claim against any Borrower or any of its Subsidiaries or any Real Property Assets currently owned or operated by any Borrower or any of its Subsidiaries, or (ii) to cause any such currently owned Real Property Assets to be subject to any restrictions on the 65 ownership, occupancy, use or transferability of such Real Property Assets by any Borrower or any of its Subsidiaries under any applicable Environmental Law; (b) Each Borrower and each of its Subsidiaries have not at any time generated, used, treated, stored disposed of Hazardous Materials on, or transported Hazardous Materials to or from, or released Hazardous Materials on, under or from any Real Property Assets owned or operated by any Borrower or any of its Subsidiaries except in compliance with all applicable Environmental Laws and in connection with the operation, use or maintenance of any such Real Property Assets by such Borrower's or such Subsidiary's business; (c) No Borrower nor any of its Subsidiaries is currently conducting any investigation, response or other corrective action at any location pursuant to any Environmental Law, nor are any of them under any obligation to do so; none of the Real Property Assets is (i) listed or proposed for listing on the National Priorities List under CERCLA or (ii) listed on the Comprehensive Environmental Response, Compensation and Liability Information System promulgated pursuant to CERCLA, or (iii) included on any similar list maintained under any Environmental Law; (e) no Borrower nor any of its Subsidiaries has retained or assumed any liability, contractually, by operation of law or otherwise, under any Environmental Law. 6.13 LABOR MATTERS. (a) There are no material labor controversies pending or, to the best knowledge of any Borrower after diligent inquiry, threatened between any Borrower or any Subsidiary of any Borrower and any of their respective employees which would be reasonably likely to result in a Material Adverse Effect. (b) No Borrower and no Subsidiary of any Borrower is engaged in any unfair labor practice. There is (i) no unfair labor practice complaint pending against any Borrower or any Subsidiary of any Borrower or, to the best knowledge of any Borrower, threatened against any of them, before the National Labor Relations Board, and no significant grievance or significant arbitration proceeding arising out of or under collective bargaining agreements is so pending against any Borrower or any Subsidiary of any Borrower or, to the best knowledge of any Borrower, threatened against any of them, (ii) no strike, labor dispute, slowdown or stoppage pending against any Borrower or any Subsidiary of any Borrower or, to the best knowledge of any Borrower, threatened against any of them and (iii) to the knowledge of the Borrowers, no union organizing activities exist with respect to the employees of Wellman or any of its Subsidiaries not currently subject to a collective bargaining agreement, which, in each case, would be reasonably likely to result in a Material Adverse Effect. 6.14 COMPLIANCE WITH LAW. Except as disclosed in connection with any specific representations set forth herein regarding ERISA, environmental laws, tax and other laws, no Borrower and no Subsidiary of any Borrower has violated or failed to comply, in any material respect, with any Requirement of Law or any requirement of any self-regulatory organization. 6.15 ERISA. (a) As of the Closing Date, SCHEDULE B, PART 6.15 lists (i) all ERISA Affiliates and (ii) all Plans and separately identifies all Title IV Plans, Multiemployer Plans, and 66 Retiree Welfare Plans. Except with respect to Multiemployer Plans, each Plan which is intended to be qualified under Section 401 of the Code has been determined by the IRS to so qualify, the trusts created thereunder have been determined to be exempt from tax under the provisions of Section 501 of the Code, and nothing has occurred that would cause the loss of such qualification or tax-exempt status. Except as would not reasonably be expected to have a Material Adverse Effect, each Plan is in compliance with the applicable provisions of ERISA and the Code, including the timely filing of all reports required under the Code or ERISA. No Borrower, any Subsidiary of any Borrower nor any ERISA Affiliate has failed to make any contribution or pay any amount due as required by either Section 412 of the Code or Section 302 of ERISA or the terms of any such Title IV Plan except where such failure would be reasonably likely to result in a financial liability of the Borrowers and their Subsidiaries in an amount in excess of $7.5 million. Except as would not be reasonably be expected to have a Material Adverse Effect, no Prohibited Transaction, in connection with any Plan has occurred that would subject any Borrower, or Subsidiary of any Borrower to a material tax under Section 502(l) of ERISA or Section 4975 of the Code, and no event has occurred with respect to a Plan which would subject any Borrower or Subsidiary of any Borrower to any material liability under Section 502(l) of ERISA. (b) As of the Closing Date, except as set forth in SCHEDULE B, PART 6.15: (i) no Title IV Plan has any Unfunded Pension Liability; (ii) no Termination Event or event described in Section 4062(e) of ERISA with respect to any Title IV Plan has occurred or is reasonably expected to occur; (iii) there are no pending, or to the knowledge of any Borrower or Subsidiary of any Borrower, threatened claims (other than claims for benefits in the normal course), sanctions, actions or lawsuits, asserted or instituted against any Plan or any Person as fiduciary or sponsor of any Plan; (iv) within the last five years no Title IV Plan has been terminated, whether or not in a "standard termination" as that term is used in Section 4041(b)(1) of ERISA, nor has any Title IV Plan (determined at any time within the past five years) with Unfunded Pension Liabilities been transferred outside of the "controlled group" (within the meaning of Section 4001(a)(14) of ERISA) of any Borrower, Subsidiary of any Borrower or ERISA Affiliate (determined at such time). 6.16 INTELLECTUAL PROPERTY. Each Credit Party and each Subsidiary of each Credit Party possesses such patents, patent applications, copyrights, service marks, trademarks and trade names (or licenses thereof) as are required to continue to conduct its present business activities, except for any failures to so possess which singly or in the aggregate would not reasonably be expected to have a Material Adverse Effect. 6.17 LICENSES AND PERMITS. Except as would not reasonably be expected to have a Material Adverse Effect, each Credit Party has obtained and holds in full force and effect, all franchises, licenses, leases, permits, certificates, authorizations, qualifications, easements, rights of way and other rights and approvals which are necessary or advisable for the operation of its businesses as presently conducted and as proposed to be conducted. Except as would not reasonably be expected to have a Material Adverse Effect, each Credit Party is not in violation of the terms of any such franchise, license, lease, permit, certificate, authorization, qualification, easement, right of way, right or approval. 67 6.18 TITLE TO PROPERTY. As of the Closing Date, all Real Property is identified on SCHEDULE B, PART 6.18. Each Credit Party has good and marketable title in fee simple to, or a valid leasehold interest in, all its Real Property , and good title to all its other property, and none of such property is subject to any Lien, except Permitted Liens. 6.19 GOVERNMENTAL REGULATIONS. No Credit Party 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, (b) a holding company or a Subsidiary of a holding company, or an Affiliate of a holding company or of a Subsidiary of a holding company, within the meaning of the Public Utility Holding Company Act of 1935, as amended, or (c) subject to any other law which purports to regulate or restrict its ability to borrow money or to consummate the transactions contemplated by this Credit Agreement or the other Credit Documents or to perform its obligations hereunder or thereunder. 6.20 BORROWERS' TAXES AND TAX RETURNS. (a) Except as set forth on SCHEDULE B, PART 6.20, as of the Closing Date, each Borrower and each Subsidiary of each Borrower (and any affiliated, consolidated or combined group of which any Borrower or any Subsidiary of any Borrower are now or have been members) have timely filed (inclusive of any permitted extensions) with the appropriate taxing authorities all returns (including information returns) in respect of Borrower Taxes required to be filed through the date hereof and will timely file (inclusive of any permitted extensions) any such returns required to be filed on and after the date hereof. All such returns filed are complete and accurate in all material respects. Except as specified in SCHEDULE B, PART 6.20, as of the Closing Date, no Borrower and no Subsidiary of any Borrower, nor any affiliated, consolidated or combined group of which any Borrower or any Subsidiary of any Borrower are now or were members, have requested any extension of time within which to file returns (including information returns) in respect of any Borrower Taxes. (b) As of the Closing Date, all taxes, assessments, fees and other governmental charges (including any penalties or interest thereon) payable by any Borrower and any Subsidiary of any Borrower (and any affiliated group of which any Borrower or any Subsidiary of any Borrower is now or has been a member) in respect of their incomes, franchises, businesses, properties or otherwise (collectively, "BORROWER TAXES") in respect of periods beginning prior to the date hereof, have been timely paid, or will be timely paid, or an adequate reserve has been established therefor, as set forth in SCHEDULE B, PART 6.20 or in the Financial Statements, and no Borrower or Subsidiary of any Borrower has any liability for Borrower Taxes in excess of the amounts so paid or reserves so established. (c) As of the Closing Date, except as set forth in SCHEDULE B, PART 6.20, no deficiencies for Borrower Taxes have been claimed, proposed or assessed by any taxing or other Governmental Authority against any Borrower or any Subsidiary of any Borrower and no Liens for Borrower Taxes have been filed. Except as set forth in SCHEDULE B, PART 6.20, as of the Closing Date, there are no pending or, to the best of the knowledge of any Borrower, threatened audits, investigations or claims for or relating to any liability in respect of Borrower Taxes, and there are no matters under discussion with any taxing or other Governmental Authority with respect to Borrower Taxes which are likely to result in a material additional liability for 68 Borrower Taxes. Either the federal income tax returns of each Borrower have been audited by the Internal Revenue Service and such audits have been closed, or the period during which any assessments may be made by the Internal Revenue Service has expired without waiver or extension, for all years up to and including the fiscal year ended December 31, 2002. Except as set forth in SCHEDULE B, PART 6.20, as of the Closing Date, no extension of a statute of limitations relating to Borrower Taxes is in effect with respect to any Borrower or any Subsidiary of any Borrower. (d) Except as set forth on SCHEDULE B, PART 6.20, as of the Closing Date, no Borrower and no Domestic Subsidiary of any Borrower has any obligation under any tax sharing agreement or agreement with any Subsidiary that is not a Credit Party regarding payments in lieu of Borrower Taxes. 6.21 STATUS OF ACCOUNTS. Each Account of each Borrower included as an Eligible Account Receivable in the most recently delivered Borrowing Base Certificate is based on an actual and bona fide sale and delivery of goods or rendition of services to customers, made by such Borrower in the ordinary course of its businesses; the goods and inventory being sold by any Borrower and the Accounts created thereby are the exclusive property of such Borrower and are not and shall not be subject to any Lien whatsoever other than those arising under the Security Agreements and Permitted Liens and such Borrower's customers have accepted the goods or services (with FOB plant shipments deemed to be accepted by the applicable customer), owe and are obligated to pay the full amounts stated in the invoices according to their terms, without any dispute, offset, defense, counterclaim or contra. 6.22 MATERIAL CONTRACTS AND RESTRICTIONS. No Material Contract contains any restrictions set forth in SECTION 8.13 and all Material Contracts are in full force and effect, and no defaults currently exist thereunder. The raw material contract referenced in CLAUSE (v) of the definition of Financing Transactions is in full force and effect and has not been modified, waived or amended in any way which would reasonably be expected to result in a material increase of the raw material costs of Wellman and its Domestic Subsidiaries. 6.23 AFFILIATE TRANSACTIONS. Except as set forth on SCHEDULE B, PART 6.23, no Borrower and no Subsidiary of any Borrower is a party to or bound by any agreement or arrangement (whether oral or written) to which any Affiliate of any Borrower or Subsidiary of any Borrower is a party except (a) by and between Credit Parties, (b) in the ordinary course of and pursuant to the reasonable requirements of such Borrower's or such Subsidiary's business or (c) upon fair and reasonable terms no less favorable to such Borrower and such Subsidiary than it could obtain in a comparable arm's-length transaction with an unaffiliated Person. 6.24 ACCURACY AND COMPLETENESS OF INFORMATION. All factual information furnished by or on behalf of any Borrower or any Subsidiary of any Borrower in writing to the Agent, any Lender, or the Auditors for purposes of or in connection with this Credit Agreement or any of the other Credit Documents, or any transaction contemplated hereby or thereby is or will be true and accurate in all material respects on the date as of which such information is dated or certified and not incomplete by omitting to state any material fact necessary to make such information not misleading at such time; PROVIDED that with respect to projected financial information, the only representations and warranties made hereby are that such information was prepared based on 69 good faith estimates and assumptions made by management of Wellman believed to be reasonable at the time made and that there are no statements or conclusions in any such information which are based upon or include information known to the executive officers of Wellman to be misleading or which fail to take into account material information regarding the matters reported therein; provided, further, that projections are not to be viewed as facts and that actual results during the covered period may differ from projected results; and provided, further, that no Borrower or its Subsidiaries shall be required to disclose information that is subject to attorney-client privilege. 6.25 RECORDING TAXES AND FEES. All recording fees and other charges payable in connection with the filing and recording of the Credit Documents have either been paid in full by the Borrowers or arrangements for the payment of such amounts satisfactory to the Agent shall have been made. 6.26 NO ADVERSE CHANGE OR EVENT. (a) Since September 30, 2003, no change in the business, assets, Liabilities, financial condition, results of operations or business prospects of any Borrower or any Subsidiary of any Borrower has occurred, and no event has occurred or failed to occur, that has had or would reasonably be expected to have, either alone or in conjunction with all other such changes, events and failures, a Material Adverse Effect (it being understood that the items described on SCHEDULE B, PART 6.26 do not constitute an event or circumstance that had or would reasonably be expected to have, a Material Adverse Effect). Such an event may have occurred or failed to occur, at any particular time notwithstanding the fact that at such time no Default or Event of Default shall have occurred and be continuing. (b) Except as fully reflected in the financial statements described in Section 6.7 and the Indebtedness incurred under this Credit Agreement, the First Lien Credit Facility and the Second Lien Credit Facility, as of the Closing Date, (i) there were no liabilities or obligations (excluding current obligations incurred in the ordinary course of business) with respect to any Borrower or any of its Subsidiaries of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether or not due) which, either individually or in the aggregate, would reasonably be expected to have Material Adverse Effect and (ii) neither any Borrower nor any of its Subsidiaries knows of any basis for the assertion against it or any of its Subsidiaries of any such liability or obligation of any nature whatsoever that is not fully disclosed in the financial statements delivered pursuant to Section 6.7 and that, either individually or in the aggregate, is or would be reasonably be expected to have a Material Adverse Effect. 6.27 PERFECTION CERTIFICATES. All material information set forth on the perfection certificates provided to the Agent by the Borrowers on the date hereof is true and correct and does not omit or fail to state any material fact. 6.28 REPRESENTATIONS AND WARRANTIES IN DOCUMENTS. All representations and warranties by each Borrower and its Subsidiaries set forth in the other Credit Documents were true and correct in all material respects at the time as of which such representations and warranties were made (or deemed made) and shall be true and correct in all material respects as of the Closing Date as if such representations or warranties were made on and as of such date, 70 unless stated to relate to a specific earlier date, in which case such representations or warranties shall be true and correct in all material respects as of such specific date. 6.29 INDEBTEDNESS. SCHEDULE B, PART 6.29 sets forth a true and complete list of all Indebtedness (exclusive of Indebtedness pursuant to this Credit Agreement, the First Lien Credit Facility and the Second Lien Credit Facility, Intercompany Indebtedness among Credit Parties, Intercompany Indebtedness among Foreign Subsidiaries and Guarantee Obligations permitted by SECTION 8.3(j) of this Credit Agreement) of each Borrower and its Subsidiaries as of the Closing Date and which is to remain outstanding after giving effect to the Transactions and the incurrence of Loans hereunder on such date, in each case showing the aggregate principal amount thereof (and the aggregate amount of any undrawn commitments with respect thereto) and the name of the respective borrower and any other entity which directly or indirectly guaranteed such debt. 6.30 TRANSACTIONS. At the time of consummation thereof, the Transactions shall have been consummated in accordance with the terms of the Credit Documents and all applicable laws. At the time of consummation thereof, all consents and approvals of, and filings and registrations with, and all other actions in respect of, all governmental agencies, authorities or instrumentalities required in order to make or consummate the Transactions in accordance with the terms of the Credit Documents and all applicable laws have been obtained, given, filed or taken and are or will be in full force and effect (or effective judicial relief with respect thereto has been obtained). All applicable waiting periods with respect thereto have or, prior to the time when required, will have, expired without, in all such cases, any action being taken by any competent authority which restrains, prevents, or imposes material adverse conditions upon the Transactions. Additionally, there does not exist any judgment, order or injunction prohibiting or imposing material adverse conditions upon the consummation of the Transactions or the performance by any Borrower or its Subsidiaries of their respective obligations under any Credit Document and all applicable laws. 6.31 INSURANCE. SCHEDULE B, PART 6.31 sets forth a true, complete and correct description of all insurance maintained by each Borrower and its Subsidiaries as of the Closing Date. All insurance maintained pursuant to the requirements of SECTION 7.8 by each Borrower and its Subsidiaries is in full force and effect, all premiums have been duly paid, neither any Borrower nor any of its Subsidiaries has received notice of violation or cancellation thereof (other than a cancellation which has been replaced by similar insurance), the Real Property of the Borrowers and their Subsidiaries, and the use, occupancy and operation thereof, comply in all material respects with all requirements of such policies, and there exists no default under any such policy. Each Borrower and its Subsidiaries has insurance in such amounts and covering such risks and liabilities as are reasonably prudent. 6.32 USE OF PROCEEDS; MARGIN STOCK, ETC. Neither the making of any Loans hereunder nor the use of proceeds thereof will violate or be inconsistent with the provisions of Regulation T, U or X. 6.33 ANTI-TERRORISM LAW. 71 (a) No Borrower is, and, to the knowledge of each Borrower, none of its Affiliates is, in violation of any laws relating to terrorism or money laundering ("ANTI-TERRORISM LAWS"), including Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001 (the "EXECUTIVE ORDER"), and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56. (b) No Borrower is, and, to the knowledge of each Borrower, no Affiliate or broker or other agent of any Borrower is, acting or benefiting in any capacity in connection with any Loans hereunder is any of the following: (i) a person that is listed in the annex to, or is otherwise subject to the provisions of, the Executive Order; (ii) a person owned or controlled by, or acting for or on behalf of, any person that is listed in the annex to, or is otherwise subject to the provisions of, the Executive Order; (iii) a person with which any Lender is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law; (iv) a person that commits, threatens or conspires to commit or supports "terrorism" as defined in the Executive Order; or (v) a person that is named as a "specially designated national and blocked person" on the most current list published by the U.S. Treasury Department Office of Foreign Assets Control ("OFAC") at its official website or any replacement website or other replacement official publication of such list. (c) No Borrower is, and, to the knowledge of each Borrower, no broker or other agent of any Borrower is, acting in any capacity in connection with any Loans hereunder (i) conducts any business or engages in making or receiving any contribution of funds, goods or services to or for the benefit of any person described in paragraph (b) above, (ii) deals in, or otherwise engages in any transaction relating to, any property or interests in property blocked pursuant to the Executive Order, or (iii) engages in or conspires to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law. 6.34 ACCOUNTS. As of the Closing Date, except for the Depository Account, the Investment Account and the Concentration Account and the accounts set forth on SCHEDULE B, PART 6.34, no Borrower and no Domestic Subsidiary of any Borrower maintains or otherwise has any (a) checking, savings or other accounts at any bank or other financial institution, (b) investment account, securities account, commodity account or any similar account with any securities intermediary or commodity intermediary or (c) other account where money is or may be deposited or maintained with any Person. As of the Closing Date, SCHEDULE B, PART 6.34 sets forth the name of each financial institution, securities intermediary, commodity intermediary or other Person at which any account described above is maintained and the purpose of each such account. 72 ARTICLE 7 AFFIRMATIVE COVENANTS Until the Expiration Date and payment and satisfaction of all Obligations (other than contingent indemnification obligations not due and payable): 7.1 FINANCIAL INFORMATION. The Borrowers shall furnish to the Agent (and the Agent shall distribute to the Lenders) the following information within the following time periods: (a) as soon as available and in any event within ninety (90) days (except with respect to CLAUSE (i)(b) of this SECTION 7.1(a)) after the end of each fiscal year of the Borrowers (i) audited Financial Statements as of the close of the fiscal year and for the fiscal year, together with comparisons to the Financial Statements for the prior year and to the most recent projections with respect to such fiscal year delivered pursuant to CLAUSE (d) of this SECTION 7.1, accompanied by (a) an opinion of the Auditors which opinion shall be unqualified in scope and otherwise in form and substance reasonably satisfactory to the Agent, (b) promptly upon delivery, such Auditors' "MANAGEMENT LETTER" to the Borrowers, (c) a written statement signed by the Auditors stating that in the course of the regular audit of the business of the respective Borrowers which audit was conducted by the Auditors in accordance with generally accepted auditing standards, the Auditors have not obtained any knowledge of the existence of any Default or Event of Default relating to financial or accounting matters under any provision of this Credit Agreement, or, if such Auditors shall have obtained from such examination any such knowledge, they shall disclose in such written statement the existence of the Default or Event of Default and the nature thereof, it being understood that such Auditors shall have no liability, directly or indirectly, to anyone for failure to obtain knowledge of any such Default or Event of Default (PROVIDED, no such report shall be required in the event the Auditors no longer provide such opinions under applicable accounting or auditing standards), (ii) a narrative discussion of the consolidated financial condition and results of operations and the consolidated liquidity and capital resources of Borrowers for such fiscal year prepared by management and (iii) a compliance certificate substantially in the form of EXHIBIT D along with a schedule in form and substance reasonably satisfactory to the Agent of the calculations used in determining, as of the end of such fiscal year, whether the Borrowers were in compliance with the covenants set forth in SECTION 8.1 of this Credit Agreement for such year. To the extent that Wellman's annual report on Form 10-K contains any of the foregoing items, the Lenders will accept such Form 10-K in lieu of such items; (b) as soon as available and in any event within forty-five (45) days after the end of each fiscal quarter of the Borrowers (except the last fiscal quarter of any fiscal year) (i) Financial Statements as at the end of and for such period and for the fiscal year to date, together with comparisons to the Financial Statements for the same periods in the prior year, all in reasonable detail and duly certified (subject to year-end audit adjustments) by the chief accounting officer or chief financial officer of Wellman as having been prepared in accordance with GAAP, (ii) a narrative discussion of the consolidated financial condition and results of operations and the consolidated liquidity and capital resources of Borrowers for such period and for the fiscal year to date prepared by management, (iii) a compliance certificate substantially in the form of EXHIBIT D along with a schedule in form and substance reasonably satisfactory to the 73 Agent of the calculations used in determining, as of the end of such fiscal quarter, whether the Borrowers were in compliance with the covenants set forth in ARTICLES 7 AND 8 of this Credit Agreement for such quarter. To the extent that Wellman's quarterly report on Form 10-Q contains any of the foregoing items, the Lenders will accept such Form 10-Q in lieu of such items; (c) as soon as available and in any event within thirty (30) days after the end of each fiscal month (except the last fiscal month of any fiscal quarter, with respect to which such reports shall be delivered within forty-five (45) days after the end of the fiscal month (other than the last quarter of the fiscal year with respect to which such reports shall be delivered within ninety (90) days after the end of the fiscal month)), (i) consolidated balance sheets for the Consolidated Entity as at the end of such fiscal month and consolidated statements of operations and cash flows for such fiscal month and for the fiscal year to date, together with a comparison to the consolidated balance sheets, statements of operations and statements of cash flows for the same periods in the prior year, all in reasonable detail and duly certified (subject to year-end audit adjustments) by the chief accounting officer or chief financial officer of Wellman as having been prepared in accordance with GAAP and (ii) a compliance certificate substantially in the form of EXHIBIT D along with a schedule in form and substance reasonably satisfactory to the Agent of the calculations used in determining, as of the end of such fiscal month, whether the Borrowers were in compliance with the covenants set forth in ARTICLES 7 AND 8 of this Credit Agreement for such fiscal month; (d) not later than forty-five (45) days after the end of each fiscal year commencing with the fiscal year ending December 31, 2004, quarterly projections of the consolidated financial condition and results of operations of the Consolidated Entity's for the following fiscal year and annual projections for each subsequent fiscal year through and including the fiscal year in which the Expiration Date occurs, including, but not limited to, projected consolidated balance sheets, consolidated statements of operations, consolidated statements of cash flows and consolidated statements of changes in shareholders' equity for such fiscal years; (e) a copy of the state and federal income tax returns of each Borrower and each Subsidiary of each Borrower within five (5) Business Days after they are filed with the appropriate taxing authorities, if and when requested by any Lender through the Agent; (f) upon request by the Agent at any time, and in any event within ten (10) Business Days after the last Business Day of each fiscal month (and within three (3) Business Days after the last Business Day of each week when Total Exposure has exceeded 80% of the Borrowing Base for five (5) consecutive Business Days), a borrowing base certificate in the form of EXHIBIT E (the "BORROWING BASE CERTIFICATE") with all supporting detail as Agent may from time to time reasonably require, duly completed, detailing each Borrower's understanding as to which Accounts or Inventory constitute Eligible Accounts Receivable and Eligible Inventory as of the last day of such fiscal month (or such other date as the Agent may specify in such request), and certified by the chief accounting officer or chief financial officer of Wellman and subject only to adjustment upon completion of the normal year-end audit of physical inventory. In addition, each Borrowing Base Certificate shall have attached to it such additional schedules and/or other information as the Agent may reasonably request; 74 (g) promptly and in any event within five (5) Business Days after becoming aware of the occurrence of a Default or Event of Default, a certificate of the chief accounting officer or chief financial officer or Treasurer of Wellman specifying the nature thereof and the proposed response thereto, each in reasonable detail; (h) promptly upon the earlier of the mailing or filing thereof, copies of all 10-Ks, 10-Qs, 8-Ks, proxy statements, annual reports, quarterly reports, registration statements and any other filings or other communications made by any Borrower to holders of its publicly traded securities or the Securities Exchange Commission from time to time pursuant to the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended; and (i) from time to time, such further non-privileged information regarding the Collateral, business affairs and prospects and financial condition of each Borrower and each Subsidiary of each Borrower as the Agent may reasonably request. 7.2 CERTAIN COLLATERAL. Promptly, upon the request of the Agent from time to time, each Borrower shall provide to the Agent written statements listing items of Inventory and Accounts in reasonable detail as reasonably requested by the Agent. Each Borrower shall conduct or cause to be conducted (in a manner consistent with the requirements for the physical count of the Inventory in connection with the Borrowers' annual audit conducted by the Auditors) a physical count of the Inventory and, if requested by the Agent, a copy of such count shall be promptly supplied to the Agent accompanied by a report of the value (valued at FIFO) of such Inventory. Upon the occurrence and during the continuance of an Event of Default, each Borrower shall conduct such a physical count of the Inventory at such other times and as of such other dates as the Agent shall reasonably request. In addition to, and not in limitation of, the foregoing, at any time and from time to time the Agent may conduct (or engage third parties to conduct) such field examinations, appraisals, verifications and evaluations of the Collateral as the Agent shall deem necessary or appropriate in the exercise of its sole discretion and shall provide copies of such examinations, appraisals, verifications and evaluations to the Lenders; PROVIDED, that, so long as an Event of Default shall not have occurred and be continuing or so long as Availability is not below $40.0 million for more than three (3) consecutive Business Days, the Agent shall not conduct (or engage third parties to conduct) field examinations, appraisals, verifications and evaluations of the Collateral more than once in any Fiscal Year. If any Inventory of a Borrower is at any time hereafter stored or located at any warehouse not owned or leased by such Borrower, then such Borrower shall promptly deliver to such warehouseman notification of the Agent's Lien on such Inventory and shall take such other steps as the Agent reasonably requires to perfect its Liens thereon. 7.3 CORPORATE EXISTENCE AND COMPLIANCE WITH LAWS. Each Borrower shall, and shall cause each of its Subsidiaries to, (a) maintain its corporate existence (except that Subsidiaries of any Borrower may merge with wholly-owned Subsidiaries of such or any other Borrower upon providing the Agent with prior written notice) and maintain in full force and effect all licenses, bonds, franchises, leases, trademarks and qualifications to do business, and all patents, contracts and other rights necessary or advisable to the profitable conduct of their businesses except as would not reasonably be expected to have a Material Adverse Effect, and (b) comply, in all material respects, with all Requirements of Law applicable to its business, its operations and to the Collateral. 75 7.4 ERISA. Each Borrower shall deliver to the Agent for the benefit of the Lenders, at the such Borrower's expense, the following information at the times specified below: (a) within ten (10) days after a request by the Agent, copies of each annual report (form 5500 series), including Schedule B thereto, filed with respect to each Title IV Plan; (b) within ten (10) days after a request by the Agent, copies of each actuarial report for any Title IV Plan, Multiemployer Plan or Retiree Welfare Plan and each annual report for any Multiemployer Plan; (c) within ten (10) days upon the occurrence thereof, notification of any increase in the benefits of any existing Title IV Plan or the establishment of any new Title IV Plan or the commencement of contributions to any Title IV Plan to which such Borrower, any Subsidiary of such Borrower or any ERISA Affiliate was not previously contributing; (d) concurrent with (i) the filing of a notice with the PBGC with respect to any Reportable Event which requires by regulation 30 days advance notice and (ii) the date of the Reportable Event for any Reportable Event which by regulation post-event notice is required to be filed with the PBGC, a description of the facts and circumstances which constitute the Reportable Event for which a filing with the PBGC is required under Section 4043 of ERISA; and (e) within three (3) days upon the occurrence thereof, any event or condition referred to in CLAUSES (i) THROUGH (vii) of SECTION 9.1(i), whether or not such event or condition shall constitute an Event of Default. Each Borrower and its Subsidiaries shall establish, maintain and operate all Plans to comply in all material respects with the provisions of ERISA, the Code, and all other Requirements of Law, other than to the extent that such Borrower or any such Subsidiary (i) is in good faith contesting by appropriate proceedings the validity or application of any such provision, law, rule, regulation or interpretation and (ii) has made an adequate reserve or other appropriate provision therefor as required in order to be in conformity with GAAP. 7.5 BOOKS AND RECORDS. Each Borrower agrees to maintain, and to cause each of its Subsidiaries to maintain, books and records, including those pertaining to the Collateral, in such detail, form and scope as is consistent with good business practice, and agrees that, upon the reasonable request of the Agent, such books and records will reflect the Agent's and Lenders' respective interests in its Accounts. Each Borrower agrees that the Agent or its agents may enter upon the premises of such Borrower or any Domestic Subsidiary of such Borrower at any time and from time to time, during normal business hours and upon reasonable notice under the circumstances, and at any time at all on and after the occurrence of a Default, and which has not otherwise been waived pursuant to SECTION 11.10, for the purposes of (a) conducting field examinations and appraisals and inspecting, evaluating and verifying the Collateral, (b) inspecting and/or copying (at such Borrower's expense) any and all records pertaining thereto and (c) discussing the business affairs and prospects and financial condition of such or any other Borrower and each Subsidiary of such or any other Borrower with any officers, employees and directors of such Borrower or such Subsidiary or with the Auditors. Each Borrower shall give 76 the Agent ten (10) days prior written notice of any change in the location of any Collateral or in the location of its chief executive office or place of business from the locations specified in SCHEDULE B, and each Borrower shall execute in advance of such change and cause to be filed and/or delivered to the Agent any financing statements, Collateral Access Agreements or other documents reasonably required by the Agent, all in form and substance satisfactory to the Agent. Each Borrower agrees to advise the Agent promptly, in sufficient detail, of any substantial changes relating to the type, quantity or quality of the Collateral, or any event which singly or in the aggregate reasonably be expected to have a Material Adverse Effect on the value of the Collateral or on the Liens granted for the benefit of the Agent, the Lenders and the Issuing Banks thereon. 7.6 COLLATERAL RECORDS. Each Borrower agrees to execute and promptly deliver, and to cause each of its Domestic Subsidiaries to execute and promptly deliver, to the Agent, from time to time, solely for the Agent's convenience in maintaining a record of the Collateral, such written statements and schedules as the Agent may reasonably require, including those described in SECTION 7.1 of this Credit Agreement, designating, identifying or describing the Collateral. The failure by any Borrower or any Domestic Subsidiary of any Borrower, however, to promptly give the Agent such statements or schedules shall not affect, diminish, modify or otherwise limit the Liens on the Collateral granted pursuant to the Credit Documents. 7.7 SECURITY INTERESTS. Each Credit Party shall defend the Collateral against all claims and demands of all Persons at any time claiming the same or any interest therein. Each Credit Party shall comply with the requirements of all state and federal laws in order to grant to the Agent, the Lenders and the Issuing Banks valid and perfected first priority security interests subject to CLAUSE (b) of SECTION 8.4 and Liens identified on SCHEDULE B, PART 8.4 as being prior to Agent's Liens in the Collateral, with perfection, in the case of any investment property, being effected by giving the Agent control of such investment property and by the filing of a UCC financing statement with respect to such investment property. The Agent is hereby authorized by each Borrower to file any UCC financing statements covering the Collateral whether or not such Borrower's signatures appear thereon. Each Borrower shall, and shall cause each of its Subsidiaries to, do whatever the Agent may reasonably request, from time to time, to effect the purposes of this Credit Agreement and the other Credit Documents, including filing notices of liens, UCC financing statements, fixture filings and amendments, renewals and continuations thereof; entering into Control Agreements with respect to any deposit account, investment account, securities account, commodity account or any other similar account permitted to be maintained by any Borrower or any Subsidiary of any Borrower hereunder; cooperating with the Agent's representatives; keeping stock records; obtaining waivers from landlords and mortgagees and from warehousemen and their landlords and mortgagees; and, paying claims which might, if unpaid, become a Lien on the Collateral. 7.8 INSURANCE; CASUALTY LOSS. Each Borrower agrees to maintain, and to cause each of its Subsidiaries to maintain, public liability insurance, third party property damage insurance and replacement value insurance on the Collateral under such policies of insurance, with such insurance companies, in such amounts and covering such risks as are at all times reasonably prudent. All policies covering the Collateral (which for purposes hereof shall include business interruption insurance) are to name the Agent as an additional insured and the loss payee in case of loss, and are to contain such other provisions as the Agent may reasonably require to fully 77 protect the interest of the Lenders in the Collateral and to any payments to be made under such policies. Each Borrower shall provide written notice to the Agent of the occurrence of any of the following events within five (5) Business Days after the occurrence of such event: any asset or property owned or used by such Borrower or any of its Domestic Subsidiaries is (a) damaged or destroyed, or suffers any other loss; or (b) condemned, confiscated or otherwise taken, in whole or in part, or the use thereof is otherwise diminished so as to render impracticable or unreasonable the use of such asset or property for the purposes for which such asset or property was used immediately prior to such condemnation, confiscation or taking, by exercise of the powers of condemnation or eminent domain or otherwise, and in either case the amount of the damage, destruction, loss or diminution in value which is in excess of $2.0 million (collectively, a "CASUALTY LOSS"). Each Borrower shall diligently file and prosecute, or cause to be filed and prosecuted, all claims for any award or payment in connection with a Casualty Loss with respect to such Borrower. In the event of a Casualty Loss with respect to any Borrower, such Borrower shall deliver to Agent a Pro Forma Borrowing Base Certificate setting forth the change in the Borrowing Base as a result of such Casualty Loss and, promptly upon receipt of any and all insurance proceeds and payments received by such Borrower or any of its Domestic Subsidiaries on account of such Casualty Loss, shall pay to the Agent all such amounts. The Agent shall apply an amount of such proceeds equal to the change in the Borrowing Base as reflected in the Pro Forma Borrowing Base Certificate to payment of accrued and unpaid interest or outstanding principal under Loans or any other Obligations then due and payable hereunder. After the occurrence and during the continuance of an Event of Default, (i) no settlement on account of any such Casualty Loss with respect to any Borrower shall be made without the consent of the Agent and (ii) the Agent may participate in any such proceedings and the applicable Borrower shall deliver to the Agent such documents as may be requested by the Agent to permit such participation and shall consult with the Agent, its attorneys and agents in the making and prosecution of such claim or claims. Each Borrower hereby irrevocably authorizes and appoints the Agent its attorney-in-fact, and agrees that, upon request, it will cause each Subsidiary of such Borrower to authorize and appoint the Agent its attorney-in-fact, after the occurrence and during the continuance of an Event of Default, to collect and receive any such award or payment and to file and prosecute such claim or claims, which power of attorney shall be irrevocable and shall be deemed to be coupled with an interest, and each Borrower shall, upon demand of the Agent, make, execute and deliver, and cause each of its Domestic Subsidiary to make, execute and deliver, any and all assignments and other instruments sufficient for the purpose of assigning any such award or payment to the Agent for the benefit of the Agent, the Lenders and the Issuing Banks, free and clear of any encumbrances of any kind or nature whatsoever. 7.9 BORROWER'S TAXES. Each Borrower agrees to pay, when due, and to cause each of its Subsidiaries to pay when due, all Borrower Taxes lawfully levied or assessed against such Borrower, any Subsidiary of such Borrower or any of their properties, including any of the Collateral, before any penalty or interest accrues thereon; PROVIDED that, unless such Borrower's Taxes have become a tax or ERISA Lien on any of the assets of such Borrower or any such Subsidiary, no such Borrower Taxes need be paid if the same is being contested, in good faith, by appropriate proceedings promptly instituted and diligently conducted, and if an adequate reserve or other appropriate provision shall have been made therefor as required in order to be in conformity with GAAP. 78 7.10 ENVIRONMENTAL MATTERS. Each Borrower will comply, and will cause each of its Subsidiaries to comply, in all material respects with all Environmental Laws applicable to the ownership or use of its Real Property Assets now or hereafter owned or operated by any Borrower or any of its Subsidiaries, will pay or cause to be paid all costs and expenses incurred in connection with such compliance, and will keep or cause to be kept all such Real Property Assets free and clear of any Environmental Liens (other than Permitted Liens). No Borrower nor any of its Subsidiaries will generate, use, treat, store, Release or dispose of, or permit the generation, use, treatment, storage, Release or disposal of Hazardous Materials on, at or from any Real Property Assets now or hereafter owned or operated by such Borrower or any of its Subsidiaries, or transport or permit the transportation of Hazardous Materials to or from any such Real Property Assets except for Hazardous Materials used or stored at any such Real Property Assets in compliance with all applicable Environmental Laws and reasonably required in connection with the business of such Borrower and its Subsidiaries or the operation, use and maintenance of any such Real Property Assets. If any Borrower or any of its Subsidiaries or any tenant or occupant of any Real Property Assets owned or operated by any Borrower or any of its Subsidiaries causes or permits any intentional or unintentional act or omission resulting in the presence or Release of any Hazardous Material in a quantity or concentration sufficient to require reporting or to trigger an obligation to undertake investigation, clean-up, response or other corrective action under applicable Environmental Laws, each Borrower agrees to undertake, and/or to cause any of its Subsidiaries, tenants or occupants to undertake, at their sole expense, any action required pursuant to Environmental Laws with respect to such Hazardous Materials except where the failure to do so would not reasonably be expected to have a Material Adverse Effect; PROVIDED that no Borrower nor any of its Subsidiaries shall be required to undertake any action while the requirement to undertake such action is being contested in good faith and by proper proceedings so long as it has maintained adequate reserves with respect to such action to the extent required in accordance with GAAP. 7.11 USE OF PROCEEDS. The initial Loans made to the Borrowers hereunder shall be used by the Borrowers for the purpose of refinancing each Refinanced Facility and to pay the costs and expenses of the transactions contemplated by this Credit Agreement which are due and payable on the Closing Date, including the Fees and Expenses due on the Closing Date pursuant to ARTICLE 4; and the proceeds of any subsequent Loans made hereunder shall be used by the Borrowers solely for the Borrowers' working capital purposes and for general corporate purposes. The Borrowers shall not use any portion of the proceeds of any such Loans for the purpose of purchasing or carrying any "margin stock" (as defined in Regulation U of the Board of Governors of the Federal Reserve System) in any manner which violates the provisions of Regulation T, U or X of said Board of Governors or for any other purpose in violation of any applicable statute or regulation, or of the terms and conditions of this Credit Agreement. 7.12 FISCAL YEAR. Each Borrower agrees to maintain its fiscal year as a year ending December 31 unless otherwise required by law, in which case such Borrower will give the Agent at least thirty (30) days prior written notice thereof. 7.13 NOTIFICATION OF CERTAIN EVENTS. Each Borrower agrees that it shall promptly (but, in the case of CLAUSE (g), in any event within two (2) Business Days after such Borrower learns of any such proceeding, change, development or event) notify the Agent (and the Agent shall promptly notify each Lender) of: 79 (a) any Material Contract of such Borrower or any of its Subsidiaries that is terminated or amended in any material respect or any new Material Contract that is entered into (in which event such Borrower shall provide the Agent with a copy of such Material Contract); (b) the entry of any order, judgment or decree in excess of $1,000,000 against such Borrower or any of its Subsidiaries or any of their respective properties or assets; (c) receipt by such Borrower or any of its Subsidiaries of any notification of a material violation of any Requirement of Law from any Governmental Authority; (d) the enactment or promulgation of any Requirement of Law or any other actual or prospective change, development or event which in each case has had or would reasonably be expected to have a Material Adverse Effect; (e) any proceedings being instituted or threatened to be instituted by or against such Borrower or any of its Subsidiaries, before any Governmental Authority or arbitrator which is seeking injunctive relief or damages in excess of $5.0 million; (f) any Event of Default or Default; (g) the occurrence of any "Event of Default" or "Default" (as each such term is defined in the applicable credit agreement) under the First Lien Credit Facility or the Second Lien Credit Facility; and (h) any other event which would reasonably be expected to have a Material Adverse Effect. 7.14 INTELLECTUAL PROPERTY. Each Borrower shall, and shall cause each of its Subsidiaries to, do and cause to be done all things necessary to preserve and keep in full force and effect all of such Person's Intellectual Property except for such Intellectual Property that is obsolete, unnecessary to any Credit Party's business or having no or negligible value. 7.15 MAINTENANCE OF PROPERTY. Each Borrower agrees to keep, and to cause each of its Subsidiaries to keep, all tangible property useful and necessary to its respective businesses in good working order and condition (ordinary wear and tear and damage by casualty excepted) in accordance with their past operating practices and not to commit or suffer any waste with respect to any of its properties. 7.16 FURTHER ASSURANCES. Each Credit Party shall take all such further actions and execute all such further documents and instruments as the Agent may at any time reasonably determine in its sole discretion to be necessary or desirable to further carry out and consummate the transactions contemplated by the Credit Documents, to cause the execution, delivery and performance of the Credit Documents to be duly authorized and to perfect or protect the Liens (and the priority status thereof) of the Agent on the Collateral. 7.17 ANNUAL MEETINGS WITH LENDERS. Within 90 days after the close of each fiscal year of Wellman, and at any time upon the reasonable request of the Agent, Wellman shall hold a meeting (at a mutually agreeable location and time or at the option of the Agent, by conference 80 call) with all of the Lenders at which meeting shall be reviewed the financial results of the previous fiscal year and the financial condition of Wellman and its Subsidiaries and the budgets presented for the current fiscal year of Wellman and its Subsidiaries. 7.18 INTEREST RATE PROTECTION. To the extent that at least $150,000,000 of Indebtedness incurred by Borrower on the Closing Date is not fixed rate Indebtedness (the excess of $150,000,000 over the amount of such Indebtedness that is fixed rate Indebtedness, the "FIXED RATE DIFFERENCE"), then within six months after the Closing Date, the Borrower shall have entered into or shall have in effect Interest Rate Agreements on terms reasonably satisfactory to the Agent on a notional amount of not less than such Fixed Rate Difference with an initial average life of approximately 3 years. 7.19 ADDITIONAL SECURITY. (a) Wellman agrees to cause each Domestic Subsidiary (other than Guardwell) to become a party to the Domestic Subsidiary Guaranty and the Domestic Security Agreement in accordance with the terms thereof; (b) Wellman agrees to pledge (or to cause its Domestic Subsidiaries to pledge) all of the Capital Securities of each new Domestic Subsidiary that is not an Immaterial Subsidiary and 65% (or such other percentage so that there could be no adverse tax consequence) of the Capital Securities of each first tier Foreign Subsidiary that is not an Immaterial Subsidiary established, acquired, created or otherwise in existence after the Closing Date to Collateral Agent for the benefit of the Secured Parties pursuant to the terms of the Pledge Agreement promptly, and in any event, within ten (10) days of the creation of such new Subsidiary; (c) Wellman will, and will cause each of its Domestic Subsidiaries to, take all necessary action, including (i) the filing of appropriate financing statements under the provisions of the UCC, applicable foreign, domestic or local laws, rules or regulations in each of the offices where such filing is necessary or appropriate to grant the Collateral Agent for the benefit of the Secured Parties pursuant to the Security Agreement a perfected Lien (subject only to Permitted Liens) in such Collateral pursuant to and to the full extent required by the Security Documents and this Credit Agreement; (d) The security interests required to be granted pursuant to this SECTION 7.19 shall be granted pursuant to such security documentation (which shall be substantially similar to the Security Documents already executed and delivered by Wellman) (the "Additional Security Documents") reasonably satisfactory in form and substance to Agent and the Majority Lenders and shall constitute valid and enforceable first priority perfected security interests subject to no other Liens except Permitted Liens. The Additional Security Documents and other instruments related thereto shall be duly recorded or filed in such manner and in such places and at such times as are required by law to establish, perfect, preserve and protect the Liens, in favor of Collateral Agent for the benefit of the Lenders, required to be granted pursuant to the Additional Security Document and, all taxes, duties, levies, imposes, deductions, assessments, charges, withholdings, fees and other charges payable in connection therewith shall be paid in full by Wellman. At the time of the execution and delivery of the Additional Security Documents, Wellman shall cause to be delivered to Agent such agreements, opinions of counsel and other 81 related documents as may be reasonably requested by Agent or the Majority Lenders to assure themselves that this SECTION 7.19 has been complied with. ARTICLE 8 NEGATIVE COVENANTS Until the Expiration Date and payment and satisfaction of all Obligations (other than contingent indemnification obligations not due and payable), each Borrower agrees that: 8.1 MINIMUM CONSOLIDATED FIXED CHARGE COVERAGE RATIO. If Availability is at any time less than $55.0 million for any period of eight (8) consecutive days, the Borrowers shall have had at the end of the most recently completed one, two, three or four Fiscal Quarter period, as applicable, set forth below, for which a compliance certificate has been delivered pursuant to SECTION 7.1(a) or 7.1(b), as applicable, a Consolidated Fixed Charge Coverage Ratio of not less than the ratio set forth below opposite such period:
MINIMUM FIXED CHARGE PERIOD COVERAGE RATIO ------ -------------- Fiscal Quarter ending on June 30, 1.00: 1.00 2004 Two Fiscal Quarters ending on 1.00: 1.00 September 30, 2004 Three Fiscal Quarters ending on 1.00: 1.00 December 31, 2004 Each four Fiscal Quarter period 1.00: 1.00 ending after December 31, 2004 and on or prior to September 30, 2006 Each four Fiscal Quarter period 1.05: 1.00 ending after September 30, 2006 and on or prior to December 31, 2007 Each four Fiscal Quarter period 1.10: 1.00 ending after December 31, 2007
8.2 CAPITAL EXPENDITURES. 82 (a) No Borrower shall, or shall permit any of its Subsidiaries to, directly ora indirectly, make or incur Capital Expenditures in any Fiscal Year, in the aggregate for all Borrowers and their respective Subsidiaries combined, in excess of $25,000,000. (b) Notwithstanding the foregoing, in the event that the amount of Capital Expenditures permitted to be made by Wellman and its Subsidiaries pursuant to CLAUSE (a) above and, with respect to any year after the Fiscal Year ended December 31, 2004, this CLAUSE (b) in any period is greater than the amount of such Capital Expenditures made by Wellman and its Subsidiaries during such period, 50% of such excess (the "ROLLOVER AMOUNT") may be carried forward and utilized to make Capital Expenditures in the next succeeding Fiscal Year, PROVIDED that in no event shall the Rollover Amount in any Fiscal Year exceed 50% of the amount set forth in SECTION 8.2(a). (c) No Borrower shall, or shall permit any of its Subsidiaries to, directly or indirectly, make any Capital Expenditures under SECTION 8.2(a) or 8.2(b) that (x) are not directly related to the businesses conducted on the Closing Date by Wellman and its Subsidiaries or (y) that are made in connection with the Pearl River Project except to the extent permitted by CLAUSE (d) below (such Capital Expenditure to be included under SECTION 8.2(d), but excluded under SECTION 8.2(a) AND (b) after the requirements in SECTION 8.2(d) are met) and except for preliminary Capital Expenditures made prior to Wellman's commitment (pursuant to SECTION 8.2(d)) to the Pearl River Project in amounts consistent with past practices. (d) In addition to the foregoing, from and after the date of the delivery of the Financial Statements for the Fiscal Quarter ending June 30, 2004, the Borrowers and their Subsidiaries may make or incur Capital Expenditures in connection with the Pearl River Project not to exceed $50.0 million in the aggregate (less any amounts expended pursuant to SECTION 8.2(c) in connection with preliminary Capital Expenditures for the Pearl River Project) so long as Average Normalized Availability exceeds $65.0 million as of the date when Wellman first signs a contract for the purchase of a single piece of capital equipment with a purchase price exceeding $5.0 million required in connection with the Pearl River Project. (e) In addition to the foregoing, to the extent that Wellman or any Subsidiary suffers a Casualty Loss (without regard to the minimum threshold requirement in SECTION 7.8) which is not covered by insurance (whether due to application of a deductible or otherwise), Wellman or such Subsidiaries may incur Capital Expenditures to repair or replace such assets within 270 days of such Casualty Loss in an aggregate amount, together with all previous expenditures made in reliance on this CLAUSE (e), not to exceed $10.0 million. 8.3 NO ADDITIONAL INDEBTEDNESS. No Borrower shall, or shall permit any of its Subsidiaries to, directly or indirectly, incur, create, assume or suffer to exist any Indebtedness other than: (a) Indebtedness arising under this Credit Agreement and the other Credit Documents; and 83 (b) a Borrower and its Subsidiaries may incur and remain liable with respect to obligations incurred under Derivative Transactions, entered into in the ordinary course of business and not for speculative purposes; (c) a Borrower and its Subsidiaries may incur and remain liable with respect to Intercompany Indebtedness, subject to no Lien held by any Person other than a Borrower or a Subsidiary Guarantor or a Lien permitted by this Credit Agreement, PROVIDED, however, that (i) the aggregate amount of Intercompany Indebtedness owed by the Subsidiaries which are not Credit Parties, on the one hand, to the Borrowers and/or any of the Subsidiary Guarantors, on the other, incurred under this CLAUSE (c), shall not exceed $15.0 million at any time outstanding, and (ii) all Intercompany Indebtedness owed by the Borrowers and/or any of the Subsidiary Guarantors, on the one hand, to the Subsidiaries which are not Credit Parties, on the other, incurred under this CLAUSE (c) shall be Subordinated Indebtedness; (d) a Borrower and its Subsidiaries may incur and remain liable with respect to Indebtedness incurred (i) in respect of Capitalized Lease Obligations, (ii) to finance the purchase price of equipment, fixtures and any other similar property or the remodeling or other improvement costs of any facility of such Borrower or any of its Subsidiaries or (iii) to finance the purchase price of any Real Property; PROVIDED that the aggregate amount of Indebtedness incurred under this CLAUSE (d) shall not exceed $15.0 million at any time outstanding; (e) the Borrowers and the Subsidiary Guarantors may guarantee Indebtedness of the Borrowers or any Subsidiary if the Indebtedness so guaranteed is permitted under this Credit Agreement; (f) the Credit Parties may incur and remain liable with respect to other Indebtedness in an aggregate amount not to exceed at any time outstanding $15.0 million (and Subsidiaries that are not Credit Parties may become and remain liable with respect to Indebtedness in an aggregate amount not to exceed at any time outstanding $5.0 million, which outstanding Indebtedness shall reduce in a corresponding amount the $15.0 million of Indebtedness which may be incurred under this CLAUSE (f)); (g) the Borrowers and their Subsidiaries may incur and remain liable with respect to Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or other similar instrument inadvertently drawn against insufficient funds in the ordinary course of business; (h) the Borrowers and their Subsidiaries may incur and remain liable with respect to Indebtedness constituting letters of credit and reimbursement obligations with respect to letters of credit issued in the ordinary course of business, including, without limitation, letters of credit in respect of workers' compensation claims or self-insurance, or other Indebtedness with respect to reimbursement-type obligations regarding workers' compensation claims and with respect to Indebtedness arising from agreements providing for indemnification, adjustment of purchase price incurred or assumed with the disposition or acquisition of any business; 84 (i) the Borrowers and their Subsidiaries may incur and remain liable with respect to obligations in respect of performance and surety bonds and completion guarantees provided by a Borrower or any of their Subsidiaries in the ordinary course of business; (j) the Borrowers and their Subsidiaries may guarantee obligations of the lessee under any lease pursuant to which any Borrowers or any their Subsidiaries is the lessee so long as such lease is otherwise permitted hereunder; (k) Wellman and its Subsidiaries may incur and remain liable with respect to up to an aggregate principal amount of $265 million under the Second Lien Credit Facility less the amount of all repayments required to be made thereunder; (l) Wellman and its Subsidiaries may incur and remain liable with respect to up to an aggregate principal amount of $185 million under the First Lien Credit Facility less the amount of all repayments required to be made thereunder; (m) Indebtedness of Foreign Subsidiaries in an aggregate amount outstanding at the time of incurrence not to exceed the sum of (a) 80% of the accounts receivable of the Foreign Subsidiaries and (b) 50% of the inventory of the Foreign Subsidiaries, in each case as shown on the most recent balance sheets of such Foreign Subsidiaries; (n) unsecured indebtedness of any Borrower and/or such Borrower's Subsidiaries incurred to finance insurance premiums in a principal amount not in excess of the casualty and other insurance premiums to be paid by any Borrower and/or such Borrower's Subsidiaries for a one year period beginning on the date of any incurrence of such Indebtedness; and (o) Indebtedness described on SCHEDULE B, PART 6.29 and any refinancing of such Indebtedness; PROVIDED that (i) the aggregate principal amount of such Indebtedness is not increased and such refinancing is on terms and conditions that are (A) no more restrictive than the terms and conditions of the Indebtedness being refinanced and (B) reasonably acceptable to the Agent and (ii) the terms of such Indebtedness and refinancings thereof are not otherwise amended or modified in a manner adverse to the interests of any Borrower, any Subsidiary of any Borrower or the Lenders. 8.4 NO LIENS; JUDGMENTS. No Borrower shall, or shall permit any of its Subsidiaries to, directly or indirectly, mortgage, assign, pledge, transfer, create, incur, assume, suffer to exist or otherwise permit any Lien (whether as a result of a purchase money or title retention transaction, or other security interest, judgment or otherwise) to exist on any of its property, assets, revenues or goods, whether real, personal or mixed, whether now owned or hereafter acquired, except for the following (the "PERMITTED LIENS"): (a) Liens granted by such Borrower or Subsidiary pursuant to any Credit Document; (b) Liens listed on SCHEDULE B, PART 8.4 encumbering only the assets described therein and the proceeds thereof; 85 (c) Purchase Money Liens and Liens securing Capitalized Lease Obligations to the extent permitted under SECTION 8.3(d); (d) Liens of warehousemen, mechanics, material men, workers, repairmen, common carriers, landlords and other similar Liens arising by operation of law or otherwise, not waived in connection herewith, for amounts that are not yet due and payable or which are being diligently contested in good faith by such Borrower or Subsidiary by appropriate proceedings; (e) Attachment and judgment Liens securing outstanding liabilities of any Borrower or any Subsidiary of any Borrower which individually or in the aggregate for all such Liens are not in excess of $5.0 million for all Borrowers and their respective Subsidiaries combined (exclusive of (i) any amounts that are duly bonded to the reasonable satisfaction of the Agent or (ii) any amount adequately covered by insurance as to which the insurance company has not disclaimed or disputed in writing its obligations for coverage); (f) Liens for Borrower's Taxes not yet due and payable or which are being diligently contested in good faith by such Borrower by appropriate proceedings, provided that in any such case an adequate reserve is being maintained by such Borrower for the payment of same; (g) Deposits or pledges made by the Borrowers and their Subsidiaries in the ordinary course of business consistent with past practices to secure obligations under workmen's compensation, social security or similar laws, or under unemployment insurance; (h) Deposits or pledges made by the Borrowers and their Subsidiaries to secure bids, tenders, contracts (other than contracts for the payment of money), leases, statutory obligations, surety and appeal bonds and other obligations of like nature arising in the ordinary course of business; (i) 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 materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of any Borrower or any Subsidiary of any Borrower; (j) Liens on the First Lien Credit Facility Collateral which secure the obligations under the First Lien Credit Facility; (k) Liens on the Second Lien Facility Collateral; provided that any such Liens on Second Lien Credit Facility Collateral which is Collateral securing the obligations under this Credit Agreement and the Credit Documents shall in all respect be subject and subordinate in priority to any Liens on such Collateral created or granted under any Security Agreement; (l) Liens on the assets of Foreign Subsidiaries to secure Indebtedness of Foreign Subsidiaries which is permitted by SECTION 8.3; (m) Liens arising due to the arrangements set forth in Tax Reduction Agreements on property subject to such agreements which does not constitute Collateral; and 86 (n) Extensions and renewals of the foregoing permitted Liens subject to the limitations set forth above; PROVIDED that the aggregate amount of such extended or renewed Liens is not increased and such extended or renewed Liens are on terms and conditions no more restrictive than the terms and conditions of the Liens being extended or renewed. 8.5 NO SALE OF ASSETS. No Borrower shall, or shall permit any of its Subsidiaries to, directly or indirectly, enter into any Asset Sale other than (a) any disposition of Cash Equivalents or inventory in the ordinary course of business or the lease or sublease of any real or personal property in the ordinary course of business, (b) dispositions of non-core businesses or assets of non-core businesses, PROVIDED that (i) such dispositions are for fair value; (ii) seventy-five percent (75%) of the consideration (net of disposal costs) for each of such dispositions is received by the applicable Borrower or Subsidiary in the form of cash; (iii) the cash consideration for such dispositions to the extent required to prepay Loans pursuant to SECTION 2.4(e) is immediately paid to the Agent for application in accordance with SECTION 2.5(d); and (iv) a Pro Forma Borrowing Base Certificate is delivered in accordance with SECTION 2.4(e); (c) any disposition of assets or property in the ordinary course of business to the extent such property or assets are obsolete, worn out or no longer useful in such Borrower's or such Subsidiary's business and (d) other dispositions of assets, provided that (i) such other dispositions are for fair value; (ii) one hundred percent (100%) of the consideration (net of disposal costs) for each of such other dispositions is received by the applicable Borrower or Subsidiary in the form of cash; and (iii) the aggregate consideration from and after the Closing Date for such other dispositions does not exceed, in the aggregate for all Borrowers and their respective Subsidiaries combined, $5,000,000. 8.6 NO CORPORATE CHANGES. No Credit Party shall, or shall permit any of its Subsidiaries to, directly or indirectly, merge, consolidate, liquidate, wind up, dissolve or alter or modify any Credit Party's Governing Documents, or enter into or engage in any operation or activity materially different from that currently being conducted by Wellman and its Subsidiaries, except that subject to the requirements of SECTION 7. 19 or any of the Security Documents (a) any Credit Party or any Subsidiary of a Credit Party may be merged, consolidated or liquidated with or into, as the case may be, such or any other Credit Party so long as (i) a Credit Party shall be the continuing or surviving entity and (ii) no Default or Event of Default shall exist or result therefrom; (b) any Credit Party may alter or modify such Person's Governing Documents if such alteration or modification would not have an adverse impact on the rights, remedies or other interests of the Agent or the Lenders under the Credit Documents as reasonably determined by the Agent, and (c) any Foreign Subsidiary may merge, consolidate, liquidate, wind up or dissolve into any Credit Party or any other Foreign Subsidiary. 8.7 NO GUARANTIES. No Borrower shall, or shall permit any of its Subsidiaries to, directly or indirectly, issue or assume any Guaranty with respect to the liabilities of any other Person, including any Subsidiary or Affiliate of such or any other Borrower, except (a) by the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business, (b) by the giving of indemnities in connection with the sale of Inventory or other asset dispositions permitted hereunder and (c) Indebtedness permitted to be incurred pursuant to SECTION 8.3. 87 8.8 NO RESTRICTED PAYMENTS. No Borrower shall, or shall permit any of its Subsidiaries to, directly or indirectly make any Restricted Payment except (a) dividends and distributions by Subsidiaries of Wellman paid to Wellman or any other Wholly-Owned Subsidiary of Wellman, (b) in any Fiscal year of the Borrowers, up to $.09 per share per quarter as adjusted for stock splits in dividends or distributions by Wellman to holders of its Common Stock so long as no Default or Event of Default has occurred and is continuing or would occur as a result of such dividend or distribution, and (c) redemptions or repurchases of Capital Securities held by former officers, directors or employees following the death, retirement, disability, or termination of employment or service so long as such redemptions and repurchases from and after the Closing Date do not exceed $4.0 million in the aggregate. 8.9 NO INVESTMENTS. No Borrower shall, or shall permit any of its Subsidiaries to, directly or indirectly, make any Investment in any Person or consummate or agree to make an Acquisition other than: (a) Advances or loans made in the ordinary course of business to employees; (b) Cash Equivalents, subject to the requirement of SECTION 8.16; (c) Interest-bearing demand or time deposits (including certificates of deposit) which are insured by the Federal Deposit Insurance Corporation ("FDIC") or a similar federal insurance program, subject to the requirement of SECTION 8.16, however, provided that such Borrower may, in the ordinary course of its business, maintain in its disbursement accounts from time to time accounts in excess of then applicable FDIC or other program insurance limits; (d) Guaranties permitted under SECTION 8.7; (e) Investments by Borrowers in any Borrower or Subsidiary Guarantor; PROVIDED that (i) each such Borrower shall record all intercompany transactions on its books and records in a manner reasonably satisfactory to Agent, (ii) at the time any such intercompany transaction is made, and after giving effect thereto, each such Borrower is solvent as described in SECTION 6.2 hereto, (iii) no Default or Event of Default exists or would occur after giving effect to such intercompany transaction; and (iv) if in the form of an intercompany loan, the obligations of each Borrower or Domestic Subsidiary under any such intercompany loan shall be subordinated to the Obligations of such Borrower or Domestic Subsidiary hereunder in a manner satisfactory to the Agent; (f) So long as no Default or Event of Default has occurred and is continuing, Investments consisting of intercompany loans by any Borrower or any Domestic Subsidiary to any Foreign Subsidiary made after the Closing Date in an amount not in excess of $15.0 million in the aggregate at any time outstanding and Investments other than intercompany loans made by any Borrower or any Domestic Subsidiary in any Foreign Subsidiary after the Closing Date in an amount not in excess of $5.0 million in the aggregate at any time outstanding; (g) Investments made in connection with Acquisitions, PROVIDED that; (i) on the date of consummation of each such Acquisition, the Agent shall have received a certificate duly executed by a Responsible Officer of Wellman 88 certifying that the financial condition referred to in clause (ii) below with respect thereto is satisfied, together with evidence thereof reasonably satisfactory to the Agent, (ii) the Consolidated Fixed Charge Coverage Ratio, determined on a pro forma basis for the period of four (4) consecutive Fiscal Quarters ending on the last day of the last completed Fiscal Quarter immediately preceding the proposed date of consummation of such Acquisition (on the assumption such Acquisition occurred on the first day of such four Fiscal Quarter period and using historical results of the Consolidated Entity and the related Acquisition Target for such period), shall be at least equal to the minimum ratio with respect to such period required pursuant to SECTION 8.1 (calculated without regard to the Availability requirement in SECTION 8.1), (iii) each such Acquisition shall be consummated (x) in accordance with all material applicable Requirements of Law and the applicable Borrower and Acquisition Target shall have obtained all material consents and approvals of Governmental Authorities necessary in connection therewith and with the business operations of the related Acquisition Target after such Acquisition and (Y) pursuant to such agreements, documents and instruments as shall be in each case in form and substance reasonably satisfactory to the Agent, (iv) the related Acquisition Target shall be engaged in the same or substantially similar lines of business being conducted by the Borrowers on the Closing Date (or reasonable extensions thereof) and shall become or be merged into or be acquired by a Domestic Subsidiary contemporaneously with the consummation of such Acquisition, (v) no Default or Event of Default shall exist at the time of consummation thereof or would result therefrom, (vi) after giving effect to each such Acquisition, the Leverage Ratio for the twelve month period ending as of such day, is less than 3.0 to 1.00, and (vii) proceeds of Loans may be used to consummate (or make cash earnout payments in respect of) an Acquisition after the Closing Date only to the extent that (A) after giving effect to such Acquisition (or cash earnout payment, as the case may be), Average Normalized Availability is at least equal to the greater of (x) $75,000,000 and (y) the aggregate proceeds of Loans used to consummate such Acquisition (or make such cash earnout payment, as the case may be), and (B) the aggregate purchase price (including all Indebtedness assumed in connection therewith) after the Closing Date does not exceed $35,000,000 less the aggregate purchase price of all Acquisitions consummated pursuant to the following paragraph; Notwithstanding the limitations above, a Credit Party may make one or more Acquisitions from and after the Closing Date to the extent that the aggregate purchase price 89 (including all Indebtedness assumed in connection with such Acquisition) of all such Acquisitions made from and after the Closing Date does not exceed $5.0 million, PROVIDED further that any such Acquisition shall only be subject to compliance with CLAUSES (i), (iii), (iv) and (v) above. (h) Investments existing on the Closing Date and set forth on SCHEDULE B, PART 8.9. (i) So long as no Default or Event of Default has occurred and is continuing or would occur as the result thereof, any other Investment after the Closing Date in any other Person, the amount of all such Investments shall not exceed $5.0 million in the aggregate; (j) Cash and Cash Equivalents in a depository account in the name of the Agent and within the Agent's sole dominion and control (the "INVESTMENT ACCOUNT"), in which the Agent shall have at all times a perfected security interest for the benefit of the Secured Parties (as defined in the Security Agreement); and (k) Such other Investments as the Agent may approve in writing in its sole discretion. 8.10 NO AFFILIATE TRANSACTIONS. No Borrower shall, or shall permit any of its Subsidiaries to, directly or indirectly, enter into any transaction with, including the purchase, sale or exchange of property or the rendering of any service to any other Borrower or Subsidiary of a Borrower or other Affiliate of a Borrower and whether or not such transaction would otherwise be permitted under any of the other provisions of the Credit Documents, except in the ordinary course of and pursuant to the reasonable requirements of such Borrower's or such Subsidiary's business, as the case may be, and upon fair and reasonable terms no less favorable to such Borrower or such Subsidiary than could be obtained in a comparable arms-length transaction with an unaffiliated Person. 8.11 LIMITATION ON TRANSACTIONS UNDER ERISA. No Borrower shall, or shall permit any of its Subsidiaries to, directly or indirectly: (a) amend, or permit any ERISA Affiliate to amend, a Title IV Plan resulting in an increase in current liability for the plan year such that any of such Borrower, any Subsidiary of such Borrower or any ERISA Affiliate is required to provide security to such a Title IV Plan under Section 40l(a)(29) of the Code; (b) allow the representation made in SECTION 6.15 to be untrue at any time; (c) cause or permit to occur an event that could result in the imposition of a Lien under Section 412 of the Code or Section 302 or 4068 of ERISA or cause or permit to occur a Termination Event the extent such Termination Event would reasonably be expected to have a Material Adverse Effect; (d) allow the Unfunded Pension Liabilities of a Title IV Plan or all Title IV Plans to increase to a level which would reasonably be expected to require contributions to such Title IV Plans to have a Material Adverse Effect; or 90 (e) adopt or terminate any Retiree Welfare Plan if either such adoption or termination would reasonably be expected to result in a Material Adverse Effect. 8.12 MATERIAL AMENDMENTS OF TERM LOAN FACILITIES. No Borrower shall, or shall permit any of its Subsidiaries, to enter into any amendment, restatement or other modification of any document relating to the First Lien Credit Facility or the Second Lien Credit Facility if in the sole discretion of the Agent, such amendment, restatement or other modification would be adverse to the interests of the Agent and the Lenders. 8.13 ADDITIONAL RESTRICTIVE COVENANTS. No Borrower shall, or shall permit any of its Subsidiaries to, directly of indirectly, create or otherwise cause or suffer to exist or become effective (a) any consensual restriction limiting the ability (whether by covenant, event of default, subordination or otherwise and including any such the effect of which is to require the providing of equal and ratable security to any other Person in the event a Lien is granted to or for the benefit of the Agent and the Lenders) to (i) pay dividends or make any other distributions on shares of its Capital Securities held by any Borrower or any other Subsidiary of any Borrower; (ii) pay any Liability owed to any Borrower or any other Subsidiary or any Borrower; (iii) make any loans or advances to other Investments in any Borrower or in any other Subsidiary of any other Borrower; or (iv) create or permit to exist any Lien upon the assets of any Borrower or any Subsidiary of any Borrower, other than Liens permitted under SECTION 8.4; or (b) any contractual obligation which may restrict or inhibit the Agent's rights or ability to sell or otherwise dispose of the Collateral or any part thereof after the occurrence of an Event of Default; other than Permitted Restrictive Covenants. 8.14 NEW COLLATERAL LOCATIONS. No Borrower shall, or shall permit any of its Subsidiaries to, open or establish any new location within the United States or Canada unless such Person (a) provides Agent with ten (10) days prior written notice of any such new location, (b) delivers to Agent, duly executed by the appropriate Person(s) where applicable, such Collateral Access Agreements and other agreements, documents and instruments as Agent shall require to protect Agent's interests in the Collateral at such location and (c) delivers to Agent such amendments to SCHEDULE B, PARTS 6.1 AND 6.8 as are required to make such disclosures complete and accurate. 8.15 NEW ACCOUNTS. Except with the prior written notice to the Agent, no Borrower shall, or shall permit any of its Domestic Subsidiaries to, directly or indirectly, open, maintain or otherwise have any checking, savings or other accounts at any bank or other financial institution, or any other account where money is or may be deposited or maintained with any Person, other than the Depositary Accounts, the Concentration Account, the Investment Account and the other accounts set forth on SCHEDULE B, PART 6.34. 8.16 NO EXCESS CASH. Other than amounts on deposit in the Lockbox, the Depository Accounts, the Investment Account, the Concentration Accounts, and other accounts maintained at DBTCo and subject to a Control Agreement, no Borrower shall, or shall permit any of its Domestic Subsidiaries to, directly or indirectly, maintain in the aggregate in all of the accounts described in SCHEDULE B, PART 6.34, or otherwise, total cash balances and Cash Equivalents in excess of $5.0 million for more than two (2) consecutive Business Days during which any Loans are outstanding, it being understood that Cash and Cash Equivalents held in a Rabbi or 91 irrevocable trust account for the benefit of employees or former employees shall not be deemed to be Cash or Cash Equivalents of any Credit Party. 8.17 VOLUNTARY PREPAYMENT OF DEBT. No Credit Party shall voluntarily, directly or indirectly, pay, prepay, redeem, or purchase, or deposit funds or property for the payment (including, without limitation, a payment in respect of any sinking fund or defeasance), of any Indebtedness outstanding under the First Lien Credit Agreement or the Second Lien Credit Agreement, PROVIDED that so long as no Default or Event of Default has occurred and is continuing, voluntary redemptions or prepayments of the Indebtedness outstanding under the First Lien Credit Agreement shall be permitted, if, after giving effect to such redemption or prepayment, (x) no Loans are outstanding immediately before or after giving effect to such prepayment, (y) Average Normalized Availability is at least $75.0 million after giving effect to such prepayment and (z) the Pearl River Project is complete and substantially all Capital Expenditures required to be made in connection therewith have been paid, PROVIDED further that the foregoing shall not be construed to prohibit the Excess Cash Flow Prepayment (as defined in the First Lien Credit Agreement), to the extent such payment is required to be made pursuant to the terms of the First Lien Credit Agreement. 8.18 LIMITATION ON PREFERRED STOCK OF SUBSIDIARIES. No Borrower will permit any of its Subsidiaries to issue any Preferred Stock (other than to a Borrower or to a Wholly-Owned Subsidiary of a Borrower) or permit any Person (other than a Borrower or a Wholly-Owned Subsidiary of a Borrower) to own any Preferred Stock of any Subsidiary of a Borrower. 8.19 EMBARGOED PERSON. No Borrower shall cause or permit (a) any of the funds or properties of the Credit Parties that are used to repay the Loans to constitute property of, or be beneficially owned directly or indirectly by, any person subject to sanctions or trade restrictions under United States law ("EMBARGOED PERSON" or "EMBARGOED PERSONS") that is identified on (1) the "List of Specially Designated Nationals and Blocked Persons" (the "SDN LIST") maintained by OFAC and/or on any other similar list ("OTHER LIST") maintained by OFAC pursuant to any authorizing statute including, but not limited to, the International Emergency Economic Powers Act, 50 U.S.C. Sections 1701 et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1 et seq., and any Executive Order or regulation promulgated thereunder, with the result that the investment in the Credit Parties (whether directly or indirectly) is prohibited by law, or the Loans made by the Lenders would be in violation of law, or (2) the Executive Order, any related enabling legislation or any other similar Executive Orders (collectively, "EXECUTIVE ORDERS"), or (b) any Embargoed Person to have any direct or indirect interest, of any nature whatsoever in the Credit Parties, with the result that the investment in the Credit Parties (whether directly or indirectly) is prohibited by law or the Loans are in violation of law. 8.20 NO ACCOUNTING CHANGES. Wellman shall not make or permit to be made any change in accounting policies affecting the presentation of financial statements or reporting practices from those employed by it on the Closing Date (an "ACCOUNTING CHANGE"), unless (i) such change is in accordance with GAAP, (ii) such change is disclosed to the Lenders through the Agent or otherwise and (iii) Wellman provides to the Agent such information as the Agent may reasonably request so that it may assess the impact of such Accounting Change. If any Accounting Change occurs after the Closing Date and such change results in, in the sole judgment of the Agent, a meaningful change in the calculation of any financial covenants or 92 restrictions set forth in this Credit Agreement, then the parties hereto agree to enter into and diligently pursue negotiations to amend the covenants employing financial calculations herein so as to equitably reflect such changes, with the desired result that the criteria for evaluating the financial condition and results of operations of the Borrowers and their Subsidiaries shall be the same after such changes as if such changes had not been made. Until such amendment is made, Wellman shall continue to deliver the financial statements required by SECTION 7.1 to the Agent without giving effect to such Accounting Change. 8.21 INSURANCE SUBSIDIARY. Notwithstanding anything to the contrary in this Credit Agreement, Guardwell shall not engage in any business other than the business of serving as a captive insurance company for Wellman and its Subsidiaries and engaging in such necessary activities related thereto as may be permitted to be engaged in by a Vermont captive insurance company pursuant to applicable Vermont captive insurance company rules and regulations and no Credit Party shall make any Investment in Guardwell except to the extent required by law or as reasonably permitted by the Agent. 8.22 ANTI-TERRORISM LAW; ANTI-MONEY LAUNDERING. No Borrower shall directly or indirectly (a) (i) knowingly conduct any business or engage in making or receiving any contribution of funds, goods or services to or for the benefit of any person described in SECTION 6.35(B), (ii) knowingly deal in, or otherwise engage in any transaction relating to, any property or interests in property blocked pursuant to the Executive Order or any other Anti-Terrorism Law, or (iii) knowingly engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law (and each Borrower shall deliver to the Lenders any certification or other evidence requested from time to time by any Lender in its reasonable discretion, confirming such Borrower's compliance with this SECTION 8.22) or (b) cause or permit any of the funds of any Borrower or any Credit Party that are used to repay the Loan to be derived from any unlawful activity with the result that the making of the Loans would be in violation of law. ARTICLE 9 EVENTS OF DEFAULT AND REMEDIES 9.1 EVENTS OF DEFAULT. The occurrence of any of the following events shall constitute an Event of Default hereunder: (a) failure of the Borrowers to pay when due, whether at stated maturity, by acceleration or otherwise, principal of any Loan or reimbursement obligation with respect to any Letter of Credit or within three (3) Business Days of the date when due, any Interest, Fees or other Obligations. (b) failure of any Borrower or any Subsidiary of any Borrower to perform, comply with or observe any term, covenant or agreement applicable to it contained in SECTION 2.4(b)(iii) or in ARTICLE 7 (excluding SECTIONS 7.3 (other than as to the existence of any Credit Party), 7.9, 7.10, 7.14 and 7.15) OR ARTICLE 8; 93 (c) (i) any representation or warranty made by any Borrower, any Subsidiary of any Borrower or any other Credit Party under this Credit Agreement or under any other Credit Document shall prove to have been incorrect or misleading in any material respect when made or deemed made; or (ii) any Borrower or any Subsidiary of any Borrower or any other Credit Party shall fail to comply with any covenant contained in this Credit Agreement (other than under a provision covered by SECTION 9.1(a) OR (b) above) or the other Credit Documents, which failure to comply is not cured within ten (10) Business Days of its occurrence; (d) dissolution, liquidation, winding up or cessation of any Credit Party's businesses, or the failure of any Credit Party to meet its debts as they mature; (e) (i) any Credit Party (other than Immaterial Subsidiaries) is not Solvent; or (ii) the commencement by or against any Credit Party of any bankruptcy, insolvency, arrangement, reorganization, receivership or similar proceedings under any federal or state law and, in the event any such proceeding is commenced against any Credit Party, such proceeding is not dismissed within thirty (30) days; (f) the occurrence of a Change of Control or the direct or indirect acquisition by a Person or group of Persons of any Credit Party; (g) the occurrence of a default or event of default (in each case which shall continue beyond the expiration of any applicable grace periods) which permits, or could permit, the acceleration of the maturity of, any note, agreement or instrument evidencing any other Indebtedness of any Borrower or any Subsidiary of any Borrower, or the nonpayment of such Indebtedness when due, and the aggregate principal amount of all such Indebtedness with respect to which a default or an event of default has occurred, or the maturity of which is permitted to be accelerated, or which is then due, exceeds $10.0 million (or in the case of such a default under any Derivative Transaction, $5.0 million measured by reference to the mark to market termination value of obligations under the respective agreement(s) at the time); (h) any covenant, agreement or obligation of any party contained in or evidenced by any of the Credit Documents shall cease to be enforceable in accordance with its terms, or any party (other than the Agent or the Lenders, in its capacity as such, and not in its capacity as an Issuing Bank) to any Credit Document shall deny or disaffirm its obligations under any of the Credit Documents, or any Credit Document shall be cancelled, terminated, revoked or rescinded without the express prior written consent of the Agent, or any action or proceeding shall have been commenced by any Person (other than the Agent or a Lender, in its capacity as such, and not in its capacity as an Issuing Bank) seeking to cancel, revoke, rescind or disaffirm the obligations of any party to any Credit Document, or any court or other Governmental Authority shall issue a judgment, order, decree or ruling to the effect that any of the obligations of any party to any Credit Document are illegal, invalid or unenforceable; 94 (i) (i) any Termination Event shall occur with respect to any Title IV Plan of any Borrower, any Subsidiary of any Borrower or any ERISA Affiliate, (ii) any Accumulated Funding Deficiency, whether or not waived, shall exist with respect to any Title IV Plan, (iii) any Borrower or any Subsidiary of any Borrower shall engage in any Prohibited Transaction involving any such Title IV Plan, (iv) any Borrower, any Subsidiary of any Borrower or any ERISA Affiliate shall be in "default" (as defined in ERISA Section 4219(c)(5)) with respect to payments owing to any Multiemployer Plan as a result of such Person's complete or partial withdrawal (as described in ERISA Section 4203 or 4205) therefrom, (v) any Borrower, any Subsidiary of any Borrower or any ERISA Affiliate shall fail to pay when due an amount that is payable by it to the PBGC or to any Title IV Plan under Title IV of ERISA, (vi) a proceeding shall be instituted by a fiduciary of any such Title IV Plan against any Borrower, any Subsidiary of any Borrower or any ERISA Affiliate to enforce ERISA Section 515 and such proceeding shall not have been dismissed within 30 days thereafter or (vii) any other event or condition shall occur or exist with respect to any such Title IV Plan, except that no event or condition referred to in CLAUSES (i) THROUGH (vii) shall constitute an Event of Default if it, together with all other such events or conditions at the time existing, has not subjected, and in the reasonable determination of the Majority Lenders will not subject, any Borrower or any Subsidiary of any Borrower to any liability that, alone or in the aggregate with all such liabilities for all such Persons, exceeds $10.0 million; or (j) one or more judgments or decrees shall be entered against any Borrower or any of its Subsidiaries involving, individually or in the aggregate, a liability (to the extent not paid or covered by a reputable insurance company which has accepted liability in writing) of $5.0 million or more and all such judgments or decrees shall not have been vacated, discharged, satisfied, stayed or bonded pending appeal within thirty (30) days from the entry thereof. 9.2 ACCELERATION AND CASH COLLATERALIZATION. Upon the occurrence of an Event of Default and which is continuing, the Agent may, but shall upon the request of the Majority Lenders, and by delivery of notice to the Funds Administrator from the Agent, take any or all of the following actions: (a) declare all Obligations to be immediately due and payable (except with respect to any Event of Default set forth in SECTION 9.1(e), in which case all Obligations shall automatically become immediately due and payable without the necessity of any notice or other demand) without presentment, demand, protest or any other action or obligation of the Agent or any Lender; and (b) immediately terminate the Commitments hereunder. In addition, upon demand by the Agent or the Majority Lenders upon the occurrence of any Event of Default and which is continuing, the Borrowers shall deposit with the Agent with cash or Cash Equivalents in an amount equal to 110% of the Letter of Credit Obligations. Such deposit shall be held by the Agent as security for, and to provide for the payment of, Letter of Credit Obligations. If at any time after acceleration of the maturity of the Obligations, the Borrowers shall pay all arrears of interest and all payments on account of principal of the Loans which shall have become due otherwise than by acceleration (with interest on principal and, to the extent permitted by law, on overdue interest, at the rates specified in SECTION 4.4) and all Events of Default and Defaults (other than nonpayment of principal of and accrued interest on the Loans and other Obligations due and payable solely by virtue of acceleration) shall be remedied or 95 waived, then by written notice to the Funds Administrator, the Majority Lenders may elect, in the sole discretion of such Majority Lenders, to rescind and annul the acceleration and its consequences and return any cash collateral; but such action shall not affect any subsequent Default or Event of Default or impair any right or remedy consequent thereon. The provisions of the preceding sentence are intended merely to bind the Lenders to a decision which may be made at the election of the Majority Lenders; they are not intended to benefit the Borrowers and do not give any Borrower the right to require the Lenders to rescind or annul any acceleration hereunder or to return any cash collateral, even if the conditions set forth herein are met. 9.3 REMEDIES. From and after the occurrence of any Event of Default which is continuing, the Agent may, in addition to exercising any other rights and remedies now or hereafter existing under any Credit Document or applicable law: (a) make copies of any and all documents, instruments, files and records (including the copying of any computer records), and any receptacles or cabinets containing same, relating to any or all of the Collateral, or the Agent may use (at the expense of the Borrowers) such of the supplies or space of any Borrower at any Borrower's place of business or otherwise, as may be necessary to properly administer and control any or all of the Collateral or the handling of collections and realizations thereon; (b) bring suit, in the name of a Borrower or the Lenders and generally shall have all other rights respecting any or all of the Collateral, including the right to: accelerate or extend the time of payment, settle, compromise, release in whole or in part any amounts owing on any or all of the Collateral and issue credits in the name of a Borrower or the Lenders; and (c) foreclose the security interests created pursuant to the Credit Documents by any available judicial procedure, or to take possession of any or all of the Collateral without judicial process and enter any premises where any Collateral may be located for the purpose of taking possession of or removing same. To the extent not prohibited by applicable law, the Agent shall have the right, without notice or advertisement, to sell, lease, or otherwise dispose of all or any part of the Collateral, whether in its then condition or after further preparation or processing, in the name of a Borrower or the Lenders, or in the name of such other party as the Agent may designate, either at public or private sale or at any broker's board, in lots or in bulk, for cash or for credit, with or without warranties or representations, and upon such other terms and conditions as the Agent in its sole discretion may deem advisable, and the Agent or any other Lender shall have the right to purchase at any such sale. If any Collateral shall require rebuilding, repairing, maintenance or preparation, the Agent shall have the right, at its option, to do such of the aforesaid as is necessary, for the purpose of putting such Collateral in such saleable form as the Agent shall deem appropriate. Each Borrower agrees, at the request of the Agent, to assemble the Collateral and to make it available to the Agent at the premises of such Borrower, and to make available to the Agent the premises and facilities of such Borrower for the purpose of the Agent's taking possession of, removing or putting the Collateral in saleable form. However, if notice of intended disposition of any Collateral is required by law, it is agreed that ten (10) days notice shall constitute reasonable notification. Unless expressly prohibited by the licensor thereof; if any, the Agent is hereby granted a license to use all Intellectual Property, computer software programs, data bases, processes and materials used by each Borrower in connection with its businesses or in connection with the Collateral. The net cash proceeds resulting from the Agent's exercise of any of the foregoing rights (after deducting all charges, costs and expenses, including reasonable attorneys' fees) shall be applied by the Agent to the payment of the Obligations, whether due or to become due, in such order as the Agent may elect, and pending such payment shall be held as security for such payment. Each Borrower shall remain liable to the Agent and 96 the Lenders for any deficiencies. The enumeration of the foregoing rights is not intended to be exhaustive and the exercise of any right shall not preclude the exercise of any other rights, all of which shall be cumulative. 9.4 ACTIONS IN CONCERT. Anything in this Credit Agreement to the contrary notwithstanding, each Lender hereby agrees with each other Lender that no Lender shall take any action to protect or enforce its rights arising out of this Credit Agreement or the other Credit Documents (including exercising any rights of setoff) without first obtaining the prior written consent of Agent or Majority Lenders, it being the intent of Lenders that any such action to protect or enforce rights under this Credit Agreement and the other Credit Documents shall be taken in concert and at the direction or with the consent of Agent or Majority Lenders. ARTICLE 10 THE AGENT 10.1 APPOINTMENT OF AGENT. (a) Each Lender hereby designates DBTCo. as its contractual representative to act as herein specified. Each Lender hereby irrevocably authorizes, and each holder of a Note or an L/C Participation by the acceptance of such Note or participation shall be deemed irrevocably to authorize, the Agent to take such action on its behalf under the provisions of this Credit Agreement, the other Credit Documents and any other instruments and agreements referred to herein or therein and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Agent shall hold all Collateral and all payments of principal, interest, Fees, charges and Expenses received pursuant to this Credit Agreement or any other Credit Document for the benefit of the Lenders and the Issuing Banks to be distributed as provided herein. The Agent may perform any of its duties hereunder by or through its agents or employees. (b) The provisions of this ARTICLE 10 are solely for the benefit of the Agent, the Lenders and the Issuing Banks, and none of the Credit Parties shall have any rights as a third party beneficiary of any of the provisions hereof (other than SECTION 10.9). In performing its functions and duties under this Credit Agreement, the Agent shall act solely as agent of the Lenders and the Issuing Banks and does not assume and shall not be deemed to have assumed any obligation toward or relationship of agency or trust with or for any Credit Party. 10.2 NATURE OF DUTIES OF AGENT. The Agent shall have no duties or responsibilities except those expressly set forth in this Credit Agreement and the other Credit Documents. Neither the Agent nor any of its officers, directors, employees or agents shall be liable for any action taken or omitted by it as such hereunder or in connection herewith, unless caused by its or their gross negligence or willful misconduct. The duties of the Agent shall be mechanical and administrative in nature; the Agent shall not have by reason of this Credit Agreement or the other Credit Documents a fiduciary relationship in respect of any Lender or any Issuing Bank, and nothing in this Credit Agreement or the other Credit Documents, expressed or implied, is intended to or shall be so construed as to impose upon the Agent any obligations in respect of 97 this Credit Agreement or the other Credit Documents except as expressly set forth herein or therein. 10.3 LACK OF RELIANCE ON THE AGENT. (a) Independently and without reliance upon the Agent, any Lender or any Issuing Bank, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial or other condition and affairs of each Credit Party in connection with the taking or not taking of any action in connection herewith and (ii) its own appraisal of (A) the creditworthiness of each Credit Party, and (B) the Collateral, and, except as expressly provided in this Credit Agreement, the Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Lender or any Issuing Bank with any credit or other information with respect thereto, whether coming into its possession before the initial Credit Event or at any time or times thereafter. (b) The Agent shall not be responsible to any Lender or Issuing Bank for any recitals, statements, information, representations or warranties herein or in any other Credit Document or for the execution, effectiveness, genuineness, validity, enforceability, collectibility, priority or sufficiency of this Credit Agreement or any other Credit Document or the financial or other condition of any Credit Party. The Agent shall not be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Credit Agreement or any other Credit Document, or the financial condition of any Credit Party, or the existence or possible existence of any Default or Event of Default, unless specifically requested to do so in writing by any Lender or Issuing Bank, as the case may be. 10.4 CERTAIN RIGHTS OF THE AGENT. The Agent shall have the right to request instructions from the Lenders at any time. If the Agent shall request instructions from the Lenders with respect to any act or action (including the failure to act) in connection with this Credit Agreement, the Agent shall be entitled to refrain from such act or taking such action unless and until the Agent shall have received instructions from the Majority Lenders (or, to the extent required pursuant to SECTION 11.10, the Super Majority Lenders or all Lenders), and the Agent shall not incur liability to any Person by reason of so refraining. Without limiting the foregoing, no Lender or Issuing Bank shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting hereunder in accordance with the instructions of the Majority Lenders. 10.5 RELIANCE BY THE AGENT. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, statement, certificate, telex or facsimile transmission, E-mail, telecopier message, cablegram, order or other documentary, teletransmission or telephone message believed by it to be genuine and correct and to have been signed, sent or made by the proper Person. The Agent may consult with legal counsel (including counsel for the Borrowers with respect to matters concerning the Borrowers), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. The Agent may, but shall not be required to, rely on Borrowing Base Certificates and any other schedules or reports delivered to the Agent in connection herewith in determining the amount of the Borrowing Base and the then eligibility of Accounts and Inventory of the 98 respective Borrowers. Reliance thereon by the Agent from time to time shall not be deemed to limit the right of the Agent to revise advance rates or standards of eligibility as provided in the definition of the term "BORROWING BASE" set forth herein. 10.6 INDEMNIFICATION OF AGENT. To the extent the Agent is not reimbursed and indemnified by the Borrowers, each Lender will reimburse and indemnify the Agent, in proportion to its respective Commitment, for and against any and all Liabilities, losses, damages, penalties, actions, judgments, suits, costs, expenses (including counsel fees and disbursements) or disbursements of any kind or nature whatsoever (including all Expenses) which may be imposed on, incurred by or asserted against the Agent, in any way relating to or arising out of this Credit Agreement or any other Credit Document; PROVIDED that no Lender, shall be liable for any portion of such Liabilities, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements to the extent it is determined by a judgment of a court that is binding on the Agent, final and not subject to review on appeal, to be the result of acts or omissions on the part of the Agent, constituting gross negligence or willful misconduct. 10.7 THE AGENT IN ITS INDIVIDUAL CAPACITY. With respect to its obligation to lend under this Credit Agreement, the Loans made by it and the Notes issued to it, and its participation in Letters of Credit, the Agent shall have the same rights and powers hereunder as any other Lender or holder of a Note or participation interests and may exercise the same as though it was not performing the duties specified herein; and the terms "Lenders," "Majority Lenders," "holders of Notes," or any similar terms shall, unless the context clearly otherwise indicates, include the Agent in its individual capacity. The Agent may accept deposits from, lend money to, acquire equity interests in, and generally engage in any kind of banking, trust, financial advisory or other business with any Borrower or any Affiliate of any Borrower as if it were not performing the duties specified herein, and may accept fees and other consideration from any Borrower for services in connection with this Credit Agreement and otherwise without having to account for the same to the Lenders or any Issuing Bank. 10.8 HOLDERS OF NOTES. (a) The Agent may deem and treat the payee of any Note as the owner thereof for all purposes hereof unless and until a written notice of the assignment or transfer thereof shall have been filed with the Agent. Any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is the holder of any Note, shall be conclusive and binding on any subsequent holder, transferee or assignee of such Note or of any Note or Notes issued in exchange therefore. 10.9 SUCCESSOR AGENT. (a) The Agent may, upon five (5) Business Days' notice to the Lenders and the Funds Administrator, resign at any time (effective upon the appointment of a successor Agent pursuant to the provisions of this SECTION 10.9) by giving written notice thereof to the Lenders and the Funds Administrator. Upon such resignation, the Majority Lenders shall have the right, upon five (5) days' notice to the Funds Administrator, to appoint a successor Agent. If no successor Agent (i) shall have been so appointed by the Majority Lenders and (ii) shall have accepted such appointment, within thirty (30) days after the retiring Agent's giving of notice of 99 resignation, then, upon five (5) days' notice, the retiring Agent may, on behalf of the Lenders, appoint a successor Agent. Resignation of the Agent under this Credit Agreement shall also constitute a resignation of the Agent under the other Credit Documents and appointment of a successor Agent shall constitute an appointment of the successor Agent under all other Credit Documents. (b) Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under this Credit Agreement. After any retiring Agent's resignation hereunder as Agent, the provisions of this ARTICLE 10 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Credit Agreement. The retiring Agent shall assign to the successor Agent all liens granted under the Collateral Documents and deliver to the successor Agent all pledged Collateral in its possession, and take all such other actions, at the expense of Borrowers, as may be reasonably requested to effect the succession of the successor Agent under the Credit Documents. (c) In the event of a material breach by the Agent of its duties hereunder, the Agent may be removed by the Majority Lenders for cause and the provisions of this SECTION 10.9 shall apply to the appointment of a successor Agent. Such removal of the Agent shall also operate, if at the time any such Person is serving as such, as a removal of DBTCo. and each of its Serving Affiliates, if any, as an Issuing Bank, subject to SECTION 10.9(d). (d) No removal of DBTCo., Deutsche Bank, any Lender or any of their respective Serving Affiliates pursuant to SECTION 10.9(c), as an Issuing Bank, shall be effective unless its Liabilities under each Letter of Credit are secured with cash or by letters of credit in form and substance, and issued by issuers, satisfactory to DBTCo., Deutsche Bank, such Lender or such Serving Affiliate. 10.10 COLLATERAL MATTERS. (a) Each Lender and each Issuing Bank authorizes and directs the Agent to enter into the Collateral Documents for the benefit of such Person. Each Lender and each Issuing Bank hereby agrees, and each holder of any Note by the acceptance thereof will be deemed to agree, that, except as otherwise set forth in SECTION 11.10, any action taken by the Majority Lenders or the Super Majority Lenders, as the case may be, in accordance with the provisions of this Credit Agreement or the Collateral Documents, and the exercise by the Majority Lenders or Super Majority Lenders of the powers set forth herein or therein, together with such other powers as are reasonably incidental thereto, shall be authorized and binding upon all of the Lenders and all the Issuing Banks. The Agent is hereby authorized on behalf of all of the Lenders and all the Issuing Banks, without the necessity of any notice to or further consent from any Lender or any Issuing Bank from time to time prior to an Event of Default, to take any action with respect to any Collateral or Collateral Documents which may be necessary to perfect and maintain perfected the Liens upon the Collateral granted pursuant to the Collateral Documents. 100 (b) Each Lender and each Issuing Bank hereby authorize the Agent, at its option and in its discretion, to release or subordinate, as applicable, any Lien granted to or held by the Agent upon any Collateral (i) upon termination of the Commitments and payment and satisfaction of all of the Obligations at any time arising under or in respect of this Credit Agreement or the other Credit Documents or the transactions contemplated hereby or thereby, (ii) constituting property being sold or disposed of upon receipt of the proceeds of such sale by the Agent, if the Funds Administrator certifies to the Agent that such sale or disposition is made in compliance with SECTION 8.5 (and the Agent may rely conclusively on any such certificate, without further inquiry), (iii) that is subject to a Purchase Money Lien permitted under SECTION 8.4(C) or (iv) if approved, authorized or ratified in writing by the Majority Lenders, unless such release or subordination is required to be approved by all of the Lenders pursuant to SECTION 11.10. Upon request by the Agent at any time, each Lender and each Issuing Bank will confirm in writing the Agent's authority to release or subordinate particular types or items of Collateral pursuant to this SECTION 10.10. (c) Upon any sale and transfer of Collateral which is expressly permitted pursuant to the terms of this Credit Agreement, or consented to in writing by the Majority Lenders (or all Lenders, if such release is required to be approved by all of the Lenders pursuant to SECTION 11.10), and upon at least five (5) Business Days' prior written request by the Funds Administrator, the Agent shall (and is hereby irrevocably authorized by each Lender and each Issuing Bank, to) execute such documents as may be necessary to evidence the release of the Liens granted to the Agent for the benefit of the Agent, the Lenders and the Issuing Banks herein or pursuant hereto upon the Collateral that was sold or transferred; PROVIDED that (i) the Agent shall not be required to execute any such document on terms which, in the Agent's opinion, would expose the Agent to or create any Liability or entail any consequence other than the release of such Liens without recourse or warranty and (ii) such release shall not in any manner discharge, affect or impair the Obligations or any Liens upon (or obligations of any Borrower or any Credit Party in respect of) all interests retained by any Borrower or any Credit Party, including the proceeds of the sale, all of which shall continue to constitute part of the Collateral. In the event of any sale or transfer of Collateral, or any foreclosure with respect to any of the Collateral, the Agent shall be authorized to deduct all of the Expenses reasonably incurred by the Agent from the proceeds of any such sale, transfer or foreclosure. (d) The Agent shall have no obligation whatsoever to any Lender, any Issuing Bank or any other Person to assure that the Collateral exists or is owned by any Borrower or any Subsidiary thereof or is cared for, protected or insured or that the Liens granted to the Agent herein or in any of the Collateral Documents or pursuant hereto or thereto have been properly or sufficiently or lawfully created, perfected, protected or enforced or are entitled to any particular priority, or to exercise or to continue exercising at all or in any manner or under any duty of care, disclosure or fidelity any of the rights, authorities and powers granted or available to the Agent in this SECTION 10.10 or in any of the Collateral Documents, it being understood and agreed that in respect of the Collateral, or any act, omission or event related thereto, the Agent may act in any manner it may deem appropriate, in its sole discretion, given the Agent's own interest in the Collateral as one of the Lenders and that the Agent shall have no duty or liability whatsoever to the Lenders, except for its gross negligence or willful misconduct. 101 10.11 ACTIONS WITH RESPECT TO DEFAULTS. In addition to the Agent's right to take actions on its own accord as permitted under this Credit Agreement, the Agent shall take such action with respect to a Default or Event of Default as shall be directed by the Majority Lenders; PROVIDED that until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable and in the best interests of the Lenders and the Issuing Banks; and, further, provided that the Agent shall not be required under any circumstances to take any action that, in its judgment, (a) is contrary to any provision of the Credit Documents or applicable law or (b) will expose it to any liability or expense against which it has not been indemnified to its satisfaction. If any indemnity furnished to Agent for any purpose shall, in the opinion of Agent, be insufficient or become impaired, Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished. 10.12 DELIVERY OF INFORMATION. The Agent shall not be required to deliver to any Lender or any Issuing Bank originals or copies of any documents, instruments, notices, communications or other information received by the Agent from the Funds Administrator, any Borrower, any Subsidiary of any Borrower, the Majority Lenders, any Lender, any Issuing Bank or any other Person under or in connection with this Credit Agreement or any other Credit Document except (a) as specifically provided in this Credit Agreement or any other Credit Document and (b) as specifically requested from time to time in writing by any Lender, or any Issuing Bank with respect to a specific document, instrument, notice or other written communication received by and in the possession of the Agent at the time of receipt of such request and then only in accordance with such specific request. The Agent shall be permitted to deliver any notices or other information required hereunder to the Lenders through email or the use of Intralinks or any similar service. 10.13 OTHER AGENTS. Notwithstanding any provision to the contrary contained elsewhere in this Credit Agreement or in any other Credit Document, neither the Syndication Agent nor any Documentation Agent shall have any duties or responsibilities, nor shall the Syndication Agent nor any Documentation Agent have or be deemed to have any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Credit Agreement or any other Credit Document or otherwise exist against the Syndication Agent or any Documentation Agent. ARTICLE 11 MISCELLANEOUS 11.1 SUBMISSION TO JURISDICTION; WAIVERS. EACH BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY: (a) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS CREDIT AGREEMENT AND THE OTHER CREDIT DOCUMENTS TO WHICH IT IS A PARTY, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NONEXCLUSIVE GENERAL JURISDICTION OF THE COURTS 102 OF THE STATE OF NEW YORK, THE COURTS OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, IN EACH CASE LOCATED IN NEW YORK, NEW YORK, AND APPELLATE COURTS FROM ANY THEREOF; (b) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH COURTS AND WAIVES 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 SUCH BORROWER AT THE ADDRESS OF THE FUNDS ADMINISTRATOR SET FORTH IN SECTION 11.5 OR AT SUCH OTHER ADDRESS OF WHICH THE AGENT SHALL HAVE BEEN NOTIFIED PURSUANT THERETO; (d) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT OR ANY LENDER TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF THE AGENT OR ANY LENDER TO BRING ANY ACTION OR PROCEEDING AGAINST ANY BORROWER OR THE FUNDS ADMINISTRATOR, OR THEIR RESPECTIVE PROPERTY IN THE COURTS OF OTHER JURISDICTIONS. (e) WAIVES THE RIGHT TO ASSERT ANY SETOFF, COUNTERCLAIM OR CROSS-CLAIM IN RESPECT OF, AND ALL STATUTES OF LIMITATIONS WHICH MAY BE RELEVANT TO, SUCH ACTION OR PROCEEDING; AND (f) WAIVES DUE DILIGENCE, DEMAND, PRESENTMENT AND PROTEST AND ANY NOTICES THEREOF AS WELL AS NOTICE OF NONPAYMENT. 11.2 JURY TRIAL. THE FUNDS ADMINISTRATOR, THE BORROWERS, THE AGENT, EACH ISSUING BANK AND THE LENDERS EACH HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF THIS CREDIT AGREEMENT, THE OTHER CREDIT DOCUMENTS OR ANY OTHER AGREEMENTS OR TRANSACTIONS RELATED HERETO OR THERETO. 11.3 GOVERNING LAW. THE RIGHTS AND DUTIES OF THE FUNDS ADMINISTRATOR, THE BORROWERS, THE AGENT, EACH ISSUING BANK AND THE LENDERS UNDER THIS CREDIT AGREEMENT, THE NOTES (INCLUDING MATTERS RELATING TO THE MAXIMUM PERMISSIBLE RATE) AND THE OTHER CREDIT DOCUMENTS SHALL PURSUANT TO NEW YORK GENERAL 103 OBLIGATIONS LAW SECTION 5-1401 BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES. 11.4 DELAYS; PARTIAL EXERCISE OF REMEDIES. No delay or omission of the Agent, any Issuing Bank or any Lender to exercise any right or remedy hereunder or under any of the other Credit Documents, whether before or after the happening of any Event of Default, shall impair any such right or shall operate as a waiver thereof or as a waiver of any such Event of Default. No single or partial exercise by the Agent, any Issuing Bank or any Lender of any right or remedy shall preclude any other or further exercise thereof, or preclude any other right or remedy. 11.5 NOTICES. Except as otherwise provided herein, all notices and correspondence hereunder shall be in writing and sent by certified or registered mail, return receipt requested, or by overnight delivery service, with all charges prepaid, to the following addresses, if to the Agent, or any of the Lenders, then to Deutsche Bank Trust Company Americas, 222 South Riverside Plaza, Chicago, Illinois 60606, Attention: Frank Fazio, if to any Issuing Bank, to the address specified in the applicable L/C Application, and if to the Funds Administrator or any Borrower, then to the Funds Administrator at 595 Shrewsbury Avenue, Shrewsbury, New Jersey, 07702, Attention: Chief Financial Officer and Treasurer or by facsimile transmission, promptly confirmed in writing sent by first class mail, if to the Agent, or any of the Lenders, at (312) 537-1327, if to an Issuing Bank, as specified in the applicable L/C Application, and if to the Funds Administrator or any Borrower at (732) 212-3349 with a copy to David K. Duffell, Edwards & Angell, LLP, 2800 Financial Plaza, Providence, Rhode Island, facsimile (401) 276-6611. All such notices and correspondence shall be deemed given (a) if sent by certified or registered mail, three (3) Business Days after being postmarked, (b) if sent by overnight delivery service, when received at the above stated addresses or when delivery is refused and (c) if sent by facsimile transmission, when receipt of such transmission is acknowledged except, in the case of a notice from the Agent to the Funds Administrator under SECTION 9.2, such notice shall be deemed given when sent by facsimile transmission. 11.6 ASSIGNABILITY. (a) The Borrowers shall not have the right to assign this Credit Agreement or any interest therein except with the prior written consent of the Agent. (b) Any Lender may make, carry or transfer Loans at, to or for the account of, any of its branch offices or the office of an Affiliate of such Lender except to the extent such transfer would result in increased costs to the Borrowers. (c) Each Lender may assign to one or more banks, other financial institutions or investment funds all or a portion of its rights and obligations under this Credit Agreement, the Notes and the other Credit Documents; PROVIDED that, except in the case of an assignment to a Federal Reserve Bank (which may be made without condition or restriction), (i) such assignment shall be for a fixed and not varying percentage of the assigning Lender's Loans, L/C Participations and Commitment, (ii) the Agent and, so long as no Event of Default has occurred and is continuing, the Funds Administrator shall consent to such assignment (which consents 104 shall not be unreasonably withheld), (iii) for each such assignment, the parties thereto shall execute and deliver to the Agent, for its acceptance and recording in the Register (as defined below), an Assignment and Assumption Agreement, together with any Note or Notes subject to such assignment and a processing and recordation fee of $5,000 and (iv) except for any assignment covering all or the remaining portion of an assigning Lender's rights and obligations under this Credit Agreement, the Notes and the other Credit Documents, no such assignment shall be for less than $1,000,000 of the assigning Lender's Commitment, unless such assignment is to a then-current holder of a Note. Upon such execution and delivery of the Assignment and Assumption Agreement to the Agent, from and after the date specified as the effective date in the Assignment and Assumption Agreement (the "ACCEPTANCE DATE"), (A) the assignee thereunder shall be a party hereto, and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Assumption Agreement, such assignee shall have the rights and obligations of a Lender hereunder and (B) the assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Assumption Agreement, relinquish its rights (other than any rights it may have pursuant to SECTION 11.8, which rights will survive) and be released from its obligations (other than any obligations it may have pursuant to SECTION 11.7, which obligations will survive under this Credit Agreement (and, in the case of an Assignment and Assumption Agreement covering all or the remaining portion of an assigning Lender's rights and obligations under this Credit Agreement, such Lender shall cease to be a party hereto). (d) By executing and delivering an Assignment and Assumption Agreement, the assignee thereunder confirms and agrees as follows: (i) other than as provided in such Assignment and Assumption Agreement, the assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Credit Agreement or any other Credit Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Credit Agreement, the Notes, or any other Credit Document; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Borrower, any other Credit Parties or any Issuing Bank, the value of the Collateral, or the performance or observance by (A) any Borrower or any other Credit Parties of any of its obligations under this Credit Agreement or any other Credit Document, or (B) any Issuing Bank of any of its obligations under any Letter of Credit; (iii) such assignee confirms that it has received a copy of this Credit Agreement, together with copies of the Financial Statements referred to in SECTION 7.1 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Assumption Agreement; (iv) such assignee will continue, independently and without reliance upon the Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, to make its own credit decisions in taking or not taking action under this Credit Agreement; (v) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Credit Agreement and the other Credit Documents as are delegated to the Agent by their terms, together with such powers as are reasonably incidental thereto; and (vi) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Credit Agreement are required to be performed by it as a Lender. 105 (e) The Agent shall maintain at its address referred to in SECTION 11.5 a copy of each Assignment and Assumption Agreement delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitment of, and principal amount of the Loans owing to, each Lender from time to time (the "REGISTER"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Funds Administrator, the Borrowers, the Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Credit Agreement. The Register and copies of each Assignment and Assumption shall be available for inspection by any Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (f) Upon its receipt of an Assignment and Assumption Agreement executed by an assigning Lender, together with the Note or Notes subject to such assignment, the Agent shall, if such Assignment and Assumption Agreement has been completed and is in substantially the form of EXHIBIT A hereto, (i) accept such Assignment and Assumption Agreement, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Funds Administrator. Within five (5) Business Days after its receipt of such notice, the Borrowers shall execute and deliver to the Agent in exchange for the surrendered Note or Notes a new Note or Notes to the order of the assignee in an amount equal to the Commitment assumed by it pursuant to such Assignment and Assumption Agreement and, if the assigning Lender has retained a Commitment hereunder, a new Note or Notes to the order of the assigning Lender in an amount equal to the Commitment retained by it hereunder. Such new Note or Notes shall re-evidence the Indebtedness outstanding under the old Note or Notes and shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Note or Notes, shall be dated the Closing Date and shall otherwise be in substantially the form of the Note or Notes subject to such assignments. (g) Each Lender may sell participations (without the consent of the Agent, any Borrower or any other Lender) to one or more parties in or to all or a portion of its rights and obligations under this Credit Agreement (including all or a portion of its Commitment, the Loans owing to it and the Note or Notes held by it); PROVIDED that (i) such Lender's obligations under this Credit Agreement (including its Commitment to the Borrowers hereunder) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of any such Note for all purposes of this Credit Agreement, (iv) the Funds Administrator, the Borrowers, the Agent, and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Credit Agreement and such Notes and (v) such Lender shall not transfer, grant, assign or sell any participation under which the participant shall have rights to approve any amendment or waiver of this Credit Agreement except to the extent such amendment or waiver would (A) extend the final maturity date or the date for the payments of any installment of fees or principal or interest of any Loans or Letter of Credit reimbursement obligations in which such participant is participating; (B) reduce the amount of any installment of principal of the Loans or the amount of any drawing under any Letter of Credit in which such participant is participating; (C) except as otherwise expressly provided in this Credit Agreement, reduce the interest rate applicable to the Loans or the amount of any drawing under any Letter of Credit in which such participant is participating; or (D) except as otherwise expressly provided in this Credit Agreement, reduce any Fees payable 106 hereunder in which such participant participates. Each Lender selling or granting a participation, including a participation sold pursuant to SECTION 2.10, shall indemnify the Borrowers and the Agent for any Taxes and Liabilities that either may sustain as a result of such Lender's failure to withhold and pay any Taxes applicable to payments by such Lender to its participant in respect of such participation. (h) Each Lender agrees that, without the prior written consent of the Borrowers and the Agent, it will not make any assignment hereunder in any manner or under any circumstances that would require registration or qualification of, or filings in respect of, any Loan, Note or other Obligation under the securities laws of the United States of America or of any jurisdiction. (i) In connection with the efforts of any Lender to assign its rights or obligations or to participate interests, such Lender may disclose any information in its possession regarding any Borrower, subject to the confidentiality provisions of SECTION 11.7. 11.7 CONFIDENTIALITY. Each Lender agrees that it will use its reasonable best efforts not to disclose without the prior consent of the Borrowers (other than to its employees, auditors, advisors, Affiliates and counsel, or to another Lender if the disclosing Lender or such disclosing Lender's holding or parent company in its sole discretion determines that any such party should have access to such information) any information with respect to any Borrower or any of its Subsidiaries, which is furnished pursuant to this Credit Agreement and which is designated by such Borrower to the Lenders in writing as confidential, provided that any Lender may disclose any such information (a) as has become generally available to the public, (b) as may be required or appropriate in any report, statement or testimony submitted to or examination conducted by any Governmental Authority having or claiming to have jurisdiction over such Lender, (c) as may be required or appropriate in response to any summons or subpoena or in connection with any litigation, (d) in order to comply with any Requirement of Law, (e) to any prospective or actual transferee or participant in connection with any contemplated transfer or participation of any of the Notes or Commitments or any interest therein by such Lender, (f) to other financial institutions with respect to which the respective Lender has a contractual relationship in accordance with such Lender's regular banking procedures, provided that each such other financial institution agrees to be bound by the confidentiality provisions contained in this SECTION 11.7, (g) to any nationally recognized rating agency that requires access to information regarding the respective Lender's investment portfolio in connection with such rating agency's issuance of ratings with respect to such Lender, provided that such Lender advises such rating agency of the confidential nature of such information, (h) as may be required or appropriate in connection with protecting, preserving, exercising or enforcing (or planning to exercise or enforce) any of its rights in, under or related to the Collateral or the Credit Documents and (i) as may be required or appropriate in consulting with any Person with respect to any of the foregoing matters. 11.8 INDEMNIFICATION. The Borrowers shall and hereby agree jointly and severally to indemnify, defend and hold harmless the Agent, each Issuing Bank and each of the Lenders and their respective directors, officers, agents, employees, counsel, advisors and Affiliates from and against (a) any and all losses, claims, damages, liabilities, deficiencies, judgments or expenses incurred by any of them (except to the extent that it is finally judicially determined to have 107 resulted from their own gross negligence, bad faith or willful misconduct) (including, but not limited to, reasonable attorneys' fees and expert fees) (collectively, "LOSSES") arising out of or by reason of any litigations, investigations, claims or proceedings which arise out of or are in any way related to (i) this Credit Agreement or the transactions contemplated thereby; (ii) the issuance of Letters of Credit; (iii) the failure of an Issuing Bank 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 government or Governmental Authority; (iv) any actual or proposed use by any Borrower of (A) the proceeds of any Loans or (B) any Letter of Credit; or (v) the Agent's, the Lenders' or any Issuing Bank's entering into this Credit Agreement, the other Credit Documents or any other agreements and documents relating thereto, including amounts paid in-settlement, court costs and the fees and disbursements of counsel incurred in connection with any such litigation, investigation, claim or proceeding or any advice rendered in connection with any of the foregoing; and (b) any Losses that arise directly or indirectly from or in connection with any Environmental Laws. If and to the extent that the Obligations of the Borrowers hereunder are unenforceable for any reason, the Borrowers hereby jointly and severally agree to make the maximum contribution to the payment and satisfaction of such Obligations which is permissible under applicable law. The Borrowers' joint and several Obligations hereunder shall survive any termination of this Credit Agreement and the other Credit Documents and the payment in full of the Obligations, and are in addition to, and not in substitution of, any other of its Obligations. In addition, the Borrowers shall, upon demand, pay to the Agent and each Lender all costs and expenses (including the reasonable fees and disbursements of counsel and other professionals) paid or incurred by the Agent or such Lender in (i) enforcing or defending its rights under or in respect of this Credit Agreement, the other Credit Documents or any other document or instrument now or hereafter executed and delivered in connection herewith, (ii) collecting the Loans, (iii) foreclosing or otherwise collecting upon the Collateral or any part thereof and (iv) obtaining any legal, accounting or other advice in connection with any of the foregoing. 11.9 ENTIRE AGREEMENT; SUCCESSORS AND ASSIGNS. This Credit Agreement and the other Credit Documents constitute the entire agreement among the Funds Administrator, the Borrowers, the Agent and the Lenders (in their capacities as such and not in their capacity, if any, as an Issuing Bank), supersedes any prior agreements among them, and shall bind and benefit the Funds Administrator, the Borrowers, the Agent and the Lenders and their respective successors and permitted assigns. 11.10 AMENDMENTS, ETC. No amendment or waiver of any provision of this Credit Agreement or any other Credit Document, nor consent to any departure by any Credit Party therefrom, shall in any event be effective unless the same shall be in writing and signed by the Majority Lenders (or by the Agent on their behalf), or if the Lenders shall not be parties thereto, by the parties thereto and consented to by the Majority Lenders (or by the Agent on their behalf), and each such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; PROVIDED, that, notwithstanding the foregoing: (a) no amendment, waiver or consent shall, unless in writing and signed by all of the Lenders, increase the percentages in CLAUSES (a)(i) or (a)(ii) of the definition of the term Borrowing Base. 108 (b) no amendment, waiver or consent shall, unless in writing and signed by all the Lenders, do any of the following: (i) increase the Commitments of the Lenders or subject the Lenders to any additional obligations (except pursuant to an increase in Commitments or obligations arising under SECTION 11.6 hereof); (ii) except as otherwise expressly provided in this Credit Agreement, reduce the principal of, or interest on, the Notes or any drawing under any Letter of Credit or any fees hereunder; (iii) postpone any date fixed for any payment in respect of principal of, or interest on, the Notes or for the reimbursement of any drawing under any Letter of Credit or any fees hereunder; (iv) change the percentage of the Commitments, or any minimum requirement necessary for the Lenders, the Majority Lenders or the Super Majority Lenders to take any action hereunder; (v) amend or waive this SECTION 11.10, or change the respective definitions of Majority Lenders or Super Majority Lenders; (vi) except in connection with the financing, refinancing, sale or other disposition of any Collateral of the Borrower permitted under this Credit Agreement, release Agent's Liens on all or a substantial portion of the Collateral; (vii) amend SECTION 8.4 of this Credit Agreement to permit Additional First Priority Indebtedness (as defined in the Intercreditor Agreement) to be secured by the Collateral; or (viii) release any Borrower or Guarantor (other than a Guarantor that is an Immaterial Subsidiary) from its obligations under the Credit Documents except pursuant to a transaction permitted by this Credit Agreement; and, provided that no amendment, waiver or consent affecting the rights or duties of the Agent or any Issuing Bank under, (x) in the case of the Agent, any term or provision of this Credit Agreement and (y) in the case of any Issuing Bank, (1) SECTIONS 3.3, 3.4, 3.6 AND 3.8 of this Credit Agreement, (2) any Letter of Credit or (3) any L/C Application, shall in any event be effective, unless in writing and signed by the Agent or such Issuing Bank, as applicable, in addition to the Lenders required hereinabove to take such action. Notwithstanding any of the foregoing to the contrary, the consent of the Borrowers shall not be required for any amendment, modification or waiver of the provisions of ARTICLE 10 (other than the provisions of SECTION 10.9). In addition, the Borrowers and the Lenders hereby authorize the Agent to modify this Credit Agreement by unilaterally amending or supplementing ANNEX I from time to time in the manner requested by the Borrowers, the Agent or any Lender in order to reflect any assignments or transfers of the Loans as provided for hereunder; however, provided that the Agent shall promptly deliver a copy of any such modification to the Funds Administrator and each Lender. (c) If a Defaulting Lender exists or, in connection with any proposed amendment, modification, waiver or termination (a "PROPOSED CHANGE"): (i) requiring the consent of all affected Lenders, the consent of Super Majority Lenders is obtained, but the consent of other Lenders whose consent is required is not obtained (any such Lender whose consent is not obtained as described in this CLAUSE (i) and in CLAUSE (ii) below being referred to as a "NON-CONSENTING LENDER"), or (ii) requiring the consent of Super Majority Lenders, the consent of Majority Lenders is obtained, but the consent of Super Majority Lenders is not obtained, 109 then, in respect of any Defaulting Lender or Non-Consenting Lender (so long as Agent is not a Non-Consenting Lender), at Funds Administrator's request, Agent or a Person reasonably acceptable to Agent shall have the right with Agent's consent and in Agent's sole discretion (but shall have no obligation) to purchase from such Defaulting Lender or Non-Consenting Lender, as applicable, and such Defaulting Lender or Non-Consenting Lender, as applicable, agrees that it shall, upon Agent's request, sell and assign to Agent or such Person, all of the Commitments of such Defaulting Lender or Non-Consenting Lender, as applicable, for an amount equal to the principal balance of all Loans held by such Defaulting Lender or Non-Consenting Lender, as applicable, and all accrued interest and fees with respect thereto through the date of sale, such purchase and sale to be consummated pursuant to an executed Assignment and Assumption Agreement. 11.11 NONLIABILITY OF AGENT AND LENDERS. The relationship between the Borrowers and the Lenders and the Agent shall be solely that of borrower and lender. Neither the Agent, any Lender or any Issuing Bank shall have any fiduciary responsibilities to the Funds Administrator or any Borrower. Neither the Agent, any Lender or any Issuing Bank undertakes any responsibility to the Borrowers to review or inform the Borrowers of any matter in connection with any phase of any Borrowers' business or operations. 11.12 COUNTERPARTS. This Credit Agreement may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. 11.13 EFFECTIVENESS. This Credit Agreement shall become effective on the date on which all of the parties hereto shall have signed a copy hereof (whether the same or different copies) and shall have delivered the same to the Agent pursuant to SECTION 11.5 or, in the case of the Lenders, shall have given to the Agent written or facsimile notice (actually received) at such office that the same has been signed and mailed to it. 11.14 SEVERABILITY. In case any provision in or obligation under this Credit Agreement or the Notes or the other Credit Documents shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. 11.15 HEADINGS DESCRIPTIVE. The headings of the several sections and subsections of this Credit Agreement, and the Table of Contents, are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Credit Agreement. 11.16 MAXIMUM RATE. Notwithstanding anything to the contrary contained elsewhere in this Credit Agreement or in any other Credit Document, the Borrowers, the Agent and the Lenders hereby agree that all agreements among them under this Credit Agreement and the other Credit Documents, whether now existing or hereafter arising and whether written or oral, are expressly limited so that in no contingency or event whatsoever shall the amount paid, or agreed to be paid, to the Agent or any Lender for the use, forbearance, or detention of the money loaned to the Borrowers and evidenced hereby or thereby or for the performance or payment of any 110 covenant or obligation contained herein or therein, exceed the Highest Lawful Rate. If due to any circumstance whatsoever, fulfillment of any provisions of this Credit Agreement or any of the other Credit Documents at the time performance of such provision shall be due shall exceed the Highest Lawful Rate, then, automatically, the obligation to be fulfilled shall be modified or reduced to the extent necessary to limit such interest to the Highest Lawful Rate, and if from any such circumstance any Lender should ever receive anything of value deemed interest by applicable law which would exceed the Highest Lawful Rate, such excessive interest shall be applied to the reduction of the principal amount then outstanding hereunder or on account of any other then outstanding Obligations and not to the payment of interest, or if such excessive interest exceeds the principal unpaid balance then outstanding hereunder and such other then outstanding Obligations, such excess shall be refunded to the Borrowers. All sums paid or agreed to be paid to the Agent or any Lender for the use, forbearance, or detention of the Obligations and other Indebtedness of the Borrowers to the Agent or any Lender shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full term of such Indebtedness until payment in full so that the actual rate of interest on account of all such Indebtedness does not exceed the Highest Lawful Rate throughout the entire term of such Indebtedness. The terms and provisions of this Section shall control every other provision of this Credit Agreement, the other Credit Documents and all agreements among the Borrowers, the Agent and the Lenders. 11.17 RIGHT OF SETOFF. In addition to and not in limitation of all rights of offset that any Lender may have under applicable law, each Lender shall, subject to SECTION 9.4, upon the occurrence and during the continuance of any Event of Default and whether or not such Lender has made any demand or the Obligations of any Credit Party are matured, have the right to appropriate and apply to the payment of the Obligations of such Credit Party all deposits (general or special, time or demand, provisional or final) then or thereafter held by and other Indebtedness or property then or thereafter owing by such Lender, including any and all amounts in any Depository Account, Concentration Account or the DBTCo Account. For purposes of this SECTION 11.17, the Obligations of a Credit Party to a Lender shall include, as fully as though such Obligations were the direct Obligations of such Credit Party to such Lender, the Obligations of such Credit Party in which such Lender has an L/C Participation, in each case, to the extent of such participation. No Lender may exercise such rights without the prior written consent of Agent or the Majority Lenders pursuant to SECTION 9.4. Any amount received as a result of the exercise of such rights shall be reallocated as set forth in SECTION 2.10. 11.18 DEFAULTING LENDER. (a) Unless the Agent shall have received notice from a Lender, prior to the time specified in such Section, that such Lender will not make available to the Agent a Loan required to be made by it pursuant to SECTION 2.2 or its L/C Participation Funding Amount pursuant to SECTION 3.6(b)(ii), the Agent may assume that such Lender has made such amounts available to the Agent in accordance with such Sections and the Agent in its sole discretion may, in reliance upon such assumption, make available to the Borrowers or the applicable Issuing Bank a corresponding amount on behalf of such Lender. (b) If any amount referred to in SUBSECTION (a) of this SECTION 11.18 or in SECTION 2.3 is not made available to the Agent by a Lender (a "DEFAULTING LENDER") and the 111 Agent has made such amount available to the Borrowers or an Issuing Bank, the Agent shall be entitled to recover such amount on demand from such Defaulting Lender together with interest as hereinafter provided. If such Defaulting Lender does not pay such amount forthwith upon the Agent's demand therefore, the Agent shall promptly notify the Funds Administrator and the Borrowers shall immediately (but in no event later than five Business Days after such demand) pay such amount to the Agent together with interest calculated as hereinafter provided. The Agent shall also be entitled to recover from such Defaulting Lender and/or the Borrowers, as the case may be, (i) interest on such amount in respect of each day from the date such corresponding amount was made available by the Agent to the Borrowers to the date such amount is recovered by the Agent, at a rate per annum equal to either (A) if paid by such Defaulting Lender, the overnight Federal Funds Rate or (B) if paid by the Borrowers, the then applicable rate of interest, calculated in accordance with SECTION 4.1 OR SECTION 4.2, PLUS (ii) in each case, an amount equal to any costs (including legal expenses) and losses incurred as a result of the failure of such Defaulting Lender to provide such amount as provided in this Credit Agreement. Nothing herein shall be deemed to relieve any Lender from its duty to fulfill its obligations hereunder or to prejudice any rights which the Borrowers or any Issuing Bank, may have against any Lender as a result of any default by such Lender hereunder, including the right of the Borrowers to seek reimbursement from any Defaulting Lender for any amounts paid by the Borrowers under CLAUSE (ii) above on account of such Defaulting Lender's default. (c) (i) Notwithstanding anything contained herein to the contrary, so long as any Lender is a Defaulting Lender or has rejected its Commitment, the Agent shall not be obligated to transfer to such Lender (A) any payments made by the Borrowers to the Agent for the benefit of such Lender or (B) any amounts contemplated by SECTION 2.3(b)(i); and, such Lender shall not be entitled to the sharing of any payments pursuant to SECTION 2.10. Amounts otherwise payable to such Lender under SECTION 2.10 shall instead be paid to the Agent. (ii) For purposes of voting or consenting to matters with respect to the Credit Documents and determining Proportionate Share, such Defaulting Lender shall be deemed not to be a "LENDER" and such Lender's Commitment shall be deemed to be zero (0). (iii) This SECTION 11.18(c) shall remain effective with respect to a Defaulting Lender until (a) the Obligations under this Credit Agreement shall have been declared or shall have become immediately due and payable or (b) the Majority Lenders, the Agent and the Borrowers shall have waived such Lender's default in writing. (iv) No Lender's Commitment shall be increased or otherwise affected, and performance by the respective Borrowers shall not be excused, by the operation of this SECTION 11.18(c). Any payments of principal or interest which would, but for this SUBSECTION (c), be paid to any Lender, shall be paid to the Lenders who shall not be in default under their respective Commitments and who shall not have rejected any Commitment, for application to the Loans then due and payable or to the other Obligations then due and payable or to provide cash collateral to secure Obligations not then due and payable in such manner and order as shall be determined by the Agent. 112 11.19 RIGHTS CUMULATIVE. Each of the rights and remedies of the Agent, each Issuing Bank and the Lenders under the Credit Documents shall be in addition to all of their other rights and remedies under the Credit Documents and applicable law, and nothing in the Credit Documents shall be construed as limiting any such rights or remedies. 11.20 THIRD PARTY BENEFICIARIES. Each Issuing Bank shall be deemed to be a third party beneficiary of its rights under this Credit Agreement, provided that, except as otherwise provided in SECTION 11.10, such rights may be amended or waived, and any departure therefrom by any Credit Party consented to, without their respective consents. 11.21 JOINT AND SEVERAL LIABILITY OF BORROWERS. (a) Each of the Borrowers shall be jointly and severally liable hereunder and under each of the other Credit Documents with respect to all Obligations, regardless of which of the Borrowers actually receives the proceeds of the Loans or the benefit of any other extensions of credit hereunder, or the manner in which the Funds Administrator, the Borrowers, the Agent, the Lenders or any of the Issuing Banks account therefore in their respective books and records. In furtherance and not in limitation of the foregoing, (i) each Borrower's obligations and liabilities with respect to proceeds of Loans which it receives or Letters of Credit issued for its account, and related fees, costs and expenses, and (ii) each Borrower's obligations and liabilities arising as a result of the joint and several liability of the Borrowers hereunder with respect to proceeds of Loans received by, or Letters of Credit issued for the account of, any of the other Borrowers, together with the related fees, costs and expenses, shall be separate and distinct obligations, both of which are primary obligations of such Borrower. Neither the joint and several liability of, nor the Liens granted to the Agent under the Collateral Documents by, any of the Borrowers shall be impaired or released by (A) the failure of the Agent, any Lender or any Issuing Bank, any successors or assigns thereof, or any holder of any Note or any of the Obligations to assert any claim or demand or to exercise or enforce any right, power or remedy against the Funds Administrator, any Borrower, any Subsidiary of any Borrower, any other Person, the Collateral or otherwise; (B) any extension or renewal for any period (whether or not longer than the original period) or exchange of any of the Obligations or the release or compromise of any obligation of any nature of any Person with respect thereto; (C) the surrender, release or exchange of all or any part of any property (including without limitation the Collateral) securing payment, performance and/or observance of any of the Obligations or the compromise or extension or renewal for any period (whether or not longer than the original period) of any obligations of any nature of any Person with respect to any such property; (D) any action or inaction on the part of the Agent, any Lender or any Issuing Bank, or any other event or condition with respect to any other Borrower, including any such action or inaction or other event or condition, which might otherwise constitute a defense available to, or a discharge of, such Borrower, or a guarantor or surety of or for any or all of the Obligations; and (E) any other act, matter or thing (other than payment or performance of the Obligations) which would or might, in the absence of this provision, operate to release, discharge or otherwise prejudicially affect the obligations of such Borrower or any other Borrower. (b) Notwithstanding any provision to the contrary contained herein or in any other of the Credit Documents, to the extent the joint obligations of a Borrower shall be adjudicated to be invalid or unenforceable for any reason (including, without limitation, because 113 of Section 548 of Chapter 11 of the Bankruptcy Code or under any applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance Act or similar statute or common law) then the Obligations of each Borrower hereunder shall be limited to the maximum amount that is permissible under applicable law (whether federal or state and including, without limitation, the federal Bankruptcy Code). (c) To the extent that any Borrower shall make a payment under this SECTION 11.21 of all or any of the Obligations (other than Loans made to that Borrower for which it is primarily liable) (a "GUARANTOR PAYMENT") that, taking into account all other Guarantor Payments then previously or concurrently made by any other Borrower, exceeds the amount that such Borrower would otherwise have paid if each Borrower had paid the aggregate Obligations satisfied by such Guarantor Payment in the same proportion that such Borrower's "ALLOCABLE AMOUNT" (as defined below) (as determined immediately prior to such Guarantor Payment) bore to the aggregate Allocable Amounts of each of the Borrowers as determined immediately prior to the making of such Guarantor Payment, then, following indefeasible payment in full in cash of the Obligations and termination of the Commitments, such Borrower shall be entitled to receive contribution and indemnification payments from, and be reimbursed by, each other Borrower for the amount of such excess, pro rata based upon their respective Allocable Amounts in effect immediately prior to such Guarantor Payment. As of any date of determination, the "ALLOCABLE AMOUNT" of any Borrower shall be equal to the maximum amount of the claim that could then be recovered from such Borrower under this SECTION 11.21 without rendering such claim voidable or avoidable under Section 548 of Chapter 11 of the Bankruptcy Code or under any applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance Act or similar statute or common law. This SECTION 11.21(c) is intended only to define the relative rights of Borrowers and nothing set forth in this SECTION 11.21(c) is intended to or shall impair the obligations of Borrowers, jointly and severally, to pay any amounts as and when the same shall become due and payable in accordance with the terms of this Credit Agreement, including SECTION 11.21(a). Nothing contained in this SECTION 11.21(c) shall limit the liability of any Borrower to pay the Loans made directly or indirectly to that Borrower and accrued interest, Fees and Expenses with respect thereto for which such Borrower shall be primarily liable. The parties hereto acknowledge that the rights of contribution and indemnification hereunder shall constitute assets of the Borrower to which such contribution and indemnification is owing. The rights of the indemnifying Borrowers against other Credit Parties under this SECTION 11.21(c) shall be exercisable upon the full and indefeasible payment of the Obligations and the termination of the Commitments. (d) The liability of Borrowers under this SECTION 11.21 is in addition to and shall be cumulative with all liabilities of each Borrower to Agent and Lenders under this Credit Agreement and the other Credit Documents to which such Borrower is a party, without any limitation as to amount. 11.22 APPOINTMENT AND AUTHORIZATION OF FUNDS ADMINISTRATOR. (a) Each Borrower hereby designates, appoints, authorizes and empowers Wellman as its agent to act as specified in the capacity of Funds Administrator under this Credit Agreement and each of the other Credit Documents and Wellman hereby acknowledges such designation, authorization and empowerment, and accepts such appointment. Each Borrower 114 hereby irrevocably authorizes and directs the Funds Administrator to take such action on its behalf under the respective provisions of this Credit Agreement and the other Credit Documents, and any other instruments, documents and agreements referred to herein or therein, and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the Funds Administrator by the respective terms and provisions hereof and thereof, and such other powers as are reasonably incidental thereto, including, without limitation, to take the following actions for and on such Borrower's behalf: (i) to submit on behalf of each Borrower Notices of Borrowing, Notices of Conversion and Notices of Continuation to Agent in accordance with the provisions of this Credit Agreement, each such notice to be submitted by the Funds Administrator to Agent as soon as practicable after its receipt of a request to do so from a Borrower; and (ii) to submit on behalf of each Borrower requests for the issuance of Letters of Credit in accordance with the provisions of this Credit Agreement, each such request for the issuance of a Letter of Credit to be submitted by the Funds Administrator as soon as practicable after its receipt of a request to do so from any Borrower. The Funds Administrator is further authorized and directed by each of the Borrowers to take all such actions on behalf of such Borrower necessary to exercise the specific powers granted in CLAUSES (i) AND (ii) above and to perform such other duties hereunder and under the other Credit Documents, and deliver such documents as delegated to or required of the Funds Administrator by the terms hereof or thereof. Agent and each Lender may regard any notice or other communication pursuant to any Credit Documents from the Funds Administrator as a notice or communication from all Borrowers, and may give any notice or communication required or permitted to be given to any Borrower or Borrowers hereunder to the Funds Administrator on behalf of such Borrower or Borrowers. Each Borrower agrees that each notice, election, representation and warranty, covenant, agreement and undertaking made on its behalf by the Funds Administrator shall be deemed for all purposes to have been made by such Borrower and shall be binding upon and enforceable against such Borrower to the same extent as if the same had been made directly by such Borrower. (b) The Funds Administrator may perform any of its duties hereunder or under any of the other Credit Documents by or through its agents or employees. [Signature Page Follows] 115 IN WITNESS WHEREOF, the parties hereto have caused this Credit Agreement to be executed and delivered by their proper and duly authorized officers as of the date set forth above. BORROWERS: WELLMAN, INC., a Delaware corporation, individually, as a Borrower and as Funds Administrator /s/ Keith R. Phillips By:_________________________________________ Title: Chief Financial Officer PRINCE, INC., as a Borrower /s/ Keith R. Phillips By:_________________________________________ Title: President WELLMAN OF MISSISSIPPI, INC., as a Borrower /s/ Keith R. Phillips By:_________________________________________ Title: Vice President CARPET RECYCLING OF GEORGIA, INC., as a Borrower /s/ Keith R. Phillips By:_________________________________________ Title: Vice President ALG, INC., as a Borrower /s/ Keith R. Phillips By:_________________________________________ Title: Vice President S-1 PERMACLEAR EAST INCORPORATED, as a Borrower /s/ Keith R. Phillips By:_________________________________________ Title: Vice President FIBER INDUSTRIES, INC., as a Borrower /s/ Keith R. Phillips By:_________________________________________ Title: Vice President WELLMAN RESINS LLC, as a Borrower /s/ Keith R. Phillips By:_________________________________________ Title: Vice President PTA RESOURCES, LLC, as a Borrower /s/ Keith R. Phillips By:_________________________________________ Title: Vice President AGENT: DEUTSCHE BANK TRUST COMPANY AMERICAS, as Agent and Collateral Agent /s/ Frank Fazio By:_________________________________________ Director Title:______________________________________ S-2 LENDERS: DEUTSCHE BANK TRUST COMPANY AMERICAS By: /s/ Frank Fazio ----------------------------------------- Title: Director -------------------------------------- JP MORGAN CHASE BANK By: /s/ James H. Ramage ----------------------------------------- Title: Managing Director -------------------------------------- GENERAL ELECTRIC CAPITAL CORPORATION By: /s/ Anne Bartolot ----------------------------------------- Title: Its Duly Authorized Signatory -------------------------------------- LASALLE BUSINESS CREDIT, LLC By: /s/ Thomas J. Brennan ----------------------------------------- Title: Vice President -------------------------------------- PB CAPITAL CORPORATION By: /s/ Tyler J. McCarthy ----------------------------------------- Title: Vice President -------------------------------------- By: /s/ Michael Bedore ----------------------------------------- Title: Vice President -------------------------------------- CONGRESS FINANCIAL CORPORATION By: /s/ Scott T. Collins ----------------------------------------- Title: Vice President -------------------------------------- WELLS FARGO FOOTHILL, LLC By: /s/ Sanat S. Amladi ----------------------------------------- Title: Vice President -------------------------------------- GMAC COMMERCIAL FINANCE, LLC By: /s/ Thomas Brent ----------------------------------------- Title: Vice President -------------------------------------- MERRILL LYNCH CAPITAL, A DIVISION OF MERRILL LYNCH BUSINESS FINANCIAL SERVICES By: /s/ Tara Wrobel ----------------------------------------- Title: Vice President -------------------------------------- PNC BANK, NATIONAL ASSOCIATION By: /s/ Peter Coutrakon ----------------------------------------- Title: Vice President -------------------------------------- ALLIED IRISH BANK, PLC By: /s/ Martin S. Chin ----------------------------------------- Title: Vice President -------------------------------------- By: /s/ John F. Farrace ----------------------------------------- Title: Senior Vice President -------------------------------------- WEBSTER BUSINESS CREDIT CORPORATION By: /s/ Bradford Mitch ----------------------------------------- Title: Vice President -------------------------------------- S-3 EX-4.(A)(2) 4 b49002wiexv4wxayx2y.txt EX-4.(A)(2) FIRST LIEN SENIOR CREDIT AGREEMENT EXHIBIT 4(a)(2) FIRST LIEN SENIOR CREDIT AGREEMENT dated as of February 10, 2004 among WELLMAN, INC., as Borrower, THE SUBSIDIARY GUARANTORS named herein, THE LENDERS named herein, DEUTSCHE BANK TRUST COMPANY AMERICAS, as Administrative Agent and Collateral Agent, JPMORGAN CHASE BANK, as Syndication Agent, DEUTSCHE BANK SECURITIES INC., as Joint Lead Arranger and Joint Lead Bookrunner, J.P. MORGAN SECURITIES INC., as Joint Lead Arranger and Joint Lead Bookrunner, and GENERAL ELECTRIC CAPITAL CORPORATION and ABN AMRO BANK N.V., as Co-Documentation Agents TABLE OF CONTENTS
Page ---- ARTICLE 1 DEFINITIONS Section 1.1 Certain Defined Terms.................................................................... 1 Section 1.2 Accounting Terms......................................................................... 36 Section 1.3 Other Definitional Provisions............................................................ 37 ARTICLE 2 AMOUNT AND TERMS OF LOAN COMMITMENT AND LOANS; NOTES Section 2.1 The Loan................................................................................. 37 Section 2.2 Maturity of the Loan..................................................................... 38 Section 2.3 Interest on the Loan..................................................................... 38 Section 2.4 Fees..................................................................................... 39 Section 2.5 Prepayments and Payments................................................................. 39 Section 2.6 Use of Proceeds.......................................................................... 42 ARTICLE 3 CONDITIONS Section 3.1 Conditions to the Loan................................................................... 43 ARTICLE 4 REPRESENTATIONS AND WARRANTIES Section 4.1 Company Status........................................................................... 51 Section 4.2 Company Power and Authority.............................................................. 51 Section 4.3 No Violation............................................................................. 51 Section 4.4 Governmental Approvals................................................................... 52 Section 4.5 Financial Statements; Financial Condition; Undisclosed Liabilities; Projections; Etc.............................................. 52 Section 4.6 Litigation............................................................................... 53 Section 4.7 True and Complete Disclosure............................................................. 54 Section 4.8 Tax Returns and Payments................................................................. 54 Section 4.9 Compliance with ERISA.................................................................... 55 Section 4.10 Representations and Warranties in Documents.............................................. 55 Section 4.11 Properties............................................................................... 56 Section 4.12 Capitalization........................................................................... 57
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Page ---- Section 4.13 Subsidiaries............................................................................. 57 Section 4.14 Compliance with Statutes, Etc............................................................ 57 Section 4.15 Investment Company Act................................................................... 58 Section 4.16 Public Utility Holding Company Act....................................................... 58 Section 4.17 Environmental Matters.................................................................... 58 Section 4.18 Labor Relations.......................................................................... 59 Section 4.19 Patents, Licenses, Franchises and Formulas............................................... 59 Section 4.20 Indebtedness............................................................................. 59 Section 4.21 Transactions............................................................................. 60 Section 4.22 Insurance................................................................................ 60 Section 4.23 Security Documents....................................................................... 60 Section 4.24 No Default............................................................................... 61 Section 4.25 Compliance with Contracts, Etc........................................................... 61 Section 4.26 Use of Proceeds; Margin Stock, Etc....................................................... 62 Section 4.27 Survival of Representations and Warranties............................................... 62 Section 4.28 Guarantees............................................................................... 62 Section 4.29 Anti-Terrorism Law....................................................................... 63 ARTICLE 5 AFFIRMATIVE COVENANTS Section 5.1 Financial Statements and Other Reports................................................... 64 Section 5.2 Books, Records and Inspections........................................................... 67 Section 5.3 Existence; Businesses and Properties..................................................... 68 Section 5.4 Insurance................................................................................ 68 Section 5.5 Compliance with Statutes, Etc............................................................ 70 Section 5.6 Compliance with Environmental Laws....................................................... 70 Section 5.7 ERISA.................................................................................... 71 Section 5.8 Performance of Obligations............................................................... 71 Section 5.9 Payment of Taxes......................................................................... 71 Section 5.10 Payments in U.S. Dollars................................................................. 71 Section 5.11 Collateral............................................................................... 72 Section 5.12 Security Interests; Further Assurances................................................... 73 Section 5.13 Information Regarding Collateral......................................................... 74 Section 5.14 Register................................................................................. 74 Section 5.15 Post Closing Matters..................................................................... 75 ARTICLE 6 NEGATIVE COVENANTS Section 6.1 Indebtedness............................................................................. 75 Section 6.2 Liens.................................................................................... 79 Section 6.3 Restricted Payments...................................................................... 80 Section 6.4 Limitation on Preferred Stock of Restricted Subsidiaries................................. 82
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Page ---- Section 6.5 Senior Subordinated Indebtedness......................................................... 83 Section 6.6 Restriction on Fundamental Changes....................................................... 83 Section 6.7 Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries......................................... 85 Section 6.8 Transactions with Shareholders and Affiliates............................................ 86 Section 6.9 Embargoed Person......................................................................... 87 Section 6.10 Business Activities...................................................................... 88 Section 6.11 Amendments or Waivers of Certain Documents............................................... 88 Section 6.12 Anti-Terrorism Law; Anti-Money Laundering................................................ 88 Section 6.13 Asset Sales.............................................................................. 88 Section 6.14 Additional Guarantees.................................................................... 90 ARTICLE 7 EVENTS OF DEFAULT Section 7.1 Events of Default........................................................................ 90 ARTICLE 8 COLLATERAL ACCOUNT; APPLICATION OF COLLATERAL PROCEEDS Section 8.1 Collateral Account....................................................................... 94 Section 8.2 Proceeds of Destruction, Taking and Collateral Dispositions.............................. 95 Section 8.3 Application of Proceeds.................................................................. 95 ARTICLE 9 THE ADMINISTRATIVE AGENT AND THE COLLATERAL AGENT Section 9.1 Appointment.............................................................................. 96 Section 9.2 Agent in Its Individual Capacity......................................................... 96 Section 9.3 Exculpatory Provisions................................................................... 97 Section 9.4 Reliance by Agent........................................................................ 97 Section 9.5 Delegation of Duties..................................................................... 98 Section 9.6 Successor Agent.......................................................................... 98 Section 9.7 Non-Reliance on Agents and Other Lenders................................................. 98 Section 9.8 Notice of Default........................................................................ 99 Section 9.9 Indemnification.......................................................................... 99 Section 9.10 Concerning the Collateral and the Security Documents..................................... 100 Section 9.11 Name Agents.............................................................................. 101
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Page ---- ARTICLE 10 GUARANTEE Section 10.1 Unconditional Guarantee.................................................................. 102 Section 10.2 Severability............................................................................. 103 Section 10.3 Release of a Subsidiary Guarantor........................................................ 103 Section 10.4 Limitation of Subsidiary Guarantor's Liability........................................... 103 Section 10.5 Subsidiary Guarantors May Consolidate, Etc., on Certain Terms............................ 104 Section 10.6 Contribution............................................................................. 104 Section 10.7 Evidence of Guarantee.................................................................... 105 Section 10.8 Waiver of Stay, Extension or Usury Laws.................................................. 105 Section 10.9 Waiver of Subrogation.................................................................... 105 ARTICLE 11 MISCELLANEOUS Section 11.1 U.S.A. Patriot Act....................................................................... 106 Section 11.2 Participations in and Assignments of Loan and Notes...................................... 106 Section 11.3 Expenses................................................................................. 108 Section 11.4 Indemnity................................................................................ 109 Section 11.5 Setoff................................................................................... 109 Section 11.6 Amendments and Waivers................................................................... 110 Section 11.7 Independence of Covenants................................................................ 110 Section 11.8 Entirety................................................................................. 111 Section 11.9 Notices.................................................................................. 111 Section 11.10 Survival of Warranties and Certain Agreements............................................ 111 Section 11.11 Failure or Indulgence Not Waiver; Remedies Cumulative.................................... 111 Section 11.12 Severability............................................................................. 112 Section 11.13 Headings................................................................................. 112 Section 11.14 Applicable Law........................................................................... 112 Section 11.15 Successors and Assigns; Subsequent Holders of Notes...................................... 112 Section 11.16 Counterparts; Effectiveness.............................................................. 112 Section 11.17 Consent to Jurisdiction; Venue; Waiver of Jury Trial..................................... 113 Section 11.18 Payments Pro Rata........................................................................ 113 Section 11.19 Taxes.................................................................................... 114 Section 11.20 Waiver of Stay, Extension or Usury Laws.................................................. 116 Section 11.21 Requirements of Law...................................................................... 116 Section 11.22 Confidentiality.......................................................................... 117 SCHEDULES 1.1(a) EXISTING LIENS 1.1(b) SUBSIDIARY GUARANTORS
-iv- 1.1(c) MORTGAGED PROPERTY 3.1(h) OUTSTANDING INDEBTEDNESS 3.1(m)(iii) LEASED PROPERTY 3.1(n)(iii) MORTGAGED PROPERTY VALUES 4.11(b) REAL PROPERTY 4.12 CAPITALIZATION 4.13 SUBSIDIARIES 4.19 INTELLECTUAL PROPERTY 4.20 EXISTING INDEBTEDNESS 4.22 INSURANCE 5.15 POST CLOSING MATTERS EXHIBITS I FORM OF NOTE II FORM OF SOLVENCY CERTIFICATE III FORM OF COMPLIANCE CERTIFICATE IV FORM OF NOTICE OF BORROWING V FORM OF EDWARDS & ANGELL LLP OPINION VI FORM OF EDWARDS & ANGELL LLP OPINION VII-1 LOCAL COUNSEL VII-2 FORM OF LOCAL COUNSEL OPINION VIII FORM OF NOTATION OF GUARANTEE IX-1 FORM OF SINGLE ASSIGNMENT AND ASSUMPTION AGREEMENT IX-2 FORM OF MULTIPLE ASSIGNMENT AND ASSUMPTION AGREEMENT X-1 FORM OF MORTGAGE X-2 FORM OF LEASEHOLD MORTGAGE XI-1 FORM OF PERFECTION CERTIFICATE XI-2 FORM OF PERFECTION CERTIFICATE SUPPLEMENT XII FORM OF SECURITY AGREEMENT XIII FORM OF INTERCREDITOR AGREEMENT XIV FORM OF LANDLORD ACCESS AGREEMENT XV FORM OF OFFICER'S CLOSING CERTIFICATE

