Prepared by MerrillDirect





 


LEINER
HEALTH PRODUCTS GROUP INC.


 


SECOND
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT


 


 


 


Dated
as of November 14, 2000


 


 





TABLE
OF CONTENTS


 


	1.	Board
  of Directors	 	 
	 	(a)	Nominating	 
	 	(b)	Removal and
  Replacement of Nominees	 
	 	(c)	Chairman	 
	 	 	 	 
	2.	Voting, etc.	 	 
	 	(a)	Stockholder Approval	 
	 	(b)	Charter and Bylaws	 
	 	(c)	Board
  Approval; Notice of Board Meetings	 
	 	(d)	Confidentiality	 
	 	 	 	 
	3.	Restrictions
  on Disposition; Right of First Refusal	 	 
	 	(a)	Restrictions on Disposition	 
	 	(b)	Subsequent Dispositions	 
	 	(c)	Right of First Refusal	 
	 	(d)	Dispositions by
  North Castle Entities	 
	 	 	 	 
	4.	Tag-Along
  Rights	 	 
	 	 	 	 
	5.	Take-Along
  Rights	 	 
	 	(a)	Take-Along Notice	 
	 	(b)	Conditions to Take-Along	 
	 	(c)	Remedies	 
	 	 	 	 
	6.	Piggyback Registration
  Rights	 	 
	 	 	 	 
	7.	Registration Upon Request	 	 
	 	 	 	 
	8.	Registration
  Procedures	 	 
	 	 	 	 
	9.	Indemnification	 	 
	 	 	 	 
	10.	Affiliate
  Transactions	 	 
	 	 	 	 
	11.	Management
  Stockholders	 	 
	 	(a)	Call Option	 
	 	(b)	Termination of Call Option	 
	 	(c)	Put Options	 
	 	(d)	Termination of Put Option	 
	 	 	 	 
	12.	Severability	 	 
	 	 	 	 
	13.	Information	 	 
	 	 	 	 
	14.	Certain
  Definitions	 	 
	 	 	 	 
	15.	Notices	 	 
	 	 	 	 
	16.	Term	 	 
	 	 	 	 
	17.	Headings	 	 
	 	 	 	 
	18.	Entire
  Agreement	 	 
	 	 	 	 
	19.	Counterparts	 	 
	 	 	 	 
	20.	Governing Law	 	 
	 	 	 	 
	21.	Binding Effect	 	 
	 	 	 	 
	22.	Assignment	 	 
	 	 	 	 
	23.	No Third Party
  Beneficiaries	 	 
	 	 	 	 
	24.	Amendment;
  Waivers, Etc.	 	 
	 	 	 	 
	25.	Consent
  to Jurisdiction	 	 
	 	 	 	 
	26.	Waiver
  of Jury Trial	 	 
	 	 	 	 
	27.	AEA Authority	 	 
					






SECOND
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT


             SECOND
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT, dated as of November 14, 2000,
among Leiner Health Products Group Inc., a Delaware corporation (the “Company”),
North Castle Partners I, L.L.C., a Delaware limited liability company (“North
Castle I”), NCP I Sub, L.P., a Delaware limited partnership (“NCP I Sub”),
North Castle Partners I-A, L.P., a Delaware limited partnership (“North
Castle I-A”), North Castle Partners II, L.P., a Delaware limited
partnership (“North Castle II”), AEA Investors Inc., a Delaware
corporation (“AEA”), NCP Co-Investment Fund, L.P., a Delaware limited
partnership (“NCP”), Squam Lake Investors IV, L.P., a Delaware limited
partnership (“Squam IV”) and each other person who is or, becomes party
to this Agreement (collectively, with North Castle I, NCP I Sub, North Castle I–A,
North Castle II, AEA, NCP, Squam IV and the Covered Shareholders (as
defined below), the “Stockholders”). 
Capitalized terms used herein without otherwise being defined herein are
defined in Section 14.


W
I T N E S S E T H:


             WHEREAS,
North Castle I, NCP I Sub, North Castle I–A,
North Castle II, AEA, NCP, Squam IV and each other Stockholder hold shares
of Common Stock of the Company;


             WHEREAS,
the parties hereto wish to set forth certain rights and obligations that shall
attach to the ownership of Common Stock and other Covered Equity (as defined
below) held by certain of the Stockholders;


             WHEREAS,
in connection with the 1997 recapitalization of the Company, AEA entered into
Covered Shareholder Agreements with holders (the “Covered Shareholders”)
of 516,861 shares of Class A Common Stock, 10,000 shares of Class B Common
Stock and 140,731 shares of Class C Common Stock, which stock was converted
into shares of Common Stock in the merger (the “Merger”) described in
the Agreement and Plan of Merger, dated as of May 31, 1997 between the Company,
North Castle I and LHP Acquisition Corp., pursuant to which AEA has been
appointed representative of such shareholders for purposes of this Agreement;


             WHEREAS,
as of June 30, 1997, North Castle I, AEA and each other stockholder of the
Company on such date entered into a Stockholders Agreement (the “Original
Stockholders Agreement”);


             WHEREAS,
in September 1998, North Castle I and AEA entered into Amendment No. 1 to the
Original Stockholders Agreement;


             WHEREAS,
on December 17, 1999, North Castle I–A, North Castle II, NCP and
Squam IV have purchased new Common Stock issued by the Company;





             WHEREAS,
in December 1999, North Castle I, North Castle I-A, North Castle II, NCP, Squam
IV and AEA entered into the Amended and Restated Stockholders Agreement; and


             WHEREAS,
North Castle I, NCP I Sub, North Castle I-A, North Castle II, NCP, Squam IV and
AEA have agreed to amend and restate the Amended and Restated Stockholders
Agreement, as amended;


             NOW,
THEREFORE, for good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, North Castle I, NCP I Sub,
North Castle I-A, North Castle II, NCP, Squam IV and AEA do hereby agree as
follows:


                           1.  Board of
Directors.


             (a)  Nominating.  Until such time as AEA and the Covered
Shareholders have sold or transferred (other than through sales or transfers to
AEA or Covered Shareholders) in excess of 50% of the Common Stock held by AEA
and the Covered Shareholders upon the consummation of the Merger, AEA shall be
entitled to nominate one person for election to the board of directors (the “Board”)
of the Company.  So long as North Castle
I, NCP I Sub, North Castle I–A and North
Castle II collectively own at least 40% of the Common Stock, each of North
Castle I–A and North Castle II shall be entitled to nominate one person
for election to the Board and North Castle I and NCP I Sub
shall collectively be entitled to nominate all other persons for election to the
Board.  The Board shall have at least
four and no more than ten members in the aggregate for so long as AEA is
entitled to nominate one individual for election to the Board pursuant to this
Section 1(a).  If they own less than 40%
of the Common Stock, North Castle I and NCP I Sub shall collectively be
entitled to nominate a number of directors bearing the same relationship to the
total number of directors on the Board as the number of shares of Common Stock
then held by North Castle I and NCP I Sub bears to the then outstanding shares
of Common Stock.  The Company and each
of the other parties hereto agree to take all steps within their power,
including voting any voting Common Stock owned or controlled by them or any of
their Affiliates, to cause any person so nominated to be elected to the Board
by action of the Stockholders of the Company.


             (b)  Removal and Replacement of
Nominees. 
(i)  At any time at which
any party shall have exercised its rights to nominate a director pursuant to
Section 1(a) and such party shall determine to remove one or more of its
nominated directors, with or without cause, the Company and each of the
Stockholders agrees to take all steps within their power, including voting (or
causing to be voted) any voting Common Stock owned or controlled by them or any
of their Affiliates, to cause such director to be so removed from the Board by
action of the stockholders of the Company. 
At any time at which any party shall have exercised its rights to
nominate a director pursuant to Section 1(a) and a vacancy shall be created on
any of the Board as a result of the death, disability, retirement, resignation
or removal, with or without cause, of a director nominated by such party, (x) the
Board will request such party to nominate a candidate to be appointed by the
Board to fill such vacancy or (y) in the event that a candidate to fill
such vacancy is to be elected at the annual meeting of stockholders of the
Company, such party shall have the right to nominate the individual to fill
such vacancy, and the provisions of paragraph 1(a) above shall apply with
respect to the nomination and election of such nominee to fill such vacancy.





