Document:

Exhibit 10.2

 

EXECUTION
COPY

 

CONFIRMATION

 

	
  Date:

  	
  May 15, 2009

  
	
   

  	
   

  
	
  To:

  	
  Sealy Mattress
  Company

  
	
   

  	
  Sealy Drive

  
	
   

  	
  One Office
  Parkway

  
	
   

  	
  Trinity, North
  Carolina 27370

  
	
   

  	
   

  
	
   

  	
  Sealy
  Corporation

  
	
   

  	
  Sealy Drive

  
	
   

  	
  One Office
  Parkway

  
	
   

  	
  Trinity, North
  Carolina 27370

  
	
   

  	
   

  
	
  From:

  	
  Sealy Holding LLC

  
	
   

  	
  9 West 57th Street, Suite 4200

  
	
   

  	
  New York, NY 10019

  

 

Dear Sir or Madam,

 

The purpose of this letter agreement (this “Confirmation”) is to confirm the terms and conditions of the
convertible note forward transaction entered into between us on the Trade Date
specified below (the “Transaction”).  This Confirmation constitutes a “Confirmation”
as referred to in the Agreement specified below.

 

In this Confirmation, “Purchaser” means Sealy
Holding LLC, the “Company” means Sealy Mattress Company, and “Parent” means Sealy Corporation.

 

1.             The definitions and
provisions contained in the 2002 ISDA Equity Derivatives Definitions (the “2002 Definitions”), as published by the International Swaps
and Derivatives Association, Inc. (“ISDA”), are incorporated
into this Confirmation.  In the event of
any inconsistency between the 2002 Definitions and this Confirmation, this
Confirmation will govern.  The
Transaction shall be deemed a Share Forward Transaction for the purposes of the
2002 Definitions.

 

This Confirmation shall supplement, form a part of and be subject to an
agreement (the “Agreement”) in the form of the
1992 ISDA Master Agreement (Multicurrency—Cross Border) (the “ISDA Form”), as published by the International Swaps and
Derivatives Association, Inc., as if Purchaser, the Company and Parent had
executed on the date hereof the ISDA Form (without any Schedule thereto but
including a Credit Support Annex in the form of the 1994 ISDA Credit Support
Annex (Bilateral Form) (ISDA Agreements Subject to New York Law Only) as
published by ISDA that is deemed to have been entered into on the date hereof
by the parties hereto and is modified and supplemented by this Confirmation
(the “CSA”)).  All provisions contained in the Agreement are
incorporated into and shall govern this Confirmation except as expressly
modified below.  This Confirmation,
together with the Agreement, evidences a complete and binding agreement between
you and us as to the terms of the Transaction and replaces any previous
agreement between us with respect to the subject matter hereof.  The Transaction hereunder shall be the sole
Transaction under the Agreement.

 

If there exists any ISDA Master Agreement among Purchaser, the Company
and Parent or any confirmation or other agreement among Purchaser, the Company
and Parent pursuant to which an ISDA Master Agreement is deemed to exist among
Purchaser, the Company and Parent, then notwithstanding anything to the
contrary in such ISDA Master Agreement, such confirmation or agreement or any
other agreement to 

 

 

which Purchaser, the Company and Parent are parties, the Transaction
shall not be considered a Transaction under, or otherwise governed by, such
existing or deemed ISDA Master Agreement.

 

2.             The terms of the particular Transaction to which this
Confirmation relates are as follows:

 

General
Terms:

 

	
  Background:

  	
  The Company and Parent
  propose to offer and sell 8% Convertible Senior Secured Third Lien Notes due
  2016 (the “Convertible Notes”) pursuant to
  a distribution of subscription rights (the “Rights”)
  by Parent to holders of its common stock, including Purchaser, to acquire
  from Parent $177,132,000 aggregate initial principal amount of Convertible
  Notes in a rights offering (the “Rights Offering”).

   

  As set forth below,
  Purchaser will exercise all the Rights that are distributed to it in the
  Rights Offering, which Rights will cover $89,628,792 aggregate initial
  principal amount of the Convertible Notes and will oversubscribe for all the
  Convertible Notes that are not subscribed for upon the exercise of Rights
  distributed to other stockholders of Parent in the Rights Offering (the “Oversubscription”). As a result, the aggregate initial
  principal amount of Convertible Notes that are subject to the
  Oversubscription will be $87,503,208, and the aggregate initial principal
  amount of the Convertible Notes will be $177,132,000.  The subscription by Purchaser of the
  Convertible Notes pursuant to the Rights and the Oversubscription shall be
  effected by way of the Transaction under this Confirmation.

   

  Simultaneously with the
  execution of this Confirmation, the Company is agreeing to sell $350,000,000
  aggregate principal amount of its 107/8% Senior Secured Notes due 2016 (the “First Lien Notes”) and to enter into a $100,000,000 senior
  secured asset-based revolving credit facility (the “ABL”).