-v- This First Lien Senior Credit Agreement is dated as of February 10, 2004, and entered into by and among Wellman, Inc., a Delaware corporation (the "COMPANY"), the Subsidiary Guarantors named on the signature pages hereto, the Lenders named on the signature pages hereto (the "LENDERS"), Deutsche Bank Trust Company Americas ("DBTCA"), as Administrative Agent and Collateral Agent, JPMorgan Chase Bank, as Syndication Agent, Deutsche Bank Securities Inc. ("DBSI") and J.P. Morgan Securities Inc. ("JPM"), as Joint Lead Arrangers and Joint Lead Bookrunners, and General Electric Capital Corporation and ABN AMRO Bank N.V., as Co-Documentation Agents (the "DOCUMENTATION AGENTS"). RECITALS WHEREAS, the Company desires that the Lenders extend a first lien senior credit facility to the Company in connection with the Financing Transactions (as defined herein); NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereby agree as follows: ARTICLE 1 DEFINITIONS Section 1.1 Certain Defined Terms The following terms used in this Agreement shall have the following meanings: "ACCELERATION NOTICE" has the meaning ascribed to such term in Section 7.1. "ACQUIRED DEBT" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Restricted Subsidiary of such specified Person or which is assumed by such specified Person at the time such specified Person acquires the assets of such other Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or selling its assets to, or becoming a Restricted Subsidiary of, such specified Person and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "ADDITIONAL FIRST PRIORITY INDEBTEDNESS" has the meaning set forth in clause (xvi) of the definition of "Permitted Encumbrances." "ADJUSTED NET ASSETS" shall have the meaning provided in Section 10.6. "ADMINISTRATIVE AGENT" means DBTCA or its successor, in its capacity as Administrative Agent hereunder. -1- "AFFILIATE," as applied to any Person, means any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For the purposes of this definition, "control" (including with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise. "AFFILIATE TRANSACTION" has the meaning ascribed to such term in Section 6.8(a). "AGENT" means any of the Administrative Agent, the Collateral Agent, the Syndication Agent, the Joint Lead Arrangers and the Joint Lead Bookrunners. "AGREEMENT" means this First Lien Senior Credit Agreement dated as of February 10, 2004, as it may be amended, supplemented or otherwise modified from time to time in accordance with the terms hereof. "ANTI-TERRORISM LAW" has the meaning set forth in Section 4.29. "APPLICABLE RATE" means for each Quarterly Period, the greater of (a) the LIBOR Rate then in effect and (b) 2.0%, in each case, plus 4.0% per annum. "ASSET SALE" means any direct or indirect sale, issuance, conveyance, lease (other than operating leases and subleases and non-exclusive licenses and sublicenses of intellectual property, in each case, entered into in the ordinary course of business), assignment, transfer or other disposition for value (including, without limitation, pursuant to any amalgamation, merger or consolidation or pursuant to any Sale and Leaseback Transaction) by the Company or by any of its Restricted Subsidiaries to any Person other than the Company or any of its Restricted Subsidiaries (any such transaction, a "DISPOSITION") of (i) any of the stock of any of the Company's Restricted Subsidiaries, (ii) substantially all of the assets of any division or line of business of the Company or of any of its Restricted Subsidiaries, or (iii) any other assets of the Company or of any of its Restricted Subsidiaries other than in the ordinary course of business; excluding: (a) any disposition of Cash Equivalents or inventory in the ordinary course of business or the lease or sublease of any real or personal property in the ordinary course of business, (b) any disposition in any single transaction or related series of transactions the aggregate fair market value, net of costs of disposal, of which does not exceed $10.0 million, -2- (c) any disposition of assets or property in the ordinary course of business to the extent such property or assets are obsolete, worn out or no longer useful in the Company's or any Restricted Subsidiary's business, (d) the surrender or waiver of contract rights or the settlement, release or surrender of contract, tort or other claims of any kind, (e) the grant in the ordinary course of business of any non-exclusive license of patents, trademarks, registrations therefor and other similar intellectual property, (f) any dividend, distribution, investment or payment made pursuant to Section 6.3, (g) any sale, lease, conveyance, disposition or other transfer of substantially all of the assets of the Company as permitted by Section 6.6, (h) Casualty Events and (i) transfers of assets under Tax Reduction Agreements. "ATTRIBUTABLE INDEBTEDNESS" means when used with respect to any Sale and Leaseback Transaction, as at the time of determination, the present value (discounted at a rate equivalent to the Company's then-current weighted average cost of funds for borrowed money as at the time of determination, compounded on a semi-annual basis) of the total obligations of the lessee for rental payments during the remaining term of the lease included in any such Sale and Leaseback Transaction. "AUDITED FINANCIAL STATEMENTS" has the meaning set forth in Section 3.1(e). "AVAILABLE LIQUIDITY" means the average available borrowings under the Revolving Credit Facility for the previous calendar month, as determined by the Company in good faith. "BAILEE LETTER" has the meaning assigned thereto in the Security Agreement. "BANKRUPTCY LAW" means Title 11 of the United States Code entitled "Bankruptcy," as now and hereafter in effect, or any successor statute or any other United States federal, state or local law or the law of any other jurisdiction relating to bankruptcy, insolvency, winding up, liquidation, reorganization or relief of debtors, whether in effect on the date hereof or hereafter. "BANKRUPTCY ORDER" means any court order made in a proceeding pursuant to or within the meaning of any Bankruptcy Law, containing an adjudication of bankruptcy or insolvency, or providing for liquidation, winding up, dissolution or reorganization, or appoint- -3- ing a custodian of a debtor or of all or any substantial part of a debtor's property, or providing for the staying, arrangement, adjustment or composition of indebtedness or other relief of a debtor. "BOARD OF DIRECTORS" means, with respect to any Person, the Board of Directors (or similar governing body) of such Person or any duly authorized committee of such Board of Directors. "BUSINESS DAY" means any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York or is a day on which banking institutions therein located are authorized or required by law or other governmental action to close. "CAPITAL EXPENDITURES" shall mean, with respect to any Person, all expenditures by such Person which are capitalized on the consolidated balance sheet of such Person in accordance with GAAP. "CAPITAL STOCK" means (i) with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents (however designated and whether or not voting) of corporate stock, including, without limitation, each class of Common Stock and Preferred Stock of such Person, and (ii) with respect to any Person that is not a corporation, any and all partnership or other equity interests of such Person, and in each case, including securities or rights convertible into or exchangeable for such Capital Stock. "CAPITALIZED LEASE OBLIGATION" means obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligations shall be the capitalized amount of such obligations determined in accordance with GAAP. "CASH EQUIVALENTS" means (i) marketable direct obligations issued or unconditionally guaranteed or insured by the United States government or issued by any agency or instrumentality thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof; (ii) marketable direct obligations issued by any state of the United States or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having the highest rating obtainable from either S&P or Moody's; (iii) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, rated at least A-1 by S&P or at least P-1 by Moody's; (iv) time deposits, certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof issued by any commercial bank organized under the laws of the United States or any state thereof or the District of Columbia that (a) is "adequately capitalized" (as defined in the regulations of its primary Federal banking regulator) and (b) has Tier 1 capital (as defined in such regulations) of not less than $100.0 million; (v) repurchase agreements with respect to, and which are fully secured by a perfected security interest in, obligations of a type described in clause (i) or clause (ii) above and are with any -4- commercial bank described in clause (iv) above; (vi) with respect to a Foreign Subsidiary, obligations of foreign Persons (including foreign sovereign nations, political subdivisions or public instrumentalities thereof) correlative in type, maturity and rating to those set forth in clauses (i) through (v) above; (vii) shares of any money market mutual fund that has substantially all of its assets invested continuously in the types of investments referred to in clauses (i) and (vi) above; and (vii) demand deposit accounts maintained in the ordinary course of business. "CASH PROCEEDS" means, with respect to any Asset Sale, cash payments (including any cash received by way of deferred payment pursuant to, or monetization of, a note receivable or otherwise (other than the portion of such deferred payment constituting or deemed to constitute interest, which shall be deemed not to constitute Cash Proceeds) but only as and when so received) received from such Asset Sale. "CASUALTY EVENT" means, with respect to any property (including Real Property) of any Person, any loss of title with respect to such property or any loss of or damage to or destruction of, or any condemnation or other taking (including by any Governmental Authority) of, such property for which such Person or any of its Subsidiaries receives insurance proceeds (not including proceeds of business interruption insurance) or proceeds of a condemnation award or other compensation; provided, however, no such event shall constitute a Casualty Event if such proceeds or other compensation in respect thereof is less than $10.0 million. "Casualty Event" shall include but not be limited to any taking of all or any part of any Real Property of any Person or any part thereof, in or by condemnation or other eminent domain proceedings pursuant to any law, or by reason of the temporary requisition of the use or occupancy of all or any part of any Real Property of any Person or any part thereof by any Governmental Authority, civil or military. "CHANGE OF CONTROL" means the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company to any Person or group of related Persons for purposes of Section 13(d) of the Exchange Act (a "GROUP"), together with any Affiliates thereof (other than the Permitted Holder); (ii) the approval by the holders of Capital Stock of the Company of any plan or proposal for the liquidation or dissolution of the Company; (iii) any Person or Group (other than the Permitted Holder) shall become the owner, directly or indirectly, beneficially or of record, of shares representing more than 50% of the Voting Stock of the Company; or (iv) the replacement of a majority of the Board of Directors of the Company over a two-year period from the directors who constituted the Board of Directors of the Company at the beginning of such period, and such replacement shall not have -5- been approved by a vote of at least a majority of the Board of Directors of the Company then still in office who either were members of such Board of Directors at the beginning of such period or whose election as a member of such Board of Directors was previously so approved. "CLOSING DATE" means February 10, 2004. "CO-DOCUMENTATION AGENTS" shall have the meaning set forth in the preamble hereto. "COLLATERAL" mean, collectively, all of the Security Agreement Collateral, the Mortgaged Property and all other property of whatever kind and nature pledged as collateral under any Security Document. "COLLATERAL ACCOUNT" shall mean a collateral account or sub-account established and maintained by the Collateral Agent for the benefit of the Secured Parties, in accordance with the provisions of Article 8. "COLLATERAL AGENT" means DBTCA or its successor, in its capacity as Collateral Agent hereunder. "COMMISSION" means the Securities and Exchange Commission. "COMMON STOCK" of any Person means any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or non-voting) of, such Person's common stock, whether outstanding on the Closing Date or issued after the Closing Date, and includes, without limitation, all series and classes of such common stock. "COMPANY" has the meaning ascribed to such term in the introduction to this Agreement. "COMPLIANCE CERTIFICATE" means a certificate substantially in the form of Exhibit III delivered to the Administrative Agent by the Company pursuant to Section 5.1(c). "CONFIDENTIAL INFORMATION MEMORANDUM" means the Confidential Information Memorandum dated as of January 2004. "CONSOLIDATED CURRENT ASSETS" shall mean, at any time, the consolidated current assets (other than the current portion of deferred taxes) of the Company and its Restricted Subsidiaries excluding cash and Cash Equivalents. "CONSOLIDATED CURRENT LIABILITIES" shall mean, at any time, the consolidated current liabilities of the Company and its Restricted Subsidiaries at such time, but excluding -6- the current portion of any Indebtedness under this Agreement, the current portion of deferred taxes and any other long-term Indebtedness which would otherwise be included therein. "CONSOLIDATED INTEREST EXPENSE" means, for any period, the total consolidated interest expense (net of cash interest income) of the Company and its Restricted Subsidiaries for such period determined on a consolidated basis in accordance with GAAP plus, without duplication: (a) imputed interest on Capitalized Lease Obligations and Attributable Indebtedness with respect to any Sale and Leaseback Transaction of the Company and its Restricted Subsidiaries for such period; (b) commissions, discounts and other fees and charges owed by the Company or any of its Restricted Subsidiaries with respect to letters of credit securing financial obligations, bankers' acceptance financing and receivables financings for such period; (c) amortization of debt issuance costs, debt discount or premium and other financing fees and expenses incurred by the Company or any of its Restricted Subsidiaries for such period; (d) all interest paid or payable with respect to discontinued operations of the Company or any of its Restricted Subsidiaries for such period; (e) the interest portion of any deferred payment obligations of the Company or any of its Restricted Subsidiaries for such period; and (f) all interest on any Indebtedness of the Company or any of its Restricted Subsidiaries of the type described in clause (v) or (vii) of the definition of "Indebtedness" for such period; provided that to the extent directly related to the Transactions, debt issuance costs, debt discount or premium and other financing fees and expenses (including fees paid with respect to the Refinanced Facilities) shall be excluded from the calculation of Consolidated Interest Expense. "CONSOLIDATED NET INCOME" means, with respect to any Person, for any period, the aggregate of the net income (or loss) of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (a) the net income of any other Person in which such Person or any of its Restricted Subsidiaries has an interest (which interest does not cause the net income of such other Person to be consolidated with the net income of such Person and its Subsidiaries in accordance with GAAP) shall be included only to the extent of the amount of dividends or distributions actually paid to such Person or such Restricted Subsidiary by such other Person during such period; (b) the net income of any Restricted Subsidiary of such Person that is subject to any -7- Payment Restriction shall be excluded to the extent such Payment Restriction would prevent the payment of an amount that otherwise could have been paid to such Person or to a Restricted Subsidiary of such Person not subject to any Payment Restriction; and (c) there shall be excluded from Consolidated Net Income: (i) all gains and losses realized on any direct or indirect sale, issuance, conveyance, lease, assignment, transfer or other disposition of assets, net of related tax costs or tax benefits, as the case may be, or abandonments or reserves relating thereto, (ii) all gains and losses realized on the purchase or other acquisition by such Person or any of its Restricted Subsidiaries of any Securities of such Person or any of its Restricted Subsidiaries, (iii) all extraordinary gains or losses, (iv) all deferred financing costs written off or premiums paid in connection with the early extinguishment of any Indebtedness, in each case, incurred by the Company or any of its Subsidiaries in connection with the Transactions, (v) any non-recurring and non-operational charges or gains, (vi) income or loss attributable to discontinued operations (including, without limitation, operations disposed of during such period whether or not such operations were classified as discontinued), (vii) in the case of a successor to the referent Person by consolidation or merger or as transferee of the referent Person's assets, any earnings of such successor prior to such consolidation, merger or transfer of assets, and (viii) the cumulative effect of a change in accounting principles. "CONSOLIDATED NON-CASH CHARGES" means, with respect to any Person, for any period, the aggregate depreciation, amortization and other non-cash expenses of such Person and its Restricted Subsidiaries reducing Consolidated Net Income of such Person and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP (excluding any such charges constituting an extraordinary item or loss or any such charge to the extent that it requires an accrual of or a reserve for cash charges for any future period). "CONSOLIDATED WORKING CAPITAL" shall mean Consolidated Current Assets minus Consolidated Current Liabilities. "CONTESTED COLLATERAL LIEN CONDITIONS" shall mean, with respect to any Lien, the following conditions: -8- (a) the Company or the Restricted Subsidiary, as applicable, shall cause any proceeding instituted contesting such Lien to stay the sale or forfeiture of any portion of the Collateral on account of such Lien; (b) at the option and at the reasonable request of the Administrative Agent, to the extent such Lien is in an amount in excess of $250,000, the appropriate Loan Party shall maintain cash reserves in an amount sufficient to pay and discharge such Lien and the Administrative Agent's reasonable estimate of all interest and penalties related thereto; and (c) such Lien shall in all respects be subject and subordinate in priority to the Lien and security interest created and evidenced by the Security Documents, except if and to the extent that the law or regulation creating, permitting or authorizing such Lien provides that such Lien is or must be superior to the Lien and security interest created and evidenced by the Security Documents. "COVERED TAXES" has the meaning ascribed to it in Section 11.19. "CREDIT DOCUMENTS" means the Loan Documents and the Security Documents. "CURRENCY AGREEMENT" means any foreign exchange contract, currency swap agreement, futures contract, option contract, synthetic cap or other similar agreement or arrangement. "CUSTODIAN" means any receiver, interim receiver, receiver and manager, trustee, assignee, liquidator, sequestrator or similar official charged with maintaining possession or control over property for one or more creditors, whether under any Bankruptcy Law or otherwise. "DISQUALIFIED CAPITAL STOCK" means any Capital Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event (other than an event which would constitute a Change of Control), (i) matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the sole option of the holder thereof, in whole or in part, on or prior to the final Maturity Date of the Loan, or (ii) is convertible into or exchangeable for (whether at the option of the issuer or the holder thereof) (a) debt securities or (b) any Capital Stock referred to in clause (i) above, in each case at any time prior to the final maturity of the Loan; provided that only the portion of Capital Stock which so matures or is mandatorily redeemable, is so convertible or exchangeable or is so redeemable at the option of the holder thereof prior to such final Maturity Date shall be deemed to be Disqualified Capital Stock. "DOLLARS" or the sign "$" means the lawful money of the United States. -9- "EBITDA" means, with respect to any Person, for any period, the sum (without duplication) of: (1) Consolidated Net Income; (2) to the extent Consolidated Net Income has been reduced thereby: (a) all income taxes of such Person and its Restricted Subsidiaries paid or accrued in accordance with GAAP for such period (other than income taxes attributable to extraordinary gains or losses or nonrecurring and non-operational charges or gains); (b) Consolidated Interest Expense; and (c) Consolidated Non-cash Charges; and (3) non-recurring fees, cash charges and other cash expenses made or incurred in connection with the Transactions, in each case as determined on a consolidated basis for such Person and its Restricted Subsidiaries in accordance with GAAP. "ELIGIBLE ASSIGNEE" means (i) a commercial bank, savings and loan association or savings bank or any other entity which is an "accredited investor" (as defined in Regulation D under the Securities Act) which extends credit or buys loans as one of its businesses including insurance companies, mutual funds and lease financing companies and any investment fund that invests in commercial loans; and (ii) any Lender, any Affiliate of any Lender and, with respect to any Lender that is an investment fund that invests in commercial loans, any other investment fund that invests in commercial loans and that is managed or advised by the same investment advisor as such Lender or by an Affiliate of such investment advisor. "EMPLOYEE BENEFIT PLAN" means an employee benefit plan (as defined in Section 3(3) of ERISA) that is maintained or contributed to by any ERISA Entity or with respect to which the Company or a Subsidiary of the Company could incur liability. "ENVIRONMENT" means ambient air, surface water and groundwater (including potable water, navigable water and wetlands), the land surface or subsurface strata, natural resources, the workplace or as otherwise defined in any Environmental Law. "ENVIRONMENTAL CLAIM" means any accusation, allegation, notice of violation, claim, demand, abatement order or other order or direction by any Governmental Authority or any Person for any response or corrective action, any damage, including, without limitation, personal injury (including sickness, disease or death), tangible or intangible property damage, investigation, remediation or other cost recovery, contribution, indemnity, consequential damages, damage to the environment, nuisance, pollution, contamination or other adverse effects -10- on the Environment, or for fines or penalties, in each case arising under any Environmental Law, including without limitation, relating to, resulting from or in connection with Hazardous Materials and relating to the Company, any of its Subsidiaries or any of their respective properties or predecessors in interest. "ENVIRONMENTAL LAWS" means the common law and all statutes, ordinances, orders, rules, regulations, judgments or decrees relating to (i) pollution or protection of the Environment and public health and welfare, including, without limitation, those relating to the Release or threatened Release of Hazardous Materials, (ii) the generation, use, storage, transportation or disposal of Hazardous Materials, or (iii) occupational safety and health, including, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (42 U.S.C. Section 9601 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. Section 1801 et seq.), the Resource Conservation and Recovery Act of 1976 (42 U.S.C. Section 6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. Section 136 et seq.), the Occupational Safety and Health Act (29 U.S.C. Section 651 et seq.) and the Emergency Planning and Community Right-to-Know Act (42 U.S.C. Section 11001 et seq.), each as amended or supplemented, and regulations promulgated pursuant thereto, each as in effect as of the date of determination. "ENVIRONMENTAL LIEN" means a Lien in favor of a Governmental Authority or other Person for any liability, damages, costs or any other obligation under an Environmental Law. "ENVIRONMENTAL PERMIT" means any permit, license, approval, consent or other authorization required by or from a Governmental Authority under Environmental Law. "EQUIPMENT" has the meaning assigned to such term in the Security Agreement. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute. "ERISA ENTITY" means any member of an ERISA Group. "ERISA EVENT" means (a) any "reportable event," as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Pension Plan (other than an event for which the 30-day notice period is waived by regulation); (b) the existence with respect to any Pension Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived, the failure to make by its due date a required installment under Section 412(m) of the Code with respect to any Pension Plan or the failure to make any required contribution to a Multiemployer Plan; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Pension Plan; (d) the incurrence by any -11- ERISA Entity of any liability under Title IV of ERISA with respect to the termination of any Pension Plan; (e) the receipt by any ERISA Entity from the PBGC or a plan administrator of any notice relating to an intention to terminate any Pension Plan or to appoint a trustee to administer any Pension Plan, or the occurrence of any event or condition which would reasonably be expected to constitute grounds under ERISA for the termination of or the appointment of a trustee to administer, any Pension Plan; (f) the incurrence by any ERISA Entity of any liability with respect to the withdrawal or partial withdrawal from any Pension Plan or Multiemployer Plan; (g) the receipt by an ERISA Entity of any notice concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA; (h) the "substantial cessation of operations" within the meaning of Section 4062(e) of ERISA with respect to a Pension Plan; (i) the making of any amendment to any Pension Plan which would reasonably be expected to result in the imposition of a lien or the posting of a bond or other security; or (j) the occurrence of a nonexempt prohibited transaction (within the meaning of Section 4975 of the Code or Section 406 of ERISA) which would reasonably be expected to result in material liability to the Company or any of the Subsidiaries of the Company. "ERISA GROUP" means the Company, any Subsidiary of the Company and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Company or any Subsidiary of the Company, are treated as a single employer under Section 414 of the Code. "EVENT OF DEFAULT" means each of the events set forth in Section 7.1. "EXCESS CASH FLOW" means, for any fiscal year of the Company, EBITDA for such period, minus Consolidated Interest Expense (to the extent paid in cash) for such period, minus cash payments of income taxes, minus the amount of Capital Expenditures made by the Company and its Restricted Subsidiaries during such period (except to the extent financed with the proceeds of Indebtedness (other than the incurrence of loans under the Revolving Credit Facility) or equity or pursuant to Capitalized Lease Obligations or to the extent constituting a reinvestment of the Net Cash Proceeds from the sale of any assets under Section 6.13 or the reinvestment of casualty insurance proceeds), minus (plus) additions (reductions) to Consolidated Working Capital (exclusive, without duplication, of the net effect of current assets and current liabilities acquired during the period) for such period, minus permanent repayments of principal (excluding repayments of principal under the Revolving Credit Facility unless accompanied by a permanent reduction of the commitment thereunder in a like amount) of outstanding Indebtedness to the extent actually paid, but excluding repayments made with proceeds of other Indebtedness or equity or casualty insurance proceeds or repayments of principal from the proceeds of direct or indirect sales, issuances, conveyances, leases, assignments, transfers or other dispositions of assets, minus the aggregate cash consideration utilized, without duplication, to pay (A) Permitted Investments made under clause (j) of the definition thereof, (B) dividends made under Section 6.3(b)(4), (C) to make cash payments made under Section 6.3(b)(5) and (D) to pay the fair market value of assets acquired pursuant to clause (b)(i) of the definition of "Permitted Investments," in each case, during -12- such fiscal year (except to the extent such Permitted Investments and dividends were financed with the proceeds of Indebtedness (other than inter-company Indebtedness or the incurrence of loans under the Revolving Credit Facility) or equity or casualty insurance proceeds or proceeds of direct or indirect sales, issuances, conveyances, leases, assignments, transfers or other dispositions of assets) and minus any cash paid in the current period relating to a non-cash charge or expense taken in a prior period. "EXCESS CASH FLOW PERIOD" means (i) the period taken as one accounting period from January 1, 2005 and ending on December 31, 2005 and (ii) each fiscal year of the Company thereafter. "EXCESS EXTRAORDINARY RECEIPTS" has the meaning set forth in Section 2.5(a)(ii)(II). "EXCESS PROCEEDS" has the meaning set forth in Section 6.13. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute. "EXECUTIVE ORDER" has the meaning set forth in Section 4.29. "EXTRAORDINARY RECEIPTS" means the total cash insurance proceeds, condemnation awards or other compensation received by the Company or any of its Restricted Subsidiaries in respect of any Casualty Event; but in the case of any prepayment made pursuant to Section 2.5(a)(ii)(II) hereof (a "CASUALTY PREPAYMENT EVENT"), net of (A) the amount of any tax required to be paid as a result of such Casualty Prepayment Event, (B) all other reasonable costs and expenses properly incurred by the Company or any Restricted Subsidiary of the Company in connection with such Casualty Prepayment Event (including, without limitation, legal, accounting and investment banking fees and brokerage and sales commissions) and (C) all reasonable costs and expenses incurred in connection with the collection of such proceeds, awards or other compensation. "FAIR MARKET VALUE" means, with respect to any asset or property, the price which could be negotiated in an arm's-length, free market transaction, for cash, between a willing seller and a willing and able buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Fair market value shall be determined by the Board of Directors of the Company acting in good faith and shall, in the case of any assets or property the fair market value of which exceeds $10.0 million, be evidenced by a resolution of the Board of Directors of the Company delivered to the Administrative Agent. "FEDERAL FUNDS RATE" means, for any period, a fluctuating interest rate equal for each day during such period to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so pub- -13- lished for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by the Administrative Agent. "FINANCING TRANSACTIONS" means, collectively, (i) the repayment of the Company's outstanding amounts under its existing $275.0 million revolving credit facility and the termination of such facility, (ii) the repayment and retirement of the Company's (a) $35.0 million in outstanding indebtedness to The Metropolitan Life Insurance Company due in November 2004, (b) $40.0 million in outstanding indebtedness to John Hancock Life Insurance Company and others due in December 2011 and (c) $25.0 million in outstanding indebtedness to John Hancock Life Insurance Company and others due in September 2009, (iii) the repayment and retirement of the $150.0 million synthetic lease facility of Permaclear East, Inc. maturing in July 2004, (iv) the repayment of all outstanding amounts under and the termination of the Company's existing accounts receivables facility, (v) the prepayment of a raw material contract for no more than $81.0 million and the purchase of the stock of the entity holding such raw material contract for not more than $5.0 million, and (vi) the termination of certain swap agreements of approximately $12.0 million (the agreements, contracts, facilities or arrangements set forth in clauses (i) through (vi) above, each a "REFINANCED FACILITY"). "FIXED CHARGE COVERAGE RATIO" means, with respect to any Person, the ratio of (1) EBITDA of such Person during the four full fiscal quarters (the "FOUR QUARTER PERIOD") ending on or prior to the date of the transaction giving rise to the need to calculate the Fixed Charge Coverage Ratio (the "TRANSACTION DATE") to (2) the aggregate Fixed Charges of such Person for the Four Quarter Period. In addition to and without limitation of the foregoing, for purposes of this definition, "EBITDA" and "Fixed Charges" shall be calculated after giving effect on a pro forma basis for the period of such calculation to (i) the incurrence or repayment of any Indebtedness of such Person or any of its Restricted Subsidiaries (and the application of the proceeds thereof) giving rise to the need to make such calculation and any incurrence or repayment of other Indebtedness (and the application of the proceeds thereof), other than the incurrence or repayment of Indebtedness in the ordinary course of business for working capital purposes pursuant to working capital facilities, at any time subsequent to the first day of the Four Quarter Period and on or prior to the Transaction Date (the "REFERENCE PERIOD"), as if such incurrence or repayment, as the case may be (and the application of the proceeds thereof), occurred on the first day of the Four Quarter Period, (ii) any Investment, during the Reference Period, in any other Person that, as a result of such Investment, becomes a Restricted Subsidiary of such Person, (iii) the acquisition, during the Reference Period (by merger, consolidation or purchase of stock or assets), of any business or assets, and (iv) any sales or other dispositions of assets (other than sales of inventory in the ordinary course of business) occurring during the Reference Period, in each case as if such incurrence, repayment, Investment, acquisition or asset sale had occurred on the first day of the Reference Period; provided that whenever pro forma effect is given to an acquisition, pro forma expense and cost reductions shall be calculated on a basis consistent with Article 11 of Regulation S-X of the Securities Act and, -14- furthermore, (A) Fixed Charges attributable to any Indebtedness computed on a pro forma basis and bearing a floating interest rate shall be computed as if the rate in effect on the Transaction Date had been the applicable rate in effect for the period, unless such Person or any of its Restricted Subsidiaries is a party to an Interest Rate Agreement of the type described in the definition of "Permitted Indebtedness" which will remain in effect for the 12-month period after the Transaction Date and which has the effect of fixing the interest rate on the date of computation, in which case such rate (whether higher or lower) shall be used, and (B) there shall be excluded from Fixed Charges any portion of such Fixed Charges related to any amount of Indebtedness that was outstanding during or subsequent to the Reference Period but is not outstanding on the Transaction Date, except for Fixed Charges actually incurred with respect to Indebtedness borrowed (as adjusted pursuant to clause (A)) under a revolving credit or similar arrangement to the extent the commitment thereunder remains in effect on the Transaction Date. If such Person or any of its Restricted Subsidiaries directly or indirectly guarantees any Indebtedness of a third Person, the Fixed Charge Coverage Ratio shall, without duplication, give effect to the incurrence of such Indebtedness as if such Person or Restricted Subsidiary had directly incurred such guaranteed Indebtedness. "FIXED CHARGES" means, with respect to any Person, for any period, the aggregate amount of (i) Consolidated Interest Expense during such period and (ii) dividend requirements on Preferred Stock of such Person and its Restricted Subsidiaries (whether in cash or otherwise (except dividends payable in shares of Qualified Capital Stock and dividends paid on Preferred Stock of Unrestricted Subsidiaries)) paid or scheduled to be paid in cash during such period and excluding items eliminated in consolidation. For purposes of this definition, (a) interest on a Capitalized Lease Obligation shall be deemed to accrue at an interest rate reasonably determined by the Board of Directors of such Person (as evidenced by a resolution of the Board of Directors) to be the rate of interest implicit in such Capitalized Lease Obligation in accordance with GAAP, (b) interest on Indebtedness incurred during such period (other than Indebtedness incurred pursuant to working capital facilities) that is determined on a fluctuating basis shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest of such Indebtedness in effect on the date Fixed Charges are being calculated and (c) Fixed Charges shall be increased or reduced by the net cost (including amortization of discount) or benefit associated with Interest Rate Agreements attributable to such period. For purposes of clause (ii) above, dividend requirements shall be increased to an amount representing the pretax earnings that would be required to cover such dividend requirements; accordingly, the increased amount shall be equal to a fraction, the numerator of which is the amount of such dividend requirements and the denominator of which is one (1) minus the applicable actual combined federal, state, local and foreign income tax rate of such Person and its Restricted Subsidiaries (expressed as a decimal), on a consolidated basis, for the fiscal year immediately preceding the date of the transaction giving rise to the need to calculate Fixed Charges. "FOREIGN PLAN" means any employee benefit plan, program, policy, arrangement or agreement maintained or contributed to by, or entered into with, the Company or any Subsidiary of the Company with respect to employees employed outside the United States. -15- "FOREIGN SUBSIDIARY" means each Subsidiary of the Company that is incorporated or organized under the laws of and conducts substantially all of its business in any jurisdiction other than the United States, any State thereof, the United States Virgin Islands or Puerto Rico. "FUNDING SUBSIDIARY GUARANTOR" has the meaning ascribed to it in Section 10.6. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, which are in effect as of the date hereof. "GOVERNMENTAL AUTHORITY" means any federal, state, local or foreign court, central bank or governmental agency, authority, instrumentality or regulatory body or any subdivision thereof. "GOVERNMENTAL REAL PROPERTY DISCLOSURE REQUIREMENTS" shall mean any Requirement of Law of any Governmental Authority requiring notification of the buyer, lessee, mortgagee, assignee or other transferee of any Real Property, facility, establishment or business, or notification, registration or filing to or with any Governmental Authority, in connection with the sale, lease, mortgage, assignment or other transfer (including any transfer of control) of any Real Property, facility, establishment or business, of the actual or threatened presence or Release in or into the Environment, or the use, disposal or handling of Hazardous Material on, at, under or near the Real Property, facility, establishment or business to be sold, leased, mortgaged, assigned or transferred. "GUARANTEE OBLIGATIONS" means, as to any Subsidiary Guarantor, all obligations of every nature of such Subsidiary Guarantor from time to time owing to the Lenders and the Administrative Agent under the Credit Documents to which it is a party (including its Guarantee), whether for principal, reimbursements, interest, premium, fees, penalties, expenses, indemnities, damages or otherwise. "GUARANTEES" means, collectively, the guarantees delivered to the Lenders by the Subsidiary Guarantors pursuant to Article 10 which are evidenced by notations of guarantee substantially in the form of Exhibit VIII. "HAZARDOUS MATERIALS" means any pollutant, contaminant, waste, chemical, material or substance or constituent, including without limitation, any petroleum or petroleum products, radioactive materials, asbestos in any form that is or could become friable and require abatement, transformers or other equipment that contain dielectric fluid containing polychlorinated biphenyls, and radon gas, subject to regulation or which could give rise to liability under Environmental Laws. -16- "INCUR" means to create, incur, assume, guarantee, acquire, become liable, contingently or otherwise, with respect to, or otherwise become responsible for payment (and "incurrence," "incurred," "incurrable" and "incurring" shall have meanings correlative to the foregoing); provided, however, that the accretion of principal of a non-interest bearing or other discount security or the accrual of interest shall not be deemed the incurrence of Indebtedness. "INDEBTEDNESS" means, with respect to any Person, without duplication (i) all indebtedness, obligations and liabilities of such Person for borrowed money, (ii) that portion of obligations with respect to Capitalized Lease Obligations that is properly classified as a liability on a balance sheet of such Person in conformity with GAAP, (iii) notes payable and drafts accepted representing extensions of credit, whether or not representing obligations for borrowed money, of such Person, (iv) any indebtedness, obligation or liability of such Person owed for all or any part of the deferred purchase price of property or services, conditional sale obligations and obligations under title retention agreements (excluding any such obligations incurred under ERISA), which purchase price is (a) due more than six months (or a longer period of up to one year, if such terms are available from suppliers in the ordinary course of business) from the date of incurrence of the obligation in respect thereof or (b) evidenced by a note or similar written instrument, (v) all indebtedness, obligations and liabilities (other than those constituting an operating lease) secured by any Lien on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of that Person, (vi) guarantees of such Person in respect of Indebtedness of other Persons, (vii) guarantees and other contingent obligations in respect of Indebtedness referred to in clauses (i) through (v) above, (viii) all Disqualified Capital Stock issued by such Person with the amount of Indebtedness represented by such Disqualified Capital Stock being equal to the greater of its voluntary or involuntary liquidation preference and its maximum fixed repurchase price, but excluding accrued dividends, if any, and (ix) all obligations and liabilities under Currency Agreements, Interest Rate Agreements and Raw Material Hedge Agreements and similar agreements or arrangements. -17- For purposes hereof, the "maximum fixed repurchase price" of any Disqualified Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to this Agreement, and if such price is based upon, or measured by, the fair market value of such Disqualified Capital Stock, such fair market value to be determined reasonably and in good faith by the Board of Directors of the issuer of such Disqualified Capital Stock. Notwithstanding the foregoing, "Indebtedness" shall not include trade payables and accrued liabilities incurred in the ordinary course of business for the purchase of goods or services which are not secured by a Lien other than a Permitted Encumbrance. Indebtedness shall not include deferred payments on intercompany sales pursuant to appropriate transfer pricing terms and which are paid within 45 days or in accordance with customary trade terms between unaffiliated parties. "INDEMNIFIED LIABILITIES" has the meaning ascribed to such term in Section 11.4. "INDEMNITEES" has the meaning ascribed to such term in Section 11.4. "INDEPENDENT FINANCIAL ADVISOR" means a firm (i) which does not, and whose directors, officers and employees or Affiliates do not, have a direct or indirect financial interest in the Company and (ii) which, in the judgment of the Board of Directors of the Company, is otherwise independent and qualified to perform the task for which it is to be engaged. "INSURANCE POLICIES" means the insurance policies and coverages required to be maintained by each Loan Party which is an owner of Mortgaged Property with respect to the applicable Mortgaged Property pursuant to Section 5.4 and all renewals and extensions thereof. "INSURANCE REQUIREMENTS" means, collectively, all provisions of the Insurance Policies, all requirements of the issuer of any of the Insurance Policies and all orders, rules, regulations and other requirements of the National Board of Fire Underwriters (or any other body exercising similar functions) binding upon each Loan Party which is an owner of Mortgaged Property and applicable to the Mortgaged Property or any use or condition thereof. "INTERCOMPANY INDEBTEDNESS" means any Indebtedness of the Company or any Subsidiary Guarantor or Wholly-Owned Restricted Subsidiary of the Company that is not a Subsidiary Guarantor that, in the case of the Company, is owing to any Subsidiary Guarantor or Wholly-Owned Restricted Subsidiary of the Company that is not a Subsidiary Guarantor and that, in the case of any such Subsidiary, is owing to the Company or any Subsidiary Guarantor or Wholly-Owned Restricted Subsidiary of the Company that is not a Subsidiary Guarantor; provided that if as of any date any Person other than the Company or a Subsidiary Guarantor or Wholly-Owned Restricted Subsidiary of the Company that is not a Subsidiary Guarantor owns or holds such Indebtedness, or holds any Lien in respect thereof, such Indebt- -18- edness shall no longer be Intercompany Indebtedness permitted to be incurred pursuant to Section 6.1(iv). "INTERCREDITOR AGREEMENT" means the Intercreditor Agreement set forth in Exhibit XIII, as may be amended, restated, supplemented and/or otherwise modified from time to time. "INTEREST PAYMENT DATE" shall have the meaning set forth in Section 2.3. "INTEREST RATE AGREEMENT" means any interest rate swap agreement, interest rate cap or floor agreement, interest rate collar agreement or other similar agreement or arrangement "INTEREST RATE DETERMINATION DATE" means, with respect to any Quarterly Period, the second Business Day on which banks in New York and London are open prior to the first Business Day of such Quarterly Period. "INTERNAL REVENUE CODE" or "CODE" means the Internal Revenue Code of 1986, as amended from time to time, and any successor code or statute. "INVESTMENT" means, with respect to any Person, any direct or indirect loan or other extension of credit (including, without limitation, a guarantee) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition by such Person of any Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by, any other Person. "Investment" shall exclude extensions of trade credit and receivables and deposits to secure leases by the Company and its Restricted Subsidiaries in the ordinary course of business of the Company or such Restricted Subsidiary, as the case may be. If the Company or any Restricted Subsidiary of the Company (a) sells or otherwise disposes of any Common Stock of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, the Company no longer owns, directly or indirectly, greater than 50% of the outstanding Common Stock of such Restricted Subsidiary or (b) enters into a transaction such that after giving effect to such transaction any Restricted Subsidiary of the Company ceases to be a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale, disposition or transaction equal to the fair market value of the Common Stock of such Restricted Subsidiary which continues to be held directly or indirectly by the Company subsequent to the consummation of the transactions set forth in clauses (a) or (b), as the case may be. Investment shall also include the payment of dividends on, or redemption of, the KHL Preferred Stock, net of cash received from Foreign Subsidiaries that are not Subsidiary Guarantors by the Company or one or more Subsidiary Guarantors. "JOINT LEAD ARRANGERS AND JOINT LEAD BOOKRUNNERS" means DBSI and JPM, or their respective successors, in their capacities as Joint Lead Arrangers and Joint Lead Bookrunners. -19- "KHL" means KHL, Inc., a Delaware corporation and a wholly-owned Subsidiary of the Company. "KHL PREFERRED STOCK" means the 8% Preferred Stock issued prior to the Closing Date by KHL to MAC IBC. "LANDLORD ACCESS AGREEMENT" means an agreement substantially in the form of Exhibit XIV. "LAWS" means all applicable statutes, laws, ordinances, regulations, rules, orders, judgments, writs, injunctions or decrees of any state, commonwealth, nation, territory, possession or province, or Tribunal, and "LAW" means each of the foregoing. "LEASES" means any and all leases, subleases, tenancies, options, concession agreements, rental agreements, occupancy agreements, franchise agreements, access agreements and any other agreements (including all amendments, extensions, replacements, renewals, modifications and/or guarantees thereof), whether or not of record and whether now in existence or hereafter entered into, affecting the use or occupancy of all or any portion of any Real Property. "LENDERS" has the meaning ascribed to that term in the introduction to this Agreement and shall include any assignee of any Loan, Note or Loan Commitment to the extent of such assignment. "LIBOR RATE" means the rate determined on the basis of the offered rates for deposits in U.S. Dollars in the London interbank market for a period of three months which is published by the British Bankers' Association and currently appears on Telerate page 3750 as of 11:00 a.m., London time, on the Interest Rate Determination Date; provided that if, for any reason, such a rate is not published by the British Bankers' Association, the LIBOR Rate shall be equal to a rate per annum equal to the average rate (rounded upwards, if necessary, to the nearest 1/100 of 1%) at which the Administrative Agent determines that U.S. Dollars in an amount comparable to the amount of the Loan are being offered to prime banks at approximately 11:00 a.m., London time, on the Interest Rate Determination Date for such Quarterly Period for a term comparable to such Quarterly Period for settlement in immediately available funds by leading banks in the London interbank market selected by the Administrative Agent divided (and rounded upward to the next whole multiple of 1/16 of 1%) by a percentage equal to 100% minus the then stated maximum rate of all reserve requirements (including without limitation any marginal, emergency, supplemental, special or other reserves) applicable to any member bank of the Federal Reserve System in respect of Eurocurrency liabilities as defined in Regulation D under the Board of Governors of the Federal Reserve System (or any successor category of liabilities under such Regulation D). "LIEN" means any lien, mortgage, pledge, assignment, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, -20- any lease in the nature thereof, and any agreement to give any security interest) and any option, trust or other preferential arrangement having the practical effect of any of the foregoing. "LOAN" has the meaning set forth in Section 2.1(a). "LOAN COMMITMENT" has the meaning set forth in Section 2.1(a). "LOAN DOCUMENTS" means this Agreement, the Notes and the Guarantees. "LOAN PARTIES" means the Company and each of its Subsidiaries that is party to any Credit Document. "MAC IBC" means MAC IBC Ltd., a company organized under the laws of Barbados. "MATERIAL ADVERSE CHANGE" means a material adverse change in the business, results of operations, properties, assets, condition (financial or otherwise), liabilities (actual or contingent) or prospects of the Company and its Restricted Subsidiaries, taken as a whole. "MATERIAL ADVERSE EFFECT" means a material adverse effect on the business, results of operations, properties, assets, financial condition or liabilities (actual or contingent) of the Company and its Restricted Subsidiaries, taken as a whole. "MATERIAL SUBSIDIARY" means, with respect to any accounting period, any Restricted Subsidiary of the Company (i) whose revenues (excluding intercompany items) constitute greater than 5% of the aggregate dollar value of the revenues of Company and its Restricted Subsidiaries, taken as a whole, for such accounting period or (ii) the fair market value of whose assets at any time during such accounting period is greater than 5% of the fair market value of all of the assets of Company and its Restricted Subsidiaries taken as a whole at such time. "MATURITY DATE" has the meaning ascribed to such term in Section 2.2. "MORTGAGE" means an agreement, including, but not limited to, a mortgage, deed of trust or any other document, creating and evidencing a Lien on a Mortgaged Property, which (i) in the case of Real Property owned in fee, shall be substantially in the form of Exhibit X-1 and (ii) in the case of leased Real Property, shall be substantially in the form of Exhibit X-2 or other form reasonably satisfactory to the Collateral Agent, in each case, with such schedules and including such provisions as shall be necessary to conform such document to applicable local or foreign law or as shall be customary under applicable local or foreign law. "MORTGAGED PROPERTY" means (a) each Real Property identified on Schedule 1.1(c) hereto and (b) each Real Property, if any, which shall be subject to a Mortgage delivered after the Closing Date pursuant to Section 5.11(c). -21- "MULTIEMPLOYER PLAN" means a multiemployer plan within the meaning of Section 4001(a)(3) of ERISA (i) to which any ERISA Entity is then making or accruing an obligation to make contributions, (ii) to which any ERISA Entity has within the preceding five plan years made contributions, including any Person which ceased to be an ERISA Entity during such five year period, or (iii) with respect to which the Company or a Subsidiary of the Company could incur liability. "NET CASH PROCEEDS" means, with respect to any Asset Sale, Cash Proceeds of such Asset Sale net of bona fide direct costs of sale including, but not limited to, (i) the cash expenses of such Asset Sale (including, without limitation, the payment of principal, premium, if any, and interest on Indebtedness required to be paid as a result of such Asset Sale and legal, accounting and investment banking fees and sales commission(s)), (ii) taxes paid or payable as a result thereof, (iii) any portion of cash proceeds which the Company determines in good faith should be reserved for post-closing adjustments, it being understood and agreed that on the day that all such post-closing adjustments have been determined, the amount (if any) by which the reserved amount in respect of such Asset Sale exceeds the actual post-closing adjustments payable by the Company or any of its Subsidiaries shall constitute Net Cash Proceeds on such date, and (iv) any relocation expenses and pension, severance and shutdown costs incurred as a result thereof. "NON-GUARANTOR SUBSIDIARY" means any Restricted Subsidiary of the Company which is not and is not required pursuant to the terms of this Agreement to be a Subsidiary Guarantor. "NOTES" has the meaning set forth in Section 2.1(d). "NOTICE OF BORROWING" means a notice substantially in the form of Exhibit IV with respect to a proposed borrowing. "OBLIGATIONS" means all obligations of every nature of the Company from time to time owed to the Lenders, the Administrative Agent or the Collateral Agent under the Credit Documents, whether for principal, reimbursements, interest, fees, penalties, expenses, indemnities, damages or otherwise, and whether primary, secondary, direct, indirect, contingent, fixed or otherwise (including obligations of performance). "OFAC" has the meaning set forth in Section 4.29(b)(v). "OFFICER" means the Chairman of the Board, the President, any Vice President, the Chief Financial Officer, the Controller, the Treasurer, Assistant Treasurer, the Secretary or Assistant Secretary. "OFFICER'S CERTIFICATE" means, as applied to any corporation, a certificate executed on behalf of such corporation by an Officer. -22- "OPTION" means an option agreement between the Company and a Foreign Subsidiary that is not a Subsidiary Guarantor relating to the value of the common stock of the Company pursuant to which any settlement is deferred until at least one year beyond the final maturity of this Agreement. "OTHER TAXES" has the meaning ascribed to such term in Section 11.19(b). "PAYMENT OFFICE" means the office of the Administrative Agent c/o Deutsche Bank Trust Company Americas located at 60 Wall Street, New York, New York 10005 or such other office as the Administrative Agent may designate (with the consent of the Company, which consent shall not unreasonably be withheld) to the Company and the Lenders from time to time. "PAYMENT RESTRICTION" has the meaning ascribed to such term in Section 6.7. "PBGC" means the United States Pension Benefit Guaranty Corporation or any successor thereto. "PENSION PLAN" means an employee pension benefit plan (other than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code or Section 302 of ERISA and is maintained or contributed to by any ERISA Entity or with respect to which the Company or a Subsidiary of the Company could incur liability. "PERFECTION CERTIFICATE" means a certificate in the form of Exhibit XI-1 or any other form approved by the Collateral Agent, as the same shall be supplemented from time to time by a Perfection Certificate Supplement or otherwise. "PERFECTION CERTIFICATE SUPPLEMENT" means a certificate supplement in the form of Exhibit XI-2 or any other form approved by the Collateral Agent. "PERMITTED AFFILIATE TRANSACTIONS" has the meaning ascribed to it in Section 6.8(b). "PERMITTED COLLATERAL LIENS" means (i) Liens of the type described in clauses (ii), (iii), (iv), (v), (vi), (vii), (viii), (ix), (xii), (xiv), (xv), (xvi) (to the extent expressly permitted therein), (xix)(B), (xx) and (xxiii) of the definition of "Permitted Encumbrances" and (ii) in the case of Mortgaged Property, the Liens described in clauses (iii), (iv), (vi), (vii), (viii), (x), (xvi) (to the extent expressly permitted therein), (xix)(B), (xx) and (xxiii); provided, however, upon the Closing Date or upon the date of delivery of each additional Mortgage under Section 5.11 or 5.12, Permitted Collateral Liens shall mean only those liens set forth in Schedule B to the applicable Mortgage; and provided, further, with respect to any Liens described in clauses (iii), (iv), (v) and (vi) of the definition of "Permitted Encumbrance," to the extent such Liens are on Collateral, such Liens will only be "Permitted Collateral Liens" if the -23- Company or the Restricted Subsidiary, as the case may be, has complied with the Contested Collateral Lien Conditions with respect to such Lien. "PERMITTED ENCUMBRANCES" means (i) Liens granted to secure the obligations under any Interest Rate Agreement, any Raw Material Hedge Agreement and any Currency Agreement, in each case, of the type described in the definition of "Permitted Indebtedness"; (ii) Liens existing on the Closing Date set forth on Schedule 1.1(a) to the extent and in the manner such Liens are in effect on the Closing Date; (iii) Liens for taxes, assessments, governmental charges or claims not yet due or which are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted which proceedings (or orders entered in connection with such proceedings) have the effect of preventing the forfeiture or sale of the property subject to any such Lien and if a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor; (iv) statutory Liens of landlords and banks and rights of offset, and Liens of carriers, warehousemen, suppliers, workmen, repairmen, mechanics and materialmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent for a period of more that 60 days or being contested in good faith by appropriate proceedings promptly instituted and diligently conducted which proceedings (or orders entered in connection with such proceedings) have the effect of preventing the forfeiture or sale of the property subject to any such Lien, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made therefor; (v) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, trade contracts, utility payments, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (vi) any attachment or judgment Lien not constituting an Event of Default; (vii) leases or subleases granted to others not interfering in any material respect with the ordinary conduct of the business of the Company and its Subsidiaries, taken as a whole; (viii) easements, rights-of-way, zoning and other restrictions, minor defects, encroachments or irregularities in title and other similar charges or encumbrances not -24- interfering in any material respect with the ordinary conduct of the business of the Company and its Subsidiaries, taken as a whole; (ix) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (x) any zoning or similar law or right reserved to or vested in any governmental office or agency to control or regulate the use of any real property; (xi) Liens upon specific items of inventory or other goods and proceeds of any Person securing such Person's obligations in respect of bankers' acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods in the ordinary course of business; (xii) Liens securing reimbursement obligations with respect to letters of credit which encumber documents and other property relating to such letters of credit and the products and proceeds thereof; (xiii) Liens to secure Permitted Refinancing Indebtedness to the extent the Indebtedness refinanced was secured and such Liens do not extend to any property other than the property which was subject to the Lien under the Indebtedness being refinanced; (xiv) Liens arising out of consignment or similar arrangements for the sale of goods entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business of the Company and its Restricted Subsidiaries; (xv) Liens arising from filing UCC financing statements regarding leases; (xvi) Liens securing Indebtedness incurred pursuant to clause (x) of the definition of Permitted Indebtedness; provided that up to $20.0 million of such Indebtedness may be secured by Liens on Collateral, which Liens may rank pari passu in priority with any Liens and security interests on Collateral created or granted under any Security Document (such Indebtedness, "ADDITIONAL FIRST PRIORITY INDEBTEDNESS") and the remaining Indebtedness incurred pursuant to such clause may be secured by Liens on Collateral which Liens shall in all respects be subject and subordinate in priority to any Liens and security interests on such Collateral created or granted under any Security Document; (xvii) Liens on assets of Restricted Subsidiaries securing letters of credit issued in the ordinary course of business of such Restricted Subsidiaries; (xviii) Liens securing Intercompany Indebtedness to the extent permitted by clause (iv) of the definition of Permitted Indebtedness; -25- (xix) Liens securing obligations with respect to Indebtedness of the type described in (A) clause (ii) and (B) clauses (vi), (vii) and (xxii) of the definition of Permitted Indebtedness; (xx) Liens securing obligations with respect to Indebtedness of the type described in clause (xviii) or (xix) of the definition of Permitted Indebtedness; provided that the Liens on any Collateral securing such obligations shall in all respects be subject and subordinate in priority to any Liens and security interests on such Collateral created or granted under any Security Document; (xxi) Liens securing Indebtedness incurred pursuant to clause (xx) of the definition of "Permitted Indebtedness"; (xxii) Liens on assets of a Receivables Subsidiary incurred in connection with an Qualified Securitization Transaction; and (xxiii) Liens pursuant to Tax Reduction Agreements. "PERMITTED HOLDER" means Warburg Pincus VIII, L.P. and its Affiliates. "PERMITTED INDEBTEDNESS" has the meaning ascribed to it in Section 6.1(b). "PERMITTED INVESTMENTS" means (a) Investments in cash and Cash Equivalents; (b) Investments by the Company or by any Restricted Subsidiary of the Company in any Person that is or will become immediately after such Investment a (i) Subsidiary Guarantor or (ii) Restricted Subsidiary of the Company that is not a Subsidiary Guarantor; provided that (A) the aggregate amount of all such Investments made pursuant to this clause (ii) (other than in a Receivables Subsidiary) shall not exceed $5.0 million at any one time outstanding and (B) any such Investment in such Subsidiary Guarantor or Restricted Subsidiary that is not a Subsidiary Guarantor is permitted by Section 6.6; and provided, further that (A) such Subsidiary Guarantor or Restricted Subsidiary that is not a Subsidiary Guarantor has not incurred (and will not incur as a result of or in connection with such transaction) any Indebtedness (other than Indebtedness permitted to be incurred by such Restricted Subsidiary under Section 6.1) and (B) no Investment in any such Subsidiary Guarantor or Restricted Subsidiary that is not a Subsidiary Guarantor (including any transaction pursuant to which any Person becomes a Restricted Subsidiary of the Company) will be a Permitted Investment if and for so long as such Restricted Subsidiary is or would be subject to any Payment Restriction that is not permitted pursuant to Section 6.7; (c) any Investments in the Company by any Restricted Subsidiary of the Company; -26- (d) Investments made by the Company or by its Restricted Subsidiaries out of the Net Cash Proceeds of an Asset Sale made in compliance with Section 2.5(a)(ii)(I); (e) Intercompany Indebtedness of the type described in clause (iv) of the definition of Permitted Indebtedness; (f) accounts receivable created or acquired in the ordinary course of business; (g) obligations or shares of Capital Stock received in connection with any good faith settlement or bankruptcy proceeding involving a claim relating to a Permitted Investment; (h) Currency Agreements and Interest Rate Agreements, in each case, of the type described in the definition of "Permitted Indebtedness," and the Option; (i) Raw Material Hedge Agreements of the type described in the definition of "Permitted Indebtedness"; (j) additional Investments not to exceed $15.0 million at any time outstanding; and (k) Indebtedness and/or equity securities acquired in consideration for an Asset Sale permitted hereunder. "PERMITTED REFINANCING INDEBTEDNESS" means (A) any Refinancing by the Company of Indebtedness of the Company or any of its Restricted Subsidiaries (other than Indebtedness incurred or outstanding pursuant to clauses (ii), (iii), (iv), (vi), (vii), (viii), (x), (xi) through (xv) and (xxii) of the definition of "Permitted Indebtedness," which Indebtedness shall remain subject to the maximum aggregate amounts outstanding as set forth therein) and (B) any Indebtedness incurred pursuant to a Refinancing by any Restricted Subsidiary of the Company of Indebtedness incurred by such Restricted Subsidiary (other than Indebtedness incurred or outstanding pursuant to clauses (ii), (iii), (iv), (vi), (vii), (viii), (x), (xi) through (xv) and (xxii) of the definition of "Permitted Indebtedness," which Indebtedness shall remain subject to the maximum aggregate amounts outstanding as set forth therein); provided that in the case of each of (A) and (B), (i) the principal amount of such Permitted Refinancing Indebtedness shall not exceed the outstanding principal amount of Indebtedness (including unused commitments) so extended, refinanced, renewed, replaced, substituted or refunded plus any amounts incurred to pay premiums and fees in connection therewith, (ii) the Permitted Refinancing Indebtedness shall have a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of the Indebtedness being extended, refinanced, renewed, replaced, substituted or refunded and (iii) to the extent such Refinancing Indebtedness refinances Indebtedness subordinated to the Loan, such Permitted Refinancing Indebted- -27- ness is subordinated to the Loan at least to the same extent as the Indebtedness being extended, refinanced, renewed, replaced, substituted or refunded. "PERSON" means and includes natural persons, corporations, limited liability companies, limited partnerships, general partnerships, joint stock companies, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and governments and agencies and political subdivisions thereof. "PLAN" means (i) any single-employer plan, as defined in Section 4001(a)(15) of ERISA, that is maintained or contributed to by (or to which there is an obligation to contribute to by) the Company or a Subsidiary of the Company or an ERISA Affiliate and that is subject to Title IV of ERISA, and (ii) each such plan for the five year period immediately following the latest date on which the Company, a Subsidiary of the Company or any ERISA Affiliate maintained, contributed to or had an obligation to contribute to such plan if, for purposes of this clause (ii), the Company, any Subsidiary of the Company or any ERISA Affiliate could currently incur any liability under such plan. "POTENTIAL EVENT OF DEFAULT" means a condition or event which, after notice or lapse of time or both, would constitute an Event of Default if that condition or event were not cured or removed within any applicable grace or cure period. "PREFERRED STOCK" of any Person means any Capital Stock of such Person that has preferential rights (as compared to any other Capital Stock of such Person) with respect to dividends or redemptions or upon liquidation. "PREMISES" has the meaning assigned thereto in the applicable Mortgage. "PREPAYMENT OFFER NOTICE" has the meaning set forth in Section 2.5(a)(ii)(VI). "PRO FORMA" means, with respect to any calculation made or required to be made pursuant to the terms of this Agreement, a calculation in accordance with Article 11 of Regulation S-X under the Securities Act (as it exists on the Closing Date) as interpreted by the Company's chief financial officer or Board of Directors in consultation with its independent certified public accountants. "PRO FORMA BALANCE SHEET" has the meaning ascribed to such term in Section 4.5(a). "PROJECTIONS" has the meaning set forth in Section 3.1(e). "QUALIFIED CAPITAL STOCK" means any Capital Stock that is not Disqualified Capital Stock. -28- "QUALIFIED SECURITIZATION TRANSACTION" means any transaction or series of transactions that may be entered into by any Foreign Subsidiary of the Company or a Receivables Subsidiary pursuant to which such Foreign Subsidiary or that Receivables Subsidiary may, pursuant to customary terms, sell, convey or otherwise transfer to, or grant a security interest in for the benefit of, (1) a Receivables Subsidiary or any Foreign Subsidiary of the Company which subsequently transfers to a Receivables Subsidiary (in the case of a transfer by such Foreign Subsidiary) and (2) any other Person (in the case of a transfer by a Receivables Subsidiary), any accounts receivable (whether now existing or arising or acquired in the future) of any Foreign Subsidiaries which arose in the ordinary course of business of such Foreign Subsidiaries, and any assets related thereto, including, without limitation, all collateral securing such accounts receivable, all contracts and contract rights and all guarantees or other obligations in respect of such accounts receivable, proceeds of such accounts receivable and other assets (including contract rights) which are customarily transferred or in respect of which security interests are customarily granted in connection with asset securitization transactions involving accounts receivable. "QUARTERLY PERIOD" means the period commencing on the first calendar day of each of February, May, August or November, if such day is a Business Day, or the first Business Day succeeding the first calendar day of such month and ending on the day next preceding the first Business Day of the following Quarterly Period; provided that the first Quarterly Period shall commence on the Closing Date. "RAW MATERIAL HEDGE AGREEMENTS" means commodity futures contracts, hedging contracts, options or other similar agreements or arrangements. "REAL PROPERTY" means, collectively, all right, title and interest (including any leasehold estate) in and to any and all parcels of or interests in real property owned, leased or operated by any Person, whether by lease, license or other means, together with, in each case, all easements, hereditaments and appurtenances relating thereto, all improvements and appurtenant fixtures and equipment, all general intangibles and contract rights and other property and rights incidental to the ownership, lease or operation thereof. "REAL PROPERTY ASSETS" means interests in Real Property, including improvements and fixtures attached thereto or used in the operation thereof, in each case owned or leased (as lessee) by the Company or its Subsidiaries. "RECEIVABLES SUBSIDIARY" means a Wholly-Owned Foreign Subsidiary of the Company which engages in no activities other than in connection with the financing of accounts receivable of Foreign Subsidiaries and which is designated (as provided below) as a Receivables Subsidiary (a) no portion of the Indebtedness or any other obligations (contingent or otherwise) of which (i) is guaranteed by the Company or any other Subsidiary of the Company (excluding guarantees of obligations (other than the principal of, and interest on, Indebtedness) pursuant to Standard Securitization Undertakings), (ii) is recourse to or obligates the Company or any other Subsidiary of the Company in any way other than pursuant to Standard Securitization Undertakings or (iii) subjects any property or asset of the Company or any -29- other Subsidiary of the Company, directly or indirectly, contingently or otherwise, to the satisfaction thereof, other than pursuant to Standard Securitization Undertakings, (b) with which neither the Company nor any of its Subsidiaries has any contract, agreement, arrangement or understanding on terms less favorable to the Company or such Subsidiary than those that might be obtained at the time from Persons that are not Affiliates of the Company, and (c) to which neither the Company nor any other Subsidiary of the Company has any obligation to maintain or preserve such entity's financial condition or cause such entity to achieve certain levels of operating results. Any such designation shall be evidenced to the Administrative Agent by filing with the Administrative Agent an Officer's Certificate of the Company certifying that, to the best of such officer's knowledge and belief after consultation with counsel, such designation complied with the foregoing conditions. "REFERENCE DATE" has the meaning ascribed to such term in Section 6.3(a). "REFINANCE" means, in respect of any security or Indebtedness, to refinance, extend, renew, refund or defease, or to issue a security or Indebtedness in exchange or replacement for, such security or Indebtedness in whole or in part; "REFINANCED" and "REFINANCING" shall have correlative meanings. "REFINANCED FACILITY" has the meaning set forth in the definition of Financing Transactions. "REGISTER" has the meaning ascribed to such term in Section 5.14. "RELATED BUSINESS" means any capital expenditure or Investment in properties and assets that replace the properties and assets that were the subject of an Asset Sale or in properties and assets that will be used in the business of the Company and its Subsidiaries as existing on the Closing Date or in businesses reasonably related thereto. "RELEASE" means any release, spill, emission, leaking, pumping, pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping, leaching or migration of Hazardous Materials into the indoor or outdoor environment (including, without limitation, the abandonment or disposal of any barrels, containers or other closed receptacles containing any Hazardous Materials), including, without limitation, the movement of any Hazardous Material through the air, soil, surface water, groundwater or property. "REPLACEMENT ASSETS" has the meaning set forth in Section 6.13(b)(2). "REQUIRED LENDERS" means Lenders holding in the aggregate more than 50% of the outstanding principal amount of Loans. "REQUIREMENTS OF LAW" means, collectively, any and all requirements of any Governmental Authority including any and all laws, ordinances, rules, regulations or similar statutes or case law. -30- "RESTRICTED PAYMENT" has the meaning ascribed to such term in Section 6.3(a). "RESTRICTED SUBSIDIARY" means any Subsidiary of the Company which at the time of determination is not an Unrestricted Subsidiary. "RETURNS" has the meaning ascribed to such term in Section 4.8. "REVOLVING CREDIT FACILITY" means the revolving credit agreement (the "REVOLVING CREDIT AGREEMENT") to be effective as of the Closing Date, between the Company, the borrowers identified therein, the lenders party thereto in their capacities as lenders thereunder and DBTCA, as administrative agent, together with the related documents thereto (including, without limitation, any guarantee, collateral and security agreements and/or documents), in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented or otherwise modified from time to time, including any agreement extending the maturity of, refinancing, replacing or otherwise restructuring (including increasing the amount of available borrowings thereunder or adding Restricted Subsidiaries of the Company as additional borrowers or guarantors thereunder) all or any portion of the Indebtedness under such agreement or any successor or replacement agreement and whether by the same or any other agent, lender or group of lenders. "SALE AND LEASEBACK TRANSACTION" means with respect to any Person an arrangement with any bank, insurance company or other lender or investor or to which such lender or investor is a party providing for the leasing by such Person of any property or asset of such Person which has been or is being sold or transferred by such Person to such lender or investor or to any Person to whom funds have been or are to be advanced by such lender or investor on the security of such property or asset. "SECOND LIEN CREDIT FACILITY" means the term loan credit agreement providing for $265.0 million in term loans (the "SECOND LIEN CREDIT AGREEMENT") to be entered into on the date hereof, between the Company, the lenders party thereto in their capacities as lenders thereunder and DBTCA, as administrative agent, together with the related documents thereto (including, without limitation, any guarantee, collateral and security agreements and/or documents), in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented or otherwise modified from time to time, including any agreement extending the maturity of, refinancing, replacing or otherwise restructuring (including adding Restricted Subsidiaries of the Company as additional guarantors thereunder) all or any portion of the Indebtedness under such agreement or any successor or replacement agreement and whether by the same or any other agent, lender or group of lenders. "SECURED PARTIES" means, collectively, the Administrative Agent, the Collateral Agent, each other Agent, the Lenders and each party to a hedging agreement relating to the Loan if at the date of entering into such hedging agreement such Person was a Lender or an Affiliate of a Lender and such Person executes and delivers to the Administrative Agent a letter agreement in form and substance acceptable to the Administrative Agent pursuant to -31- which such Person (i) appoints the Collateral Agent as its agent under the applicable Credit Documents and (ii) agrees to be bound by the provisions of Sections 9.3 and 9.9. "SECURITIES" means any stock, shares, partnership interests, voting trust certificates, certificates of interest or participation in any profit sharing agreement or arrangement, bonds, debentures, options, warrants, notes or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as "securities" or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SECURITY AGREEMENT" means a Security Agreement substantially in the form of Exhibit XII among the Company, the Subsidiaries identified therein and Collateral Agent for the benefit of the Secured Parties. "SECURITY AGREEMENT COLLATERAL" means all property pledged or granted as collateral pursuant to the Security Agreement delivered on the Closing Date or thereafter pursuant to Section 5.11. "SECURITY DOCUMENTS" means the Security Agreement, the Mortgages and each other security document or pledge agreement delivered in accordance with applicable local or foreign law to grant a valid, perfected security interest in any property as collateral for the Obligations, and all UCC or other financing statements or instruments of perfection required by this Agreement, the Security Agreement, any Mortgage or any other such security document or pledge agreement to be filed with respect to the security interests in property and fixtures created pursuant to the Security Agreement or any Mortgage and any other document or instrument utilized to pledge any property as collateral for the Obligations. "SOLVENT ENTITY" has the meaning ascribed to such term in Section 4.5(c). "STANDARD SECURITIZATION UNDERTAKINGS" means representations, warranties, covenants and indemnities entered into by the Company or any Subsidiary of the Company which are reasonably customary in an accounts receivable securitization transaction. "SUBORDINATED INDEBTEDNESS" means Indebtedness of the Company or any Subsidiary Guarantor which is expressly subordinated in right of payment to the Loans or the Guarantee of such Subsidiary Guarantor, as the case may be. "SUBSIDIARY" means, with respect to any Person, any corporation, association or other business entity of which more than 50% of the total voting power of shares of stock or other equity interest entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereto is at the time owned, directly or indirectly, by that Person. -32- "SUBSIDIARY GUARANTORS" means each of the present Restricted Subsidiaries of the Company listed on Schedule 1.1(b) hereto and each Subsidiary of the Company that executes a Guarantee pursuant to Section 6.14. "SURVEY" means a survey of any Mortgaged Property (and all improvements thereon) which is (a) (i) prepared by a surveyor or engineer licensed to perform surveys in the state where such Mortgaged Property is located, (ii) dated (or redated) not earlier than six months prior to the date of delivery thereof unless there shall have occurred within six months prior to such date of delivery any exterior construction on the site of such Mortgaged Property or any easement, right of way or other interest in the Mortgaged Property has been granted or become effective through operation of law or otherwise with respect to such Mortgaged Property which, in either case, can be depicted on a survey, in which events, as applicable, such survey shall be dated (or redated) after the completion of such construction or if such construction shall not have been completed as of such date of delivery, not earlier than 20 days prior to such date of delivery, or after the grant or effectiveness of any such easement, right of way or other interest in the Mortgaged Property, (iii) certified by the surveyor (in a manner reasonably acceptable to the Administrative Agent) to the Administrative Agent, the Collateral Agent and the Title Company, (iv) complying in all respects with the minimum detail requirements of the American Land Title Association as such requirements are in effect on the date of preparation of such survey and (v) sufficient for the Title Company to remove all standard survey exceptions from the title insurance policy (or marked-up title commitment having the effect of a policy) relating to such Mortgaged Property and issue the endorsements of the type required by Section 3.1(n)(iii) or (b) otherwise acceptable to the Collateral Agent. "SURVIVING ENTITY" has the meaning ascribed to such term in Section 6.6(a)(1)(ii). "SYNDICATION AGENT" means JPMorgan Chase Bank. "SYNDICATION DATE" means that date upon which the Administrative Agent determines in its sole discretion (and notifies the Company) that the primary syndication (and resultant addition of Persons as Lenders pursuant to Section 11.2(a)) has been completed. "TAX REDUCTION AGREEMENT" means an agreement entered into between the Company or a Restricted Subsidiary with a local Governmental Authority relating to the transfer or acquisition of an asset for the purpose of obtaining tax relief; provided that the Company or such Restricted Subsidiary may at any time repossess such asset for nominal net consideration; and provided, further, that such agreements may also be similar to those currently in effect between the Company and Darlington and Florence Counties in South Carolina; provided, further, that if the agreement relates to personal property that constitutes or would constitute Collateral, then the Company shall provide the Administrative Agent the documentation required by Section 3.1(m) (or, to the extent such property could constitute Mortgaged Property, appropriate documentation pursuant to Section 3.1(n)), as well as an acknowledgment or consent from the relevant Governmental Authority that the Lenders have a -33- perfected Lien in such Collateral senior to any Lien purported to be granted in favor of such Governmental Authority. "TAX SHARING AGREEMENT" means any tax sharing or tax allocation agreements entered into by the Company or any of its Subsidiaries. "TAXES" means any and all taxes, assessments, fees, levies, imposts, duties, penalties, deductions, liabilities, withholdings or other charges of any nature whatsoever, including interest penalties, from time to time or at any time imposed by any Law or any Tribunal. "TITLE COMPANY" means Lawyers Title Insurance Corporation or such other title insurance or abstract company as shall be approved by the Collateral Agent insuring the Mortgages. "TRANSACTION COSTS" means the fees, costs and expenses payable by the Company pursuant hereto and other fees, costs and expenses payable by the Company or a Subsidiary of the Company in connection with the Transactions. "TRANSACTION DATE" has the meaning ascribed to such term in the definition of "Fixed Charge Coverage Ratio." "TRANSACTIONS" means, collectively, (i) the closing of and the initial borrowings under the Revolving Credit Facility, (ii) the closing of and incurrence of the Loan hereunder, (iii) the closing of and the borrowings under the Second Lien Credit Facility, (iv) the Financing Transactions and (v) the payment of fees, expenses, commissions and transaction costs in connection with the foregoing. "TRANSFEREE" has the meaning ascribed to such term in Section 11.19. "TRIBUNAL" means any government, any arbitration panel, any court or any governmental department, commission, board, bureau, agency, authority or instrumentality of the United States or any state, province, commonwealth, nation, territory or possession, whether now or hereafter constituted and/or existing. "UCC" means the Uniform Commercial Code as in effect from time to time (except as otherwise specified) in any applicable state or jurisdiction. "UNAUDITED FINANCIAL STATEMENTS" has the meaning set forth in Section 3.1(e). "UNITED STATES " or "U.S." means the United States of America. -34- "UNRESTRICTED SUBSIDIARY" of any Person means: (1) any Subsidiary of such Person that at the time of determination shall be or continue to be designated an Unrestricted Subsidiary by the Board of Directors of such Person in the manner provided below; and (2) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property of, the Company or any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated; provided that: (1) the Company certifies to the Administrative Agent that such designation complies with Section 6.3; and (2) each Subsidiary to be so designated and each of its Subsidiaries has not at the time of designation, and does not thereafter, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to any Indebtedness pursuant to which the lender has recourse to any of the assets of the Company or any of its Restricted Subsidiaries. For purposes of making the determination of whether any such designation of a Subsidiary as an Unrestricted Subsidiary complies with Section 6.3, the portion of the fair market value of the net assets of such Subsidiary of the Company at the time that such Subsidiary is designated as an Unrestricted Subsidiary that is represented by the interest of the Company and its Restricted Subsidiaries in such Subsidiary, in each case as determined in good faith by the Board of Directors of the Company, shall be deemed to be an Investment. Such designation will be permitted only if such Investment would be permitted at such time under Section 6.3. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary only if: (1) (i) immediately after giving effect to such designation, the Fixed Charge Coverage Ratio of the Company shall be not less than the Fixed Charge Coverage Ratio of the Company immediately before such designation; or (ii) immediately after giving effect to such designation, the Company is able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with Section 6.1; and (2) immediately before and immediately after giving effect to such designation, no Default or Event of Default shall have occurred and be continuing. -35- Any such designation by the Board of Directors shall be evidenced to the Administrative Agent by promptly filing with the Administrative Agent a copy of the resolution of the Board of Directors giving effect to such designation and an Officer's Certificate certifying that such designation complied with the foregoing provisions. "U.S. LEGAL TENDER" means such coin or currency of the United States as at the time of payment shall be legal tender for the payment of public and private debts. "VOTING STOCK" means, with respect to any Person, securities of any class or classes of Capital Stock in such Person entitling the holders thereof (whether at all times or only so long as no senior class of stock has voting power by reason of any contingency) to vote in the election of members of the Board of Directors or other governing body of such Person. "WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the then outstanding aggregate principal amount of such Indebtedness into (b) the total of the products obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required payment of principal, including payment at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment. "WHOLLY-OWNED FOREIGN SUBSIDIARY" means a Wholly-Owned Subsidiary which is a Foreign Subsidiary. "WHOLLY-OWNED RESTRICTED SUBSIDIARY" means a Wholly-Owned Subsidiary which is a Restricted Subsidiary. "WHOLLY-OWNED SUBSIDIARY" means, with respect to any Person, any corporation, association or other business entity of which 100% of the total voting power of shares of stock or other equity interest (other than directors' qualifying shares and/or other nominal amounts of shares held other than by such Person) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Wholly-Owned Subsidiaries of that Person or a combination thereof. "WITHDRAWAL LIABILITY" means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part 1 of Subtitle E of Title IV of ERISA. Section 1.2 Accounting Terms For the purposes of this Agreement, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP. -36- Section 1.3 Other Definitional Provisions Any of the terms defined in Section 1.1 may, unless the context otherwise requires, be used in the singular or the plural depending on the reference. ARTICLE 2 AMOUNT AND TERMS OF LOAN COMMITMENT AND LOANS; NOTES Section 2.1 The Loan (a) Loan Commitment. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of the Company herein set forth, the Lenders hereby agree to lend to the Company on the Closing Date $185.0 million, in the aggregate (the "LOAN"), each such Lender committing to lend the amount set forth next to such Lender's name on the signature pages hereto. The Lenders' commitments to make the Loan to the Company pursuant to this Section 2.1(a) are herein called individually, the "LOAN COMMITMENT" and collectively, the "LOAN COMMITMENTS." (b) Notice of Borrowing. When the Company desires to borrow under this Section 2.1, it shall deliver to the Administrative Agent a Notice of Borrowing no later than 3:00 P.M. (New York time), at least one Business Day in advance of the Closing Date or such later date as shall be agreed to by the Administrative Agent. The Notice of Borrowing shall specify the applicable date of borrowing (which shall be a Business Day). Upon receipt of such Notice of Borrowing, the Administrative Agent shall promptly notify each Lender of its share of the Loan and the other matters covered by the Notice of Borrowing. (c) Disbursement of Funds. No later than 11:00 a.m. on the Closing Date, each Lender will make available its pro rata share of the Loan requested to be made on such date in the manner provided below. All amounts shall be made available to the Administrative Agent in U.S. Legal Tender and immediately available funds at the Payment Office and the Administrative Agent immediately will make available to the Company by depositing to its account at the Payment Office the aggregate of the amounts so made available in the type of funds received. Unless the Administrative Agent shall have been notified by any Lender prior to the Closing Date that such Lender does not intend to make available to the Administrative Agent its portion of the Loan to be made on such date, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent on such date, and the Administrative Agent, in reliance upon such assumption, may (in its sole discretion and without any obligation to do so) make available to the Company a corresponding amount. If such corresponding amount is not in fact made available to the Administrative Agent by such Lender and the Administrative Agent has made available the same to the Company, the Administrative Agent shall be entitled to recover such corresponding amount from such Lender. If such Lender does not pay such corresponding amount forthwith upon the Administrative Agent's demand therefor, the Administrative Agent shall promptly notify the Company, and the Company shall immediately pay such corresponding amount to the -37- Administrative Agent. The Administrative Agent shall also be entitled to recover from such Lender or the Company, as the case may be, interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Administrative Agent to the Company to the date such corresponding amount is recovered by the Administrative Agent, at a rate per annum equal to (x) if paid by such Lender, the overnight Federal Funds Rate or (y) if paid by the Company, the then applicable rate of interest on the Loan. Nothing herein shall be deemed to relieve any Lender from its obligation to fulfill its Loan Commitment hereunder or to prejudice any rights which the Company may have against any Lender as a result of any default by such Lender hereunder. (d) Notes. The Company shall execute and deliver to each Lender on the Closing Date a Note dated the Closing Date substantially in the form of Exhibit I to evidence such Lender's portion of the Loan Commitment and with appropriate insertions (the "NOTES"). (e) Termination of Loan Commitment. The Loan Commitment hereunder shall terminate on February 11, 2004 if no portion of the Loan has been funded (other than as a result of the failure of the Lenders to fulfill their obligations hereunder) on or before such date. (f) Pro Rata Borrowings. The Loan made under this Agreement shall be made by the Lenders pro rata on the basis of their respective Loan Commitments. It is understood that no Lender shall be responsible for any default by any other Lender of its obligation to make its portion of the Loan hereunder and that each Lender shall be obligated to make its portion of the Loan hereunder, regardless of the failure of any other Lender to fulfill its commitments hereunder. Section 2.2 Maturity of the Loan The Loan shall mature and the Company shall pay in full the outstanding principal amount thereof and accrued interest thereon on February 10, 2009 (or if not a Business Day, on the first Business Day thereafter) (the "MATURITY DATE"). Section 2.3 Interest on the Loan (a) Rate of Interest. The Loan shall bear interest on the unpaid principal amount thereof from the date made through maturity (whether by prepayment, acceleration or otherwise) for each Quarterly Period at a rate per annum equal to the Applicable Rate for such period. (b) Interest Payments. Interest on the Loan shall be payable on each February 1, May 1, August 1 and November 1 (each, an "INTEREST PAYMENT DATE") of each year (commencing on May 1, 2004) and at maturity of the Loan. -38- (c) Post-Maturity Interest. Any principal payments on the Loan not paid when due and, to the extent permitted by applicable law, any interest payment on the Loan not paid when due, in each case whether at stated maturity, by notice of prepayment, by acceleration or otherwise, shall thereafter bear interest payable upon demand at a rate which is 2.00% per annum in excess of the rate of interest otherwise payable under this Agreement for the Loan. (d) Computation of Interest. Interest on the Loan shall be computed on the basis of a 360-day year and the actual number of days elapsed in the period during which it accrues. In computing interest on the Loan, the date of the making of the Loan shall be included and the date of payment shall be excluded; provided that if the Loan is repaid on the same day on which it is made, one day's interest shall be paid on the Loan. Section 2.4 Fees The Company agrees to all fees and other obligations owed to any Agent pursuant to letter agreements between the Company and such Agent in accordance with, and at the times specified by, each such letter agreement. Section 2.5 Prepayments and Payments (a) Prepayments (i) Voluntary Prepayments. The Company may, upon not less than five Business Days' prior written or telephonic notice confirmed in writing to the Administrative Agent on any Interest Payment Date, prepay the Loan made to the Company in whole or in part at any time at the redemption prices (expressed as a percentage of principal amount) set forth below, plus accrued and unpaid interest to the redemption date, if redeemed during the 12-month period beginning February 10 of the years indicated below:
Year Percentage - ---- ---------- 2004.................................................................. 102.0% 2005.................................................................. 101.0% 2006 and thereafter................................................... 100.0%;