             (ii)  Each of the parties hereto further agrees (x)
if a candidate nominated  by any party
or parties to fill any vacancy on the Board in accordance with
paragraph (b)(i) above shall not have been appointed to fill such vacancy
within ten Business Days of the Board having been given the name of such
candidate by the nominating party or parties, then each of the parties hereto
(other than the Company) shall act by written consent, or call a special
meeting of stockholders of the Company for the sole purpose of filling such
vacancy, and in such written consent or at such special meeting, vote or cause
to be voted the voting Common Stock of the Company held or controlled by such
party or any Affiliate of such party in favor of the candidate nominated to
fill such vacancy, (y) other than as provided in Section 1(b)(i), no
party hereto shall vote, or give any consent, in favor of the removal as a
director of the Company of any candidate nominated by any other party, and (z) if,
in connection with the election of any candidate nominated by another party in
accordance herewith for election as a director of the Company any party hereto
fails or refuses to vote as required by this Section 1, or votes or gives any
consent or proxy in contravention of this Section 1, the respective nominating
party shall have an irrevocable proxy (which irrevocable proxy shall revoke any
proxy previously given by the defaulting party in contravention of this Section
1) pursuant to Section 212(e) of the General Corporation Law of the State of
Delaware, coupled with an interest, to vote, all the voting Common Stock of the
Company held or controlled by such party in accordance with this Section 1, and
each party hereto hereby grants such proxy.


             (c)  Chairman.  The Chairman of the Board shall be selected
by directors from one of North Castle I’s nominees.


             2.  Voting, etc.  (a) Stockholder Approval.  Neither the
Certificate of Incorporation nor
the By-Laws of the Company shall contain any provision requiring a vote of a
supermajority of the outstanding shares of Common Stock for any matter, except
as required by law.


             (b)  Charter and
Bylaws.  The parties agree that
the provisions of the Company’s Certificate of Incorporation and Bylaws will
not (i) conflict with the terms of this Agreement or (ii) be
amended in a manner adversely affecting one or more Stockholders but not
adversely affecting all Stockholders without consent of the adversely affected
Stockholders.


             (c)  Board Approval; Notice of
Board Meetings.  All actions
requiring the approval of the Board shall be approved by a majority of the
directors present at any duly convened Board meeting or without a meeting by
written consent of a majority of the members of the Board, in each case in
accordance with the provisions of the Delaware General Corporation Law.  The Company agrees to give any director
nominated by AEA no less than three Business Days’ prior notice of any meeting
of the Board or, in the case of a telephonic Board meeting, two Business Days’
prior notice.





             (d)  Confidentiality.  Each of the Stockholders agrees to keep
confidential and not to disclose to any Person any Information provided to it
by or on behalf of the Company or any of its Subsidiaries, or obtained by the
Stockholder; provided that nothing contained herein shall prevent any
Stockholder from disclosing such Information to (i) any of the other
Stockholders, (ii) any of its Representatives, provided that such
Stockholder (w) informs each of its Representatives receiving any such
Information of its confidential nature and of this provision and its terms, (x) uses
its reasonable best efforts to cause its Representatives to treat such
Information confidentially in accordance herewith, and otherwise to comply
herewith as if parties hereto, and (iii) any member of the
Board.  If any Stockholder or any of its
Representatives is requested to disclose any such Information by any Governmental
Entity, such Stockholder will promptly notify the Company to permit it to seek
a protective order or take other action that the Company in its discretion
deems appropriate, and such Stockholder will cooperate in any such efforts to
obtain a protective order or other reasonable assurance that confidential
treatment will be accorded such Information. 
If, in the absence of a protective order, such Stockholder or any of its
Representatives is compelled as a matter of law to disclose any such Information
in any proceeding or pursuant to legal process, such Stockholder may disclose
to the party compelling disclosure only the part of such Information as is
required by law to be disclosed (in which case, prior to such disclosure, such
Stockholder will advise and consult with the Company and its counsel as to such
disclosure and the nature and wording of such disclosure) and such Stockholder
will use its reasonable best efforts to obtain confidential treatment therefor.


                           3.  
Restrictions on Disposition;
Right of First Refusal.


             (a)         Restrictions
on Disposition.  Prior to a
Public Offering, no Stockholder may sell, transfer, pledge, encumber or
otherwise dispose of any Covered Equity to any Person (other than the Company)
except as follows (a “Permitted Transfer”):


             (i)  to any Specified Affiliate of such
Stockholder, provided that such Specified Affiliate agrees in writing to
become a party to this Agreement and provided further that such
Specified Affiliate delivers to the Company (x) an opinion of counsel,
which opinion and counsel shall be reasonably satisfactory to the Company, to
the effect that the transfer is not a Prohibited Transfer, and (y) a
certificate of the transferor and the transferee, to the effect that the
transferee is a Specified Affiliate of the transferor;



             (ii)  to any other Stockholder, provided
that such transferee Stockholder delivers an opinion of counsel to the Company,
which opinion and counsel shall be reasonably satisfactory to the Company, to
the effect that the transfer is not a Prohibited Transfer;



             (iii)
any transfer of Common Stock in a public offering if such stock has been
registered pursuant to Section 6 or 7;



             (iv)  any transfer of Common Stock pursuant to
Sections 4 and 5; and






             (v)  any transfer of Common Stock to a person who
is not a Stockholder or a Specified Affiliate of the transferor, subject to
compliance with the right of first refusal provided in Section 3(c), provided
that the transferee (x) agrees in writing to become a party to this
Agreement and (y) delivers an opinion of counsel to the Company,
which opinion shall be reasonably satisfactory to the Company, to the effect
that the transfer is not a Prohibited Transfer;



Each Stockholder shall give the Company
at least 15 days prior notice of any proposed disposition of any Covered Equity
pursuant to a Permitted Transfer described in this Section 3(a), and prompt
notice of any such actual disposition. 
Any sale, transfer, pledge, encumbrance or other disposition of any
Covered Equity other than pursuant to a Permitted Transfer shall be void and of
no effect.  The Company agrees to
provide such certificates with respect to factual matters involving the Company
as may be reasonably requested by a Stockholder or its counsel in connection
with a proposed Permitted Transfer. 
Notwithstanding the foregoing, no Management Stockholder may effect any
Permitted Transfer (except of the type described in clauses (i), (iii) and (iv)
of this Section 3.1(a)) until the earlier to occur of (x) June 30, 2002,
and (y) the termination of such Management Stockholder’s employment
with the Company.


             (b)  Subsequent
Dispositions.  Following any
Public Offering, any Stockholder may transfer Common Stock to any Person, provided
that, except with respect to a transfer of the type described in Sections
3(a)(iii) and (iv), the transferee must deliver to the Company an opinion of
counsel, which opinion and counsel shall be reasonably satisfactory to the
Company, to the effect that such transfer is not required to be registered
under the Securities Act.


             (c)  Right of
First Refusal.  If a Stockholder
other than North Castle I, NCP I Sub, North Castle I–A
or North Castle II (a “Selling Holder”) desires to make a Permitted
Transfer pursuant to clause (v) of Section 3(a) following an offer (which
offer must be in writing, be irrevocable by its terms for at least 15 Business
Days and be a bona fide offer) from any prospective purchaser to purchase all
or any part of the Common Stock owned by such Selling Holder, such Selling
Holder shall give notice (the “Notice of Offer”) in writing to the Board
and to North Castle I, NCP I Sub, North Castle I–A
or North Castle II (i) designating the number of shares of Common Stock
that such Selling Holder proposes to sell (the “Offered Shares”), (ii) naming
the prospective purchaser thereof (the “Designated Purchaser”) and (iii)
specifying the price (the “Offer Price”) and terms (the “Offer Terms”)
upon which such Selling Holder desires to sell the same.  During the 15 Business Day period following
receipt of such notice by the Company, North Castle I, NCP
I Sub, North Castle I–A and North Castle II (the “Refusal
Period”) such Selling Holder shall not be permitted to accept such offer,
but may submit a new Notice of Offer in respect of any revised offer in
accordance with and subject to this Section 3(c).  During the Refusal Period, North Castle I, NCP
I Sub, North Castle I–A or North Castle II or any Affiliate of
North Castle I, including any pooled investment vehicle organized by the
managing member of North Castle I or by any of its Affiliates shall have the
right to purchase from the Selling Holder at the Offer Price and on the Offer
Terms all, but not less than all, of the Offered Shares, provided that (A)
North Castle I-A shall not be entitled to exercise such right until North
Castle I and NCP I Sub have each issued written notices stating that it will
not exercise such right, (B) North Castle II shall not be entitled to
exercise such right until North Castle I, NCP I Sub and North Castle I-A have
each issued written notices stating that it will not exercise such right and (C)
any other Affiliate of North Castle I shall not be entitled to exercise such
right until North Castle I, NCP I Sub, North Castle
I–A and North Castle II have each exercised written notices stating that
it will not exercise such right.  The
right provided hereunder shall be exercised by written notice to the Selling
Holder and the Company given at any time during the Refusal Period.  If such right is exercised, North Castle I, NCP I Sub, North Castle I–A or North Castle II or
any Affiliate of North Castle I shall deliver to the Selling Holder payment of
the Offer Price in accordance with the Offer Terms, against delivery of
appropriately endorsed certificates or other instruments representing the Offered
Shares.  If North Castle I, NCP I Sub, North Castle I–A or North Castle II or
any Affiliate of North Castle I fails to subscribe for the Offered Shares
during the Refusal Period, the Selling Holder may sell to the Designated
Purchaser the Offered Shares at the Offer Price and on the Offer Terms.