   

  Purchaser has agreed,
  subject to the terms and conditions set forth or incorporated by reference in
  this Confirmation, to post cash collateral to secure its maximum purchase
  obligation with respect to the Convertible Notes under this Confirmation
  concurrently with the closing of the offering of the First Lien Notes and the
  ABL. The Company intends to use the proceeds of the offering of the First
  Lien Notes and the cash collateral from Purchaser to refinance its existing
  bank credit facility.

  
	
   

  	
   

  
	
  Trade Date:

  	
  May 15, 2009

  
	
   

  	
   

  
	
  Effective Date:

  	
  The closing date for
  the ABL and the sale of the First Lien Notes, subject to the satisfaction by
  the Company and Parent or the waiver by Buyer of the conditions set forth in Section
  3 of this Confirmation.

  

 

2

 

	
  Payment on Effective
  Date:

  	
  On the Effective Date,
  Sellers will also pay to Buyer the Forward Contract Payment.

  
	
   

  	
   

  
	
  Forward Contract
  Payment:

  	
  USD1,000,000

  
	
   

  	
   

  
	
  Sellers:

  	
  The Company and Parent

  
	
   

  	
   

  
	
  Buyer:

  	
  Purchaser

   

  For the avoidance of
  doubt, for purposes of the Transaction, all references to “either party” or “other
  party” in the Agreement shall be deemed to refer to “any party” or “other
  parties,” respectively. 

  
	
   

  	
   

  
	
  Note:

  	
  Each USD25 initial principal amount of the
  Convertible Notes to be issued by the Company and Parent in the aggregate
  initial principal amount of USD 177.132 million on the Settlement Date.

   

  For purposes of the
  Transaction all references to “Share” or “Shares” (other than such terms in Section
  12.6 of the 2002 Definitions) shall be deemed to refer to “Note” or “Notes”,
  respectively. 

  
	
   

  	
   

  
	
  Underlying Shares:

  	
  The common stock, $0.01
  par value per share, of Parent (the “Issuer”)
  (Symbol: “ZZ”).

  
	
   

  	
   

  
	
  Number of Notes:

  	
  7,085,280.

   

  For the avoidance of
  doubt, for purposes of the Transaction all references to the “Number of
  Shares” shall be deemed to refer to the “Number of Notes”.

  
	
   

  	
   

  
	
  Forward Price: 

  	
  USD25

  
	
   

  	
   

  
	
  Prepayment:

  	
  Not Applicable

  
	
   

  	
   

  
	
  Variable Obligation: 

  	
  Not Applicable

  
	
   

  	
   

  
	
  Exchange:

  	
  For purposes of
  determining any Exchange Business Day or whether a Delisting has occurred,
  New York Stock Exchange.  In all other
  cases, Not Applicable. 

  
	
   

  	
   

  
	
  Related Exchanges:

  	
  Not Applicable

  
	
   

  	
   

  
	
  Calculation Agent:

  	
  Purchaser.  In connection with any calculations,
  adjustments or determinations made by the Calculation Agent, the Calculation
  Agent shall provide to the other parties a statement showing in reasonable
  detail, its calculations (including any quotations, market data or information
  from internal sources used in making such calculation), adjustments and
  determinations. 

  

 

3

 

Settlement
Terms:

 

	
  Physical Settlement

  	
  Applicable

  
	
   

  	
   

  
	
  Settlement Currency:

  	
  USD

  
	
   

  	
   

  
	
  Settlement Date:

  	
  The third Exchange
  Business Day following the expiration of the Rights Offering, which is
  scheduled to be June 25, 2009, subject to the satisfaction by the Company and
  Parent or the waiver by Purchaser of the conditions set forth in Section 4 of
  this Confirmation.

  
	
   

  	
   

  
	
  Physical Settlement:

  	
  Notwithstanding Section
  9.2(a) of the 2002 Definitions, 
  subject to Section 6(i) of this Confirmation, Buyer will pay to
  Sellers, by wire transfer to the account designated by Sellers, an amount
  (the “Settlement Amount”) equal to the
  Forward Price multiplied by the Number of
  Notes to be Delivered, and Sellers will deliver to Buyer the Number of Notes
  to be Delivered.

  
	
   

  	
   

  
	
  Number of Notes to be
  Delivered:

  	
  A number of Notes equal
  to (i) 7,085,280 minus (ii) the Number of Subscribed Notes.

  
	
   

  	
   

  
	
  Number of Subscribed
  Notes:

  	
  The number of
  Convertible Notes to be delivered by Sellers to persons other than Purchaser
  pursuant to the Rights Offering, as notified to Purchaser as set forth below.