provided that each partial prepayment of principal of the Loan shall be in an amount that is a multiple of $1.0 million and in an aggregate amount of not less than $5.0 million. Notice of prepayment having been given as aforesaid, the principal amount of the Loan to be prepaid shall become due and payable on the prepayment date. Amounts of the Loan so prepaid may not be reborrowed. -39- (ii) Mandatory Prepayments. (I) Prepayments from Asset Sales. Subject to and in accordance with the provisions of Section 6.13, and in accordance with clause (VI) below, the Company shall provide the Administrative Agent with a Prepayment Offer Notice and each Lender shall have the right to require the Company to apply, or to cause any Restricted Subsidiary of the Company to apply, up to 100% of the Excess Proceeds toward the prepayment at par of all or a portion of such Lender's outstanding portion of the Loan; provided that no such prepayment shall be required under this Section 2.5(a)(ii)(I) with respect to the disposition of property which constitutes a Casualty Event. (II) Prepayments from Casualty Events. (w) In connection with the receipt of any Extraordinary Receipts from a Casualty Event by the Company or any of its Restricted Subsidiaries, so long as no Potential Event of Default or Event of Default shall then exist or arise therefrom, the Company or such Restricted Subsidiary may elect to apply such Extraordinary Receipts toward the repair, replacement or restoration of any property in respect of which such Extraordinary Receipts were paid or to reinvest in other fixed or capital assets, no later than 365 days following the date of receipt of such proceeds; provided that if the property subject to such Casualty Event constituted Collateral under the Security Documents, then all property purchased with the Extraordinary Receipts thereof pursuant to this subsection shall be made subject to the Lien of the applicable Security Documents in favor of the Collateral Agent, for its benefit and for the benefit of the other Secured Parties in accordance with Sections 5.11 and 5.12. (x) Any Extraordinary Receipts not applied within the 365-day period set forth in clause (w) above (or earlier, at the option of the Company) to so repair, replace, restore or reinvest in accordance with such clause shall constitute "EXCESS EXTRAORDINARY RECEIPTS." When the aggregate amount of Excess Extraordinary Receipts exceeds $2.0 million the Company shall provide the Administrative Agent with a Prepayment Offer Notice in accordance with the provisions of clause (VI) below and each Lender shall have the right to require the Company to apply or to cause any Restricted Subsidiary of the Company to apply, up to 100% of the Excess Extraordinary Receipts therefrom toward the prepayment at par of all or a portion of such Lender's outstanding Loan. (y) Pending the final application thereof, all Extraordinary Receipts in excess of $5.0 million in the aggregate in respect of all Casualty Events affecting Collateral shall be held in the Collateral Account and released therefrom only in accordance with the provisions of Article 8 and all other Extraordinary Receipts may be used to temporarily reduce Indebtedness under the Revolving Credit Facility. (z) Upon completion of the repayment offer set forth in clause (x) above, the amount of Excess Extraordinary Receipts will be deemed to have been reset to zero. (III) Prepayments from Excess Cash Flow. On the second Business Day of April of each year beginning in 2006 (such date, the "EXCESS CASH FLOW PAYMENT DATE"), if -40- Excess Cash Flow for the applicable Excess Cash Flow Period is in excess of $2.0 million, the Company shall provide the Administrative Agent with a Prepayment Offer Notice and each Lender shall have the right to require the Company to apply an aggregate principal amount equal to up to 50% of the Excess Cash Flow for the Excess Cash Flow Period then ended toward the prepayment at par of all or a portion of such Lender's outstanding Loan in accordance with Section 2.5(a)(ii)(IV); provided, however, if on such date Available Liquidity (after giving effect to the prepayment required by this Section 2.5(a)(ii)(III)) is less than $50.0 million, then the "Excess Cash Flow Payment Date" shall be the second Business Day of the next succeeding month when Available Liquidity (after giving effect to the prepayment required by this Section 2.5(a)(ii)(III)) is at least $50.0 million and, provided, further, the Company shall not be obligated to provide a Prepayment Offer Notice if the Fixed Charge Coverage Ratio (as defined in the Revolving Credit Agreement as in effect on the Closing Date) for the applicable Excess Cash Flow Period is not greater than 1.0 to 1.0. (IV) Application of Prepayments. Mandatory prepayments will first be applied to the then outstanding Obligations under the Loan. (V) Application to Other Indebtedness. Notwithstanding anything to the contrary in this Agreement, neither the Company nor any of its Restricted Subsidiaries is obligated to apply any amounts pursuant to this Section 2.5(a)(ii) (other than in connection with sales of Collateral) to the prepayment of the Loan or fund the Collateral Account to the extent that such amounts are required to be and are applied or funded pursuant to the Revolving Credit Facility in satisfaction of obligations under the Revolving Credit Facility in accordance with the terms thereof. (VI) Notice and Prepayment Procedures. The Company shall provide a written notice (a "PREPAYMENT OFFER NOTICE") to the Administrative Agent, (A) in the case of clause (I) above, within one Business Day of the expiration of the 365-day period referred to in Section 6.13, (B) in the case of clause (II) above, within one Business Day of the expiration of the 365-day period referred to therein, and (C) in the case of clause (III) above, on the date referred to therein (unless, in each case, shorter notice is satisfactory to the Administrative Agent), which Prepayment Offer Notice shall state the Section and clause of this Agreement pursuant to which such Prepayment Offer Notice is being delivered and the maximum aggregate amount which the Lenders may require the Company to prepay thereunder. The Administrative Agent shall notify the Lenders of its receipt of such Prepayment Offer Notice within three Business Days of its receipt thereof (provided that failure to do so by the Administrative Agent shall not limit the rights of any Lender to require the Company to prepay any amounts pursuant to this Section 2.5(a)(ii)). Within five Business Days of receipt of such notice from the Administrative Agent, each Lender shall submit to the Administrative Agent the amount, if any, such Lender elects to require the Company to prepay with respect to such Lender's outstanding portion of the Loan. To the extent the Lenders shall elect to require the Company to prepay the Loan in an amount exceeding the maximum amount required to be offered for pre- -41- payment pursuant to the applicable clause of this Section 2.5(a)(ii), such portion of the Loan will be prepaid on a pro rata basis (based on the amounts each Lender submits for prepayment). Within ten Business Days of its receipt of the Prepayment Offer Notice, the Administrative Agent shall advise the Company as to the amounts to be prepaid pursuant to this Section 2.5(a)(ii) and the date on which such amounts are due, which date shall be any Business Day (determined by the Administrative Agent) within 30 days after the day it so advises the Company. (iii) Company's Mandatory Prepayment Obligation; Application of Prepayments. All prepayments shall include payment of accrued interest on the principal amount so prepaid and shall be applied to payment of interest before application to principal. Amounts prepaid pursuant to this Section 2.5 may not be reborrowed. (b) Manner and Time of Payment. All payments of principal and interest hereunder and under the Notes by the Company shall be made without defense, set off or counterclaim and in same-day funds and delivered to the Administrative Agent, unless otherwise specified, not later than 3:00 P.M. (New York time) on the date due at the Payment Office for the account of the Lenders; funds received by the Administrative Agent after that time shall be deemed to have been paid by the Company on the next succeeding Business Day. The Company hereby authorizes the Administrative Agent to charge its account with the Administrative Agent in order to cause timely payment to be made of all principal, interest and fees due hereunder (subject to sufficient funds being available in its account for that purpose). (c) Payments on Non-Business Days. Whenever any payment to be made hereunder or under the Notes shall be stated to be due on a day which is not a Business Day, the payment shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of the payment of interest hereunder or under the Notes or of the commitment and other fees hereunder, as the case may be. (d) Notation of Payment. Each Lender agrees that before disposing of any Note held by it, or any part thereof (other than by granting participations therein), such Lender will make a notation thereon of all principal payments previously made thereon and of the date to which interest thereon has been paid and will notify the Company of the name and address of the transferee of that Note; provided that the failure to make (or any error in the making of) such a notation or to notify the Company of the name and address of such transferee shall not limit or otherwise affect the obligation of the Company hereunder or under such Notes with respect to the Loan and payments of principal or interest on any such Note. Section 2.6 Use of Proceeds (a) The Loan. The proceeds of the Loan shall be applied by the Company, together with borrowings under the Second Lien Credit Facility and the initial borrowings under the Revolving Credit Facility, to finance the Financing Transactions and pay Transaction Costs. (b) Margin Regulations. No portion of the proceeds of any borrowing under this Agreement shall be used by the Company in any manner which might cause the bor- -42- rowing or the application of such proceeds to violate the applicable requirements of Regulation U, Regulation T or Regulation X of the Board of Governors of the Federal Reserve System or any other regulation of the Board of Governors or to violate the Exchange Act, in each case as in effect on the date or dates of such borrowing and such use of proceeds. ARTICLE 3 CONDITIONS Section 3.1 Conditions to the Loan The obligations of the Lenders to make the Loan are subject to prior or concurrent satisfaction of each of the following conditions: (a) On or before the Closing Date, all corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incidental thereto not previously found acceptable by the Administrative Agent shall be reasonably satisfactory in form and substance to the Administrative Agent, and the Administrative Agent shall have received on behalf of the Lenders the following items, each of which shall be in form and substance reasonably satisfactory to the Administrative Agent and, unless otherwise noted, dated the Closing Date: 1. a copy of the Company's and each Subsidiary Guarantor's charter, certified as of the Closing Date by one of its Officers, together with a certificate of status, compliance, good standing or like certificate with respect to the Company and each Subsidiary Guarantor issued by the appropriate government officials of the jurisdiction of its incorporation, each to be dated a recent date prior to the Closing Date; 2. a copy of the Company's and each Subsidiary Guarantor's bylaws, certified as of the Closing Date by one of its Officers; 3. resolutions of the Company's and each Subsidiary Guarantor's Board of Directors approving and authorizing the execution, delivery and performance of this Agreement, each of the Credit Documents to which it is a party and any other documents, instruments and certificates required to be executed by the Company or such Subsidiary Guarantor in connection herewith and therewith and approving and authorizing the execution and delivery of the Credit Documents and the consummation of the Transactions, each certified as of the Closing Date by one of its Officers as being in full force and effect without modification or amendment; 4. executed copies of (i) this Agreement, (ii) the Notes substantially in the form of Exhibit I executed in accordance with Section 2.1(d) -43- drawn to the order of the Lenders and with appropriate insertions and (iii) the other Credit Documents; 5. an originally executed Notice of Borrowing substantially in the form of Exhibit IV, signed by a duly authorized Officer of the Company; 6. originally executed copies of the written opinions of (I) Edwards & Angell, LLP, counsel for the Company and the Subsidiary Guarantors, substantially in the form of Exhibit V and addressed to the Lenders, which shall include an opinion as to the absence of any material misstatement or omission in the Company's reports on Forms 10-K and 10-Q filed with the Commission since February 1, 2003, (II) Edwards & Angell, LLP, counsel for the Company and the Subsidiary Guarantors, substantially in the form of Exhibit VI and addressed to the Lenders, (III) the opinions of the various local counsel identified on Exhibit VII-1 in the form of Exhibit VII-2 and addressed to the Lenders, and (IV) such other opinions of counsel and such certificates or opinions of accountants, appraisers or other professionals as the Administrative Agent shall have reasonably requested including, without limitation, receipt of an environmental report and technical reports from independent consultants in respect of the Company and the Subsidiaries of the Company and their respective properties, in form and substance reasonably satisfactory to the Administrative Agent; 7. a solvency certificate addressed to the Administrative Agent and dated the Closing Date from the chief financial officer of the Company, which solvency certificate shall be in the form of Exhibit II (appropriately completed), expressing opinions of value and other appropriate factual information regarding the solvency of the Company and its Subsidiaries (on a consolidated basis) after giving effect to the Transactions and the incurrence of all financings contemplated herein; 8. executed or conformed copies of the Revolving Credit Agreement and the Second Lien Credit Agreement and any amendments thereto made on or prior to the Closing Date and the related security agreements and documents and other ancillary documents related thereto and a copy of each legal opinion delivered in connection with therewith, and in each case, the terms and provisions of thereof and all documents and instruments relating thereto shall be reasonably satisfactory to the Administrative Agent; and 9. a notation of Guarantee, executed and delivered by each Subsidiary Guarantor, dated the date of this Agreement, substantially in the form of Exhibit VIII. (b) On or before the Closing Date, all authorizations, consents and approvals necessary in connection with the Transactions shall have been obtained and remain -44- in full force and effect and all applicable waiting periods under Law applicable to the Financing Transactions shall have expired without any action being taken by any competent authority (including, without limitation, any Tribunal) which restrains, prevents or imposes materially adverse conditions upon the completion of the Financing Transactions or the financing thereof and evidence of the receipt of such authorizations, consents and approvals satisfactory to the Administrative Agent shall have been delivered to the Administrative Agent. (c) On or before the Closing Date, the Company shall have paid all fees payable on the Closing Date pursuant to Section 2.4. (d) Prior to or substantially concurrent with the borrowing of the Loan, (i) the Company shall have closed the Revolving Credit Agreement providing for commitments to the Company and/or the Subsidiary Guarantors of up to $175.0 million (and not less than $125.0 million) and shall have drawn not more than $60.0 million thereunder and which at the Closing Date shall provide for then current available borrowings of not less than $90.0 million; (ii) the Company shall have closed the Second Lien Credit Agreement and shall have received not less than $265.0 million (before giving effect to the 2.0% fee to market) in term loans pursuant thereto; and (iii) the Company shall have consummated the Financing Transactions, repaid all amounts outstanding under each of the Refinanced Facilities, terminated any and all commitments with respect thereto and any and all Liens and/or other security interests granted or created thereunder shall have been released and/or terminated, and, in each case, the Company shall have provided to the Administrative Agent satisfactory evidence of such. (e) The Administrative Agent shall have received and reviewed, and be satisfied with, (i) audited consolidated balance sheets and related statements of income, stockholders' equity and cash flows of the Company prepared in accordance with GAAP for each of the last three fiscal years ending more than 90 days prior to the Closing Date, in each case, audited by and accompanied by an unqualified opinion (other than with respect to changes of methods of accounting in accordance with GAAP and the exclusion of an opinion on reports of other auditors) of the Company's independent public accountants, within the meaning of the Securities Act (the "AUDITED FINANCIAL STATEMENTS"), (ii) unaudited consolidated balance sheets and related statements of income, stockholders' equity and cash flows of Company prepared in accordance with GAAP for each fiscal quarter (other than the year-end fiscal quarter) ending after the last fiscal year covered by the Audited Financial Statements and prior to 30 days prior to the Closing Date and for the comparable periods of the preceding fiscal year (the "UNAUDITED FINANCIAL STATEMENTS") (with respect to which the independent auditors shall have performed a SAS 71 or SAS 100 review, as applicable), (iii) forecasts of the financial performance of the Company and its Subsidiaries through December 31, 2008 (the "PROJECTIONS") and (iv) such other financial informa- -45- tion as the Administrative Agent or the Joint Lead Arrangers and Joint Lead Bookrunners may reasonably request. (f) Simultaneously with the making of the Loan by the Lenders, the Company shall have delivered to the Administrative Agent an Officer's Certificate from the Company in the form of Exhibit XV hereto dated the Closing Date and signed by the chief financial officer of the Company to the effect that (i) the representations and warranties in Article 4 are true, correct and complete in all material respects on and as of the Closing Date to the same extent as though made on and as of that date, (ii) on or prior to the Closing Date, the Company has performed and complied with in all material respects all covenants and conditions to be performed and observed by the Company hereunder on or prior to the Closing Date (other than such conditions the satisfaction of which is subject to the satisfaction of the Administrative Agent and/or the Required Lenders) and (iii) all conditions to the consummation of the Financing Transactions in any agreements governing the Financing Transactions and all conditions set forth in the agreements governing the Second Lien Credit Facility and all conditions set forth in the agreements governing the Revolving Credit Facility have been satisfied substantially on the terms set forth therein and have not been waived or amended without the Administrative Agent's prior written consent. (g) No event shall have occurred and be continuing or would result from the consummation of the borrowing contemplated by the Notice of Borrowing which would constitute an Event of Default or Potential Event of Default. (h) The pro forma consolidated capital structure of the Company and its Subsidiaries, after giving effect to the Transactions, shall be satisfactory to the Administrative Agent, and, other than the Loan and the obligations under the Revolving Credit Facility and the Second Lien Credit Facility, the Company shall have no outstanding Indebtedness or Preferred Stock except as set forth on Schedule 3.1(h) hereto. (i) (a) There shall not have occurred since September 30, 2003 (as disclosed in the Company's Quarterly Report on form 10-Q for such quarter, as filed with the Commission on November 14, 2003) anything which the Lenders shall reasonably determine could have a material adverse effect on the rights or remedies of the Lenders, or on the ability of the Company to perform its obligations to the Lenders or which has, had or could have a Material Adverse Effect; and (b) since the date hereof (i) trading in securities generally on the New York or American Stock Exchange shall not have been suspended; minimum or maximum prices shall not have been established on any such exchange; (ii) a banking moratorium shall not have been declared by New York or United States authorities; and (iii) there shall not have occurred either (A) an outbreak or escalation of hostilities between the United States and any foreign power, or (B) an outbreak or escalation of any other insurrection or armed conflict involving the United States or any other national or international calamity or emergency, or (C) any material change in the general financial markets of the United States which, -46- in the reasonable judgment of the Administrative Agent, would materially and adversely affect the ability to sell or syndicate the Loan. (j) The Administrative Agent and its counsel shall be satisfied that the consummation of the Financing Transactions and the related financing, including the funding of the Loan, shall be in compliance with all applicable Laws (including without limitation Regulation T, U or X of the Board of Governors of the Federal Reserve System). On or prior to the Closing Date, all necessary governmental (domestic and foreign), regulatory and third-party approvals in connection with the Credit Documents and otherwise referred to herein or therein shall have been obtained and remain in full force and effect and evidence thereof shall have been provided to the Administrative Agent. On the Closing Date, no litigation by any entity (private or governmental) shall be pending or threatened in writing (i) with respect to the Transactions or any documentation executed in connection therewith (including any Credit Document) or the transactions contemplated thereby or with respect to any existing indebtedness or (ii) which the Administrative Agent shall reasonably determine would reasonably be likely to have a materially adverse effect on the Transactions or on the rights or remedies of any Agent or the Lenders, or on the ability of the Company or any of its Subsidiaries to perform its respective obligations hereunder to the Administrative Agent and the Lenders. (k) The Company and each of its Subsidiaries shall be in compliance, in all material respects, with all applicable foreign and U.S. federal, state and local laws and regulations, including all applicable Environmental Laws. (l) The Company shall have received senior secured debt ratings on the Loan from both Moody's and S&P. (m) The Collateral Agent shall have received duly executed counterparts of the Security Agreement together with: (i) UCC financing statements in appropriate form for filing under the UCC and such other documents under applicable Requirements of Law in each jurisdiction as may be necessary or appropriate or, in the opinion of the Collateral Agent, desirable to perfect the Liens created, or purported to be created, by the Security Documents and, with respect to all UCC financing statements required to be filed pursuant to the Credit Documents, evidence satisfactory to the Administrative Agent that the Company has retained, at its sole cost and expense, a service provider acceptable to the Administrative Agent for the tracking of all such financing statements and notification to the Administrative Agent, of, among other things, the upcoming lapse or expiration thereof; (ii) certified copies of UCC, tax and judgment lien searches, bankruptcy and pending lawsuit searches or equivalent reports or searches, each of a recent date listing all effective financing statements, lien notices or compara- -47- ble documents that name the Company as debtor and that are filed in those state and county jurisdictions in which any property of the Company is located and the state and county jurisdictions in which the Company is organized or maintains its principal place of business and such other searches that the Collateral Agent deems reasonably necessary or appropriate, none of which encumber the Collateral covered or intended to be covered by the Security Documents (other than Permitted Collateral Liens or any other Liens acceptable to the Collateral Agent); (iii) with respect to each location set forth on Schedule 3.1(m)(iii), a Landlord Access Agreement or Bailee Letter, as applicable; provided that no such Landlord Access Agreement shall be required with respect to any Real Property that could not be obtained after the Loan Party that is the lessee or owner of the inventory or other personal property Collateral stored with the bailee thereof, as applicable, shall have used all commercially reasonable efforts to do so; (iv) evidence acceptable to the Collateral Agent of payment or arrangements for payment by the Company of all applicable recording taxes, fees, charges, costs and expenses required for the recording of the Security Documents; and (v) written consents to the execution and performance of the Loan Documents duly executed by Darlington County, South Carolina and by Florence County, South Carolina in form and substance reasonably satisfactory to the Administrative Agent. (n) The Collateral Agent shall have received: (i) a Mortgage encumbering each Mortgaged Property in favor of the Collateral Agent, for the benefit of the Secured Parties, duly executed and acknowledged by the Loan Party that is the owner of or holder of any interest in such Mortgaged Property, and otherwise in form for recording in the recording office of each applicable political subdivision where each such Mortgaged Property is situated, together with such certificates, affidavits, questionnaires or returns as shall be reasonably required in connection with the recording or filing thereof to create a lien under applicable law, and such financing statements and any other instruments reasonably necessary to grant a mortgage lien under the laws of any applicable jurisdiction, all of which shall be in form and substance reasonably satisfactory to Collateral Agent; (ii) with respect to each Mortgaged Property, such consents, approvals, amendments, supplements, estoppels, tenant subordination agreements or other instruments as reasonably necessary to consummate the Transactions or as shall reasonably be deemed reasonably necessary by the Collateral Agent -48- in order for the owner or holder of the fee or leasehold interest constituting such Mortgaged Property to grant the Lien contemplated by the Mortgage with respect to such Mortgaged Property; (iii) with respect to each Mortgage, a policy of title insurance (or marked-up title insurance commitment having the effect of a policy of title insurance) insuring the Lien of such Mortgage as a valid first mortgage Lien on the Mortgaged Property and fixtures described therein in the amount equal to not less than 115% of the fair market value of such Mortgaged Property and fixtures, which fair market value is set forth on Schedule 3.1(n)(iii), which policy (or such marked-up commitment) (each, a "TITLE POLICY") shall (A) be issued by the Title Company, (B) to the extent necessary, include such reinsurance arrangements (with provisions for direct access, if necessary) as shall be reasonably acceptable to the Collateral Agent, (C) contain a "tie-in" or "cluster" endorsement, if available under applicable law (i.e., policies which insure against losses regardless of location or allocated value of the insured property up to a stated maximum coverage amount), (D) have been supplemented by such endorsements (or where such endorsements are not available, opinions of special counsel, architects or other professionals reasonably acceptable to the Collateral Agent) as shall be reasonably requested by the Collateral Agent (including endorsements on matters relating to usury, first loss, last dollar, zoning, contiguity, revolving credit, doing business, non-imputation, public road access, survey, variable rate, environmental lien, subdivision, separate tax lot revolving credit, and so-called comprehensive coverage over covenants and restrictions, provided such endorsements are available in the jurisdiction where each Mortgaged Property is located), and (E) contain no exceptions to title other than exceptions acceptable to the Collateral Agent; (iv) with respect to each Mortgaged Property, such affidavits, certificates, information (including financial data) and instruments of indemnification (including a so-called "gap" indemnification) as shall be reasonably required to induce the Title Company to issue the Title Policy/ies and endorsements contemplated above; (v) evidence reasonably acceptable to the Collateral Agent of payment by the Company of all Title Policy premiums, search and examination charges, escrow charges and related charges, mortgage recording taxes, fees, charges, costs and expenses reasonably required for the recording of the Mortgages and issuance of the Title Policies referred to above; (vi) with respect to each Real Property or Mortgaged Property, copies of all Leases in which the Company or any Subsidiary Guarantor holds the lessor's interest or other agreements relating to possessory interests, if any. To the extent any of the foregoing affect any Mortgaged Property, such agreement -49- shall be subordinate to the Lien of the Mortgage to be recorded against such Mortgaged Property, either expressly by its terms or pursuant to a subordination, non-disturbance and attornment agreement, and shall otherwise be acceptable to the Collateral Agent; (vii) with respect to each Mortgaged Property, each Loan Party shall have made all notifications, registrations and filings, to the extent required by, and in accordance with, all Governmental Real Property Disclosure Requirements applicable to such Mortgaged Property; and (viii) with respect to each Mortgaged Property, a survey satisfying clauses (a)(i), (ii), (iii) and (v) of the defined term Survey. (o) The Administrative Agent shall have received a copy of, or a certificate as to coverage under, the insurance policies required by Section 5.4 and the applicable provisions of the Security Documents, each of which shall be endorsed or otherwise amended to include a "standard" or "New York" lender's loss payable or mortgagee endorsement (as applicable) and shall name the Collateral Agent, on behalf of the Secured Parties, as additional insured, in form and substance satisfactory to the Administrative Agent. (p) Except as disclosed in the Company's quarterly report on Form 10-Q for the quarter ended September 30, 2003, as filed with the Commission on November 14, 2003, there shall be no litigation, public or private, or administrative proceedings, governmental investigation or other legal or regulatory developments, actual or threatened, that, singly or in the aggregate, would reasonably be expected to result in a Material Adverse Effect, or would materially and adversely affect the ability of the Company or any other Loan Party to fully and timely perform its obligations under the Credit Documents, or the ability of the parties to consummate the financings contemplated hereby or the other Transactions. (q) The Administrative Agent shall have entered into the Intercreditor Agreement with the agent under the Revolving Credit Facility and the agent under the Second Lien Credit Facility. ARTICLE 4 REPRESENTATIONS AND WARRANTIES In order to induce the Lenders to enter into this Agreement and to make the Loan, the Company represents and warrants with respect to itself to the Lenders that, at the time of execution hereof and upon giving effect to consummation of the Transactions, the following statements are true, correct and complete: -50- Section 4.1 Company Status Each of the Loan Parties (i) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (ii) has the requisite power and authority to own its property and assets and to transact the business in which it is engaged and presently proposes to engage and (iii) is duly qualified and is authorized to do business and is in good standing in each jurisdiction where the conduct of its business requires such qualification except for failures to be so qualified which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. Section 4.2 Company Power and Authority Each of the Loan Parties has the power and authority to execute, deliver and perform the terms and provisions of each of the Credit Documents to which it is a party and has taken all necessary action to authorize the execution, delivery and performance by it of such Credit Document. Each of the Loan Parties has duly executed and delivered each of the Credit Documents to which it is a party, and each such Credit Document constitutes the legal, valid and binding obligation of such party enforceable in accordance with its terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws generally affecting creditors' rights and by equitable principles (regardless of whether enforcement is sought in equity or at law). Section 4.3 No Violation Neither the execution, delivery or performance by the Company or any of its Subsidiaries of any of the Credit Documents to which it is a party, nor compliance by it with the terms and provisions thereof, nor consummation of the transactions contemplated therein, (i) will contravene in any material respect any material provision of any applicable law, statute, rule or regulation or of any applicable order, writ, injunction or decree of any court or governmental instrumentality, (ii) will conflict or be inconsistent with or result in any breach of any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any Lien upon any of the properties or assets of the Company or any of its Subsidiaries pursuant to the terms of, any indenture, mortgage, deed of trust, credit agreement or loan agreement, or any other agreement, contract or instrument, to which the Company or any of its Subsidiaries is a party or by which it or any of its property or assets is bound or to which it may be subject, except for any such conflict, breach or Lien which would not individually or in the aggregate reasonably be expected to have a Material Adverse Effect, or (iii) will violate any provision of the certificate of incorporation or bylaws (or equivalent organizational documents) of the Company or any of its Subsidiaries. -51- Section 4.4 Governmental Approvals No order, consent, approval, license, authorization or validation of, or filing, recording or registration with (except as have been obtained or made prior to the date when required and which remain in full force and effect), or exemption by, any governmental or public body or authority, or any subdivision thereof, is required to authorize, or is required in connection with, (i) the Transactions, (ii) the execution, delivery and performance of any Credit Document or (iii) the legality, validity, binding effect or enforceability of any such Credit Document. Section 4.5 Financial Statements; Financial Condition; Undisclosed Liabilities; Projections; Etc. (a) (i) The Audited Financial Statements furnished to the Lenders prior to the Closing Date, (ii) the Unaudited Financial Statements furnished to the Lenders prior to the Closing Date and (iii) the unaudited pro forma consolidated balance sheet of the Company and its Subsidiaries as of December 31, 2003 and after giving effect to the Transactions and the incurrence of all Indebtedness contemplated thereby as set forth on Schedule 4.12 (the "PRO FORMA BALANCE SHEET"), in each case present fairly in all material respects the financial condition of the Company and its Subsidiaries at the date of such statements of financial condition and the results of the operations of the Company and its Subsidiaries for the periods covered thereby (or, in the case of the Pro Forma Balance Sheet, presents a good faith estimate of the consolidated pro forma financial condition of the Company (after giving effect to the Transactions at the date thereof)), subject, in the case of Unaudited Financial Statements, to normal year-end adjustments. All such financial statements (other than the aforesaid Pro Forma Balance Sheet) have been prepared in accordance with GAAP, consistently applied (other than as set forth therein), except, in the case of the quarterly statements, for the omission of footnotes, and certain reclassifications and ordinary end of period adjustments and accruals (all of which are of a recurring nature and none of which individually, or in the aggregate, would be material). (b) After giving effect to the Transactions, since September 30, 2003 (as disclosed in the Company's Quarterly Report on Form 10-Q for such quarter), there has been no Material Adverse Change. (c) On and as of the Closing Date, after giving effect to the Transactions and to all Indebtedness being incurred or assumed in connection therewith, and Liens created by each party in connection therewith, (x) the sum of the assets, at a fair valuation, of each of the Company and its Subsidiaries taken as a whole and the Company and the Subsidiary Guarantors taken as a whole (each of the foregoing, a "SOLVENT ENTITY") will exceed its debts; (y) each Solvent Entity has not incurred and does not intend to incur, nor believes that it will incur, debts beyond its ability to pay such debts as such debts mature; and (z) each Solvent Entity will have sufficient capital with which to conduct its business. For purposes of this Section 4.5(c), "debt" means any liability on a claim, and "claim" means (i) right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, -52- matured, unmatured, legal, equitable, secured, or unsecured or (ii) right to an equitable remedy for breach of performance if such breach gives rise to a payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, secured or unsecured. (d) On and as of the Closing Date, the Projections which have been delivered to the Administrative Agent and the Lenders prior to the Closing Date, are based on good faith estimates and assumptions made by management of the Company as of the date of such Projections and there are no statements or conclusions in any of the Projections which are based upon or include information known to the executive officers of the Company to be misleading or which fail to take into account material information regarding the matters reported therein, it being understood by the Administrative Agent and the Lenders that projections as to future events are not to be viewed as facts and that the actual results during the periods covered by the Projections may differ from the projected results set forth therein. (e) Except as fully reflected in the financial statements described in Section 4.5(a) and the Indebtedness incurred under this Agreement, the Revolving Credit Facility and the Second Lien Credit Facility, as of the Closing Date, (i) there were no liabilities or obligations (excluding current obligations incurred in the ordinary course of business) with respect to the Company or any of its Subsidiaries of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether or not due) which, either individually or in the aggregate, would reasonably be expected to have Material Adverse Effect and (ii) neither the Company nor any of its Subsidiaries knows of any basis for the assertion against it or any of its Subsidiaries of any such liability or obligation of any nature whatsoever that is not fully disclosed in the financial statements delivered pursuant to Section 4.5(a) and that, either individually or in the aggregate, is or would be reasonably be expected to have a Material Adverse Effect. Section 4.6 Litigation (a) Except as disclosed in the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, as filed with the Commission on November 14, 2003, there are no actions, suits or proceedings at law or in equity by or before any Governmental Authority now pending or, to the knowledge of any Company, threatened against or affecting any Company or any business, property or rights of any Company (excluding actions, suits or proceedings under Environmental Laws, which matters are covered in Section 4.17) (i) that involve any Credit Document or any of the Transactions or (ii) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, would reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect. (b) Except for matters covered by Section 4.17, neither the Company nor any of its property is in violation of, nor will the continued operation of its property as currently conducted violate, any Requirements of Law (including any zoning or building ordinance, code or approval or any building permits) or any restrictions of record or agreements -53- affecting any Company's Real Property or is in default with respect to any judgment, writ, injunction, decree, rule or order of any Governmental Authority, where such violation or default, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect. Section 4.7 True and Complete Disclosure All factual information (taken as a whole) furnished by or on behalf of the Company or any of its Subsidiaries in writing to the Administrative Agent or any Lender (including, without limitation, all information contained in the Credit Documents and the Confidential Information Memorandum) for purposes of or in connection with this Agreement, the other Credit Documents or any transaction contemplated herein or therein, taken as a whole, is, and all other such information (taken as a whole) hereafter furnished by or on behalf of any such Person in writing to the Administrative Agent or any Lender will be, true and accurate in all material respects on the date as of which such information is dated or certified and not incomplete by omitting to state any material fact necessary to make such information (taken as a whole) not misleading at such time in light of the circumstances under which such information was provided; provided that with respect to projected financial information, the only representations and warranties made hereby are that such information was prepared based on good faith estimates and assumptions made by management of the Company believed to be reasonable at the time made and that there are no statements or conclusions in any such information which are based upon or include information known to the executive officers of the Company to be misleading or which fail to take into account material information regarding the matters reported therein. Section 4.8 Tax Returns and Payments Each of the Company and its Subsidiaries has timely filed or caused to be timely filed, on the due dates thereof or within applicable grace periods (inclusive of any permitted extensions), with the appropriate taxing authority, all Federal, material state and other material returns, statements, forms and reports for Taxes (the "RETURNS") required to be filed by or with respect to the income, properties or operations of the Company and/or any of its Subsidiaries. The Returns accurately reflect all material liability for Taxes of the Company and its Subsidiaries for the periods covered thereby. The Company and each of its Subsidiaries have paid all material Taxes payable by them other than Taxes which are not due and payable, and other than those contested in good faith by appropriate proceedings and for which adequate reserves have been established in accordance with GAAP and for which non-payment would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. As of the Closing Date, there is no action, suit, proceeding, investigation, audit, or claim now pending or, to the knowledge of the Company, threatened by any authority regarding any material Taxes relating to the Company or any of its Subsidiaries. As of the Closing Date, neither the Company nor any of its Subsidiaries has entered into an agreement or waiver or been requested to enter into an agreement or waiver extending any statute of limitations relating to the payment or collection of Taxes of the Company or its -54- Subsidiaries (except for the extension of time related to the income tax returns of the Company's Dutch Subsidiaries), or is aware of any circumstances that would cause the taxable years or other taxable periods of the Company or any of its Subsidiaries not to be subject to the normally applicable statute of limitations. Neither the Company nor any of its Subsidiaries has incurred, or will incur, any material Tax liability in connection with the Transactions. Section 4.9 Compliance with ERISA (a) No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, would reasonably be expected to result in a Material Adverse Effect. The present value of all accumulated benefit obligations of all underfunded Pension Plans (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $17.0 million the fair market value of the assets of all such underfunded Pension Plans. Each ERISA Entity is in compliance in all material respects with the presently applicable provisions of ERISA and the Code with respect to each Employee Benefit Plan. Using actuarial assumptions and computation methods consistent with subpart 1 of subtitle E of Title IV of ERISA, the aggregate liabilities of each ERISA Entity to all Multiemployer Plans in the event of a complete withdrawal therefrom, as of the close of the most recent fiscal year of each such Multiemployer Plan, would not reasonably be expected to result in a Material Adverse Effect. (b) Except where noncompliance would not reasonably be expected to result in a Material Adverse Effect, the Foreign Plans have been maintained in substantial compliance with their terms and with the requirements of any and all applicable laws, statutes, rules, regulations and orders and has been maintained, where required, in good standing with applicable regulatory authorities, and neither the Company nor any Subsidiary of the Company has incurred any material obligation in connection with the termination of or withdrawal from any Foreign Plan. The present value of the accrued benefit liabilities (whether or not vested) under the Foreign Plans which are funded, determined as of the date of the most recent financial statements reflecting such amounts on the basis of actuarial assumptions, each of which is reasonable (based on the actuarial assumptions used for purposes of the applicable jurisdiction's financial reporting requirements), does not exceed the current value of the assets of the Foreign Plans, and for each Foreign Plan which is not funded, the obligations of such Foreign Plan are properly accrued. Section 4.10 Representations and Warranties in Documents All representations and warranties by the Company and its Subsidiaries set forth in the other Credit Documents were true and correct in all material respects at the time as of which such representations and warranties were made (or deemed made) and shall be true and correct in all material respects as of the Closing Date as if such representations or warranties were made on and as of such date, unless stated to relate to a specific earlier date, -55- in which case such representations or warranties shall be true and correct in all material respects as of such earlier date. Section 4.11 Properties (a) Each of the Company and its Subsidiaries has good and marketable title to, or a valid leasehold interest in, all material properties owned or leased by them, including all property reflected in the balance sheets referred to in Section 4.5(a) and in the Pro Forma Balance Sheet (except as sold or otherwise disposed of since the respective dates of such balance sheets in the ordinary course of business or as otherwise permitted by this Agreement), free and clear of all Liens, other than (i) in the case of Collateral, Permitted Collateral Liens, (ii) in the case of all other material property, Permitted Encumbrances, and (iii) as referred to in the balance sheets or in the notes thereto. The property of the Company and its Subsidiaries, taken as a whole, (i) is in good operating order, condition and repair (ordinary wear and tear excepted), except to the extent that the failure to be in such condition would not reasonably be expected to result in a Material Adverse Effect, and (ii) constitutes all the property which is required for the business and operations of the Company and its Subsidiaries (taken as a whole) as presently conducted. (b) Schedule 4.11(b) contains a true and complete list of each interest in Real Property (i) owned by the Company and its Subsidiaries as of the date hereof and describes the type of interest therein held by the Company and its Subsidiaries and (ii) leased, subleased or otherwise occupied or utilized by the Company or its Subsidiaries, as lessee, sublessee, franchisee or licensee, as of the date hereof and describes the type of interest therein held by the Company and its Subsidiaries and whether such lease, sublease or other instrument requires the consent of the landlord thereunder or other parties thereto to the Transactions. (c) Neither the Company nor any Subsidiary of the Company has received any notice of, nor has actual knowledge of, the occurrence or pendency or contemplation of any Casualty Event affecting all or any portion of its property. No Mortgage encumbers improved Real Property that is located in an area that has been identified by the U.S. Secretary of Housing and Urban Development as an area having special flood hazards within the meaning of the National Flood Insurance Act of 1968 unless flood insurance available under such Act has been obtained in accordance with Section 5.4(d). (d) The Company and its Subsidiaries own or have rights to use all of the Collateral and all rights with respect to any of the foregoing used in, necessary for or material to the Company's and its Subsidiaries' businesses as currently conducted. The use by the Company and its Subsidiaries of such Collateral and all such rights with respect to the foregoing do not infringe on the rights of any person other than such infringement which would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. No claim has been made and remains outstanding that the Company's or its Subsidiaries' use of any Collateral does or may violate the rights of any third party that would, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. -56- (e) Each of the Company and its Subsidiaries shall cause the Equipment to be maintained and preserved in good repair, working order and condition, reasonable wear and tear and damage by casualty excepted, and shall as quickly as commercially practicable make or cause to be made all repairs, replacements and other improvements which are necessary or appropriate in the conduct of the Company's and its Subsidiaries' respective businesses. Section 4.12 Capitalization On the Closing Date, the capitalization of the Company is as set forth on Schedule 4.12. All outstanding securities set forth on such schedule have been duly and validly issued, are fully paid and nonassessable and free of preemptive rights, except, with respect to preemptive rights, as set forth on Schedule 4.12 (or as disclosed in the Company's definitive Proxy statement for its special meeting of stockholders on June 26, 2003). Except as set forth on Schedule 4.12 (or as disclosed in the Company's definitive Proxy statement for its special meeting of stockholders on June 26, 2003), the Company does not have outstanding any securities convertible into or exchangeable for its Capital Stock or outstanding any rights to subscribe for or to purchase, or any options for the purchase of, or any agreement providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to, its Capital Stock. Section 4.13 Subsidiaries On and as of the Closing Date, the Company has no Subsidiaries other than those Subsidiaries listed on Schedule 4.13. Schedule 4.13 correctly sets forth, as of the Closing Date, the percentage ownership (direct and indirect) of the Company in each class of Capital Stock or other equity interests of each of its Subsidiaries and also identifies the direct owner thereof. All outstanding shares of Capital Stock of each Subsidiary of the Company have been duly and validly issued, are fully paid and nonassessable and have been issued free of preemptive rights. Except as set forth on Schedule 4.13, no Subsidiary of the Company has outstanding any securities convertible into or exchangeable for its Capital Stock or outstanding any right to subscribe for or to purchase, or any options or warrants for the purchase of, or any agreement providing for the issuance (contingent or otherwise) of or any calls, commitments or claims of any character relating to, its Capital Stock or any stock appreciation or similar rights. Section 4.14 Compliance with Statutes, Etc. Each of the Company and its Subsidiaries and each of their respective Subsidiaries is in compliance with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of its business and the ownership of its property (excluding applicable statutes, regulations, orders and restrictions relating to environmental standards and controls, which matters are covered under Section 4.17), except such noncompliances as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. -57- Section 4.15 Investment Company Act Neither the Company nor any of its Subsidiaries is an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. Section 4.16 Public Utility Holding Company Act Neither the Company nor any of its Subsidiaries is a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. Section 4.17 Environmental Matters Except for such failures and noncompliances of the types described herein which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect: (a) The Company and each of its Subsidiaries is in compliance with all applicable Environmental Laws and neither the Company nor any of its Subsidiaries is liable for any damages, costs, penalties, fines, or forfeitures under such Environmental Laws; there are no pending or, to the knowledge of the Company, threatened Environmental Claims against the Company or any of its Subsidiaries or any Real Property Assets owned or operated by the Company or any of its Subsidiaries; and there are no facts, circumstances, conditions or occurrences on any Real Property Assets at any time owned or operated by the Company or any of its Subsidiaries or, to the knowledge of the Company, on any property adjoining or in the vicinity of any such Real Property Assets that would reasonably be expected (i) to form the basis of an Environmental Claim against the Company or any of its Subsidiaries or any Real Property Assets currently owned or operated by the Company or any of its Subsidiaries, or (ii) to cause any such currently owned Real Property Assets to be subject to any restrictions on the ownership, occupancy, use or transferability of such Real Property Assets by the Company or any of its Subsidiaries under any applicable Environmental Law; and (b) The Company and its Subsidiaries have not at any time generated, used, treated, stored disposed of Hazardous Materials on, or transported Hazardous Materials to or from, or Released Hazardous Materials on, under or from any Real Property Assets owned or operated by the Company or any of its Subsidiaries except in compliance with all applicable Environmental Laws and in connection with the operation, use or maintenance of any such Real Property Assets by the Company's or such Subsidiary's business. -58- (c) Neither the Company nor any of its Subsidiaries is currently conducting any investigation, response or other corrective action at any location pursuant to any Environmental Law, nor are any of them under any obligation to do so; (d) none of the Real Property Assets is (i) listed or proposed for listing on the National Priorities List under CERCLA or (ii) listed on the Comprehensive Environmental Response, Compensation and Liability Information System promulgated pursuant to CERCLA, or (iii) included on any similar list maintained under any Environmental Law; (e) neither the Company nor any of its Subsidiaries has retained or assumed any liability, contractually, by operation of law or otherwise, under any Environmental Law. Section 4.18 Labor Relations Neither the Company nor any of its Subsidiaries is engaged in any unfair labor practice that would reasonably be expected to have a Material Adverse Effect. There is (i) no unfair labor practice complaint pending or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries before the National Labor Relations Board and no grievance or arbitration proceeding arising out of or under any collective bargaining agreement is so pending or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries, (ii) no strike, labor dispute, slowdown or stoppage is pending or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries and (iii) to the knowledge of the Company, no union organizing activity exists with respect to the employees of the Company or any of its Subsidiaries not currently subject to a collective bargaining agreement, except (with respect to any matter specified in clause (i), (ii) or (iii) above, either individually or in the aggregate) such as would not reasonably be expected to have a Material Adverse Effect. Section 4.19 Patents, Licenses, Franchises and Formulas Except as described on Schedule 4.19, each of the Company and its Subsidiaries owns all patents, trademarks, permits, service marks, trade names, copyrights, licenses, franchises and formulas, or rights with respect to the foregoing, and has obtained assignments of all leases and other rights of whatever nature, reasonably necessary for the present conduct of its business, without any known conflict with the rights of others, which, or the failure to own or obtain which, as the case may be, would be reasonably likely to result in a Material Adverse Effect. Section 4.20 Indebtedness Schedule 4.20 sets forth (a) a true and complete list of all Indebtedness (exclusive of Indebtedness pursuant to this Agreement, the Revolving Credit Facility, the Second Lien Credit Facility and inter-company Indebtedness between the Company and Subsidiary Guarantors, among Subsidiary Guarantors or among Foreign Subsidiaries) of the Company and its Subsidiaries as of the Closing Date and which is to remain outstanding after giving effect to the Transactions and the incurrence of the Loan on such date, in each case showing the aggregate principal amount thereof (and the aggregate amount of any undrawn commit- -59- ments with respect thereto) and the name of the respective borrower and, if applicable, the Company and Subsidiary that directly or indirectly guaranteed such debt and (b) all Intercompany Indebtedness between (x) the Company or any Subsidiary Guarantor and (y) any Restricted Subsidiary that is not a Subsidiary Guarantor. Section 4.21 Transactions At the time of consummation thereof, the Transactions shall have been consummated in accordance with the terms of the Credit Documents and all applicable laws. At the time of consummation thereof, all consents and approvals of, and filings and registrations with, and all other actions in respect of, all governmental agencies, authorities or instrumentalities required in order to make or consummate the Transactions in accordance with the terms of the Credit Documents and all applicable laws have been obtained, given, filed or taken and are or will be in full force and effect (or effective judicial relief with respect thereto has been obtained). All applicable waiting periods with respect thereto have or, prior to the time when required, will have, expired without, in all such cases, any action being taken by any competent authority which restrains, prevents, or imposes material adverse conditions upon the Transactions. Additionally, there does not exist any judgment, order or injunction with respect to the Company or its Subsidiaries prohibiting or imposing material adverse conditions upon the consummation of the Transactions or the performance by any of the Company or its Subsidiaries of their respective obligations under any Credit Document and all applicable laws. Section 4.22 Insurance Schedule 4.22 set forth a true, complete and correct description of all insurance maintained by the Company and its Subsidiaries as of the Closing Date. All insurance maintained by the Company and its Subsidiaries is in full force and effect, all premiums have been duly paid, neither the Company nor its Subsidiaries have received notice of violation or cancellation thereof, and, with respect to the Company and each other Loan Party, the Premises, and the use, occupancy and operation thereof, comply in all material respects with all Insurance Requirements, and there exists no default under any Insurance Requirement. Each of the Company and its Subsidiaries has insurance in such amounts and covering such risks and liabilities as are reasonably prudent. Section 4.23 Security Documents (a) The Security Agreement is effective to create in favor of the Collateral Agent for the benefit of the Secured Parties, legal, valid and enforceable Liens on, and security interests in, the Security Agreement Collateral and, when (i) financing statements and other filings in appropriate form are filed in the offices specified on Schedule 6 to the Perfection Certificate and (ii) upon the taking of possession or control by the Collateral Agent of the Security Agreement Collateral with respect to which a security interest may be perfected only by possession or control (which possession or control shall be given to the Collateral Agent to the extent possession or control by the Collateral Agent is required by the Security Agree- -60- ment), the Liens created by the Security Agreement shall constitute fully perfected Liens on, and security interests in, all right, title and interest of the grantors thereunder in the Security Agreement Collateral (other than such Security Agreement Collateral in which a security interest cannot be perfected under the UCC as in effect at the relevant time in the relevant jurisdiction), in each case subject to no Liens other than Permitted Collateral Liens. (b) Each Mortgage is effective to create, in favor of the Collateral Agent, for its benefit and the benefit of the Secured Parties, legal, valid and enforceable first priority Liens on, and security interests in, all of the Loan Parties' right, title and interest in and to the Mortgaged Properties thereunder and the proceeds thereof, subject only to Permitted Collateral Liens or other Liens acceptable to the Collateral Agent, and when the Mortgages are filed in the offices specified in the Perfection Certificate (or, in the case of any Mortgage executed and delivered after the date thereof in accordance with the provisions of Sections 5.11 and 5.12, when such Mortgage is filed in the offices specified in the local counsel opinion delivered with respect thereto in accordance with the provisions of Sections 5.11 and 5.12), the Mortgages shall constitute fully perfected Liens on, and security interests in, all right, title and interest of the Loan Parties in the Mortgaged Properties and the proceeds thereof, in each case prior and superior in right to any other person, other than Liens permitted by such Mortgage. (c) Each Security Document delivered pursuant to Sections 5.11 and 5.12 will, upon execution and delivery thereof, be effective to create in favor of the Collateral Agent, for the benefit of the Secured Parties, legal, valid and enforceable Liens on, and security interests in, all of the Company's right, title and interest in and to the Collateral thereunder, and when all appropriate filings or recordings are made in the appropriate offices as may be required under applicable law, such Security Document will constitute fully perfected Liens on, and security interests in, all right, title and interest of the Loan Parties in such Collateral, in each case subject to no Liens other than the applicable Permitted Collateral Liens. Section 4.24 No Default No event has occurred and is continuing which constitutes a Potential Event of Default or an Event of Default. Section 4.25 Compliance with Contracts, Etc. None of the Company or any of its Subsidiaries is (A) in violation of its certificate of incorporation, bylaws or other organizational documents, (B) in violation of any applicable law, ordinance, administrative or governmental rule or regulation, or (C) in default (nor will an event occur which with notice or passage of time or both would constitute such a default) under or in violation of any indenture or loan or credit agreement or any other material agreement or instrument to which it is a party or by which it or any of its properties or assets may be bound or affected, except, with respect to clauses (B) and (C), for such violations or defaults that would not, singly or in the aggregate, have a Material Adverse Effect. -61- Section 4.26 Use of Proceeds; Margin Stock, Etc. The proceeds of the Loan will be used solely for the purposes specified herein. Neither the making of the Loan nor the use of proceeds thereof will violate or be inconsistent with the provisions of Regulation T, U or X. Section 4.27 Survival of Representations and Warranties Subject to Section 11.10(b), all representations and warranties in the Credit Documents shall survive delivery of the Notes and the making of the Loan and shall continue until repayment of the Loan and the Obligations, and any investigation at any time made by or on behalf of the Lenders shall not diminish the Lenders' right to rely thereon. Section 4.28 Guarantees Each future Subsidiary Guarantor shall, on the date it executes and delivers a Guarantee hereunder, have the full corporate power, authority and capacity to execute and deliver such Guarantee and to perform all of its obligations to be performed thereunder; all corporate and other acts, conditions and things required to be done and performed or to have occurred prior to such execution and delivery to constitute such Guarantee as a valid and legally binding obligation of such Subsidiary Guarantor enforceable in accordance with its terms shall have been done and performed and shall have occurred in due compliance with all applicable Laws; on the date of such execution and delivery, the execution, delivery and performance of such Guarantee by such Subsidiary Guarantor will not (i) violate any provision of Law, (ii) violate any provision of the charter or bylaws of such Subsidiary Guarantor, or (iii) result in a breach of, a default under (including, without limitation, any event which with notice or lapse of time, or both, would constitute a breach of or a default under), or the creation of any Lien on the properties or assets of such Subsidiary Guarantor, the Company or any other Subsidiary of the Company under any Contract to which such Subsidiary Guarantor or the Company or any other Subsidiary of the Company is a party or by which the properties or assets of such Subsidiary Guarantor, the Company or any other Subsidiary of the Company may be bound or affected, except, in the case of clauses (i) and (iii), for such violations, breaches, defaults or Liens which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; on the date of such execution and delivery, each Guarantee executed and delivered by a Subsidiary Guarantor shall constitute legal, valid, binding and unconditional obligations of the Subsidiary Guarantor executing and delivering it to the Lenders hereunder, enforceable in accordance with its terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization or similar laws affecting the enforcement of creditors' rights generally or by general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law). -62- Section 4.29 Anti-Terrorism Law (a) The Company is not, and, to the knowledge of the Company, none of its Affiliates is, in violation of any laws relating to terrorism or money laundering ("ANTI-TERRORISM LAWS"), including Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001 (the "EXECUTIVE ORDER"), and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56. (b) The Company is not, and, to the knowledge of the Company, no Affiliate or broker or other agent of the Company is, acting or benefiting in any capacity in connection with the Loan as any of the following: (i) a person that is listed in the annex to, or is otherwise subject to the provisions of, the Executive Order; (ii) a person owned or controlled by, or acting for or on behalf of, any person that is listed in the annex to, or is otherwise subject to the provisions of, the Executive Order; (iii) a person with which any Lender is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law; (iv) a person that commits, threatens or conspires to commit or supports "terrorism" as defined in the Executive Order; or (v) a person that is named as a "specially designated national and blocked person" on the most current list published by the U.S. Treasury Department Office of Foreign Assets Control ("OFAC") at its official website or any replacement website or other replacement official publication of such list. (c) The Company is not, and, to the knowledge of the Company, no broker or other agent of the Company is, acting in any capacity in connection with the Loan (i) conducts any business or engages in making or receiving any contribution of funds, goods or services to or for the benefit of any person described in paragraph (b) above, (ii) deals in, or otherwise engages in any transaction relating to, any property or interests in property blocked pursuant to the Executive Order, or (iii) engages in or conspires to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law. -63- ARTICLE 5 AFFIRMATIVE COVENANTS The Company covenants and agrees that, until the Loan and the Notes and all other Obligations due under this Agreement have been indefeasibly paid in full (other than contingent indemnity obligations not due and payable), it shall perform all covenants in this Article 5 required to be performed by it: Section 5.1 Financial Statements and Other Reports The Company will maintain, and cause each of its Subsidiaries to maintain, a system of accounting established and administered in accordance with sound business practices to permit preparation of consolidated financial statements in conformity with GAAP. The Company will deliver to the Administrative Agent and each Lender (unless otherwise specified), provided, however, that the Company shall be deemed to be in compliance with its delivery obligations pursuant to this Section 5.1 with respect to any material or information set forth in this Section 5.1 to the extent such material or information is publicly filed via the Securities and Exchange Commission's Electronic Data Gathering and Retrieval System (EDGAR) or any public electronic filing system successor thereto: (a) Quarterly Financial Statements. As soon as available and in any event within 45 days after the close of each of the first three quarterly accounting periods in each fiscal year, (i) the consolidated balance sheet of the Company and its Subsidiaries as at the end of such quarterly period and the related consolidated statements of income and stockholders' equity and cash flows for such quarterly period and for the elapsed portion of the fiscal year ended with the last day of such quarterly period and setting forth comparative figures for the related periods in the prior fiscal year and (ii) management's discussion and analysis of the important operational and financial developments during such quarterly period, all of which shall be certified by the chief financial officer or the controller of the Company, subject to normal year-end audit adjustments and the absence of footnotes. If the Company has designated any Unrestricted Subsidiaries hereunder, then the quarterly financial information required by this Section 5.1(a) shall include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, of the financial condition and results of operations of Unrestricted Subsidiaries of the Company separate from the financial condition and results of operations of the Company and its Subsidiaries. (b) Annual Financial Statements. Within 90 days after the close of each fiscal year, (I) the consolidated balance sheet of each of the Company and its Subsidiaries as at the end of such fiscal year and the related consolidated statements of income and stockholders' equity and of cash flows, setting forth, as appropriate, eliminations for intercompany sales and corporate expenses) for such fiscal year setting forth comparative figures for the preceding fiscal year and certified, in the case of the consolidated statements, by Ernst & Young LLP or such other independent certified -64- public accountants of recognized national standing reasonably acceptable to the Administrative Agent, together with a report of such accounting firm stating that in the course of its regular audits of the financial statements of the Company and its Subsidiaries, which audits were conducted in accordance with generally accepted auditing standards, such accounting firm obtained no knowledge of any Potential Event of Default or Event of Default which has occurred and is continuing or, if in the opinion of such accounting firm such a Potential Event of Default or Event of Default with respect to financial and accounting matters included in the covenants set forth in Article 6 has occurred and is continuing, a statement as to the nature thereof (provided, no such report shall be required in the event Ernst & Young LLP or such other accountants no longer provide such reports under applicable accounting or auditing standards) and (II) management's discussion and analysis of the important operational and financial developments during such fiscal year. If the Company has designated any Unrestricted Subsidiaries hereunder, then the annual financial information required by this Section 5.1(b) shall include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, of the financial condition and results of operations of the Unrestricted Subsidiaries of the Company separate from the financial condition and results of operations of the Company and its Subsidiaries. (c) Officers' Certificates. Together with each delivery of financial statements pursuant to Sections 5.1(a) and (b) above, the Company shall furnish to the Administrative Agent (i) an Officers' Certificate of the Company stating that the signers have reviewed the terms of this Agreement and the Notes and have made, or caused to be made under their supervision, a review in reasonable detail of the transactions and condition of the Company and its Subsidiaries during the accounting period covered by such financial statements and that such review has not disclosed the existence during or at the end of such accounting period, and that the signers do not have knowledge of the existence as of the date of the Officers' Certificate, of any condition or event which constitutes an Event of Default or Potential Event of Default, or, if any such condition or event exists, specifying the nature and period of existence thereof and what action the Company has taken, is taking and proposes to take with respect thereto; and (ii) a Compliance Certificate demonstrating in reasonable detail compliance (as determined in accordance with GAAP) during and at the end of such accounting periods with the covenants contained in Article 6. (d) Notice of Default or Litigation. As soon as practicable, and in any event within five Business Days after an executive officer of the Company obtains actual knowledge thereof, the Company shall deliver to the Administrative Agent notice of (i) the occurrence of any event which constitutes a Potential Event of Default or an Event of Default, (ii) any litigation or governmental investigation or proceeding pending or threatened in writing (x) against the Company or any of its Subsidiaries which would reasonably be expected to have a Material Adverse Effect, or (y) with respect to any material Indebtedness of the Company or any of its Subsidiaries taken as a whole -65- and (iii) any other event which would reasonably be expected to have a Material Adverse Effect. (e) Other Reports and Filings. As soon as practicable, and in any event within 10 Business Days after the filing or delivery thereof, as the case may be, the Company shall deliver to the Administrative Agent copies of all financial information, proxy materials and other information and reports, if any, which the Company or any of its Subsidiaries shall file with the Commission or any successor thereto, or any governmental authority and copies of all notices and reports which the Company or any of its Subsidiaries shall deliver to holders of their Indebtedness (including Indebtedness pursuant to the Revolving Credit Facility (other than periodic financial reports or projections delivered to holders thereof in the ordinary course) or the Second Lien Credit Facility) pursuant to the terms of the documentation governing such Indebtedness (or any trustee, agent or other representative therefor) or holders of their Capital Stock in their capacity as such. (f) Environmental Matters. As soon as practicable, and in any event within 20 Business Days after an executive officer of the Company obtains actual knowledge thereof, the Company shall deliver to the Administrative Agent notice of any of the following environmental matters, unless such environmental matters would not, individually or when aggregated with all other similar or related environmental matters, be reasonably expected to (x) have a Material Adverse Effect or (y) result in a gross remedial cost to the Company or any of its Subsidiaries in excess of $5.0 million, on a gross basis: (i) any pending or threatened Environmental Claim against the Company or any of its Subsidiaries or any Real Property Assets owned or operated by the Company or any of its Subsidiaries; (ii) any condition or occurrence after the Closing Date on or relating to any Real Property Assets owned or operated by the Company or any of its Subsidiaries that (a) results in noncompliance by the Company or any of its Subsidiaries with any applicable Environmental Law or (b) would reasonably be expected to form the basis of an Environmental Claim against the Company or any of its Subsidiaries or any such Real Property Assets; (iii) any condition or occurrence on or relating to any Real Property Assets owned or operated by the Company or any of its Subsidiaries that would reasonably be expected to cause such Real Property Assets to be subject to any restrictions on the ownership, occupancy, use or transferability by the Company or any of its Subsidiaries of such Real Property Assets under any Environmental Law; and (iv) the taking of any action in response to the actual or alleged presence of any Hazardous Material on, under or emanating from any Real -66- Property Assets owned or operated by the Company or any of its Subsidiaries as required under any Environmental Law. All such notices shall describe in reasonable detail, to the extent known at such time upon diligent inquiry, the nature of the claim, investigation, condition, occurrence or removal or remedial action, and the Company's or such Subsidiary's response or proposed response thereto. In addition, each of the Company and its Subsidiaries will provide the Administrative Agent with copies of all material communications regarding matters reasonably likely to result in environmental liabilities in excess of $5.0 million between the Company or any of its Subsidiaries and any government or governmental agency relating to Environmental Laws, all communications regarding matters reasonably likely to result in environmental liabilities in excess of $5.0 million between the Company or any of its Subsidiaries and any Person (other than its attorneys) relating to Environmental Claims, and such non-privileged detailed reports of any Environmental Claim as may be requested by the Administrative Agent or the Required Lenders. (g) Additional Subsidiaries. The Company shall furnish to the Administrative Agent, promptly upon any Person becoming a Subsidiary of the Company, a written notice setting forth with respect to such Person (a) the date on which such Person became a Subsidiary of the Company and (b) all of the data required to be set forth in Schedule 4.13 with respect to all Subsidiaries of the Company. (h) Other Information. From time to time, such other non-privileged information or documents (financial or otherwise) with respect to the Company or its Subsidiaries as the Administrative Agent or any Lender (through the Administrative Agent) may reasonably request. Section 5.2 Books, Records and Inspections The Company will, and will cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries in conformity with GAAP in all material respects and all requirements of law shall be made of all dealings and transactions in relation to its business and activities. The Company will, and will cause each of its Subsidiaries to, permit officers and designated representatives of the Administrative Agent to visit and inspect, at the Administrative Agent's own expense, as the case may be (or, if a Potential Event of Default or Event of Default is in existence, at the Company's expense), during regular business hours, upon reasonable advance notice and under guidance of officers of the Company or such Subsidiary, any of the properties of the Company and any of its Subsidiaries, and to examine the books of account of the Company and any of its Subsidiaries and discuss the affairs, finances and accounts of the Company and any of its Subsidiaries with, and be advised as to the same by, its and their officers and independent accountants, all at such reasonable times and intervals and to any reasonable extent as the Administrative Agent may reasonably request; provided, the Administrative Agent will not make any such visit or -67- inspection more than once in each fiscal year unless an Event of Default has occurred and is continuing. Section 5.3 Existence; Businesses and Properties (a) The Company will, and cause each of its Subsidiaries to, do or cause to be done all things necessary to preserve, renew and maintain in full force and effect its legal existence, except as otherwise expressly permitted under Section 6.6 or Section 6.13 or, in the case of any Restricted Subsidiary, where the failure to perform such obligations, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect. (b) The Company will, and cause each of its Restricted Subsidiaries to, do or cause to be done all things necessary to obtain, preserve, renew, extend and keep in full force and effect the rights, licenses, permits, privileges, franchises, authorizations, patents, copyrights, trademarks and trade names material to the conduct of its business; maintain and operate such business in substantially the manner in which it is presently conducted and operated; comply with all applicable Requirements of Law (including any and all zoning, building, Environmental Law, ordinance, code or approval or any building permits or any restrictions of record or agreements affecting the Real Property) and decrees and orders of any Governmental Authority, whether now in effect or hereafter enacted, except where the failure to comply, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect; pay and perform its obligations under all Leases (except where the failure to comply, individually or in the aggregate would not reasonably be expected to result in a Material Adverse Effect) and Credit Documents; and at all times maintain, preserve and protect all property material to the conduct of such business and keep such property in good repair, working order and condition (other than wear and tear occurring in the ordinary course of business) and from time to time make, or cause to be made, all needful and proper repairs, renewals, additions, improvements and replacements thereto necessary in order that the business carried on in connection therewith may be properly conducted at all times; provided that nothing in this Section 5.3(b) shall prevent (i) sales of property, consolidations or mergers by or involving the Company in accordance with Section 6.6 or Section 6.13; (ii) the withdrawal by the Company of its qualification as a foreign corporation in any jurisdiction where such withdrawal, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect; or (iii) the abandonment by the Company of any rights, franchises, licenses, trademarks, trade names, copyrights or patents that such person reasonably determines are not useful to its business or no longer commercially desirable. Section 5.4 Insurance (a) The Company will, and will cause each of its Restricted Subsidiaries to, keep its insurable property adequately insured at all times by financially sound and reputable insurers and, to the extent the Company or such Restricted Subsidiary is self-insured, financially sound and reputable re-insurers; maintain such other insurance or re-insurance, to such extent and against such risks as is reasonably prudent, including insurance with respect to Mortgaged Properties and other properties material to the business of the Company and its -68- Restricted Subsidiaries, taken as a whole, against such casualties and contingencies and of such types and in such amounts with such deductibles as is reasonably prudent, including (i) physical hazard insurance on an "all risk" basis, (ii) commercial general liability against claims for bodily injury, death or property damage covering any and all insurable claims, (iii) explosion insurance in respect of any boilers, machinery or similar apparatus constituting Collateral, to the extent applicable, (iv) business interruption insurance or re-insurance, as applicable, (v) worker's compensation insurance or re-insurance, as applicable, and such other insurance or re-insurance, as applicable, as may be required by any Requirement of Law and (vi) such other insurance or re-insurance, as applicable, against risks relating to the Collateral as the Administrative Agent may from time to time reasonably require to be in compliance with the foregoing; provided that with respect to physical hazard insurance, neither the Collateral Agent nor the Company shall agree to the adjustment of any claim relating to the proceeds in excess of $10.0 million thereunder without the consent of the other (such consent not to be unreasonably withheld or delayed); provided, further, that no consent of the Company shall be required when a Potential Event of Default or an Event of Default has occurred and is continuing. (b) 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 15 days after receipt by the Collateral Agent of written notice thereof, (ii) name the Collateral Agent as mortgagee (in the case of property insurance) or additional insured on behalf of the Secured Parties (in the case of liability insurance) or loss payee (in the case of property insurance), as applicable, and (iii) be reasonably satisfactory in all other respects to the Collateral Agent. (c) The Company will notify the Administrative Agent and the Collateral Agent promptly whenever any separate insurance concurrent in form or contributing in the event of loss with that required to be maintained under this Section 5.4 is taken out by the Company or any of its Restricted Subsidiaries; and promptly deliver to the Administrative Agent and the Collateral Agent a duplicate original copy of such policy or policies. (d) With respect to each Mortgaged Property, the Company will, and will cause its Restricted Subsidiaries to, obtain flood insurance in such total amount as the Administrative Agent or the Required Lenders may from time to time reasonably require, if at any time the area in which any improvements located on any Mortgaged Property is designated a "flood hazard area" in any Flood Insurance Rate Map published by the Federal Emergency Management Agency (or any successor agency), and otherwise comply with the National Flood Insurance Program as set forth in the Flood Disaster Protection Act of 1973, as amended from time to time. (e) Neither the Company nor any Restricted Subsidiary of the Company that is an owner of Mortgaged Property shall take any action that is reasonably likely to be the basis for termination, revocation or denial of any insurance coverage required to be maintained under such party's respective Mortgage or that could be the basis for a defense to any claim under any Insurance Policy maintained in respect of the Premises, and each Loan Party -69- shall otherwise comply in all material respects with all Insurance Requirements in respect of the Premises; provided, however, that each Loan Party may, at its own expense and after written notice to the Administrative Agent, (i) contest the applicability or enforceability of any such Insurance Requirements by appropriate legal proceedings, the prosecution of which does not constitute a basis for cancellation or revocation of any insurance coverage required under this Section 5.4 or (ii) cause the Insurance Policy containing any such Insurance Requirement to be replaced by a new policy complying with the provisions of this Section 5.4. Section 5.5 Compliance with Statutes, Etc. The Company will, and will cause each of its Subsidiaries to, comply with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of its business and the ownership of its property, except such noncompliances as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Section 5.6 Compliance with Environmental Laws The Company will comply, and will cause each of its Subsidiaries to comply, in all material respects with all Environmental Laws applicable to the ownership or use of its Real Property Assets now or hereafter owned or operated by the Company or any of its Subsidiaries, will pay or cause to be paid all costs and expenses incurred in connection with such compliance, and will keep or cause to be kept all such Real Property Assets free and clear of any Environmental Liens (other than Permitted Encumbrances). Neither the Company nor any of its Subsidiaries will generate, use, treat, store, Release or dispose of, or permit the generation, use, treatment, storage, Release or disposal of Hazardous Materials on, at or from any Real Property Assets now or hereafter owned or operated by the Company or any of its Subsidiaries, or transport or permit the transportation of Hazardous Materials to or from any such Real Property Assets except for Hazardous Materials used or stored at any such Real Property Assets in compliance with all applicable Environmental Laws and reasonably required in connection with the business of the Company and its Subsidiaries or the operation, use and maintenance of any such Real Property Assets. If the Company or any of its Subsidiaries or any tenant or occupant of any Real Property Assets owned or operated by the Company or any of its Subsidiaries causes or permits any intentional or unintentional act or omission resulting in the presence or Release of any Hazardous Material in a quantity or concentration sufficient to require reporting or to trigger an obligation to undertake investigation, clean-up, response or other corrective action under applicable Environmental Laws, the Company agrees to undertake, and/or to cause any of its Subsidiaries, tenants or occupants to undertake, at their sole expense, any action required pursuant to Environmental Laws with respect to such Hazardous Materials except where the failure to do so would not reasonably be expected to have a Material Adverse Effect; provided that neither the Company nor any of its Subsidiaries shall be required to undertake any action while the requirement to undertake such action is being contested in good faith and by proper proceedings so long as it has maintained adequate reserves with respect to such action to the extent required in accordance with GAAP. -70- Section 5.7 ERISA The Company will, and will cause its Subsidiaries and any other members of the ERISA Group, to deliver to the Administrative Agent, promptly, upon the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in liability of the Company and its Subsidiaries in an aggregate amount exceeding $5.0 million, a written notice specifying the nature thereof, what action the Company, its Subsidiaries or other ERISA Entity has taken, is taking or proposes to take with respect thereto, and, when known, any action taken or threatened by the Internal Revenue Service, Department of Labor, PBGC or Multiemployer Plan sponsor with respect thereto. The Company will, and will cause its Subsidiaries and any other members of the ERISA Group to, deliver to the Administrative Agent, upon request by the Administrative Agent, copies of: (i) each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) filed by any ERISA Entity with the Internal Revenue Service with respect to each Pension Plan; (ii) the most recent actuarial valuation report for each Pension Plan; (iii) all notices received by any ERISA Entity from a Multiemployer Plan sponsor or any governmental agency concerning an ERISA Event; and (iv) such other documents or governmental reports or filings relating to any Employee Benefit Plan as the Administrative Agent shall reasonably request. Section 5.8 Performance of Obligations The Company will, and will cause each of its Restricted Subsidiaries to, perform all of its obligations under the terms of each mortgage, deed of trust, indenture, loan agreement or credit agreement and each other material agreement, contract or instrument by which it is bound, except such non-performances as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Section 5.9 Payment of Taxes The Company will pay and discharge or cause to be paid and discharged, and will cause each of its Subsidiaries to pay and discharge, all material Taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits, or upon any properties belonging to it, in each case on a timely basis, and all lawful claims for material sums that have become due and payable which, if unpaid, might become a lien or charge upon any properties of the Company or any of its Subsidiaries; provided that neither the Company nor any of its Subsidiaries shall be required to pay any such Tax, assessment, charge, levy or claim which is being contested in good faith and by proper proceedings if it maintains adequate reserves with respect thereto in accordance with GAAP, unless non-payment would reasonably be expected to have a Material Adverse Effect. Section 5.10 Payments in U.S. Dollars All payments of any Obligations to be made hereunder or under the Notes by the Company or any other obligor with respect thereto shall be made solely in U.S. Dollars or -71- such other currency as is then legal tender for public and private debts in the United States of America. Section 5.11 Collateral (a) The Company shall, and shall cause the Subsidiary Guarantors to, subject to this Section 5.11, with respect to any property acquired after the Closing Date by the Company or any of its Subsidiaries that is intended to be subject to the Lien created by any of the Security Documents but is not so subject, promptly (and in any event within 30 days after the acquisition thereof) (i) execute and deliver to the Administrative Agent and the Collateral Agent such amendments or supplements to the relevant Security Documents or such other documents as the Administrative Agent or the Collateral Agent shall deem reasonably necessary or advisable to grant to the Collateral Agent, for its benefit and for the benefit of the other Secured Parties, a Lien on such property subject to no Liens other than Permitted Collateral Liens, and (ii) take all actions reasonably necessary to cause such Lien to be duly perfected to the extent required by such Security Document in accordance with all applicable Requirements of Law, including the filing of financing statements in such jurisdictions as may be reasonably requested by the Administrative Agent. The Company shall otherwise take such actions and execute and/or deliver to the Collateral Agent such documents as the Administrative Agent or the Collateral Agent shall reasonably require to confirm the validity, perfection and priority of the Lien of the Security Documents against such after-acquired properties. (b) The Company shall, and shall cause the Subsidiary Guarantors to, with respect to any person that is or becomes a Subsidiary Guarantor after the Closing Date, promptly (and in any event within 30 days after such person becomes a Subsidiary Guarantor) cause such new Subsidiary Guarantor (A) to execute a joinder agreement to the applicable Security Agreement, substantially in the form annexed thereto, and (B) to take all actions necessary or advisable in the opinion of the Administrative Agent or the Collateral Agent to cause the Lien created by the applicable Security Agreement to be duly perfected to the extent required by such agreement in accordance with all applicable Requirements of Law, including the filing of financing statements in such jurisdictions as may be reasonably requested by the Administrative Agent or the Collateral Agent. (c) The Company shall, and it shall cause the Subsidiary Guarantors to, promptly grant to the Collateral Agent, within 60 days of the acquisition thereof, a security interest in and Mortgage on (i) each Real Property owned in fee by the Company or such Subsidiary Guarantor as is acquired by such Persons after the Closing Date and that, together with any improvements thereon, individually has a fair market value of at least $10.0 million, and (ii) unless the Collateral Agent otherwise consents, each leased Real Property of such Loan Party which lease individually has a fair market value of at least $10.0 million, in each case, as additional security for the Obligations. Such Mortgages shall be granted pursuant to documentation reasonably satisfactory in form and substance to the Administrative Agent and the Collateral Agent and shall constitute valid and enforceable perfected Liens subject only to Permitted Collateral Liens or other Liens acceptable to the Collateral Agent. The Mortgages -72- or instruments related thereto shall be duly recorded or filed in such manner and in such places as are required by law to establish, perfect, preserve and protect the Liens in favor of the Collateral Agent required to be granted pursuant to the Mortgages and all taxes, fees and other charges payable in connection therewith shall be paid in full. Such Loan Party shall otherwise take such actions and execute and/or deliver to the Collateral Agent such documents as the Administrative Agent or the Collateral Agent shall require to confirm the validity, perfection and priority of the Lien of any existing Mortgage or new Mortgage against such after-acquired Real Property (including a Title Policy, a Survey and local counsel opinion (in form and substance reasonably satisfactory to the Administrative Agent and the Collateral Agent) in respect of such Mortgage). (d) Within 60 days after the Closing Date (to the extent not previously delivered), the Company, or the appropriate Subsidiary Guarantor, shall, with respect to each Mortgaged Property set forth on Schedule 1.1(c), deliver a Survey to the Administrative Agent, unless the Administrative Agent shall, in its reasonable judgment, waive such delivery. Section 5.12 Security Interests; Further Assurances The Company shall, and it shall cause the Subsidiary Guarantors to, promptly upon the reasonable request of the Administrative Agent, the Collateral Agent or any Lender, at the Company's expense, execute, acknowledge and deliver, or cause the execution, acknowledgment and delivery of, and thereafter register, file or record, or cause to be registered, filed or recorded, in an appropriate governmental office, any document or instrument supplemental to or confirmatory of the Security Documents or otherwise deemed by the Administrative Agent or the Collateral Agent reasonably necessary or desirable for the continued validity, perfection and priority of the Liens on the Collateral covered thereby subject to no other Liens except as permitted by the applicable Security Document, or obtain any consents or waivers as may be necessary or appropriate in connection therewith. The Company shall, and shall cause the Subsidiary Guarantors to, deliver or cause to be delivered to the Administrative Agent and the Collateral Agent from time to time such other documentation, consents, authorizations, approvals and orders in form and substance reasonably satisfactory to the Administrative Agent and the Collateral Agent as the Administrative Agent and the Collateral Agent shall reasonably deem necessary to perfect or maintain the Liens on the Collateral pursuant to the Security Documents. Upon the exercise by the Administrative Agent, the Collateral Agent or any Lender of any power, right, privilege or remedy pursuant to any Credit Document which requires any consent, approval, registration, qualification or authorization of any Governmental Authority execute and deliver all applications, certifications, instruments and other documents and papers that the Administrative Agent, the Collateral Agent or such Lender may reasonably require. If the Administrative Agent, the Collateral Agent or the Required Lenders determine that they are required by law or regulation to have appraisals prepared in respect of the Real Property of any Loan Party constituting Collateral, the Company shall provide to the Administrative Agent appraisals that satisfy the applicable requirements of the Real Estate Appraisal Reform Amendments of FIRREA and are otherwise in form and substance satisfactory to the Administrative Agent and the Collateral Agent. -73- Section 5.13 Information Regarding Collateral (a) The Company shall, and it shall cause the Subsidiary Guarantors to, not effect any change (i) in the legal name of any Loan Party, (ii) in the location of any such Loan Party's chief executive office, (iii) in any such Loan Party's identity or organizational structure, (iv) in any such Loan Party's Federal Taxpayer Identification Number or organizational identification number, if any, or (v) in any such Loan Party's jurisdiction of organization (in each case, including by merging with or into any other entity, reorganizing, dissolving, liquidating, reorganizing or organizing in any other jurisdiction), until (A) it shall have given the Collateral Agent and the Administrative Agent not less than 10 days' prior written notice (in the form of an Officers' Certificate), or such lesser notice period agreed to by the Collateral Agent, of its intention so to do, clearly describing such change and providing such other information in connection therewith as the Collateral Agent or the Administrative Agent may reasonably request and (B) it shall have taken all action reasonably satisfactory to the Collateral Agent to maintain the perfection and priority of the security interest of the Collateral Agent for the benefit of the Secured Parties in the Collateral, if applicable. Each such Loan Party agrees to promptly provide the Collateral Agent with certified corporate or similar organizational documents reflecting any of the changes described in the preceding sentence. The Company and each other Subsidiary granting a security interest in Collateral pursuant to a Security Document agrees to promptly notify the Collateral Agent of any change in the location of any office in which it maintains books or records relating to Collateral owned by it or any office or facility at which Collateral is located (including the establishment of any such new office or facility), other than changes in location to a Mortgaged Property or a leased property subject to a Landlord Access Agreement. (b) Concurrently with the delivery of financial statements pursuant to Section 5.1, the Company shall deliver to the Administrative Agent and the Collateral Agent a Perfection Certificate Supplement and a certificate of the chief financial officer of the Company certifying that all UCC financing statements (including fixture filings, as applicable) or other appropriate filings, recordings or registrations, including all refilings, rerecordings and reregistrations, containing a description of the Collateral have been filed of record in each governmental, municipal or other appropriate office in each jurisdiction necessary to protect and perfect the security interests and Liens under the Security Documents for a period of not less than 18 months after the date of such certificate (except as noted therein with respect to any continuation statements to be filed within such period). Section 5.14 Register (a) The Company hereby designates the Administrative Agent to serve as the Company's agent, solely for purposes of this Section 5.14, to maintain a register (the "REGISTER") on which it will record the Loan made by each of the Lenders and each repayment in respect of the principal amount of the Loan of each Lender. Failure to make any such recordation, or any error in such recordation shall not affect the Company's obligations in respect of such Loan. With respect to any Lender, the transfer of the Loan Commitments of -74- such Lender and the rights to the principal of, and interest on, any Loan made pursuant to such Loan Commitments shall not be effective until such transfer is recorded on the Register maintained by the Administrative Agent with respect to ownership of such Loan Commitments and Loan and prior to such recordation all amounts owing to the transferor with respect to such Loan Commitments and Loan shall remain owing to the transferor. The registration of assignment or transfer of all or part of any Loan Commitments and Loan shall be recorded by the Administrative Agent on the Register only upon the receipt by the Administrative Agent of a properly executed and delivered assignment and assumption agreement pursuant to Section 11.2(a). Coincident with the delivery of such an assignment and assumption agreement to the Administrative Agent for acceptance and registration of assignment or transfer of all or part of a Loan, or as soon thereafter as practicable, the assigning or transferor Lender shall surrender the Note evidencing such Loan, and thereupon one or more new Notes of the same type and in the same aggregate principal amount shall be issued to the assigning or transferor Lender and/or the new Lender. Upon the request of the Company, from time to time, the Administrative Agent shall provide a copy of the Register to the Company. Section 5.15 Post Closing Matters The applicable Loan Parties shall execute and deliver the documents and complete the tasks set forth on Schedule 5.15, in each case within the time limits specified on such schedule. ARTICLE 6 NEGATIVE COVENANTS The Company covenants and agrees that until the satisfaction in full of the Loan and the Notes and all other Obligations due under this Agreement (other than contingent indemnification obligations not due and payable) it will fully and timely perform all covenants in this Article 6. Section 6.1 Indebtedness (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, incur any Indebtedness; provided, however, that the Company or a Subsidiary Guarantor may incur Indebtedness if the Company's Fixed Charge Coverage Ratio for its four full fiscal quarters ending immediately prior to the date such additional Indebtedness is incurred would have been at least 2.0 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds of such Indebtedness) as if the additional Indebtedness had been incurred at the beginning of such four-quarter period. (b) The foregoing limitations will not apply to the following (each, "PERMITTED INDEBTEDNESS"): -75- (i) the Company and the Subsidiary Guarantors may incur and remain liable with respect to the Obligations and the Guarantee Obligations; (ii) the Company and the Restricted Subsidiaries may incur and remain liable with respect to the Indebtedness under the Revolving Credit Facility; provided, however, that the aggregate principal amount of Indebtedness under the Revolving Credit Facility shall not exceed the greater of (I) $175.0 million less the amount of all mandatory repayments required to be made thereunder (which effect a permanent commitment reduction) and (II) the sum of (x) 80% of the net book value of the accounts receivable of the Company and the Subsidiary Guarantors and (y) 50% of the net book value of the inventory of the Company and the Subsidiary Guarantors; (iii) the Company and its Restricted Subsidiaries may become and remain liable with respect to Interest Rate Agreements designed to protect the Company or its Restricted Subsidiaries against fluctuations in interest rates, entered into in the ordinary course of business and not for speculative purposes and the Option; (iv) the Company and its Restricted Subsidiaries may incur and remain liable with respect to Intercompany Indebtedness, subject to no Lien held by any Person other than the Company or a Subsidiary Guarantor or a Lien permitted by this Agreement, provided, however, that (a) the aggregate amount of Intercompany Indebtedness owed by the Non-Guarantor Subsidiaries, on the one hand, to the Company and/or any of the Subsidiary Guarantors, on the other, incurred under this clause (iv), shall not exceed $15.0 million at any time outstanding, and (b) all Intercompany Indebtedness owed by the Company and/or any of the Subsidiary Guarantors, on the one hand, to the Non-Guarantor Subsidiaries, on the other, incurred under this clause (iv) shall be Subordinated Indebtedness; (v) the Company and its Restricted Subsidiaries may remain liable with respect to the Indebtedness which is existing on the Closing Date and is described on Schedule 4.20 attached hereto; (vi) the Company and its Restricted Subsidiaries may incur and remain liable with respect to Indebtedness in respect of Capitalized Lease Obligations; provided that the aggregate amount of Indebtedness incurred under this clause (vi) and clauses (vii) and (xxii) shall not exceed $25.0 million at any time outstanding; (vii) the Company and its Restricted Subsidiaries may become and remain liable with respect to Indebtedness incurred to finance (a) the purchase price of equipment, fixtures and any other similar property or the remodeling or other improvement costs of any facility of the Company or any of its Restricted Subsidiaries or (b) the purchase price of any Real Property Assets; provided that the aggregate of all such Indebtedness, together with all Indebtedness incurred under clauses (vi) and (xxii), shall not exceed $25.0 million at any time outstanding; -76- (viii) the Company and its Restricted Subsidiaries may become and remain liable with respect to Indebtedness under Raw Material Hedge Agreements designed to protect the Company or its Restricted Subsidiaries from fluctuations in the prices of raw materials actually used by the Company or its Restricted Subsidiaries, entered into in the ordinary course of business and not entered into for speculative purposes; (ix) the Company and the Subsidiary Guarantors may guarantee Indebtedness of the Company or any Restricted Subsidiary if the Indebtedness so guaranteed is permitted under this Agreement; (x) the Company and the Subsidiary Guarantors may become and remain liable with respect to other Indebtedness in an aggregate amount not to exceed at any time outstanding $35.0 million (and Restricted Subsidiaries that are not Subsidiary Guarantors may become and remain liable with respect to Indebtedness in an aggregate amount not to exceed at any time outstanding $20.0 million, which outstanding Indebtedness shall reduce in a corresponding amount the $35.0 million of Indebtedness which may be incurred under this sub-clause (x)), it being understood that all or a portion of the Indebtedness permitted to be incurred hereunder may, but need not, be incurred under the Revolving Credit Facility; (xi) the Company and its Restricted Subsidiaries may become and remain liable with respect to Permitted Refinancing Indebtedness; (xii) a Receivables Subsidiary may incur Indebtedness in a Qualified Securitization Transaction that is not recourse (except for Standard Securitization Undertakings) to the Company or any of its Restricted Subsidiaries; (xiii) the Company and its Restricted Subsidiaries may incur and remain liable with respect to Indebtedness under Currency Agreements designed to protect the Company or its Restricted Subsidiaries against fluctuations in currency rates, entered into in the ordinary course of business and not for speculative purposes; (xiv) the Company and its Restricted Subsidiaries may incur and remain liable with respect to Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or other similar instrument drawn against insufficient funds in the ordinary course of business; (xv) the Company and its Restricted Subsidiaries may incur and remain liable with respect to Indebtedness constituting letters of credit and reimbursement obligations with respect to letters of credit issued in the ordinary course of business, including, without limitation, letters of credit in respect of workers' compensation claims or self-insurance, or other Indebtedness with respect to reimbursement-type obligations regarding workers' compensation claims and with respect to Indebtedness arising from agreements providing for indemnification, adjustment of purchase price incurred or assumed with the disposition or acquisition of any business; -77- (xvi) the Company and its Restricted Subsidiaries may incur and remain liable with respect to obligations in respect of performance and surety bonds and completion guarantees provided by the Company or any Restricted Subsidiary of the Company in the ordinary course of business; (xvii) the Company or any of its Restricted Subsidiaries may guarantee obligations of the lessee under any lease pursuant to which the Company or any of its Restricted Subsidiaries is the lessee so long as such lease is otherwise permitted hereunder; (xviii) the Company and the Restricted Subsidiaries may incur and remain liable with respect to up to an aggregate principal amount of $265.0 million under the Second Lien Credit Facility less the amount of all mandatory repayments required to be made thereunder; (xix) the Company and the Subsidiary Guarantors may in the aggregate incur and remain liable with respect to Indebtedness of up to an additional $25.0 million under the Second Lien Credit Facility less the amount of all mandatory repayments required to be made with respect thereto pursuant to the terms of the Second Lien Credit Facility; provided that (a) the Company's Fixed Charge Coverage Ratio for its four fiscal quarters ending immediately prior to the date such Indebtedness is incurred would have been at least 2.5 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds of such Indebtedness) as if such Indebtedness had been incurred at the beginning of such four-quarter period and (b) not less than 80% of the net proceeds from the incurrence of such Indebtedness shall be applied to finance improvements or additions to the Collateral and the Company complies with the provisions of Sections 5.11 and 5.12 with respect to such Collateral; (xx) Indebtedness of Foreign Subsidiaries in an aggregate amount outstanding at the time of incurrence not to exceed the sum of (a) 80% of the accounts receivable of the Foreign Subsidiaries and (b) 50% of the inventory of the Foreign Subsidiaries, in each case as shown on the most recent balance sheets of such Foreign Subsidiaries; (xxi) Indebtedness of the Company under notes delivered to employee, officer and director shareholders in connection with stock purchases effected pursuant to Section 6.3(b)(5) not to exceed $1.5 million in any fiscal year (when taken together with payments made pursuant to Section 6.3(b)(5)); and (xxii) Acquired Debt incurred by the debtor prior to the time that the debtor thereunder was acquired by or merged into the Company or any of its Restricted Subsidiaries, or prior to the time that the related asset was acquired by the Company or any of its Restricted Subsidiaries, and was not incurred in connection with, or in contemplation of, such acquisition or merger, provided that the aggregate of all such Indebtedness, together with all In- -78- debtedness incurred under clauses (vi) and (vii), shall not exceed $25.0 million at any time outstanding. Section 6.2 Liens The Company shall not, nor shall it cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or permit or suffer to exist any Lien on or with respect to any asset now owned or hereafter acquired by it, or assign or otherwise convey any right to receive any income or profits therefrom, except for: (i) Permitted Encumbrances on assets that do not constitute Collateral; (ii) Permitted Collateral Liens on assets that constitute Collateral; (iii) Liens on equipment, fixtures and other similar property of the Company and any of its Subsidiaries that do not constitute Collateral and will not in connection with the acquisition thereof constitute or be required to become pursuant to any Credit Document Collateral, in each case securing Indebtedness described in clauses (vi) and (vii) of the definition of "Permitted Indebtedness"; provided that such Liens shall extend only to equipment, fixtures and other similar property so financed (and improvements or attachments thereto) and the proceeds thereof; (iv) Liens securing Acquired Debt permitted under Section 6.1(a) or clause (xxii) of the definition of "Permitted Indebtedness," which Liens existed prior to the time the entity which incurred such Indebtedness became a Subsidiary of the Company; provided that such Liens were not incurred in contemplation of the acquisition of such Subsidiary and such Liens extend to or cover only the property and assets of such entity which were covered by such Liens and which were owned by such entity, in each case at the time such entity became a Subsidiary of the Company (and improvements or attachments thereto) and the property and assets subject to such Lien will not in connection with such acquisition constitute or be required pursuant to any Credit Document to become Collateral; (v) Liens securing Obligations under this Agreement; and (vi) the replacement, extension or renewal of any Lien permitted by this Section 6.2 upon or in the same property subject to such Lien and as security for the same obligations or any refinancings thereof to the extent such refinancings are permitted under Section 6.1; provided that such Lien does not extend to or cover any property other than the property covered by such Lien immediately prior to such replacement, extension or renewal of such Lien (and improvements or attachments thereto) and the principal of the obligations secured thereby is not increased. -79- Section 6.3 Restricted Payments (a) The Company shall not, and shall not cause or permit any of its Restricted Subsidiaries to, directly or indirectly: (1) declare or pay any dividend or make any distribution (other than dividends or distributions payable in Qualified Capital Stock of the Company) on or in respect of shares of the Company's Capital Stock to holders of such Capital Stock; (2) purchase, redeem or otherwise acquire or retire for value any Capital Stock of the Company; (3) make any principal payment on, purchase, defease, redeem, prepay, decrease or otherwise acquire or retire for value, prior to any scheduled final maturity, scheduled repayment or scheduled sinking fund payment, any Subordinated Indebtedness; or (4) make any Investment (other than Permitted Investments) (each of the foregoing actions set forth in clauses (1), (2), (3) and (4) being referred to as a "RESTRICTED PAYMENT"), if at the time of such Restricted Payment or immediately after giving effect thereto, (i) a Potential Event of Default or an Event of Default shall have occurred and be continuing; (ii) the Company is not able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with Section 6.1(a); or (iii) the aggregate amount of Restricted Payments (including such proposed Restricted Payment) made subsequent to the Closing Date (the amount expended for such purposes, if other than in cash, being the fair market value of such property as determined in good faith by the Board of Directors of the Company) shall exceed the sum of: (v) 50% of the cumulative Consolidated Net Income (or if cumulative Consolidated Net Income shall be a loss, minus 100% of such loss) of the Company earned subsequent to the Closing Date and on or prior to the date the Restricted Payment occurs (the "REFERENCE DATE") (treating such period as a single accounting period); plus (w) 100% of the aggregate net cash proceeds received by the Company from any Person (other than a Subsidiary of the Company) from the issuance and sale subsequent to the Closing Date and on or prior to the Reference Date of Qualified Capital Stock of the Company or warrants, options or other -80- rights to acquire Qualified Capital Stock of the Company (but excluding any debt security that is convertible into, or exchangeable for, Qualified Capital Stock); plus (x) 100% of the lesser of (a) the aggregate net cash proceeds received by the Company from any Person (other than a Subsidiary of the Company) from the issuance and sale (subsequent to the Closing Date) of its debt securities or its shares of Disqualified Capital Stock that have been converted into or exchanged for Qualified Capital Stock of the Company and (b) the fair market value of such debt securities or shares of Disqualified Capital Stock that have been so converted or exchanged, calculated as of the time of such conversion or exchange (as applicable); plus (y) without duplication of any amounts included in clause (iii)(w) above, 100% of the aggregate net cash proceeds of any equity contribution received by the Company from a holder of the Company's Capital Stock; plus (z) without duplication of any amounts included in clause (v), (w), (x) or (y), the sum of: (1) the aggregate amount returned in cash on or with respect to Investments (other than Permitted Investments) made subsequent to the Closing Date whether through interest payments, principal payments, dividends or other distributions or payments; (2) the net cash proceeds received by the Company or any of its Restricted Subsidiaries from the disposition of all or any portion of such Investments (other than to a Subsidiary of the Company); and (3) upon redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary, the fair market value of such Subsidiary; provided, however, that the sum of clauses (1), (2) and (3) above shall not exceed the aggregate amount of all such Investments made subsequent to the Closing Date. (b) Notwithstanding the foregoing, the provisions set forth in Section 6.3(a) shall not prohibit: (1) so long as no Potential Event of Default or Event of Default shall have occurred or be continuing, the payment of any dividend within 60 days after the date of declaration of such dividend if the dividend would have been permitted on the date of declaration pursuant to the terms of this Agreement; -81- (2) so long as no Potential Event of Default or Event of Default shall have occurred or be continuing, the purchase, redemption or other acquisition of Capital Stock of the Company either (i) solely in exchange for (A) Qualified Capital Stock of the Company or (B) for the promise to issue Qualified Capital Stock of the Company in the future or (ii) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of Qualified Capital Stock of the Company; (3) the purchase, redemption, defeasance or other acquisition of any Subordinated Indebtedness either (i) solely in exchange for shares of Qualified Capital Stock of the Company or (ii) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of (a) shares of Qualified Capital Stock of the Company or (b) if no Potential Event of Default or Event of Default shall have occurred and be continuing, refinancing Indebtedness; (4) so long as no Potential Default or Event of Default shall have occurred and be continuing, the Company may declare and pay dividends on its common stock of up to $0.09 per share in any fiscal quarter, provided that for the four fiscal quarters ending immediately prior to the date of declaration of such dividend the Company had a Fixed Charge Coverage Ratio of greater than 3 to 1; (5) payments, purchases or distributions made pursuant to employee stock purchase plans, deferred compensation plans or other employee benefits plans, in each case, pursuant to plans in existence on the date hereof or a plan substantially similar thereto, in an aggregate amount not to exceed $1.5 million per fiscal year (when taken together with Indebtedness issued in connection with any such payment, purchase or distribution); and (6) so long as no Potential Event of Default or Event of Default shall have occurred and be continuing, the making of any other Restricted Payment that, together with all other Restricted Payments made pursuant to this clause (6) subsequent to the Closing Date, does not exceed $15.0 million. In determining the aggregate amount of Restricted Payments made subsequent to the Closing Date in accordance with clause (iii) of Section 6.3(a), amounts expended pursuant to clauses (1), (2)(ii), (4), (5) and (6) shall be included in such calculation. Section 6.4 Limitation on Preferred Stock of Restricted Subsidiaries The Company shall not permit any of its Restricted Subsidiaries to issue any Preferred Stock (other than to the Company or to a Wholly-Owned Restricted Subsidiary of the Company) or permit any Person (other than the Company or a Wholly-Owned Restricted Subsidiary of the Company) to own any Preferred Stock of any Restricted Subsidiary of the Company. -82- Section 6.5 Senior Subordinated Indebtedness Neither the Company nor any Subsidiary Guarantor shall, directly or indirectly, incur any Indebtedness that is or purports to be by its terms (or by the terms of any agreement governing such Indebtedness) subordinated to any other Indebtedness of the Company or any Subsidiary Guarantor unless such Indebtedness is also by its terms (or by the terms of any agreement governing such Indebtedness) made expressly subordinate to the Obligations under the Loan or the Guarantee of such Subsidiary Guarantor, as the case may be, to the same extent and in the same manner as such Indebtedness is subordinated to such other Indebtedness. Section 6.6 Restriction on Fundamental Changes (a) The Company shall not, and shall not cause or permit any Restricted Subsidiary of the Company to, in a single transaction or series of related transactions, consolidate or merge with or into any Person, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the Company's assets and properties (determined on a consolidated basis for the Company and the Company's Restricted Subsidiaries) to any Person unless: (1) either: (i) the Company or such Restricted Subsidiary shall be the surviving or continuing corporation; or (ii) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the Person which acquires by such sale, assignment, transfer, lease, conveyance or other disposition all or substantially all of the Company's assets and properties (determined on a consolidated basis for the Company and the Company's Restricted Subsidiaries) (the "SURVIVING ENTITY"): (x) shall be a corporation organized and validly existing under the laws of the United States or any state thereof or the District of Columbia; and (y) shall expressly assume, by joinder agreement (in form and substance reasonably satisfactory to the Administrative Agent), executed and delivered to the Administrative Agent, the due and punctual payment of the principal of and premium, if any, and interest on the Loan and the performance of every covenant of this Agreement and the other Credit Documents on the part of the Company to be performed or observed and shall cause such amendments, supplements or other instruments to be filed and recorded in such jurisdictions as may be required by applicable law to preserve and protect the Lien on the -83- Collateral owned by or transferred to the Surviving Entity, together with such financing statements as may be required to perfect any security interests in such Collateral which may be perfected by the filing of a financing statement under the UCC of the relevant states; (2) immediately after giving effect to such transaction and the assumption contemplated by clause (1)(ii)(y) above (including giving effect to any Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction), the Company or such Surviving Entity, as the case may be, shall be able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to Section 6.1; (3) immediately before and immediately after giving effect to such transaction and the assumption contemplated by clause (1)(ii)(y) above (including, without limitation, giving effect to any Indebtedness incurred or anticipated to be incurred and any Lien granted in connection with or in respect of the transaction), no Potential Event of Default or Event of Default shall have occurred or be continuing; and (4) the Company or the Surviving Entity, as the case may be, shall have delivered to the Administrative Agent an Officers' Certificate and an opinion of counsel, each stating that such consolidation, merger, sale, assignment, transfer, lease, conveyance or other disposition and, if a joinder agreement is required in connection with such transaction, such joinder agreement comply with the applicable provisions of this Agreement and that all conditions precedent in this Agreement relating to such transaction have been satisfied. For purposes of the foregoing, (i) the sale, assignment, transfer, lease, conveyance or other disposition (in a single transaction or series of related transactions) of all or substantially all of the properties and assets of one or more Restricted Subsidiaries of the Company, the Capital Stock of which constitutes all or substantially all of the Company's properties and assets (determined on a consolidated basis for the Company and the Company's Restricted Subsidiaries), shall be deemed to be a sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the properties and assets of the Company (determined on a consolidated basis for the Company and the Company's Restricted Subsidiaries); and (ii) any Collateral transferred to the Surviving Entity shall (a) continue to constitute Collateral under this Agreement and the Security Documents, (b) be subject to the Lien in favor of the Secured Parties, and (c) not be subject to any Lien other than Permitted Collateral Liens. Upon any consolidation, combination or merger or any transfer of all or substantially all of the assets of the Company in accordance with the foregoing in which the Company is not the surviving corporation, the Surviving