             (d)  Dispositions by North Castle
Entities.  In the event that
North Castle I, NCP I Sub, North Castle I-A and
North Castle II sell, transfer or otherwise dispose of any Covered Equity to
any entity other than an affiliate of North Castle I, each of them may only
sell, transfer or otherwise dispose of such Covered Equity on substantially
similar terms and conditions contemporaneously in transactions involving
quantities of such Covered Equity that are substantially similar on a pro rata
basis.


             4.  Tag-Along
Rights.  If North Castle I, NCP I Sub, North Castle I–A, North Castle II and
their respective Affiliates or successors (the “North Castle Sellers”)
desires to make a Permitted Transfer pursuant to clauses (ii) and (v) of
Section 3(a), which transfer, together with all prior transfers by the
North Castle Sellers involves more than 5% of the Common Stock owned by the
North Castle Sellers on the date hereof, following an offer (which offer must
be in writing, be irrevocable by its terms for at least 35 Business Days and be
a bona fide offer) from any prospective purchaser to purchase all or any part
of the Common Stock owned by the North Castle Sellers, the North Castle Sellers
shall give a Notice of Offer in writing to the Board and the other Stockholders
(i) designating the number of Offered Shares, (ii) naming
the Designated Purchaser and (iii) specifying the Offer Price and
Offer Terms.  During the 20 Business Day
period following receipt of such notice by the Company and the other
Stockholders, the other Stockholders shall have the right (a “Tag-Along
Right”) exercised by delivery of a written notice to the North Castle
Sellers and the Company, to participate in such sale to the Designated
Purchaser at the Offer Price and on the Offer Terms on a pro rata
basis determined as the quotient determined by dividing (A) the
percentage of Common Stock held by each Stockholder so electing to sell (each
such Person, an “Accepting Stockholder”) by (B) the
aggregate percentage of Common Stock represented by the Common Stock then held
by all of the Accepting Stockholders and the North Castle Sellers.  The Company shall notify each Accepting
Stockholder at least ten Business Days prior to the closing of the proposed
sale by the North Castle Sellers of the number of Offered Shares which each
such Accepting Stockholder may sell and such Accepting Stockholder shall
deliver into trust, three or more Business Days prior to the closing
certificates or other instruments representing the Offered Shares duly endorsed
for transfer or duly executed stock powers for release against payment to such
Accepting Stockholder of such Accepting Stockholder’s net proceeds paid for the
shares of such Stockholder at the closing of such sale.





             5.  Take-Along
Rights.


             (a)  Take-Along
Notice.  If the North Castle
Sellers intend to effect a sale (a “Take-Along Sale”) of all of their
shares of Common Stock to a non-Affiliate third party (a “100% Buyer”)
prior to a Public Offering and elect to exercise their rights under this
Section 5, the North Castle Sellers shall deliver written notice (a “Take-Along
Notice”) to the Company and the other Stockholders, which notice shall (i) state
(w) that the North Castle Sellers wish to exercise their rights
under this Section 5 with respect to such transfer, (x) the
name and address of the 100% Buyer, (y) the per share amount and
form of consideration the North Castle Sellers propose to receive for its
shares of Common Stock and (z) drafts of purchase and sale documentation
setting forth the terms and conditions of payment of such consideration and all
other material terms and conditions of such transfer (the “Draft Sale
Agreement”), (ii) contain an offer (the “Take-Along Offer”)
by the 100% Buyer to purchase from the other Stockholders all of their shares
of Common Stock, on and subject to the same price, terms and conditions offered
to the North Castle Sellers and (iii) state the anticipated time
and place of the closing of such transfer (a “Section 5 Closing”),
which (subject to such terms and conditions) shall occur not fewer than 15 days
nor more than 90 days after the date such Take-Along Notice is delivered, provided
that if such Section 5 Closing shall not occur prior to the expiration of
such 90-day period, the North Castle Sellers shall be entitled to deliver
another Take-Along Notice with respect to such Take-Along Offer.  Upon request of the North Castle Sellers,
the Company shall provide the North Castle Sellers with a current list of the
names and addresses of the other Stockholders.


             (b)  Conditions
to Take-Along.  Upon delivery of
a Take-Along Notice, each of the other Stockholders shall have the obligation
to transfer all of its shares of Common Stock 
pursuant to the Take-Along Offer, as such offer may be modified from
time to time, provided that the North Castle Sellers transfer all of
their shares of Common Stock to the 100% Buyer at the Section 5 Closing and
that all shares of Common Stock held by the North Castle Sellers and the other
Stockholders are sold to the 100% Buyer at the same price, and on the same
terms and conditions provided further that a Stockholder shall
only be required to make, in connection with a Take-Along Sale, representations
and warranties that survive the closing of such Sale with respect to its
authority, its title to its Common Stock, certain conflicts, approvals and
litigation relating to it, and shall not be required to make any
representations or warranties with respect to the Company or its business that
survive that Closing of such Sale or with respect to any other
Stockholder.  Within five Business Days
prior to the closing contemplated by the Take-Along Notice, each of the other
Stockholders shall (i) deliver to the North Castle Sellers
certificates representing such other Stockholder’s shares of Common Stock, duly
endorsed for transfer or accompanied by duly executed stock powers, and (ii) execute
and deliver to the North Castle Sellers a power of attorney and a letter of
transmittal and custody agreement in favor of the North Castle Sellers, and in
form and substance reasonably satisfactory to the North Castle Sellers
appointing North Castle as the true and lawful attorney-in-fact and custodian
for such other Stockholder, with full power of substitution, and authorizing the
North Castle Sellers to execute and deliver a purchase and sale agreement
substantially in the form of the Draft Sale Agreement and otherwise in
accordance with the terms of this Section 5(b) and to take such actions as the
North Castle Sellers may reasonably deem necessary or appropriate to effect the
sale and transfer of the shares of Common Stock to the 100% Buyer, upon receipt
of the purchase price therefor set forth in the Take-Along Notice at the
Section 5 Closing, free and clear of all security interests, liens, claims,
encumbrances, options, and voting agreements of whatever nature, together with
all other documents delivered with such Notice and required to be executed in
connection with the sale thereof pursuant to the Take-Along Offer.  The North Castle Sellers shall hold such
shares and other documents in trust for such other Stockholder for release
against payment to such Stockholder of such Stockholder’s net proceeds in
accordance with the contemplated transaction. 
If, within 15 days after delivery to the North Castle Sellers, the North
Castle Sellers have not completed the sale of all of the shares of Common Stock
owned by the North Castle Sellers and the other Stockholders to the 100% Buyer
and another Take-Along Notice with respect to such Take-Along Offer has not
been sent to the other Stockholders, the North Castle Sellers shall return to
each other Stockholder all certificates representing the shares and all other
documents that such other Stockholder delivered in connection with such sale.
  The North Castle Sellers shall be permitted to send only two Take-Along
Notices with respect to any one Take-Along Offer.  Promptly after the Section 5 Closing, the North Castle Sellers
shall furnish such other evidence of the completion and time of completion of
such sale and the terms thereof as may reasonably be requested by any of the
other Stockholders.