  
	
   

  	
   

  
	
  Notice of Subscribed
  Notes:

  	
  As soon as practicable
  following the expiration of the Rights Offering, the Company or Parent shall
  promptly provide a written notice to Purchaser setting forth the Number of
  Subscribed Notes. Notwithstanding anything herein to the contrary, the
  Company or Parent shall provide the Notice of Subscribed Notes to Purchaser
  no later than the Exchange Business Day immediately prior to the Settlement
  Date.

  
	
   

  	
   

  
	
  Representation and
  Agreement:

  	
  Notwithstanding Section
  9.11 of the 2002 Definitions, the parties acknowledge that any Notes or
  Underlying Shares delivered by the Company or Parent to Purchaser will be
  subject to compliance with transfer restrictions and limitations in
  accordance with applicable law arising from the Company’s or Parent’s status
  as issuer of the Notes and Parent’s status as issuer of the Underlying Shares
  under applicable securities laws and/or as a result of the fact that
  Purchaser is an “affiliate” (as defined under Rule 144 under the Securities
  Act) of Sellers.

  

 

Note
Adjustments:

 

	
  Potential Adjustment
  Event:

  	
  Not Applicable and will
  not result in any adjustment to the terms of the Transaction. 

  

 

4

 

Extraordinary
Events:

 

	
  Consequences of Merger
  Events:

  	
  Not Applicable

  
	
   

  	
   

  
	
  Tender Offer:

  	
  Not Applicable

  
	
   

  	
   

  
	
  Nationalization

  	
  Not Applicable

  
	
   

  	
   

  
	
  Insolvency or
  Delisting:

  	
  Cancellation and
  Payment;  provided that in the case of a Delisting, notwithstanding
  anything to the contrary in the 2002 Definitions, the Transaction shall be
  terminated only upon a written notice from Purchaser designating a date on
  which Cancellation and Payment as specified below shall apply to the
  Transaction.

  
	
   

  	
   

  
	
   

  	
  For purposes of Section
  12.6 of the 2002 Definitions, all references to “Shares” shall be deemed to
  refer to “Underlying Shares”. In addition to the provisions of Section 12.6(a)(iii)
  of the 2002 Definitions, it will also constitute a Delisting if the
  Underlying Shares are not immediately re-listed, re-traded or re-quoted on
  any of the New York Stock Exchange, the NASDAQ Global Select Market and the
  NASDAQ Global Market (or their respective successors); if the Underlying
  Shares are immediately re-listed, re-traded or re-quoted on any such exchange
  or quotation system, such exchange or quotation system shall be deemed to be
  the Exchange. 

  
	
   

  	
   

  
	
  Cancellation and
  Payment

  	
  If Cancellation and
  Payment applies to the Transaction, notwithstanding anything to the contrary
  in the 2002 Definitions, the Transaction shall terminate on the date of an
  Extraordinary Event, an Early Termination Date or a date designated by a
  party, as applicable, without further liability of any party to the other
  parties under the Transaction and, if such termination occurs on or after the
  Effective Date, Sellers shall Transfer to Purchaser on such date all Posted
  Credit Support and the Interest Amount, if any, pursuant to paragraph 8(d) of
  the CSA.  

  
	
   

  	
   

  
	
  Determining Party:

  	
  For all applicable
  Extraordinary Events, Not Applicable

  

 

Additional
Disruption Events:

 

	
  Change in Law:

  	
  Applicable; provided that Section 12.9(a)(ii) of the 2002 Definitions
  is hereby amended by replacing the phrase “the interpretation” in the third
  line thereof with the phrase “or public announcement of the formal
  interpretation;” further provided
  that Section 12.9(a)(ii)(Y) is hereby deleted.

   

  Section 12.9(b)(i) of
  the 2002 Definitions is hereby replaced in its entirety as follows: “Upon the
  occurrence of “Change in Law” either party may elect to terminate the
  Transaction upon at least two Scheduled Trading Days’ notice to the other
  party specifying the date of such

  

 

5

 

	
   

  	
  termination (or such
  lesser notice as may be required to comply with the Change in Law), in which
  event the Transaction will terminate on such date and Cancellation and
  Payment as specified in the Confirmation shall apply to the Transaction.”

  
	
   

  	
   

  
	
  Determining Party:

  	
  For all applicable
  Additional Disruption Events, Not Applicable

  

 

Non-Reliance:

 

	
  Non-Reliance:

  	
  Applicable

  
	
   

  	
   

  
	
  Agreements and
  Acknowledgments

  Regarding Hedging Activities:

  	
  Applicable

  
	
   

  	
   

  
	
  Additional
  Acknowledgments:

  	
  Applicable

  

 

3.             Conditions to Effectiveness: 
The occurrence of the Effective Date shall be subject to the following
conditions:

 