Entity shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Agreement and the other Credit Documents with the same effect as if such Surviving Entity had been named as such. -84- (b) Each Subsidiary Guarantor (other than any Subsidiary Guarantor whose Guarantee is to be released in accordance with the terms of the Guarantee and this Agreement in connection with any transaction complying with the provisions of Section 6.13) will not, and the Company will not cause or permit any Subsidiary Guarantor to, consolidate with or merge with or into any Person other than the Company or any other Subsidiary Guarantor unless: (1) the entity formed by or surviving any such consolidation or merger (if other than the Subsidiary Guarantor) or to which such sale, lease, conveyance or other disposition shall have been made is a corporation organized and existing under the laws of the United States or any state thereof or the District of Columbia; (2) such entity assumes by joinder agreement all of the obligations of the Subsidiary Guarantor on the Guarantee, and shall cause such amendments, supplements or other instruments to be filed and recorded in such jurisdictions as may be required by applicable law to preserve and protect the Lien on the Collateral owned by or transferred to such entity, if any, together with such financing statements as may be required to perfect any security interests in such Collateral which may be perfected by the filing of a financing statement under the UCC of the relevant states; and (3) immediately after giving effect to such transaction, no Potential Event of Default or Event of Default shall have occurred and be continuing. (c) Each Foreign Subsidiary that is not a Subsidiary Guarantor may consolidate or merge with (or enter into a correlative transaction under applicable foreign law) with any other Foreign Subsidiary that is not a Subsidiary Guarantor. Section 6.7 Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries The Company shall not, nor shall it cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or permit or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary of the Company to (a) pay dividends or make any other distributions on its Capital Stock or any other interest or participation in, or measured by, its profits; (b) make loans or advances or pay any Indebtedness or other obligation owed to the Company or to any Restricted Subsidiary of the Company; or (c) transfer any of its property or assets to the Company or to any Restricted Subsidiary of the Company (any such restriction or encumbrance a "PAYMENT RESTRICTION"), except for such encumbrances or restrictions existing under or by reason of any restrictions contained in (i) the Credit Documents; (ii) the Revolving Credit Facility or the Second Lien Credit Facility, in each case, to the extent and in the manner such Payment Restrictions are contained therein on the Closing Date; (iii) the Indebtedness pertaining to a Restricted Subsidiary of the Company that is not a Subsidiary of the Company on the Closing Date in existence at the time such Subsidiary becomes a Subsidiary of the Company; provided, however, that any such Indebtedness was not incurred as a result of, in connection with -85- or in anticipation of the transaction pursuant to which such entity becomes a Subsidiary of the Company and it does not apply to any Person, or the properties of assets of any Person, other than the Subsidiary acquired and such Indebtedness is otherwise permitted to be incurred pursuant to Section 6.1; (iv) secured Indebtedness otherwise permitted to be incurred pursuant to Sections 6.1 and 6.2 that limits the right of the debtor to dispose of the assets securing such Indebtedness; (v) customary non-assignment provisions of any contract or of any lease governing a leasehold interest of any Subsidiary of the Company; (vi) applicable law; (vii) agreements existing on the Closing Date to the extent and in the manner such Payment Restrictions are in effect on the Closing Date; (viii) customary non-assignment provisions entered into in the ordinary course of business and consistent with past practices; (ix) the terms of purchase money obligations or Capitalized Lease Obligations for property acquired in the ordinary course of business, but only to the extent that such purchase money obligations or Capitalized Lease Obligations restrict or prohibit the transfer of the property so acquired; (x) any encumbrance or restriction with respect to a Subsidiary imposed pursuant to an agreement which has been entered into for the sale or disposition of all or substantially all the Capital Stock or assets of such Subsidiary; (xi) agreements relating to Indebtedness incurred pursuant to Section 6.1(b)(xx); (xii) any instrument that Refinances any Indebtedness; provided, however, that the provisions relating to any such encumbrance or restriction in any such instrument are not materially less favorable to the Company or its Subsidiaries or the Lenders than those contained in the agreements governing the Indebtedness that was refinanced; and (xiii) an agreement governing Indebtedness permitted to be incurred pursuant to Section 6.1(a) or clause (x) of the definition of "Permitted Indebtedness," provided that provisions relating to such encumbrance or restriction contained in such Indebtedness are no less favorable to the Company in any material respect as determined by the Board of Directors of the Company in its reasonable and good faith judgment than the provisions contained in the Credit Documents as in effect on the Closing Date. Section 6.8 Transactions with Shareholders and Affiliates (a) The Company shall not, nor shall it cause or permit any of its Restricted Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with, or for the benefit of, any Affiliate of the Company (each, an "AFFILIATE TRANSACTION") other than (x) Permitted Affiliate Transactions permitted under paragraph (b) below, (y) Affiliate Transactions on terms that are no less favorable than those that might reasonably have been obtained in a comparable transaction at such time on an arm's-length basis from a Person that is not an Affiliate of the Company or such Restricted Subsidiary or (z) transactions between the Company or any of its Restricted Subsidiaries, on the one hand, and any Receivables Subsidiary, on the other, in connection with a Qualified Securitization Transaction, in each case provided that such transactions are not otherwise prohibited by this Agreement. All Affiliate Transactions (or a series of related Affiliate Transactions which are part of a common plan) involving aggregate payments or other property with a fair market value in excess of $5.0 million shall be approved by a majority of the disinterested members of the Board of Directors of the Company, such approval to be evidenced by a reso -86- lution stating that such Board of Directors has determined that such transaction complies with the foregoing provisions. If the Company or any Subsidiary of the Company enters into an Affiliate Transaction (or a series of related Affiliate Transactions which are part of a common plan) that involves an aggregate fair market value of more than $15.0 million, the Company or such Restricted Subsidiary, as the case may be, shall, prior to the consummation thereof, obtain a favorable opinion as to the fairness of such transaction or series of related transactions to the Company or the relevant Restricted Subsidiary, as the case may be, from a financial point of view, from an Independent Financial Advisor and file the same with the Administrative Agent. (b) The foregoing restrictions shall not apply to the following "PERMITTED AFFILIATE TRANSACTIONS": (i) any transaction exclusively between the Company and any of its Restricted Subsidiaries or exclusively between any of the Company's Restricted Subsidiaries, (ii) reasonable and customary fees paid to members of the Board of Directors of the Company, (iii) reasonable and customary fees and compensation paid to, and indemnity provided on behalf of, officers, directors, consultants or employees of the Company or any of its Restricted Subsidiaries, as determined by the Board of Directors of the Company or any such Restricted Subsidiary or the senior management thereof in good faith, including, without limitation, issuances of stock, payment of bonuses and other transactions pursuant to employment or compensation agreements, stock option agreements, indemnification agreements and other arrangements, (iv) any agreement as in effect as of the Closing Date or any amendment thereto or any transaction contemplated thereby (including pursuant to any amendment thereto or any replacement agreement thereto) so long as any such amendment or replacement agreement is not more disadvantageous to the Lenders in any material respect than the original agreement as in effect on the Closing Date and (v) Restricted Payments permitted by this Agreement. Section 6.9 Embargoed Person The Company shall not cause or permit (a) any of the funds or properties of the Loan Parties that are used to repay the Loan to constitute property of, or be beneficially owned directly or indirectly by, any Person subject to sanctions or trade restrictions under United States law ("EMBARGOED PERSON" or "EMBARGOED PERSONS") that is identified on (1) the "List of Specially Designated Nationals and Blocked Persons" (the "SDN LIST") maintained by OFAC and/or on any other similar list ("OTHER LIST") maintained by OFAC pursuant to any authorizing statute including, but not limited to, the International Emergency Economic Powers Act, 50 U.S.C. Sections 1701 et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1 et seq., and any Executive Order or regulation promulgated thereunder, with the result that the investment in the Loan Parties (whether directly or indirectly) is prohibited by law, or the Loan made by the Lenders would be in violation of law, or (2) the Executive Order, any related enabling legislation or any other similar Executive Orders (collectively, "EXECUTIVE ORDERS"), or (b) any Embargoed Person to have any direct or indirect interest of any nature whatsoever in the Loan Parties, with the result that the investment in the Loan Parties (whether directly or indirectly) is prohibited by law or the Loan are in violation of law. -87- Section 6.10 Business Activities The Company shall not, nor shall the Company cause or permit any of its Restricted Subsidiaries to, enter into any line of business that is different from the business of the Company and its Restricted Subsidiaries in existence immediately after giving effect to the Transactions or is not a similar, ancillary, supportive or related business. Section 6.11 Amendments or Waivers of Certain Documents The Company shall not, and shall cause its Restricted Subsidiaries not to: (a) make (or give any notice in respect of) any voluntary or optional payment or prepayment on or redemption or acquisition for value of, or any prepayment or redemption as a result of any asset sale, change of control or similar event of, any Subordinated Indebtedness, except as otherwise permitted by this Agreement; or (b) terminate, amend, modify or change any of its corporate or other similar organizational documents (including by the filing or modification of any certificate of designation) or any agreement to which it is a party with respect to its Capital Stock (including any stockholders' agreement), or enter into any new agreement with respect to its Capital Stock, other than any such amendments, modifications or changes or such new agreements which are not adverse in any material respect to the interests of the Lenders. Section 6.12 Anti-Terrorism Law; Anti-Money Laundering The Company shall not directly or indirectly (a) (i) knowingly conduct any business or engage in making or receiving any contribution of funds, goods or services to or for the benefit of any Person described in Section 4.29, (ii) knowingly deal in, or otherwise engage in any transaction relating to, any property or interests in property blocked pursuant to the Executive Order or any other Anti-Terrorism Law, or (iii) knowingly engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law (and the Company shall deliver to the Lenders any certification or other evidence requested from time to time by any Lender in its reasonable discretion, confirming the Company's compliance with this Section 6.12) or (b) cause or permit any of the funds of the Company or the Loan Parties that are used to repay the Loan to be derived from any unlawful activity with the result that the making of the Loan would be in violation of law. Section 6.13 Asset Sales (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless: -88- (1) the Company or the applicable Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold or otherwise disposed of; and (2) at least 75% (provided, however, that with respect to Asset Sales of assets or property that constitutes Collateral, 85%) of the consideration received (net of disposal costs) at the time of such Asset Sale by the Company or the Restricted Subsidiary, as the case may be, from such Asset Sale shall be in the form of cash or Cash Equivalents. (b) The Company may apply, or cause such Restricted Subsidiary to apply, the Net Cash Proceeds relating to each Asset Sale within 365 days (or earlier, at the Company's option) of receipt thereof either: (1) to the extent such Asset Sale is of assets or property that do not constitute first priority Collateral, to repay Indebtedness under the Revolving Credit Facility and permanently reduce a corresponding amount of the availability under the Revolving Credit Facility; (2) to make an investment in properties and assets that replace the properties and assets that were the subject of such Asset Sale or in properties and assets (including Capital Stock) that will be used in the business of the Company and its Restricted Subsidiaries as existing on the Closing Date or in businesses reasonably related, ancillary, incidental or complementary thereto ("REPLACEMENT ASSETS"), provided that to the extent such Net Cash Proceeds were received from an Asset Sale of assets or property that constituted Collateral, such Replacement Assets so acquired shall be owned by the Company (or such Restricted Subsidiary) and shall not be subject to any Liens other than Permitted Collateral Liens and the Company (or such Restricted Subsidiary) shall execute and deliver to the Administrative Agent such Security Documents or other instruments as shall be reasonably necessary to cause such property or assets to become Collateral subject to the Lien of the applicable Security Documents; or (3) a combination of prepayment and investment permitted by the foregoing clauses (1) and (2), as applicable; provided, further, that if the property subject to such Asset Sale constituted Collateral, then all property purchased with the Cash Proceeds thereof pursuant to this Section 6.13(b) shall be made subject to the Lien of the applicable Security Documents in favor of the Collateral Agent, for its benefit and for the benefit of the other Secured Parties in accordance with Sections 5.11 and 5.12. (c) Pending the final application of the Net Cash Proceeds, the Company or such Restricted Subsidiary may temporarily reduce Indebtedness under the Revolving Credit Facility or otherwise invest such Net Cash Proceeds in any manner that is not prohib- -89- ited by this Agreement; except, however, that the Net Cash Proceeds in excess of $5.0 million from Asset Sales of assets or property that constituted Collateral shall be deposited in the Collateral Account pending application of such Net Cash Proceeds. Any such Net Cash Proceeds so deposited shall be promptly disbursed by the Collateral Agent upon notice from the Company so that the Company may apply such Net Cash Proceeds in accordance with the provisions of this Section 6.13. (d) Any Net Cash Proceeds from Asset Sales not applied within 365 days (or earlier, at the Company's option) in accordance with clause (b) above shall constitute "EXCESS PROCEEDS." When the aggregate amount of Excess Proceeds exceeds $2.0 million, such Excess Proceeds shall be applied as set forth in Section 2.5(a)(ii)(I). Upon completion of the repayment offer set forth in Section 2.5(a)(ii)(I), the amount of Excess Proceeds will be deemed to have been reset to zero. (e) To the extent any Collateral is the subject of an Asset Sale permitted under this Section 6.13 or is otherwise sold or disposed of in a manner not prohibited by this Agreement, the Collateral so sold or otherwise disposed of shall be so sold or disposed of free and clear of the Liens granted or created by the Security Documents, and the Agents shall take all actions they deem appropriate (to the extent requested by the Company in writing) in order to effect the foregoing. Section 6.14 Additional Guarantees The Company shall require (i) each of its Restricted Subsidiaries with gross assets in excess of $1.0 million (other than Foreign Subsidiaries) and (ii) any Subsidiary that guarantees any obligations under the Revolving Credit Facility or is a borrower thereunder, to guarantee the Obligations of the Company under this Agreement pursuant to the execution of a Guarantee. Thereafter, such Subsidiary shall be a Subsidiary Guarantor for all purposes of this Agreement. ARTICLE 7 EVENTS OF DEFAULT Section 7.1 Events of Default If any of the following conditions or events (each, an "EVENT OF DEFAULT") shall occur and be continuing: (a) Failure To Make Payments When Due: failure to pay (i) any installment of principal of the Loan when due and payable, whether at stated maturity, by acceleration, by notice of prepayment or otherwise, or (ii) any interest on the Loan when due and payable and such failure continues for a period of 30 days; -90- (b) Default in Other Agreements: failure of the Company or any of its Restricted Subsidiaries to pay at final maturity (giving effect to any applicable grace period and extensions thereof) the principal of any Indebtedness of the Company or of any of its Material Subsidiaries (other than Indebtedness referred to in Section 7.1(a)) or the acceleration of the final stated maturity of any such Indebtedness (which acceleration is not rescinded, annulled or otherwise cured within 30 days of receipt by the Company or such Restricted Subsidiary of notice of any such acceleration) if the aggregate principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness in default for failure to pay principal at final maturity or which has been accelerated (in each case with respect to which the 30-day period described above has elapsed), aggregates $10.0 million or more at any time; (c) Breach of Certain Covenants: failure of the Company to perform or comply with any covenant, term or condition contained in Section 2.5(a)(ii) or 6.6 or failure of the Company to maintain its corporate existence in accordance with Section 5.3(a); (d) Other Defaults Under Agreement or Credit Documents: the Company shall default in the performance of or compliance with any covenant, term or condition contained in this Agreement or the other Credit Documents (other than those covered by Section 7.1(a), (c) or (i)) and such default shall not have been remedied or waived in accordance with this Agreement within 30 days after the date of written notice specifying the default (and demanding that such default be remedied) from the holder or holders of not less than 25% in aggregate principal amount of the Loan then outstanding; (e) Involuntary Bankruptcy; Appointment of Custodian, Etc.: a court of competent jurisdiction enters a Bankruptcy Order under any Bankruptcy Law that: (i) is for relief against the Company or any Material Subsidiary in an involuntary case or proceeding, or (ii) appoints a Custodian of the Company or any Material Subsidiary for all or substantially all of its properties, or (iii) orders the liquidation of the Company or any Material Subsidiary, and in each case the order or decree remains unstayed and in effect for 60 consecutive days; (f) Voluntary Bankruptcy; Appointment of Custodian, Etc.: the Company or any Material Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (i) commences a voluntary case or proceeding, or -91- (ii) consents to the entry of a Bankruptcy Order for relief against it in an involuntary case or proceeding, or (iii) consents to the appointment of a Custodian of it or for all or substantially all of its property, or (iv) makes a general assignment for the benefit of its creditors or files a proposal or scheme of arrangement involving the rescheduling or composition of its indebtedness, or (v) consents to the filing of a petition in bankruptcy against it; (g) Judgments and Attachments: any money judgment, writ or warrant of attachment, or similar process, involving in any individual case or in the aggregate at any time an amount in excess of $10.0 million (unless such excess amount is covered by third-party insurance with respect to which the Company or the appropriate Restricted Subsidiary has provided notice in a timely manner (in accordance with the provisions of the applicable policy) to the insurer and such insurer has not denied or challenged coverage thereof), shall be entered or filed against the Company or any of its Restricted Subsidiaries and shall remain undischarged, unvacated, unbonded or unstayed for a period of 60 consecutive days; (h) Guarantee: (i) any Guarantee of any Subsidiary Guarantor shall cease to be in full force or effect (other than by reason of release in accordance with its express terms), shall be declared to be null and void and unenforceable or shall be found to be invalid, or (ii) any Subsidiary Guarantor shall deny or disaffirm such Subsidiary Guarantor's obligations under its Guarantee (other than by reason of release in accordance with the terms of this Agreement); (i) Foreclosure: any agent under the Revolving Credit Facility or the Second Lien Credit Facility or any other party entitled to act thereunder commences judicial proceedings to foreclose on the collateral securing the Revolving Credit Facility or the Second Lien Credit Facility, as the case may be, or exercises any right under applicable law or any instrument evidencing a security interest or other encumbrance in respect of such collateral to take ownership or effect the transfer of such collateral in lieu of foreclosure; (j) Change of Control: there occurs a Change of Control; (k) Security Interests: any security interest and Lien purported to be created by any Security Document securing Collateral having a fair market value, in the aggregate, exceeding $5.0 million shall cease to be in full force and effect, or shall cease to give the Collateral Agent, for the benefit of the Secured Parties, the Liens, rights, powers and privileges purported to be created and granted under such Security Document (including a perfected first priority security interest in, and Lien on, all of -92- the Collateral thereunder (except as otherwise expressly provided in such Security Document)) in favor of the Collateral Agent, or shall be asserted by the Company or any of its Subsidiaries party to any Security Document or any other Loan Party not to be a valid, perfected, first priority (except as otherwise expressly provided in this Agreement or such Security Document) security interest in or Lien on the Collateral covered thereby; or (l) ERISA Event: there occurs an ERISA Event or noncompliance with respect to Foreign Plans that, in the opinion of the Required Lenders, when taken together with all other ERISA Events and noncompliance with respect to Foreign Plans that have occurred, would reasonably be expected to result in a Material Adverse Effect; then (i) upon the occurrence and during the continuation of any Event of Default described in the foregoing clause (e) or (f) above with respect to the Company, all of the unpaid principal amount of and accrued interest on the Loan and all other outstanding Obligations shall automatically become immediately due and payable, without presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by the Company, and the commitments of the Lenders hereunder shall thereupon terminate, and (ii) upon the occurrence and during the continuation of any Event of Default not referred to in clause (i), the Administrative Agent shall, upon written notice of the holder or holders of at least 25% in aggregate principal amount of the Loan then outstanding, by written notice to the Company specifying the respective Event of Default and that it is a "notice of acceleration" (the "ACCELERATION NOTICE"), declare all of the unpaid principal amount of and accrued interest on the Loan and all other outstanding Obligations to be, and the same shall forthwith become, due and payable (subject to the provisions of the Intercreditor Agreement). Nevertheless, if at any time after acceleration of the maturity of the Loan, the Company shall pay all arrears of interest and all payments on account of the principal thereof which shall have become due otherwise than by acceleration (with interest on principal and, to the extent permitted by law, on overdue interest, at the rates specified in this Agreement or the Notes) and all Events of Default and Potential Events of Default (other than non-payment of principal of and accrued interest on the Loan and the Notes due and payable solely by virtue of acceleration) shall be remedied or waived pursuant to Section 11.6, then the Administrative Agent shall, upon written notice of the holders of at least a majority in aggregate principal amount of the Loan then outstanding, by written notice to the Company rescind and annul the acceleration and its consequences; but such action shall not affect any subsequent Event of Default or Potential Event of Default or impair any right consequent thereon. -93- ARTICLE 8 COLLATERAL ACCOUNT; APPLICATION OF COLLATERAL PROCEEDS Section 8.1 Collateral Account (a) The Collateral Agent is hereby authorized to establish and maintain at its office at 60 Wall Street, New York, New York 10005, in the name of the Collateral Agent, a restricted deposit account designated "Wellman, Inc. Collateral Account." The Company and each Loan Party, as applicable, shall deposit into the Collateral Account from time to time (i) the Net Cash Proceeds of any of the Collateral (including pursuant to any disposition thereof) to the extent contemplated herein or in any other Credit Document, (ii) the Net Cash Proceeds of any Casualty Event with respect to Collateral, to the extent contemplated herein or in any other Credit Document, and (iii) any cash such Person is required to pledge as additional collateral security hereunder pursuant to the Credit Documents. (b) The balance from time to time in the Collateral Account shall constitute part of the Collateral and shall not constitute payment of the Obligations until applied as hereinafter provided. So long as no Event of Default has occurred and is continuing, the Collateral Agent shall within two Business Days of receiving a request of the Company for release of cash proceeds from the Collateral Account constituting Net Cash Proceeds relating to any Asset Sale or Extraordinary Receipts relating to any Casualty Event remit such cash proceeds on deposit in the Collateral Account to the Company or a Restricted Subsidiary of the Company, as instructed by the Company, so long as the conditions relating thereto set forth in Section 8.2 have been satisfied. At any time following the occurrence and during the continuance of an Event of Default, the Collateral Agent may (and, if instructed by the Required Lenders as specified herein, shall) in its (or their) discretion apply or cause to be applied (subject to collection) the balance from time to time outstanding to the credit of the Collateral Account to the payment of the Obligations in the manner specified in Section 8.3. The Company shall have no right to withdraw, transfer or otherwise receive any funds deposited in the Collateral Account except to the extent specifically provided herein. (c) Amounts on deposit in the Collateral Account shall be invested and reinvested from time to time in Cash Equivalents as the Company (or, after the occurrence and during the continuance of an Event of Default, the Collateral Agent) shall determine by written instruction to the Collateral Agent, or if no such instructions are given, then as the Collateral Agent, in its sole discretion, shall determine which Cash Equivalents shall be held in the name and be under the control of the Collateral Agent (or any sub-agent); provided that at any time after the occurrence and during the continuance of an Event of Default, the Collateral Agent may (and, if instructed by the Required Lenders as specified herein, shall) in its (or their) discretion at any time and from time to time elect to liquidate any such Cash Equivalents and to apply or cause to be applied the proceeds thereof to the payment of the Obligations in the manner specified in Section 8.3. -94- Section 8.2 Proceeds of Destruction, Taking and Collateral Dispositions So long as no Event of Default shall have occurred and be continuing, in the event the applicable Loan Party elects to reinvest Net Cash Proceeds in respect of any Asset Sale or Extraordinary Receipts in respect of any Casualty Event in accordance with the provisions of Section 2.5(a)(ii)(I) or (II), as applicable, the Collateral Agent shall receive at least 10 days' prior notice of each request for payment and shall not release any part of such Net Cash Proceeds or Extraordinary Receipts deposited in the Collateral Account pursuant to this Agreement until the Company has furnished to the Collateral Agent (i) an Officers' Certificate setting forth: (A) a brief description of the reinvestment to be made, (B) the dollar amount of the expenditures to be made, or costs incurred by such Loan Party in connection with such reinvestment and (C) evidence that the properties acquired in connection with such reinvestment have a fair market value at least equal to the amount of such Net Cash Proceeds requested to be released from the Collateral Account and (ii) all security agreements and Mortgages and other items required by the provisions of Sections 5.11 and 5.12 to, among other things, subject such reinvestment properties to the Lien of the Security Documents in favor of the Collateral Agent, for its benefit and for the benefit of the other Secured Parties. Section 8.3 Application of Proceeds Subject to the provisions of the Intercreditor Agreement, the proceeds received by the Collateral Agent in respect of any sale of, collection from or other realization upon all or any part of the Collateral pursuant to the exercise by the Collateral Agent of its remedies shall be applied, in full or in part, together with any other sums then held by the Collateral Agent pursuant to this Agreement, promptly by the Collateral Agent as follows: (a) First, to the payment of all reasonable costs and expenses, fees, commissions and taxes relating to such sale, collection or other realization including compensation to the Collateral Agent and its agents and counsel, and all reasonable expenses, liabilities and advances made or incurred by the Collateral Agent in connection therewith and all amounts for which the Collateral Agent is entitled to indemnification pursuant to the provisions of any Credit Document, together with interest on each such amount at the highest rate then in effect under this Agreement from and after the date such amount is due, owing or unpaid until paid in full; (b) Second, to the payment of all other reasonable costs and expenses of such sale, collection or other realization including compensation to the other Secured Parties and their agents and counsel and all reasonable costs, liabilities and advances made or incurred by the other Secured Parties in connection therewith, together with interest on each such amount at the highest rate then in effect under this Agreement from and after the date such amount is due, owing or unpaid until paid in full; (c) Third, without duplication of amounts applied pursuant to clauses (a) and (b) above, to the indefeasible payment in full in cash, pro rata, of interest and -95- other amounts constituting Obligations (other than principal) in each case equally and ratably in accordance with the respective amounts thereof then due and owing; (d) Fourth, to the indefeasible payment in full in cash, pro rata, of the principal amount of the Obligations; and (e) Fifth, the balance, if any, to the Person lawfully entitled thereto (including the applicable Loan Party or its successors or assigns) or as a court of competent jurisdiction may direct. In the event that any such proceeds are insufficient to pay in full the items described in clauses (a) through (e) of this Section 8.3, the Company and the Subsidiary Guarantors party to the applicable Credit Documents shall remain liable, jointly and severally, for any deficiency. ARTICLE 9 THE ADMINISTRATIVE AGENT AND THE COLLATERAL AGENT Section 9.1 Appointment Each Lender hereby irrevocably designates and appoints each Agent as an agent of such Lender under this Agreement and the other Credit Documents. Each Lender irrevocably authorizes each Agent, in such capacity, through its agents or employees, to take such actions on its behalf under the provisions of this Agreement and the other Credit Documents and to exercise such powers and perform such duties as are expressly delegated to such Agent by the terms of this Agreement and the other Credit Documents, together with such actions and powers as are reasonably incidental thereto. The Agents agree to act as such upon the express conditions contained in this Article 9. Notwithstanding any provision to the contrary elsewhere in this Agreement or in any other Credit Document, the Agents shall not have any duties or responsibilities, except those expressly set forth herein or in the other Credit Documents, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against the Agents. The provisions of this Article 9 are solely for the benefit of the Agents and the Lenders, and neither the Company nor any of its Subsidiaries shall have any rights as a third-party beneficiary of any of the provisions hereof. In performing their functions and duties under this Agreement, the Agents shall act solely as agents of the Lenders and the Agents do not assume and shall not be deemed to have assumed any obligation or relationship of agent or trust with or for the Company or any of its Subsidiaries. Section 9.2 Agent in Its Individual Capacity Each Person serving as an Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not an Agent, and such person and its Affiliates may accept deposits from, lend money -96- to and generally engage in any kind of business with the Company or any Subsidiary or other Affiliate thereof as if it were not an Agent hereunder. Section 9.3 Exculpatory Provisions Neither the Agents nor any of their officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by them or such Person under or in connection with this Agreement or the other Credit Documents (except for their or such Person's own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Company, any of its Subsidiaries or any of their respective officers contained in this Agreement, any other Credit Documents, or in any certificate, report, statement or other document referred to or provided for in, or received by the Agents under or in connection with, this Agreement or any other Credit Document or for any failure of the Company, any of its Subsidiaries or any of their respective officers to perform its obligations hereunder or thereunder. The Agents shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or the other Credit Documents, or to inspect the properties, books or records of the Company or any of its Subsidiaries. The Agents shall not be responsible to any Lender for the effectiveness, genuineness, validity, enforceability, collectability or sufficiency of this Agreement or any other Credit Document or for any representations, warranties, recitals or statements made herein or therein or made in any written or oral statement or in any financial or other statements, instruments, reports, certificates or any other documents in connection herewith or therewith furnished or made by the Agents to the Lenders or by or on behalf of the Company or any of its Subsidiaries to the Agents or any Lender or be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained herein or therein or as to the use of the proceeds of the Loan or of the existence or possible existence of any Potential Event of Default or Event of Default. Section 9.4 Reliance by Agent Each Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any note, writing, resolution, notice, request, certificate, consent, statement, instrument, document, affidavit, letter, cablegram, facsimile, telex, teletype message or other writing believed by it to be genuine and to have been signed or sent by a proper person. Each Agent also may rely upon any statement made to it orally and believed by it to be made by a proper person, and shall not incur any liability for relying thereon. Each Agent may consult with legal counsel (who may be counsel for the Company), independent accountants and other advisors selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or advisors. The Agents shall be fully justified in failing or refusing to take any action under this Agreement or any other Credit Document unless they shall first receive such advice or concurrence of the Required Lenders as they deem appropriate or they shall first be indemnified to their satisfaction by the Lenders -97- against any and all liability and expense which may be incurred by them by reason of taking or continuing to take any such action. As between the Agents and the Lenders, the Agents shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Credit Documents in accordance with a request of the Required Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders. Section 9.5 Delegation of Duties The Agents may execute any of their duties under this Agreement or any other Credit Document by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agents shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by them with reasonable care except to the extent otherwise required by Section 9.3. Section 9.6 Successor Agent An Agent may resign as Agent upon 20 days' notice to the Lenders and the Company. Upon the resignation of an Agent, the Required Lenders shall appoint from among the Lenders a successor Agent which is a bank or a trust company for the Lenders subject to prior approval by the Company (such approval not to be unreasonably withheld or delayed), whereupon such successor Agent shall succeed to the rights, powers and duties of the resigning Agent, and the term "Agent" shall include such successor Agent effective upon its appointment, and the resigning Agent's rights, powers and duties as an Agent shall be terminated, without any other or further act or deed on the part of such former Agent or any of the parties to this Agreement. After the resignation of an Agent hereunder, the provisions of this Section 9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. Section 9.7 Non-Reliance on Agents and Other Lenders Each Lender expressly acknowledges that neither the Agents nor any of their respective officers, directors, employees, agents, attorneys-in-fact or affiliates have made any representations or warranties to it and that no act by the Agents hereafter taken, including any review of the affairs of the Company or any of its Subsidiaries, shall be deemed to constitute any representation or warranty by the Agents to any Lender. Each Lender represents to the Agents that it has, independently and without reliance upon the Agents or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, assets, operations, property, financial and other condition, prospects and creditworthiness of the Company and its Subsidiaries and made its own decision to make its Loan hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Agents or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement, and to make such investigation as it deems necessary to inform -98- itself as to the business, assets, operations, property, financial and other condition, prospects and creditworthiness of the Company and its Subsidiaries. The Agents shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, assets, property, financial and other condition, prospects or creditworthiness of the Company or any of its Subsidiaries which may come into the possession of the Agents or any of their officers, directors, employees, agents, attorneys-in-fact or Affiliates. Section 9.8 Notice of Default The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Potential Event of Default or Event of Default hereunder unless the Administrative Agent has actually received notice from a Lender or the Company referring to this Agreement, describing such Potential Event of Default or Event of Default and stating that such notice is a "notice of default." In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give prompt notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Potential Event of Default or Event of Default as shall be reasonably directed by the Required Lenders; provided that, as between the Administrative Agent and the Lenders unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Potential Event of Default or Event of Default as it shall deem advisable in the best interests of the Lenders (other than take actions not in accordance with Section 7.1). Section 9.9 Indemnification The Lenders severally agree to indemnify each Agent in its capacity as such (to the extent not reimbursed by the Company or the Subsidiary Guarantors and without limiting the obligation of the Company or the Subsidiary Guarantors to do so), ratably according to their respective outstanding Loan and Loan Commitments in effect on the date on which indemnification is sought under this Section 9.9 (or, if indemnification is sought after the date upon which all Loan Commitments shall have terminated and the Loan and Obligations shall have been paid in full, ratably in accordance with such outstanding Loan and Loan Commitments as in effect immediately prior to such date), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever that may at any time (whether before or after the payment of the Loan and Obligations) be imposed on, incurred by or asserted against such Agent in any way relating to or arising out of the Loan Commitments, this Agreement, any of the other Credit Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by such Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements that are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from such Agent's gross negli- -99- gence or willful misconduct. If any indemnity furnished to the Agents for any purpose shall, in the opinion of the Agents, be insufficient or become impaired, the Agents may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished. The agreements in this Section 9.9 shall survive the payment of the Loan and all other amounts payable hereunder. Section 9.10 Concerning the Collateral and the Security Documents (a) Each Lender authorizes and directs DBTCA to act as Collateral Agent and to enter into the Security Documents relating to the Collateral for the benefit of the Lenders. Each Lender agrees that any action taken by the Administrative Agent, the Collateral Agent or the Required Lenders (or, where required by the express terms, hereof, a different proportion of the Lenders) in accordance with the provisions hereof or the other Security Documents or Loan Documents, and the exercise by the Administrative Agent, the Collateral Agent or the Required Lenders (or, where so required, such different proportion) of the powers set forth herein or therein, together with such other powers as are reasonably incidental thereto, shall be authorized and binding upon all of the Lenders. Without limiting the generality of the foregoing, the Administrative Agent or the Collateral Agent, as the case may be, shall have the sole and exclusive right and authority to (i) act as the disbursing and collecting agent for the Lenders with respect to all payments and collections arising in connection herewith and with the Security Documents relating to the Collateral; (ii) execute and deliver each Security Document relating to the Collateral and accept delivery of each such agreement delivered by the Company or any of its Subsidiaries; (iii) act as the Collateral Agent for the Lenders for purposes stated therein to the extent such action is provided for under the Security Documents, provided, however, the Administrative Agent herein appoints, authorizes and directs each Lender to act as collateral sub-agent for the Administrative Agent and the Lenders for purposes of the perfection of all security interests and Liens with respect to the Company's and its Subsidiaries' respective deposit accounts maintained with, and cash and Cash Equivalents held by, such Lender; (iv) manage, supervise and otherwise deal with the Collateral; (v) take such action as is necessary or desirable to maintain the perfection and priority of the security interests and liens created or purported to be created by the Security Documents; and (vi) except as may be otherwise specifically restricted by the terms hereof or of any other Security Document or Loan Document, exercise all remedies given to the Administrative Agent or the Lenders with respect to the Collateral under the Security Documents relating thereto, applicable law or otherwise. (b) The Administrative Agent and the Lenders hereby direct the Administrative Agent and the Collateral Agent, as the case may be, to release, in accordance with the terms hereof, any Lien held by the Administrative Agent or the Collateral Agent, as the case may be, under the Security Documents; provided, however, that (y) the Administrative Agent or the Collateral Agent, as the case may be shall not be required to execute any such document on terms which, in its opinion, would expose it to liability or create any obligation or entail any consequence other than the release of such Liens without recourse or warranty, and (z) such release shall not in any manner discharge, affect or impair the Obligations or any -100- Liens upon all interests retained by the Company and/or any of its Subsidiaries, including (without limitation) the proceeds of any sale, all of which shall, to the extent set forth in the Credit Documents, continue to constitute part of the Collateral. Each of the Lenders hereby directs the Administrative Agent and/or the Collateral Agent, as the case may be, to execute and deliver or file such termination and partial release statements and such other things as are necessary to release Liens to be released pursuant to this Section 9.10 promptly upon the effectiveness of any such release or enter into intercreditor agreements contemplated or permitted herein. (c) Neither the Administrative Agent nor the Collateral Agent shall have any obligation whatsoever to any Lender or to any other Person to assure that the Collateral exists or is owned by the Company or any of its Subsidiaries or is cared for, protected or insured or has been encumbered or that the Liens granted to the Administrative Agent or the Collateral Agent herein or pursuant to the Security Documents have been properly or sufficiently or lawfully created, perfected, protected or enforced or are entitled to any particular priority, or to exercise at all or in any particular manner or under any duty of care, disclosure or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to the Administrative Agent or the Collateral Agent in any of the Loan Documents or the Security Documents, it being understood and agreed that in respect of the Collateral, or any act, omission or event related thereto, each of the Administrative Agent and the Collateral Agent may act in any manner it may deem appropriate, in its sole discretion, given the Administrative Agent's and/or the Collateral Agent's, as the case may be, own interests in the Collateral as one of the Lenders and that neither the Administrative Agent nor the Collateral Agent shall have any duty or liability whatsoever to any Lender, except as expressly provided herein. (d) Each Lender hereby (i) instructs the Administrative Agent and the Collateral Agent to enter into the Intercreditor Agreement and (ii) authorizes the Administrative Agent and the Collateral Agent to enter into amendments and restatements of the Intercreditor Agreement and the Security Documents to the extent permitted by the Intercreditor Agreement, the Loan Documents and the Security Documents. Section 9.11 Name Agents The parties hereto acknowledge that the Co-Documentation Agents hold such titles in name only, and that such titles confer no additional rights or obligations relative to those conferred on any Lender hereunder. -101- ARTICLE 10 GUARANTEE Section 10.1 Unconditional Guarantee Each Subsidiary Guarantor hereby irrevocably and unconditionally, jointly and severally, guarantees (such guarantee to be referred to herein as the "GUARANTEE") to each of the Lenders and to the Administrative Agent and their respective successors and assigns, that (i) the principal of and interest on the Loan will be promptly paid in full when due, subject to any applicable grace period, whether at maturity, by acceleration or otherwise, and interest on the overdue principal, if any, and interest on any interest, if any, to the extent lawful, of the Loan and all other obligations of the Company to the Lenders or the Administrative Agent hereunder will be promptly paid in full or performed, all in accordance with the terms hereof; and (ii) in case of any extension of time of payment or renewal of any of the Loan or of any such other obligations, the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, subject to any applicable grace period, whether at stated maturity, by acceleration or otherwise, subject, however, in the case of clauses (i) and (ii) above, to the limitations set forth in Section 10.4. Each Subsidiary Guarantor hereby agrees that its obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Loan or this Agreement, the absence of any action to enforce the same, any waiver or consent by any of the Lenders with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a Subsidiary Guarantor. Each Subsidiary Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenants that this Guarantee will not be discharged except by complete performance of the obligations contained in the Loan, this Agreement and in this Guarantee. If any Lender or the Administrative Agent is required by any court or otherwise to return to the Company, any Subsidiary Guarantor, or any custodian, trustee, liquidator or other similar official acting in relation to the Company or any Subsidiary Guarantor, any amount paid by the Company or any Subsidiary Guarantor to the Administrative Agent or such Lender, this Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Subsidiary Guarantor further agrees that, as between each Subsidiary Guarantor, on the one hand, and the Lenders and the Administrative Agent, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 7 for the purposes of this Guarantee, and (y) in the event of any acceleration of such obligations as provided in Article 7, such obligations (whether or not due and payable) shall forthwith become due and payable by each Subsidiary Guarantor for the purpose of this Guarantee. -102- Section 10.2 Severability In case any provision of this Guarantee shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 10.3 Release of a Subsidiary Guarantor Upon the sale or disposition (whether by merger, stock purchase, consolidation, dissolution, asset sale or otherwise) of a Subsidiary Guarantor (or all or substantially all its assets) to an entity which is not a Subsidiary of the Company and which sale or disposition is otherwise in compliance with the terms of this Agreement, such Subsidiary Guarantor shall be deemed released from all obligations under this Article 10 without any further action required on the part of the Administrative Agent or any Lender; provided that any such termination shall occur only to the extent that all obligations of such Subsidiary Guarantor under all of its guarantees of, and under all of its pledges of assets or other security interests which secure, any Indebtedness of the Company shall also terminate upon such release, sale or transfer. The Administrative Agent shall promptly deliver an appropriate instrument evidencing such release upon receipt of a request by the Company accompanied by an Officers' Certificate certifying compliance with this Section 10.3. Any Subsidiary Guarantor not so released remains liable for the full amount of principal of and interest on the Loan as provided in this Article 10. Section 10.4 Limitation of Subsidiary Guarantor's Liability Each Subsidiary Guarantor and by its acceptance hereof each of the Lenders hereby confirms that it is the intention of all such parties that the guarantee by such Subsidiary Guarantor pursuant to its Guarantee not constitute a fraudulent transfer or conveyance for purposes of any Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar Federal or state law. To effectuate the foregoing intention, the Lenders and such Subsidiary Guarantor hereby irrevocably agree that the obligations of such Subsidiary Guarantor under the Guarantee shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Subsidiary Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Subsidiary Guarantor in respect of the obligations of such other Subsidiary Guarantor under its Guarantee or pursuant to Section 10.6, result in the obligations of such Subsidiary Guarantor under the Guarantee not constituting such fraudulent transfer or conveyance. -103- Section 10.5 Subsidiary Guarantors May Consolidate, Etc., on Certain Terms (a) Nothing contained in this Agreement or in the Loan shall prevent any consolidation or merger of a Subsidiary Guarantor with or into the Company or another Subsidiary Guarantor or shall prevent any sale or conveyance of the property of a Subsidiary Guarantor as an entirety, or substantially as an entirety, to the Company or another Subsidiary Guarantor. Upon any such consolidation, merger, sale or conveyance, the Guarantee given by such Subsidiary Guarantor shall no longer have any force or effect. (b) Except as set forth in Section 6.6, nothing contained in this Agreement or in the Loan shall prevent any consolidation or merger of a Subsidiary Guarantor with or into a corporation or corporations other than the Company or another Subsidiary Guarantor (whether or not affiliated with the Subsidiary Guarantor); provided that, subject to Sections 10.4 and 10.6(a), (i) immediately after such transaction, and giving effect thereto, no Potential Event of Default or Event of Default shall have occurred as a result of such transaction and be continuing, and (ii) upon any such consolidation, merger, sale or conveyance, the Guarantee of such Subsidiary Guarantor set forth in this Article 10, and the due and punctual performance and observance of all of the covenants and conditions of this Agreement to be performed by such Subsidiary Guarantor, shall be expressly assumed (in the event that the Subsidiary Guarantor is not the surviving corporation in the merger), by an agreement or supplemental indenture reasonably satisfactory in form to the Administrative Agent, executed and delivered to the Administrative Agent, by the corporation formed by such consolidation, or into which the Subsidiary Guarantor shall have merged, or by the corporation that shall have acquired such property. In the case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor corporation, by an agreement or supplemental indenture executed and delivered to the Administrative Agent and reasonably satisfactory in form and substance to the Administrative Agent of the due and punctual performance of all of the covenants and conditions of this Agreement to be performed by the Subsidiary Guarantor, such successor corporation shall succeed to and be substituted for the Subsidiary Guarantor with the same effect as if it had been named herein as a Subsidiary Guarantor. Section 10.6 Contribution In order to provide for just and equitable contribution among the Subsidiary Guarantors, the Subsidiary Guarantors agree, inter se, that in the event any payment or distribution is made by any Subsidiary Guarantor (a "FUNDING SUBSIDIARY GUARANTOR") under its Guarantee, such Funding Subsidiary Guarantor shall be entitled to a contribution from all other Subsidiary Guarantors in a pro rata amount based on the Adjusted Net Assets of each Subsidiary Guarantor (including the Funding Subsidiary Guarantor) for all payments, damages and expenses incurred by that Funding Subsidiary Guarantor in discharging the Company's obligations with respect to the Obligations. "ADJUSTED NET ASSETS" of such Subsidiary Guarantor at any date shall mean the lesser of (x) the amount by which the fair value of the property of such Subsidiary Guarantor exceeds the total amount of liabilities, including, with- -104- out limitation, contingent liabilities (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date (other than liabilities of such Subsidiary Guarantor under Subordinated Indebtedness)), but excluding liabilities under the Guarantee, of such Subsidiary Guarantor at such date and (y) the amount by which the present fair salable value of the assets of such Subsidiary Guarantor at such date exceeds the amount that will be required to pay the probable liabilities of such Subsidiary Guarantor on its debts including, without limitation, senior Indebtedness (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date and after giving effect to any collection from any Subsidiary of such Subsidiary Guarantor in respect of the obligations of such Subsidiary under the Guarantee), excluding debt in respect of the Guarantee of such Subsidiary Guarantor, as they become absolute and matured. Section 10.7 Evidence of Guarantee To evidence its guarantee to the Lenders set forth in this Article 10, each of the Subsidiary Guarantors hereby agrees to execute the notation of Guarantee in substantially the form included in Exhibit VIII. Each such notation of Guarantee shall be signed on behalf of each Subsidiary Guarantor by an Officer of such Subsidiary Guarantor. Section 10.8 Waiver of Stay, Extension or Usury Laws Each Subsidiary Guarantor covenants that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive such Subsidiary Guarantor from performing its Guarantee as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Agreement; and each Subsidiary Guarantor hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Administrative Agent, but will suffer and permit the execution of every such power as though no such law had been enacted. Section 10.9 Waiver of Subrogation Each Subsidiary Guarantor hereby irrevocably waives any claim or other rights which it may now or hereafter acquire against the Company to the extent that such claim or rights arise from the existence, payment, performance or enforcement of such Subsidiary Guarantor's obligations under its Guarantee and this Agreement, including, without limitation, any right of subrogation, reimbursement, exoneration, indemnification, and any right to participate in any claim or remedy of any Lender against the Company, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including, without limitation, the right to take or receive from the Company, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim or other rights. If any amount shall be paid to any Subsidiary Guarantor in violation of the preceding sentence and the Loan shall not have been paid in full, such amount shall be deemed to have been paid to such Subsidiary Guarantor for the benefit of, and held in trust -105- for the benefit of, the Lenders, and shall forthwith be paid to the Agents for the benefit of such Lenders to be credited and applied upon the Loan, whether matured or unmatured, in accordance with the terms of this Agreement. Each Subsidiary Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by this Agreement and that the waiver set forth in this Section 10.9 is knowingly made in contemplation of such benefits. ARTICLE 11 MISCELLANEOUS Section 11.1 U.S.A. Patriot Act Each Lender hereby notifies the Company that pursuant to the requirements of the U.S.A. Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001) (the "PATRIOT ACT"), it is required to obtain, verify and record information that identifies the Loan Parties, which information includes the name and address of the Loan Party and other information that will allow such Lender to identify such Loan Party in accordance with the Patriot Act. Section 11.2 Participations in and Assignments of Loan and Notes (a) Any Lender (or any Lender together with one or more Lenders) may (x) assign all or a portion of its Loan Commitments and related outstanding Obligations (or, if the Loan Commitments have terminated, outstanding Obligations) hereunder to (i)(A) its parent company and/or any affiliate of such Lender which is at least 50% owned by such Lender or its parent company or (B) to one or more Lenders or any affiliate of any such other Lender which is at least 50% owned by such other Lender or its parent company (provided that any fund that invests in loans and is managed or advised by the same investment advisor of another fund which is a Lender (or by an affiliate of such investment advisor) shall be treated as an affiliate of such other Lender for the purposes of this subclause (x)(i)(B)), or (ii) in the case of any Lender that is a fund that invests in loans, any other fund that invests in loans and is managed or advised by the same investment advisor of any Lender or by an affiliate of such investment advisor or (y) assign all, or, if less than all, a portion equal to at least (I) $1,000,000, in each case in the aggregate for the assigning Lender or assigning Lenders, of such Loan Commitments or outstanding Obligations hereunder to one or more Eligible Assignees (treating any fund that invests in loans and any other fund that invests in loans and is managed or advised by the same investment advisor of such fund or by an affiliate of such advisor as a single Eligible Assignee), each of which assignees shall become a party to this Agreement as a Lender by execution of an Assignment and Assumption Agreement substantially in the form of Exhibit IX-1 or IX-2, as appropriate, provided that (i) at such time, Section 2.1(a) shall be deemed modified to reflect the Loan Commitments and/or outstanding Loans of such new Lender and of the existing Lenders, (ii) upon the surrender of the relevant Notes by the assigning Lender (or, upon such assigning Lender's indemnifying the Company for any lost Note pursuant to a customary indemnification agreement) new Notes will be is- -106- sued, at the Company's expense, to such new Lender and to the assigning Lender upon the request of such new Lender or assigning Lender, such new Notes to be in conformity with the requirements of Section 2.1(d) (with appropriate modifications) to the extent needed to reflect the revised Loan Commitments or outstanding Loans, (iii) the consent of the Administrative Agent and, so long as (1) no Potential Event of Default or Event of Default has occurred and is continuing and (2) the Syndication Date has theretofore occurred, the consent of the Company in each case shall be required in connection with any such assignment pursuant to clause (y) above (each of which consents shall not be unreasonably withheld or delayed), (iv) the Administrative Agent shall receive at the time of each such assignment, from the assigning or assignee Lender, the payment of a non-refundable assignment fee of $3,500 and (v) no such transfer or assignment will be effective until recorded by the Administrative Agent or the Register pursuant to Section 5.14. To the extent of any assignment pursuant to this Section 11.2(a), the assigning Lender shall be relieved of its obligations hereunder with respect to its assigned Loan Commitment and outstanding Loans. At the time of each assignment pursuant to this Section 11.2(a) to a Person which is not already a Lender hereunder and which is not a United States person (as such term is defined in Section 7701(a)(30) of the Internal Revenue Code) for Federal income tax purposes, the respective assignee Lender shall, to the extent legally entitled to do so, provide to the Company the appropriate Internal Revenue Service forms (and, if applicable, a certificate) described in Section 11.2(e). (b) Each Lender may grant participations in all or any part of its Notes or its Loan Commitment in an aggregate amount of not less than $1,000,000 to any Eligible Assignee. Any such Person shall be entitled to the benefits of Section 11.19, provided such Person complies with Section 11.2(e). (c) The Company shall, at its own cost and expense, provide such certificates, acknowledgments and further assurances in respect of this Agreement and the Loan as any Lender may reasonably require in connection with any participation, transfer or assignment pursuant to this Section 11.2. (d) Nothing in this Agreement shall prevent or prohibit any Lender from pledging its Loans and Notes hereunder to a Federal Reserve Bank in support of borrowings made by such Lender from such Federal Reserve Bank and, with prior notification to the Administrative Agent (but without the consent of the Administrative Agent or the Borrower), any Lender which is a fund may pledge all or any portion of its Loans and Notes to its trustee or to a collateral agent providing credit or credit support to such Lender in support of its obligations to such trustee, such collateral agent or a holder of such obligations, as the case may be. No pledge pursuant to this clause (d) shall release the transferor Lender from any of its obligations hereunder. (e) Each Lender, including each Lender that is an assignee or transferee of an interest under this Agreement pursuant to Section 11.2(a) (unless the respective Lender was already a Lender hereunder immediately prior to such assignment or transfer), that is not a United States Person (as such term is defined in Section 7701(a)(30) of the Internal Revenue -107- Code) agrees, to the extent legally entitled to do so, to deliver to the Company and the Administrative Agent, on the Closing Date or on the date of such assignment or transfer to such Lender, as applicable, (i) two accurate and complete original signed copies of Internal Revenue Service Form W-8BEN or W-8ECI (or other applicable forms or successor forms) certifying to such Lender's entitlement to a complete exemption from United States withholding tax with respect to payments to be made under this Agreement and under any Note, or (ii) if the Lender is not a "bank" within the meaning of Section 881(c)(3)(A) of the Internal Revenue Code, two accurate and complete original signed copies of Internal Revenue Service Form W-8BEN (or other applicable forms or successor forms) certifying to such Lender's entitlement to a complete exemption from United States withholding tax with respect to payments of interest to be made under this Agreement and under any Note. In addition, each Lender agrees that, when a lapse in time or change in circumstances renders the previous certification obsolete or inaccurate in any material respect, it will deliver to the Company and the Administrative Agent two new accurate and complete original signed copies of Internal Revenue Service Form W-8BEN or W-8ECI, and such other forms as may be required in order to confirm or establish the entitlement of such Lender to a continued exemption from or reduction in United States withholding tax with respect to payments under this Agreement and any Note, or it shall immediately notify the Company and the Administrative Agent of its inability to deliver any such form or certificate. Subject to Section 11.2(a), Section 11.19 and the immediately succeeding sentence, the Company shall be entitled, to the extent it is required to do so by law, to deduct or withhold income or similar taxes imposed by the United States (or any political subdivision or taxing authority thereof or therein) from interest, fees or other amounts payable hereunder or made on any other Credit Document for the account of any Lender which is not a United States Person (as such term is defined in Section 7701(a)(30) of the Internal Revenue Code) for U.S. Federal income tax purposes to the extent that such Lender has not provided to the Company U.S. Internal Revenue Service Forms that establish a complete exemption from such deduction or withholding. Notwithstanding anything to the contrary contained in this Agreement, the Company agrees to pay additional amounts and to indemnify and hold harmless each Lender (without regard to the identity of the jurisdiction requiring the deduction or withholding), and reimburse such Lender upon its written request, in respect of any amounts deducted or withheld by it as a result of any changes after the date the Lender became a party hereto (including the date of any assignment or transfer) in any applicable law, treaty, governmental rule, regulation, guideline or order, or in the interpretation thereof, relating to the deducting or withholding of income or similar Taxes. Section 11.3 Expenses Whether or not the transactions contemplated hereby shall be consummated, the Company agrees to promptly pay (i) all the actual and reasonable costs and expenses of preparation of the Credit Documents and all the costs of furnishing all opinions by counsel for the Company (including without limitation any opinions reasonably requested by the Lenders as to any legal matters arising hereunder), and of the Company's performance of and compliance with all agreements and conditions contained herein on its part to be performed or complied with; (ii) the reasonable fees, reasonable expenses and reasonable disbursements of -108- counsel to the Agents in connection with the negotiation, preparation, execution and administration of the Credit Documents and the Loan hereunder, and any amendments, modifications and waivers hereto or thereto and consents to departures from the terms hereof and thereof; and (iii) after the occurrence of an Event of Default, all costs and expenses (including actual and reasonable attorneys fees and costs of settlement) incurred by the Lenders or the Administrative Agent in enforcing any Obligations of or in collecting any payments due from the Company hereunder or under the Notes by reason of such Event of Default or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "work-out" or of any insolvency or bankruptcy proceedings. Section 11.4 Indemnity In addition to the payment of expenses pursuant to Section 11.3, whether or not the transactions contemplated hereby shall be consummated, the Company agrees to indemnify, pay and hold each of the Lenders, the Agents, the Co-Documentation Agents and any holder of any of the Notes, and each of their respective officers, directors, employees, agents, representatives, trustees, investment advisors and affiliates (collectively called the "INDEMNITEES"), harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, the reasonable fees and disbursements of counsel for such Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not such Indemnitee shall be designated as a party thereto) which may be suffered by, imposed on, incurred by or asserted against that Indemnitee, in any manner resulting from, connected with, in respect of, relating to or arising out of this Agreement, the other Credit Documents, the Lenders' agreements to make the Loan or the use or intended use of any of the proceeds of the Loan hereunder (the "INDEMNIFIED LIABILITIES"); provided that the Company shall have no obligation to an Indemnitee hereunder with respect to Indemnified Liabilities to the extent such liabilities are finally judicially determined to have resulted from the gross negligence, bad faith or recklessness of that Indemnitee. To the extent that the undertaking to indemnify, pay and hold harmless set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, the Company shall contribute the maximum portion which it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by the Indemnitees or any of them. Section 11.5 Setoff In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence and during the continuance of any Event of Default, each Lender, the Administrative Agent and each subsequent holder of any Note are hereby authorized by the Company at any time or from time to time, without notice to the Company, or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, including, but not limited to, Indebtedness evidenced by certificates of deposit, whether matured or un- -109- matured, but not including trust accounts or any other accounts held for the benefit of another Person) and any other Indebtedness at any time held or owing by such Person or any such subsequent holder to or for the credit or the account of the Company against and on account of the obligations and liabilities of the Company to such Person or such subsequent holder under this Agreement and the Notes, including, but not limited to, all claims of any nature or description arising out of or connected with this Agreement or the Notes, irrespective of whether or not (a) such Person or such subsequent holder shall have made any demand hereunder or (b) such Person or such subsequent holder shall have declared the principal of or the interest on its portion of the Loan and its Notes and other amounts due hereunder to be due and payable as permitted by Article 7 and although said obligations and liabilities, or any of them, may be contingent or unmatured. Section 11.6 Amendments and Waivers No amendment, modification, termination or waiver of any term or provision of this Agreement, of the Notes or of any Guarantee, or consent to any departure by the Company or any Subsidiary Guarantor therefrom, shall in any event be effective without the prior written concurrence of the Company or such Subsidiary Guarantor, as the case may be, and the Required Lenders; provided that without the prior written consent of each Lender affected, an amendment, modification, termination or waiver of this Agreement, any Note or any Guarantee or consent to departure from a term or provision hereof or thereof may not: (i) reduce the principal amount of Loans whose holders must consent to any such amendment, modification, termination, waiver or consent; (ii) reduce the rate of or extend the time for payment of principal or interest on any Note; (iii) reduce or forgive the principal amount of any Note; (iv) make any Note payable in money other than that stated in the Note; (v) make any change in the definition of "Change of Control," Article 7 or this Section 11.6; (vi) reduce the rate or extend the time of payment of fees or other compensation payable to any of the Lenders hereunder; or (vii) release all or substantially all of the Collateral; and provided, further, that without the consent of each affected Agent, no such amendment, modification, termination or waiver may amend, modify, terminate or waive any provision of Article 9 as the same applies to the such Agent or any other provision of this Agreement as it relates to the rights or obligations of such Agent. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on the Company in any case shall entitle the Company to any further notice or demand in similar or other circumstances. Any amendment, modification, termination, waiver or consent effected in accordance with this Section 11.6 shall be binding upon each holder of the Notes at the time outstanding, each further holder of the Notes, and, if signed by the Company or a Subsidiary Guarantor, on the Company and such Subsidiary Guarantor. Section 11.7 Independence of Covenants All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitation of, another covenant shall not -110- avoid the occurrence of an Event of Default or Potential Event of Default if such action is taken or condition exists. Section 11.8 Entirety The Credit Documents embody the entire agreement of the parties and supersede all prior agreements and understandings, if any, relating to the subject matter hereof and thereof. Section 11.9 Notices Unless otherwise provided herein, any notice or other communications herein required or permitted to be given shall be in writing and may be personally served, telecopied, telexed or sent by mail and shall be deemed to have been given when delivered in person, upon receipt of telecopy or telex against receipt of answer back or four Business Days after depositing it in the mail, registered or certified, with postage prepaid and properly addressed; provided that notices shall not be effective until received. For the purposes hereof, the addresses of the parties hereto (until notice of a change thereof is delivered as provided in this Section 11.9) shall be set forth under each party's name on the signature pages hereto, with, in the case of a notice to the Company, a copy to David K. Duffell, Esq., Edwards & Angell, LLP, 2800 Financial Plaza, Providence, RI 02903. Section 11.10 Survival of Warranties and Certain Agreements (a) All agreements, representations and warranties made herein shall survive the execution and delivery of this Agreement, the making of the Loan hereunder and the execution and delivery of the Notes and, notwithstanding the making of the Loan, the execution and delivery of the Notes or any investigation made by or on behalf of any party, shall continue in full force and effect. The closing of the transactions herein contemplated shall not prejudice any right of one party against any other party in respect of anything done or omitted hereunder or in respect of any right to damages or other remedies. (b) Notwithstanding anything in this Agreement or implied by law to the contrary, the agreements of the Company set forth in Sections 11.3, 11.4, 11.14, 11.15, 11.17, 11.19 and 11.22 shall survive the payment of the Loan and the Notes and the termination of this Agreement. Section 11.11 Failure or Indulgence Not Waiver; Remedies Cumulative No failure or delay on the part of any Agent or any Lender or any holder of any Note in the exercise of any power, right or privilege hereunder, under a Guarantee or under the Notes shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. -111- All rights and remedies existing under this Agreement, under a Guarantee or under the Notes are cumulative to and not exclusive of any rights or remedies otherwise available. Section 11.12 Severability In case any provision in or obligation under this Agreement, under a Guarantee or under the Notes shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. Section 11.13 Headings Article and Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. Section 11.14 Applicable Law THIS AGREEMENT, EACH GUARANTEE AND THE NOTES SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW. Section 11.15 Successors and Assigns; Subsequent Holders of Notes This Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and assigns of the Lenders. The terms and provisions of this Agreement and each Guarantee shall inure to the benefit of any assignee or transferee of the Notes pursuant to Section 11.2(a), and in the event of such transfer or assignment, the rights and privileges herein conferred upon the Lenders shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof. In determining whether the holders of a sufficient aggregate principal amount of the Loan shall have consented to any action under this Agreement, any amount of the Loan owned or held by the Company, any Subsidiary Guarantor or any of their respective Affiliates shall be disregarded. The Company's rights or any interest therein hereunder may not be assigned without the prior express written consent of each of the Lenders. Section 11.16 Counterparts; Effectiveness This Agreement and any amendments, waivers, consents or supplements may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. This Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto, and -112- delivery thereof to the Administrative Agent or, in the case of the Lenders, written telex or facsimile notice or telephonic notification (confirmed in writing) of such execution and delivery. The Agents will give the Company and each Lender prompt notice of the effectiveness of this Agreement. Section 11.17 Consent to Jurisdiction; Venue; Waiver of Jury Trial (a) Any legal action or proceeding with respect to this Agreement, any Note or any Guarantee may be brought in the courts of the State of New York or of the United States for the Southern District of New York, and, by execution and delivery of this Agreement, each of the parties to this Agreement hereby irrevocably accepts for itself and in respect of its respective property, generally and unconditionally, the jurisdiction of the aforesaid courts. Each of the parties to this Agreement hereby further irrevocably waives any claim that any such courts lack jurisdiction over such party, and agrees not to plead or claim, in any legal action or proceeding with respect to this Agreement, the Notes or the Guarantees brought in any of the aforesaid courts, that any such court lacks jurisdiction over such party. Each of the parties to this Agreement irrevocably consents to the service of process in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to such party, at its respective address for notices pursuant to Section 11.9, such service to become effective 30 days after such mailing. To the extent permitted by law, each of the parties to this Agreement hereby irrevocably waives any objection to such service of process and further irrevocably waives and agrees not to plead or claim in any action or proceeding commenced hereunder or under any Note or any Guarantee that service of process was in any way invalid or ineffective. Nothing herein shall affect the right of any party to this Agreement to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against any party in any other jurisdiction. (b) Each of the parties to this Agreement hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Agreement, the Notes or the Guarantees brought in the courts referred to in Section 11.17(a) above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. (c) Each of the parties to this Agreement hereby irrevocably waives all right to a trial by jury in any action, proceeding or counterclaim arising out of or relating to this Agreement, the Notes or the Guarantees or the transactions contemplated hereby or thereby. Section 11.18 Payments Pro Rata (a) The Agents agree that promptly after their receipt of each payment of any interest or premium on or principal of the Notes from or on behalf of the Company or any Subsidiary Guarantor, they shall, except as otherwise provided in this Agreement, distribute such payment to the Lenders (other than any Lender that has consented in writing to waive its -113- pro rata share of such payment) pro rata based upon their respective pro rata shares, if any, of such payment. (b) Each of the Lenders agrees that, if it should receive any amount hereunder (whether by voluntary payment, by realization upon security, by the exercise of the right of setoff or banker's lien, by counterclaim or cross action, by the enforcement of any right under the Credit Documents, or otherwise) which is applicable to the payment of the principal of, or interest on, the Loan of a sum which with respect to the related sum or sums received by other Lenders is in a greater proportion than the total of such Obligations then owed and due to such Lender bears to the total of such Obligations then owed and due to all of the Lenders immediately prior to such receipt, then such Lender receiving such excess payment shall purchase for cash without recourse or warranty from the other Lenders an interest in the Obligations of the Company to such Lenders in such amount as shall result in a proportional participation by all of the Lenders in such amount; provided that, if all or any portion of such excess amount is thereafter recovered from such Lender, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. Section 11.19 Taxes (a) Any and all payments by any Loan Party hereunder or under any of the other Credit Documents shall be made free and clear of and without deduction or withholding for any and all present or future Taxes, unless such Taxes are required by law or the administration thereof to be deducted or withheld and excluding (i) in the case of each Lender and the Administrative Agent, Taxes imposed on its net income and franchise taxes imposed on it by the jurisdiction under the laws of which such Person is organized or any political subdivision thereof, (ii) in the case of each such Lender and the Administrative Agent, any Taxes that are in effect and that would apply to a payment to such Person, as applicable, as of the Closing Date (but excluding any Taxes attributable to a change in law, rule or regulation or in the application or interpretation thereof by any Governmental Authority occurring after the Closing Date), and (iii) if any Person acquires any interest in this Agreement (a "TRANSFEREE"), any Taxes to the extent that they are in effect and would apply to a payment to such Transferee as of the date of the acquisition of such interest (except to the extent that the assignor or other transferor was entitled to receive additional amounts from any Loan Party with respect to Taxes), as the case may be (all such nonexcluded Taxes being hereinafter referred to as "COVERED TAXES"). If the Company shall be required by Law or the administration thereof to deduct or withhold any Covered Taxes from or in respect of any sum payable hereunder or under any other Credit Document, (a) unless such requirement results from the failure of the payee to perform its obligations under Section 11.2(e), the sum payable shall be increased as may be necessary so that after making all required deductions or withholdings (including deductions or withholdings applicable to additional amounts paid under this paragraph), the Lender receives an amount equal to the sum it would have received if no such deduction or withholding had been made; (b) the Company shall make such deductions or withholdings; -114- and (c) the Company forthwith shall timely pay the full amount deducted or withheld to the relevant taxation or other authority in accordance with applicable Law. (b) The Company agrees to pay forthwith any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies (all such taxes, charges and levies being herein referred to as "OTHER TAXES") imposed by any jurisdiction (or any political subdivision or taxing authority thereof or therein) which arise from any payment made by the Company hereunder or under any of the other Credit Documents or from the execution, delivery, enforcement or registration of, or otherwise with respect to, this Agreement or any of the other Credit Documents. (c) The Company agrees to indemnify the Administrative Agent and each of the Lenders for the full amount of Covered Taxes or Other Taxes not deducted or withheld and paid by the Company in accordance with Sections 11.19(a) and 11.19(b) to the relevant taxation or other authority and any Taxes other than Covered Taxes or Other Taxes imposed by any jurisdiction on amounts payable by the Company under this Section 11.19 paid by such Lender or the Administrative Agent and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not any such Taxes or Other Taxes were correctly or legally asserted. Payment under this indemnification shall be made within 30 days from the date the Administrative Agent or such Lender makes written demand therefor. A certificate as to the amount of such Taxes or Other Taxes and evidence of payment thereof submitted to the Company shall be prima facie evidence, absent manifest error, of the amount due from the Company to the Administrative Agent or such Lender. (d) The Company shall furnish to the Administrative Agent and each of such Lenders the original or a certified copy of a receipt evidencing any payment of Taxes or Other Taxes made by the Company as soon as such receipt becomes available. (e) The provisions of this Section 11.19 shall survive the termination of this Agreement and repayment of all Obligations. (f) If the Administrative Agent or a Lender (or an assignee) receives a refund of any Covered Taxes or Other Taxes as to which it has been indemnified by a Loan Party or with respect to which a Loan Party has paid additional amounts pursuant to this Section 11.19, it shall pay over such refund to the Company (but only to the extent of indemnity payments made, or additional amounts paid, by a Loan Party under this Section 11.19 with respect to the Covered Taxes or the Other Taxes giving rise to such refund), net of all out-of-pocket expenses (including, without limitation, any Taxes imposed on such refund) of the Administrative Agent or such Lender (or assignee) and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund); provided, however, that the Company, upon the request of the Administrative Agent or such Lender (or assignee), agrees to repay the amount paid over to the Company (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Administrative Agent or such Lender (or assignee) in the event the Administrative Agent or such Lender (or assignee) is required to repay such refund to such Governmental Authority. Nothing contained -115- in this Section 11.19(f) shall require the Administrative Agent or any Lender (or assignee) to make available its tax returns or any other information which it deems confidential to any Loan Party or any other person. Notwithstanding anything to the contrary, in no event will any Lender be required to pay any amount to the Company the payment of which would place such Lender in a less favorable net after-tax position than such Lender would have been in if the additional amounts giving rise to such refund of any Covered Taxes or Other Taxes had never been paid. Section 11.20 Waiver of Stay, Extension or Usury Laws The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive the Company from paying all or any portion of the principal of or interest on the Loan as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Agreement; and (to the extent that it may lawfully do so) the Company hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Administrative Agent, but will suffer and permit the execution of every such power as though no such law had been enacted. Section 11.21 Requirements of Law If at any time after the Closing Date any Lender reasonably determines that the introduction of or any change in any applicable law or governmental rule, regulation, order, guideline, directive or request (whether or not having the force of law) concerning capital adequacy, or any change in interpretation or administration thereof by any Governmental Authority, central bank or comparable agency, will have the effect of increasing the amount of capital required or expected to be maintained by such Lender or any Person controlling such Lender based on the existence of such Lender's Loan hereunder or its obligations hereunder, then the Company and each of its Subsidiaries jointly and severally agree to pay to such Lender, upon its written demand therefor, such additional amounts as shall be required to compensate such Lender or such other Person for the increased cost to such Lender or such other Person or the reduction in the rate of return to such Lender or such other Person as a result of such increase of capital. In determining such additional amounts, each Lender will act reasonably and in good faith and will use averaging and attribution methods which are reasonable, provided that such Lender's reasonable good faith determination of compensation owing under this Section 11.21 shall, absent demonstrable error, be final and conclusive and binding on all the parties hereto. Each Lender, upon determining that any additional amounts will be payable pursuant to this Section 11.21, will give written notice thereof to the Company (a copy of which shall be sent by such Lender to the Administrative Agent), which notice shall show the basis for calculation of such additional amounts, although the failure to give any such notice shall not release or diminish any of the Company's, the Company's or their -116- Subsidiaries' obligations to pay additional amounts pursuant to this Section 11.21 upon the subsequent receipt of such notice. Section 11.22 Confidentiality (a) Subject to the provisions of Section 11.22(b), each Lender agrees that it will use its best efforts not to disclose without the prior consent of the Company (other than to its Affiliates, employees, auditors, advisors or counsel or to another Lender if the Lender or such Lender's holding or parent company in its sole discretion determines that any such party should have access to such information, provided such Persons shall be subject to the provisions of this Section 11.22 to the same extent as such Lender) any information with respect to the Company or any of their Subsidiaries which is now or in the future furnished pursuant to this Agreement or any other Credit Document and which is designated by any of the Company or any of the Subsidiary Guarantors to the Lenders in writing as confidential; provided that any Lender may disclose any such information (a) as has become generally available to the public, (b) as may be required or appropriate in any report, statement or testimony submitted to any municipal, state or Federal regulatory body having or claiming to have jurisdiction over such Lender or to the Federal Reserve Board or the Federal Deposit Insurance Corporation or similar organizations (whether in the United States or elsewhere) or their successors, (c) as may be required or appropriate with respect to any summons or subpoena or in connection with any litigation, (d) in order to comply with any law, order, regulation or ruling applicable to such Lender, (e) to the Administrative Agent and (f) to any prospective or actual Transferee or participant in connection with any contemplated transfer or participation of any of the Notes or any interest therein by such Lender, provided that such prospective transferee agrees to provisions substantially the same as those contained in this Section 11.22. (b) Each of the Company and the Subsidiary Guarantors hereby acknowledges and agrees that each Lender may share with any of its affiliates any information related to the Company or any of its Subsidiaries (including, without limitation, any nonpublic customer information regarding the creditworthiness of the Company and its Subsidiaries); provided such Persons shall be subject to the provisions of this Section 11.22 to the same extent as such Lender. -117- WITNESS the due execution hereof by the respective duly authorized officers of the undersigned as of the date first written above. COMPANY: WELLMAN, INC. By: /s/ Keith R. Phillips --------------------------------------- Title: Chief Financial Officer Notice Address: Wellman, Inc. 595 Shrewsbury Avenue Shrewsbury, New Jersey 07702 Attention: Telephone: Telecopy: GUARANTORS: PRINCE, INC. By: /s/ Keith R. Phillips --------------------------------------- Title: President FIBER INDUSTRIES, INC. By: /s/ Keith R. Phillips --------------------------------------- Title: Vice President WELLMAN OF MISSISSIPPI, INC. By: /s/ Keith R. Phillips --------------------------------------- Title: Vice President & Treasurer CARPET RECYCLING OF GEORGIA, INC. By: /s/ Keith R. Phillips --------------------------------------- Title: Vice President & Treasurer ALG, Inc. By: /s/ Keith R. Phillips --------------------------------------- Title: President PERMACLEAR EAST, INCORPORATED By: /s/ Keith R. Phillips --------------------------------------- Title: President WELLMAN RESINS, LLC By: /s/ Keith R. Phillips --------------------------------------- Title: Treasurer & Manager FIISB, INC. By: /s/ Keith R. Phillips --------------------------------------- Title: Vice President FINWELL, INC. By: /s/ Keith R. Phillips --------------------------------------- Title: President JOSDAV INC. By: /s/ Keith R. Phillips --------------------------------------- Title: Vice President & Treasurer KHL, INC. By: /s/ Keith R. Phillips --------------------------------------- Title: President MED RESINS, INC. By: /s/ Keith R. Phillips --------------------------------------- Title: President WAREHOUSE ASSOCIATES, INC. By: /s/ Keith R. Phillips --------------------------------------- Title: Vice President & Treasurer MRF, INC. By: /s/ Keith R. Phillips --------------------------------------- Title: Vice President & Treasurer WELLMAN EXPORTS, V.I. By: /s/ Keith R. Phillips --------------------------------------- Title: Treasurer PTA RESOURCES, LLC By: /s/ Keith R. Phillips --------------------------------------- Title: President AGENTS: DEUTSCHE BANK TRUST COMPANY AMERICAS, as Administrative Agent By: /s/ Mary Jo Jolly --------------------------------------- Title: Assistant Vice President DEUTSCHE BANK TRUST COMPANY AMERICAS, as Collateral Agent By: /s/ Mary Jo Jolly --------------------------------------- Title: Assistant Vice President JP MORGAN CHASE BANK, as Syndication Agent By: /s/ James H. Ramage --------------------------------------- Title: Managing Director DEUTSCHE BANK SECURITIES INC., as Joint Lead Arranger and Joint Lead Bookrunner By: /s/ John G. Anos --------------------------------------- Title: Managing Director By: /s/ Michael V. Johnson --------------------------------------- Title: Managing Director JP MORGAN SECURITIES, INC., as Joint Lead Arranger and Joint Lead Bookrunner By: /s/ Michael K. Ryan --------------------------------------- Title: Vice President GENERAL ELECTRIC CAPITAL CORPORATION, as Co-Documentation Agent By: /s/ Anne Bartolot --------------------------------------- Title: Its Duly Authorized Signatory ABN AMRO BANK NV., as Co-Documentation Agent By: /s/ Timothy E. Williams --------------------------------------- Title: Associate By: /s/ Suzanne Smith --------------------------------------- Title: Vice President LENDERS: Commitment: $112,750,000 DEUTSCHE BANK TRUST COMPANY AMERICAS By: /s/ Mary Jo Jolly --------------------------------------- Title: Assistant Vice President Commitment: $64,750,000 JP MORGAN CHASE BANK By: /s/ James H. Ramage --------------------------------------- Title: Managing Director Commitment: $6,500,000 GENERAL ELECTRIC CAPITAL CORPORATION By: /s/ Anne Bartolot --------------------------------------- Title: Its Duly Authorized Signatory Commitment: $1,000,000 ABN AMRO BANK NV. By: /s/ Timothy E. Williams --------------------------------------- Title: Associate By: /s/ Suzanne Smith --------------------------------------- Title: Vice President -118- EX-4.(A)(3) 5 b49002wiexv4wxayx3y.txt EX-4.(A)(3) SECOND LIEN SENIOR CREDIT AGREEMENT EXHIBIT 4(a)(3) ================================================================================ SECOND LIEN SENIOR CREDIT AGREEMENT dated as of February 10, 2004 among WELLMAN, INC., as Borrower, THE SUBSIDIARY GUARANTORS named herein, THE LENDERS named herein, DEUTSCHE BANK TRUST COMPANY AMERICAS, as Administrative Agent and Collateral Agent, JPMORGAN CHASE BANK, as Syndication Agent, DEUTSCHE BANK SECURITIES INC., as Joint Lead Arranger and Joint Lead Bookrunner, J.P. MORGAN SECURITIES INC., as Joint Lead Arranger and Joint Lead Bookrunner, and GENERAL ELECTRIC CAPITAL CORPORATION and ABN AMRO BANK N.V., as Co-Documentation Agents ================================================================================ TABLE OF CONTENTS
Page ---- ARTICLE 1 DEFINITIONS Section 1.1 Certain Defined Terms................................................... 1 Section 1.2 Accounting Terms........................................................ 35 Section 1.3 Other Definitional Provisions........................................... 35 ARTICLE 2 AMOUNT AND TERMS OF LOAN COMMITMENT AND LOANS; NOTES Section 2.1 The Loan................................................................ 35 Section 2.2 Maturity of the Loan.................................................... 37 Section 2.3 Interest on the Loan.................................................... 37 Section 2.4 Fees.................................................................... 37 Section 2.5 Prepayments and Payments................................................ 37 Section 2.6 Use of Proceeds......................................................... 41 Section 2.7 Additional Commitments and Additional Loans............................. 41 ARTICLE 3 CONDITIONS Section 3.1 Conditions to the Loan.................................................. 43 ARTICLE 4 REPRESENTATIONS AND WARRANTIES Section 4.1 Company Status.......................................................... 50 Section 4.2 Company Power and Authority............................................. 51 Section 4.3 No Violation............................................................ 51 Section 4.4 Governmental Approvals.................................................. 51 Section 4.5 Financial Statements; Financial Condition; Undisclosed Liabilities; Projections; Etc...................................................... 52 Section 4.6 Litigation.............................................................. 53 Section 4.7 True and Complete Disclosure............................................ 53 Section 4.8 Tax Returns and Payments................................................ 54 Section 4.9 Compliance with ERISA................................................... 54 Section 4.10 Representations and Warranties in Documents............................. 55 Section 4.11 Properties.............................................................. 55
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Page ---- Section 4.12 Capitalization.......................................................... 56 Section 4.13 Subsidiaries............................................................ 56 Section 4.14 Compliance with Statutes, Etc........................................... 57 Section 4.15 Investment Company Act.................................................. 57 Section 4.16 Public Utility Holding Company Act...................................... 57 Section 4.17 Environmental Matters................................................... 58 Section 4.18 Labor Relations......................................................... 58 Section 4.19 Patents, Licenses, Franchises and Formulas.............................. 59 Section 4.20 Indebtedness............................................................ 59 Section 4.21 Transactions............................................................ 59 Section 4.22 Insurance............................................................... 60 Section 4.23 Security Documents...................................................... 60 Section 4.24 No Default.............................................................. 61 Section 4.25 Compliance with Contracts, Etc.......................................... 61 Section 4.26 Use of Proceeds; Margin Stock, Etc...................................... 61 Section 4.27 Survival of Representations and Warranties.............................. 61 Section 4.28 Guarantees.............................................................. 62 Section 4.29 Anti-Terrorism Law...................................................... 62 ARTICLE 5 AFFIRMATIVE COVENANTS Section 5.1 Financial Statements and Other Reports.................................. 63 Section 5.2 Books, Records and Inspections.......................................... 67 Section 5.3 Existence; Businesses and Properties.................................... 67 Section 5.4 Insurance............................................................... 68 Section 5.5 Compliance with Statutes, Etc........................................... 69 Section 5.6 Compliance with Environmental Laws...................................... 69 Section 5.7 ERISA................................................................... 70 Section 5.8 Performance of Obligations.............................................. 70 Section 5.9 Payment of Taxes........................................................ 70 Section 5.10 Payments in U.S. Dollars................................................ 71 Section 5.11 Collateral.............................................................. 71 Section 5.12 Security Interests; Further Assurances.................................. 73 Section 5.13 Information Regarding Collateral........................................ 73 Section 5.14 Register................................................................ 74 Section 5.15 Post Closing Matters.................................................... 75 ARTICLE 6 NEGATIVE COVENANTS Section 6.1 Indebtedness............................................................ 75 Section 6.2 Liens................................................................... 78 Section 6.3 Restricted Payments..................................................... 79
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Page ---- Section 6.4 Limitation on Preferred Stock of Restricted Subsidiaries................ 82 Section 6.5 Senior Subordinated Indebtedness........................................ 82 Section 6.6 Restriction on Fundamental Changes...................................... 82 Section 6.7 Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries............................................... 85 Section 6.8 Transactions with Shareholders and Affiliates........................... 86 Section 6.9 Embargoed Person........................................................ 87 Section 6.10 Business Activities..................................................... 87 Section 6.11 Amendments or Waivers of Certain Documents.............................. 87 Section 6.12 Anti-Terrorism Law; Anti-Money Laundering............................... 88 Section 6.13 Asset Sales............................................................. 88 Section 6.14 Additional Guarantees................................................... 89 ARTICLE 7 EVENTS OF DEFAULT Section 7.1 Events of Default....................................................... 90 ARTICLE 8 COLLATERAL ACCOUNT; APPLICATION OF FIRST LIEN COLLATERAL PROCEEDS Section 8.1 Collateral Account...................................................... 93 Section 8.2 Proceeds of Destruction, Taking and Collateral Dispositions............. 94 Section 8.3 Application of Proceeds................................................. 94 ARTICLE 9 THE ADMINISTRATIVE AGENT AND THE COLLATERAL AGENT Section 9.1 Appointment............................................................. 95 Section 9.2 Agent in Its Individual Capacity........................................ 95 Section 9.3 Exculpatory Provisions.................................................. 96 Section 9.4 Reliance by Agent....................................................... 96 Section 9.5 Delegation of Duties.................................................... 97 Section 9.6 Successor Agent......................................................... 97 Section 9.7 Non-Reliance on Agents and Other Lenders................................ 97 Section 9.8 Notice of Default....................................................... 98 Section 9.9 Indemnification......................................................... 98 Section 9.10 Concerning the Collateral and the Security Documents.................... 98 Section 9.11 Name Agents............................................................. 101
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Page ---- ARTICLE 10 GUARANTEE Section 10.1 Unconditional Guarantee................................................. 101 Section 10.2 Severability............................................................ 102 Section 10.3 Release of a Subsidiary Guarantor....................................... 102 Section 10.4 Limitation of Subsidiary Guarantor's Liability.......................... 102 Section 10.5 Subsidiary Guarantors May Consolidate, Etc., on Certain Terms........... 103 Section 10.6 Contribution............................................................ 103 Section 10.7 Evidence of Guarantee................................................... 104 Section 10.8 Waiver of Stay, Extension or Usury Laws................................. 104 Section 10.9 Waiver of Subrogation................................................... 104 ARTICLE 11 MISCELLANEOUS Section 11.1 U.S.A. Patriot Act...................................................... 105 Section 11.2 Participations in and Assignments of Loan and Notes..................... 105 Section 11.3 Expenses................................................................ 107 Section 11.4 Indemnity............................................................... 108 Section 11.5 Setoff.................................................................. 108 Section 11.6 Amendments and Waivers.................................................. 109 Section 11.7 Independence of Covenants............................................... 109 Section 11.8 Entirety................................................................ 109 Section 11.9 Notices................................................................. 109 Section 11.10 Survival of Warranties and Certain Agreements........................... 110 Section 11.11 Failure or Indulgence Not Waiver; Remedies Cumulative................... 110 Section 11.12 Severability............................................................ 110 Section 11.13 Headings................................................................ 110 Section 11.14 Applicable Law.......................................................... 111 Section 11.15 Successors and Assigns; Subsequent Holders of Notes..................... 111 Section 11.16 Counterparts; Effectiveness............................................. 111 Section 11.17 Consent to Jurisdiction; Venue; Waiver of Jury Trial.................... 111 Section 11.18 Payments Pro Rata....................................................... 112 Section 11.19 Taxes................................................................... 112 Section 11.20 Waiver of Stay, Extension or Usury Laws................................. 114 Section 11.21 Requirements of Law..................................................... 114 Section 11.22 Confidentiality......................................................... 115