             (c)  Remedies.  Each of the Other Stockholders acknowledges
that the North Castle Sellers would be irreparably damaged in the event of a
breach or a threatened breach by such other Stockholder of any of its
obligations under this Section 5 and each of the other Stockholders agrees
that, in the event of a breach or a threatened breach by such other Stockholder
of any such obligation, the North Castle Sellers shall, in addition to any
other rights and remedies available to it in respect of such breach, be
entitled to an injunction from a court of competent jurisdiction (without any
requirement to post bond) granting it specific performance by such other
Stockholder of its obligations under this Section 5.  In the event that the North Castle Sellers shall file suit to
enforce the covenants contained in this Section 5 (or obtain any other
remedy in respect of any breach thereof), the prevailing party in the suit
shall be entitled to recover, in addition to all other damages to which it may
be entitled, the costs incurred by such party in conducting the suit, including
reasonable attorney’s fees and expenses.


             6.  Piggyback
Registration Rights.       (a)  If the
Company at any time proposes to register any shares of Common Stock under the
Securities Act of 1933, as amended (the “Securities Act”), whether or
not for sale for its own account (other than pursuant to a Special
Registration) and the registration form to be used may also be used for the
registration of Registrable Securities (as defined below) owned by the
Stockholders, the Company shall notify the Stockholders at least 45 days prior
to the filing of the first registration statement in connection therewith.  Upon the receipt of a written request of any
Stockholder made within 20 days after such notice (which request shall specify
the Registrable Securities intended to be disposed of by such Stockholder and
the intended method of disposition thereof), the Company will, subject to the
other provisions of this Section 8, include in such registration all
Registrable Securities with respect to which the Company has received a written
request for inclusion (a “Piggyback Registration”).  Each such request shall also contain an
undertaking from the applicable Stockholder to provide all such information and
material and to take all actions as may be reasonably required by the Company
in order to permit the Company to comply with all applicable federal and state
securities laws.





             “Registrable
Securities” shall mean any shares of Common Stock held by a Stockholder
other than those not acquired from the Company, an Affiliate thereof or another
Stockholder.  As to any particular
Registrable Securities once issued, such securities shall cease to be
Registrable Securities when (i) a registration statement with
respect to the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of in accordance
with such registration statement, (ii) they shall have been
distributed to the public pursuant to Rule 144, or (iii) they shall
have ceased to be outstanding.


             (b)  Each selling Stockholder shall pay all sales
commissions or other similar selling charges with respect to Registrable
Securities sold by such Stockholder pursuant to a Piggyback Registration.  The Company shall pay all registration and
filing fees, fees and expenses of compliance with federal and state securities
laws, printing expenses, messenger and delivery expenses, fees and
disbursements of counsel and accountants for the Company, and reasonable fees
and disbursements of one counsel for all selling stockholders who shall be
selected, if the Piggyback Registration is also a Demand Registration, as provided
in Section 7(b)(i), unless the applicable state securities laws require that
stockholders whose securities are being registered pay their pro rata share of
such fees, expenses and disbursements, in which case each Stockholder
participating in the registration shall pay its pro rata share of
all such fees, expenses and disbursements based on its pro rata
share of the total number of shares being registered.


             (c)  If a Piggyback Registration is an
underwritten registration, only Registrable Securities which are to be
distributed by the underwriters may be included in the registration.  If the managing underwriters or, if the
Piggyback Registration is not an underwritten registration, the Company’s
investment bankers, advise the Company in writing that in their opinion the
number of securities requested to be included in such registration exceeds the
number which can be sold in such offering or will have a material adverse
effect on the price of the Registrable Securities to be sold, the Company will
include in such registration (i) if it is not a Demand Registration
(as defined below), the securities proposed to be sold by the Company for its
own account, and then Registrable Securities proposed to be sold by
Stockholders making a Piggyback Registration Request or, (ii) if
such registration is a Demand Registration, the securities proposed to be sold
by the Company for its own account, and then Registrable Securities for which
registration has been requested pursuant to Section 7(a)(i) or 7(a)(ii), in
each case which Registrable Securities shall be included in such registration
in proportion (as nearly as practicable) to the amount of Registrable
Securities of the Company owned by each such holder of Registrable Securities
to the total amount of Registrable Securities as to which a Piggyback
Registration and/or a Demand Registration request has been made.  Notwithstanding the foregoing, if the
managing underwriters or, if the registration is not an underwritten registration,
the Company’s investment bankers, advise the Company in writing that in their
opinion, the inclusion in a Piggyback Registration of Common Stock held by
Management Stockholders will have a material adverse effect on the offering,
the Company will not include such Common Stock in such registration.





             (d)  Notwithstanding the foregoing, if at any
time after giving written notice to the Stockholders of its intention to
register any shares of Common Stock pursuant to subsection (a) of this
Section 6 and prior to the effective date of the registration statement
filed in connection with such registration, the Company shall determine for any
reason not to register such securities, the Company may, at its election, give
written notice of such determination to each Stockholder and thereupon shall be
relieved of its obligation to register Registrable Securities as part of such
terminated registration (but not from its obligation to pay expenses in
connection therewith as provided in subsection (b) above).  If a registration pursuant to this
Section 6 involves an underwritten public offering and a Stockholder
requests to be included in such registration, such Stockholder may elect, in
writing prior to the effective date of the registration statement filed in
connection with such registration, not to participate in such registration.


             (e)  Each Stockholder agrees not to sell or offer
for public sale or distribution, including pursuant to Rule 144, any of
such Stockholder’s Common Stock within 15 days prior to or 180 days after the
effective date of any registration (except as part of such registration other
than a Special Registration) with respect to which piggyback registration
rights are available pursuant to this Section 6.


             7.  Registration
Upon Request. 
(a)  Request for
Registration.  Upon the written
request of North Castle I, NCP I Sub, North Castle I–A
and North Castle II (the “Initiating Holder”) at any time after the date
hereof requesting that the Company effect pursuant to this Section 7 the
registration (a “Demand Registration”) of any of such Initiating
Holders’ Registrable Securities under the Securities Act (which request shall
specify the Registrable Securities so requested to be registered, the proposed
amounts thereof, and the intended method of disposition by the Initiating
Holders), the Company shall promptly give written notice of such requested
registration to all Stockholders, and thereupon the Company will, as
expeditiously as reasonably possible, use its commercially reasonable efforts
to effect the registration under the Securities Act of


             (i)  the Registrable Securities which the Company
has been so requested to register, for disposition in accordance with the
intended method of disposition stated in such request, and



             (ii)  all other Registrable Securities owned by
Stockholders, the holders of which shall have made a written request to the
Company for registration thereof (which request shall specify such Registrable
Securities and the proposed amounts thereof) within 30 days after the receipt
of such written notice from the Company, all to the extent requisite to permit
the disposition by the holders of the securities constituting Registrable
Securities so to be registered, provided that the Company shall not be
required to effect any registration pursuant to this Section 7 if it is a
registration with respect to which the Company is not required to pay expenses
pursuant to Section 7(b)(i) unless the Company shall have received
assurances satisfactory to it that the Initiating Holders will bear the
expenses of registration and provided, further, that each other
Stockholder proposing to register securities as part of such Demand
Registration shall agree in writing to pay its pro rata share of
such expenses.






             (b)  Limitations on Registrations.  The registration rights granted to Initiating
Holders pursuant to this Section 7 are subject to the following
limitations:



             (i)  Each selling Stockholder shall pay all sales
commissions or other similar selling charges with respect to the Registrable
Securities sold by such Stockholder pursuant to a Demand Registration.  In connection with four Demand Registrations
pursuant to this Section 7, the Company shall pay all registration and
filing fees, fees and expenses of compliance with federal and state securities
laws, printing expenses, messenger and delivery expenses, fees and
disbursements of counsel and accountants for the Company and fees and expenses
of one counsel, selected by the Initiating Holders, for all selling
Stockholders in connection with a Demand Registration, unless the applicable
state securities laws require that stockholders whose securities are being
registered pay their pro rata share of such fees, expenses and disbursements,
in which case each Stockholder participating in the registration shall pay its
pro rata share of all such fees, expenses and disbursements based on its pro
rata share of the total number of shares being registered, provided that
if a Demand Registration involves, pursuant to Section 6(c) hereof, a
cutback of the number of Registrable Securities which may be sold such that the
Initiating Holders are not permitted to register at least 50% of the
Registrable Securities which they request to register, then such Demand
Registration shall not be deemed one of the Initiating Holders’ Demand
Registrations with respect to which expenses will be paid by the Company.  In all other instances, the selling
Stockholders shall pay all expenses of a Demand Registration;



             (ii)  the Initiating Holders shall determine the
method of distribution of the securities to be registered in a Demand
Registration and if an underwritten offering, shall select the managing
underwriter of such offering;



             (iii)  the Company shall not be obligated to file a
registration statement under this Section 7 unless the total number of
shares of Registrable Securities requested to be included in such offering by
the Initiating Holders equals or exceeds 5% of the number of shares of Common
Stock outstanding on a fully diluted basis;



             (iv)  the Company shall be entitled to postpone
for a reasonable time not exceeding 90 days the filing of any registration
statement under this Section 7 if, at the time it receives a request for a
Demand Registration pursuant thereto, the Board shall determine in good faith
that such offering will interfere with a pending financing, merger, sale of
assets, recapitalization or other similar corporation action which the Company
is actively pursuing and is material to the business of the Company; and






             (v)  a registration statement that does not
become effective or does not remain effective for the period specified in
Section 8(b) shall be deemed not to constitute a registration statement
filed pursuant to this Section 7, provided that, if such
registration statement does not become effective or does not remain effective
for such period solely by reason of the Initiating Holders’ refusal to proceed,
it shall be deemed to constitute a registration statement filed pursuant to
Section 7 unless the Initiating Holders shall have elected to pay all
expenses in connection with such registration as aforesaid.