(a)           the senior secured asset backed revolving credit
agreement dated May 13, 2009 among Sealy Mattress Company, the Subsidiary
Guarantors named therein, Sealy Mattress Corporation, Sealy Corporation,
JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, J.P.
Morgan Securities Inc., as joint lead arranger and joint bookrunner, GE Capital
Markets, Inc., as joint lead arranger and joint bookrunner, Citigroup Global
Markets Inc., as joint lead arranger and joint bookrunner, General Electric
Capital Corporation, as co-collateral agent, and other lenders from time to
time parties thereto and the related security documents, intercreditor
agreements and guarantees (collectively, the “ABL
Agreements”) shall have been duly authorized, executed and delivered
by, and shall constitute valid and binding agreements of, Sealy Mattress
Company and the Guarantors named therein, and the terms of the ABL Agreements
shall be reasonably satisfactory to Purchaser;

 

(b)           the First Lien Notes and the related indenture,
security documents, intercreditor agreements and guarantees (collectively, the “First Lien Agreements”) shall have been duly authorized,
executed and delivered by, and shall constitute valid and binding obligations
of, Sealy Mattress Company and the Guarantors named therein, and the terms of
the First Lien Agreements shall be reasonably satisfactory to Purchaser;

 

(c)           the guarantors of the ABL and the First Lien Notes
(the “Guarantors”) shall have
delivered the guarantees in the form set forth in Annex A guaranteeing Sellers’
obligations to Purchaser under this Confirmation;

 

(d)           the terms of the Convertible Notes and the related
indenture (the “Indenture”), security documents,
intercreditor agreement, registration rights agreement and guarantees
(collectively, the “Convertible Notes
Agreements”), as described in Annex B hereto, shall be satisfactory
to Purchaser;

 

(e)           no stop order suspending the effectiveness of the
registration statement on Form S-3 covering the registration of the Rights and
Convertible Notes and such registration statement shall be in effect;

 

(f)            the prospectus supplement to be filed by the Company
and Parent with the Securities and Exchange Commission (the “SEC”) describing the terms of the Rights Offering and the
Convertible Notes (the “Prospectus Supplement”,
together with the ABL Agreements, First Lien Agreements and Convertible Notes
Agreements, the “Transaction Agreements”) shall be
satisfactory to Purchaser;

 

6

 

(g)           all of the representations and warranties of the
Company and Parent hereunder and under the Agreement shall be true and correct
on the Effective Date;

 

(h)           the Company and Parent shall, on or prior to the
Effective Date, have performed all of the obligations required to be performed
by each of them hereunder and under the Agreement and have been in compliance
with all of the covenants hereunder and under the Agreement;

 

(i)            Parent shall have obtained all New York Stock Exchange
approvals required for the Transaction; and

 

(j)            the Company and Parent shall have delivered to
Purchaser an opinion of counsel in form and substance reasonably satisfactory
to Purchaser.

 

If the Effective Date shall not have occurred by June 5,
2009, the Transaction shall automatically terminate on such date and the
parties shall have no further obligations in connection with the Transaction.

 

4.             Conditions to Settlement: 
The occurrence of the Settlement Date and Purchaser’s payment obligation
and Sellers’ payment and delivery obligations on the Settlement Date shall be
subject to the following conditions, unless waived by Purchaser prior to the
Settlement Date:

 

(a)           the representations and warranties of the Company and
Parent set forth in Sections 5(b)(ii) to (vi) of this Confirmation and under
the Agreement shall be true and correct on the Settlement Date; and

 

(b)           There has been no default under any mortgage,
indenture or instrument under which there is issued or by which there is
secured or evidenced any indebtedness for money borrowed by the Company or any
Restricted Subsidiary (as defined in the Indenture) or the payment of which is
guaranteed by the Company or any Restricted Subsidiary, other than indebtedness
owed to the Company or a Restricted Subsidiary, if both: (A) such default
relates to an obligation other than the obligation to pay principal of any such
indebtedness
at its stated final maturity and results in the holder or holders of such
indebtedness causing such indebtedness to become due prior to its stated
maturity; and (B) the principal amount of such indebtedness, together with the
principal amount of any other such indebtedness in default for failure to pay
principal at stated final maturity (after giving effect to any applicable grace
periods), or the maturity of which has been so accelerated, aggregate $25.0
million or more at any one time outstanding.

 

If the Settlement Date shall not have occurred by July
15, 2009, notwithstanding any provision of this Confirmation to the contrary, Purchaser shall
designate a Settlement Date within ten days following July 15, 2009 to settle
this Transaction; provided that if the settlement
conditions set forth in this Section 4 shall not have been satisfied by such
Settlement Date designated by Purchaser, the Transaction shall automatically
terminate on such Settlement Date and Cancellation and Payment as specified
above shall apply to the Transaction.