SCHEDULES 1.1(a) EXISTING LIENS 1.1(b) SUBSIDIARY GUARANTORS -iv- 1.1(c) MORTGAGED PROPERTY 3.1(h) OUTSTANDING INDEBTEDNESS 3.1(m)(iii) LEASED PROPERTY 3.1(n)(iii) MORTGAGED PROPERTY VALUES 4.11(b) REAL PROPERTY 4.12 CAPITALIZATION 4.13 SUBSIDIARIES 4.19 INTELLECTUAL PROPERTY 4.20 EXISTING INDEBTEDNESS 4.22 INSURANCE 5.15 POST CLOSING MATTERS EXHIBITS I FORM OF NOTE II FORM OF SOLVENCY CERTIFICATE III FORM OF COMPLIANCE CERTIFICATE IV FORM OF NOTICE OF BORROWING V FORM OF EDWARDS & ANGELL LLP OPINION VI FORM OF EDWARDS & ANGELL LLP OPINION VII-1 LOCAL COUNSEL VII-2 FORM OF LOCAL COUNSEL OPINION VIII FORM OF NOTATION OF GUARANTEE IX-1 FORM OF SINGLE ASSIGNMENT AND ASSUMPTION AGREEMENT IX-2 FORM OF MULTIPLE ASSIGNMENT AND ASSUMPTION AGREEMENT X-1 FORM OF MORTGAGE X-2 FORM OF LEASEHOLD MORTGAGE XI-1 FORM OF PERFECTION CERTIFICATE XI-2 FORM OF PERFECTION CERTIFICATE SUPPLEMENT XII FORM OF SECURITY AGREEMENT XIII FORM OF INTERCREDITOR AGREEMENT XIV FORM OF LANDLORD ACCESS AGREEMENT XV FORM OF OFFICER'S CLOSING CERTIFICATE XVI FORM OF ADDITIONAL LOAN ASSUMPTION AGREEMENT -v- This Second Lien Senior Credit Agreement is dated as of February 4, 2004, and entered into by and among Wellman, Inc., a Delaware corporation (the "COMPANY"), the Subsidiary Guarantors named on the signature pages hereto, the Lenders named on the signature pages hereto (the "INITIAL LENDERS"), Deutsche Bank Trust Company Americas ("DBTCA"), as Administrative Agent and Collateral Agent, JPMorgan Chase Bank, as Syndication Agent, Deutsche Bank Securities Inc. ("DBSI") and J.P. Morgan Securities Inc. ("JPM"), as Joint Lead Arrangers and Joint Lead Bookrunners, and General Electric Capital Corporation and ABN AMRO Bank N.V., as Co-Documentation Agents (the "DOCUMENTATION AGENTS"). RECITALS WHEREAS, the Company desires that the Lenders extend a second lien senior credit facility to the Company in connection with the Financing Transactions (as defined herein); NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereby agree as follows: ARTICLE 1 DEFINITIONS Section 1.1 Certain Defined Terms The following terms used in this Agreement shall have the following meanings: "ACCELERATION NOTICE" has the meaning ascribed to such term in Section 7.1. "ACQUIRED DEBT" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Restricted Subsidiary of such specified Person or which is assumed by such specified Person at the time such specified Person acquires the assets of such other Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or selling its assets to, or becoming a Restricted Subsidiary of, such specified Person and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "ADDITIONAL CLOSING DATE" has the meaning ascribed to such term in Section 2.7(c)(iv). "ADDITIONAL LENDER" means a Lender with an Additional Commitment or an outstanding Additional Loan. "ADDITIONAL LOAN AMOUNT" means an aggregate principal amount of up to $25.0 million. "ADDITIONAL LOAN ASSUMPTION AGREEMENT" means an Additional Loan Assumption Agreement, substantially in the form of Exhibit XVI hereto, among the Company, the Subsidiary Guarantors, the Administrative Agent and one or more Additional Lenders. "ADDITIONAL LOAN COMMITMENT" means the commitment of any Additional Lender, established pursuant to Section 2.7, to make Additional Loans to the Company. "ADDITIONAL LOANS" means any Loans made by one or more Additional Lenders to the Borrower pursuant to Section 2.7. "ADJUSTED NET ASSETS" shall have the meaning provided in Section 10.6. "ADMINISTRATIVE AGENT" means DBTCA or its successor, in its capacity as Administrative Agent hereunder. "AFFILIATE," as applied to any Person, means any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For the purposes of this definition, "control" (including with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise. "AFFILIATE TRANSACTION" has the meaning ascribed to such term in Section 6.8(a). "AGENT" means any of the Administrative Agent, the Collateral Agent, the Syndication Agent, the Joint Lead Arrangers and the Joint Lead Bookrunners. "AGREEMENT" means this First Lien Senior Credit Agreement dated as of February 10, 2004, as it may be amended, supplemented or otherwise modified from time to time in accordance with the terms hereof. "ANTI-TERRORISM LAW" has the meaning set forth in Section 4.29. "APPLICABLE RATE" means for each Quarterly Period, the greater of (a) the LIBOR Rate then in effect and (b) 2.0%, in each case, plus 6.75% per annum. "ASSET SALE" means any direct or indirect sale, issuance, conveyance, lease (other than operating leases and subleases, and non-exclusive licenses and sublicenses of intellectual property, in each case entered into in the ordinary course of business), assignment, transfer or other disposition for value (including, without limitation, pursuant to any amalgamation, merger or consolidation or pursuant to any Sale and Leaseback Transaction) by the Company or by any of its Restricted Subsidiaries to any Person other than the Company or any of its Restricted Subsidiaries (any such transaction, a "DISPOSITION") of (i) any of the stock of any of the Company's Restricted Subsidiaries, (ii) substantially all of the assets of any division or line of business of the Company or of any of its Restricted Subsidiaries, or (iii) any other assets of the Company or of any of its Restricted Subsidiaries other than in the ordinary course of business; excluding: -2- (a) any disposition of Cash Equivalents or inventory in the ordinary course of business or the lease or sublease of any real or personal property in the ordinary course of business, (b) any disposition in any single transaction or related series of transactions the aggregate fair market value, net of costs of disposal, of which does not exceed $10.0 million, (c) any disposition of assets or property in the ordinary course of business to the extent such property or assets are obsolete, worn out or no longer useful in the Company's or any Restricted Subsidiary's business, (d) the surrender or waiver of contract rights or the settlement, release or surrender of contract, tort or other claims of any kind, (e) the grant in the ordinary course of business of any non-exclusive license of patents, trademarks, registrations therefor and other similar intellectual property, (f) any dividend, distribution, investment or payment made pursuant to Section 6.3, (g) any sale, lease, conveyance, disposition or other transfer of substantially all of the assets of the Company as permitted by Section 6.6, (h) Casualty Events and (i) transfers of assets under Tax Reduction Agreements. "ATTRIBUTABLE INDEBTEDNESS" means when used with respect to any Sale and Leaseback Transaction, as at the time of determination, the present value (discounted at a rate equivalent to the Company's then-current weighted average cost of funds for borrowed money as at the time of determination, compounded on a semi-annual basis) of the total obligations of the lessee for rental payments during the remaining term of the lease included in any such Sale and Leaseback Transaction. "AUDITED FINANCIAL STATEMENTS" has the meaning set forth in Section 3.1(e). "BAILEE LETTER" has the meaning assigned thereto in the Security Agreement. "BANKRUPTCY LAW" means Title 11 of the United States Code entitled "Bankruptcy," as now and hereafter in effect, or any successor statute or any other United States federal, state or local law or the law of any other jurisdiction relating to bankruptcy, insolvency, winding up, liquidation, reorganization or relief of debtors, whether in effect on the date hereof or hereafter. "BANKRUPTCY ORDER" means any court order made in a proceeding pursuant to or within the meaning of any Bankruptcy Law, containing an adjudication of bankruptcy or insol- -3- vency, or providing for liquidation, winding up, dissolution or reorganization, or appointing a custodian of a debtor or of all or any substantial part of a debtor's property, or providing for the staying, arrangement, adjustment or composition of indebtedness or other relief of a debtor. "BOARD OF DIRECTORS" means, with respect to any Person, the Board of Directors (or similar governing body) of such Person or any duly authorized committee of such Board of Directors. "BUSINESS DAY" means any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York or is a day on which banking institutions therein located are authorized or required by law or other governmental action to close. "CAPITAL STOCK" means (i) with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents (however designated and whether or not voting) of corporate stock, including, without limitation, each class of Common Stock and Preferred Stock of such Person, and (ii) with respect to any Person that is not a corporation, any and all partnership or other equity interests of such Person, and in each case, including securities or rights convertible into or exchangeable for such Capital Stock. "CAPITALIZED LEASE OBLIGATION" means obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligations shall be the capitalized amount of such obligations determined in accordance with GAAP. "CASH EQUIVALENTS" means (i) marketable direct obligations issued or unconditionally guaranteed or insured by the United States government or issued by any agency or instrumentality thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof; (ii) marketable direct obligations issued by any state of the United States or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having the highest rating obtainable from either S&P or Moody's; (iii) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, rated at least A-1 by S&P or at least P-1 by Moody's; (iv) time deposits, certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof issued by any commercial bank organized under the laws of the United States or any state thereof or the District of Columbia that (a) is "adequately capitalized" (as defined in the regulations of its primary Federal banking regulator) and (b) has Tier 1 capital (as defined in such regulations) of not less than $100.0 million; (v) repurchase agreements with respect to, and which are fully secured by a perfected security interest in, obligations of a type described in clause (i) or clause (ii) above and are with any commercial bank described in clause (iv) above; (vi) with respect to a Foreign Subsidiary, obligations of foreign Persons (including foreign sovereign nations, political subdivisions or public instrumentalities thereof) correlative in type, maturity and rating to those set forth in clauses (i) through (v) above; (vii) shares of any money market mutual fund that has substantially all of its assets invested continuously in the types of investments referred to in clauses (i) and (vi) above; and (vii) demand deposit accounts maintained in the ordinary course of business. -4- "CASH PROCEEDS" means, with respect to any Asset Sale, cash payments (including any cash received by way of deferred payment pursuant to, or monetization of, a note receivable or otherwise (other than the portion of such deferred payment constituting or deemed to constitute interest, which shall be deemed not to constitute Cash Proceeds) but only as and when so received) received from such Asset Sale. "CASUALTY EVENT" means, with respect to any property (including Real Property) of any Person, any loss of title with respect to such property or any loss of or damage to or destruction of, or any condemnation or other taking (including by any Governmental Authority) of, such property for which such Person or any of its Subsidiaries receives insurance proceeds (not including proceeds of business interruption insurance) or proceeds of a condemnation award or other compensation; provided, however, no such event shall constitute a Casualty Event if such proceeds or other compensation in respect thereof is less than $10.0 million. "Casualty Event" shall include but not be limited to any taking of all or any part of any Real Property of any Person or any part thereof, in or by condemnation or other eminent domain proceedings pursuant to any law, or by reason of the temporary requisition of the use or occupancy of all or any part of any Real Property of any Person or any part thereof by any Governmental Authority, civil or military. "CHANGE OF CONTROL" means the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company to any Person or group of related Persons for purposes of Section 13(d) of the Exchange Act (a "GROUP"), together with any Affiliates thereof (other than the Permitted Holder); (ii) the approval by the holders of Capital Stock of the Company of any plan or proposal for the liquidation or dissolution of the Company; (iii) any Person or Group (other than the Permitted Holder) shall become the owner, directly or indirectly, beneficially or of record, of shares representing more than 50% of the Voting Stock of the Company; or (iv) the replacement of a majority of the Board of Directors of the Company over a two-year period from the directors who constituted the Board of Directors of the Company at the beginning of such period, and such replacement shall not have been approved by a vote of at least a majority of the Board of Directors of the Company then still in office who either were members of such Board of Directors at the beginning of such period or whose election as a member of such Board of Directors was previously so approved. "CLOSING DATE" means February 10, 2004. "CO-DOCUMENTATION AGENTS" shall have the meaning set forth in the preamble hereto. -5- "COLLATERAL" mean, collectively, all of the Security Agreement Collateral, the Mortgaged Property and all other property of whatever kind and nature pledged as collateral under any Security Document. "COLLATERAL ACCOUNT" shall mean a collateral account or sub-account established and maintained by the Collateral Agent for the benefit of the Secured Parties, in accordance with the provisions of Article 8. "COLLATERAL AGENT" means DBTCA or its successor, in its capacity as Collateral Agent hereunder. "COMMISSION" means the Securities and Exchange Commission. "COMMON STOCK" of any Person means any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or non-voting) of, such Person's common stock, whether outstanding on the Closing Date or issued after the Closing Date, and includes, without limitation, all series and classes of such common stock. "COMPANY" has the meaning ascribed to such term in the introduction to this Agreement. "COMPLIANCE CERTIFICATE" means a certificate substantially in the form of Exhibit III delivered to the Administrative Agent by the Company pursuant to Section 5.1(c). "CONFIDENTIAL INFORMATION MEMORANDUM" means the Confidential Information Memorandum dated as of January 2004. "CONSOLIDATED INTEREST EXPENSE" means, for any period, the total consolidated interest expense (net of cash interest income) of the Company and its Restricted Subsidiaries for such period determined on a consolidated basis in accordance with GAAP plus, without duplication: (a) imputed interest on Capitalized Lease Obligations and Attributable Indebtedness with respect to any Sale and Leaseback Transaction of the Company and its Restricted Subsidiaries for such period; (b) commissions, discounts and other fees and charges owed by the Company or any of its Restricted Subsidiaries with respect to letters of credit securing financial obligations, bankers' acceptance financing and receivables financings for such period; (c) amortization of debt issuance costs, debt discount or premium and other financing fees and expenses incurred by the Company or any of its Restricted Subsidiaries for such period; (d) all interest paid or payable with respect to discontinued operations of the Company or any of its Restricted Subsidiaries for such period; -6- (e) the interest portion of any deferred payment obligations of the Company or any of its Restricted Subsidiaries for such period; and (f) all interest on any Indebtedness of the Company or any of its Restricted Subsidiaries of the type described in clause (v) or (vii) of the definition of "Indebtedness" for such period; provided that to the extent directly related to the Transactions, debt issuance costs, debt discount or premium and other financing fees and expenses (including fees paid with respect to the Refinanced Facilities) shall be excluded from the calculation of Consolidated Interest Expense. "CONSOLIDATED NET INCOME" means, with respect to any Person, for any period, the aggregate of the net income (or loss) of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (a) the net income of any other Person in which such Person or any of its Restricted Subsidiaries has an interest (which interest does not cause the net income of such other Person to be consolidated with the net income of such Person and its Subsidiaries in accordance with GAAP) shall be included only to the extent of the amount of dividends or distributions actually paid to such Person or such Restricted Subsidiary by such other Person during such period; (b) the net income of any Restricted Subsidiary of such Person that is subject to any Payment Restriction shall be excluded to the extent such Payment Restriction would prevent the payment of an amount that otherwise could have been paid to such Person or to a Restricted Subsidiary of such Person not subject to any Payment Restriction; and (c) there shall be excluded from Consolidated Net Income: (i) all gains and losses realized on any direct or indirect sale, issuance, conveyance, lease, assignment, transfer or other disposition of assets, net of related tax costs or tax benefits, as the case may be, or abandonments or reserves relating thereto, (ii) all gains and losses realized on the purchase or other acquisition by such Person or any of its Restricted Subsidiaries of any Securities of such Person or any of its Restricted Subsidiaries, (iii) all extraordinary gains or losses, (iv) all deferred financing costs written off or premiums paid in connection with the early extinguishment of any Indebtedness, in each case, incurred by the Company or any of its Subsidiaries in connection with the Transactions, (v) any non-recurring and non-operational charges or gains, (vi) income or loss attributable to discontinued operations (including, without limitation, operations disposed of during such period whether or not such operations were classified as discontinued), -7- (vii) in the case of a successor to the referent Person by consolidation or merger or as transferee of the referent Person's assets, any earnings of such successor prior to such consolidation, merger or transfer of assets, and (viii) the cumulative effect of a change in accounting principles. "CONSOLIDATED NON-CASH CHARGES" means, with respect to any Person, for any period, the aggregate depreciation, amortization and other non-cash expenses of such Person and its Restricted Subsidiaries reducing Consolidated Net Income of such Person and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP (excluding any such charges constituting an extraordinary item or loss or any such charge to the extent that it requires an accrual of or a reserve for cash charges for any future period). "CONTESTED COLLATERAL LIEN CONDITIONS" shall mean, with respect to any Lien, the following conditions: (a) the Company or the Restricted Subsidiary, as applicable, shall cause any proceeding instituted contesting such Lien to stay the sale or forfeiture of any portion of the Collateral on account of such Lien; (b) at the option and at the reasonable request of the Administrative Agent, to the extent such Lien is in an amount in excess of $250,000, the appropriate Loan Party shall maintain cash reserves in an amount sufficient to pay and discharge such Lien and the Administrative Agent's reasonable estimate of all interest and penalties related thereto; and (c) such Lien shall in all respects be subject and subordinate in priority to the Lien and security interest created and evidenced by the Security Documents, except if and to the extent that the law or regulation creating, permitting or authorizing such Lien provides that such Lien is or must be superior to the Lien and security interest created and evidenced by the Security Documents. "COVERED TAXES" has the meaning ascribed to it in Section 11.19. "CREDIT DOCUMENTS" means the Loan Documents and the Security Documents. "CURRENCY AGREEMENT" means any foreign exchange contract, currency swap agreement, futures contract, option contract, synthetic cap or other similar agreement or arrangement. "CUSTODIAN" means any receiver, interim receiver, receiver and manager, trustee, assignee, liquidator, sequestrator or similar official charged with maintaining possession or control over property for one or more creditors, whether under any Bankruptcy Law or otherwise. "DISCHARGE OF THE FIRST LIEN OBLIGATIONS" shall mean the occurrence of all of the following: (i) the termination of all commitments to extend credit that would constitute First -8- Lien Obligations and (ii) payment in full of all First Lien Obligations in accordance with the terms of the First Lien Credit Agreement (other than contingent indemnity obligations not due and payable). "DISCHARGE OF THE REVOLVING OBLIGATIONS" shall mean the occurrence of all of the following: (i) termination of all commitments to extend credit that would constitute Revolving Obligations, (ii) payment in full of all Revolving Obligations in accordance with the terms of the Revolving Credit Agreement and (iii) termination, cancellation or cash collateralization of all outstanding letters of credit constituting Revolving Obligations (other than contingent indemnity obligations not due and payable). "DISQUALIFIED CAPITAL STOCK" means any Capital Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event (other than an event which would constitute a Change of Control), (i) matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the sole option of the holder thereof, in whole or in part, on or prior to the final Maturity Date of the Loan, or (ii) is convertible into or exchangeable for (whether at the option of the issuer or the holder thereof) (a) debt securities or (b) any Capital Stock referred to in clause (i) above, in each case at any time prior to the final maturity of the Loan; provided that only the portion of Capital Stock which so matures or is mandatorily redeemable, is so convertible or exchangeable or is so redeemable at the option of the holder thereof prior to such final Maturity Date shall be deemed to be Disqualified Capital Stock. "DOLLARS" or the sign "$" means the lawful money of the United States. "EBITDA" means, with respect to any Person, for any period, the sum (without duplication) of: (1) Consolidated Net Income; (2) to the extent Consolidated Net Income has been reduced thereby: (a) all income taxes of such Person and its Restricted Subsidiaries paid or accrued in accordance with GAAP for such period (other than income taxes attributable to extraordinary gains or losses or nonrecurring and non-operational charges or gains); (b) Consolidated Interest Expense; and (c) Consolidated Non-cash Charges; and (3) non-recurring fees, cash charges and other cash expenses made or incurred in connection with the Transactions, in each case as determined on a consolidated basis for such Person and its Restricted Subsidiaries in accordance with GAAP. -9- "ELIGIBLE ASSIGNEE" means (i) a commercial bank, savings and loan association or savings bank or any other entity which is an "accredited investor" (as defined in Regulation D under the Securities Act) which extends credit or buys loans as one of its businesses including insurance companies, mutual funds and lease financing companies and any investment fund that invests in commercial loans; and (ii) any Lender, any Affiliate of any Lender and, with respect to any Lender that is an investment fund that invests in commercial loans, any other investment fund that invests in commercial loans and that is managed or advised by the same investment advisor as such Lender or by an Affiliate of such investment advisor. "EMPLOYEE BENEFIT PLAN" means an employee benefit plan (as defined in Section 3(3) of ERISA) that is maintained or contributed to by any ERISA Entity or with respect to which the Company or a Subsidiary of the Company could incur liability. "ENVIRONMENT" means ambient air, surface water and groundwater (including potable water, navigable water and wetlands), the land surface or subsurface strata, natural resources, the workplace or as otherwise defined in any Environmental Law. "ENVIRONMENTAL CLAIM" means any accusation, allegation, notice of violation, claim, demand, abatement order or other order or direction by any Governmental Authority or any Person for any response or corrective action, any damage, including, without limitation, personal injury (including sickness, disease or death), tangible or intangible property damage, investigation, remediation or other cost recovery, contribution, indemnity, consequential damages, damage to the environment, nuisance, pollution, contamination or other adverse effects on the Environment, or for fines or penalties, in each case arising under any Environmental Law, including without limitation, relating to, resulting from or in connection with Hazardous Materials and relating to the Company, any of its Subsidiaries or any of their respective properties or predecessors in interest. "ENVIRONMENTAL LAWS" means the common law and all statutes, ordinances, orders, rules, regulations, judgments or decrees relating to (i) pollution or protection of the Environment and public health and welfare, including, without limitation, those relating to the Release or threatened Release of Hazardous Materials, (ii) the generation, use, storage, transportation or disposal of Hazardous Materials, or (iii) occupational safety and health, including, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (42 U.S.C. Section 9601 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. Section 1801 et seq.), the Resource Conservation and Recovery Act of 1976 (42 U.S.C. Section 6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. Section 136 et seq.), the Occupational Safety and Health Act (29 U.S.C. Section 651 et seq.) and the Emergency Planning and Community Right-to-Know Act (42 U.S.C. Section 11001 et seq.), each as amended or supplemented, and regulations promulgated pursuant thereto, each as in effect as of the date of determination. "ENVIRONMENTAL LIEN" means a Lien in favor of a Governmental Authority or other Person for any liability, damages, costs or any other obligation under an Environmental Law. -10- "ENVIRONMENTAL PERMIT" means any permit, license, approval, consent or other authorization required by or from a Governmental Authority under Environmental Law. "EQUIPMENT" has the meaning assigned to such term in the Security Agreement. "EQUITY INTEREST" shall mean, with respect to any person, any and all shares, interests, participations or other equivalents, including membership interests (however designated, whether voting or nonvoting), of equity of such person, including, if such person is a partnership, partnership interests (whether general or limited) and any other interest or participation that confers on a person the right to receive a share of the profits and losses of, or distributions of property of, such partnership, whether outstanding on the date hereof or issued after the Closing Date, but excluding debt securities convertible or exchangeable into such equity. "EQUITY OFFERING" means an underwritten offering or private sale of Qualified Capital Stock of the Company. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute. "ERISA ENTITY" means any member of an ERISA Group. "ERISA EVENT" means (a) any "reportable event," as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Pension Plan (other than an event for which the 30-day notice period is waived by regulation); (b) the existence with respect to any Pension Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived, the failure to make by its due date a required installment under Section 412(m) of the Code with respect to any Pension Plan or the failure to make any required contribution to a Multiemployer Plan; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Pension Plan; (d) the incurrence by any ERISA Entity of any liability under Title IV of ERISA with respect to the termination of any Pension Plan; (e) the receipt by any ERISA Entity from the PBGC or a plan administrator of any notice relating to an intention to terminate any Pension Plan or to appoint a trustee to administer any Pension Plan, or the occurrence of any event or condition which would reasonably be expected to constitute grounds under ERISA for the termination of or the appointment of a trustee to administer, any Pension Plan; (f) the incurrence by any ERISA Entity of any liability with respect to the withdrawal or partial withdrawal from any Pension Plan or Multiemployer Plan; (g) the receipt by an ERISA Entity of any notice concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA; (h) the "substantial cessation of operations" within the meaning of Section 4062(e) of ERISA with respect to a Pension Plan; (i) the making of any amendment to any Pension Plan which would reasonably be expected to result in the imposition of a lien or the posting of a bond or other security; or (j) the occurrence of a nonexempt prohibited transaction (within the meaning of Section 4975 of the Code or Section 406 of ERISA) which would reasonably be expected to result in material liability to the Company or any of the Subsidiaries of the Company. -11- "ERISA GROUP" means the Company, any Subsidiary of the Company and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Company or any Subsidiary of the Company, are treated as a single employer under Section 414 of the Code. "EVENT OF DEFAULT" means each of the events set forth in Section 7.1. "EXCESS EXTRAORDINARY RECEIPTS" has the meaning set forth in Section 2.5(a)(ii)(II). "EXCESS PROCEEDS" has the meaning set forth in Section 6.13. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute. "EXECUTIVE ORDER" has the meaning set forth in Section 4.29. "EXTRAORDINARY RECEIPTS" means the total cash insurance proceeds, condemnation awards or other compensation received by the Company or any of its Restricted Subsidiaries in respect of any Casualty Event; but in the case of any prepayment made pursuant to Section 2.5(a)(ii)(II) hereof (a "CASUALTY PREPAYMENT EVENT"), net of (A) the amount of any tax required to be paid as a result of such Casualty Prepayment Event, (B) all other reasonable costs and expenses properly incurred by the Company or any Restricted Subsidiary of the Company in connection with such Casualty Prepayment Event (including, without limitation, legal, accounting and investment banking fees and brokerage and sales commissions) and (C) all reasonable costs and expenses incurred in connection with the collection of such proceeds, awards or other compensation. "FAIR MARKET VALUE" means, with respect to any asset or property, the price which could be negotiated in an arm's-length, free market transaction, for cash, between a willing seller and a willing and able buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Fair market value shall be determined by the Board of Directors of the Company acting in good faith and shall, in the case of any assets or property the fair market value of which exceeds $10.0 million, be evidenced by a resolution of the Board of Directors of the Company delivered to the Administrative Agent. "FEDERAL FUNDS RATE" means, for any period, a fluctuating interest rate equal for each day during such period to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by the Administrative Agent. -12- "FINANCING TRANSACTIONS" means, collectively, (i) the repayment of the Company's outstanding amounts under its existing $275.0 million revolving credit facility and the termination of such facility, (ii) the repayment and retirement of the Company's (a) $35.0 million in outstanding indebtedness to The Metropolitan Life Insurance Company due in November 2004, (b) $40.0 million in outstanding indebtedness to John Hancock Life Insurance Company and others due in December 2011 and (c) $25.0 million in outstanding indebtedness to John Hancock Life Insurance Company and others due in September 2009, (iii) the repayment and retirement of the $150.0 million synthetic lease facility of Permaclear East, Inc. maturing in July 2004, (iv) the repayment of all outstanding amounts under and the termination of the Company's existing accounts receivables facility, (v) the prepayment of a raw material contract for no more than $81.0 million and the purchase of the stock of the entity holding such raw material contract for not more than $5.0 million, and (vi) the termination of certain swap agreements of approximately $12.0 million (the agreements, contracts, facilities or arrangements set forth in clauses (i) through (vi) above, each a "REFINANCED FACILITY"). "FIRST LIEN COLLATERAL" means Collateral with respect to which a Lien is granted pursuant to the First Lien Credit Facility securing First Lien Obligations. "FIRST LIEN COLLATERAL AGENT" means "Collateral Agent" (as defined in the First Lien Credit Agreement). "FIRST LIEN CREDIT AGREEMENT" shall have the meaning set forth in the definition of "First Lien Credit Facility." "FIRST LIEN CREDIT FACILITY" means the term loan credit agreement providing for $185.0 million in term loans (the "FIRST LIEN CREDIT AGREEMENT") to be entered into on the date hereof, between the Company, the lenders party thereto in their capacities as lenders thereunder and DBTCA, as administrative agent, together with the related documents thereto (including, without limitation, any guarantee, collateral and security agreements and/or documents), in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented or otherwise modified from time to time, including any agreement extending the maturity of, refinancing, replacing or otherwise restructuring (including adding Restricted Subsidiaries of the Company as additional guarantors thereunder) all or any portion of the Indebtedness under such agreement or any successor or replacement agreement and whether by the same or any other agent, lender or group of lenders. "FIRST LIEN OBLIGATIONS" means "Obligations" (as defined in the First Lien Credit Agreement). "FIXED CHARGE COVERAGE RATIO" means, with respect to any Person, the ratio of (1) EBITDA of such Person during the four full fiscal quarters (the "FOUR QUARTER PERIOD") ending on or prior to the date of the transaction giving rise to the need to calculate the Fixed Charge Coverage Ratio (the "TRANSACTION Date") to (2) the aggregate Fixed Charges of such Person for the Four Quarter Period. -13- In addition to and without limitation of the foregoing, for purposes of this definition, "EBITDA" and "Fixed Charges" shall be calculated after giving effect on a pro forma basis for the period of such calculation to (i) the incurrence or repayment of any Indebtedness of such Person or any of its Restricted Subsidiaries (and the application of the proceeds thereof) giving rise to the need to make such calculation and any incurrence or repayment of other Indebtedness (and the application of the proceeds thereof), other than the incurrence or repayment of Indebtedness in the ordinary course of business for working capital purposes pursuant to working capital facilities, at any time subsequent to the first day of the Four Quarter Period and on or prior to the Transaction Date (the "REFERENCE PERIOD"), as if such incurrence or repayment, as the case may be (and the application of the proceeds thereof), occurred on the first day of the Four Quarter Period, (ii) any Investment, during the Reference Period, in any other Person that, as a result of such Investment, becomes a Restricted Subsidiary of such Person, (iii) the acquisition, during the Reference Period (by merger, consolidation or purchase of stock or assets), of any business or assets, and (iv) any sales or other dispositions of assets (other than sales of inventory in the ordinary course of business) occurring during the Reference Period, in each case as if such incurrence, repayment, Investment, acquisition or asset sale had occurred on the first day of the Reference Period; provided that whenever pro forma effect is given to an acquisition, pro forma expense and cost reductions shall be calculated on a basis consistent with Article 11 of Regulation S-X of the Securities Act and, furthermore, (A) Fixed Charges attributable to any Indebtedness computed on a pro forma basis and bearing a floating interest rate shall be computed as if the rate in effect on the Transaction Date had been the applicable rate in effect for the period, unless such Person or any of its Restricted Subsidiaries is a party to an Interest Rate Agreement of the type described in the definition of "Permitted Indebtedness" which will remain in effect for the 12-month period after the Transaction Date and which has the effect of fixing the interest rate on the date of computation, in which case such rate (whether higher or lower) shall be used, and (B) there shall be excluded from Fixed Charges any portion of such Fixed Charges related to any amount of Indebtedness that was outstanding during or subsequent to the Reference Period but is not outstanding on the Transaction Date, except for Fixed Charges actually incurred with respect to Indebtedness borrowed (as adjusted pursuant to clause (A)) under a revolving credit or similar arrangement to the extent the commitment thereunder remains in effect on the Transaction Date. If such Person or any of its Restricted Subsidiaries directly or indirectly guarantees any Indebtedness of a third Person, the Fixed Charge Coverage Ratio shall, without duplication, give effect to the incurrence of such Indebtedness as if such Person or Restricted Subsidiary had directly incurred such guaranteed Indebtedness. "FIXED CHARGES" means, with respect to any Person, for any period, the aggregate amount of (i) Consolidated Interest Expense during such period and (ii) dividend requirements on Preferred Stock of such Person and its Restricted Subsidiaries (whether in cash or otherwise (except dividends payable in shares of Qualified Capital Stock and dividends paid on Preferred Stock of Unrestricted Subsidiaries)) paid or scheduled to be paid in cash during such period and excluding items eliminated in consolidation. For purposes of this definition, (a) interest on a Capitalized Lease Obligation shall be deemed to accrue at an interest rate reasonably determined by the Board of Directors of such Person (as evidenced by a resolution of the Board of Directors) to be the rate of interest implicit in such Capitalized Lease Obligation in accordance with GAAP, (b) interest on Indebtedness incurred during such period (other than Indebtedness incurred pursu- -14- ant to working capital facilities) that is determined on a fluctuating basis shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest of such Indebtedness in effect on the date Fixed Charges are being calculated and (c) Fixed Charges shall be increased or reduced by the net cost (including amortization of discount) or benefit associated with Interest Rate Agreements attributable to such period. For purposes of clause (ii) above, dividend requirements shall be increased to an amount representing the pretax earnings that would be required to cover such dividend requirements; accordingly, the increased amount shall be equal to a fraction, the numerator of which is the amount of such dividend requirements and the denominator of which is one (1) minus the applicable actual combined federal, state, local and foreign income tax rate of such Person and its Restricted Subsidiaries (expressed as a decimal), on a consolidated basis, for the fiscal year immediately preceding the date of the transaction giving rise to the need to calculate Fixed Charges. "FOREIGN PLAN" means any employee benefit plan, program, policy, arrangement or agreement maintained or contributed to by, or entered into with, the Company or any Subsidiary of the Company with respect to employees employed outside the United States. "FOREIGN SUBSIDIARY" means each Subsidiary of the Company that is incorporated or organized under the laws of and conducts substantially all of its business in any jurisdiction other than the United States, any State thereof, the United States Virgin Islands or Puerto Rico. "FUNDING SUBSIDIARY GUARANTOR" has the meaning ascribed to it in Section 10.6. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, which are in effect as of the date hereof. "GOVERNMENTAL AUTHORITY" means any federal, state, local or foreign court, central bank or governmental agency, authority, instrumentality or regulatory body or any subdivision thereof. "GOVERNMENTAL REAL PROPERTY DISCLOSURE REQUIREMENTS" shall mean any Requirement of Law of any Governmental Authority requiring notification of the buyer, lessee, mortgagee, assignee or other transferee of any Real Property, facility, establishment or business, or notification, registration or filing to or with any Governmental Authority, in connection with the sale, lease, mortgage, assignment or other transfer (including any transfer of control) of any Real Property, facility, establishment or business, of the actual or threatened presence or Release in or into the Environment, or the use, disposal or handling of Hazardous Material on, at, under or near the Real Property, facility, establishment or business to be sold, leased, mortgaged, assigned or transferred. "GUARANTEE OBLIGATIONS" means, as to any Subsidiary Guarantor, all obligations of every nature of such Subsidiary Guarantor from time to time owing to the Lenders and the -15- Administrative Agent under the Credit Documents to which it is a party (including its Guarantee), whether for principal, reimbursements, interest, premium, fees, penalties, expenses, indemnities, damages or otherwise. "GUARANTEES" means, collectively, the guarantees delivered to the Lenders by the Subsidiary Guarantors pursuant to Article 10 which are evidenced by notations of guarantee substantially in the form of Exhibit VIII. "HAZARDOUS MATERIALS" means any pollutant, contaminant, waste, chemical, material or substance or constituent, including without limitation, any petroleum or petroleum products, radioactive materials, asbestos in any form that is or could become friable and require abatement, transformers or other equipment that contain dielectric fluid containing polychlorinated biphenyls, and radon gas, subject to regulation or which could give rise to liability under Environmental Laws. "INCUR" means to create, incur, assume, guarantee, acquire, become liable, contingently or otherwise, with respect to, or otherwise become responsible for payment (and "incurrence," "incurred," "incurrable" and "incurring" shall have meanings correlative to the foregoing); provided, however, that the accretion of principal of a non-interest bearing or other discount security or the accrual of interest shall not be deemed the incurrence of Indebtedness. "INDEBTEDNESS" means, with respect to any Person, without duplication (i) all indebtedness, obligations and liabilities of such Person for borrowed money, (ii) that portion of obligations with respect to Capitalized Lease Obligations that is properly classified as a liability on a balance sheet of such Person in conformity with GAAP, (iii) notes payable and drafts accepted representing extensions of credit, whether or not representing obligations for borrowed money, of such Person, (iv) any indebtedness, obligation or liability of such Person owed for all or any part of the deferred purchase price of property or services, conditional sale obligations and obligations under title retention agreements (excluding any such obligations incurred under ERISA), which purchase price is (a) due more than six months (or a longer period of up to one year, if such terms are available from suppliers in the ordinary course of business) from the date of incurrence of the obligation in respect thereof or (b) evidenced by a note or similar written instrument, (v) all indebtedness, obligations and liabilities (other than those constituting an operating lease) secured by any Lien on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of that Person, -16- (vi) guarantees of such Person in respect of Indebtedness of other Persons, (vii) guarantees and other contingent obligations in respect of Indebtedness referred to in clauses (i) through (v) above, (viii) all Disqualified Capital Stock issued by such Person with the amount of Indebtedness represented by such Disqualified Capital Stock being equal to the greater of its voluntary or involuntary liquidation preference and its maximum fixed repurchase price, but excluding accrued dividends, if any, and (ix) all obligations and liabilities under Currency Agreements, Interest Rate Agreements and Raw Material Hedge Agreements and similar agreements or arrangements. For purposes hereof, the "maximum fixed repurchase price" of any Disqualified Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to this Agreement, and if such price is based upon, or measured by, the fair market value of such Disqualified Capital Stock, such fair market value to be determined reasonably and in good faith by the Board of Directors of the issuer of such Disqualified Capital Stock. Notwithstanding the foregoing, "Indebtedness" shall not include trade payables and accrued liabilities incurred in the ordinary course of business for the purchase of goods or services which are not secured by a Lien other than a Permitted Encumbrance. Indebtedness shall not include deferred payments on inter-company sales pursuant to appropriate transfer pricing terms and which are paid within 45 days or in accordance with customary trade terms between unaffiliated parties. "INDEMNIFIED LIABILITIES" has the meaning ascribed to such term in Section 11.4. "INDEMNITEES" has the meaning ascribed to such term in Section 11.4. "INDEPENDENT FINANCIAL ADVISOR" means a firm (i) which does not, and whose directors, officers and employees or Affiliates do not, have a direct or indirect financial interest in the Company and (ii) which, in the judgment of the Board of Directors of the Company, is otherwise independent and qualified to perform the task for which it is to be engaged. "INITIAL LENDERS" shall have the meaning ascribed to such term in the preamble hereto. "INITIAL LOAN" shall have the meaning ascribed to such term in Section 2.1(a). "INSURANCE POLICIES" means the insurance policies and coverages required to be maintained by each Loan Party which is an owner of Mortgaged Property with respect to the applicable Mortgaged Property pursuant to Section 5.4 and all renewals and extensions thereof. -17- "INSURANCE REQUIREMENTS" means, collectively, all provisions of the Insurance Policies, all requirements of the issuer of any of the Insurance Policies and all orders, rules, regulations and other requirements of the National Board of Fire Underwriters (or any other body exercising similar functions) binding upon each Loan Party which is an owner of Mortgaged Property and applicable to the Mortgaged Property or any use or condition thereof. "INTERCOMPANY INDEBTEDNESS" means any Indebtedness of the Company or any Subsidiary Guarantor or Wholly-Owned Restricted Subsidiary of the Company that is not a Subsidiary Guarantor that, in the case of the Company, is owing to any Subsidiary Guarantor or Wholly-Owned Restricted Subsidiary of the Company that is not a Subsidiary Guarantor and that, in the case of any such Subsidiary, is owing to the Company or any Subsidiary Guarantor or Wholly-Owned Restricted Subsidiary of the Company that is not a Subsidiary Guarantor; provided that if as of any date any Person other than the Company or a Subsidiary Guarantor or Wholly-Owned Restricted Subsidiary of the Company that is not a Subsidiary Guarantor owns or holds such Indebtedness, or holds any Lien in respect thereof, such Indebtedness shall no longer be Intercompany Indebtedness permitted to be incurred pursuant to Section 6.1(iv). "INTERCREDITOR AGREEMENT" means the Intercreditor Agreement set forth in Exhibit XIII, as may be amended, restated, supplemented and/or otherwise modified from time to time. "INTEREST PAYMENT DATE" shall have the meaning set forth in Section 2.3. "INTEREST RATE AGREEMENT" means any interest rate swap agreement, interest rate cap or floor agreement, interest rate collar agreement or other similar agreement or arrangement "INTEREST RATE DETERMINATION DATE" means, with respect to any Quarterly Period, the second Business Day on which banks in New York and London are open prior to the first Business Day of such Quarterly Period. "INTERNAL REVENUE CODE" or "CODE" means the Internal Revenue Code of 1986, as amended from time to time, and any successor code or statute. "INVESTMENT" means, with respect to any Person, any direct or indirect loan or other extension of credit (including, without limitation, a guarantee) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition by such Person of any Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by, any other Person. "Investment" shall exclude extensions of trade credit and receivables and deposits to secure leases by the Company and its Restricted Subsidiaries in the ordinary course of business of the Company or such Restricted Subsidiary, as the case may be. If the Company or any Restricted Subsidiary of the Company (a) sells or otherwise disposes of any Common Stock of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, the Company no longer owns, directly or indirectly, greater than 50% of the outstanding Common Stock of such Restricted Subsidiary or (b) enters into a transaction such that after giving effect to such transaction any Restricted Subsidiary of the Company ceases to be -18- a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale, disposition or transaction equal to the fair market value of the Common Stock of such Restricted Subsidiary which continues to be held directly or indirectly by the Company subsequent to the consummation of the transactions set forth in clauses (a) or (b), as the case may be. Investment shall also include the payment of dividends on, or redemption of, the KHL Preferred Stock, net of cash received from Foreign Subsidiaries that are not Subsidiary Guarantors by the Company or one or more Subsidiary Guarantors. "JOINT LEAD ARRANGERS AND JOINT LEAD BOOKRUNNERS" means DBSI and JPM, or their respective successors, in their capacities as Joint Lead Arrangers and Joint Lead Bookrunners. "KHL" means KHL, Inc., a Delaware corporation and a wholly-owned Subsidiary of the Company. "KHL PREFERRED STOCK" means the 8% Preferred Stock issued prior to the Closing Date by KHL to MAC IBC. "LANDLORD ACCESS AGREEMENT" means an agreement substantially in the form of Exhibit XIV. "LAWS" means all applicable statutes, laws, ordinances, regulations, rules, orders, judgments, writs, injunctions or decrees of any state, commonwealth, nation, territory, possession or province, or Tribunal, and "LAW" means each of the foregoing. "LEASES" means any and all leases, subleases, tenancies, options, concession agreements, rental agreements, occupancy agreements, franchise agreements, access agreements and any other agreements (including all amendments, extensions, replacements, renewals, modifications and/or guarantees thereof), whether or not of record and whether now in existence or hereafter entered into, affecting the use or occupancy of all or any portion of any Real Property. "LENDERS" shall mean the Initial Lenders, any Additional Lenders and, in each case, any assignee of any Loan, Note or Loan Commitment to the extent of such assignment. "LIBOR RATE" means the rate determined on the basis of the offered rates for deposits in U.S. Dollars in the London interbank market for a period of three months which is published by the British Bankers' Association and currently appears on Telerate page 3750 as of 11:00 a.m., London time, on the Interest Rate Determination Date; provided that if, for any reason, such a rate is not published by the British Bankers' Association, the LIBOR Rate shall be equal to a rate per annum equal to the average rate (rounded upwards, if necessary, to the nearest 1/100 of 1%) at which the Administrative Agent determines that U.S. Dollars in an amount comparable to the amount of the Loan are being offered to prime banks at approximately 11:00 a.m., London time, on the Interest Rate Determination Date for such Quarterly Period for a term comparable to such Quarterly Period for settlement in immediately available funds by leading banks in the London interbank market selected by the Administrative Agent divided (and rounded upward to the next whole multiple of 1/16 of 1%) by a percentage equal to 100% minus the then -19- stated maximum rate of all reserve requirements (including without limitation any marginal, emergency, supplemental, special or other reserves) applicable to any member bank of the Federal Reserve System in respect of Eurocurrency liabilities as defined in Regulation D under the Board of Governors of the Federal Reserve System (or any successor category of liabilities under such Regulation D). "LIEN" means any lien, mortgage, pledge, assignment, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, and any agreement to give any security interest) and any option, trust or other preferential arrangement having the practical effect of any of the foregoing. "LOAN" means the Initial Loan and each of the Additional Loans. "LOAN COMMITMENT" has the meaning set forth in Section 2.1(a). "LOAN DOCUMENTS" means this Agreement, the Notes and the Guarantees and each Additional Loan Assumption Agreement. "LOAN PARTIES" means the Company and each of its Subsidiaries that is party to any Credit Document. "MAC IBC" means MAC IBC Ltd., a company organized under the laws of Barbados. "MATERIAL ADVERSE CHANGE" means a material adverse change in the business, results of operations, properties, assets, condition (financial or otherwise), liabilities (actual or contingent) or prospects of the Company and its Restricted Subsidiaries, taken as a whole. "MATERIAL ADVERSE EFFECT" means a material adverse effect on the business, results of operations, properties, assets, financial condition or liabilities (actual or contingent) of the Company and its Restricted Subsidiaries, taken as a whole. "MATERIAL SUBSIDIARY" means, with respect to any accounting period, any Restricted Subsidiary of the Company (i) whose revenues (excluding intercompany items) constitute greater than 5% of the aggregate dollar value of the revenues of Company and its Restricted Subsidiaries, taken as a whole, for such accounting period or (ii) the fair market value of whose assets at any time during such accounting period is greater than 5% of the fair market value of all of the assets of Company and its Restricted Subsidiaries taken as a whole at such time. "MATURITY DATE" has the meaning ascribed to such term in Section 2.2. "MORTGAGE" means an agreement, including, but not limited to, a mortgage, deed of trust or any other document, creating and evidencing a Lien on a Mortgaged Property, which (i) in the case of Real Property owned in fee, shall be substantially in the form of Exhibit X-1 and (ii) in the case of leased Real Property, shall be substantially in the form of Exhibit X-2 or other form reasonably satisfactory to the Collateral Agent, in each case, with such schedules and -20- including such provisions as shall be necessary to conform such document to applicable local or foreign law or as shall be customary under applicable local or foreign law. "MORTGAGED PROPERTY" means (a) each Real Property identified on Schedule 1.1(c) hereto and (b) each Real Property, if any, which shall be subject to a Mortgage delivered after the Closing Date pursuant to Section 5.11(c). "MULTIEMPLOYER PLAN" means a multiemployer plan within the meaning of Section 4001(a)(3) of ERISA (i) to which any ERISA Entity is then making or accruing an obligation to make contributions, (ii) to which any ERISA Entity has within the preceding five plan years made contributions, including any Person which ceased to be an ERISA Entity during such five year period, or (iii) with respect to which the Company or a Subsidiary of the Company could incur liability. "NET CASH PROCEEDS" means, with respect to any Asset Sale, Cash Proceeds of such Asset Sale net of bona fide direct costs of sale including, but not limited to, (i) the cash expenses of such Asset Sale (including, without limitation, the payment of principal, premium, if any, and interest on Indebtedness required to be paid as a result of such Asset Sale and legal, accounting and investment banking fees and sales commission(s)), (ii) taxes paid or payable as a result thereof, (iii) any portion of cash proceeds which the Company determines in good faith should be reserved for post-closing adjustments, it being understood and agreed that on the day that all such post-closing adjustments have been determined, the amount (if any) by which the reserved amount in respect of such Asset Sale exceeds the actual post-closing adjustments payable by the Company or any of its Subsidiaries shall constitute Net Cash Proceeds on such date, and (iv) any relocation expenses and pension, severance and shutdown costs incurred as a result thereof. "NON-GUARANTOR SUBSIDIARY" means any Restricted Subsidiary of the Company which is not and is not required pursuant to the terms of this Agreement to be a Subsidiary Guarantor. "NOTES" has the meaning set forth in Section 2.1(d). "NOTICE OF BORROWING" means a notice substantially in the form of Exhibit IV with respect to a proposed borrowing. "OBLIGATIONS" means all obligations of every nature of the Company from time to time owed to the Lenders, the Administrative Agent or the Collateral Agent under the Credit Documents, whether for principal, reimbursements, interest, fees, penalties, expenses, indemnities, damages or otherwise, and whether primary, secondary, direct, indirect, contingent, fixed or otherwise (including obligations of performance). "OFAC" has the meaning set forth in Section 4.29(b)(v). -21- "OFFICER" means the Chairman of the Board, the President, any Vice President, the Chief Financial Officer, the Controller, the Treasurer, Assistant Treasurer, the Secretary or Assistant Secretary. "OFFICER'S CERTIFICATE" means, as applied to any corporation, a certificate executed on behalf of such corporation by an Officer. "OPTION" means an option agreement between the Company and a Foreign Subsidiary that is not a Subsidiary Guarantor relating to the value of the common stock of the Company pursuant to which any settlement is deferred until at least one year beyond the final maturity of this Agreement. "OTHER TAXES" has the meaning ascribed to such term in Section 11.19(b). "PAYMENT OFFICE" means the office of the Administrative Agent c/o Deutsche Bank Trust Company Americas located at 60 Wall Street, New York, New York 10005 or such other office as the Administrative Agent may designate (with the consent of the Company, which consent shall not unreasonably be withheld) to the Company and the Lenders from time to time. "PAYMENT RESTRICTION" has the meaning ascribed to such term in Section 6.7. "PBGC" means the United States Pension Benefit Guaranty Corporation or any successor thereto. "PENSION PLAN" means an employee pension benefit plan (other than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code or Section 302 of ERISA and is maintained or contributed to by any ERISA Entity or with respect to which the Company or a Subsidiary of the Company could incur liability. "PERFECTION CERTIFICATE" means a certificate in the form of Exhibit XI-1 or any other form approved by the Collateral Agent, as the same shall be supplemented from time to time by a Perfection Certificate Supplement or otherwise. "PERFECTION CERTIFICATE SUPPLEMENT" means a certificate supplement in the form of Exhibit XI-2 or any other form approved by the Collateral Agent. "PERMITTED AFFILIATE TRANSACTIONS" has the meaning ascribed to it in Section 6.8(b). "PERMITTED COLLATERAL LIENS" means (a) with respect to First Lien Collateral, prior to the Discharge of the First Lien Obligations, Liens securing the First Lien Obligations, (b) with respect to Revolving Collateral, prior to the Discharge of the Revolving Obligations, Liens securing the Revolving Obligations and (c) (i) Liens of the type described in clauses (ii), (iii), (iv), (v), (vi), (vii), (viii), (ix), (xii), (xiv), (xv), (xvi) (to the extent expressly permitted therein), (xix)(B), (xx) and (xxiii) of the definition of "Permitted Encumbrances" and (ii) in the case of -22- Mortgaged Property, the Liens described in clauses (iii), (iv), (vi), (vii), (viii), (x), (xvi) (to the extent expressly permitted therein), (xix)(B), (xx) and (xxiii); provided, however, upon the Closing Date or upon the date of delivery of each additional Mortgage under Section 5.11 or 5.12, Permitted Collateral Liens shall mean only those liens set forth in Schedule B to the applicable Mortgage; and provided, further, with respect to any Liens described in clauses (iii), (iv), (v) and (vi) of the definition of "Permitted Encumbrance," to the extent such Liens are on Collateral, such Liens will only be "Permitted Collateral Liens" if the Company or the Restricted Subsidiary, as the case may be, has complied with the Contested Collateral Lien Conditions with respect to such Lien. "PERMITTED ENCUMBRANCES" means (i) Liens granted to secure the obligations under any Interest Rate Agreement, any Raw Material Hedge Agreement and any Currency Agreement, in each case, of the type described in the definition of "Permitted Indebtedness"; (ii) Liens existing on the Closing Date set forth on Schedule 1.1(a) to the extent and in the manner such Liens are in effect on the Closing Date; (iii) Liens for taxes, assessments, governmental charges or claims not yet due or which are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted which proceedings (or orders entered in connection with such proceedings) have the effect of preventing the forfeiture or sale of the property subject to any such Lien and if a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor; (iv) statutory Liens of landlords and banks and rights of offset, and Liens of carriers, warehousemen, suppliers, workmen, repairmen, mechanics and materialmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent for a period of more that 60 days or being contested in good faith by appropriate proceedings promptly instituted and diligently conducted which proceedings (or orders entered in connection with such proceedings) have the effect of preventing the forfeiture or sale of the property subject to any such Lien, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made therefor; (v) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, trade contracts, utility payments, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (vi) any attachment or judgment Lien not constituting an Event of Default; -23- (vii) leases or subleases granted to others not interfering in any material respect with the ordinary conduct of the business of the Company and its Subsidiaries, taken as a whole; (viii) easements, rights-of-way, zoning and other restrictions, minor defects, encroachments or irregularities in title and other similar charges or encumbrances not interfering in any material respect with the ordinary conduct of the business of the Company and its Subsidiaries, taken as a whole; (ix) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (x) any zoning or similar law or right reserved to or vested in any governmental office or agency to control or regulate the use of any real property; (xi) Liens upon specific items of inventory or other goods and proceeds of any Person securing such Person's obligations in respect of bankers' acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods in the ordinary course of business; (xii) Liens securing reimbursement obligations with respect to letters of credit which encumber documents and other property relating to such letters of credit and the products and proceeds thereof; (xiii) Liens to secure Permitted Refinancing Indebtedness to the extent the Indebtedness refinanced was secured and such Liens do not extend to any property other than the property which was subject to the Lien under the Indebtedness being refinanced; (xiv) Liens arising out of consignment or similar arrangements for the sale of goods entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business of the Company and its Restricted Subsidiaries; (xv) Liens arising from filing UCC financing statements regarding leases; (xvi) Liens securing Indebtedness incurred pursuant to clause (x) of the definition of Permitted Indebtedness; provided that such Liens may rank pari passu in priority with any Liens and security interests on Collateral created or granted under any Security Document; (xvii) Liens on assets of Restricted Subsidiaries securing letters of credit issued in the ordinary course of business of such Restricted Subsidiaries; (xviii) Liens securing Intercompany Indebtedness to the extent permitted by clause (iv) of the definition of Permitted Indebtedness; -24- (xix) Liens securing obligations with respect to Indebtedness of the type described in (A) clause (ii) and (B) clauses (vi), (vii) and (xxii) of the definition of Permitted Indebtedness; (xx) Liens securing obligations with respect to Indebtedness of the type described in clause (xviii) or (xix) of the definition of Permitted Indebtedness; provided that the Liens on any Collateral securing obligations with respect to Indebtedness of the type described in clause (xix) of the definition of Permitted Indebtedness shall in all respects rank pari passu with any Liens and security interests on such Collateral created or granted under any Security Document; (xxi) Liens securing Indebtedness incurred pursuant to clause (xx) of the definition of "Permitted Indebtedness"; (xxii) Liens on assets of a Receivables Subsidiary incurred in connection with an Qualified Securitization Transaction; and (xxiii) Liens pursuant to Tax Reduction Agreements. "PERMITTED HOLDER" means Warburg Pincus VIII, L.P. and its Affiliates. "PERMITTED INDEBTEDNESS" has the meaning ascribed to it in Section 6.1(b). "PERMITTED INVESTMENTS" means (a) Investments in cash and Cash Equivalents; (b) Investments by the Company or by any Restricted Subsidiary of the Company in any Person that is or will become immediately after such Investment a (i) Subsidiary Guarantor or (ii) Restricted Subsidiary of the Company that is not a Subsidiary Guarantor; provided that (A) the aggregate amount of all such Investments made pursuant to this clause (ii) (other than in a Receivables Subsidiary) shall not exceed $5.0 million at any one time outstanding and (B) any such Investment in such Subsidiary Guarantor or Restricted Subsidiary that is not a Subsidiary Guarantor is permitted by Section 6.6; and provided, further that (A) such Subsidiary Guarantor or Restricted Subsidiary that is not a Subsidiary Guarantor has not incurred (and will not incur as a result of or in connection with such transaction) any Indebtedness (other than Indebtedness permitted to be incurred by such Restricted Subsidiary under Section 6.1) and (B) no Investment in any such Subsidiary Guarantor or Restricted Subsidiary that is not a Subsidiary Guarantor (including any transaction pursuant to which any Person becomes a Restricted Subsidiary of the Company) will be a Permitted Investment if and for so long as such Restricted Subsidiary is or would be subject to any Payment Restriction that is not permitted pursuant to Section 6.7; (c) any Investments in the Company by any Restricted Subsidiary of the Company; -25- (d) Investments made by the Company or by its Restricted Subsidiaries out of the Net Cash Proceeds of an Asset Sale made in compliance with Section 2.5(a)(ii)(I); (e) Intercompany Indebtedness of the type described in clause (iv) of the definition of Permitted Indebtedness; (f) accounts receivable created or acquired in the ordinary course of business; (g) obligations or shares of Capital Stock received in connection with any good faith settlement or bankruptcy proceeding involving a claim relating to a Permitted Investment; (h) Currency Agreements and Interest Rate Agreements, in each case, of the type described in the definition of "Permitted Indebtedness", and the Option; (i) Raw Material Hedge Agreements of the type described in the definition of "Permitted Indebtedness"; (j) additional Investments not to exceed $15.0 million at any time outstanding; and (k) Indebtedness and/or equity securities acquired in consideration for an Asset Sale permitted hereunder. "PERMITTED REFINANCING INDEBTEDNESS" means (A) any Refinancing by the Company of Indebtedness of the Company or any of its Restricted Subsidiaries (other than Indebtedness incurred or outstanding pursuant to clauses (ii), (iii), (iv), (vi), (vii), (viii), (x), (xi) through (xv) and (xxii) of the definition of "Permitted Indebtedness," which Indebtedness shall remain subject to the maximum aggregate amounts outstanding as set forth therein) and (B) any Indebtedness incurred pursuant to a Refinancing by any Restricted Subsidiary of the Company of Indebtedness incurred by such Restricted Subsidiary (other than Indebtedness incurred or outstanding pursuant to clauses (ii), (iii), (iv), (vi), (vii), (viii), (x), (xi) through (xv) and (xxii) of the definition of "Permitted Indebtedness," which Indebtedness shall remain subject to the maximum aggregate amounts outstanding as set forth therein); provided that in the case of each of (A) and (B), (i) the principal amount of such Permitted Refinancing Indebtedness shall not exceed the outstanding principal amount of Indebtedness (including unused commitments) so extended, refinanced, renewed, replaced, substituted or refunded plus any amounts incurred to pay premiums and fees in connection therewith, (ii) the Permitted Refinancing Indebtedness shall have a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of the Indebtedness being extended, refinanced, renewed, replaced, substituted or refunded and (iii) to the extent such Refinancing Indebtedness refinances Indebtedness subordinated to the Loan, such Permitted Refinancing Indebtedness is subordinated to the Loan at least to the same extent as the Indebtedness being extended, refinanced, renewed, replaced, substituted or refunded. -26- "PERSON" means and includes natural persons, corporations, limited liability companies, limited partnerships, general partnerships, joint stock companies, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and governments and agencies and political subdivisions thereof. "PLAN" means (i) any single-employer plan, as defined in Section 4001(a)(15) of ERISA, that is maintained or contributed to by (or to which there is an obligation to contribute to by) the Company or a Subsidiary of the Company or an ERISA Affiliate and that is subject to Title IV of ERISA, and (ii) each such plan for the five year period immediately following the latest date on which the Company, a Subsidiary of the Company or any ERISA Affiliate maintained, contributed to or had an obligation to contribute to such plan if, for purposes of this clause (ii), the Company, any Subsidiary of the Company or any ERISA Affiliate could currently incur any liability under such plan. "POTENTIAL EVENT OF DEFAULT" means a condition or event which, after notice or lapse of time or both, would constitute an Event of Default if that condition or event were not cured or removed within any applicable grace or cure period. "PREFERRED STOCK" of any Person means any Capital Stock of such Person that has preferential rights (as compared to any other Capital Stock of such Person) with respect to dividends or redemptions or upon liquidation. "PREMISES" has the meaning assigned thereto in the applicable Mortgage. "PREPAYMENT OFFER NOTICE" has the meaning set forth in Section 2.5(a)(ii)(VI). "PRO FORMA" means, with respect to any calculation made or required to be made pursuant to the terms of this Agreement, a calculation in accordance with Article 11 of Regulation S-X under the Securities Act (as it exists on the Closing Date) as interpreted by the Company's chief financial officer or Board of Directors in consultation with its independent certified public accountants. "PRO FORMA BALANCE SHEET" has the meaning ascribed to such term in Section 4.5(a). "PROJECTIONS" has the meaning set forth in Section 3.1(e). "QUALIFIED CAPITAL STOCK" means any Capital Stock that is not Disqualified Capital Stock. "QUALIFIED SECURITIZATION TRANSACTION" means any transaction or series of transactions that may be entered into by any Foreign Subsidiary of the Company or a Receivables Subsidiary pursuant to which such Foreign Subsidiary or that Receivables Subsidiary may, pursuant to customary terms, sell, convey or otherwise transfer to, or grant a security interest in for the benefit of, (1) a Receivables Subsidiary or any Foreign Subsidiary of the Company which -27- subsequently transfers to a Receivables Subsidiary (in the case of a transfer by such Foreign Subsidiary) and (2) any other Person (in the case of a transfer by a Receivables Subsidiary), any accounts receivable (whether now existing or arising or acquired in the future) of any Foreign Subsidiaries which arose in the ordinary course of business of such Foreign Subsidiaries, and any assets related thereto, including, without limitation, all collateral securing such accounts receivable, all contracts and contract rights and all guarantees or other obligations in respect of such accounts receivable, proceeds of such accounts receivable and other assets (including contract rights) which are customarily transferred or in respect of which security interests are customarily granted in connection with asset securitization transactions involving accounts receivable. "QUARTERLY PERIOD" means the period commencing on the first calendar day of each of February, May, August or November, if such day is a Business Day, or the first Business Day succeeding the first calendar day of such month and ending on the day next preceding the first Business Day of the following Quarterly Period; provided that the first Quarterly Period shall commence on the Closing Date. "RAW MATERIAL HEDGE AGREEMENTS" means commodity futures contracts, hedging contracts, options or other similar agreements or arrangements. "REAL PROPERTY" means, collectively, all right, title and interest (including any leasehold estate) in and to any and all parcels of or interests in real property owned, leased or operated by any Person, whether by lease, license or other means, together with, in each case, all easements, hereditaments and appurtenances relating thereto, all improvements and appurtenant fixtures and equipment, all general intangibles and contract rights and other property and rights incidental to the ownership, lease or operation thereof. "REAL PROPERTY ASSETS" means interests in Real Property, including improvements and fixtures attached thereto or used in the operation thereof, in each case owned or leased (as lessee) by the Company or its Subsidiaries. "RECEIVABLES SUBSIDIARY" means a Wholly-Owned Foreign Subsidiary of the Company which engages in no activities other than in connection with the financing of accounts receivable of Foreign Subsidiaries and which is designated (as provided below) as a Receivables Subsidiary (a) no portion of the Indebtedness or any other obligations (contingent or otherwise) of which (i) is guaranteed by the Company or any other Subsidiary of the Company (excluding guarantees of obligations (other than the principal of, and interest on, Indebtedness) pursuant to Standard Securitization Undertakings), (ii) is recourse to or obligates the Company or any other Subsidiary of the Company in any way other than pursuant to Standard Securitization Undertakings or (iii) subjects any property or asset of the Company or any other Subsidiary of the Company, directly or indirectly, contingently or otherwise, to the satisfaction thereof, other than pursuant to Standard Securitization Undertakings, (b) with which neither the Company nor any of its Subsidiaries has any contract, agreement, arrangement or understanding on terms less favorable to the Company or such Subsidiary than those that might be obtained at the time from Persons that are not Affiliates of the Company, and (c) to which neither the Company nor any other Subsidiary of the Company has any obligation to maintain or preserve such entity's financial condition or cause such entity to achieve certain levels of operating results. Any such designation -28- shall be evidenced to the Administrative Agent by filing with the Administrative Agent an Officer's Certificate of the Company certifying that, to the best of such officer's knowledge and belief after consultation with counsel, such designation complied with the foregoing conditions. "REFERENCE DATE" has the meaning ascribed to such term in Section 6.3(a). "REFINANCE" means, in respect of any security or Indebtedness, to refinance, extend, renew, refund or defease, or to issue a security or Indebtedness in exchange or replacement for, such security or Indebtedness in whole or in part; "REFINANCED" and "REFINANCING" shall have correlative meanings. "REFINANCED FACILITY" has the meaning set forth in the definition of Financing Transactions. "REGISTER" has the meaning ascribed to such term in Section 5.14. "RELATED BUSINESS" means any capital expenditure or Investment in properties and assets that replace the properties and assets that were the subject of an Asset Sale or in properties and assets that will be used in the business of the Company and its Subsidiaries as existing on the Closing Date or in businesses reasonably related thereto. "RELEASE" means any release, spill, emission, leaking, pumping, pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping, leaching or migration of Hazardous Materials into the indoor or outdoor environment (including, without limitation, the abandonment or disposal of any barrels, containers or other closed receptacles containing any Hazardous Materials), including, without limitation, the movement of any Hazardous Material through the air, soil, surface water, groundwater or property. "REPLACEMENT ASSETS" has the meaning set forth in Section 6.13(b)(2). "REQUIRED LENDERS" means Lenders holding in the aggregate more than 50% of the outstanding principal amount of Loans. "REQUIREMENTS OF LAW" means, collectively, any and all requirements of any Governmental Authority including any and all laws, ordinances, rules, regulations or similar statutes or case law. "RESTRICTED PAYMENT" has the meaning ascribed to such term in Section 6.3(a). "RESTRICTED SUBSIDIARY" means any Subsidiary of the Company which at the time of determination is not an Unrestricted Subsidiary. "RETURNS" has the meaning ascribed to such term in Section 4.8. "REVOLVING COLLATERAL" means Collateral with respect to which a Lien has been granted pursuant to the Revolving Credit Facility securing Revolving Obligations. -29- "REVOLVING COLLATERAL AGENT" means "Collateral Agent" (as defined in the Revolving Credit Agreement). "REVOLVING CREDIT FACILITY" means the revolving credit agreement (the "REVOLVING CREDIT AGREEMENT") to be effective as of the Closing Date, between the Company, the borrowers identified therein, the lenders party thereto in their capacities as lenders thereunder and DBTCA, as administrative agent, together with the related documents thereto (including, without limitation, any guarantee, collateral and security agreements and/or documents), in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented or otherwise modified from time to time, including any agreement extending the maturity of, refinancing, replacing or otherwise restructuring (including increasing the amount of available borrowings thereunder or adding Restricted Subsidiaries of the Company as additional borrowers or guarantors thereunder) all or any portion of the Indebtedness under such agreement or any successor or replacement agreement and whether by the same or any other agent, lender or group of lenders. "REVOLVING OBLIGATIONS" means "Obligations" (as defined in the Revolving Credit Agreement). "SALE AND LEASEBACK TRANSACTION" means with respect to any Person an arrangement with any bank, insurance company or other lender or investor or to which such lender or investor is a party providing for the leasing by such Person of any property or asset of such Person which has been or is being sold or transferred by such Person to such lender or investor or to any Person to whom funds have been or are to be advanced by such lender or investor on the security of such property or asset. "SECURED PARTIES" means, collectively, the Administrative Agent, the Collateral Agent, each other Agent, the Lenders and each party to a hedging agreement relating to the Loan if at the date of entering into such hedging agreement such Person was a Lender or an Affiliate of a Lender and such Person executes and delivers to the Administrative Agent a letter agreement in form and substance acceptable to the Administrative Agent pursuant to which such Person (i) appoints the Collateral Agent as its agent under the applicable Credit Documents and (ii) agrees to be bound by the provisions of Sections 9.3 and 9.9. "SECURITIES" means any stock, shares, partnership interests, voting trust certificates, certificates of interest or participation in any profit sharing agreement or arrangement, bonds, debentures, options, warrants, notes or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as "securities" or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SECURITIES COLLATERAL" shall have the meaning assigned to such term in the Security Agreement. -30- "SECURITY AGREEMENT" means a Security Agreement substantially in the form of Exhibit XII among the Company, the Subsidiaries identified therein and Collateral Agent for the benefit of the Secured Parties. "SECURITY AGREEMENT COLLATERAL" means all property pledged or granted as collateral pursuant to the Security Agreement delivered on the Closing Date or thereafter pursuant to Section 5.11. "SECURITY DOCUMENTS" means the Security Agreement, the Mortgages and each other security document or pledge agreement delivered in accordance with applicable local or foreign law to grant a valid, perfected security interest in any property as collateral for the Obligations, and all UCC or other financing statements or instruments of perfection required by this Agreement, the Security Agreement, any Mortgage or any other such security document or pledge agreement to be filed with respect to the security interests in property and fixtures created pursuant to the Security Agreement or any Mortgage and any other document or instrument utilized to pledge any property as collateral for the Obligations. "SOLVENT ENTITY" has the meaning ascribed to such term in Section 4.5(c). "STANDARD SECURITIZATION UNDERTAKINGS" means representations, warranties, covenants and indemnities entered into by the Company or any Subsidiary of the Company which are reasonably customary in an accounts receivable securitization transaction. "SUBORDINATED INDEBTEDNESS" means Indebtedness of the Company or any Subsidiary Guarantor which is expressly subordinated in right of payment to the Loans or the Guarantee of such Subsidiary Guarantor, as the case may be. "SUBSIDIARY" means, with respect to any Person, any corporation, association or other business entity of which more than 50% of the total voting power of shares of stock or other equity interest entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereto is at the time owned, directly or indirectly, by that Person. "SUBSIDIARY GUARANTORS" means each of the present Restricted Subsidiaries of the Company listed on Schedule 1.1(b) hereto and each Subsidiary of the Company that executes a Guarantee pursuant to Section 6.14. "SURVEY" means a survey of any Mortgaged Property (and all improvements thereon) which is (a) (i) prepared by a surveyor or engineer licensed to perform surveys in the state where such Mortgaged Property is located, (ii) dated (or redated) not earlier than six months prior to the date of delivery thereof unless there shall have occurred within six months prior to such date of delivery any exterior construction on the site of such Mortgaged Property or any easement, right of way or other interest in the Mortgaged Property has been granted or become effective through operation of law or otherwise with respect to such Mortgaged Property which, in either case, can be depicted on a survey, in which events, as applicable, such survey shall be dated (or redated) after the completion of such construction or if such construction shall not have -31- been completed as of such date of delivery, not earlier than 20 days prior to such date of delivery, or after the grant or effectiveness of any such easement, right of way or other interest in the Mortgaged Property, (iii) certified by the surveyor (in a manner reasonably acceptable to the Administrative Agent) to the Administrative Agent, the Collateral Agent and the Title Company, (iv) complying in all respects with the minimum detail requirements of the American Land Title Association as such requirements are in effect on the date of preparation of such survey and (v) sufficient for the Title Company to remove all standard survey exceptions from the title insurance policy (or marked-up title commitment having the effect of a policy) relating to such Mortgaged Property and issue the endorsements of the type required by Section 3.1(n)(iii) or (b) otherwise acceptable to the Collateral Agent. "SURVIVING ENTITY" has the meaning ascribed to such term in Section 6.6(a)(1)(ii). "SYNDICATION AGENT" means JPMorgan Chase Bank. "SYNDICATION DATE" means that date upon which the Administrative Agent determines in its sole discretion (and notifies the Company) that the primary syndication (and resultant addition of Persons as Lenders pursuant to Section 11.2(a)) has been completed. "TAX REDUCTION AGREEMENT" means an agreement entered into between the Company or a Restricted Subsidiary with a local Governmental Authority relating to the transfer or acquisition of an asset for the purpose of obtaining tax relief; provided that the Company or such Restricted Subsidiary may at any time repossess such asset for nominal net consideration; and provided, further, that such agreements may also be similar to those currently in effect between the Company and Darlington and Florence Counties in South Carolina; provided, further, that if the agreement relates to personal property that constitutes or would constitute Collateral, then the Company shall provide the Administrative Agent the documentation required by Section 3.1(m) (or, to the extent such property could constitute Mortgaged Property, appropriate documentation pursuant to Section 3.1(n)), as well as an acknowledgment or consent from the relevant Governmental Authority that the Lenders have a perfected Lien in such Collateral senior to any Lien purported to be granted in favor of such Governmental Authority. "TAX SHARING AGREEMENT" means any tax sharing or tax allocation agreements entered into by the Company or any of its Subsidiaries. "TAXES" means any and all taxes, assessments, fees, levies, imposts, duties, penalties, deductions, liabilities, withholdings or other charges of any nature whatsoever, including interest penalties, from time to time or at any time imposed by any Law or any Tribunal. "TITLE COMPANY" means Lawyers Title Insurance Corporation or such other title insurance or abstract company as shall be approved by the Collateral Agent insuring the Mortgages. -32- "TRANSACTION COSTS" means the fees, costs and expenses payable by the Company pursuant hereto and other fees, costs and expenses payable by the Company or a Subsidiary of the Company in connection with the Transactions. "TRANSACTION DATE" has the meaning ascribed to such term in the definition of "Fixed Charge Coverage Ratio." "TRANSACTIONS" means, collectively, (i) the closing of and the initial borrowings under the Revolving Credit Facility, (ii) the closing of and incurrence of the Initial Loan hereunder, (iii) the closing of and the borrowings under the First Lien Credit Facility, (iv) the Financing Transactions and (v) the payment of fees, expenses, commissions and transaction costs in connection with the foregoing. "TRANSFEREE" has the meaning ascribed to such term in Section 11.19. "TRIBUNAL" means any government, any arbitration panel, any court or any governmental department, commission, board, bureau, agency, authority or instrumentality of the United States or any state, province, commonwealth, nation, territory or possession, whether now or hereafter constituted and/or existing. "UCC" means the Uniform Commercial Code as in effect from time to time (except as otherwise specified) in any applicable state or jurisdiction. "UNAUDITED FINANCIAL STATEMENTS" has the meaning set forth in Section 3.1(e). "UNITED STATES " or "U.S." means the United States of America. "UNRESTRICTED SUBSIDIARY" of any Person means: (1) any Subsidiary of such Person that at the time of determination shall be or continue to be designated an Unrestricted Subsidiary by the Board of Directors of such Person in the manner provided below; and (2) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property of, the Company or any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated; provided that: (1) the Company certifies to the Administrative Agent that such designation complies with Section 6.3; and (2) each Subsidiary to be so designated and each of its Subsidiaries has not at the time of designation, and does not thereafter, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to any Indebtedness pursuant -33- to which the lender has recourse to any of the assets of the Company or any of its Restricted Subsidiaries. For purposes of making the determination of whether any such designation of a Subsidiary as an Unrestricted Subsidiary complies with Section 6.3, the portion of the fair market value of the net assets of such Subsidiary of the Company at the time that such Subsidiary is designated as an Unrestricted Subsidiary that is represented by the interest of the Company and its Restricted Subsidiaries in such Subsidiary, in each case as determined in good faith by the Board of Directors of the Company, shall be deemed to be an Investment. Such designation will be permitted only if such Investment would be permitted at such time under Section 6.3. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary only if: (1) (i) immediately after giving effect to such designation, the Fixed Charge Coverage Ratio of the Company shall be not less than the Fixed Charge Coverage Ratio of the Company immediately before such designation; or (ii) immediately after giving effect to such designation, the Company is able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with Section 6.1; and (2) immediately before and immediately after giving effect to such designation, no Default or Event of Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced to the Administrative Agent by promptly filing with the Administrative Agent a copy of the resolution of the Board of Directors giving effect to such designation and an Officer's Certificate certifying that such designation complied with the foregoing provisions. "U.S. LEGAL TENDER" means such coin or currency of the United States as at the time of payment shall be legal tender for the payment of public and private debts. "VOTING STOCK" means, with respect to any Person, securities of any class or classes of Capital Stock in such Person entitling the holders thereof (whether at all times or only so long as no senior class of stock has voting power by reason of any contingency) to vote in the election of members of the Board of Directors or other governing body of such Person. "WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the then outstanding aggregate principal amount of such Indebtedness into (b) the total of the products obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required payment of principal, including payment at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment. "WHOLLY-OWNED FOREIGN SUBSIDIARY" means a Wholly-Owned Subsidiary which is a Foreign Subsidiary. -34- "WHOLLY-OWNED RESTRICTED SUBSIDIARY" means a Wholly-Owned Subsidiary which is a Restricted Subsidiary. "WHOLLY-OWNED SUBSIDIARY" means, with respect to any Person, any corporation, association or other business entity of which 100% of the total voting power of shares of stock or other equity interest (other than directors' qualifying shares and/or other nominal amounts of shares held other than by such Person) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Wholly-Owned Subsidiaries of that Person or a combination thereof. "WITHDRAWAL LIABILITY" means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part 1 of Subtitle E of Title IV of ERISA. Section 1.2 Accounting Terms For the purposes of this Agreement, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP. Section 1.3 Other Definitional Provisions Any of the terms defined in Section 1.1 may, unless the context otherwise requires, be used in the singular or the plural depending on the reference. ARTICLE 2 AMOUNT AND TERMS OF LOAN COMMITMENT AND LOANS; NOTES Section 2.1 The Loan (a) Loan Commitment. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of the Company herein set forth, the Lenders hereby agree to lend to the Company on the Closing Date $265.0 million, in the aggregate (the "INITIAL LOAN"), each such Lender committing to lend the amount set forth next to such Lender's name on the signature pages hereto (net of 2.0% fee to market). The Lenders' commitments to make the Loan to the Company pursuant to this Section 2.1(a) are herein called individually, the "LOAN COMMITMENT" and collectively, the "LOAN COMMITMENTS." (b) Notice of Borrowing. When the Company desires to borrow under this Section 2.1, it shall deliver to the Administrative Agent a Notice of Borrowing no later than 3:00 P.M. (New York time), at least one Business Day in advance of the Closing Date or such later date as shall be agreed to by the Administrative Agent. The Notice of Borrowing shall specify the applicable date of borrowing (which shall be a Business Day). Upon receipt of such Notice of Borrowing, the Administrative Agent shall promptly notify each Lender of its share of the Initial Loan and the other matters covered by the Notice of Borrowing. -35- (c) Disbursement of Funds. No later than 11:00 a.m. on the Closing Date, each Lender will make available its pro rata share of the Initial Loan requested to be made on such date in the manner provided below. All amounts shall be made available to the Administrative Agent in U.S. Legal Tender and immediately available funds at the Payment Office and the Administrative Agent immediately will make available to the Company by depositing to its account at the Payment Office the aggregate of the amounts so made available in the type of funds received. Unless the Administrative Agent shall have been notified by any Lender prior to the Closing Date that such Lender does not intend to make available to the Administrative Agent its portion of the Initial Loan to be made on such date, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent on such date, and the Administrative Agent, in reliance upon such assumption, may (in its sole discretion and without any obligation to do so) make available to the Company a corresponding amount. If such corresponding amount is not in fact made available to the Administrative Agent by such Lender and the Administrative Agent has made available the same to the Company, the Administrative Agent shall be entitled to recover such corresponding amount from such Lender. If such Lender does not pay such corresponding amount forthwith upon the Administrative Agent's demand therefor, the Administrative Agent shall promptly notify the Company, and the Company shall immediately pay such corresponding amount to the Administrative Agent. The Administrative Agent shall also be entitled to recover from such Lender or the Company, as the case may be, interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Administrative Agent to the Company to the date such corresponding amount is recovered by the Administrative Agent, at a rate per annum equal to (x) if paid by such Lender, the overnight Federal Funds Rate or (y) if paid by the Company, the then applicable rate of interest on the Loan. Nothing herein shall be deemed to relieve any Lender from its obligation to fulfill its Loan Commitment hereunder or to prejudice any rights which the Company may have against any Lender as a result of any default by such Lender hereunder. (d) Notes. The Company shall execute and deliver to each Lender on the Closing Date a Note dated the Closing Date substantially in the form of Exhibit I to evidence such Lender's portion of the Loan Commitment and with appropriate insertions (the "NOTES"). (e) Termination of Loan Commitment. The Loan Commitment hereunder shall terminate on February 11, 2004 if no portion of the Loan has been funded (other than as a result of the failure of the Lenders to fulfill their obligations hereunder) on or before such date. (f) Pro Rata Borrowings. The Loan made under this Agreement shall be made by the Lenders pro rata on the basis of their respective Loan Commitments. It is understood that no Lender shall be responsible for any default by any other Lender of its obligation to make its portion of the Loan hereunder and that each Lender shall be obligated to make its portion of the Loan hereunder, regardless of the failure of any other Lender to fulfill its commitments hereunder. -36- Section 2.2 Maturity of the Loan The Loan shall mature and the Company shall pay in full the outstanding principal amount thereof and accrued interest thereon on February 10, 2010 (or if not a Business Day, on the first Business Day thereafter) (the "MATURITY DATE"). Section 2.3 Interest on the Loan (a) Rate of Interest. The Loan shall bear interest on the unpaid principal amount thereof from the date made through maturity (whether by prepayment, acceleration or otherwise) for each Quarterly Period at a rate per annum equal to the Applicable Rate for such period. (b) Interest Payments. Interest on the Loan shall be payable on each of February 1, May 1, August 1, and November 1 (each, an "INTEREST PAYMENT DATE") of each year (commencing on May 1, 2004) and at maturity of the Loan. (c) Post-Maturity Interest. Any principal payments on the Loan not paid when due and, to the extent permitted by applicable law, any interest payment on the Loan not paid when due, in each case whether at stated maturity, by notice of prepayment, by acceleration or otherwise, shall thereafter bear interest payable upon demand at a rate which is 2.00% per annum in excess of the rate of interest otherwise payable under this Agreement for the Loan. (d) Computation of Interest. Interest on the Loan shall be computed on the basis of a 360-day year and the actual number of days elapsed in the period during which it accrues. In computing interest on the Loan, the date of the making of the Loan shall be included and the date of payment shall be excluded; provided that if the Loan is repaid on the same day on which it is made, one day's interest shall be paid on the Loan. Section 2.4 Fees The Company agrees to all fees and other obligations owed to any Agent pursuant to letter agreements between the Company and such Agent in accordance with, and at the times specified by, each such letter agreement. Section 2.5 Prepayments and Payments (a) Prepayments (i) (I) Voluntary Prepayments. The Company may, after the Discharge of the First Lien Obligations, upon not less than five Business Days' prior written or telephonic notice confirmed in writing to the Administrative Agent on any Interest Payment Date, prepay the Loan made to the Company in whole or in part at any time on or after February 10, 2006 at the redemption prices (expressed as a percentage of principal amount) set forth below, plus accrued and unpaid interest to the redemption date, if redeemed during the 12-month period beginning February 10 of the years indicated below: -37-
Year Percentage ---- ---------- 2006.................................................................. 105.0% 2007.................................................................. 103.0% 2008 and thereafter................................................... 100.0%;
provided that each partial prepayment of principal of the Loan shall be in an amount that is a multiple of $1.0 million and in an aggregate amount of not less than $5.0 million. Notice of prepayment having been given as aforesaid, the principal amount of the Loan to be prepaid shall become due and payable on the prepayment date. Amounts of the Loan so prepaid may not be reborrowed. (II) Prepayments from Equity Proceeds. At any time, or from time to time, on or prior to February 10, 2006, the Company may, upon not less than five Business Days' prior written or telephonic notice confirmed in writing to the Administrative Agent, on any Interest Payment Date, use the net cash proceeds of one or more Equity Offerings to prepay up to 35% of the then outstanding amounts of the Loan at a redemption price of 111.0% of principal amount, plus accrued and unpaid interest to the redemption date; provided, however, that, after giving effect to any such redemption at least 65% of the Loans made hereunder shall remain outstanding; and provided, further, that the Company makes such redemption nor more than 90 days after the consummation of any such Equity Offering; and provided, further, that each such partial prepayment of the Loan shall be in an amount that is a multiple of $1.0 million and in an aggregate amount of not less than $5.0 million. (ii) Mandatory Prepayments. (I) Prepayments from Asset Sales. Subject to and in accordance with the provisions of Section 6.13, and in accordance with clause (VI) below, the Company shall provide the Administrative Agent with a Prepayment Offer Notice and each Lender shall have the right to require the Company to apply, or to cause any Restricted Subsidiary of the Company to apply, up to 100% of the Excess Proceeds toward the prepayment at par of all or a portion of such Lender's outstanding portion of the Loan; provided that no such prepayment shall be required under this Section 2.5(a)(ii)(I) with respect to the disposition of property which constitutes a Casualty Event. (II) Prepayments from Casualty Events. (w) In connection with the receipt of any Extraordinary Receipts from a Casualty Event by the Company or any of its Restricted Subsidiaries, so long as no Potential Event of Default or Event of Default shall then exist or arise therefrom, the Company or such Restricted Subsidiary may elect to apply such Extraordinary Receipts toward the repair, replacement or restoration of any property in respect of which such Extraordinary Receipts were paid or to reinvest in other fixed or capital assets, no later than 365 days following the date of receipt of such proceeds; provided that if the property subject to such Casualty Event constituted Collateral under the Security Documents, then all property purchased with the Extraordinary Receipts thereof pursuant to this subsection shall be made subject -38- to the Lien of the applicable Security Documents in favor of the Collateral Agent, for its benefit and for the benefit of the other Secured Parties in accordance with Sections 5.11 and 5.12. (x) Any Extraordinary Receipts not applied within the 365-day period set forth in clause (w) above (or earlier, at the option of the Company) to so repair, replace, restore or reinvest in accordance with such clause shall constitute "Excess Extraordinary Receipts." When the aggregate amount of Excess Extraordinary Receipts exceeds $2.0 million the Company shall provide the Administrative Agent with a Prepayment Offer Notice in accordance with the provisions of clause (VI) below and each Lender shall have the right to require the Company to apply or to cause any Restricted Subsidiary of the Company to apply, up to 100% of the Excess Extraordinary Receipts therefrom toward the prepayment at par of all or a portion of such Lender's outstanding Loan. (y) Pending the final application thereof, all Extraordinary Receipts in excess of $5.0 million in the aggregate in respect of all Casualty Events affecting Collateral shall be held in the Collateral Account (to the extent permitted by Article 8 hereof) and released therefrom only in accordance with the provisions of Article 8 and, with respect to Extraordinary Receipts received in respect of Revolving Collateral, may be used to temporarily reduce Indebtedness under the Revolving Credit Facility. (z) Upon completion of the repayment offer set forth in clause (x) above, the amount of Excess Extraordinary Receipts will be deemed to have been reset to zero. (III) [Reserved]. (IV) [Reserved]. (V) Application to Other Indebtedness. Notwithstanding anything to the contrary in this Agreement, neither the Company nor any of its Restricted Subsidiaries is obligated to apply any amounts pursuant to this Section 2.5(a)(ii) (other than in connection with sales of First Lien Collateral) to the prepayment of the Loan or fund the Collateral Account to the extent that such amounts are required to be and are applied or funded pursuant to (x) the Revolving Credit Facility in satisfaction of obligations under the Revolving Credit Facility in accordance with the terms thereof or (y) the First Lien Credit Facility in satisfaction of obligations thereunder in accordance with the terms thereof. (VI) Notice and Prepayment Procedures. The Company shall provide a written notice (a "PREPAYMENT OFFER NOTICE") to the Administrative Agent, (A) in the case of clause (I) above, within one Business Day of the expiration of the 365-day period referred to in Section 6.13 and (B) in the case of clause (II) above, within one Business Day of the expiration of the 365-day period referred to therein (unless, in each case, shorter notice is satisfactory to the Administrative Agent), which Prepayment Offer Notice shall state the Section and clause of this Agreement pursuant to which such Prepayment Offer Notice is being delivered and the maximum aggregate amount which the Lenders may require the Company to prepay thereunder. The Administrative Agent shall notify the Lenders of its receipt of such Prepayment Offer Notice within three Business Days of its receipt thereof (provided that failure to do so by the Adminis- -39- trative Agent shall not limit the rights of any Lender to require the Company to prepay any amounts pursuant to this Section 2.5(a)(ii)). Within five Business Days of receipt of such notice from the Administrative Agent, each Lender shall submit to the Administrative Agent the amount, if any, such Lender elects to require the Company to prepay with respect to such Lender's outstanding portion of the Loan. To the extent the Lenders shall elect to require the Company to prepay the Loan in an amount exceeding the maximum amount required to be offered for prepayment pursuant to the applicable clause of this Section 2.5(a)(ii), such portion of the Loan will be prepaid on a pro rata basis (based on the amounts each Lender submits for prepayment). Within ten Business Days of its receipt of the Prepayment Offer Notice, the Administrative Agent shall advise the Company as to the amounts to be prepaid pursuant to this Section 2.5(a)(ii) and the date on which such amounts are due, which date shall be any Business Day (determined by the Administrative Agent) within 30 days after the day it so advises the Company. (iii) Company's Mandatory Prepayment Obligation; Application of Prepayments. All prepayments shall include payment of accrued interest on the principal amount so prepaid and shall be applied to payment of interest before application to principal. Amounts prepaid pursuant to this Section 2.5 may not be reborrowed. (b) Manner and Time of Payment. All payments of principal and interest hereunder and under the Notes by the Company shall be made without defense, set off or counterclaim and in same-day funds and delivered to the Administrative Agent, unless otherwise specified, not later than 3:00 P.M. (New York time) on the date due at the Payment Office for the account of the Lenders; funds received by the Administrative Agent after that time shall be deemed to have been paid by the Company on the next succeeding Business Day. The Company hereby authorizes the Administrative Agent to charge its account with the Administrative Agent in order to cause timely payment to be made of all principal, interest and fees due hereunder (subject to sufficient funds being available in its account for that purpose). (c) Payments on Non-Business Days. Whenever any payment to be made hereunder or under the Notes shall be stated to be due on a day which is not a Business Day, the payment shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of the payment of interest hereunder or under the Notes or of the commitment and other fees hereunder, as the case may be. (d) Notation of Payment. Each Lender agrees that before disposing of any Note held by it, or any part thereof (other than by granting participations therein), such Lender will make a notation thereon of all principal payments previously made thereon and of the date to which interest thereon has been paid and will notify the Company of the name and address of the transferee of that Note; provided that the failure to make (or any error in the making of) such a notation or to notify the Company of the name and address of such transferee shall not limit or otherwise affect the obligation of the Company hereunder or under such Notes with respect to the Loan and payments of principal or interest on any such Note. -40- Section 2.6 Use of Proceeds (a) The Loan. The proceeds of the Loan shall be applied by the Company, together with borrowings under the First Lien Credit Facility and the initial borrowings under the Revolving Credit Facility, to finance the Financing Transactions and pay Transaction Costs. (b) Margin Regulations. No portion of the proceeds of any borrowing under this Agreement shall be used by the Company in any manner which might cause the borrowing or the application of such proceeds to violate the applicable requirements of Regulation U, Regulation T or Regulation X of the Board of Governors of the Federal Reserve System or any other regulation of the Board of Governors or to violate the Exchange Act, in each case as in effect on the date or dates of such borrowing and such use of proceeds. Section 2.7 Additional Commitments and Additional Loans (a) At any one time prior to the Maturity Date, the Company may, by written notice to the Administrative Agent, request an Additional Loan Commitment and Additional Loans, in an aggregate amount not to exceed the Additional Loan Amount from one or more Additional Lenders, which may include one or more existing Lenders; provided that each Additional Lender, if not already an existing Lender hereunder, shall be subject to the prior approval of the Administrative Agent (such approval not to be unreasonably withheld or delayed). For the avoidance of doubt, it is understood and agreed that neither the Administrative Agent nor any Lender is under any obligation to obtain any Additional Commitments or Additional Loans hereby. (b) The Company, each Subsidiary Guarantor and each Additional Lender shall execute and deliver to the Administrative Agent an Additional Loan Assumption Agreement and such other documentation as the Administrative Agent shall reasonably specify to evidence the Additional Commitment and Additional Loans of such Additional Lender, which documentation may include such conditions to borrowing such Additional Loans as may be set forth in the applicable Additional Loan Assumption Agreement or requested by the Administrative Agent. Such Additional Loan Assumption Agreement shall become effective no later than five Business Days after the execution and delivery thereof. Except as expressly provided herein, the Additional Loans shall be governed by this Agreement and the other Credit Documents. The Administrative Agent shall promptly notify each Lender as to the effectiveness of each Additional Loan Assumption Agreement. Each of the parties hereto hereby agrees that, upon the effectiveness of any Additional Loan Assumption Agreement, this Agreement shall be deemed amended to the extent necessary to reflect the existence and terms of the Additional Loan Commitment evidenced thereby. Any such deemed amendment may be memorialized in writing by the Administrative Agent with the Company's consent (not to be unreasonably withheld) and furnished to the other parties hereto. From and after the effectiveness of an Additional Loan Assumption Agreement, the Additional Lender party thereto shall be a Lender for all purposes of this Agreement, and Additional Loans made thereunder shall be Loans for all purposes of this Agreement. -41- (c) The obligations of the Additional Lenders to make any Additional Loans are subject to prior or concurrent satisfaction or waiver of each of the following conditions, in addition to any other conditions set forth in the applicable Additional Loan Assumption Agreement: (i) The Administrative Agent shall have received on behalf of the Lenders an originally executed Notice of Borrowing, signed by a duly authorized Officer of the Company; (ii) No event shall have occurred and be continuing or would result from the consummation of the borrowing contemplated by the Notice of Borrowing which would constitute an Event of Default or Potential Event of Default; (iii) (I) There shall not have occurred since the last date on which financial statements were delivered pursuant to Section 5.1(a) or (b) anything which the Administrative Agent shall reasonably determine could have a Materially Adverse Effect; and (II) since the date of the applicable Additional Loan Assumption Agreement (i) trading in securities generally on the New York or American Stock Exchange shall not have been suspended; minimum or maximum prices shall not have been established on any such exchange; (ii) a banking moratorium shall not have been declared by New York or United States authorities; and (iii) there shall not have occurred either (A) an outbreak or escalation of hostilities between the United States and any foreign power, or (B) an outbreak or escalation of any other insurrection or armed conflict involving the United States or any other national or international calamity or emergency, or (C) any material change in the general financial markets of the United States which, in the reasonable judgment of the Administrative Agent, would materially and adversely affect the ability to sell or syndicate the Additional Loans; (iv) Simultaneously with the making of any Additional Loans by the Additional Lenders, the Company shall have delivered to the Administrative Agent an Officer's Certificate from the Company in form and substance satisfactory to the Administrative Agent to the effect that (i) the representations and warranties in Article 4 are true, correct and complete in all material respects on and as of the date such Additional Loans are made (each such date, an "ADDITIONAL CLOSING DATE") to the same extent as though made on and as of that date after giving effect to updating schedules thereto and (ii) on or prior to such Additional Closing Date, the Company has performed and complied with all covenants and conditions to be performed and observed by the Company hereunder on or prior to such Additional Closing Date (other than such conditions the satisfaction of which is subject to the satisfaction of the Administrative Agent and/or the Required Lenders); (v) The Administrative Agent shall have received a certificate to the effect of clause (i), (ii) and (iii) dated such date and executed by an Officer of the Company; and -42- (vi) The Administrative Agent shall have received (with sufficient copies for each of the Additional Lenders) closing certificates and documentation reasonably specified by the Administrative Agent. ARTICLE 3 CONDITIONS Section 3.1 Conditions to the Loan The obligations of the Lenders to make the Loan are subject to prior or concurrent satisfaction of each of the following conditions: (a) On or before the Closing Date, all corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incidental thereto not previously found acceptable by the Administrative Agent shall be reasonably satisfactory in form and substance to the Administrative Agent, and the Administrative Agent shall have received on behalf of the Lenders the following items, each of which shall be in form and substance reasonably satisfactory to the Administrative Agent and, unless otherwise noted, dated the Closing Date: 1. a copy of the Company's and each Subsidiary Guarantor's charter, certified as of the Closing Date by one of its Officers, together with a certificate of status, compliance, good standing or like certificate with respect to the Company and each Subsidiary Guarantor issued by the appropriate government officials of the jurisdiction of its incorporation, each to be dated a recent date prior to the Closing Date; 2. a copy of the Company's and each Subsidiary Guarantor's bylaws, certified as of the Closing Date by one of its Officers; 3. resolutions of the Company's and each Subsidiary Guarantor's Board of Directors approving and authorizing the execution, delivery and performance of this Agreement, each of the Credit Documents to which it is a party and any other documents, instruments and certificates required to be executed by the Company or such Subsidiary Guarantor in connection herewith and therewith and approving and authorizing the execution and delivery of the Credit Documents and the consummation of the Transactions, each certified as of the Closing Date by one of its Officers as being in full force and effect without modification or amendment; 4. executed copies of (i) this Agreement, (ii) the Notes substantially in the form of Exhibit I executed in accordance with Section 2.1(d) drawn to the order of the Lenders and with appropriate insertions and (iii) the other Credit Documents; -43- 5. an originally executed Notice of Borrowing substantially in the form of Exhibit IV, signed by a duly authorized Officer of the Company; 6. originally executed copies of the written opinions of (I) Edwards & Angell, LLP, counsel for the Company and the Subsidiary Guarantors, substantially in the form of Exhibit V and addressed to the Lenders, which shall include an opinion as to the absence of any material misstatement or omission in the Company's reports on Forms 10-K and 10-Q filed with the Commission since February 1, 2003, (II) Edwards & Angell, LLP, counsel for the Company and the Subsidiary Guarantors, substantially in the form of Exhibit VI and addressed to the Lenders, (III) the opinions of the various local counsel identified on Exhibit VII-1 in the form of Exhibit VII-2 and addressed to the Lenders, and (IV) such other opinions of counsel and such certificates or opinions of accountants, appraisers or other professionals as the Administrative Agent shall have reasonably requested including, without limitation, receipt of an environmental report and technical reports from independent consultants in respect of the Company and the Subsidiaries of the Company and their respective properties, in form and substance reasonably satisfactory to the Administrative Agent; 7. a solvency certificate addressed to the Administrative Agent and dated the Closing Date from the chief financial officer of the Company, which solvency certificate shall be in the form of Exhibit II (appropriately completed), expressing opinions of value and other appropriate factual information regarding the solvency of the Company and its Subsidiaries (on a consolidated basis) after giving effect to the Transactions and the incurrence of all financings contemplated herein; 8. executed or conformed copies of the Revolving Credit Agreement and the First Lien Credit Agreement and any amendments thereto made on or prior to the Closing Date and the related security agreements