             (c)  Each Stockholder agrees not to sell or offer
for public sale or distribution including, pursuant to Rule 144, any of
such Stockholder’s Common Stock within 15 days prior to or 180 days after the
effective date of any Demand Registration (except as part of such
registration).


             (d)  The Company agrees not to effect any sale or
distribution of any of its equity securities or of any security convertible
into or exchangeable or exercisable for any equity security of the Company
(other than such sale or distribution of such securities in connection with any
merger or consolidation by the Company or any subsidiary of the Company or the
acquisition by the Company or a subsidiary of the Company of the capital stock
or substantially all the assets of any other Person or in connection with an
employee stock ownership or other benefit plan) during the 15 days prior to,
and during the 180 day period which begins on, the effective date of a
registration statement filed in connection with a Demand Registration (except
as part of such registration).


             8.  Registration
Procedures.  If and whenever the
Company is required to use its commercially reasonable efforts to effect the
registration of any Registrable Securities under the Securities Act as provided
in this Agreement, the Company will promptly:


             (a)  prepare and file with the Securities and
Exchange Commission (the “Commission”) a registration statement with
respect to such securities and use its 
commercially reasonable efforts to cause such registration statement to
become effective;


             (b)  prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such registration
statement until such time as all of such securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof set forth in such registration statement, but in no event for a period
of more than six months after such registration statement becomes effective;





             (c)  at least five business days before filing
with the Commission, furnish to counsel (if any) to the selling Stockholders
such registration copies of all documents proposed to be filed with the
Commission in connection with such registration, which documents will be
subject to the review of such counsel;


             (d)  furnish to each seller of securities such
number of conformed copies of such registration statement and of each amendment
and supplement thereto (in each case including all exhibits, except that the
Company shall not be obligated to furnish any seller of securities with more
than two copies of such exhibits), such number of copies of the prospectus
comprised in such registration statement (including each preliminary prospectus
and any summary prospectus), in conformity with the requirements of the Securities
Act, and such other documents, as such seller may reasonably request in order
to facilitate the disposition of the securities owned by such seller;


             (e)  use its commercially reasonable efforts to
register or qualify all securities covered by such registration statement under
the securities or blue sky laws of such jurisdictions as each seller shall
request, and do any and all other acts and things which may be necessary or
advisable to enable such seller to consummate the disposition in such
jurisdictions of the securities owned by such seller, except that the Company
shall not for any such purpose be required to qualify generally to do business
as a foreign corporation in any jurisdiction wherein it is not so qualified, or
to consent to general service of process in any such jurisdiction;


             (f)  in connection with an underwritten offering
only, use its commercially reasonable efforts to furnish to each seller copies
of


             (i)  an opinion of counsel for the Company, dated
the effective date of the registration statement, and



             (ii)  a “comfort” letter signed by the independent
public accountants who have certified the Company’s financial statements
included in the registration statement,



each covering substantially the same
matters with respect to the registration statement (and the prospectus included
therein) and, in the case of such accountants’ letter, with respect to events
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer’s counsel and in accountant’s letters delivered to the
underwriters in underwritten public offerings of securities;


             (g)  notify each seller of any securities covered
by such registration statement, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omits to state any material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of the circumstances
then existing, and at the request of any such seller prepare and furnish to
such seller a reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
the light of the circumstances then existing;





             (h)  otherwise use its best efforts to comply
with all applicable rules and regulations of the Commission, and make available
to its security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least 12 months, but not more than 18
months, beginning with the first month after the effective date of such
registration statement, which earnings statement shall satisfy the provisions
of Section 11(a) of the Securities Act;


             (i)  use its commercially reasonable efforts to
list the Registrable Securities covered by such registration statement on any
securities exchange (including NASDAQ), if such securities are not already so
listed and if such listing is then permitted under the rules of such exchange,
and to provide a transfer agent and registrar for such Registrable Securities
not later than the effective date of such registration statement;


             (j)  provide a transfer agent and registrar for all
such Registrable Securities not later than the effective date of such
registration statement;


             (k)  enter into such customary agreements
(including underwriting agreements in customary form) and take all such other
actions as the holders of a majority of the Registrable Securities being sold
or the underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities (including, without
limitation, effecting a stock split or a combination of shares);


             (l)  in the event of the issuance of any stop
order suspending the effectiveness of a registration statement, or of any order
suspending or preventing the use of any related prospectus or suspending the
qualification of any securities included in such registration statement for
sale in any jurisdiction, the Company will use its reasonable best efforts
promptly to obtain the withdrawal of such order.


             The
Company may require each seller of any securities as to which any registration
is being effected to furnish the Company such information regarding such seller
and the distribution of such securities as the Company may from time to time
reasonably request in writing in order to permit the Company to comply with all
applicable federal and state securities laws.


             The
Company shall make available for inspection by any seller of securities as to
which any registration is being effected, any underwriter participating in any
disposition pursuant to the related registration statement, and any attorney,
accountant or other agent retained by any such seller or any such underwriter
(collectively, the “Inspectors”), all financial and other records,
pertinent corporate documents and properties of the Company and its
subsidiaries, if any, as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and shall cause the Company’s and
its subsidiaries’ officers, directors and employees to supply all information
and respond to all inquiries reasonably requested by any such Inspector in
connection with such registration statement.





             Each
Stockholder hereby agrees that upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 8(g), such
holder will promptly discontinue such holder’s disposition of Registrable
Securities pursuant to the registration statement covering such Registrable
Securities until such holder’s receipt of the copies of the supplemented or
amended prospectus contemplated by Section 8(g), and, if so directed by
the Company, will deliver to the Company (at the Company’s expense) all copies,
other than permanent file copies, then in such holder’s possession of the
prospectus covering such Registrable Securities current at the time of receipt
of such notice.  In the event the
Company shall give such notice, the period mentioned in Section 8(b) shall
be extended by the number of days during the period from and including the date
when each seller of any Registrable Securities covered by such registration
statement shall have received such notice to but not including the date when
each such seller receives copies of the supplemented or amended prospectus
contemplated by Section 8(g).


             9.  Indemnification.  (a)  The Company agrees to indemnify, to the
extent permitted by law, each Stockholder participating in a registration
pursuant to this Agreement, the officers and directors of such Stockholder and
each Person that controls such Stockholder (within the meaning of the
Securities Act) against any and all losses, claims, damages, liabilities and
expenses, including all reasonable legal fees incurred therewith, arising out
of, based upon or resulting from any untrue statement or alleged untrue
statement of a material fact contained in any registration statement,
prospectus or preliminary prospectus, or any amendment thereof or supplement
thereto, or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement therein not
misleading in light of the circumstances then existing or any violation or
alleged violation by the Company of any federal, state, foreign or common law
rule or regulation applicable to the Company and relating to action required of
or inaction by the Company in connection with any such registration, except insofar
as the same result from or are contained in any information furnished in
writing to the Company by such Stockholder and stated to be specifically for
use therein or, in the case of an underwritten offering only, from such
Stockholder’s failure to deliver a copy of the registration statement,
prospectus or preliminary prospectus or any amendments thereof or supplements
thereto.