 

5.             Representations, Warranties and
Covenants:

 

(a)           Each party to this Confirmation represents and warrants to the other
parties that:

 

(i)            it is an “accredited investor” as defined in Section 2(a)(15)(ii)
of the Securities Act of 1933, as amended (the “Securities
Act”) and is entering into the Transaction hereunder as principal
and not for the benefit of any third party; and

 

(ii)           it is an “eligible contract participant” as defined in
Section 1a(12) of the Commodity Exchange Act, as amended (the “CEA”), and this
Confirmation and the Transaction hereunder are subject to individual
negotiation by the parties and have not been executed or traded on a “trading
facility” as defined in Section 1a(33) of the CEA.

 

(b)           Each of the Company and Parent represents
and warrants to, and agrees with, Purchaser as of the date hereof that:

 

7

 

(i)            each of its filings under the Securities
Act, the Securities Exchange Act of 1934, as amended (the “Exchange Act”)
or other applicable securities laws that are required to be filed have been
filed and that, as of the respective dates thereof and as of the date of this
representation, there is no misstatement of material fact contained therein or
omission of a material fact required to be stated therein or necessary to make
the statements made therein, in the light of the circumstances under which they
were made, not misleading;

 

(ii)           the Notes have been duly authorized and
any Notes, when delivered in accordance with the terms of the Transaction and
upon authentication by the trustee in accordance with the relevant indenture,
will be validly executed, issued and delivered by, and constitute valid and
binding obligations of, the Company and Parent;

 

(iii)          the
Underlying Shares have been duly authorized and any Underlying Shares, when
delivered in accordance with the terms of the Notes and the relevant indenture
and upon delivery of a certificate therefor (or a certified copy of the share
register showing the relevant share entry), will be validly issued, fully paid
and nonassessable, and the delivery thereof will not be subject to any
preemptive or similar rights.

 

(iv)          the Indenture has been duly authorized by
the Company, Parent and each relevant guarantor and, on the Settlement Date,
will be duly executed and delivered by the Company, Parent and each relevant
guarantor and, assuming due authorization, execution and delivery thereof by
the trustee and the collateral agent related to the Convertible Notes in
accordance with the Indenture, will constitute a legally valid and binding
instrument enforceable against the Company, Parent and each relevant guarantor
in accordance with its terms (in each case subject, as to the enforcement of
remedies, to the effects of (x) bankruptcy, reorganization, insolvency,
fraudulent conveyance, moratorium or other laws affecting creditors’ rights
generally from time to time in effect, (y) general principles of equity
(whether considered in a proceeding in equity or at law) and (z) an implied
covenant of good faith and fair dealing (collectively, the “Enforceability Limitations”));

 

(v)           the guarantees related to the Convertible
Notes have been duly authorized by each relevant guarantor and, when the
Indenture is duly executed and delivered by all parties thereto, will be duly
executed and delivered by each relevant guarantor and will constitute the
legal, valid and binding obligations of each relevant guarantor, enforceable
against each relevant guarantor in accordance with their terms and entitled to
the benefits of the Indenture (subject to the Enforceability Limitations);

 

(vi)          a registration rights agreement providing
for the resale of the Convertible Notes and any Underlying Shares by Purchaser
has been duly authorized by the Company and Parent and, when validly executed
and delivered by the parties thereto, will constitute the valid and binding
obligations of the Company and Parent, enforceable against the Company and
Parent in accordance with its terms (subject to the Enforceability Limitations);

 

(vii)         each
of the Convertible Notes Agreements conforms in all material respects to the
description thereof in the Prospectus Supplement, to the extent described
therein;

 

(viii)        no
consent, approval, authorization, registration or qualification with or filing
with or order of any court or governmental agency or body having jurisdiction
over Parent, the Company, Sealy Mattress Corporation or any of their
subsidiaries is required in connection with the execution, delivery and
performance of the Convertible Notes Agreements (including, without limitation,
the issuance of the Convertible Notes), except such (A) as may be required
under the blue sky laws of any jurisdiction in which the Convertible Notes are
offered and sold in connection with the transactions contemplated by the
Convertible Notes Agreements, (B) filings of financing statements under the
Uniform Commercial Code as from time to time in effect in the relevant
jurisdictions or 

 

8

 

the relevant personal
property security legislation, each as from time to time in effect in the
relevant jurisdictions; any mortgage filings in relevant jurisdictions; and any
filings required by the United States Patent and Trademark Office or the United
States Copyright Office or the applicable intellectual property legislation, rules
or regulations in effect in the other relevant jurisdictions or (C) as shall
have been obtained or made prior to the Settlement Date;

 