and documents and other ancillary documents related thereto and a copy of each legal opinion delivered in connection with therewith, and in each case, the terms and provisions of thereof and all documents and instruments relating thereto shall be reasonably satisfactory to the Administrative Agent; and 9. a notation of Guarantee, executed and delivered by each Subsidiary Guarantor, dated the date of this Agreement, substantially in the form of Exhibit VIII. (b) On or before the Closing Date, all authorizations, consents and approvals necessary in connection with the Transactions shall have been obtained and remain in full force and effect and all applicable waiting periods under Law applicable to the Financing Transactions shall have expired without any action being taken by any competent authority (including, without limitation, any Tribunal) which restrains, prevents or imposes materially adverse conditions upon the completion of the Financing Transactions or the financing thereof and evidence of the receipt of such authorizations, consents and approv- -44- als satisfactory to the Administrative Agent shall have been delivered to the Administrative Agent. (c) On or before the Closing Date, the Company shall have paid all fees payable on the Closing Date pursuant to Section 2.4. (d) Prior to or substantially concurrent with the borrowing of the Loan, (i) the Company shall have closed the Revolving Credit Agreement providing for commitments to the Company and/or the Subsidiary Guarantors of up to $175.0 million (and not less than $125.0 million) and shall have drawn not more than $60.0 million thereunder and which at the Closing Date shall provide for then current available borrowings of not less than $90.0 million; (ii) the Company shall have closed the First Lien Credit Agreement and shall have received not less than $185.0 million in term loans pursuant thereto; and (iii) the Company shall have consummated the Financing Transactions, repaid all amounts outstanding under each of the Refinanced Facilities, terminated any and all commitments with respect thereto and any and all Liens and/or other security interests granted or created thereunder shall have been released and/or terminated, and, in each case, the Company shall have provided to the Administrative Agent satisfactory evidence of such. (e) The Administrative Agent shall have received and reviewed, and be satisfied with, (i) audited consolidated balance sheets and related statements of income, stockholders' equity and cash flows of the Company prepared in accordance with GAAP for each of the last three fiscal years ending more than 90 days prior to the Closing Date, in each case, audited by and accompanied by an unqualified opinion (other than with respect to changes of methods of accounting in accordance with GAAP and the exclusion of an opinion on reports of other auditors) of the Company's independent public accountants, within the meaning of the Securities Act (the "AUDITED FINANCIAL STATEMENTS"), (ii) unaudited consolidated balance sheets and related statements of income, stockholders' equity and cash flows of Company prepared in accordance with GAAP for each fiscal quarter (other than the year-end fiscal quarter) ending after the last fiscal year covered by the Audited Financial Statements and prior to 30 days prior to the Closing Date and for the comparable periods of the preceding fiscal year (the "UNAUDITED FINANCIAL STATEMENTS") (with respect to which the independent auditors shall have performed a SAS 71 or SAS 100 review, as applicable), (iii) forecasts of the financial performance of the Company and its Subsidiaries through December 31, 2008 (the "Projections") and (iv) such other financial information as the Administrative Agent or the Joint Lead Arrangers and Joint Lead Bookrunners may reasonably request. (f) Simultaneously with the making of the Loan by the Lenders, the Company shall have delivered to the Administrative Agent an Officer's Certificate from the Company in the form of Exhibit XV hereto dated the Closing Date and signed by the chief financial officer of the Company to the effect that (i) the representations and warranties in Article 4 are true, correct and complete in all material respects on and as of the Closing Date to the same extent as though made on and as of that date, (ii) on or prior to the Closing Date, the Company has performed and complied with in all material respects all -45- covenants and conditions to be performed and observed by the Company hereunder on or prior to the Closing Date (other than such conditions the satisfaction of which is subject to the satisfaction of the Administrative Agent and/or the Required Lenders) and (iii) all conditions to the consummation of the Financing Transactions in any agreements governing the Financing Transactions and all conditions set forth in the agreements governing the First Lien Credit Facility and all conditions set forth in the agreements governing the Revolving Credit Facility have been satisfied substantially on the terms set forth therein and have not been waived or amended without the Administrative Agent's prior written consent. (g) No event shall have occurred and be continuing or would result from the consummation of the borrowing contemplated by the Notice of Borrowing which would constitute an Event of Default or Potential Event of Default. (h) The pro forma consolidated capital structure of the Company and its Subsidiaries, after giving effect to the Transactions, shall be satisfactory to the Administrative Agent, and, other than the Loan and the obligations under the Revolving Credit Facility and the First Lien Credit Facility, the Company shall have no outstanding Indebtedness or Preferred Stock except as set forth on Schedule 3.1(h) hereto. (i) (a) There shall not have occurred since September 30, 2003 (as disclosed in the Company's Quarterly Report on Form 10-Q for such quarter, as filed with the Commission on November 14, 2003) anything which the Lenders shall reasonably determine could have a material adverse effect on the rights or remedies of the Lenders, or on the ability of the Company to perform its obligations to the Lenders or which has, had or could have a Material Adverse Effect; and (b) since the date hereof (i) trading in securities generally on the New York or American Stock Exchange shall not have been suspended; minimum or maximum prices shall not have been established on any such exchange; (ii) a banking moratorium shall not have been declared by New York or United States authorities; and (iii) there shall not have occurred either (A) an outbreak or escalation of hostilities between the United States and any foreign power, or (B) an outbreak or escalation of any other insurrection or armed conflict involving the United States or any other national or international calamity or emergency, or (C) any material change in the general financial markets of the United States which, in the reasonable judgment of the Administrative Agent, would materially and adversely affect the ability to sell or syndicate the Loan. (j) The Administrative Agent and its counsel shall be satisfied that the consummation of the Financing Transactions and the related financing, including the funding of the Loan, shall be in compliance with all applicable Laws (including without limitation Regulation T, U or X of the Board of Governors of the Federal Reserve System). On or prior to the Closing Date, all necessary governmental (domestic and foreign), regulatory and third-party approvals in connection with the Credit Documents and otherwise referred to herein or therein shall have been obtained and remain in full force and effect and evidence thereof shall have been provided to the Administrative Agent. On the Closing Date, no litigation by any entity (private or governmental) shall be pending or threatened -46- in writing (i) with respect to the Transactions or any documentation executed in connection therewith (including any Credit Document) or the transactions contemplated thereby or with respect to any existing indebtedness or (ii) which the Administrative Agent shall reasonably determine would reasonably be likely to have a materially adverse effect on the Transactions or on the rights or remedies of any Agent or the Lenders, or on the ability of the Company or any of its Subsidiaries to perform its respective obligations hereunder to the Administrative Agent and the Lenders. (k) The Company and each of its Subsidiaries shall be in compliance, in all material respects, with all applicable foreign and U.S. federal, state and local laws and regulations, including all applicable Environmental Laws. (l) The Company shall have received senior secured debt ratings on the Loan from both Moody's and S&P. (m) The Collateral Agent shall have received duly executed counterparts of the Security Agreement together with: (i) UCC financing statements in appropriate form for filing under the UCC and such other documents under applicable Requirements of Law in each jurisdiction as may be necessary or appropriate or, in the opinion of the Collateral Agent, desirable to perfect the Liens created, or purported to be created, by the Security Documents and, with respect to all UCC financing statements required to be filed pursuant to the Credit Documents, evidence satisfactory to the Administrative Agent that the Company has retained, at its sole cost and expense, a service provider acceptable to the Administrative Agent for the tracking of all such financing statements and notification to the Administrative Agent, of, among other things, the upcoming lapse or expiration thereof; (ii) certified copies of UCC, United States Patent and Trademark Office and United States Copyright Office, tax and judgment lien searches, bankruptcy and pending lawsuit searches or equivalent reports or searches, each of a recent date listing all effective financing statements, lien notices or comparable documents that name the Company as debtor and that are filed in those state and county jurisdictions in which any property of the Company is located and the state and county jurisdictions in which the Company is organized or maintains its principal place of business and such other searches that the Collateral Agent deems reasonably necessary or appropriate, none of which encumber the Collateral covered or intended to be covered by the Security Documents (other than Permitted Collateral Liens or any other Liens acceptable to the Collateral Agent); (iii) with respect to each location set forth on Schedule 3.1(m)(iii), a Landlord Access Agreement or Bailee Letter, as applicable; provided that no such Landlord Access Agreement shall be required with respect to any Real Property that could not be obtained after the Loan Party that is the lessee or owner of the -47- inventory or other personal property Collateral stored with the bailee thereof, as applicable, shall have used all commercially reasonable efforts to do so; (iv) evidence acceptable to the Collateral Agent of payment or arrangements for payment by the Company of all applicable recording taxes, fees, charges, costs and expenses required for the recording of the Security Documents; (v) all certificates, agreements or instruments representing or evidencing the Securities Collateral accompanied by instruments of transfer and stock powers undated and endorsed in blank (as each such term is defined in the Security Agreement and to the extent required by the Security Agreement); (vi) all other certificates, agreements, including control agreements, or instruments necessary to perfect the Collateral Agents' security interest in all Chattel Paper, all Instruments and all Investment Property of each Loan Party (as each such term is defined in the Security Agreement and to the extent required by the Security Agreement); and (vii) written consents to the execution and performance of the Loan Documents duly executed by Darlington County, South Carolina and by Florence County, South Carolina in form and substance reasonably satisfactory to the Administrative Agent. (n) The Collateral Agent shall have received: (i) a Mortgage encumbering each Mortgaged Property in favor of the Collateral Agent, for the benefit of the Secured Parties, duly executed and acknowledged by the Loan Party that is the owner of or holder of any interest in such Mortgaged Property, and otherwise in form for recording in the recording office of each applicable political subdivision where each such Mortgaged Property is situated, together with such certificates, affidavits, questionnaires or returns as shall be reasonably required in connection with the recording or filing thereof to create a lien under applicable law, and such financing statements and any other instruments reasonably necessary to grant a mortgage lien under the laws of any applicable jurisdiction, all of which shall be in form and substance reasonably satisfactory to Collateral Agent; (ii) with respect to each Mortgaged Property, such consents, approvals, amendments, supplements, estoppels, tenant subordination agreements or other instruments as reasonably necessary to consummate the Transactions or as shall reasonably be deemed reasonably necessary by the Collateral Agent in order for the owner or holder of the fee or leasehold interest constituting such Mortgaged Property to grant the Lien contemplated by the Mortgage with respect to such Mortgaged Property; -48- (iii) with respect to each Mortgage, a policy of title insurance (or marked-up title insurance commitment having the effect of a policy of title insurance) insuring the Lien of such Mortgage as a valid mortgage Lien on the Mortgaged Property and fixtures described therein in the amount equal to not less than 115% of the fair market value of such Mortgaged Property and fixtures, which fair market value is set forth on Schedule 3.1(n)(iii), which policy (or such marked-up commitment) (each, a "TITLE POLICY") shall (A) be issued by the Title Company, (B) to the extent necessary, include such reinsurance arrangements (with provisions for direct access, if necessary) as shall be reasonably acceptable to the Collateral Agent, (C) contain a "tie-in" or "cluster" endorsement, if available under applicable law (i.e., policies which insure against losses regardless of location or allocated value of the insured property up to a stated maximum coverage amount), (D) have been supplemented by such endorsements (or where such endorsements are not available, opinions of special counsel, architects or other professionals reasonably acceptable to the Collateral Agent) as shall be reasonably requested by the Collateral Agent (including endorsements on matters relating to usury, first loss, last dollar, zoning, contiguity, revolving credit, doing business, non-imputation, public road access, survey, variable rate, environmental lien, subdivision, separate tax lot revolving credit, and so-called comprehensive coverage over covenants and restrictions, provided such endorsements are available in the jurisdiction where each Mortgaged Property is located), and (E) contain no exceptions to title other than the Lien of mortgages securing the First Lien Obligations and other exceptions acceptable to the Collateral Agent; (iv) with respect to each Mortgaged Property, such affidavits, certificates, information (including financial data) and instruments of indemnification (including a so-called "gap" indemnification) as shall be reasonably required to induce the Title Company to issue the Title Policy/ies and endorsements contemplated above; (v) evidence reasonably acceptable to the Collateral Agent of payment by the Company of all Title Policy premiums, search and examination charges, escrow charges and related charges, mortgage recording taxes, fees, charges, costs and expenses reasonably required for the recording of the Mortgages and issuance of the Title Policies referred to above; (vi) with respect to each Real Property or Mortgaged Property, copies of all Leases in which the Company or any Subsidiary Guarantor holds the lessor's interest or other agreements relating to possessory interests, if any. To the extent any of the foregoing affect any Mortgaged Property, such agreement shall be subordinate to the Lien of the Mortgage to be recorded against such Mortgaged Property, either expressly by its terms or pursuant to a subordination, non-disturbance and attornment agreement, and shall otherwise be acceptable to the Collateral Agent; -49- (vii) with respect to each Mortgaged Property, each Loan Party shall have made all notifications, registrations and filings, to the extent required by, and in accordance with, all Governmental Real Property Disclosure Requirements applicable to such Mortgaged Property; and (viii) with respect to each Mortgaged Property, a survey satisfying clauses (a)(i), (ii), (iii) and (v) of the defined term Survey. (o) The Administrative Agent shall have received a copy of, or a certificate as to coverage under, the insurance policies required by Section 5.4 and the applicable provisions of the Security Documents, each of which shall be endorsed or otherwise amended to include a "standard" or "New York" lender's loss payable or mortgagee endorsement (as applicable) and shall name the Collateral Agent, on behalf of the Secured Parties, as additional insured, in form and substance satisfactory to the Administrative Agent. (p) Except as disclosed in the Company's quarterly report on Form 10-Q for the quarter ended September 30, 2003, as filed with the Commission on November 14, 2003, there shall be no litigation, public or private, or administrative proceedings, governmental investigation or other legal or regulatory developments, actual or threatened, that, singly or in the aggregate, would reasonably be expected to result in a Material Adverse Effect, or would materially and adversely affect the ability of the Company or any other Loan Party to fully and timely perform its obligations under the Credit Documents, or the ability of the parties to consummate the financings contemplated hereby or the other Transactions. (q) The Administrative Agent shall have entered into the Intercreditor Agreement with the agent under the Revolving Credit Facility and the agent under the First Lien Credit Facility. ARTICLE 4 REPRESENTATIONS AND WARRANTIES In order to induce the Lenders to enter into this Agreement and to make the Loan, the Company represents and warrants with respect to itself to the Lenders that, at the time of execution hereof and upon giving effect to consummation of the Transactions, the following statements are true, correct and complete: Section 4.1 Company Status Each of the Loan Parties (i) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (ii) has the requisite power and authority to own its property and assets and to transact the business in which it is engaged and presently proposes to engage and (iii) is duly qualified and is authorized to do business and is in good standing in each jurisdiction where the conduct of its business requires such qualification except -50- for failures to be so qualified which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. Section 4.2 Company Power and Authority Each of the Loan Parties has the power and authority to execute, deliver and perform the terms and provisions of each of the Credit Documents to which it is a party and has taken all necessary action to authorize the execution, delivery and performance by it of such Credit Document. Each of the Loan Parties has duly executed and delivered each of the Credit Documents to which it is a party, and each such Credit Document constitutes the legal, valid and binding obligation of such party enforceable in accordance with its terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws generally affecting creditors' rights and by equitable principles (regardless of whether enforcement is sought in equity or at law). Section 4.3 No Violation Neither the execution, delivery or performance by the Company or any of its Subsidiaries of any of the Credit Documents to which it is a party, nor compliance by it with the terms and provisions thereof, nor consummation of the transactions contemplated therein, (i) will contravene in any material respect any material provision of any applicable law, statute, rule or regulation or of any applicable order, writ, injunction or decree of any court or governmental instrumentality, (ii) will conflict or be inconsistent with or result in any breach of any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any Lien upon any of the properties or assets of the Company or any of its Subsidiaries pursuant to the terms of, any indenture, mortgage, deed of trust, credit agreement or loan agreement, or any other agreement, contract or instrument, to which the Company or any of its Subsidiaries is a party or by which it or any of its property or assets is bound or to which it may be subject, except for any such conflict, breach or Lien which would not individually or in the aggregate reasonably be expected to have a Material Adverse Effect, or (iii) will violate any provision of the certificate of incorporation or bylaws (or equivalent organizational documents) of the Company or any of its Subsidiaries. Section 4.4 Governmental Approvals No order, consent, approval, license, authorization or validation of, or filing, recording or registration with (except as have been obtained or made prior to the date when required and which remain in full force and effect), or exemption by, any governmental or public body or authority, or any subdivision thereof, is required to authorize, or is required in connection with, (i) the Transactions, (ii) the execution, delivery and performance of any Credit Document or (iii) the legality, validity, binding effect or enforceability of any such Credit Document. -51- Section 4.5 Financial Statements; Financial Condition; Undisclosed Liabilities; Projections; Etc. (a) (i) The Audited Financial Statements furnished to the Lenders prior to the Closing Date, (ii) the Unaudited Financial Statements furnished to the Lenders prior to the Closing Date and (iii) the unaudited pro forma consolidated balance sheet of the Company and its Subsidiaries as of December 31, 2003 and after giving effect to the Transactions and the incurrence of all Indebtedness contemplated thereby as set forth on Schedule 4.12 (the "PRO FORMA BALANCE SHEET"), in each case present fairly in all material respects the financial condition of the Company and its Subsidiaries at the date of such statements of financial condition and the results of the operations of the Company and its Subsidiaries for the periods covered thereby (or, in the case of the Pro Forma Balance Sheet, presents a good faith estimate of the consolidated pro forma financial condition of the Company (after giving effect to the Transactions at the date thereof)), subject, in the case of Unaudited Financial Statements, to normal year-end adjustments. All such financial statements (other than the aforesaid Pro Forma Balance Sheet) have been prepared in accordance with GAAP, consistently applied (other than as set forth therein), except, in the case of the quarterly statements, for the omission of footnotes, and certain reclassifications and ordinary end of period adjustments and accruals (all of which are of a recurring nature and none of which individually, or in the aggregate, would be material). (b) After giving effect to the Transactions, since September 30, 2003 (as disclosed in the Company's Quarterly Report on Form 10-Q for such quarter), there has been no Material Adverse Change. (c) On and as of the Closing Date, after giving effect to the Transactions and to all Indebtedness being incurred or assumed in connection therewith, and Liens created by each party in connection therewith, (x) the sum of the assets, at a fair valuation, of each of the Company and its Subsidiaries taken as a whole and the Company and the Subsidiary Guarantors taken as a whole (each of the foregoing, a "SOLVENT ENTITY") will exceed its debts; (y) each Solvent Entity has not incurred and does not intend to incur, nor believes that it will incur, debts beyond its ability to pay such debts as such debts mature; and (z) each Solvent Entity will have sufficient capital with which to conduct its business. For purposes of this Section 4.5(c), "debt" means any liability on a claim, and "claim" means (i) right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, legal, equitable, secured, or unsecured or (ii) right to an equitable remedy for breach of performance if such breach gives rise to a payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, secured or unsecured. (d) On and as of the Closing Date, the Projections which have been delivered to the Administrative Agent and the Lenders prior to the Closing Date, are based on good faith estimates and assumptions made by management of the Company as of the date of such Projections and there are no statements or conclusions in any of the Projections which are based upon or include information known to the executive officers of the Company to be misleading or which fail to take into account material information regarding the matters reported therein, it being understood by the Administrative Agent and the Lenders that projections as to future events -52- are not to be viewed as facts and that the actual results during the periods covered by the Projections may differ from the projected results set forth therein. (e) Except as fully reflected in the financial statements described in Section 4.5(a) and the Indebtedness incurred under this Agreement, the Revolving Credit Facility and the First Lien Credit Facility, as of the Closing Date, (i) there were no liabilities or obligations (excluding current obligations incurred in the ordinary course of business) with respect to the Company or any of its Subsidiaries of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether or not due) which, either individually or in the aggregate, would reasonably be expected to have Material Adverse Effect and (ii) neither the Company nor any of its Subsidiaries knows of any basis for the assertion against it or any of its Subsidiaries of any such liability or obligation of any nature whatsoever that is not fully disclosed in the financial statements delivered pursuant to Section 4.5(a) and that, either individually or in the aggregate, is or would be reasonably be expected to have a Material Adverse Effect. Section 4.6 Litigation (a) Except as disclosed in the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, as filed with the Commission on November 14, 2003, there are no actions, suits or proceedings at law or in equity by or before any Governmental Authority now pending or, to the knowledge of any Company, threatened against or affecting any Company or any business, property or rights of any Company (excluding actions, suits or proceedings under Environmental Laws, which matters are covered in Section 4.17) (i) that involve any Credit Document or any of the Transactions or (ii) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, would reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect. (b) Except for matters covered by Section 4.17, neither the Company nor any of its property is in violation of, nor will the continued operation of its property as currently conducted violate, any Requirements of Law (including any zoning or building ordinance, code or approval or any building permits) or any restrictions of record or agreements affecting any Company's Real Property or is in default with respect to any judgment, writ, injunction, decree, rule or order of any Governmental Authority, where such violation or default, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect. Section 4.7 True and Complete Disclosure All factual information (taken as a whole) furnished by or on behalf of the Company or any of its Subsidiaries in writing to the Administrative Agent or any Lender (including, without limitation, all information contained in the Credit Documents and the Confidential Information Memorandum) for purposes of or in connection with this Agreement, the other Credit Documents or any transaction contemplated herein or therein, taken as a whole, is, and all other such information (taken as a whole) hereafter furnished by or on behalf of any such Person in writing to the Administrative Agent or any Lender will be, true and accurate in all material respects on the date as of which such information is dated or certified and not incomplete by omitting to state any material fact necessary to make such information (taken as a whole) not mis- -53- leading at such time in light of the circumstances under which such information was provided; provided that with respect to projected financial information, the only representations and warranties made hereby are that such information was prepared based on good faith estimates and assumptions made by management of the Company believed to be reasonable at the time made and that there are no statements or conclusions in any such information which are based upon or include information known to the executive officers of the Company to be misleading or which fail to take into account material information regarding the matters reported therein. Section 4.8 Tax Returns and Payments Each of the Company and its Subsidiaries has timely filed or caused to be timely filed, on the due dates thereof or within applicable grace periods (inclusive of any permitted extensions), with the appropriate taxing authority, all Federal, material state and other material returns, statements, forms and reports for Taxes (the "RETURNS") required to be filed by or with respect to the income, properties or operations of the Company and/or any of its Subsidiaries. The Returns accurately reflect all material liability for Taxes of the Company and its Subsidiaries for the periods covered thereby. The Company and each of its Subsidiaries have paid all material Taxes payable by them other than Taxes which are not due and payable, and other than those contested in good faith by appropriate proceedings and for which adequate reserves have been established in accordance with GAAP and for which non-payment would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. As of the Closing Date, there is no action, suit, proceeding, investigation, audit, or claim now pending or, to the knowledge of the Company, threatened by any authority regarding any material Taxes relating to the Company or any of its Subsidiaries. As of the Closing Date, neither the Company nor any of its Subsidiaries has entered into an agreement or waiver or been requested to enter into an agreement or waiver extending any statute of limitations relating to the payment or collection of Taxes of the Company or its Subsidiaries (except for the extension of time related to the income tax returns of the Company's Dutch Subsidiaries), or is aware of any circumstances that would cause the taxable years or other taxable periods of the Company or any of its Subsidiaries not to be subject to the normally applicable statute of limitations. Neither the Company nor any of its Subsidiaries has incurred, or will incur, any material Tax liability in connection with the Transactions. Section 4.9 Compliance with ERISA (a) No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, would reasonably be expected to result in a Material Adverse Effect. The present value of all accumulated benefit obligations of all underfunded Pension Plans (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $17.0 million the fair market value of the assets of all such underfunded Pension Plans. Each ERISA Entity is in compliance in all material respects with the presently applicable provisions of ERISA and the Code with respect to each Employee Benefit Plan. Using actuarial assumptions and computation methods consistent with subpart 1 of subtitle E of Title IV of ERISA, the aggregate liabilities of each ERISA Entity to all Multiemployer Plans in the event of a complete with- -54- drawal therefrom, as of the close of the most recent fiscal year of each such Multiemployer Plan, would not reasonably be expected to result in a Material Adverse Effect. (b) Except where noncompliance would not reasonably be expected to result in a Material Adverse Effect, the Foreign Plans have been maintained in substantial compliance with their terms and with the requirements of any and all applicable laws, statutes, rules, regulations and orders and has been maintained, where required, in good standing with applicable regulatory authorities, and neither the Company nor any Subsidiary of the Company has incurred any material obligation in connection with the termination of or withdrawal from any Foreign Plan. The present value of the accrued benefit liabilities (whether or not vested) under the Foreign Plans which are funded, determined as of the date of the most recent financial statements reflecting such amounts on the basis of actuarial assumptions, each of which is reasonable (based on the actuarial assumptions used for purposes of the applicable jurisdiction's financial reporting requirements), does not exceed the current value of the assets of the Foreign Plans, and for each Foreign Plan which is not funded, the obligations of such Foreign Plan are properly accrued. Section 4.10 Representations and Warranties in Documents All representations and warranties by the Company and its Subsidiaries set forth in the other Credit Documents were true and correct in all material respects at the time as of which such representations and warranties were made (or deemed made) and shall be true and correct in all material respects as of the Closing Date as if such representations or warranties were made on and as of such date, unless stated to relate to a specific earlier date, in which case such representations or warranties shall be true and correct in all material respects as of such earlier date. Section 4.11 Properties (a) Each of the Company and its Subsidiaries has good and marketable title to, or a valid leasehold interest in, all material properties owned or leased by them, including all property reflected in the balance sheets referred to in Section 4.5(a) and in the Pro Forma Balance Sheet (except as sold or otherwise disposed of since the respective dates of such balance sheets in the ordinary course of business or as otherwise permitted by this Agreement), free and clear of all Liens, other than (i) in the case of Collateral, Permitted Collateral Liens, (ii) in the case of all other material property, Permitted Encumbrances, and (iii) as referred to in the balance sheets or in the notes thereto. The property of the Company and its Subsidiaries, taken as a whole, (i) is in good operating order, condition and repair (ordinary wear and tear excepted), except to the extent that the failure to be in such condition would not reasonably be expected to result in a Material Adverse Effect, and (ii) constitutes all the property which is required for the business and operations of the Company and its Subsidiaries (taken as a whole) as presently conducted. (b) Schedule 4.11(b) contains a true and complete list of each interest in Real Property (i) owned by the Company and its Subsidiaries as of the date hereof and describes the type of interest therein held by the Company and its Subsidiaries and (ii) leased, subleased or otherwise occupied or utilized by the Company or its Subsidiaries, as lessee, sublessee, franchi- -55- see or licensee, as of the date hereof and describes the type of interest therein held by the Company and its Subsidiaries and whether such lease, sublease or other instrument requires the consent of the landlord thereunder or other parties thereto to the Transactions. (c) Neither the Company nor any Subsidiary of the Company has received any notice of, nor has actual knowledge of, the occurrence or pendency or contemplation of any Casualty Event affecting all or any portion of its property. No Mortgage encumbers improved Real Property that is located in an area that has been identified by the U.S. Secretary of Housing and Urban Development as an area having special flood hazards within the meaning of the National Flood Insurance Act of 1968 unless flood insurance available under such Act has been obtained in accordance with Section 5.4(d). (d) The Company and its Subsidiaries own or have rights to use all of the Collateral and all rights with respect to any of the foregoing used in, necessary for or material to the Company's and its Subsidiaries' businesses as currently conducted. The use by the Company and its Subsidiaries of such Collateral and all such rights with respect to the foregoing do not infringe on the rights of any person other than such infringement which would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. No claim has been made and remains outstanding that the Company's or its Subsidiaries' use of any Collateral does or may violate the rights of any third party that would, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. (e) Each of the Company and its Subsidiaries shall cause the Equipment to be maintained and preserved in good repair, working order and condition, reasonable wear and tear and damage by casualty excepted, and shall as quickly as commercially practicable make or cause to be made all repairs, replacements and other improvements which are necessary or appropriate in the conduct of the Company's and its Subsidiaries' respective businesses. Section 4.12 Capitalization On the Closing Date, the capitalization of the Company is as set forth on Schedule 4.12. All outstanding securities set forth on such schedule have been duly and validly issued, are fully paid and nonassessable and free of preemptive rights, except with respect to preemptive rights, as set forth on Schedule 4.12 (or as disclosed in the Company's definitive Proxy statement for its special meeting of stockholders on June 26, 2003). Except as set forth on Schedule 4.12 (or as disclosed in the Company's definitive Proxy statement for its special meeting of stockholders on June 26, 2003), the Company does not have outstanding any securities convertible into or exchangeable for its Capital Stock or outstanding any rights to subscribe for or to purchase, or any options for the purchase of, or any agreement providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to, its Capital Stock. Section 4.13 Subsidiaries (a) On and as of the Closing Date, the Company has no Subsidiaries other than those Subsidiaries listed on Schedule 4.13. Schedule 4.13 correctly sets forth, as of the -56- Closing Date, the percentage ownership (direct and indirect) of the Company in each class of Capital Stock or other equity interests of each of its Subsidiaries and also identifies the direct owner thereof. All outstanding shares of Capital Stock of each Subsidiary of the Company have been duly and validly issued, are fully paid and nonassessable and have been issued free of preemptive rights. Except as set forth on Schedule 4.13, no Subsidiary of the Company has outstanding any securities convertible into or exchangeable for its Capital Stock or outstanding any right to subscribe for or to purchase, or any options or warrants for the purchase of, or any agreement providing for the issuance (contingent or otherwise) of or any calls, commitments or claims of any character relating to, its Capital Stock or any stock appreciation or similar rights. (b) The Company or a Subsidiary Guarantor is the record and beneficial owner of, and has good and marketable title to, the Capital Stock pledged by it under the Security Agreement, free of any and all Liens, rights or claims of other persons, except the security interest created by the Security Agreement, and there are no outstanding warrants, options or other rights to purchase, or shareholder, voting trust or similar agreements outstanding with respect to, or property that is convertible into, or that requires the issuance or sale of, any such Capital Stock. (c) No consent of any person including any other general or limited partner, any other member of a limited liability company, any other shareholder or any other trust beneficiary is necessary in connection with the creation, perfection or first priority status of the security interest of the Collateral Agent in any Capital Stock pledged to the Collateral Agent for the benefit of the Secured Parties under the Security Agreement or the exercise by the Collateral Agent for the voting or other rights provided for in the Security Agreement or the exercise of remedies in respect thereof. Section 4.14 Compliance with Statutes, Etc. Each of the Company and its Subsidiaries and each of their respective Subsidiaries is in compliance with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of its business and the ownership of its property (excluding applicable statutes, regulations, orders and restrictions relating to environmental standards and controls, which matters are covered under Section 4.17), except such noncompliances as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Section 4.15 Investment Company Act Neither the Company nor any of its Subsidiaries is an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. Section 4.16 Public Utility Holding Company Act Neither the Company nor any of its Subsidiaries is a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a -57- "subsidiary company" of a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. Section 4.17 Environmental Matters Except for such failures and noncompliances of the types described herein which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect: (a) The Company and each of its Subsidiaries is in compliance with all applicable Environmental Laws and neither the Company nor any of its Subsidiaries is liable for any damages, costs, penalties, fines, or forfeitures under such Environmental Laws; there are no pending or, to the knowledge of the Company, threatened Environmental Claims against the Company or any of its Subsidiaries or any Real Property Assets owned or operated by the Company or any of its Subsidiaries; and there are no facts, circumstances, conditions or occurrences on any Real Property Assets at any time owned or operated by the Company or any of its Subsidiaries or, to the knowledge of the Company, on any property adjoining or in the vicinity of any such Real Property Assets that would reasonably be expected (i) to form the basis of an Environmental Claim against the Company or any of its Subsidiaries or any Real Property Assets currently owned or operated by the Company or any of its Subsidiaries, or (ii) to cause any such currently owned Real Property Assets to be subject to any restrictions on the ownership, occupancy, use or transferability of such Real Property Assets by the Company or any of its Subsidiaries under any applicable Environmental Law; and (b) The Company and its Subsidiaries have not at any time generated, used, treated, stored disposed of Hazardous Materials on, or transported Hazardous Materials to or from, or Released Hazardous Materials on, under or from any Real Property Assets owned or operated by the Company or any of its Subsidiaries except in compliance with all applicable Environmental Laws and in connection with the operation, use or maintenance of any such Real Property Assets by the Company's or such Subsidiary's business. (c) Neither the Company nor any of its Subsidiaries is currently conducting any investigation, response or other corrective action at any location pursuant to any Environmental Law, nor are any of them under any obligation to do so; (d) none of the Real Property Assets is (i) listed or proposed for listing on the National Priorities List under CERCLA or (ii) listed on the Comprehensive Environmental Response, Compensation and Liability Information System promulgated pursuant to CERCLA, or (iii) included on any similar list maintained under any Environmental Law; (e) neither the Company nor any of its Subsidiaries has retained or assumed any liability, contractually, by operation of law or otherwise, under any Environmental Law. Section 4.18 Labor Relations Neither the Company nor any of its Subsidiaries is engaged in any unfair labor practice that would reasonably be expected to have a Material Adverse Effect. There is (i) no -58- unfair labor practice complaint pending or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries before the National Labor Relations Board and no grievance or arbitration proceeding arising out of or under any collective bargaining agreement is so pending or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries, (ii) no strike, labor dispute, slowdown or stoppage is pending or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries and (iii) to the knowledge of the Company, no union organizing activity exists with respect to the employees of the Company or any of its Subsidiaries not currently subject to a collective bargaining agreement, except (with respect to any matter specified in clause (i), (ii) or (iii) above, either individually or in the aggregate) such as would not reasonably be expected to have a Material Adverse Effect. Section 4.19 Patents, Licenses, Franchises and Formulas Except as described on Schedule 4.19, each of the Company and its Subsidiaries owns all patents, trademarks, permits, service marks, trade names, copyrights, licenses, franchises and formulas, or rights with respect to the foregoing, and has obtained assignments of all leases and other rights of whatever nature, reasonably necessary for the present conduct of its business, without any known conflict with the rights of others, which, or the failure to own or obtain which, as the case may be, would be reasonably likely to result in a Material Adverse Effect. Section 4.20 Indebtedness Schedule 4.20 sets forth (a) a true and complete list of all Indebtedness (exclusive of Indebtedness pursuant to this Agreement, the Revolving Credit Facility, the First Lien Credit Facility and inter-company Indebtedness between the Company and Subsidiary Guarantors, among Subsidiary Guarantors or among Foreign Subsidiaries) of the Company and its Subsidiaries as of the Closing Date and which is to remain outstanding after giving effect to the Transactions and the incurrence of the Initial Loan on such date, in each case showing the aggregate principal amount thereof (and the aggregate amount of any undrawn commitments with respect thereto) and the name of the respective borrower and, if applicable, the Company and Subsidiary that directly or indirectly guaranteed such debt and (b) all Intercompany Indebtedness between (x) the Company or any Subsidiary Guarantor and (y) any Restricted Subsidiary that is not a Subsidiary Guarantor. Section 4.21 Transactions At the time of consummation thereof, the Transactions shall have been consummated in accordance with the terms of the Credit Documents and all applicable laws. At the time of consummation thereof, all consents and approvals of, and filings and registrations with, and all other actions in respect of, all governmental agencies, authorities or instrumentalities required in order to make or consummate the Transactions in accordance with the terms of the Credit Documents and all applicable laws have been obtained, given, filed or taken and are or will be in full force and effect (or effective judicial relief with respect thereto has been obtained). All applicable waiting periods with respect thereto have or, prior to the time when required, will have, expired without, in all such cases, any action being taken by any competent authority which re- -59- strains, prevents, or imposes material adverse conditions upon the Transactions. Additionally, there does not exist any judgment, order or injunction with respect to the Company or its Subsidiaries prohibiting or imposing material adverse conditions upon the consummation of the Transactions or the performance by any of the Company or its Subsidiaries of their respective obligations under any Credit Document and all applicable laws. Section 4.22 Insurance Schedule 4.22 set forth a true, complete and correct description of all insurance maintained by the Company and its Subsidiaries as of the Closing Date. All insurance maintained by the Company and its Subsidiaries is in full force and effect, all premiums have been duly paid, neither the Company nor its Subsidiaries have received notice of violation or cancellation thereof, and, with respect to the Company and each other Loan Party, the Premises, and the use, occupancy and operation thereof, comply in all material respects with all Insurance Requirements, and there exists no default under any Insurance Requirement. Each of the Company and its Subsidiaries has insurance in such amounts and covering such risks and liabilities as are reasonably prudent. Section 4.23 Security Documents (a) (I) The Security Agreement is effective to create in favor of the Collateral Agent for the benefit of the Secured Parties, legal, valid and enforceable Liens on, and security interests in, the Security Agreement Collateral and, when (i) financing statements and other filings in appropriate form are filed in the offices specified on Schedule 6 to the Perfection Certificate and (ii) upon the taking of possession or control by the Collateral Agent of the Security Agreement Collateral with respect to which a security interest may be perfected only by possession or control (which possession or control shall be given to the Collateral Agent to the extent possession or control by the Collateral Agent is required by the Security Agreement), the Liens created by the Security Agreement shall constitute fully perfected Liens on, and security interests in, all right, title and interest of the grantors thereunder in the Security Agreement Collateral (other than (A) the Intellectual Property Collateral (as defined in the Security Agreement) and (B) such Security Agreement Collateral in which a security interest cannot be perfected under the UCC as in effect at the relevant time in the relevant jurisdiction), in each case subject to no Liens other than Permitted Collateral Liens. (II) When the Security Agreement or a short form thereof is filed in the United States Patent and Trademark Office and the United States Copyright Office, the Liens created by the Security Agreement shall constitute fully perfected Liens on, and security interests in, all right, title and interest of the grantors thereunder in the Intellectual Property Collateral (as defined in the Security Agreement), in each case subject to no Liens other than Permitted Collateral Liens. (b) Each Mortgage is effective to create, in favor of the Collateral Agent, for its benefit and the benefit of the Secured Parties, legal, valid and enforceable Liens on, and security interests in, all of the Loan Parties' right, title and interest in and to the Mortgaged Properties thereunder and the proceeds thereof, subject only to Permitted Collateral Liens or other Liens -60- acceptable to the Collateral Agent, and when the Mortgages are filed in the offices specified in the Perfection Certificate (or, in the case of any Mortgage executed and delivered after the date thereof in accordance with the provisions of Sections 5.11 and 5.12, when such Mortgage is filed in the offices specified in the local counsel opinion delivered with respect thereto in accordance with the provisions of Sections 5.11 and 5.12), the Mortgages shall constitute fully perfected Liens on, and security interests in, all right, title and interest of the Loan Parties in the Mortgaged Properties and the proceeds thereof, in each case prior and superior in right to any other person, other than Liens permitted by such Mortgage. (c) Each Security Document delivered pursuant to Sections 5.11 and 5.12 will, upon execution and delivery thereof, be effective to create in favor of the Collateral Agent, for the benefit of the Secured Parties, legal, valid and enforceable Liens on, and security interests in, all of the Company's right, title and interest in and to the Collateral thereunder, and when all appropriate filings or recordings are made in the appropriate offices as may be required under applicable law, such Security Document will constitute fully perfected Liens on, and security interests in, all right, title and interest of the Loan Parties in such Collateral, in each case subject to no Liens other than the applicable Permitted Collateral Liens. Section 4.24 No Default No event has occurred and is continuing which constitutes a Potential Event of Default or an Event of Default. Section 4.25 Compliance with Contracts, Etc. None of the Company or any of its Subsidiaries is (A) in violation of its certificate of incorporation, bylaws or other organizational documents, (B) in violation of any applicable law, ordinance, administrative or governmental rule or regulation, or (C) in default (nor will an event occur which with notice or passage of time or both would constitute such a default) under or in violation of any indenture or loan or credit agreement or any other material agreement or instrument to which it is a party or by which it or any of its properties or assets may be bound or affected, except, with respect to clauses (B) and (C), for such violations or defaults that would not, singly or in the aggregate, have a Material Adverse Effect. Section 4.26 Use of Proceeds; Margin Stock, Etc. The proceeds of the Loan will be used solely for the purposes specified herein. Neither the making of the Loan nor the use of proceeds thereof will violate or be inconsistent with the provisions of Regulation T, U or X. Section 4.27 Survival of Representations and Warranties Subject to Section 11.10(b), all representations and warranties in the Credit Documents shall survive delivery of the Notes and the making of the Loan and shall continue until repayment of the Loan and the Obligations, and any investigation at any time made by or on behalf of the Lenders shall not diminish the Lenders' right to rely thereon. -61- Section 4.28 Guarantees Each future Subsidiary Guarantor shall, on the date it executes and delivers a Guarantee hereunder, have the full corporate power, authority and capacity to execute and deliver such Guarantee and to perform all of its obligations to be performed thereunder; all corporate and other acts, conditions and things required to be done and performed or to have occurred prior to such execution and delivery to constitute such Guarantee as a valid and legally binding obligation of such Subsidiary Guarantor enforceable in accordance with its terms shall have been done and performed and shall have occurred in due compliance with all applicable Laws; on the date of such execution and delivery, the execution, delivery and performance of such Guarantee by such Subsidiary Guarantor will not (i) violate any provision of Law, (ii) violate any provision of the charter or bylaws of such Subsidiary Guarantor, or (iii) result in a breach of, a default under (including, without limitation, any event which with notice or lapse of time, or both, would constitute a breach of or a default under), or the creation of any Lien on the properties or assets of such Subsidiary Guarantor, the Company or any other Subsidiary of the Company under any Contract to which such Subsidiary Guarantor or the Company or any other Subsidiary of the Company is a party or by which the properties or assets of such Subsidiary Guarantor, the Company or any other Subsidiary of the Company may be bound or affected, except, in the case of clauses (i) and (iii), for such violations, breaches, defaults or Liens which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; on the date of such execution and delivery, each Guarantee executed and delivered by a Subsidiary Guarantor shall constitute legal, valid, binding and unconditional obligations of the Subsidiary Guarantor executing and delivering it to the Lenders hereunder, enforceable in accordance with its terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization or similar laws affecting the enforcement of creditors' rights generally or by general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law). Section 4.29 Anti-Terrorism Law (a) The Company is not, and, to the knowledge of the Company, none of its Affiliates is, in violation of any laws relating to terrorism or money laundering ("ANTI-TERRORISM LAWS"), including Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001 (the "EXECUTIVE ORDER"), and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56. (b) The Company is not, and, to the knowledge of the Company, no Affiliate or broker or other agent of the Company is, acting or benefiting in any capacity in connection with the Loan as any of the following: (i) a person that is listed in the annex to, or is otherwise subject to the provisions of, the Executive Order; -62- (ii) a person owned or controlled by, or acting for or on behalf of, any person that is listed in the annex to, or is otherwise subject to the provisions of, the Executive Order; (iii) a person with which any Lender is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law; (iv) a person that commits, threatens or conspires to commit or supports "terrorism" as defined in the Executive Order; or (v) a person that is named as a "specially designated national and blocked person" on the most current list published by the U.S. Treasury Department Office of Foreign Assets Control ("OFAC") at its official website or any replacement website or other replacement official publication of such list. (c) The Company is not, and, to the knowledge of the Company, no broker or other agent of the Company is, acting in any capacity in connection with the Loan (i) conducts any business or engages in making or receiving any contribution of funds, goods or services to or for the benefit of any person described in paragraph (b) above, (ii) deals in, or otherwise engages in any transaction relating to, any property or interests in property blocked pursuant to the Executive Order, or (iii) engages in or conspires to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law. ARTICLE 5 AFFIRMATIVE COVENANTS The Company covenants and agrees that, until the Loan and the Notes and all other Obligations due under this Agreement have been indefeasibly paid in full (other than contingent indemnity obligations not due and payable), it shall perform all covenants in this Article 5 required to be performed by it: Section 5.1 Financial Statements and Other Reports The Company will maintain, and cause each of its Subsidiaries to maintain, a system of accounting established and administered in accordance with sound business practices to permit preparation of consolidated financial statements in conformity with GAAP. The Company will deliver to the Administrative Agent and each Lender (unless otherwise specified), provided, however, that the Company shall be deemed to be in compliance with its delivery obligations pursuant to this Section 5.1 with respect to any material or information set forth in this Section 5.1 to the extent such material or information is publicly filed via the Securities and Exchange Commission's Electronic Data Gathering and Retrieval System (EDGAR) or any public electronic filing system successor thereto: -63- (a) Quarterly Financial Statements. As soon as available and in any event within 45 days after the close of each of the first three quarterly accounting periods in each fiscal year, (i) the consolidated balance sheet of the Company and its Subsidiaries as at the end of such quarterly period and the related consolidated statements of income and stockholders' equity and cash flows for such quarterly period and for the elapsed portion of the fiscal year ended with the last day of such quarterly period and setting forth comparative figures for the related periods in the prior fiscal year and (ii) management's discussion and analysis of the important operational and financial developments during such quarterly period, all of which shall be certified by the chief financial officer or the controller of the Company, subject to normal year-end audit adjustments and the absence of footnotes. If the Company has designated any Unrestricted Subsidiaries hereunder, then the quarterly financial information required by this Section 5.1(a) shall include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, of the financial condition and results of operations of Unrestricted Subsidiaries of the Company separate from the financial condition and results of operations of the Company and its Subsidiaries. (b) Annual Financial Statements. Within 90 days after the close of each fiscal year, (I) the consolidated balance sheet of each of the Company and its Subsidiaries as at the end of such fiscal year and the related consolidated statements of income and stockholders' equity and of cash flows, setting forth, as appropriate, eliminations for intercompany sales and corporate expenses) for such fiscal year setting forth comparative figures for the preceding fiscal year and certified, in the case of the consolidated statements, by Ernst & Young LLP or such other independent certified public accountants of recognized national standing reasonably acceptable to the Administrative Agent, together with a report of such accounting firm stating that in the course of its regular audits of the financial statements of the Company and its Subsidiaries, which audits were conducted in accordance with generally accepted auditing standards, such accounting firm obtained no knowledge of any Potential Event of Default or Event of Default which has occurred and is continuing or, if in the opinion of such accounting firm such a Potential Event of Default or Event of Default with respect to financial and accounting matters included in the covenants set forth in Article 6 has occurred and is continuing, a statement as to the nature thereof (provided, no such report shall be required in the event Ernst & Young LLP or such other accountants no longer provide such reports under applicable accounting or auditing standards) and (II) management's discussion and analysis of the important operational and financial developments during such fiscal year. If the Company has designated any Unrestricted Subsidiaries hereunder, then the annual financial information required by this Section 5.1(b) shall include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, of the financial condition and results of operations of the Unrestricted Subsidiaries of the Company separate from the financial condition and results of operations of the Company and its Subsidiaries. (c) Officers' Certificates. Together with each delivery of financial statements pursuant to Sections 5.1(a) and (b) above, the Company shall furnish to the Administrative Agent (i) an Officers' Certificate of the Company stating that the signers have re- -64- viewed the terms of this Agreement and the Notes and have made, or caused to be made under their supervision, a review in reasonable detail of the transactions and condition of the Company and its Subsidiaries during the accounting period covered by such financial statements and that such review has not disclosed the existence during or at the end of such accounting period, and that the signers do not have knowledge of the existence as of the date of the Officers' Certificate, of any condition or event which constitutes an Event of Default or Potential Event of Default, or, if any such condition or event exists, specifying the nature and period of existence thereof and what action the Company has taken, is taking and proposes to take with respect thereto; and (ii) a Compliance Certificate demonstrating in reasonable detail compliance (as determined in accordance with GAAP) during and at the end of such accounting periods with the covenants contained in Article 6. (d) Notice of Default or Litigation. As soon as practicable, and in any event within five Business Days after an executive officer of the Company obtains actual knowledge thereof, the Company shall deliver to the Administrative Agent notice of (i) the occurrence of any event which constitutes a Potential Event of Default or an Event of Default, (ii) any litigation or governmental investigation or proceeding pending or threatened in writing (x) against the Company or any of its Subsidiaries which would reasonably be expected to have a Material Adverse Effect, or (y) with respect to any material Indebtedness of the Company or any of its Subsidiaries taken as a whole and (iii) any other event which would reasonably be expected to have a Material Adverse Effect. (e) Other Reports and Filings. As soon as practicable, and in any event within 10 Business Days after the filing or delivery thereof, as the case may be, the Company shall deliver to the Administrative Agent copies of all financial information, proxy materials and other information and reports, if any, which the Company or any of its Subsidiaries shall file with the Commission or any successor thereto, or any governmental authority and copies of all notices and reports which the Company or any of its Subsidiaries shall deliver to holders of their Indebtedness (including Indebtedness pursuant to the Revolving Credit Facility (other than periodic financial reports or projections delivered to holders thereof in the ordinary course) or the First Lien Credit Facility) pursuant to the terms of the documentation governing such Indebtedness (or any trustee, agent or other representative therefor) or holders of their Capital Stock in their capacity as such. (f) Environmental Matters. As soon as practicable, and in any event within 20 Business Days after an executive officer of the Company obtains actual knowledge thereof, the Company shall deliver to the Administrative Agent notice of any of the following environmental matters, unless such environmental matters would not, individually or when aggregated with all other similar or related environmental matters, be reasonably expected to (x) have a Material Adverse Effect or (y) result in a gross remedial cost to the Company or any of its Subsidiaries in excess of $5.0 million, on a gross basis: (i) any pending or threatened Environmental Claim against the Company or any of its Subsidiaries or any Real Property Assets owned or operated by the Company or any of its Subsidiaries; -65- (ii) any condition or occurrence after the Closing Date on or relating to any Real Property Assets owned or operated by the Company or any of its Subsidiaries that (a) results in noncompliance by the Company or any of its Subsidiaries with any applicable Environmental Law or (b) would reasonably be expected to form the basis of an Environmental Claim against the Company or any of its Subsidiaries or any such Real Property Assets; (iii) any condition or occurrence on or relating to any Real Property Assets owned or operated by the Company or any of its Subsidiaries that would reasonably be expected to cause such Real Property Assets to be subject to any restrictions on the ownership, occupancy, use or transferability by the Company or any of its Subsidiaries of such Real Property Assets under any Environmental Law; and (iv) the taking of any action in response to the actual or alleged presence of any Hazardous Material on, under or emanating from any Real Property Assets owned or operated by the Company or any of its Subsidiaries as required under any Environmental Law. All such notices shall describe in reasonable detail, to the extent known at such time upon diligent inquiry, the nature of the claim, investigation, condition, occurrence or removal or remedial action, and the Company's or such Subsidiary's response or proposed response thereto. In addition, each of the Company and its Subsidiaries will provide the Administrative Agent with copies of all material communications regarding matters reasonably likely to result in environmental liabilities in excess of $5.0 million between the Company or any of its Subsidiaries and any government or governmental agency relating to Environmental Laws, all communications regarding matters reasonably likely to result in environmental liabilities in excess of $5.0 million between the Company or any of its Subsidiaries and any Person (other than its attorneys) relating to Environmental Claims, and such non-privileged detailed reports of any Environmental Claim as may be requested by the Administrative Agent or the Required Lenders. (g) Additional Subsidiaries. The Company shall furnish to the Administrative Agent, promptly upon any Person becoming a Subsidiary of the Company, a written notice setting forth with respect to such Person (a) the date on which such Person became a Subsidiary of the Company and (b) all of the data required to be set forth in Schedule 4.13 with respect to all Subsidiaries of the Company. (h) Other Information. From time to time, such other non-privileged information or documents (financial or otherwise) with respect to the Company or its Subsidiaries as the Administrative Agent or any Lender (through the Administrative Agent) may reasonably request. -66- Section 5.2 Books, Records and Inspections The Company will, and will cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries in conformity with GAAP in all material respects and all requirements of law shall be made of all dealings and transactions in relation to its business and activities. The Company will, and will cause each of its Subsidiaries to, permit officers and designated representatives of the Administrative Agent to visit and inspect, at the Administrative Agent's own expense, as the case may be (or, if a Potential Event of Default or Event of Default is in existence, at the Company's expense), during regular business hours, upon reasonable advance notice and under guidance of officers of the Company or such Subsidiary, any of the properties of the Company and any of its Subsidiaries, and to examine the books of account of the Company and any of its Subsidiaries and discuss the affairs, finances and accounts of the Company and any of its Subsidiaries with, and be advised as to the same by, its and their officers and independent accountants, all at such reasonable times and intervals and to any reasonable extent as the Administrative Agent may reasonably request; provided, the Administrative Agent will not make any such visit or inspection more than once in each fiscal year unless an Event of Default has occurred and is continuing. Section 5.3 Existence; Businesses and Properties (a) The Company will, and cause each of its Subsidiaries to, do or cause to be done all things necessary to preserve, renew and maintain in full force and effect its legal existence, except as otherwise expressly permitted under Section 6.6 or Section 6.13 or, in the case of any Restricted Subsidiary, where the failure to perform such obligations, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect. (b) The Company will, and cause each of its Restricted Subsidiaries to, do or cause to be done all things necessary to obtain, preserve, renew, extend and keep in full force and effect the rights, licenses, permits, privileges, franchises, authorizations, patents, copyrights, trademarks and trade names material to the conduct of its business; maintain and operate such business in substantially the manner in which it is presently conducted and operated; comply with all applicable Requirements of Law (including any and all zoning, building, Environmental Law, ordinance, code or approval or any building permits or any restrictions of record or agreements affecting the Real Property) and decrees and orders of any Governmental Authority, whether now in effect or hereafter enacted, except where the failure to comply, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect; pay and perform its obligations under all Leases (except where the failure to comply, individually or in the aggregate would not reasonably be expected to result in a Material Adverse Effect) and Credit Documents; and at all times maintain, preserve and protect all property material to the conduct of such business and keep such property in good repair, working order and condition (other than wear and tear occurring in the ordinary course of business) and from time to time make, or cause to be made, all needful and proper repairs, renewals, additions, improvements and replacements thereto necessary in order that the business carried on in connection therewith may be properly conducted at all times; provided that nothing in this Section 5.3(b) shall prevent (i) sales of property, consolidations or mergers by or involving the Company in accordance with Section 6.6 or Section 6.13; (ii) the withdrawal by the Company of its qualification as a foreign -67- corporation in any jurisdiction where such withdrawal, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect; or (iii) the abandonment by the Company of any rights, franchises, licenses, trademarks, trade names, copyrights or patents that such person reasonably determines are not useful to its business or no longer commercially desirable. Section 5.4 Insurance (a) The Company will, and will cause each of its Restricted Subsidiaries to, keep its insurable property adequately insured at all times by financially sound and reputable insurers and, to the extent the Company or such Restricted Subsidiary is self-insured, financially sound and reputable re-insurers; maintain such other insurance or re-insurance, to such extent and against such risks as is reasonably prudent, including insurance with respect to Mortgaged Properties and other properties material to the business of the Company and its Restricted Subsidiaries, taken as a whole, against such casualties and contingencies and of such types and in such amounts with such deductibles as is reasonably prudent, including (i) physical hazard insurance on an "all risk" basis, (ii) commercial general liability against claims for bodily injury, death or property damage covering any and all insurable claims, (iii) explosion insurance in respect of any boilers, machinery or similar apparatus constituting Collateral, to the extent applicable, (iv) business interruption insurance or re-insurance, as applicable, (v) worker's compensation insurance or re-insurance, as applicable, and such other insurance or re-insurance, as applicable, as may be required by any Requirement of Law and (vi) such other insurance or re-insurance, as applicable, against risks relating to the Collateral as the Administrative Agent may from time to time reasonably require to be in compliance with the foregoing; provided that with respect to physical hazard insurance, neither the Collateral Agent nor the Company shall agree to the adjustment of any claim relating to the proceeds in excess of $10.0 million thereunder without the consent of the other (such consent not to be unreasonably withheld or delayed); provided, further, that no consent of the Company shall be required when a Potential Event of Default or an Event of Default has occurred and is continuing. (b) 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 15 days after receipt by the Collateral Agent of written notice thereof, (ii) name the Collateral Agent as mortgagee (in the case of property insurance) or additional insured on behalf of the Secured Parties (in the case of liability insurance) or loss payee (in the case of property insurance), as applicable, and (iii) be reasonably satisfactory in all other respects to the Collateral Agent. (c) The Company will notify the Administrative Agent and the Collateral Agent promptly whenever any separate insurance concurrent in form or contributing in the event of loss with that required to be maintained under this Section 5.4 is taken out by the Company or any of its Restricted Subsidiaries; and promptly deliver to the Administrative Agent and the Collateral Agent a duplicate original copy of such policy or policies. (d) With respect to each Mortgaged Property, the Company will, and will cause its Restricted Subsidiaries to, obtain flood insurance in such total amount as the Administrative Agent or the Required Lenders may from time to time reasonably require, if at any time -68- the area in which any improvements located on any Mortgaged Property is designated a "flood hazard area" in any Flood Insurance Rate Map published by the Federal Emergency Management Agency (or any successor agency), and otherwise comply with the National Flood Insurance Program as set forth in the Flood Disaster Protection Act of 1973, as amended from time to time. (e) Neither the Company nor any Restricted Subsidiary of the Company that is an owner of Mortgaged Property shall take any action that is reasonably likely to be the basis for termination, revocation or denial of any insurance coverage required to be maintained under such party's respective Mortgage or that could be the basis for a defense to any claim under any Insurance Policy maintained in respect of the Premises, and each Loan Party shall otherwise comply in all material respects with all Insurance Requirements in respect of the Premises; provided, however, that each Loan Party may, at its own expense and after written notice to the Administrative Agent, (i) contest the applicability or enforceability of any such Insurance Requirements by appropriate legal proceedings, the prosecution of which does not constitute a basis for cancellation or revocation of any insurance coverage required under this Section 5.4 or (ii) cause the Insurance Policy containing any such Insurance Requirement to be replaced by a new policy complying with the provisions of this Section 5.4. Section 5.5 Compliance with Statutes, Etc. The Company will, and will cause each of its Subsidiaries to, comply with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of its business and the ownership of its property, except such noncompliances as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Section 5.6 Compliance with Environmental Laws The Company will comply, and will cause each of its Subsidiaries to comply, in all material respects with all Environmental Laws applicable to the ownership or use of its Real Property Assets now or hereafter owned or operated by the Company or any of its Subsidiaries, will pay or cause to be paid all costs and expenses incurred in connection with such compliance, and will keep or cause to be kept all such Real Property Assets free and clear of any Environmental Liens (other than Permitted Encumbrances). Neither the Company nor any of its Subsidiaries will generate, use, treat, store, Release or dispose of, or permit the generation, use, treatment, storage, Release or disposal of Hazardous Materials on, at or from any Real Property Assets now or hereafter owned or operated by the Company or any of its Subsidiaries, or transport or permit the transportation of Hazardous Materials to or from any such Real Property Assets except for Hazardous Materials used or stored at any such Real Property Assets in compliance with all applicable Environmental Laws and reasonably required in connection with the business of the Company and its Subsidiaries or the operation, use and maintenance of any such Real Property Assets. If the Company or any of its Subsidiaries or any tenant or occupant of any Real Property Assets owned or operated by the Company or any of its Subsidiaries causes or permits any intentional or unintentional act or omission resulting in the presence or Release of any Hazardous Material in a quantity or concentration sufficient to require reporting or to trigger an obli- -69- gation to undertake investigation, clean-up, response or other corrective action under applicable Environmental Laws, the Company agrees to undertake, and/or to cause any of its Subsidiaries, tenants or occupants to undertake, at their sole expense, any action required pursuant to Environmental Laws with respect to such Hazardous Materials except where the failure to do so would not reasonably be expected to have a Material Adverse Effect; provided that neither the Company nor any of its Subsidiaries shall be required to undertake any action while the requirement to undertake such action is being contested in good faith and by proper proceedings so long as it has maintained adequate reserves with respect to such action to the extent required in accordance with GAAP. Section 5.7 ERISA The Company will, and will cause its Subsidiaries and any other members of the ERISA Group, to deliver to the Administrative Agent, promptly, upon the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in liability of the Company and its Subsidiaries in an aggregate amount exceeding $5.0 million, a written notice specifying the nature thereof, what action the Company, its Subsidiaries or other ERISA Entity has taken, is taking or proposes to take with respect thereto, and, when known, any action taken or threatened by the Internal Revenue Service, Department of Labor, PBGC or Multiemployer Plan sponsor with respect thereto. The Company will, and will cause its Subsidiaries and any other members of the ERISA Group to, deliver to the Administrative Agent, upon request by the Administrative Agent, copies of: (i) each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) filed by any ERISA Entity with the Internal Revenue Service with respect to each Pension Plan; (ii) the most recent actuarial valuation report for each Pension Plan; (iii) all notices received by any ERISA Entity from a Multiemployer Plan sponsor or any governmental agency concerning an ERISA Event; and (iv) such other documents or governmental reports or filings relating to any Employee Benefit Plan as the Administrative Agent shall reasonably request. Section 5.8 Performance of Obligations The Company will, and will cause each of its Restricted Subsidiaries to, perform all of its obligations under the terms of each mortgage, deed of trust, indenture, loan agreement or credit agreement and each other material agreement, contract or instrument by which it is bound, except such non-performances as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Section 5.9 Payment of Taxes The Company will pay and discharge or cause to be paid and discharged, and will cause each of its Subsidiaries to pay and discharge, all material Taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits, or upon any properties belonging to it, in each case on a timely basis, and all lawful claims for material sums that have become due and payable which, if unpaid, might become a lien or charge upon any properties of the Company or any of its Subsidiaries; provided that neither the Company nor any of its Subsidiaries shall be required to pay any such Tax, assessment, charge, levy or claim which is being -70- contested in good faith and by proper proceedings if it maintains adequate reserves with respect thereto in accordance with GAAP, unless non-payment would reasonably be expected to have a Material Adverse Effect. Section 5.10 Payments in U.S. Dollars All payments of any Obligations to be made hereunder or under the Notes by the Company or any other obligor with respect thereto shall be made solely in U.S. Dollars or such other currency as is then legal tender for public and private debts in the United States of America. Section 5.11 Collateral (a) The Company shall, and shall cause the Subsidiary Guarantors to, subject to this Section 5.11, with respect to any property acquired after the Closing Date by the Company or any of its Subsidiaries that is intended to be subject to the Lien created by any of the Security Documents but is not so subject (but in any event, excluding any Equity Interest of a Foreign Subsidiary not required to be pledged pursuant to the last sentence of Section 5.11(b)) , promptly (and in any event within 30 days after the acquisition thereof) (i) execute and deliver to the Administrative Agent and the Collateral Agent such amendments or supplements to the relevant Security Documents or such other documents as the Administrative Agent or the Collateral Agent shall deem reasonably necessary or advisable to grant to the Collateral Agent, for its benefit and for the benefit of the other Secured Parties, a Lien on such property subject to no Liens other than Permitted Collateral Liens, and (ii) take all actions reasonably necessary to cause such Lien to be duly perfected to the extent required by such Security Document in accordance with all applicable Requirements of Law, including the filing of financing statements in such jurisdictions as may be reasonably requested by the Administrative Agent. The Company shall otherwise take such actions and execute and/or deliver to the Collateral Agent such documents as the Administrative Agent or the Collateral Agent shall reasonably require to confirm the validity, perfection and priority of the Lien of the Security Documents against such after-acquired properties. (b) The Company shall, and shall cause the Subsidiary Guarantors to, with respect to any person that is or becomes a Subsidiary Guarantor after the Closing Date, promptly (and in any event within 30 days after such person becomes a Subsidiary Guarantor) cause such new Subsidiary Guarantor (i) deliver to the Collateral Agent the certificates, if any, representing all of the Equity Interests of such Subsidiary Guarantor, together with undated stock powers or other appropriate instruments of transfer executed and delivered in blank by a duly authorized officer of the holder(s) of such Equity Interests, and all intercompany notes owing from such Subsidiary to any Loan Party together with instruments of transfer executed and delivered in blank by a duly authorized officer of such Loan Party and (ii)(A) to execute a joinder agreement to the applicable Security Agreement, substantially in the form annexed thereto, and (B) to take all actions necessary or advisable in the opinion of the Administrative Agent or the Collateral Agent to cause the Lien created by the applicable Security Agreement to be duly perfected to the extent required by such agreement in accordance with all applicable Requirements of Law, including the filing of financing statements in such jurisdictions as may be reasonably requested by -71- the Administrative Agent or the Collateral Agent. Notwithstanding the foregoing, (1) the Equity Interests required to be delivered to the Collateral Agent pursuant to clause (i) of this Section 5.11(b) shall not include any Equity Interests of a Foreign Subsidiary created or acquired after the Closing Date and (2) no Foreign Subsidiary shall be required to take the actions specified in clause (ii) of this Section 5.11(b), if, in the case of either clause (1) or (2), doing so would constitute an investment of earnings in United States property under Section 956 (or a successor provision) of the Code, which investment would or could reasonably be expected to trigger a material increase in the net income of a United States shareholder of such Subsidiary pursuant to Section 951 (or a successor provision) of the Code, as reasonably determined by the Administrative Agent; provided that this exception shall not apply to (A) Voting Stock of any Subsidiary which is a first-tier controlled foreign corporation (as defined in Section 957(a) of the Code) representing, directly or indirectly, 66% of the total voting power of all outstanding Voting Stock of such Subsidiary and (B) 100% of the Equity Interests not constituting Voting Stock of any such Subsidiary, except that any such Equity Interests constituting "stock entitled to vote" within the meaning of Treasury Regulation Section 1.956-2(c)(2) shall be treated as Voting Stock for purposes of this Section 5.11(b). (c) The Company shall, and it shall cause the Subsidiary Guarantors to, promptly grant to the Collateral Agent, within 60 days of the acquisition thereof, a security interest in and Mortgage on (i) each Real Property owned in fee by the Company or such Subsidiary Guarantor as is acquired by such Persons after the Closing Date and that, together with any improvements thereon, individually has a fair market value of at least $10.0 million, and (ii) unless the Collateral Agent otherwise consents, each leased Real Property of such Loan Party which lease individually has a fair market value of at least $10.0 million, in each case, as additional security for the Obligations. Such Mortgages shall be granted pursuant to documentation reasonably satisfactory in form and substance to the Administrative Agent and the Collateral Agent and shall constitute valid and enforceable perfected Liens subject only to Permitted Collateral Liens or other Liens acceptable to the Collateral Agent. The Mortgages or instruments related thereto shall be duly recorded or filed in such manner and in such places as are required by law to establish, perfect, preserve and protect the Liens in favor of the Collateral Agent required to be granted pursuant to the Mortgages and all taxes, fees and other charges payable in connection therewith shall be paid in full. Such Loan Party shall otherwise take such actions and execute and/or deliver to the Collateral Agent such documents as the Administrative Agent or the Collateral Agent shall require to confirm the validity, perfection and priority of the Lien of any existing Mortgage or new Mortgage against such after-acquired Real Property (including a Title Policy, a Survey and local counsel opinion (in form and substance reasonably satisfactory to the Administrative Agent and the Collateral Agent) in respect of such Mortgage). (d) Within 60 days after the Closing Date (to the extent not previously delivered), the Company, or the appropriate Subsidiary Guarantor, shall, with respect to each Mortgaged Property set forth on Schedule 1.1(c), deliver a Survey to the Administrative Agent, unless the Administrative Agent shall, in its reasonable judgment, waive such delivery. -72- Section 5.12 Security Interests; Further Assurances The Company shall, and it shall cause the Subsidiary Guarantors to, promptly upon the reasonable request of the Administrative Agent, the Collateral Agent or any Lender, at the Company's expense, execute, acknowledge and deliver, or cause the execution, acknowledgment and delivery of, and thereafter register, file or record, or cause to be registered, filed or recorded, in an appropriate governmental office, any document or instrument supplemental to or confirmatory of the Security Documents or otherwise deemed by the Administrative Agent or the Collateral Agent reasonably necessary or desirable for the continued validity, perfection and priority of the Liens on the Collateral covered thereby subject to no other Liens except as permitted by the applicable Security Document, or obtain any consents or waivers as may be necessary or appropriate in connection therewith. The Company shall, and shall cause the Subsidiary Guarantors to, deliver or cause to be delivered to the Administrative Agent and the Collateral Agent from time to time such other documentation, consents, authorizations, approvals and orders in form and substance reasonably satisfactory to the Administrative Agent and the Collateral Agent as the Administrative Agent and the Collateral Agent shall reasonably deem necessary to perfect or maintain the Liens on the Collateral pursuant to the Security Documents. Upon the exercise by the Administrative Agent, the Collateral Agent or any Lender of any power, right, privilege or remedy pursuant to any Credit Document which requires any consent, approval, registration, qualification or authorization of any Governmental Authority execute and deliver all applications, certifications, instruments and other documents and papers that the Administrative Agent, the Collateral Agent or such Lender may reasonably require. If the Administrative Agent, the Collateral Agent or the Required Lenders determine that they are required by law or regulation to have appraisals prepared in respect of the Real Property of any Loan Party constituting Collateral, the Company shall provide to the Administrative Agent appraisals that satisfy the applicable requirements of the Real Estate Appraisal Reform Amendments of FIRREA and are otherwise in form and substance satisfactory to the Administrative Agent and the Collateral Agent. Without limiting the generality of the forgoing, in the event of the extension of any Additional Loans, the Company further agrees to, and will cause each other Loan Party to, execute any and all further documents, financing statements, agreements and instruments, and take all such further actions (including the filing and recording of financing statements, fixture filings, mortgages, deeds of trust and other documents and the delivery of appropriate opinions of counsel), all at the expense of the Loan Parties, which may be required under any applicable law, or which the Administrative Agent or the Required Lenders may reasonably request, to confirm that the Liens created by the Security Documents secure the Additional Loans. The Loan Parties shall take any actions reasonably required by the Administrative Agent or the Collateral Agent to ensure and/or demonstrate that the Lien and security interests granted by the Security Documents continue to be perfected under the UCC or otherwise after the establishment of any such Additional Loans or Additional Loan Commitments. Section 5.13 Information Regarding Collateral (a) The Company shall, and it shall cause the Subsidiary Guarantors to, not effect any change (i) in the legal name of any Loan Party, (ii) in the location of any such Loan Party's chief executive office, (iii) in any such Loan Party's identity or organizational structure, -73- (iv) in any such Loan Party's Federal Taxpayer Identification Number or organizational identification number, if any, or (v) in any such Loan Party's jurisdiction of organization (in each case, including by merging with or into any other entity, reorganizing, dissolving, liquidating, reorganizing or organizing in any other jurisdiction), until (A) it shall have given the Collateral Agent and the Administrative Agent not less than 10 days' prior written notice (in the form of an Officers' Certificate), or such lesser notice period agreed to by the Collateral Agent, of its intention so to do, clearly describing such change and providing such other information in connection therewith as the Collateral Agent or the Administrative Agent may reasonably request and (B) it shall have taken all action reasonably satisfactory to the Collateral Agent to maintain the perfection and priority of the security interest of the Collateral Agent for the benefit of the Secured Parties in the Collateral, if applicable. Each such Loan Party agrees to promptly provide the Collateral Agent with certified corporate or similar organizational documents reflecting any of the changes described in the preceding sentence. The Company and each other Subsidiary granting a security interest in Collateral pursuant to a Security Document agrees to promptly notify the Collateral Agent of any change in the location of any office in which it maintains books or records relating to Collateral owned by it or any office or facility at which Collateral is located (including the establishment of any such new office or facility), other than changes in location to a Mortgaged Property or a leased property subject to a Landlord Access Agreement. (b) Concurrently with the delivery of financial statements pursuant to Section 5.1, the Company shall deliver to the Administrative Agent and the Collateral Agent a Perfection Certificate Supplement and a certificate of the chief financial officer of the Company certifying that all UCC financing statements (including fixture filings, as applicable) or other appropriate filings, recordings or registrations, including all refilings, rerecordings and reregistrations, containing a description of the Collateral have been filed of record in each governmental, municipal or other appropriate office in each jurisdiction necessary to protect and perfect the security interests and Liens under the Security Documents for a period of not less than 18 months after the date of such certificate (except as noted therein with respect to any continuation statements to be filed within such period). Section 5.14 Register The Company hereby designates the Administrative Agent to serve as the Company's agent, solely for purposes of this Section 5.14, to maintain a register (the "REGISTER") on which it will record the Loan made by each of the Lenders and each repayment in respect of the principal amount of the Loan of each Lender. Failure to make any such recordation, or any error in such recordation shall not affect the Company's obligations in respect of such Loan. With respect to any Lender, the transfer of the Loan Commitments of such Lender and the rights to the principal of, and interest on, any Loan made pursuant to such Loan Commitments shall not be effective until such transfer is recorded on the Register maintained by the Administrative Agent with respect to ownership of such Loan Commitments and Loan and prior to such recordation all amounts owing to the transferor with respect to such Loan Commitments and Loan shall remain owing to the transferor. The registration of assignment or transfer of all or part of any Loan Commitments and Loan shall be recorded by the Administrative Agent on the Register only upon the receipt by the Administrative Agent of a properly executed and delivered assignment and as- -74- sumption agreement pursuant to Section 11.2(a). Coincident with the delivery of such an assignment and assumption agreement to the Administrative Agent for acceptance and registration of assignment or transfer of all or part of a Loan, or as soon thereafter as practicable, the assigning or transferor Lender shall surrender the Note evidencing such Loan, and thereupon one or more new Notes of the same type and in the same aggregate principal amount shall be issued to the assigning or transferor Lender and/or the new Lender. Upon the request of the Company, from time to time, the Administrative Agent shall provide a copy of the Register to the Company. Section 5.15 Post Closing Matters The applicable Loan Parties shall execute and deliver the documents and complete the tasks set forth on Schedule 5.15, in each case within the time limits specified on such schedule. ARTICLE 6 NEGATIVE COVENANTS The Company covenants and agrees that until the satisfaction in full of the Loan and the Notes and all other Obligations due under this Agreement (other than contingent indemnification obligations not due and payable) it will fully and timely perform all covenants in this Article 6. Section 6.1 Indebtedness (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, incur any Indebtedness; provided, however, that the Company or a Subsidiary Guarantor may incur Indebtedness if the Company's Fixed Charge Coverage Ratio for its four full fiscal quarters ending immediately prior to the date such additional Indebtedness is incurred would have been at least 2.0 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds of such Indebtedness) as if the additional Indebtedness had been incurred at the beginning of such four-quarter period. (b) The foregoing limitations will not apply to the following (each, "PERMITTED INDEBTEDNESS"): (i) the Company and the Subsidiary Guarantors may incur and remain liable with respect to the Obligations and the Guarantee Obligations; (ii) the Company and the Restricted Subsidiaries may incur and remain liable with respect to the Indebtedness under the Revolving Credit Facility; provided, however, that the aggregate principal amount of Indebtedness under the Revolving Credit Facility shall not exceed the greater of (I) $175.0 million less the amount of all mandatory repayments required to be made thereunder (which effect a permanent commitment reduction) -75- and (II) the sum of (x) 80% of the net book value of the accounts receivable of the Company and the Subsidiary Guarantors and (y) 50% of the net book value of the inventory of the Company and the Subsidiary Guarantors; (iii) the Company and its Restricted Subsidiaries may become and remain liable with respect to Interest Rate Agreements designed to protect the Company or its Restricted Subsidiaries against fluctuations in interest rates, entered into in the ordinary course of business and not for speculative purposes and the Option; (iv) the Company and its Restricted Subsidiaries may incur and remain liable with respect to Intercompany Indebtedness, subject to no Lien held by any Person other than the Company or a Subsidiary Guarantor or a Lien permitted by this Agreement, provided, however, that (a) the aggregate amount of Intercompany Indebtedness owed by the Non-Guarantor Subsidiaries, on the one hand, to the Company and/or any of the Subsidiary Guarantors, on the other, incurred under this clause (iv), shall not exceed $15.0 million at any time outstanding, and (b) all Intercompany Indebtedness owed by the Company and/or any of the Subsidiary Guarantors, on the one hand, to the Non-Guarantor Subsidiaries, on the other, incurred under this clause (iv) shall be Subordinated Indebtedness; (v) the Company and its Restricted Subsidiaries may remain liable with respect to the Indebtedness which is existing on the Closing Date and is described on Schedule 4.20 attached hereto; (vi) the Company and its Restricted Subsidiaries may incur and remain liable with respect to Indebtedness in respect of Capitalized Lease Obligations; provided that the aggregate amount of Indebtedness incurred under this clause (vi) and clauses (vii) and (xxii) shall not exceed $25.0 million at any time outstanding; (vii) the Company and its Restricted Subsidiaries may become and remain liable with respect to Indebtedness incurred to finance (a) the purchase price of equipment, fixtures and any other similar property or the remodeling or other improvement costs of any facility of the Company or any of its Restricted Subsidiaries or (b) the purchase price of any Real Property Assets; provided that the aggregate of all such Indebtedness, together with all Indebtedness incurred under clauses (vi) and (xxii), shall not exceed $25.0 million at any time outstanding; (viii) the Company and its Restricted Subsidiaries may become and remain liable with respect to Indebtedness under Raw Material Hedge Agreements designed to protect the Company or its Restricted Subsidiaries from fluctuations in the prices of raw materials actually used by the Company or its Restricted Subsidiaries, entered into in the ordinary course of business and not entered into for speculative purposes; (ix) the Company and the Subsidiary Guarantors may guarantee Indebtedness of the Company or any Restricted Subsidiary if the Indebtedness so guaranteed is permitted under this Agreement; -76- (x) the Company and the Subsidiary Guarantors may become and remain liable with respect to other Indebtedness in an aggregate amount not to exceed at any time outstanding $35.0 million (and Restricted Subsidiaries that are not Subsidiary Guarantors may become and remain liable with respect to Indebtedness in an aggregate amount not to exceed at any time outstanding $20.0 million, which outstanding Indebtedness shall reduce in a corresponding amount the $35.0 million of Indebtedness which may be incurred under this sub-clause (x)), it being understood that all or a portion of the Indebtedness permitted to be incurred hereunder may, but need not, be incurred under the Revolving Credit Facility; (xi) the Company and its Restricted Subsidiaries may become and remain liable with respect to Permitted Refinancing Indebtedness; (xii) a Receivables Subsidiary may incur Indebtedness in a Qualified Securitization Transaction that is not recourse (except for Standard Securitization Undertakings) to the Company or any of its Restricted Subsidiaries; (xiii) the Company and its Restricted Subsidiaries may incur and remain liable with respect to Indebtedness under Currency Agreements designed to protect the Company or its Restricted Subsidiaries against fluctuations in currency rates, entered into in the ordinary course of business and not for speculative purposes; (xiv) the Company and its Restricted Subsidiaries may incur and remain liable with respect to Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or other similar instrument drawn against insufficient funds in the ordinary course of business; (xv) the Company and its Restricted Subsidiaries may incur and remain liable with respect to Indebtedness constituting letters of credit and reimbursement obligations with respect to letters of credit issued in the ordinary course of business, including, without limitation, letters of credit in respect of workers' compensation claims or self-insurance, or other Indebtedness with respect to reimbursement-type obligations regarding workers' compensation claims and with respect to Indebtedness arising from agreements providing for indemnification, adjustment of purchase price incurred or assumed with the disposition or acquisition of any business; (xvi) the Company and its Restricted Subsidiaries may incur and remain liable with respect to obligations in respect of performance and surety bonds and completion guarantees provided by the Company or any Restricted Subsidiary of the Company in the ordinary course of business; (xvii) the Company or any of its Restricted Subsidiaries may guarantee obligations of the lessee under any lease pursuant to which the Company or any of its Restricted Subsidiaries is the lessee so long as such lease is otherwise permitted hereunder; -77- (xviii) the Company and the Restricted Subsidiaries may incur and remain liable with respect to up to an aggregate principal amount of $185.0 million under the First Lien Credit Facility less the amount of all mandatory repayments required to be made thereunder; (xix) the Company and the Subsidiary Guarantors may in the aggregate incur and remain liable with respect to Indebtedness of up to an additional $25.0 million under this Agreement in accordance with the provisions of Section 2.7 hereof less the amount of all mandatory repayments required to be made with respect thereto pursuant to the terms of this Agreement; provided that (a) the Company's Fixed Charge Coverage Ratio for its four fiscal quarters ending immediately prior to the date such Indebtedness is incurred would have been at least 2.5 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds of such Indebtedness) as if such Indebtedness had been incurred at the beginning of such four-quarter period and (b) not less than 80% of the net proceeds from the incurrence of such Indebtedness shall be applied to finance improvements or additions to the Collateral and the Company complies with the provisions of Sections 5.11 and 5.12 with respect to such Collateral; provided, however, that prior to the Discharge of the First Lien Obligations such net proceeds shall be applied in accordance with the provisions of the First Lien Credit Agreement with respect thereto; (xx) Indebtedness of Foreign Subsidiaries in an aggregate amount outstanding at the time of incurrence not to exceed the sum of (a) 80% of the accounts receivable of the Foreign Subsidiaries and (b) 50% of the inventory of the Foreign Subsidiaries, in each case as shown on the most recent balance sheets of such Foreign Subsidiaries; (xxi) Indebtedness of the Company under notes delivered to employee, officer and director shareholders in connection with stock purchases effected pursuant to Section 6.3(b)(5), not to exceed $1.5 million in any fiscal year (when taken together with payments made pursuant to Section 6.3(b)(5)); and (xxii) Acquired Debt incurred by the debtor prior to the time that the debtor thereunder was acquired by or merged into the Company or any of its Restricted Subsidiaries, or prior to the time that the related asset was acquired by the Company or any of its Restricted Subsidiaries, and was not incurred in connection with, or in contemplation of, such acquisition or merger, provided that the aggregate of all such Indebtedness, together with all Indebtedness incurred under clauses (vi) and (vii), shall not exceed $25.0 million at any time outstanding. Section 6.2 Liens The Company shall not, nor shall it cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or permit or suffer to exist any Lien on or with respect to any asset now owned or hereafter acquired by it, or assign or otherwise convey any right to receive any income or profits therefrom, except for: (i) Permitted Encumbrances on assets that do not constitute Collateral; -78- (ii) Permitted Collateral Liens on assets that constitute Collateral; (iii) Liens on equipment, fixtures and other similar property of the Company and any of its Subsidiaries that do not constitute Collateral and will not in connection with the acquisition thereof constitute or be required to become pursuant to any Credit Document Collateral, in each case securing Indebtedness described in clauses (vi) and (vii) of the definition of "Permitted Indebtedness"; provided that such Liens shall extend only to equipment, fixtures and other similar property so financed (and improvements or attachments thereto) and the proceeds thereof; (iv) Liens securing Acquired Debt permitted under Section 6.1(a) or clause (xxii) of the definition of "Permitted Indebtedness," which Liens existed prior to the time the entity which incurred such Indebtedness became a Subsidiary of the Company; provided that such Liens were not incurred in contemplation of the acquisition of such Subsidiary and such Liens extend to or cover only the property and assets of such entity which were covered by such Liens and which were owned by such entity, in each case at the time such entity became a Subsidiary of the Company (and improvements or attachments thereto) and the property and assets subject to such Lien will not in connection with such acquisition constitute or be required pursuant to any Credit Document to become Collateral; (v) Liens securing Obligations under this Agreement; and (vi) the replacement, extension or renewal of any Lien permitted by this Section 6.2 upon or in the same property subject to such Lien and as security for the same obligations or any refinancings thereof to the extent such refinancings are permitted under Section 6.1; provided that such Lien does not extend to or cover any property other than the property covered by such Lien immediately prior to such replacement, extension or renewal of such Lien (and improvements or attachments thereto) and the principal of the obligations secured thereby is not increased. Section 6.3 Restricted Payments (a) The Company shall not, and shall not cause or permit any of its Restricted Subsidiaries to, directly or indirectly: (1) declare or pay any dividend or make any distribution (other than dividends or distributions payable in Qualified Capital Stock of the Company) on or in respect of shares of the Company's Capital Stock to holders of such Capital Stock; (2) purchase, redeem or otherwise acquire or retire for value any Capital Stock of the Company; (3) make any principal payment on, purchase, defease, redeem, prepay, decrease or otherwise acquire or retire for value, prior to any scheduled final maturity, -79- scheduled repayment or scheduled sinking fund payment, any Subordinated Indebtedness; or (4) make any Investment (other than Permitted Investments) (each of the foregoing actions set forth in clauses (1), (2), (3) and (4) being referred to as a "RESTRICTED PAYMENT"), if at the time of such Restricted Payment or immediately after giving effect thereto, (i) a Potential Event of Default or an Event of Default shall have occurred and be continuing; (ii) the Company is not able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with Section 6.1(a); or (iii) the aggregate amount of Restricted Payments (including such proposed Restricted Payment) made subsequent to the Closing Date (the amount expended for such purposes, if other than in cash, being the fair market value of such property as determined in good faith by the Board of Directors of the Company) shall exceed the sum of: (v) 50% of the cumulative Consolidated Net Income (or if cumulative Consolidated Net Income shall be a loss, minus 100% of such loss) of the Company earned subsequent to the Closing Date and on or prior to the date the Restricted Payment occurs (the "REFERENCE DATE") (treating such period as a single accounting period); plus (w) 100% of the aggregate net cash proceeds received by the Company from any Person (other than a Subsidiary of the Company) from the issuance and sale subsequent to the Closing Date and on or prior to the Reference Date of Qualified Capital Stock of the Company or warrants, options or other rights to acquire Qualified Capital Stock of the Company (but excluding any debt security that is convertible into, or exchangeable for, Qualified Capital Stock); plus (x) 100% of the lesser of (a) the aggregate net cash proceeds received by the Company from any Person (other than a Subsidiary of the Company) from the issuance and sale (subsequent to the Closing Date) of its debt securities or its shares of Disqualified Capital Stock that have been converted into or exchanged for Qualified Capital Stock of the Company and (b) the fair market value of such debt securities or shares of Disqualified Capital Stock that have been so converted or exchanged, calculated as of the time of such conversion or exchange (as applicable); plus (y) without duplication of any amounts included in clause (iii)(w) above, 100% of the aggregate net cash proceeds of any equity contribution received by the Company from a holder of the Company's Capital Stock (excluding, in the case of clauses (iii)(w) and (iii)(y), any net cash proceeds from an Eq- -80- uity Offering to the extent used to prepay Loans in compliance with Section 2.5(a)(i)(II); plus (z) without duplication of any amounts included in clause (v), (w), (x) or (y), the sum of: (1) the aggregate amount returned in cash on or with respect to Investments (other than Permitted Investments) made subsequent to the Closing Date whether through interest payments, principal payments, dividends or other distributions or payments; (2) the net cash proceeds received by the Company or any of its Restricted Subsidiaries from the disposition of all or any portion of such Investments (other than to a Subsidiary of the Company); and (3) upon redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary, the fair market value of such Subsidiary; provided, however, that the sum of clauses (1), (2) and (3) above shall not exceed the aggregate amount of all such Investments made subsequent to the Closing Date. (b) Notwithstanding the foregoing, the provisions set forth in Section 6.3(a) shall not prohibit: (1) so long as no Potential Event of Default or Event of Default shall have occurred or be continuing, the payment of any dividend within 60 days after the date of declaration of such dividend if the dividend would have been permitted on the date of declaration pursuant to the terms of this Agreement; (2) so long as no Potential Event of Default or Event of Default shall have occurred or be continuing, the purchase, redemption or other acquisition of Capital Stock of the Company either (i) solely in exchange for (A) Qualified Capital Stock of the Company or (B) for the promise to issue Qualified Capital Stock of the Company in the future or (ii) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of Qualified Capital Stock of the Company; (3) the purchase, redemption, defeasance or other acquisition of any Subordinated Indebtedness either (i) solely in exchange for shares of Qualified Capital