             (b)  Each Stockholder participating in a
registration pursuant to this Agreement agrees to indemnify, to the extent
permitted by law, the Company, its directors and officers and each Person that
controls the Company (within the meaning of the Securities Act) against any and
all losses, claims, damages, liabilities and expenses, including all reasonable
legal fees incurred in connection therewith, arising out of, based upon or
resulting from any untrue statement or alleged untrue statement of material
fact contained in any registration statement, prospectus or preliminary
prospectus, or any amendment thereof or supplement thereto, or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances then existing, but only to the extent that such untrue statement
or (as to the matters set forth in such information or affidavit) omission is
contained in any information or affidavit furnished to the Company in writing
by such Stockholder and stated to be expressly for use therein and except
insofar as the same result from the Company’s failure to deliver a copy of the
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto, provided that such Stockholder’s
obligations hereunder shall be limited to an amount equal to the proceeds to
such Stockholder of the Registrable Securities sold pursuant to such
registration statement.





             (c)  In connection with an underwritten offering,
the Company and each Stockholder participating in the related registration will
indemnify the underwriter(s), their officers and directors and each Person who
controls such underwriter(s) (within the meaning of the Securities Act) to the
same extent as provided in subsections (a) and (b), respectively, above.


             (d)  Promptly after receipt by an indemnified
party of notice of the commencement of any action or proceeding involving a
claim referred to in the preceding subsections of this Section 9, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the commencement of
such action, provided that the failure of any indemnified party to give
notice as provided herein shall not relieve the indemnifying party of its
obligations under the preceding subsections of this Section 9, except to
the extent that the indemnifying party is actually and materially prejudiced by
such failure to give notice.  In any
case in which any such action is brought against an indemnified party, the indemnifying
party will be entitled to participate in and to assume the defense thereof,
jointly with any other indemnifying party similarly notified, to the extent
that it may wish, with counsel reasonably satisfactory (taking into account,
among other factors, any potential exposure of the indemnified party to
criminal liability) to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party for any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof unless, in the reasonable judgment of any
such indemnified party, a conflict of interest may exist between such
indemnified party and any indemnifying party or any other of such indemnified
parties, in which case the indemnifying party shall be liable to such
indemnified party for any reasonable legal or other expenses incurred in
defending such action.  No indemnifying
party will consent to entry of any judgment or enter into any settlement which
does not include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
of such claim or litigation. 
Notwithstanding the foregoing, and without limiting any of the rights
set forth above, in any event any party will have the right to retain, at its
own expense, counsel with respect to the defense of a claim.





             (e)  If for any reason the foregoing indemnity is
unavailable, then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such losses, claims, damages,
liabilities or expenses (i) in such proportion as is appropriate to
reflect the relative benefits (which relative benefits with respect to such
offering shall be deemed to be in the same proportion as the respective net
proceeds received from such offering by the Company and the Stockholders
determined as set forth on the table on the cover page of the prospectus)
received by the indemnifying party on the one hand and the indemnified party on
the other or (ii) if the allocation provided by subdivision (i)
above is not permitted by applicable law or provides a lesser sum to the
indemnified party than the amount hereinafter calculated, in such proportion as
is appropriate to reflect not only the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the other but
also the relative fault of the indemnifying party and the indemnified party (which
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by
the Company or the Stockholders, the intent of the parties and their relative
knowledge, access to information and opportunity to prevent or correct such
statement or omission) as well as any other relevant equitable
consideration.  Notwithstanding the
foregoing, (A) no holder of Registrable Securities shall be
required to contribute any amount in excess of the amount such holder would
have been required to pay to an indemnified party if the indemnity under
subsection (b) of this Section 9 was available and (B) no
underwriter, if any, shall be required to contribute any amount in excess of
the amount by which the total price at which the Registrable Securities
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which such underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission.  No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of the Securities Act) shall be entitled to contribution from any Person who
was not guilty of such fraudulent misrepresentation.  The obligation of any underwriters to contribute pursuant to this
Section 9 shall be several in proportion to their respective underwriting
commitments and not joint.


             (f)  An indemnifying party shall make payments of
all amounts required to be made pursuant to the foregoing provisions of this
Section 9 to or for the account of the indemnified party from time to time
promptly upon receipt of bills or invoices relating thereto or when otherwise
due and payable.


             10.  Affiliate
Transactions.  The Company will
not engage in any transaction or series of related transactions (other than
Exempted Transactions) with North Castle I, NCP I Sub,
North Castle I-A or North Castle II or any of their respective Affiliates and
any successor to any such person unless (i) the transaction (or series of
related transactions) is on terms and conditions no less favorable than would
be obtainable by the Company in an arm’s-length transaction and the Chief
Financial Officer of the Company delivers to the Board and to AEA a certificate
to such effect and (ii) if the transaction (or series of related transactions)
involves an amount more than $1 million, a majority of the members of the Board
who are not officers, employees or managing members of the Company, or of North
Castle I, NCP I Sub, North Castle I-A or North
Castle II or any of their respective Affiliates shall have approved such
transactions in writing or at a duly convened meeting of the Board.





                           11.        Management
Stockholders.


             (a)         Call Option.  In the event of a Management
Stockholder’s
termination of employment at the Company for any reason other than for death or
permanent disability, the Company shall have an option (a “Call Option”)
to purchase from the Management Stockholder all (but not less than all) of the
Management Stockholder’s Covered Equity at a price equal to the fair market
value of the Covered Equity determined as of the date of repurchase by the
Board of Directors of the Company in its sole discretion.  If the Company desires to exercise the Call
Option, it shall give written notice thereof to the Management Stockholder
within 60 days of the occurrence of the event giving rise to such Call
Option.  Such Call Option shall expire
if such notice is not given within such 60-day period.  The Management Stockholder shall deliver to
the Company certificates representing the Covered Equity, free and clear of all
claims, liens, or encumbrances, together with blank stock powers, duly executed
with all signature guarantees at a closing at the principal office of the
Company on the third business day after notice has been given to the Management
Stockholder, or at such other place and time and in such manner as may be
mutually agreed to by the Management Stockholder and the Company.  The net proceeds from the purchase of the
Covered Equity pursuant to the Call Option (the “Call Option Proceeds”)
shall be paid by a check, which shall be delivered to the Management
Stockholder at the closing of such purchase.


             (b)        Termination
of Call Option.  All rights and
obligations created pursuant to Section 11(a) shall be extinguished upon the
earlier of (i) June 30, 2002 or (ii) a Public Offering.


             (c)         Put Options.  In the event of (i) the
permanent
disability of the Management Stockholder so that he is unable substantially to
perform his services as an employee of the Company for an aggregate of 180 days
during any twelve-month period or (ii) the death of the Management
Stockholder, the Management Stockholder or, in the event of death, the deceased
Management Stockholder’s administrator or executor, shall have the option (the
“Put Option”), exercisable by the giving of notice thereof to the
Company within 120 days of the occurrence of the event giving rise to such Put
Option, which, in the case of permanent disability, shall mean the 180th day of
inability to perform services as an employee of the Company, to sell to the
Company, and the Company upon exercise of such Put Option shall buy from the
Management Stockholder or the deceased Management Stockholder’s administrator
or executor, as the case may be, all (but not less than all) of the Management
Stockholder’s Covered Equity, at a price per share equal to the fair market
value of the Covered Equity determined as of the date of repurchase by the
Board of Directors of the Corporation in its sole discretion.  Such Put Option shall expire if such notice
is not given within such 120-day period. 
The Management Stockholder, or the deceased Management Stockholder’s
administrator or executor, shall deliver to the Company certificates
representing the Covered Equity, free and clear of all claims, liens, or
encumbrances, together with blank stock powers, duly executed with all
signature guarantees at a closing at the principal office of the Company on the
third business day after notice has been given to the Company or at such other
place and time and in such manner as may be mutually agreed to by the
Management Stockholder, or the deceased Management Stockholder’s administrator
or executor, and the Company.  The net
proceeds from the purchase of the Covered Equity pursuant to the Management
Stockholder Option (the “Put Option Proceeds”) shall be paid by a check,
which shall be delivered to the Management Stockholder at the closing of such
purchase.  The obligations of the
Company to purchase the Management Stockholder’s Covered Equity pursuant to
this Section 11(c) shall be deferred during any period in which such purchase
would not be permitted by applicable law or could cause the Company to be in
default under any agreement to which it or its Subsidiaries are a party.





             (d)        Termination
of Put Option.  All rights and
obligations created pursuant to Section 11(c) shall be extinguished upon the
earlier of (i) June 30, 2002 or (ii) a Public Offering.