(ix)           none of the execution and delivery of the
Convertible Notes Agreements, the issuance and sale of the Convertible Notes,
the issuance of the relevant guarantees or the consummation of the Transaction
herein or the transactions therein contemplated, or the fulfillment of the
terms hereof or thereof will conflict with, result in a breach or violation of
or default under (A) the terms of any indenture, contract, lease, mortgage,
deed of trust, note agreement, loan agreement or other agreement, obligation,
condition, covenant or instrument to which Parent, the Company or each relevant
guarantor is a party or bound or to which its or their property is subject; or (B)
any statute, law, rule, regulation, judgment, order or decree of any court,
regulatory body, administrative agency, governmental body, arbitrator or other
authority having jurisdiction over Parent, the Company, or each relevant
guarantor or any of its or their properties, other than in the cases of clauses
(A) and (B), such breaches, violations or defaults that could not reasonably be
expected to have a material adverse effect on the condition (financial or
otherwise), business, properties or results of operations of Parent, the
Company and each relevant guarantor, taken as a whole and after giving effect
to the Transaction or the transactions contemplated in the Convertible Notes
Agreements; or result in the violation of the charter, bylaws or any equivalent
organizational document of Parent, the Company or each relevant guarantor;

 

(x)            it is not entering into this Confirmation
to create actual or apparent trading activity in the Underlying Shares (or any
security convertible into or exchangeable for Underlying Shares) or to raise or
depress or otherwise manipulate the price of the Underlying Shares (or any
security convertible into or exchangeable for Underlying Shares);

 

(xi)           it is entering into this Confirmation and
the Transaction in good faith, not as part of a plan or scheme to evade the
prohibitions of Rule 10b-5 under the Exchange Act, and it has not entered into
or altered any hedging transaction relating to the Underlying Shares
corresponding to or offsetting the Transaction;

 

(xii)          it
is not and, after giving effect to the transactions contemplated hereby, will
not be required to register as an “investment company” as such term is defined
in the Investment Company Act of 1940, as amended; and

 

(xiii)         it
is eligible to conduct a primary offering of Notes on Form S-3, the offering
contemplated by the Prospectus Supplement complies with Rule 415 under the
Securities Act.

 

(c)           In connection with this Confirmation and the
Transaction, each of the Company and Parent agrees that:

 

(i)          it shall not enter into or alter any
hedging transaction relating to the Underlying Shares corresponding to or
offsetting the Transaction;

 

(ii)         it shall, upon obtaining knowledge of the
occurrence of any event that would, with the giving of notice, the passage of
time or the satisfaction of any condition, constitute an Event of Default, a
Potential Event of Default, a Termination Event in respect of which it is an
Affected Party, an applicable Extraordinary Event or Additional Disruption
Event, notify Purchaser within one Scheduled Trading Day of the occurrence of
obtaining such knowledge;

 

9

 

(iii)        Parent
shall print and file with the SEC the Prospectus Supplement, distribute the
Prospectus Supplement to Parent’s stockholders of record as of the record date
and thereafter promptly commence the Rights Offering on the following terms: (A)
Parent shall distribute, at no charge, at the rate of one Right per Underlying
Share that are owned by a holder of record of Underlying Shares as of the
applicable record date, (B) 13 Rights shall entitle the holder thereof to
purchase, at the election of such holder, one Note, (C) each holder who fully
exercises its Rights will be entitled to subscribe for additional Notes that
remain unsubscribed as a result of any unexercised Rights (“Unsubscribed Notes”), (D) if there are any
Unsubscribed Notes, (x) holders of Rights (other than Purchaser) who have
submitted over-subscription requests shall be allocated 49.4% of the aggregate
principal amount of such Unsubscribed Notes or such lesser amount of aggregate
Unsubscribed Notes as is set forth in the over-subscription requests of such
holders, and (y) Purchaser shall be shall be allocated the balance of such
Unsubscribed Notes, (E) each such Right shall be transferable, in whole or in
part, until the close of business on the Exchange Business Day preceding the
expiration date of the Rights Offering and (F) the Rights Offering shall remain
open for 30 days, or such longer period as required by law or otherwise agreed
by the parties;

 

(iv)        it shall not amend or supplement the
Prospectus Supplement or amend any of the terms of the Convertible Notes Agreements,
terminate the Rights Offering or waive any material condition to the closing of
the Rights Offering, in each case, without the prior written consent of
Purchaser.  Subject to the terms and
conditions of the Rights Offering, it shall effect the closing of the Rights
Offering as promptly as practicable following the expiration of the Rights
Offering.  The closing of the Rights
Offering shall occur at the time, in the manner and on the terms of the Rights
Offering as set forth in Section 5(c)(iii) and in the Prospectus Supplement;

 

(v)         it shall not, and shall cause each of its
subsidiaries not to, take any actions that would cause a Fundamental Change or
Make-whole Fundamental Change (each as defined in the Indenture) to occur as if
the Convertible Notes had been issued on the Effective Date; and

 

(vi)        if any event occurs that would require
any adjustments to be made to the Conversion Price (as defined in the
Indenture) as if the Convertible Notes had been issued on the Effective Date,
it shall make such appropriate adjustment to the Conversion Price when the
Convertible Notes are issued.