Stock of the Company or (ii) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of (a) shares of Qualified Capital Stock of the Company or (b) if no Potential Event of Default or Event of Default shall have occurred and be continuing, refinancing Indebtedness; (4) so long as no Potential Default or Event of Default shall have occurred and be continuing, the Company may declare and pay dividends on its common stock of -81- up to $0.09 per share in any fiscal quarter, provided that for the four fiscal quarters ending immediately prior to the date of declaration of such dividend the Company had a Fixed Charge Coverage Ratio of greater than 3 to 1; (5) payments, purchases or distributions made pursuant to employee stock purchase plans, deferred compensation plans or other employee benefits plans, in each case, pursuant to plans in existence on the date hereof or a plan substantially similar thereto, in an aggregate amount not to exceed $1.5 million per fiscal year (when taken together with Indebtedness issued in connection with any such payment, purchase or distribution); and (6) so long as no Potential Event of Default or Event of Default shall have occurred and be continuing, the making of any other Restricted Payment that, together with all other Restricted Payments made pursuant to this clause (6) subsequent to the Closing Date, does not exceed $15.0 million. In determining the aggregate amount of Restricted Payments made subsequent to the Closing Date in accordance with clause (iii) of Section 6.3(a), amounts expended pursuant to clauses (1), (2)(ii), (4), (5) and (6) shall be included in such calculation. Section 6.4 Limitation on Preferred Stock of Restricted Subsidiaries The Company shall not permit any of its Restricted Subsidiaries to issue any Preferred Stock (other than to the Company or to a Wholly-Owned Restricted Subsidiary of the Company) or permit any Person (other than the Company or a Wholly-Owned Restricted Subsidiary of the Company) to own any Preferred Stock of any Restricted Subsidiary of the Company. Section 6.5 Senior Subordinated Indebtedness Neither the Company nor any Subsidiary Guarantor shall, directly or indirectly, incur any Indebtedness that is or purports to be by its terms (or by the terms of any agreement governing such Indebtedness) subordinated to any other Indebtedness of the Company or any Subsidiary Guarantor unless such Indebtedness is also by its terms (or by the terms of any agreement governing such Indebtedness) made expressly subordinate to the Obligations under the Loan or the Guarantee of such Subsidiary Guarantor, as the case may be, to the same extent and in the same manner as such Indebtedness is subordinated to such other Indebtedness. Section 6.6 Restriction on Fundamental Changes (a) The Company shall not, and shall not cause or permit any Restricted Subsidiary of the Company to, in a single transaction or series of related transactions, consolidate or merge with or into any Person, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the Company's assets and properties (determined on a consolidated basis for the Company and the Company's Restricted Subsidiaries) to any Person unless: -82- (1) either: (i) the Company or such Restricted Subsidiary shall be the surviving or continuing corporation; or (ii) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the Person which acquires by such sale, assignment, transfer, lease, conveyance or other disposition all or substantially all of the Company's assets and properties (determined on a consolidated basis for the Company and the Company's Restricted Subsidiaries) (the "SURVIVING ENTITY"): (x) shall be a corporation organized and validly existing under the laws of the United States or any state thereof or the District of Columbia; and (y) shall expressly assume, by joinder agreement (in form and substance reasonably satisfactory to the Administrative Agent), executed and delivered to the Administrative Agent, the due and punctual payment of the principal of and premium, if any, and interest on the Loan and the performance of every covenant of this Agreement and the other Credit Documents on the part of the Company to be performed or observed and shall cause such amendments, supplements or other instruments to be filed and recorded in such jurisdictions as may be required by applicable law to preserve and protect the Lien on the Collateral owned by or transferred to the Surviving Entity, together with such financing statements as may be required to perfect any security interests in such Collateral which may be perfected by the filing of a financing statement under the UCC of the relevant states; (2) immediately after giving effect to such transaction and the assumption contemplated by clause (1)(ii)(y) above (including giving effect to any Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction), the Company or such Surviving Entity, as the case may be, shall be able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to Section 6.1; (3) immediately before and immediately after giving effect to such transaction and the assumption contemplated by clause (1)(ii)(y) above (including, without limitation, giving effect to any Indebtedness incurred or anticipated to be incurred and any Lien granted in connection with or in respect of the transaction), no Potential Event of Default or Event of Default shall have occurred or be continuing; and (4) the Company or the Surviving Entity, as the case may be, shall have delivered to the Administrative Agent an Officers' Certificate and an opinion of counsel, each stating that such consolidation, merger, sale, assignment, transfer, lease, conveyance or -83- other disposition and, if a joinder agreement is required in connection with such transaction, such joinder agreement comply with the applicable provisions of this Agreement and that all conditions precedent in this Agreement relating to such transaction have been satisfied. For purposes of the foregoing, (i) the sale, assignment, transfer, lease, conveyance or other disposition (in a single transaction or series of related transactions) of all or substantially all of the properties and assets of one or more Restricted Subsidiaries of the Company, the Capital Stock of which constitutes all or substantially all of the Company's properties and assets (determined on a consolidated basis for the Company and the Company's Restricted Subsidiaries), shall be deemed to be a sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the properties and assets of the Company (determined on a consolidated basis for the Company and the Company's Restricted Subsidiaries); and (ii) any Collateral transferred to the Surviving Entity shall (a) continue to constitute Collateral under this Agreement and the Security Documents, (b) be subject to the Lien in favor of the Secured Parties, and (c) not be subject to any Lien other than Permitted Collateral Liens. Upon any consolidation, combination or merger or any transfer of all or substantially all of the assets of the Company in accordance with the foregoing in which the Company is not the surviving corporation, the Surviving Entity shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Agreement and the other Credit Documents with the same effect as if such Surviving Entity had been named as such. (b) Each Subsidiary Guarantor (other than any Subsidiary Guarantor whose Guarantee is to be released in accordance with the terms of the Guarantee and this Agreement in connection with any transaction complying with the provisions of Section 6.13) will not, and the Company will not cause or permit any Subsidiary Guarantor to, consolidate with or merge with or into any Person other than the Company or any other Subsidiary Guarantor unless: (1) the entity formed by or surviving any such consolidation or merger (if other than the Subsidiary Guarantor) or to which such sale, lease, conveyance or other disposition shall have been made is a corporation organized and existing under the laws of the United States or any state thereof or the District of Columbia; (2) such entity assumes by joinder agreement all of the obligations of the Subsidiary Guarantor on the Guarantee, and shall cause such amendments, supplements or other instruments to be filed and recorded in such jurisdictions as may be required by applicable law to preserve and protect the Lien on the Collateral owned by or transferred to such entity, if any, together with such financing statements as may be required to perfect any security interests in such Collateral which may be perfected by the filing of a financing statement under the UCC of the relevant states; and (3) immediately after giving effect to such transaction, no Potential Event of Default or Event of Default shall have occurred and be continuing. -84- (c) Each Foreign Subsidiary that is not a Subsidiary Guarantor may consolidate or merge with (or enter into a correlative transaction under applicable foreign law) with any other Foreign Subsidiary that is not a Subsidiary Guarantor. Section 6.7 Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries The Company shall not, nor shall it cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or permit or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary of the Company to (a) pay dividends or make any other distributions on its Capital Stock or any other interest or participation in, or measured by, its profits; (b) make loans or advances or pay any Indebtedness or other obligation owed to the Company or to any Restricted Subsidiary of the Company; or (c) transfer any of its property or assets to the Company or to any Restricted Subsidiary of the Company (any such restriction or encumbrance a "PAYMENT RESTRICTION"), except for such encumbrances or restrictions existing under or by reason of any restrictions contained in (i) the Credit Documents; (ii) the Revolving Credit Facility or the First Lien Credit Facility, in each case, to the extent and in the manner such Payment Restrictions are contained therein on the Closing Date; (iii) the Indebtedness pertaining to a Restricted Subsidiary of the Company that is not a Subsidiary of the Company on the Closing Date in existence at the time such Subsidiary becomes a Subsidiary of the Company; provided, however, that any such Indebtedness was not incurred as a result of, in connection with or in anticipation of the transaction pursuant to which such entity becomes a Subsidiary of the Company and it does not apply to any Person, or the properties of assets of any Person, other than the Subsidiary acquired and such Indebtedness is otherwise permitted to be incurred pursuant to Section 6.1; (iv) secured Indebtedness otherwise permitted to be incurred pursuant to Sections 6.1 and 6.2 that limits the right of the debtor to dispose of the assets securing such Indebtedness; (v) customary non-assignment provisions of any contract or of any lease governing a leasehold interest of any Subsidiary of the Company; (vi) applicable law; (vii) agreements existing on the Closing Date to the extent and in the manner such Payment Restrictions are in effect on the Closing Date; (viii) customary non-assignment provisions entered into in the ordinary course of business and consistent with past practices; (ix) the terms of purchase money obligations or Capitalized Lease Obligations for property acquired in the ordinary course of business, but only to the extent that such purchase money obligations or Capitalized Lease Obligations restrict or prohibit the transfer of the property so acquired; (x) any encumbrance or restriction with respect to a Subsidiary imposed pursuant to an agreement which has been entered into for the sale or disposition of all or substantially all the Capital Stock or assets of such Subsidiary; (xi) agreements relating to Indebtedness incurred pursuant to Section 6.1(b)(xx); (xii) any instrument that Refinances any Indebtedness; provided, however, that the provisions relating to any such encumbrance or restriction in any such instrument are not materially less favorable to the Company or its Subsidiaries or the Lenders than those contained in the agreements governing the Indebtedness that was refinanced; and (xiii) an agreement governing Indebtedness permitted to be incurred pursuant to Section 6.1(a) or clause (x) of the definition of "Permitted Indebtedness," provided that provisions relating to such encumbrance or restriction contained in such Indebtedness are no less favorable to the Company in any material -85- respect as determined by the Board of Directors of the Company in its reasonable and good faith judgment than the provisions contained in the Credit Documents as in effect on the Closing Date. Section 6.8 Transactions with Shareholders and Affiliates (a) The Company shall not, nor shall it cause or permit any of its Restricted Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with, or for the benefit of, any Affiliate of the Company (each, an "AFFILIATE TRANSACTION") other than (x) Permitted Affiliate Transactions permitted under paragraph (b) below, (y) Affiliate Transactions on terms that are no less favorable than those that might reasonably have been obtained in a comparable transaction at such time on an arm's-length basis from a Person that is not an Affiliate of the Company or such Restricted Subsidiary or (z) transactions between the Company or any of its Restricted Subsidiaries, on the one hand, and any Receivables Subsidiary, on the other, in connection with a Qualified Securitization Transaction, in each case provided that such transactions are not otherwise prohibited by this Agreement. All Affiliate Transactions (or a series of related Affiliate Transactions which are part of a common plan) involving aggregate payments or other property with a fair market value in excess of $5.0 million shall be approved by a majority of the disinterested members of the Board of Directors of the Company, such approval to be evidenced by a resolution stating that such Board of Directors has determined that such transaction complies with the foregoing provisions. If the Company or any Subsidiary of the Company enters into an Affiliate Transaction (or a series of related Affiliate Transactions which are part of a common plan) that involves an aggregate fair market value of more than $15.0 million, the Company or such Restricted Subsidiary, as the case may be, shall, prior to the consummation thereof, obtain a favorable opinion as to the fairness of such transaction or series of related transactions to the Company or the relevant Restricted Subsidiary, as the case may be, from a financial point of view, from an Independent Financial Advisor and file the same with the Administrative Agent. (b) The foregoing restrictions shall not apply to the following "PERMITTED AFFILIATE TRANSACTIONS": (i) any transaction exclusively between the Company and any of its Restricted Subsidiaries or exclusively between any of the Company's Restricted Subsidiaries, (ii) reasonable and customary fees paid to members of the Board of Directors of the Company, (iii) reasonable and customary fees and compensation paid to, and indemnity provided on behalf of, officers, directors, consultants or employees of the Company or any of its Restricted Subsidiaries, as determined by the Board of Directors of the Company or any such Restricted Subsidiary or the senior management thereof in good faith, including, without limitation, issuances of stock, payment of bonuses and other transactions pursuant to employment or compensation agreements, stock option agreements, indemnification agreements and other arrangements, (iv) any agreement as in effect as of the Closing Date or any amendment thereto or any transaction contemplated thereby (including pursuant to any amendment thereto or any replacement agreement thereto) so long as any such amendment or replacement agreement is not more disadvantageous to the Lenders in any material respect than the original agreement as in effect on the Closing Date and (v) Restricted Payments permitted by this Agreement. -86- Section 6.9 Embargoed Person The Company shall not cause or permit (a) any of the funds or properties of the Loan Parties that are used to repay the Loan to constitute property of, or be beneficially owned directly or indirectly by, any Person subject to sanctions or trade restrictions under United States law ("EMBARGOED PERSON" or "EMBARGOED PERSONS") that is identified on (1) the "List of Specially Designated Nationals and Blocked Persons" (the "SDN LIST") maintained by OFAC and/or on any other similar list ("OTHER LIST") maintained by OFAC pursuant to any authorizing statute including, but not limited to, the International Emergency Economic Powers Act, 50 U.S.C. Sections 1701 et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1 et seq., and any Executive Order or regulation promulgated thereunder, with the result that the investment in the Loan Parties (whether directly or indirectly) is prohibited by law, or the Loan made by the Lenders would be in violation of law, or (2) the Executive Order, any related enabling legislation or any other similar Executive Orders (collectively, "EXECUTIVE ORDERS"), or (b) any Embargoed Person to have any direct or indirect interest of any nature whatsoever in the Loan Parties, with the result that the investment in the Loan Parties (whether directly or indirectly) is prohibited by law or the Loan are in violation of law. Section 6.10 Business Activities The Company shall not, nor shall the Company cause or permit any of its Restricted Subsidiaries to, enter into any line of business that is different from the business of the Company and its Restricted Subsidiaries in existence immediately after giving effect to the Transactions or is not a similar, ancillary, supportive or related business. Section 6.11 Amendments or Waivers of Certain Documents The Company shall not, and shall cause its Restricted Subsidiaries not to: (a) make (or give any notice in respect of) any voluntary or optional payment or prepayment on or redemption or acquisition for value of, or any prepayment or redemption as a result of any asset sale, change of control or similar event of, any Subordinated Indebtedness, except as otherwise permitted by this Agreement; or (b) terminate, amend, modify (including electing to treat any Pledged Interests (as defined in the Security Agreement) as a "security" under Section 8-103 of the UCC) or change any of its corporate or other similar organizational documents (including by the filing or modification of any certificate of designation) or any agreement to which it is a party with respect to its Capital Stock (including any stockholders' agreement), or enter into any new agreement with respect to its Capital Stock, other than any such amendments, modifications or changes or such new agreements which are not adverse in any material respect to the interests of the Lenders. -87- Section 6.12 Anti-Terrorism Law; Anti-Money Laundering The Company shall not directly or indirectly (a) (i) knowingly conduct any business or engage in making or receiving any contribution of funds, goods or services to or for the benefit of any Person described in Section 4.29, (ii) knowingly deal in, or otherwise engage in any transaction relating to, any property or interests in property blocked pursuant to the Executive Order or any other Anti-Terrorism Law, or (iii) knowingly engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law (and the Company shall deliver to the Lenders any certification or other evidence requested from time to time by any Lender in its reasonable discretion, confirming the Company's compliance with this Section 6.12) or (b) cause or permit any of the funds of the Company or the Loan Parties that are used to repay the Loan to be derived from any unlawful activity with the result that the making of the Loan would be in violation of law. Section 6.13 Asset Sales (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless: (1) the Company or the applicable Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold or otherwise disposed of; and (2) at least 75% (provided, however, that with respect to Asset Sales of assets or property that constitutes Collateral, 85%) of the consideration received (net of disposal costs) at the time of such Asset Sale by the Company or the Restricted Subsidiary, as the case may be, from such Asset Sale shall be in the form of cash or Cash Equivalents. (b) The Company may apply, or cause such Restricted Subsidiary to apply, the Net Cash Proceeds relating to each Asset Sale within 365 days (or earlier, at the Company's option) of receipt thereof either: (1) to the extent such Asset Sale is of assets or property that constitute Revolving Collateral, to repay Indebtedness under the Revolving Credit Facility and permanently reduce a corresponding amount of the availability under the Revolving Credit Facility; (2) to make an investment in properties and assets that replace the properties and assets that were the subject of such Asset Sale or in properties and assets (including Capital Stock) that will be used in the business of the Company and its Restricted Subsidiaries as existing on the Closing Date or in businesses reasonably related, ancillary, incidental or complementary thereto ("REPLACEMENT ASSETS"), provided that to the extent such Net Cash Proceeds were received from an Asset Sale of assets or property that constituted Collateral, such Replacement Assets so acquired shall be owned by the Company (or such Restricted Subsidiary) and shall not be subject to any Liens other than Permitted -88- Collateral Liens and the Company (or such Restricted Subsidiary) shall execute and deliver to the Administrative Agent such Security Documents or other instruments as shall be reasonably necessary to cause such property or assets to become Collateral subject to the Lien of the applicable Security Documents; or (3) a combination of prepayment and investment permitted by the foregoing clauses (1) and (2), as applicable; provided, further, that if the property subject to such Asset Sale constituted Collateral, then all property purchased with the Cash Proceeds thereof pursuant to this Section 6.13(b) shall be made subject to the Lien of the applicable Security Documents in favor of the Collateral Agent, for its benefit and for the benefit of the other Secured Parties in accordance with Sections 5.11 and 5.12. (c) Pending the final application of the Net Cash Proceeds, the Company or such Restricted Subsidiary may temporarily reduce Indebtedness under the Revolving Credit Facility or otherwise invest such Net Cash Proceeds in any manner that is not prohibited by this Agreement; except, however, that the Net Cash Proceeds in excess of $5.0 million from Asset Sales of assets or property that constituted First Lien Collateral shall be deposited in the Collateral Account pending application of such Net Cash Proceeds. Any such Net Cash Proceeds so deposited shall be promptly disbursed by the Collateral Agent upon notice from the Company so that the Company may apply such Net Cash Proceeds in accordance with the provisions of this Section 6.13. (d) Any Net Cash Proceeds from Asset Sales not applied within 365 days (or earlier, at the Company's option) in accordance with clause (b) above and not applied toward a mandatory repayment of First Lien Obligations in accordance with the provisions of Section 2.5(a)(ii)(I) of the Fist Lien Credit Agreement within the time frame set forth therein for such prepayment shall constitute "EXCESS PROCEEDS." When the aggregate amount of Excess Proceeds exceeds $2.0 million, such Excess Proceeds shall be applied as set forth in Section 2.5(a)(ii)(I). Upon completion of the repayment offer set forth in Section 2.5(a)(ii)(I), the amount of Excess Proceeds will be deemed to have been reset to zero. (e) To the extent any Collateral is the subject of an Asset Sale permitted under this Section 6.13 or is otherwise sold or disposed of in a manner not prohibited by this Agreement, the Collateral so sold or otherwise disposed of shall be so sold or disposed of free and clear of the Liens granted or created by the Security Documents, and the Agents shall take all actions they deem appropriate (to the extent requested by the Company in writing) in order to effect the foregoing. Section 6.14 Additional Guarantees The Company shall require (i) each of its Restricted Subsidiaries with gross assets in excess of $1.0 million (other than Foreign Subsidiaries) and (ii) any Subsidiary that guarantees any obligations under the Revolving Credit Facility, to guarantee the Obligations of the Com- -89- pany under this Agreement pursuant to the execution of a Guarantee. Thereafter, such Subsidiary shall be a Subsidiary Guarantor for all purposes of this Agreement. ARTICLE 7 EVENTS OF DEFAULT Section 7.1 Events of Default If any of the following conditions or events (each, an "EVENT OF DEFAULT") shall occur and be continuing: (a) Failure To Make Payments When Due: failure to pay (i) any installment of principal of the Loan when due and payable, whether at stated maturity, by acceleration, by notice of prepayment or otherwise, or (ii) any interest on the Loan when due and payable and such failure continues for a period of 30 days; (b) Default in Other Agreements: failure of the Company or any of its Restricted Subsidiaries to pay at final maturity (giving effect to any applicable grace period and extensions thereof) the principal of any Indebtedness of the Company or of any of its Material Subsidiaries (other than Indebtedness referred to in Section 7.1(a)) or the acceleration of the final stated maturity of any such Indebtedness (which acceleration is not rescinded, annulled or otherwise cured within 30 days of receipt by the Company or such Restricted Subsidiary of notice of any such acceleration) if the aggregate principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness in default for failure to pay principal at final maturity or which has been accelerated (in each case with respect to which the 30-day period described above has elapsed), aggregates $10.0 million or more at any time; (c) Breach of Certain Covenants: failure of the Company to perform or comply with any covenant, term or condition contained in Section 2.5(a)(ii) or 6.6 or failure of the Company to maintain its corporate existence in accordance with Section 5.3(a); (d) Other Defaults Under Agreement or Credit Documents: the Company shall default in the performance of or compliance with any covenant, term or condition contained in this Agreement or the other Credit Documents (other than those covered by Section 7.1(a), (c) or (i)) and such default shall not have been remedied or waived in accordance with this Agreement within 30 days after the date of written notice specifying the default (and demanding that such default be remedied) from the holder or holders of not less than 25% in aggregate principal amount of the Loan then outstanding; (e) Involuntary Bankruptcy; Appointment of Custodian, Etc.: a court of competent jurisdiction enters a Bankruptcy Order under any Bankruptcy Law that: (i) is for relief against the Company or any Material Subsidiary in an involuntary case or proceeding, or -90- (ii) appoints a Custodian of the Company or any Material Subsidiary for all or substantially all of its properties, or (iii) orders the liquidation of the Company or any Material Subsidiary, and in each case the order or decree remains unstayed and in effect for 60 consecutive days; (f) Voluntary Bankruptcy; Appointment of Custodian, Etc.: the Company or any Material Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (i) commences a voluntary case or proceeding, or (ii) consents to the entry of a Bankruptcy Order for relief against it in an involuntary case or proceeding, or (iii) consents to the appointment of a Custodian of it or for all or substantially all of its property, or (iv) makes a general assignment for the benefit of its creditors or files a proposal or scheme of arrangement involving the rescheduling or composition of its indebtedness, or (v) consents to the filing of a petition in bankruptcy against it; (g) Judgments and Attachments: any money judgment, writ or warrant of attachment, or similar process, involving in any individual case or in the aggregate at any time an amount in excess of $10.0 million (unless such excess amount is covered by third-party insurance with respect to which the Company or the appropriate Restricted Subsidiary has provided notice in a timely manner (in accordance with the provisions of the applicable policy) to the insurer and such insurer has not denied or challenged coverage thereof), shall be entered or filed against the Company or any of its Restricted Subsidiaries and shall remain undischarged, unvacated, unbonded or unstayed for a period of 60 consecutive days; (h) Guarantee: (i) any Guarantee of any Subsidiary Guarantor shall cease to be in full force or effect (other than by reason of release in accordance with its express terms), shall be declared to be null and void and unenforceable or shall be found to be invalid, or (ii) any Subsidiary Guarantor shall deny or disaffirm such Subsidiary Guarantor's obligations under its Guarantee (other than by reason of release in accordance with the terms of this Agreement); (i) Foreclosure: any agent under the Revolving Credit Facility or the First Lien Credit Facility or any other party entitled to act thereunder commences judicial proceedings to foreclose on the collateral securing the Revolving Credit Facility or the First Lien Credit Facility, as the case may be, or exercises any right under applicable law or -91- any instrument evidencing a security interest or other encumbrance in respect of such collateral to take ownership or effect the transfer of such collateral in lieu of foreclosure; (j) Change of Control: there occurs a Change of Control; (k) Security Interests: any security interest and Lien purported to be created by any Security Document securing Collateral having a fair market value, in the aggregate, exceeding $5.0 million shall cease to be in full force and effect, or shall cease to give the Collateral Agent, for the benefit of the Secured Parties, the Liens, rights, powers and privileges purported to be created and granted under such Security Document (including a perfected first priority security interest in, and Lien on, all of the Collateral thereunder (except as otherwise expressly provided in such Security Document)) in favor of the Collateral Agent, or shall be asserted by the Company or any of its Subsidiaries party to any Security Document or any other Loan Party not to be a valid, perfected, first priority (except as otherwise expressly provided in this Agreement or such Security Document) security interest in or Lien on the Collateral covered thereby; or (l) ERISA Event: there occurs an ERISA Event or noncompliance with respect to Foreign Plans that, in the opinion of the Required Lenders, when taken together with all other ERISA Events and noncompliance with respect to Foreign Plans that have occurred, would reasonably be expected to result in a Material Adverse Effect; then (i) upon the occurrence and during the continuation of any Event of Default described in the foregoing clause (e) or (f) above with respect to the Company, all of the unpaid principal amount of and accrued interest on the Loan and all other outstanding Obligations shall automatically become immediately due and payable, without presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by the Company, and the commitments of the Lenders hereunder shall thereupon terminate, and (ii) upon the occurrence and during the continuation of any Event of Default not referred to in clause (i), the Administrative Agent shall, upon written notice of the holder or holders of at least 25% in aggregate principal amount of the Loan then outstanding, by written notice to the Company specifying the respective Event of Default and that it is a "notice of acceleration" (the "ACCELERATION NOTICE"), declare all of the unpaid principal amount of and accrued interest on the Loan and all other outstanding Obligations to be, and the same shall forthwith become, due and payable (subject to the provisions of the Intercreditor Agreement). Nevertheless, if at any time after acceleration of the maturity of the Loan, the Company shall pay all arrears of interest and all payments on account of the principal thereof which shall have become due otherwise than by acceleration (with interest on principal and, to the extent permitted by law, on overdue interest, at the rates specified in this Agreement or the Notes) and all Events of Default and Potential Events of Default (other than non-payment of principal of and accrued interest on the Loan and the Notes due and payable solely by virtue of acceleration) shall be remedied or waived pursuant to Section 11.6, then the Administrative Agent shall, upon written notice of the holders of at least a majority in aggregate principal amount of the Loan then outstanding, by written notice to the Company rescind and annul the acceleration and its consequences; but such action shall not affect any subsequent Event of Default or Potential Event of Default or impair any right consequent thereon. -92- ARTICLE 8 COLLATERAL ACCOUNT; APPLICATION OF FIRST LIEN COLLATERAL PROCEEDS Section 8.1 Collateral Account (a) The Collateral Agent is hereby authorized to establish and maintain at its office at 60 Wall Street, New York, New York 10005, in the name of the Collateral Agent, a restricted deposit account designated "Wellman, Inc. Collateral Account." The Company and each Loan Party, as applicable, shall deposit into the Collateral Account from time to time (i) the Net Cash Proceeds of any of the Collateral (including pursuant to any disposition thereof) to the extent contemplated herein or in any other Credit Document, (ii) the Net Cash Proceeds of any Casualty Event with respect to Collateral, to the extent contemplated herein or in any other Credit Document, and (iii) any cash such Person is required to pledge as additional collateral security hereunder pursuant to the Credit Documents. Notwithstanding any of the provisions of this Agreement to the contrary (including, without limitation, the provisions of the immediately preceding sentence), neither the Company not any other Loan Party shall make any deposit to the Collateral Account prior to the Discharge of the First Lien Obligations. (b) The balance from time to time in the Collateral Account shall constitute part of the Collateral and shall not constitute payment of the Obligations until applied as hereinafter provided. So long as no Event of Default has occurred and is continuing, the Collateral Agent shall within two Business Days of receiving a request of the Company for release of cash proceeds from the Collateral Account constituting Net Cash Proceeds relating to any Asset Sale or Extraordinary Receipts relating to any Casualty Event remit such cash proceeds on deposit in the Collateral Account to the Company or a Restricted Subsidiary of the Company, as instructed by the Company, so long as the conditions relating thereto set forth in Section 8.2 have been satisfied. At any time following the occurrence and during the continuance of an Event of Default, the Collateral Agent may (and, if instructed by the Required Lenders as specified herein, shall) in its (or their) discretion apply or cause to be applied (subject to collection) the balance from time to time outstanding to the credit of the Collateral Account to the payment of the Obligations in the manner specified in Section 8.3. The Company shall have no right to withdraw, transfer or otherwise receive any funds deposited in the Collateral Account except to the extent specifically provided herein. (c) Amounts on deposit in the Collateral Account shall be invested and reinvested from time to time in Cash Equivalents as the Company (or, after the occurrence and during the continuance of an Event of Default, the Collateral Agent) shall determine by written instruction to the Collateral Agent, or if no such instructions are given, then as the Collateral Agent, in its sole discretion, shall determine which Cash Equivalents shall be held in the name and be under the control of the Collateral Agent (or any sub-agent); provided that at any time after the occurrence and during the continuance of an Event of Default, the Collateral Agent may (and, if instructed by the Required Lenders as specified herein, shall) in its (or their) discretion at any time and from time to time elect to liquidate any such Cash Equivalents and to apply or cause to be applied the proceeds thereof to the payment of the Obligations in the manner specified in Section 8.3. -93- Section 8.2 Proceeds of Destruction, Taking and Collateral Dispositions So long as no Event of Default shall have occurred and be continuing, in the event the applicable Loan Party elects to reinvest Net Cash Proceeds in respect of any Asset Sale or Extraordinary Receipts in respect of any Casualty Event in accordance with the provisions of Section 2.5(a)(ii)(I) or (II), as applicable, the Collateral Agent shall receive at least 10 days' prior notice of each request for payment and shall not release any part of such Net Cash Proceeds or Extraordinary Receipts deposited in the Collateral Account pursuant to this Agreement until the Company has furnished to the Collateral Agent (i) an Officers' Certificate setting forth: (A) a brief description of the reinvestment to be made, (B) the dollar amount of the expenditures to be made, or costs incurred by such Loan Party in connection with such reinvestment and (C) evidence that the properties acquired in connection with such reinvestment have a fair market value at least equal to the amount of such Net Cash Proceeds requested to be released from the Collateral Account and (ii) all security agreements and Mortgages and other items required by the provisions of Sections 5.11 and 5.12 to, among other things, subject such reinvestment properties to the Lien of the Security Documents in favor of the Collateral Agent, for its benefit and for the benefit of the other Secured Parties. Section 8.3 Application of Proceeds Subject to the provisions of the Intercreditor Agreement, the proceeds received by the Collateral Agent in respect of any sale of, collection from or other realization upon all or any part of the Collateral pursuant to the exercise by the Collateral Agent of its remedies shall be applied, in full or in part, together with any other sums then held by the Collateral Agent pursuant to this Agreement, promptly by the Collateral Agent as follows: (a) First, to the payment of all reasonable costs and expenses, fees, commissions and taxes relating to such sale, collection or other realization including compensation to the Collateral Agent and its agents and counsel, and all reasonable expenses, liabilities and advances made or incurred by the Collateral Agent in connection therewith and all amounts for which the Collateral Agent is entitled to indemnification pursuant to the provisions of any Credit Document, together with interest on each such amount at the highest rate then in effect under this Agreement from and after the date such amount is due, owing or unpaid until paid in full; (b) Second, to the payment of all other reasonable costs and expenses of such sale, collection or other realization including compensation to the other Secured Parties and their agents and counsel and all reasonable costs, liabilities and advances made or incurred by the other Secured Parties in connection therewith, together with interest on each such amount at the highest rate then in effect under this Agreement from and after the date such amount is due, owing or unpaid until paid in full; (c) Third, without duplication of amounts applied pursuant to clauses (a) and (b) above, to the indefeasible payment in full in cash, pro rata, of interest and other amounts constituting Obligations (other than principal) in each case equally and ratably in accordance with the respective amounts thereof then due and owing; -94- (d) Fourth, to the indefeasible payment in full in cash, pro rata, of the principal amount of the Obligations; and (e) Fifth, the balance, if any, to the Person lawfully entitled thereto (including the applicable Loan Party or its successors or assigns) or as a court of competent jurisdiction may direct. In the event that any such proceeds are insufficient to pay in full the items described in clauses (a) through (e) of this Section 8.3, the Company and the Subsidiary Guarantors party to the applicable Credit Documents shall remain liable, jointly and severally, for any deficiency. ARTICLE 9 THE ADMINISTRATIVE AGENT AND THE COLLATERAL AGENT Section 9.1 Appointment Each Lender hereby irrevocably designates and appoints each Agent as an agent of such Lender under this Agreement and the other Credit Documents. Each Lender irrevocably authorizes each Agent, in such capacity, through its agents or employees, to take such actions on its behalf under the provisions of this Agreement and the other Credit Documents and to exercise such powers and perform such duties as are expressly delegated to such Agent by the terms of this Agreement and the other Credit Documents, together with such actions and powers as are reasonably incidental thereto. The Agents agree to act as such upon the express conditions contained in this Article 9. Notwithstanding any provision to the contrary elsewhere in this Agreement or in any other Credit Document, the Agents shall not have any duties or responsibilities, except those expressly set forth herein or in the other Credit Documents, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against the Agents. The provisions of this Article 9 are solely for the benefit of the Agents and the Lenders, and neither the Company nor any of its Subsidiaries shall have any rights as a third-party beneficiary of any of the provisions hereof. In performing their functions and duties under this Agreement, the Agents shall act solely as agents of the Lenders and the Agents do not assume and shall not be deemed to have assumed any obligation or relationship of agent or trust with or for the Company or any of its Subsidiaries. Section 9.2 Agent in Its Individual Capacity Each Person serving as an Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not an Agent, and such person and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Company or any Subsidiary or other Affiliate thereof as if it were not an Agent hereunder. -95- Section 9.3 Exculpatory Provisions Neither the Agents nor any of their officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by them or such Person under or in connection with this Agreement or the other Credit Documents (except for their or such Person's own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Company, any of its Subsidiaries or any of their respective officers contained in this Agreement, any other Credit Documents, or in any certificate, report, statement or other document referred to or provided for in, or received by the Agents under or in connection with, this Agreement or any other Credit Document or for any failure of the Company, any of its Subsidiaries or any of their respective officers to perform its obligations hereunder or thereunder. The Agents shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or the other Credit Documents, or to inspect the properties, books or records of the Company or any of its Subsidiaries. The Agents shall not be responsible to any Lender for the effectiveness, genuineness, validity, enforceability, collectability or sufficiency of this Agreement or any other Credit Document or for any representations, warranties, recitals or statements made herein or therein or made in any written or oral statement or in any financial or other statements, instruments, reports, certificates or any other documents in connection herewith or therewith furnished or made by the Agents to the Lenders or by or on behalf of the Company or any of its Subsidiaries to the Agents or any Lender or be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained herein or therein or as to the use of the proceeds of the Loan or of the existence or possible existence of any Potential Event of Default or Event of Default. Section 9.4 Reliance by Agent Each Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any note, writing, resolution, notice, request, certificate, consent, statement, instrument, document, affidavit, letter, cablegram, facsimile, telex, teletype message or other writing believed by it to be genuine and to have been signed or sent by a proper person. Each Agent also may rely upon any statement made to it orally and believed by it to be made by a proper person, and shall not incur any liability for relying thereon. Each Agent may consult with legal counsel (who may be counsel for the Company), independent accountants and other advisors selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or advisors. The Agents shall be fully justified in failing or refusing to take any action under this Agreement or any other Credit Document unless they shall first receive such advice or concurrence of the Required Lenders as they deem appropriate or they shall first be indemnified to their satisfaction by the Lenders against any and all liability and expense which may be incurred by them by reason of taking or continuing to take any such action. As between the Agents and the Lenders, the Agents shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Credit Documents in accordance with a request of the Required Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders. -96- Section 9.5 Delegation of Duties The Agents may execute any of their duties under this Agreement or any other Credit Document by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agents shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by them with reasonable care except to the extent otherwise required by Section 9.3. Section 9.6 Successor Agent An Agent may resign as Agent upon 20 days' notice to the Lenders and the Company. Upon the resignation of an Agent, the Required Lenders shall appoint from among the Lenders a successor Agent which is a bank or a trust company for the Lenders subject to prior approval by the Company (such approval not to be unreasonably withheld or delayed), whereupon such successor Agent shall succeed to the rights, powers and duties of the resigning Agent, and the term "Agent" shall include such successor Agent effective upon its appointment, and the resigning Agent's rights, powers and duties as an Agent shall be terminated, without any other or further act or deed on the part of such former Agent or any of the parties to this Agreement. After the resignation of an Agent hereunder, the provisions of this Section 9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. Section 9.7 Non-Reliance on Agents and Other Lenders Each Lender expressly acknowledges that neither the Agents nor any of their respective officers, directors, employees, agents, attorneys-in-fact or affiliates have made any representations or warranties to it and that no act by the Agents hereafter taken, including any review of the affairs of the Company or any of its Subsidiaries, shall be deemed to constitute any representation or warranty by the Agents to any Lender. Each Lender represents to the Agents that it has, independently and without reliance upon the Agents or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, assets, operations, property, financial and other condition, prospects and creditworthiness of the Company and its Subsidiaries and made its own decision to make its Loan hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Agents or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement, and to make such investigation as it deems necessary to inform itself as to the business, assets, operations, property, financial and other condition, prospects and creditworthiness of the Company and its Subsidiaries. The Agents shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, assets, property, financial and other condition, prospects or creditworthiness of the Company or any of its Subsidiaries which may come into the possession of the Agents or any of their officers, directors, employees, agents, attorneys-in-fact or Affiliates. -97- Section 9.8 Notice of Default The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Potential Event of Default or Event of Default hereunder unless the Administrative Agent has actually received notice from a Lender or the Company referring to this Agreement, describing such Potential Event of Default or Event of Default and stating that such notice is a "notice of default." In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give prompt notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Potential Event of Default or Event of Default as shall be reasonably directed by the Required Lenders; provided that, as between the Administrative Agent and the Lenders unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Potential Event of Default or Event of Default as it shall deem advisable in the best interests of the Lenders (other than take actions not in accordance with Section 7.1). Section 9.9 Indemnification The Lenders severally agree to indemnify each Agent in its capacity as such (to the extent not reimbursed by the Company or the Subsidiary Guarantors and without limiting the obligation of the Company or the Subsidiary Guarantors to do so), ratably according to their respective outstanding Loan and Loan Commitments in effect on the date on which indemnification is sought under this Section 9.9 (or, if indemnification is sought after the date upon which all Loan Commitments shall have terminated and the Loan and Obligations shall have been paid in full, ratably in accordance with such outstanding Loan and Loan Commitments as in effect immediately prior to such date), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever that may at any time (whether before or after the payment of the Loan and Obligations) be imposed on, incurred by or asserted against such Agent in any way relating to or arising out of the Loan Commitments, this Agreement, any of the other Credit Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by such Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements that are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from such Agent's gross negligence or willful misconduct. If any indemnity furnished to the Agents for any purpose shall, in the opinion of the Agents, be insufficient or become impaired, the Agents may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished. The agreements in this Section 9.9 shall survive the payment of the Loan and all other amounts payable hereunder. Section 9.10 Concerning the Collateral and the Security Documents (a) Each Lender authorizes and directs DBTCA to act as Collateral Agent and to enter into the Security Documents relating to the Collateral for the benefit of the Lenders and the other secured parties. Each Lender agrees that any action taken by the Administrative Agent, -98- the Collateral Agent or the Required Lenders (or, where required by the express terms, hereof, a different proportion of the Lenders) in accordance with the provisions hereof or the other Loan Documents or Security Documents, and the exercise by the Administrative Agent, the Collateral Agent or the Required Lenders (or, where so required, such different proportion) of the powers set forth herein or therein, together with such other powers as are reasonably incidental thereto, shall be authorized and binding upon all of the Lenders. Without limiting the generality of the foregoing, the Administrative Agent or the Collateral Agent, as the case may be, shall have the sole and exclusive right and authority to (i) act as the disbursing and collecting agent for the Lenders with respect to all payments and collections arising in connection herewith and with the Security Documents relating to the Collateral; (ii) execute and deliver each Security Document relating to the Collateral and accept delivery of each such agreement delivered by the Company or any of its Subsidiaries; (iii) act as the Collateral Agent for the Lenders for purposes stated therein to the extent such action is provided for under the Security Documents, provided, however, the Administrative Agent herein appoints, authorizes and directs each Lender to act as collateral sub-agent for the Administrative Agent and the Lenders for purposes of the perfection of all security interests and Liens with respect to the Company's and its Subsidiaries' respective deposit accounts maintained with, and cash and Cash Equivalents held by, such Lender; (iv) manage, supervise and otherwise deal with the Collateral; (v) take such action as is necessary or desirable to maintain the perfection and priority of the security interests and liens created or purported to be created by the Security Documents; and (vi) except as may be otherwise specifically restricted by the terms hereof or of any other Security Document or Loan Document, exercise all remedies given to the Administrative Agent or the Lenders with respect to the Collateral under the Security Documents relating thereto, applicable law or otherwise. (b) The Administrative Agent and the Lenders hereby direct the Administrative Agent and the Collateral Agent, as the case may be, to release, in accordance with the terms hereof, any Lien held by the Administrative Agent or the Collateral Agent, as the case may be, under the Security Documents; provided, however, that (y) the Administrative Agent or the Collateral Agent, as the case may be shall not be required to execute any such document on terms which, in its opinion, would expose it to liability or create any obligation or entail any consequence other than the release of such Liens without recourse or warranty, and (z) such release shall not in any manner discharge, affect or impair the Obligations or any Liens upon all interests retained by the Company and/or any of its Subsidiaries, including (without limitation) the proceeds of any sale, all of which shall, to the extent set forth in the Loan Documents and the Security Documents, continue to constitute part of the Collateral. Each of the Lenders hereby directs the Administrative Agent and/or the Collateral Agent, as the case may be, to execute and deliver or file such termination and partial release statements and such other things as are necessary to release Liens to be released pursuant to this Section 9.10 promptly upon the effectiveness of any such release or enter into intercreditor agreements contemplated or permitted herein. (c) Neither the Administrative Agent nor the Collateral Agent shall have any obligation whatsoever to any Lender or to any other Person to assure that the Collateral exists or is owned by the Company or any of its Subsidiaries or is cared for, protected or insured or has -99- been encumbered or that the Liens granted to the Administrative Agent or the Collateral Agent herein or pursuant to the Security Documents have been properly or sufficiently or lawfully created, perfected, protected or enforced or are entitled to any particular priority, or to exercise at all or in any particular manner or under any duty of care, disclosure or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to the Administrative Agent or the Collateral Agent in any of the Loan Documents or the Security Documents, it being understood and agreed that in respect of the Collateral, or any act, omission or event related thereto, each of the Administrative Agent and the Collateral Agent may act in any manner it may deem appropriate, in its sole discretion, given the Administrative Agent's and/or the Collateral Agent's, as the case may be, own interests in the Collateral as one of the Lenders and that neither the Administrative Agent nor the Collateral Agent shall have any duty or liability whatsoever to any Lender, except as expressly provided herein. Each Lender hereby instructs the Administrative Agent and the Collateral Agent to enter into the Security Agreement and the Intercreditor Agreement and such amendments or modifications thereto and to the other Security Documents consistent herewith and as the Administrative Agent or the Collateral Agent reasonably determines to be necessary to subordinate (i) the Liens granted by the Company and the Restricted Subsidiaries in the Revolving Collateral in favor of the Administrative Agent and Lenders to secure the Obligations to the Liens granted pursuant to the Revolving Credit Facility and (ii) the Liens granted by the Company and the Restricted Subsidiaries in the First Lien Collateral in favor of the Administrative Agent and Lenders to secure the Obligations to the Liens granted pursuant to the First Lien Credit Facility. Each Lender agrees that, notwithstanding the time, order or method of attachment or perfection of Liens granted in favor of the Collateral Agent, the Revolving Collateral Agent or the First Lien Collateral Agent, to secure the Obligations, the Obligations (as defined in the Revolving Credit Facility) or the Obligations (as defined in the First Lien Credit Facility) or the filing or recording of financing statements or other Security Documents and/or Security Documents (as defined in the Revolving Credit Facility and the First Lien Credit Facility); the validity or enforceability of the security interests and Liens granted in favor of the Collateral Agent, the Revolving Collateral Agent or the First Lien Collateral Agent; any provisions of the UCC or any applicable law or decision, any provision set forth in any Security Document and/or any Security Document (as defined in the Revolving Credit Facility, and the First Lien Credit Facility) or the possession or control by the Collateral Agent, the Revolving Collateral Agent or the First Lien Collateral Agent of all or any part of any Collateral as of the date hereof or otherwise, (i) the Liens granted under the Security Documents (as defined in the Revolving Credit Facility) in the Revolving Collateral shall be a first and prior security interest for all purposes and the Liens granted under the Security Documents in the Revolving Collateral to secure the Obligations shall be second and subordinated to the liens granted under the Security Documents (as defined in the Revolving Credit Facility) and (ii) the Liens granted under the Security Documents (as defined in the First Lien Credit Facility) in the First Lien Collateral shall be a first and priority security interest for all purposes and the Liens granted under the Security Documents in the First Lien Collateral to secure the Obligations shall be second and subordinated to the Liens granted under the Security Documents (as defined in the First Lien Credit Facility). Each Lender agrees that it shall not challenge or question in any proceeding the validity or enforceability of this Section 9.10(c) or any corresponding provisions with respect to lien subordination in the Security Documents or the -100- Intercreditor Agreement. Each Lender agrees that it shall not challenge or question in any proceeding the priority or validity of the liens granted to the Administrative Agent, Lenders or the Collateral Agent to secure the Obligations (as defined in the Revolving Credit Facility) or the Administrative Agent, Lenders or the Collateral Agent to secure the Obligations (as defined in the First Lien Credit Facility). (d) Each Lender hereby (i) instructs the Administrative Agent and the Collateral Agent to enter into the Intercreditor Agreement and (ii) authorizes the Administrative Agent and the Collateral Agent to enter into amendments and restatements of the Intercreditor Agreement and the Security Documents to the extent permitted by the Intercreditor Agreement, the Loan Documents and the Security Documents. Section 9.11 Name Agents The parties hereto acknowledge that the Co-Documentation Agents hold such titles in name only, and that such titles confer no additional rights or obligations relative to those conferred on any Lender hereunder. ARTICLE 10 GUARANTEE Section 10.1 Unconditional Guarantee Each Subsidiary Guarantor hereby irrevocably and unconditionally, jointly and severally, guarantees (such guarantee to be referred to herein as the "GUARANTEE") to each of the Lenders and to the Administrative Agent and their respective successors and assigns, that (i) the principal of and interest on the Loan will be promptly paid in full when due, subject to any applicable grace period, whether at maturity, by acceleration or otherwise, and interest on the overdue principal, if any, and interest on any interest, if any, to the extent lawful, of the Loan and all other obligations of the Company to the Lenders or the Administrative Agent hereunder will be promptly paid in full or performed, all in accordance with the terms hereof; and (ii) in case of any extension of time of payment or renewal of any of the Loan or of any such other obligations, the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, subject to any applicable grace period, whether at stated maturity, by acceleration or otherwise, subject, however, in the case of clauses (i) and (ii) above, to the limitations set forth in Section 10.4. Each Subsidiary Guarantor hereby agrees that its obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Loan or this Agreement, the absence of any action to enforce the same, any waiver or consent by any of the Lenders with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a Subsidiary Guarantor. Each Subsidiary Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenants that this Guarantee will not be discharged except by complete performance of the obligations -101- contained in the Loan, this Agreement and in this Guarantee. If any Lender or the Administrative Agent is required by any court or otherwise to return to the Company, any Subsidiary Guarantor, or any custodian, trustee, liquidator or other similar official acting in relation to the Company or any Subsidiary Guarantor, any amount paid by the Company or any Subsidiary Guarantor to the Administrative Agent or such Lender, this Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Subsidiary Guarantor further agrees that, as between each Subsidiary Guarantor, on the one hand, and the Lenders and the Administrative Agent, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 7 for the purposes of this Guarantee, and (y) in the event of any acceleration of such obligations as provided in Article 7, such obligations (whether or not due and payable) shall forthwith become due and payable by each Subsidiary Guarantor for the purpose of this Guarantee. Section 10.2 Severability In case any provision of this Guarantee shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 10.3 Release of a Subsidiary Guarantor Upon the sale or disposition (whether by merger, stock purchase, consolidation, dissolution, asset sale or otherwise) of a Subsidiary Guarantor (or all or substantially all its assets) to an entity which is not a Subsidiary of the Company and which sale or disposition is otherwise in compliance with the terms of this Agreement, such Subsidiary Guarantor shall be deemed released from all obligations under this Article 10 without any further action required on the part of the Administrative Agent or any Lender; provided that any such termination shall occur only to the extent that all obligations of such Subsidiary Guarantor under all of its guarantees of, and under all of its pledges of assets or other security interests which secure, any Indebtedness of the Company shall also terminate upon such release, sale or transfer. The Administrative Agent shall promptly deliver an appropriate instrument evidencing such release upon receipt of a request by the Company accompanied by an Officers' Certificate certifying compliance with this Section 10.3. Any Subsidiary Guarantor not so released remains liable for the full amount of principal of and interest on the Loan as provided in this Article 10. Section 10.4 Limitation of Subsidiary Guarantor's Liability Each Subsidiary Guarantor and by its acceptance hereof each of the Lenders hereby confirms that it is the intention of all such parties that the guarantee by such Subsidiary Guarantor pursuant to its Guarantee not constitute a fraudulent transfer or conveyance for purposes of any Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar Federal or state law. To effectuate the foregoing intention, the Lenders and such Subsidiary Guarantor hereby irrevocably agree that the obligations of such Subsidiary Guarantor under the Guarantee shall be limited to the maximum amount as will, after giving -102- effect to all other contingent and fixed liabilities of such Subsidiary Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Subsidiary Guarantor in respect of the obligations of such other Subsidiary Guarantor under its Guarantee or pursuant to Section 10.6, result in the obligations of such Subsidiary Guarantor under the Guarantee not constituting such fraudulent transfer or conveyance. Section 10.5 Subsidiary Guarantors May Consolidate, Etc., on Certain Terms (a) Nothing contained in this Agreement or in the Loan shall prevent any consolidation or merger of a Subsidiary Guarantor with or into the Company or another Subsidiary Guarantor or shall prevent any sale or conveyance of the property of a Subsidiary Guarantor as an entirety, or substantially as an entirety, to the Company or another Subsidiary Guarantor. Upon any such consolidation, merger, sale or conveyance, the Guarantee given by such Subsidiary Guarantor shall no longer have any force or effect. (b) Except as set forth in Section 6.6, nothing contained in this Agreement or in the Loan shall prevent any consolidation or merger of a Subsidiary Guarantor with or into a corporation or corporations other than the Company or another Subsidiary Guarantor (whether or not affiliated with the Subsidiary Guarantor); provided that, subject to Sections 10.4 and 10.6(a), (i) immediately after such transaction, and giving effect thereto, no Potential Event of Default or Event of Default shall have occurred as a result of such transaction and be continuing, and (ii) upon any such consolidation, merger, sale or conveyance, the Guarantee of such Subsidiary Guarantor set forth in this Article 10, and the due and punctual performance and observance of all of the covenants and conditions of this Agreement to be performed by such Subsidiary Guarantor, shall be expressly assumed (in the event that the Subsidiary Guarantor is not the surviving corporation in the merger), by an agreement or supplemental indenture reasonably satisfactory in form to the Administrative Agent, executed and delivered to the Administrative Agent, by the corporation formed by such consolidation, or into which the Subsidiary Guarantor shall have merged, or by the corporation that shall have acquired such property. In the case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor corporation, by an agreement or supplemental indenture executed and delivered to the Administrative Agent and reasonably satisfactory in form and substance to the Administrative Agent of the due and punctual performance of all of the covenants and conditions of this Agreement to be performed by the Subsidiary Guarantor, such successor corporation shall succeed to and be substituted for the Subsidiary Guarantor with the same effect as if it had been named herein as a Subsidiary Guarantor. Section 10.6 Contribution In order to provide for just and equitable contribution among the Subsidiary Guarantors, the Subsidiary Guarantors agree, inter se, that in the event any payment or distribution is made by any Subsidiary Guarantor (a "FUNDING SUBSIDIARY GUARANTOR") under its Guarantee, such Funding Subsidiary Guarantor shall be entitled to a contribution from all other Subsidiary Guarantors in a pro rata amount based on the Adjusted Net Assets of each Subsidiary Guarantor (including the Funding Subsidiary Guarantor) for all payments, damages and expenses incurred by that Funding Subsidiary Guarantor in discharging the Company's obligations with -103- respect to the Obligations. "ADJUSTED NET ASSETS" of such Subsidiary Guarantor at any date shall mean the lesser of (x) the amount by which the fair value of the property of such Subsidiary Guarantor exceeds the total amount of liabilities, including, without limitation, contingent liabilities (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date (other than liabilities of such Subsidiary Guarantor under Subordinated Indebtedness)), but excluding liabilities under the Guarantee, of such Subsidiary Guarantor at such date and (y) the amount by which the present fair salable value of the assets of such Subsidiary Guarantor at such date exceeds the amount that will be required to pay the probable liabilities of such Subsidiary Guarantor on its debts including, without limitation, senior Indebtedness (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date and after giving effect to any collection from any Subsidiary of such Subsidiary Guarantor in respect of the obligations of such Subsidiary under the Guarantee), excluding debt in respect of the Guarantee of such Subsidiary Guarantor, as they become absolute and matured. Section 10.7 Evidence of Guarantee To evidence its guarantee to the Lenders set forth in this Article 10, each of the Subsidiary Guarantors hereby agrees to execute the notation of Guarantee in substantially the form included in Exhibit VIII. Each such notation of Guarantee shall be signed on behalf of each Subsidiary Guarantor by an Officer of such Subsidiary Guarantor. Section 10.8 Waiver of Stay, Extension or Usury Laws Each Subsidiary Guarantor covenants that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive such Subsidiary Guarantor from performing its Guarantee as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Agreement; and each Subsidiary Guarantor hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Administrative Agent, but will suffer and permit the execution of every such power as though no such law had been enacted. Section 10.9 Waiver of Subrogation Each Subsidiary Guarantor hereby irrevocably waives any claim or other rights which it may now or hereafter acquire against the Company to the extent that such claim or rights arise from the existence, payment, performance or enforcement of such Subsidiary Guarantor's obligations under its Guarantee and this Agreement, including, without limitation, any right of subrogation, reimbursement, exoneration, indemnification, and any right to participate in any claim or remedy of any Lender against the Company, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including, without limitation, the right to take or receive from the Company, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim or other rights. If any amount shall be paid to any Subsidiary Guarantor in violation of the preceding sentence and the Loan shall not have been paid in full, such amount shall be deemed to have been paid to such -104- Subsidiary Guarantor for the benefit of, and held in trust for the benefit of, the Lenders, and shall forthwith be paid to the Agents for the benefit of such Lenders to be credited and applied upon the Loan, whether matured or unmatured, in accordance with the terms of this Agreement. Each Subsidiary Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by this Agreement and that the waiver set forth in this Section 10.9 is knowingly made in contemplation of such benefits. ARTICLE 11 MISCELLANEOUS Section 11.1 U.S.A. Patriot Act Each Lender hereby notifies the Company that pursuant to the requirements of the U.S.A. Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001) (the "Act"), it is required to obtain, verify and record information that identifies the Loan Parties, which information includes the name and address of the Loan Party and other information that will allow such Lender to identify such Loan Party in accordance with the Act. Section 11.2 Participations in and Assignments of Loan and Notes (a) Any Lender (or any Lender together with one or more Lenders) may (x) assign all or a portion of its Loan Commitments and related outstanding Obligations (or, if the Loan Commitments have terminated, outstanding Obligations) hereunder to (i)(A) its parent company and/or any affiliate of such Lender which is at least 50% owned by such Lender or its parent company or (B) to one or more Lenders or any affiliate of any such other Lender which is at least 50% owned by such other Lender or its parent company (provided that any fund that invests in loans and is managed or advised by the same investment advisor of another fund which is a Lender (or by an affiliate of such investment advisor) shall be treated as an affiliate of such other Lender for the purposes of this subclause (x)(i)(B)), or (ii) in the case of any Lender that is a fund that invests in loans, any other fund that invests in loans and is managed or advised by the same investment advisor of any Lender or by an affiliate of such investment advisor or (y) assign all, or, if less than all, a portion equal to at least (I) $1,000,000, in each case in the aggregate for the assigning Lender or assigning Lenders, of such Loan Commitments or outstanding Obligations hereunder to one or more Eligible Assignees (treating any fund that invests in loans and any other fund that invests in loans and is managed or advised by the same investment advisor of such fund or by an affiliate of such advisor as a single Eligible Assignee), each of which assignees shall become a party to this Agreement as a Lender by execution of an Assignment and Assumption Agreement substantially in the form of Exhibit IX-1 or IX-2, as appropriate, provided that (i) at such time, Section 2.1(a) shall be deemed modified to reflect the Loan Commitments and/or outstanding Loans of such new Lender and of the existing Lenders, (ii) upon the surrender of the relevant Notes by the assigning Lender (or, upon such assigning Lender's indemnifying the Company for any lost Note pursuant to a customary indemnification agreement) new Notes will be issued, at the Company's expense, to such new Lender and to the assigning Lender upon the request of such new Lender or assigning Lender, such new Notes to be in conformity with the requirements of Section 2.1(d) (with appropriate modifications) to the extent needed to reflect -105- the revised Loan Commitments or outstanding Loans, (iii) the consent of the Administrative Agent and, so long as (1) no Potential Event of Default or Event of Default has occurred and is continuing and (2) the Syndication Date has theretofore occurred, the consent of the Company in each case shall be required in connection with any such assignment pursuant to clause (y) above (each of which consents shall not be unreasonably withheld or delayed), (iv) the Administrative Agent shall receive at the time of each such assignment, from the assigning or assignee Lender, the payment of a non-refundable assignment fee of $3,500 and (v) no such transfer or assignment will be effective until recorded by the Administrative Agent or the Register pursuant to Section 5.14. To the extent of any assignment pursuant to this Section 11.2(a), the assigning Lender shall be relieved of its obligations hereunder with respect to its assigned Loan Commitment and outstanding Loans. At the time of each assignment pursuant to this Section 11.2(a) to a Person which is not already a Lender hereunder and which is not a United States person (as such term is defined in Section 7701(a)(30) of the Internal Revenue Code) for Federal income tax purposes, the respective assignee Lender shall, to the extent legally entitled to do so, provide to the Company the appropriate Internal Revenue Service forms (and, if applicable, a certificate) described in Section 11.2(e). (b) Each Lender may grant participations in all or any part of its Notes or its Loan Commitment in an aggregate amount of not less than $1,000,000 to any Eligible Assignee. Any such Person shall be entitled to the benefits of Section 11.19, provided such Person complies with Section 11.2(e). (c) The Company shall, at its own cost and expense, provide such certificates, acknowledgments and further assurances in respect of this Agreement and the Loan as any Lender may reasonably require in connection with any participation, transfer or assignment pursuant to this Section 11.2. (d) Nothing in this Agreement shall prevent or prohibit any Lender from pledging its Loans and Notes hereunder to a Federal Reserve Bank in support of borrowings made by such Lender from such Federal Reserve Bank and, with prior notification to the Administrative Agent (but without the consent of the Administrative Agent or the Borrower), any Lender which is a fund may pledge all or any portion of its Loans and Notes to its trustee or to a collateral agent providing credit or credit support to such Lender in support of its obligations to such trustee, such collateral agent or a holder of such obligations, as the case may be. No pledge pursuant to this clause (d) shall release the transferor Lender from any of its obligations hereunder. (e) Each Lender, including each Lender that is an assignee or transferee of an interest under this Agreement pursuant to Section 11.2(a) (unless the respective Lender was already a Lender hereunder immediately prior to such assignment or transfer), that is not a United States Person (as such term is defined in Section 7701(a)(30) of the Internal Revenue Code) agrees, to the extent legally entitled to do so, to deliver to the Company and the Administrative Agent, on the Closing Date or on the date of such assignment or transfer to such Lender, as applicable, (i) two accurate and complete original signed copies of Internal Revenue Service Form W-8BEN or W-8ECI (or other applicable forms or successor forms) certifying to such Lender's entitlement to a complete exemption from United States withholding tax with respect to pay- -106- ments to be made under this Agreement and under any Note, or (ii) if the Lender is not a "bank" within the meaning of Section 881(c)(3)(A) of the Internal Revenue Code, two accurate and complete original signed copies of Internal Revenue Service Form W-8BEN (or other applicable forms or successor forms) certifying to such Lender's entitlement to a complete exemption from United States withholding tax with respect to payments of interest to be made under this Agreement and under any Note. In addition, each Lender agrees that, when a lapse in time or change in circumstances renders the previous certification obsolete or inaccurate in any material respect, it will deliver to the Company and the Administrative Agent two new accurate and complete original signed copies of Internal Revenue Service Form W-8BEN or W-8ECI, and such other forms as may be required in order to confirm or establish the entitlement of such Lender to a continued exemption from or reduction in United States withholding tax with respect to payments under this Agreement and any Note, or it shall immediately notify the Company and the Administrative Agent of its inability to deliver any such form or certificate. Subject to Section 11.2(a), Section 11.19 and the immediately succeeding sentence, the Company shall be entitled, to the extent it is required to do so by law, to deduct or withhold income or similar taxes imposed by the United States (or any political subdivision or taxing authority thereof or therein) from interest, fees or other amounts payable hereunder or made on any other Credit Document for the account of any Lender which is not a United States Person (as such term is defined in Section 7701(a)(30) of the Internal Revenue Code) for U.S. Federal income tax purposes to the extent that such Lender has not provided to the Company U.S. Internal Revenue Service Forms that establish a complete exemption from such deduction or withholding. Notwithstanding anything to the contrary contained in this Agreement, the Company agrees to pay additional amounts and to indemnify and hold harmless each Lender (without regard to the identity of the jurisdiction requiring the deduction or withholding), and reimburse such Lender upon its written request, in respect of any amounts deducted or withheld by it as a result of any changes after the date the Lender became a party hereto (including the date of any assignment or transfer) in any applicable law, treaty, governmental rule, regulation, guideline or order, or in the interpretation thereof, relating to the deducting or withholding of income or similar Taxes. Section 11.3 Expenses Whether or not the transactions contemplated hereby shall be consummated, the Company agrees to promptly pay (i) all the actual and reasonable costs and expenses of preparation of the Credit Documents and all the costs of furnishing all opinions by counsel for the Company (including without limitation any opinions reasonably requested by the Lenders as to any legal matters arising hereunder), and of the Company's performance of and compliance with all agreements and conditions contained herein on its part to be performed or complied with; (ii) the reasonable fees, reasonable expenses and reasonable disbursements of counsel to the Agents in connection with the negotiation, preparation, execution and administration of the Credit Documents and the Loan hereunder, and any amendments, modifications and waivers hereto or thereto and consents to departures from the terms hereof and thereof; and (iii) after the occurrence of an Event of Default, all costs and expenses (including actual and reasonable attorneys fees and costs of settlement) incurred by the Lenders or the Administrative Agent in enforcing any Obligations of or in collecting any payments due from the Company hereunder or under the Notes by reason of such Event of Default or in connection with any refinancing or restructuring of the credit ar- -107- rangements provided under this Agreement in the nature of a "work-out" or of any insolvency or bankruptcy proceedings. Section 11.4 Indemnity In addition to the payment of expenses pursuant to Section 11.3, whether or not the transactions contemplated hereby shall be consummated, the Company agrees to indemnify, pay and hold each of the Lenders, the Agents, the Co-Documentation Agents and any holder of any of the Notes, and each of their respective officers, directors, employees, agents, representatives, trustees, investment advisors and affiliates (collectively called the "INDEMNITEES"), harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, the reasonable fees and disbursements of counsel for such Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not such Indemnitee shall be designated as a party thereto) which may be suffered by, imposed on, incurred by or asserted against that Indemnitee, in any manner resulting from, connected with, in respect of, relating to or arising out of this Agreement, the other Credit Documents, the Lenders' agreements to make the Loan or the use or intended use of any of the proceeds of the Loan hereunder (the "INDEMNIFIED LIABILITIES"); provided that the Company shall have no obligation to an Indemnitee hereunder with respect to Indemnified Liabilities to the extent such liabilities are finally judicially determined to have resulted from the gross negligence, bad faith or recklessness of that Indemnitee. To the extent that the undertaking to indemnify, pay and hold harmless set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, the Company shall contribute the maximum portion which it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by the Indemnitees or any of them. Section 11.5 Setoff In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence and during the continuance of any Event of Default, each Lender, the Administrative Agent and each subsequent holder of any Note are hereby authorized by the Company at any time or from time to time, without notice to the Company, or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and to apply 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 or any other accounts held for the benefit of another Person) and any other Indebtedness at any time held or owing by such Person or any such subsequent holder to or for the credit or the account of the Company against and on account of the obligations and liabilities of the Company to such Person or such subsequent holder under this Agreement and the Notes, including, but not limited to, all claims of any nature or description arising out of or connected with this Agreement or the Notes, irrespective of whether or not (a) such Person or such subsequent holder shall have made any demand hereunder or (b) such Person or such subsequent holder shall have declared the principal of or the interest on its portion of the Loan and its Notes and other amounts due hereunder to be due and payable as permitted by Article 7 and although said obligations and liabilities, or any of them, may be contingent or unmatured. -108- Section 11.6 Amendments and Waivers No amendment, modification, termination or waiver of any term or provision of this Agreement, of the Notes or of any Guarantee, or consent to any departure by the Company or any Subsidiary Guarantor therefrom, shall in any event be effective without the prior written concurrence of the Company or such Subsidiary Guarantor, as the case may be, and the Required Lenders; provided that without the prior written consent of each Lender affected, an amendment, modification, termination or waiver of this Agreement, any Note or any Guarantee or consent to departure from a term or provision hereof or thereof may not: (i) reduce the principal amount of Loans whose holders must consent to any such amendment, modification, termination, waiver or consent; (ii) reduce the rate of or extend the time for payment of principal or interest on any Note; (iii) reduce or forgive the principal amount of any Note; (iv) make any Note payable in money other than that stated in the Note; (v) make any change in the definition of "Change of Control," Article 7 or this Section 11.6; (vi) reduce the rate or extend the time of payment of fees or other compensation payable to any of the Lenders hereunder; or (vii) release all or substantially all of the Collateral; and provided, further, that without the consent of each affected Agent, no such amendment, modification, termination or waiver may amend, modify, terminate or waive any provision of Article 9 as the same applies to the such Agent or any other provision of this Agreement as it relates to the rights or obligations of such Agent. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on the Company in any case shall entitle the Company to any further notice or demand in similar or other circumstances. Any amendment, modification, termination, waiver or consent effected in accordance with this Section 11.6 shall be binding upon each holder of the Notes at the time outstanding, each further holder of the Notes, and, if signed by the Company or a Subsidiary Guarantor, on the Company and such Subsidiary Guarantor. Section 11.7 Independence of Covenants All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitation of, another covenant shall not avoid the occurrence of an Event of Default or Potential Event of Default if such action is taken or condition exists. Section 11.8 Entirety The Credit Documents embody the entire agreement of the parties and supersede all prior agreements and understandings, if any, relating to the subject matter hereof and thereof. Section 11.9 Notices Unless otherwise provided herein, any notice or other communications herein required or permitted to be given shall be in writing and may be personally served, telecopied, telexed or sent by mail and shall be deemed to have been given when delivered in person, upon receipt of telecopy or telex against receipt of answer back or four Business Days after depositing it in the mail, registered or certified, with postage prepaid and properly addressed; provided that -109- notices shall not be effective until received. For the purposes hereof, the addresses of the parties hereto (until notice of a change thereof is delivered as provided in this Section 11.9) shall be set forth under each party's name on the signature pages hereto, with, in the case of any notice to the Company, a copy to David K. Duffell, Esq., Edwards & Angell, LLP, 2800 Financial Plaza, Providence, RI 02903. Section 11.10 Survival of Warranties and Certain Agreements (a) All agreements, representations and warranties made herein shall survive the execution and delivery of this Agreement, the making of the Loan hereunder and the execution and delivery of the Notes and, notwithstanding the making of the Loan, the execution and delivery of the Notes or any investigation made by or on behalf of any party, shall continue in full force and effect. The closing of the transactions herein contemplated shall not prejudice any right of one party against any other party in respect of anything done or omitted hereunder or in respect of any right to damages or other remedies. (b) Notwithstanding anything in this Agreement or implied by law to the contrary, the agreements of the Company set forth in Sections 11.3, 11.4, 11.14, 11.15, 11.17, 11.19 and 11.22 shall survive the payment of the Loan and the Notes and the termination of this Agreement. Section 11.11 Failure or Indulgence Not Waiver; Remedies Cumulative No failure or delay on the part of any Agent or any Lender or any holder of any Note in the exercise of any power, right or privilege hereunder, under a Guarantee or under the Notes shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing under this Agreement, under a Guarantee or under the Notes are cumulative to and not exclusive of any rights or remedies otherwise available. Section 11.12 Severability In case any provision in or obligation under this Agreement, under a Guarantee or under the Notes shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. Section 11.13 Headings Article and Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. -110- Section 11.14 Applicable Law THIS AGREEMENT, EACH GUARANTEE AND THE NOTES SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW. Section 11.15 Successors and Assigns; Subsequent Holders of Notes This Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and assigns of the Lenders. The terms and provisions of this Agreement and each Guarantee shall inure to the benefit of any assignee or transferee of the Notes pursuant to Section 11.2(a), and in the event of such transfer or assignment, the rights and privileges herein conferred upon the Lenders shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof. In determining whether the holders of a sufficient aggregate principal amount of the Loan shall have consented to any action under this Agreement, any amount of the Loan owned or held by the Company, any Subsidiary Guarantor or any of their respective Affiliates shall be disregarded. The Company's rights or any interest therein hereunder may not be assigned without the prior express written consent of each of the Lenders. Section 11.16 Counterparts; Effectiveness This Agreement and any amendments, waivers, consents or supplements may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. This Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto, and delivery thereof to the Administrative Agent or, in the case of the Lenders, written telex or facsimile notice or telephonic notification (confirmed in writing) of such execution and delivery. The Agents will give the Company and each Lender prompt notice of the effectiveness of this Agreement. Section 11.17 Consent to Jurisdiction; Venue; Waiver of Jury Trial (a) Any legal action or proceeding with respect to this Agreement, any Note or any Guarantee may be brought in the courts of the State of New York or of the United States for the Southern District of New York, and, by execution and delivery of this Agreement, each of the parties to this Agreement hereby irrevocably accepts for itself and in respect of its respective property, generally and unconditionally, the jurisdiction of the aforesaid courts. Each of the parties to this Agreement hereby further irrevocably waives any claim that any such courts lack jurisdiction over such party, and agrees not to plead or claim, in any legal action or proceeding with respect to this Agreement, the Notes or the Guarantees brought in any of the aforesaid courts, that any such court lacks jurisdiction over such party. Each of the parties to this Agreement irrevocably consents to the service of process in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to such party, at its respective address for notices pursuant to Section 11.9, such service to become effective 30 days after -111- such mailing. To the extent permitted by law, each of the parties to this Agreement hereby irrevocably waives any objection to such service of process and further irrevocably waives and agrees not to plead or claim in any action or proceeding commenced hereunder or under any Note or any Guarantee that service of process was in any way invalid or ineffective. Nothing herein shall affect the right of any party to this Agreement to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against any party in any other jurisdiction. (b) Each of the parties to this Agreement hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Agreement, the Notes or the Guarantees brought in the courts referred to in Section 11.17(a) above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. (c) Each of the parties to this Agreement hereby irrevocably waives all right to a trial by jury in any action, proceeding or counterclaim arising out of or relating to this Agreement, the Notes or the Guarantees or the transactions contemplated hereby or thereby. Section 11.18 Payments Pro Rata (a) The Agents agree that promptly after their receipt of each payment of any interest or premium on or principal of the Notes from or on behalf of the Company or any Subsidiary Guarantor, they shall, except as otherwise provided in this Agreement, distribute such payment to the Lenders (other than any Lender that has consented in writing to waive its pro rata share of such payment) pro rata based upon their respective pro rata shares, if any, of such payment. (b) Each of the Lenders agrees that, if it should receive any amount hereunder (whether by voluntary payment, by realization upon security, by the exercise of the right of setoff or banker's lien, by counterclaim or cross action, by the enforcement of any right under the Credit Documents, or otherwise) which is applicable to the payment of the principal of, or interest on, the Loan of a sum which with respect to the related sum or sums received by other Lenders is in a greater proportion than the total of such Obligations then owed and due to such Lender bears to the total of such Obligations then owed and due to all of the Lenders immediately prior to such receipt, then such Lender receiving such excess payment shall purchase for cash without recourse or warranty from the other Lenders an interest in the Obligations of the Company to such Lenders in such amount as shall result in a proportional participation by all of the Lenders in such amount; provided that, if all or any portion of such excess amount is thereafter recovered from such Lender, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. Section 11.19 Taxes (a) Any and all payments by any Loan Party hereunder or under any of the other Credit Documents shall be made free and clear of and without deduction or withholding for -112- any and all present or future Taxes, unless such Taxes are required by law or the administration thereof to be deducted or withheld and excluding (i) in the case of each Lender and the Administrative Agent, Taxes imposed on its net income and franchise taxes imposed on it by the jurisdiction under the laws of which such Person is organized or any political subdivision thereof, (ii) in the case of each such Lender and the Administrative Agent, any Taxes that are in effect and that would apply to a payment to such Person, as applicable, as of the Closing Date (but excluding any Taxes attributable to a change in law, rule or regulation or in the application or interpretation thereof by any Governmental Authority occurring after the Closing Date), and (iii) if any Person acquires any interest in this Agreement (a "TRANSFEREE"), any Taxes to the extent that they are in effect and would apply to a payment to such Transferee as of the date of the acquisition of such interest (except to the extent that the assignor or other transferor was entitled to receive additional amounts from any Loan Party with respect to Taxes), as the case may be (all such nonexcluded Taxes being hereinafter referred to as "COVERED TAXES"). If the Company shall be required by Law or the administration thereof to deduct or withhold any Covered Taxes from or in respect of any sum payable hereunder or under any other Credit Document, (a) unless such requirement results from the failure of the payee to perform its obligations under Section 11.2(e), the sum payable shall be increased as may be necessary so that after making all required deductions or withholdings (including deductions or withholdings applicable to additional amounts paid under this paragraph), the Lender receives an amount equal to the sum it would have received if no such deduction or withholding had been made; (b) the Company shall make such deductions or withholdings; and (c) the Company forthwith shall timely pay the full amount deducted or withheld to the relevant taxation or other authority in accordance with applicable Law. (b) The Company agrees to pay forthwith any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies (all such taxes, charges and levies being herein referred to as "OTHER TAXES") imposed by any jurisdiction (or any political subdivision or taxing authority thereof or therein) which arise from any payment made by the Company hereunder or under any of the other Credit Documents or from the execution, delivery, enforcement or registration of, or otherwise with respect to, this Agreement or any of the other Credit Documents. (c) The Company agrees to indemnify the Administrative Agent and each of the Lenders for the full amount of Covered Taxes or Other Taxes not deducted or withheld and paid by the Company in accordance with Sections 11.19(a) and 11.19(b) to the relevant taxation or other authority and any Taxes other than Covered Taxes or Other Taxes imposed by any jurisdiction on amounts payable by the Company under this Section 11.19 paid by such Lender or the Administrative Agent and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not any such Taxes or Other Taxes were correctly or legally asserted. Payment under this indemnification shall be made within 30 days from the date the Administrative Agent or such Lender makes written demand therefor. A certificate as to the amount of such Taxes or Other Taxes and evidence of payment thereof submitted to the Company shall be prima facie evidence, absent manifest error, of the amount due from the Company to the Administrative Agent or such Lender. -113- (d) The Company shall furnish to the Administrative Agent and each of such Lenders the original or a certified copy of a receipt evidencing any payment of Taxes or Other Taxes made by the Company as soon as such receipt becomes available. (e) The provisions of this Section 11.19 shall survive the termination of this Agreement and repayment of all Obligations. (f) If the Administrative Agent or a Lender (or an assignee) receives a refund of any Covered Taxes or Other Taxes as to which it has been indemnified by a Loan Party or with respect to which a Loan Party has paid additional amounts pursuant to this Section 11.19, it shall pay over such refund to the Company (but only to the extent of indemnity payments made, or additional amounts paid, by a Loan Party under this Section 11.19 with respect to the Covered Taxes or the Other Taxes giving rise to such refund), net of all out-of-pocket expenses (including, without limitation, any Taxes imposed on such refund) of the Administrative Agent or such Lender (or assignee) and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund); provided, however, that the Company, upon the request of the Administrative Agent or such Lender (or assignee), agrees to repay the amount paid over to the Company (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Administrative Agent or such Lender (or assignee) in the event the Administrative Agent or such Lender (or assignee) is required to repay such refund to such Governmental Authority. Nothing contained in this Section 11.19(f) shall require the Administrative Agent or any Lender (or assignee) to make available its tax returns or any other information which it deems confidential to any Loan Party or any other person. Notwithstanding anything to the contrary, in no event will any Lender be required to pay any amount to the Company the payment of which would place such Lender in a less favorable net after-tax position than such Lender would have been in if the additional amounts giving rise to such refund of any Covered Taxes or Other Taxes had never been paid. Section 11.20 Waiver of Stay, Extension or Usury Laws The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive the Company from paying all or any portion of the principal of or interest on the Loan as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Agreement; and (to the extent that it may lawfully do so) the Company hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Administrative Agent, but will suffer and permit the execution of every such power as though no such law had been enacted. Section 11.21 Requirements of Law If at any time after the Closing Date any Lender reasonably determines that the introduction of or any change in any applicable law or governmental rule, regulation, order, guideline, directive or request (whether or not having the force of law) concerning capital adequacy, or -114- any change in interpretation or administration thereof by any Governmental Authority, central bank or comparable agency, will have the effect of increasing the amount of capital required or expected to be maintained by such Lender or any Person controlling such Lender based on the existence of such Lender's Loan hereunder or its obligations hereunder, then the Company and each of its Subsidiaries jointly and severally agree to pay to such Lender, upon its written demand therefor, such additional amounts as shall be required to compensate such Lender or such other Person for the increased cost to such Lender or such other Person or the reduction in the rate of return to such Lender or such other Person as a result of such increase of capital. In determining such additional amounts, each Lender will act reasonably and in good faith and will use averaging and attribution methods which are reasonable, provided that such Lender's reasonable good faith determination of compensation owing under this Section 11.21 shall, absent demonstrable error, be final and conclusive and binding on all the parties hereto. Each Lender, upon determining that any additional amounts will be payable pursuant to this Section 11.21, will give written notice thereof to the Company (a copy of which shall be sent by such Lender to the Administrative Agent), which notice shall show the basis for calculation of such additional amounts, although the failure to give any such notice shall not release or diminish any of the Company's, the Company's or their Subsidiaries' obligations to pay additional amounts pursuant to this Section 11.21 upon the subsequent receipt of such notice. Section 11.22 Confidentiality (a) Subject to the provisions of Section 11.22(b), each Lender agrees that it will use its best efforts not to disclose without the prior consent of the Company (other than to its Affiliates, employees, auditors, advisors or counsel or to another Lender if the Lender or such Lender's holding or parent company in its sole discretion determines that any such party should have access to such information, provided such Persons shall be subject to the provisions of this Section 11.22 to the same extent as such Lender) any information with respect to the Company or any of their Subsidiaries which is now or in the future furnished pursuant to this Agreement or any other Credit Document and which is designated by any of the Company or any of the Subsidiary Guarantors to the Lenders in writing as confidential; provided that any Lender may disclose any such information (a) as has become generally available to the public, (b) as may be required or appropriate in any report, statement or testimony submitted to any municipal, state or Federal regulatory body having or claiming to have jurisdiction over such Lender or to the Federal Reserve Board or the Federal Deposit Insurance Corporation or similar organizations (whether in the United States or elsewhere) or their successors, (c) as may be required or appropriate with respect to any summons or subpoena or in connection with any litigation, (d) in order to comply with any law, order, regulation or ruling applicable to such Lender, (e) to the Administrative Agent and (f) to any prospective or actual Transferee or participant in connection with any contemplated transfer or participation of any of the Notes or any interest therein by such Lender, provided that such prospective transferee agrees to provisions substantially the same as those contained in this Section 11.22. (b) Each of the Company and the Subsidiary Guarantors hereby acknowledges and agrees that each Lender may share with any of its affiliates any information related to the Company or any of its Subsidiaries (including, without limitation, any nonpublic customer in- -115- formation regarding the creditworthiness of the Company and its Subsidiaries); provided such Persons shall be subject to the provisions of this Section 11.22 to the same extent as such Lender. -116- WITNESS the due execution hereof by the respective duly authorized officers of the undersigned as of the date first written above. COMPANY: WELLMAN, INC. By: /s/ Keith R. Phillips _____________________________________ Title: Chief Financial Officer Notice Address: Wellman, Inc. 595 Shrewsbury Avenue Shrewsbury, New Jersey 07702 Attention: Telephone: Telecopy: GUARANTORS PRINCE, INC. By: /s/ Keith R. Phillips ____________________________________ Title: President FIBER INDUSTRIES, INC. By: /s/ Keith R. Phillips ____________________________________ Title: Vice President WELLMAN OF MISSISSIPPI, INC. By: /s/ Keith R. Phillips ____________________________________ Title: Vice President & Treasurer CARPET RECYCLING OF GEORGIA, INC. By: /s/ Keith R. Phillips ____________________________________ Title: Vice President & Treasurer ALG, Inc. By: /s/ Keith R. Phillips ____________________________________ Title: President PERMACLEAR EAST, INCORPORATED By: /s/ Keith R. Phillips ____________________________________ Title: President WELLMAN RESINS, LLC By: /s/ Keith R. Phillips ____________________________________ Title: Treasurer & Manager FIISB, INC. By: /s/ Keith R. Phillips ____________________________________ Title: Vice President FINWELL, INC. By: /s/ Keith R. Phillips ____________________________________ Title: President JOSDAV INC. By: /s/ Keith R. Phillips ____________________________________ Title: Vice President & Treasurer KHL, INC. By: /s/ Keith R. Phillips ____________________________________ Title: President MED RESINS, INC. By: /s/ Keith R. Phillips ____________________________________ Title: President WAREHOUSE ASSOCIATES, INC. By: /s/ Keith R. Phillips ____________________________________ Title: Vice President & Treasurer MRF, INC. By: /s/ Keith R. Phillips ____________________________________ Title: Vice President & Treasurer WELLMAN EXPORTS, V.I. By: /s/ Keith R. Phillips ____________________________________ Title: Treasurer PTA RESOURCES, LLC By: /s/ Keith R. Phillips ____________________________________ Title: President AGENTS: DEUTSCHE BANK TRUST COMPANY AMERICAS, as Administrative Agent By: /s/ Mary Jo Jolly ____________________________________ Title: Assistant Vice President DEUTSCHE BANK TRUST COMPANY AMERICAS, as Collateral Agent By: /s/ Mary Jo Jolly ____________________________________ Title: Assistant Vice President JP MORGAN CHASE BANK, as Syndication Agent By: /s/ James H. Ramage ____________________________________ Title: Managing Director DEUTSCHE BANK SECURITIES INC., as Joint Lead Arranger and Joint Lead Bookrunner By: /s/ John G. Anos ____________________________________ Title: Managing Director By: /s/ Michael V. Johnson ____________________________________ Title: Managing Director JP MORGAN SECURITIES, INC., as Joint Lead Arranger and Joint Lead Bookrunner By: /s/ Michael K. Ryan ____________________________________ Title: Vice President GENERAL ELECTRIC CAPITAL CORPORATION, as Co-Documentation Agent By: /s/ Anne Bartolot ____________________________________ Title: Its Duly Authorized Signatory ABN AMRO BANK NV., as Co-Documentation Agent By: /s/ Timothy E. Williams ____________________________________ Title: Associate By: /s/ Suzanne Smith ____________________________________ Title: Vice President LENDERS: Commitment: $161,750,000 DEUTSCHE BANK TRUST COMPANY AMERICAS By: /s/ Mary Jo Jolly ____________________________________ Title: Assistant Vice President Commitment: $92,750,000 JP MORGAN CHASE BANK By: /s/ James H. Ramage ____________________________________ Title: Managing Director Commitment: $8,500,000 GENERAL ELECTRIC CAPITAL CORPORATION By: /s/ Anne Bartolot ____________________________________ Title: Its Duly Authorized Signatory Commitment: $2,000,000 ABN AMRO BANK NV. By: /s/ Timothy E. Williams ____________________________________ Title: Associate By: /s/ Suzanne Smith ____________________________________ Title: Vice President -117- EX-21 6 b49002wiexv21.txt EX-21 SUBSIDIARIES Exhibit 21 WELLMAN, INC. SUBSIDIARIES ALG, Inc. Carpet Recycling of Georgia, Inc. CKB, Co. DRS Holdings NV FIISB, Inc. Fiber Industries, Inc. Fibres Finance BV GuardWell Insurance Company JCT, Ltd. Josdav, Inc. KRP, Ltd. Materials Recovery of California, Inc. MED Resins, Inc. Middlewich Limited MJR Recycling BV MRF, Inc. PermaClear East, Inc. Prince, Inc. Resins Finance BV RGB Co. Shobara Company TMD, Co. Warehouse Associates, Inc. Wellman BV Wellman Exports V.I., Inc. Wellman Fibers, Ltd. Wellman Finance CV Wellman France Recyclage SARL Wellman International Handelsgesellsch GmbH Wellman International Investments Wellman International Limited Wellman International Trading Wellman of Mississippi, Inc. Wellman PAC Wellman PET Resins Europe BV Wellman Resins LLC Wellman Receivables Company LLC Wellman Scholarships Foundation, Inc. Wellman UK Holdings, Ltd. Wellman Voluntary Employees Benefit Association New Companies - ------------- MAC IBC Ltd. KHL, Inc. Finwell, Inc. PTA Resources LLC EX-23.(A) 7 b49002wiexv23wxay.txt EX-23.(A) CONSENT OF ERNST & YOUNG LLP EXHIBIT 23(a) CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in Registration Statements (Form S-8, Nos. 33-17196, 33-44822, 33-44877, 33-44876, 33-22459, 33-38491, 33-54075, 33-54079, 33-54077, 333-47833, 333-28273, 333-38752, 333-62568, 333-62572, and Form S-3, Nos. 33-36001 and 333-60175) pertaining to various stock option, employee savings, deferred compensation and restricted stock plans and a universal shelf registration statement of Wellman, Inc. of our report dated February 20, 2004, with respect to the consolidated financial statements and financial statement schedules included in this Annual Report (Form 10-K) of Wellman, Inc. for the year ended December 31, 2003. /s/ Ernst & Young LLP Ernst & Young LLP Charlotte, North Carolina March 12, 2004 EX-23.(B) 8 b49002wiexv23wxby.txt EX-23.(B) CONSENT OF KPMG CHARTERED ACCOUNTANTS EXHIBIT 23(b) INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements (Form S-8, Nos. 33-17196, 33-44822, 33-44877, 33-44876, 33-22459, 33-38491, 33-54075, 33-54079, 33-54077, 333-47833, 333-28273, 333-38752, 333-62568, 333-62572, and Form S-3, Nos. 33-36001 and 333-60175) pertaining to various stock option, employee savings, deferred compensation and restricted stock plans and a universal shelf registration statement of Wellman, Inc. of our report dated February 20, 2004, with respect to the consolidated balance sheets of Wellman International Limited and Subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of income, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2003, which report appears in the December 31, 2003 Annual Report on Form 10-K of Wellman, Inc. /s/ KPMG KPMG Chartered Accountants Registered Auditors Dublin, Ireland 12 March 2004 EX-28.(A) 9 b49002wiexv28wxay.txt EX-28.(A) REPORT OF KPMG CHARTERED ACCOUNTANTS EXHIBIT 28(a) Report of Independent Chartered Accountants to the directors and shareholders of Wellman International Limited and Subsidiaries We have audited the accompanying consolidated balance sheets of Wellman International Limited and Subsidiaries (the company) at 31 December 2003 and 2002 and the related consolidated statements of operations, stockholders' equity and other comprehensive income/(loss), and cash flows for the three years then ended. These consolidated financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above, present fairly, in all material respects, the financial position of Wellman International Limited and Subsidiaries as of 31 December 2003 and 2002, and the results of their operations and their cash flows for the three years ended 31 December 2003 in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG KPMG Chartered Accountants Dublin, Ireland 20 February 2004 EX-31.1 10 b49002wiexv31w1.txt EX-31.1 SECTION 302 CEO CERTIFICATION EXHIBIT 31.1 CERTIFICATIONS I, Thomas M. Duff, Chief Executive Officer of Wellman, Inc., certify that: 1. I have reviewed this annual report on Form 10-K of Wellman, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date March 15, 2004 By: /s/Thomas M. Duff ---------------------------------- Chief Executive Officer EX-31.2 11 b49002wiexv31w2.txt EX-31.2 SECTION 302 CEO CERTIFICATION EXHIBIT 31.2 CERTIFICATIONS I, Keith R. Phillips, Chief Financial Officer of Wellman, Inc., certify that: 1. I have reviewed this annual report on Form 10-K of Wellman, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date March 15, 2004 By: /s/ Keith R. Phillips ----------------------------------- Chief Financial Officer EX-32.1 12 b49002wiexv32w1.txt EX-32.1 SECTION 906 CEO CERTIFICATION EXHIBIT 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Thomas M. Duff, Chief Executive Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. section 1350, that: (1) The Annual Report on Form 10-K of the Company for the annual period ended December 31, 2003 (the "Report") fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. March 15, 2004 By:/s/Thomas M. Duff -------------------- Chief Executive Officer EX-32.2 13 b49002wiexv32w2.txt EX-32.2 SECTION 906 CFO CERTIFICATION EXHIBIT 32.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Keith R. Phillips, Chief Financial Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. section 1350, that: (1) The Annual Report on Form 10-K of the Company for the annual period ended December 31, 2003 (the "Report") fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. March 15, 2004 By:/s/Keith R. Phillips ----------------------- Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----