             12.  Severability.  If any provision of this Agreement is
invalid, inoperative or unenforceable for any reason, such circumstance shall
not have the effect of rendering the provision in question inoperative or unenforceable
in any other case or circumstance, or of rendering any other provision or
provisions herein contained invalid, inoperative or unenforceable to any extent
whatsoever.  The invalidity of any one
or more phrases, sentences, clauses, Sections or subsections of this Agreement
shall not affect the remaining portions of this Agreement.


             13.  Information.  (a)  Each of the Stockholders agrees that, from
the date of this Agreement and for so long as it shall own any Covered Equity,
it will furnish the Company such necessary information and reasonable
assistance as the Company may reasonably request (x) in connection with
the consummation of the transactions contemplated by this Agreement, (y)
in connection with the preparation and filing of any reports, filings,
applications, consents or authorizations with any Governmental Entity under any
Applicable Laws and (z) in order for the Company to determine, from time
to time, whether it is a “personal holding company” within the meaning of
Section 542 of the Code.  Each
Stockholder proposing to make a transfer pursuant to Section 3(a) shall provide
the Company with any information reasonably requested in order for the Company
to determine whether the proposed transfer would be a Prohibited Transaction.


             (b)  Within 90 days of the end of each fiscal
year, the Company shall mail to each Stockholder a report setting forth an
audited balance sheet as at the end of such fiscal year and audited statements
of income, common shareholders’ equity and cash flows for such fiscal year of
the Company and its Subsidiaries on a consolidated basis, and any other
information the Company deems necessary or desirable.  The Company will furnish quarterly financial statements to
Stockholders as requested.


             (c)  The Company also will furnish to AEA such
other information as AEA may from time to time reasonably request on behalf of
itself or the other Covered Shareholders.


                           14.  Certain
Definitions.


             “Affiliate”
means with respect to any Person, any other Person directly or indirectly Controlling,
Controlled by or under common Control with such first Person.





             “Applicable
Laws” means all applicable provisions of (i) constitutions,
treaties, statutes, laws (including the common law), rules, regulations,
ordinances, codes or orders of any Governmental Entity, (ii) any
consents or approvals of any Governmental Entity and (iii) any orders,
decisions, injunctions, judgments, awards, decrees of or agreements with any
Governmental Entity.


             “Business
Day” means a day other than a Saturday, Sunday or other day on which
commercial banks in New York City are authorized or required to close.


             “Change
of Control” means any transaction or series transaction, the result of
which is that North Castle I, NCP I Sub, North Castle I-A and North Castle II
no longer have the right, in the aggregate, to nominate a majority of the
members of the Board.


             “Code”
means the Internal Revenue Code of 1986, as amended.


             “Common
Stock” means all shares of any class common stock of the Company, whether
voting or non-voting, outstanding from time to time.


             “Control”
means the power to direct the affairs of a Person by reason of ownership of
voting securities, by contract or otherwise.


             “Covered
Equity” means all of the shares of Common Stock, preferred stock or other
equity interest in the Company, and any other security, warrant or other right
that is or may allow the holder thereof to receive Common Stock or preferred
stock or other equity interest, owned from time to time by any of the
Stockholders.


             “Cover
Shareholders” is defined in the recitals to this Agreement.


             “Covered
Shareholders Agreements” means the agreements between AEA and the Covered
Shareholders pursuant to which the Covered Shareholders have appointed AEA as
their representative and have granted AEA a proxy to vote their Common Stock in
accordance with the provisions of this Agreement.


             “Exempted
Transactions” means (i) the investment banking services
provided by North Castle Partners, L.L.C. (the “Sponsor”) in connection with
the recapitalization of the Company consummated as of June 30, 1997, in
consideration of which the Company has agreed to pay the Sponsor a fee of $3.5
million and (ii) the ongoing monitoring and management services to
be provided to the Company, in consideration of which the Company has agreed to
pay the Sponsor an annual fee of $1.5 million.


             “Governmental
Entity” means any federal, state, local or foreign court, legislative,
executive or regulatory authority or agency.


             “Information”
means all information about the Company or any of its subsidiaries (whether
written or oral or in electronic or other form and whether prepared by the
Company, its advisers or otherwise), that is or has been furnished to any
Stockholder or any of its Representatives by or on behalf of the Company or any
of its subsidiaries, or any of their respective Representatives, together with
all written or electronically stored documentation prepared by such Stockholder
or its Representatives based on or reflecting, in whole or in part, such
information, provided that the term “Information” does not include any
information that (x) is or becomes generally available to the
public through no action or omission by any Stockholder or its Representatives
or (y) is or becomes available to such Stockholder on a
nonconfidential basis from a source, other than the Company or any of its
subsidiaries, or any of their respective Representatives, that to the best of
such Stockholder’s knowledge, after reasonable inquiry, is not prohibited from
disclosing such portions to such investor by a contractual, legal or fiduciary
obligation.





             “Management
Stockholder” means any stockholder who is as of the date hereof or later
becomes, a consultant to or an officer or employee of the Company other than
Michael Leiner and David Brubaker.


             “North
Castle Sellers” is defined in Section 4.


             “Person”
means any natural person, firm, individual, partnership, joint venture,
business trust, trust, association, corporation, company or unincorporated
entity.


             “Prohibited
Transfer” means any transfer of Covered Equity to a Person which (u) may
not be effected without registering the securities involved under the
Securities Act, (v) would result in the assets of the Company
constituting Plan Assets as such term is defined in the Department of
Labor regulations promulgated under the Employer Retirement Income Security Act
of 1974, as amended, (x) would cause the Company to be, be Controlled by
or under common Control with an “investment company” for purposes of the
Investment Company Act of 1940, as amended, or (y) would require
any securities of the Company to be registered under the Securities and
Exchange Act of 1934, as amended.


             “Public
Offering” means any sale of Common Stock to the public pursuant to an
effective registration statement under the Securities Act underwritten by an
underwriter of national standing other than a Special Registration.


             “Representatives”
means with respect to any Person, any of such Person’s directors, officers,
employees, general partners, affiliates, attorneys, accountants, financial and
other advisers, and other agents and representatives, including in the case of
any Stockholder any person nominated to the Board by such Stockholder.


             “Rule
144” means Rule 144 (or any successor provision) under the Securities Act.


             “Special
Registration” means (a) The registration of shares of equity
securities and/or options or other rights in respect thereof to be offered to
Management Stockholders or (b) the registration of equity securities
and/or options or other rights in respect thereof solely on Form S-4 or S-8 or
any successor form.


             “Specified
Affiliate” means (a) with respect to any Person, any other Person directly
or indirectly Controlling, Controlled by or under common Control with such
first person solely by virtue of having the power to direct the affairs of the
Person by reason of ownership, directly or indirectly, of at least 75% of the
outstanding voting securities of such Person, (b) with respect to any
Management Stockholder, Michael Leiner, David Brubaker or Charles F. Baird, Jr.,
a Specified Affiliate shall include (i) a spouse or any lineal ancestor
or descendant, and (ii) the trustee or trustees of a trust or trusts at
any time established for the primary benefit of the Stockholder or the spouse
or any lineal ancestor or descendant of the Stockholder to whom such Management
Stockholder or Charles F. Baird, Jr. proposes to transfer its Common Stock and
who has agreed to be bound by this Agreement, and (c) with respect to AEA and
the Covered Shareholders, any current or future employee, shareholder, director
or officer of AEA, any spouse, issue, parents or other relatives of any of the
foregoing or of any Covered Shareholder or (i) trusts for the benefit of any of
such Persons, (ii) entities controlling or controlled by any of such Persons
and (iii) in the event of the death of any such individual Person, heirs or
testamentary legatees of such Person, in each case to whom AEA or a Covered
Shareholder has proposed to transfer its Common Stock and who has entered into
a Covered Shareholders Agreement and thereby or otherwise agrees to be bound by
this Agreement.





             15.  Notices.  All notices and other communications made in
connection with this Agreement shall be in writing.  Any notice or other communication in connection herewith shall be
deemed duly given to any party (a) two Business Days after it is
sent by express, registered or certified mail, return receipt requested,
postage prepaid or (b) one Business Day after it is sent by
overnight courier guaranteeing next day delivery, in each case, addressed as
follows or, to such other address as may be specified in writing to the other
parties hereto:


             (i)          if
to the Company:


Leiner
Health Products Group Inc.