 

(d)           Purchaser represents and warrants to, and agrees with,
the Company and Parent as of the date hereof that:

 

(i)          It is knowledgeable, sophisticated and
experienced in making, and is qualified to make, decisions with respect to
investments in securities representing an investment decision like that
involved in the purchase of the Convertible Notes, and has requested, received,
reviewed and considered all information it deems relevant in making an informed
decision to purchase the Convertible Notes; it is acquiring the Convertible
Notes under his Confirmation for its own account in the ordinary course of its
business, for investment only and not with a view to the distribution hereof
within the meaning of the Securities Act; it has been furnished with, or has
had access to, all materials relating to the business, finances and operations
of Parent and its subsidiaries and materials relating to the offer and sale of
the Convertible Notes which have been requested by it; it has been afforded the
opportunity to ask questions of Parent and the Company; and it understands that
its investment in the Convertible Notes and involves a significant degree of
risk including a risk of total loss of its investment, and it is fully aware of
and understands all the risk factors related to its purchase of the Convertible
Notes;

 

10

 

(ii)         it shall, upon obtaining knowledge of the occurrence
of any event that would, with the giving of notice, the passage of time or the
satisfaction of any condition, constitute an Event of Default, a Potential
Event of Default or a Termination Event in respect of which it is an Affected
Party, notify Sellers within one Scheduled Trading Day of the occurrence of
obtaining such knowledge;

 

(iii)        it shall not take any actions that would cause the
Company or Parent to be in breach of the covenants set forth in Sections 5(c)(iii) to (vi) of this Confirmation or to fail
to satisfy any of the conditions  for settlement set forth in Section 4.

 

(e)           Purchaser will exercise all the Rights that are
distributed to it in the Rights Offering, which Rights will cover $89,628,792
aggregate initial principal amount of the Convertible Notes, and will
oversubscribe for all the Convertible Notes that are not subscribed for upon
the exercise of Rights distributed to other stockholders of Parent in the
Rights Offering, in each case by way of the subscription for such Convertible
Notes pursuant to this Confirmation; and

 

(f)            Purchaser agrees that it will enter into a written
consent approving the Transaction as the majority shareholder of Parent.

 

(g)           Each party hereby acknowledges that the terms of the
Convertible Notes Agreements are satisfactory to such party on the date hereof.

 

6.             Credit Support Annex —Elections
and Variables:

 

The
CSA supplements, forms part of, and is subject to the Agreement.  This Section 6 shall constitute
paragraph 13 of the CSA, and all references to paragraph 13 in the CSA shall be
deemed to be references to this Section 6.

 

(a)           Security Interest for “Obligations”. 
The term “Obligations” as used in the CSA
includes no additional obligations with respect to any party.

 

(b)           Credit Support Obligations.

 

(i)            Delivery Amount, Return Amount
and Credit Support Amount.

 

(A)          “Delivery Amount”
has the meaning specified in Paragraph 3(a).

 

(B)           “Return Amount”
has the meaning specified in Paragraph 3(b).

 

(C)           “Credit Support Amount”
is the Independent Amount.

 

(ii)           Eligible Collateral. Cash is the only “Eligible Collateral”
and the Valuation Percentage is 100%.

 

(iii)          Other Eligible Support. There shall be no “Other Eligible
Support” for any party for purposes of the CSA, unless agreed in writing
between the parties.

 

(iv)          Thresholds.

 

(A)          “Independent Amount” means, with respect to Sellers, USD
0.00, and, with respect to Purchaser, USD 177,132,000.

 

(B)           “Threshold” means, with respect to Sellers, infinity, and, with
respect to Purchaser, USD 0.00.

 

11

 

(C)           “Minimum Transfer Amount” means, with respect to each party, USD
500,000.

 

(D)          Rounding. The Delivery Amount and the
Return Amount will be rounded up and down to the nearest integral multiple of
USD 10,000, respectively.

 

(c)           Valuation and Timing.

 

(i)            “Valuation Agent” means the Calculation
Agent.

 

(ii)           “Valuation Date” for purposes of the CSA
means the Local Business Day immediately preceding the Effective Date.

 

(iii)          “Valuation
Time” means 10:00 AM EST.

 

(iv)          “Notification
Time” means 5:00 PM EST on the Valuation Date.

 

(d)           Conditions Precedent and Secured Party’s
Rights and Remedies.  No Termination Event shall be a Specified
Condition.

 

(e)           Substitution.

 

                (i)            “Substitution Date” has the meaning specified in Paragraph
4(d)(ii).

 

                (ii)           Consent.  Inapplicable.

 

(f)            Dispute Resolution. The provisions of Paragraph 5 of the
CSA will not apply.

 

(g)           Holding and Using Posted Collateral.