(Mark One)
þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the fiscal year ended December 31, 2003

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the transition period from to


Delaware		04-1671740
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

595 Shrewsbury Avenue Shrewsbury, New Jersey (Address of principal executive offices)		07702 (Zip Code)


PART I
	Item 1. Business
	Item 2. Properties
	Item 3. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
PART II
	Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters
	Item 6. Selected Consolidated Financial Data
	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 7A. Quantitative and Qualitative Disclosure about Market Risk
	Item 8. Financial Statements and Supplementary Data
	Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
	Item 9A. Controls and Procedures
PART III
	Item 10. Directors and Executive Officers of the Registrant
	Item 11. Executive Compensation
	Item 12. Security Ownership of Certain Beneficial Owners and Management
	Item 13. Certain Relationships and Related Transactions
	Item 14. Principal Accountant Fees and Services
PART IV
	Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
SIGNATURES
Ex-4.(A)(1) Credit Agreement dated as of 2/10/2004
Ex-4.(A)(2) First Lien Senior Credit Agreement
Ex-4.(A)(3) Second Lien Senior Credit Agreement
Ex-21 Subsidiaries
Ex-23.(A) Consent of Ernst & Young LLP
Ex-23.(B) Consent of KPMG Chartered Accountants
Ex-28.(A) Report of KPMG Chartered Accountants
Ex-31.1 Section 302 CEO Certification
Ex-31.2 Section 302 CEO Certification
Ex-32.1 Section 906 CEO Certification
Ex-32.2 Section 906 CFO Certification



	2003					2002					2001

	Net Sales		% of Total			Net Sales		% of Total			Net Sales		% of Total


	($ in millions)
PPG	$	632.0		57.0	%	$	524.8		51.8	%	$	533.2		52.8	%
FRPG		477.3		43.0			489.2		48.2			476.4		47.2

Total	$	1,109.3		100.0	%	$	1,014.0		100.0	%	$	1,009.6		100.0	%



	2003						2002						2001

	Operating						Operating						Operating
	Profit (Loss)			%			Profit (Loss)			%			Profit (Loss)			%


	($ in millions)
PPG	$	13.9			9.9	%	$	50.1			109.6	%	$	64.7			183.8	%
FRPG		(154.9	)		(109.9	)		(4.4	)		(9.6	)		(29.5	)		(83.8	)

Total	$	(141.0	)		100.0	%	$	45.7			100.0	%	$	35.2			100.0	%


Title of Each Class		Name of Each Exchange on Which Registered

Common Stock, $.001 par value		New York Stock Exchange
Common Stock Purchase Rights		New York Stock Exchange


	Total Approximate
	Number
Year	of Employees

2003		1,900
2002		2,200
2001		2,500
2000		2,600
1999		2,700


Name and Age		Position

Thomas M. Duff, 56		Chairman, Chief Executive Officer, and Director
Keith R. Phillips, 49		Vice President, Chief Financial Officer
Michael E. Dewsbury, 54		Vice President, PET Resins Division — U.S.
Audrey L. Goodman, 50		Vice President, Treasurer
Mark J. Ruday, 38		Vice President, Chief Accounting Officer and Controller
Joseph C. Tucker, 56		Vice President, Fibers and Recycled Products Group


			Stated Annual
Location	Principal Products		Production Capacity

			(In millions of
			pounds)
Darlington, SC (Palmetto)		PET resins(1)		760
Hancock County, MS (Pearl River)		PET resins(2)		520
Emmen, the Netherlands		PET resins		120
Darlington, SC (Palmetto)		Polyester staple fiber		500
Johnsonville, SC		Polyester staple fiber		240
Mullagh, Ireland		Polyester staple fiber		175
Johnsonville, SC		Engineering resins		60


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


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


Year	High		Low		Dividend

2003
Fourth Quarter	$	10.56	$	7.57	$	0.09
Third Quarter	$	11.55	$	7.29	$	0.09
Second Quarter	$	12.29	$	9.47	$	0.09
First Quarter	$	14.07	$	8.93	$	0.09
2002
Fourth Quarter	$	13.99	$	9.20	$	0.09
Third Quarter	$	16.80	$	13.05	$	0.09
Second Quarter	$	18.22	$	14.89	$	0.09
First Quarter	$	16.98	$	12.74	$	0.09


	*Securities Authorized for Issuance Under Equity Compensation Plans*


	*Recent Sales of Unregistered Securities and Revolving Credit Facilities*



		Years Ended December 31,

		2003			2002(2)			2001			2000			1999(3)


		(In thousands, except per share data)
Income Statement Data:
Net sales		$	1,109,275		$	1,013,968		$	1,009,560		$	1,021,543		$	849,416
Cost of sales			1,028,672			898,745			902,239			890,341			757,524

Gross profit			80,603			115,223			107,321			131,202			91,892
Selling, general and administrative expenses			66,599			64,622			68,876			68,066			69,113
Impairment charge			135,307			—			—			—			—
Restructuring charges (benefit)			10,162			—			—			(793	)		17,382
Provision for uncollectible accounts			3,520			4,212			112			148			1,292
Other expense (income), net(1)			5,972			701			3,100			(3,158	)		8,779

Operating income (loss)			(140,957	)		45,688			35,233			66,939			(4,674	)
Interest expense, net			10,131			10,254			17,957			17,959			13,281

Earnings (loss) from continuing operations before income taxes			(151,088	)		35,434			17,276			48,980			(17,955	)
Income tax expense (benefit)			(54,391	)		9,036			3,854			13,563			(5,705	)

Earnings (loss) from continuing operations			(96,697	)		26,398			13,422			35,417			(12,250	)
Earnings (loss) from discontinued operations, net of tax			112			(23,651	)		(5,033	)		(2,649	)		(946	)

Earnings (loss) before cumulative effect of accounting change			(96,585	)		2,747			8,389			32,768			(13,196	)
Cumulative effect of accounting change, net of tax			—			(197,054	)		—			—			(1,769	)

Net earnings (loss)		$	(96,585	)	$	(194,307	)	$	8,389		$	32,768		$	(14,965	)

Net earnings (loss) attributable to common stockholders:
	Net earnings (loss)	$	(96,585	)	$	(194,307	)	$	8,389		$	32,768		$	(14,965	)
	Accretion of preferred stock and beneficial conversion charge		(10,112	)		—			—			—			—

	Net earnings (loss) attributable to common stockholders	$	(106,697	)	$	(194,307	)	$	8,389		$	32,768		$	(14,965	)

Basic net earnings (loss) per common share:
	Net earnings (loss) attributable to common stockholders from continuing operations	$	(3.38	)	$	0.84		$	0.43		$	1.13		$	(0.39	)
	Net earnings (loss) attributable to common stockholders from discontinued operations		—			(0.75	)		(0.16	)		(0.09	)		(0.03	)
	Cumulative effect of accounting change		—			(6.24	)		—			—			(0.06	)

	Net earnings (loss) attributable to common stockholders	$	(3.38	)	$	(6.15	)	$	0.27		$	1.04		$	(0.48	)

Basic weighted-average common shares outstanding			31,580			31,579			31,542			31,367			31,203


Item 1.	*Business*


	*Impairment Charge*


	January 2003


	July 2003



	December 31,

	2003		2002		2001		2000		1999

Balance Sheet Data:
Total assets	$	1,117,069	$	965,210	$	1,234,430	$	1,332,184	$	1,329,387
Total debt	$	370,992	$	236,909	$	333,144	$	381,521	$	405,974
Stockholders’ equity	$	465,615	$	426,698	$	612,739	$	625,525	$	602,364



	For the Years Ended December 31,

	2003			2002			2001			2000			1999

Legal costs related to the Department of Justice investigation of the polyester staple fiber industry	$	6,014		$	5,066		$	3,800		$	—			—
Non-capitalizable financing costs		2,219			—			—			—			—
Accelerated stock option vesting		1,156			—			—			—			—
Rebates from anti-dumping duties(a)		(3,417	)		(4,365	)		—			—			—
Property damage and other costs associated with production outages		—			—			9,900			—			8,779
Income from property damage claims & business interruption insurance		—			—			(10,600	)		(5,140	)		—
Charge to idle Pearl River assets		—			—			—			1,982			—

	$	5,972		$	701		$	3,100		$	(3,158	)	$	8,779


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


	PPG		FRPG			TOTAL

Net selling prices	$	40.2	$	6.8		$	47.0
Foreign currency translation		12.4		19.8			32.2
Sales volumes		54.6		(38.5	)		16.1

	$	107.2	$	(11.9	)	$	95.3


	Sales Volumes
Products	(Millions Pounds)

PET Resins		1,400
Staple Fiber		750


Financial	(Dollars in Millions)

Depreciation and Amortization		$67 to $73
Interest Expense		$43 to $47
Capital Expenditures		$13 to $17
Tax Rate		Low-Mid 30% Range



	As of February 10, 2004

									Amounts Available		Amounts Available
							Amount		Under All		Under Committed
	Maturity		Total Facility		Commitment		Outstanding		Facilities		Facilities


	(In millions)
Revolving Credit Facility(1)	February 2009		$	175.0	$	175.0	$	44.8	$	100.0	$	100.0
First Lien Term Loan(2)	February 2009		$	185.0	$	185.0	$	185.0	$	—	$	—
Second Lien Term Loan(3)	February 2010		$	265.0	$	265.0	$	259.7	$	—	$	—
Other		N/A	$	1.1		N/A	$	1.1	$	—	$	—

Total			$	626.1			$	490.6	$	100.0	$	100.0



	Payments Due by Period
Contractual
Obligations	Total		2004		2005		2006		After 2006


	(In millions)
Debt Agreements (see Table I)(4)	$	495.9	$	—	$	—	$	—	$	495.9
Operating Leases(5)		25.4		7.8		5.7		2.7		9.2

Total	$	521.3	$	7.8	$	5.7	$	2.7	$	505.1


	*Reduced raw material margins could adversely affect our operating results.*


	*The financial condition of our customers impacts our operating results.*


	*Fiber and textile imports continue to adversely impact our margins.*


	*Our operations are dependent on the availability and cost of our raw materials.*


	*The governmental investigation of pricing practices in the polyester stable fiber industry could adversely impact our operating results.*


	*The availability and costs of our financing could adversely affect our operating results.*


	*Changes in foreign currency exchange rates could adversely affect our operating results.*


	*Regulatory changes may affect the demand for our products.*


	*Additional liabilities may be proposed by tax authorities.*


	*Increases in costs could adversely affect our operating results.*


	*Actual costs for environmental matters may vary from the estimates.*


Item 7A.	*Quantitative and Qualitative Disclosure about Market Risk*