901 E. 233rd Street

Carson, CA  90745

Facsimile:  (310) 952-7766

Telephone:  (310) 835-8400

Attention:  Robert M. Kaminski



(ii)         if to North Castle I, NCP Sub-I, North
Castle I–A, North Castle II or NCP:



c/o
North Castle Partners, L.L.C.

60 Arch Street

Greenwich, CT  06830

Attention:  Charles F. Baird, Jr.



with
a copy to:



Debevoise
& Plimpton

875 Third Avenue

New York, New York 10022

Facsimile:  (212) 909-6836

Telephone:  (212) 909-6000

Attention:  Franci J. Blassberg, Esq.






(iii)        if to Squam IV:



Squam
Lake Investors IV, L.P.

c/o Bain and Company, Inc.

Two Copley Place

Boston, MA 02116

Facsimile: (617) 572-3266

Attention:  Alan Harris



(iv)       if to the other Stockholders, at the
addresses set forth on the signature pages to the Original Stockholders
Agreement



Any party may give any notice or other
communication in connection herewith using any other means (including, but not
limited to, personal delivery, messenger service, facsimile, telex or ordinary
mail), but no such notice or other communication shall be deemed to have been
duly given unless and until it is actually received by the individual for whom
it is intended.


             16.  Term.  This Agreement shall be effective as of the
date hereof and shall terminate and be of no further force and effect upon the
earliest to occur of (i) June 30, 2007, (ii) the termination of
this Agreement by the unanimous written consent of the Stockholders, (iii) the
establishment of a Public Market for the Common Stock or (iv) a
Change of Control except that the registration rights provided in Section 6 and
Section 7 will survive until AEA and the Covered Shareholders (as a group) and
North Castle I, NCP I Sub, North Castle I-A and North Castle II (as a group)
each owns Common Stock representing less than 5% of the Company’s outstanding
Common Stock.  A “Public Market”
for the Common Stock shall be deemed to have been established at such time as
20% of the Common Stock (on a fully diluted basis) shall have been sold to the
public pursuant to an effective registration statement under the Securities Act
other than a Special Registration.


             17.  Headings.  The headings contained in this Agreement are
for purposes of convenience only and shall not affect the meaning or
interpretation of this Agreement.


             18.  Entire
Agreement.  This Agreement
constitutes the entire agreement and supersedes all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof.  Without limiting the foregoing,
the Company and each Stockholder who is party to a Participants’ Subscription
Agreement or a Management Subscription Agreement hereby agree that such
agreement is hereby terminated and superseded by this Agreement.


             19.  Counterparts.  This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument.





             20.  Governing Law.  This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York
applicable to agreements made and performed within such State.


             21.  Binding Effect.  This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns.


             22.  Assignment.  This Agreement shall not be assignable by
any party without the prior written consent of the other parties.


             23.  No
Third Party Beneficiaries. 
Nothing in this Agreement shall confer any rights upon any Person other
than the parties hereto and each such party’s respective heirs, successors and
permitted assigns.


             24.  Amendment;
Waivers, Etc.  If AEA and Covered
Shareholders own 5% or more of the outstanding Common Stock, then AEA must
consent in writing to any amendment hereto. 
This Agreement may be amended, and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed
by it, if the Company shall have obtained the written consent to such
amendment, action or omission to act, of the holder or holders of at least 66K%
of the shares of Common Stock outstanding as of the date hereof, provided
that this Agreement may not be amended in a manner adversely affecting any
Stockholder which does not adversely affect all Stockholders without the
consent of such Stockholder provided, further, that in no event
may the provisions of this agreement with respect to the Piggy Back
Registration Rights (including the Company’s obligations thereunder) or the
Tag-Along Rights be amended without the consent in writing of AEA.  No amendment, modification or discharge of
this Agreement, and no waiver hereunder, shall be valid or binding unless set
forth in writing and duly executed by the party against whom enforcement of the
amendment, modification, discharge or waiver is sought.  Any such waiver shall constitute a waiver
only with respect to the specific matter described in such writing and shall in
no way impair the rights of the party granting such waiver in any other respect
or at any other time.


             25.  Consent
to Jurisdiction.  Each party
irrevocably submits to the exclusive jurisdiction of (a) the Supreme
Court of the State of New York, New York County, and (b) the United
States District Court for the Southern District of New York, for the purposes
of any suit, action or other proceeding arising out of this Agreement or any
transaction contemplated hereby (and agrees not to commence any such suit,
action or other proceeding except in such courts).  Each party further agrees that service of any process, summons,
notice or document by U.S. registered mail to such party’s respective address
set forth or referred to in Section 15 shall be effective service of process
for any such suit, action or other proceeding. 
Each party irrevocably and unconditionally waives any objection to the
laying of venue of any such suit, action or other proceeding in (i) the
Supreme Court of the State of New York, New York County, and (ii) the
United States District Court for the Southern District of New York, that any
such suit, action or other proceeding brought in any such court has been
brought in an inconvenient forum.





             26.  Waiver of
Jury Trial.  Each party hereby
waives, to the fullest extent permitted by applicable law, any right it may
have to a trial by jury in respect of any suit, action or other proceeding
arising out of this Agreement or any transaction contemplated hereby.  Each party (a) certifies that no
representative, agent or attorney of any other party has represented, expressly
or otherwise, that such other party would not, in the event of litigation, seek
to enforce the foregoing waiver and (b) acknowledges that it and the
other parties have been induced to enter into the Agreement by, among other
things, the mutual waivers and certifications in this Section 26.


             27.  AEA Authority.  AEA hereby represents and warrants to each
other party hereto that, pursuant to the Covered Shareholders Agreements, it
has been duly authorized to execute this Agreement, and to exercise all rights
and perform all obligations hereunder, on behalf of each Covered Shareholder.





             IN
WITNESS WHEREOF, the parties hereto have duly executed this Agreement by their authorized
representatives as of the date first above written.


	 	 	LEINER HEALTH PRODUCTS GROUP INC.
	 	 	 	 
	 	 	By:	 
	 	 	 	


	 	 	 	Name:
	 	 	 	Title:
	 	 	 	 
	 	 	NORTH CASTLE PARTNERS I, L.L.C.
	 	 	 	 
	 	 	By:	Baird Investment Group, L.L.C.,

  its managing member
	 	 	 	 
	 	 	 	 
	 	 	By:	 
	 	 	 	


	 	 	 	Name:
	 	 	 	Title:
	 	 	 	 
	 	 	NCP I SUB, L.P.
	 	 	 	 
	 	 	By:	North Castle Partners I, L.L.C.,

  its general partner
	 	 	 	 
	 	 	By:	Baird Investment Group, L.L.C.,

  its managing member
	 	 	 	 
	 	 	By:	 
	 	 	 	


	 	 	 	Name:
	 	 	 	Title:
	 	 	 	 
	 	 	NORTH CASTLE PARTNERS I–A, L.P.
	 	 	 	 
	 	 	By:	NCP G.P. I-A, L.L.C., its general partner
	 	 	 	 
	 	 	By:	 
	 	 	 	


	 	 	 	Name:
	 	 	 	Title:
	 	 	 	 
	 	 	NORTH CASTLE PARTNERS II, L.P.
	 	 	 	 
	 	 	By:	NCP G.P. II, L.P., its general partner
	 	 	 	 
	 	 	By:	North Castle GP II, L.L.C., its general
  partner
	 	 	 	 
	 	 	By:	 
	 	 	 	


	 	 	 	Name:
	 	 	 	Title:
	 	 	 	 
	 	 	NCP CO-INVESTMENT FUND, L.P.
	 	 	 	 
	 	 	By:	NCP Co-Investment GP, L.L.C., its general
  partner
	 	 	 	 
	 	 	By:	 
	 	 	 	


	 	 	 	Name:
	 	 	 	Title:
	 	 	 	 
	 	 	SQUAM LAKE INVESTORS IV, L.P.
	 	 	 	 
	 	 	By:	GPI, Inc., its managing general partner
	 	 	 	 
	 	 	By:	 
	 	 	 	


	 	 	 	Name:
	 	 	 	Title:
	 	 	 	 
	 	 	AEA INVESTORS INC.	 
	 	 	For itself and on behalf of the	 
	 	 	  
  Covered Shareholders	 
	 	 	 	 
	 	 	By:	 
	 	 	 	


	 	 	 	Christine J. Smith
	 	 	 	General Counsel