 

(i)            Eligibility to Hold Posted Collateral; Custodians. 
Posted Collateral may be held only in New York.  The Custodian for Sellers is Bank of New
York Mellon Trust Company, N.A.  Posted Collateral
shall at all times be held only through the Custodian in an account in the name
of Purchaser, subject to a control agreement reasonably satisfactory to Sellers
and Purchaser. Sellers may not appoint another Custodian without the consent of
Purchaser.

 

(ii)           Use of Posted Collateral. The provisions of Paragraph 6(c) of
the CSA will apply to Sellers.

 

(h)           Distributions
and Interest Amount.

 

(i)            Interest Rate. The “Interest Rate” will be, with respect to Eligible
Collateral in the form of Cash, for any day, the effective  LIBOR rate for deposit in USD for a
period of 1 months which appears on the Reuters Screen LIBOR01 Page (or
such other page that may replace that page on that service or a
successor service) as of 11:00 a.m., London time, on the second Local
Business Day preceding the Effective Date plus a spread of 300 basis points.

 

(ii)           Transfer of Interest Amount. The Transfer of the Interest Amount will
be made on the last Local Business Day of each calendar month prior to September 1,
2009.  To the extent permitted by
applicable law, interest on any Interest Amount not paid on the last Local Business
Day of any calendar month after September 1, 2009 shall accrue at the
Interest Rate, compounded on the last Local Business Day.

 

12

 

(iii)          Alternative to
Interest Amount. The provisions of Paragraph 6(d)(ii) will apply.

 

(i)            Final Returns. Notwithstanding Paragraph 8(d) of the CSA and
the “Physical Settlement” above, Purchaser’s obligation to pay the Settlement
Amount on the Settlement Date may be netted, at the Purchaser’s option, against
Sellers’ obligation to Transfer to Purchaser all Posted Credit Support and the
Interest Amount, if any.

 

(j)            Additional Representations. None.

 

(k)           Other Eligible Support and Other Posted
Support.

 

(i)            “Value” shall have no meaning with respect to any party with
respect to Other Eligible Support and Other Posted Support.

 

(ii)           “Transfer” shall have no meaning with respect to any party with
respect to Other Eligible Support and Other Posted Support.

 

(l)            Demands and Notices. All demands, specifications and notices
under the CSA will be made as provided in the Agreement.

 

(m)          Addresses for Transfers.

 

To Purchaser:                       Purchaser to advise.

 

To Sellers:                             Sellers to advise.

 

(n)           Other Provisions. Agreement as to Single Secured Party
and Pledgor. The parties agree that (a) the term “Secured Party” as used
in the CSA means only Sellers, (b) the term “Pledgor” as used in the CSA
means only Purchaser, (c) only Purchaser makes the pledge and grant in
Paragraph 2, the acknowledgment in the final sentence of Paragraph 8(a) of
the CSA and the representations in Paragraph 9 of the CSA and (d) only
Purchaser will be required to make Transfers of Eligible Credit Support
pursuant to paragraph 3(a) of the CSA.

 

7.             Miscellaneous:

 

                (a)           Early Termination. 
Notwithstanding anything to the contrary in the Agreement, if an Early
Termination Date has been designated with respect to the Transaction pursuant
to Section 6 of the Agreement, then, in lieu of Sections 6(c)(ii), 6(d) and
6(e) of the Agreement, Cancellation and Payment as specified above shall
apply to the Transaction as of such Early Termination Date.  For purposes of this Confirmation, “Termination
Currency” means United States Dollars. 
Notwithstanding anything to the contrary in the Agreement, following the
Effective Date, the only Events of Default will be those specified in Section 5(a)(vii) of
the Agreement with respect to Parent or the Company and the only Termination
Events will be those specified in Section 5(b)(i) of the Agreement .

 

(b)           Termination. 
Notwithstanding anything to the contrary herein, in the Agreement or in
the Definitions, upon the occurrence of an event of the type described in
paragraph (vii) of Section 5(a) of the Agreement with respect to
Parent or the Company, the Transaction shall automatically terminate on the date thereof
without further liability of any party to this Confirmation to the other
parties under the Transaction and, if such termination occurs on or after the
Effective Date, Sellers shall Transfer to Purchaser on such date all Posted
Credit Support and the Interest Amount, if any, pursuant to paragraph 8(d) of
the CSA.

 

(c)           Assignment.  The rights and duties under this Confirmation may not
be assigned or transferred by any party hereto without the prior written
consent of the other parties hereto, such consent not to be unreasonably
withheld; provided that Purchaser
may assign or transfer any of its rights or duties hereunder to an affiliate of
Purchaser whose obligations under the Transaction are guaranteed by Purchaser,
subject to the conditions that (i) an Event of Default, Potential Event of
Default or Termination Event will not occur as a result of such assignment or
transfer and (ii) the Company or Parent will not be subject to any
increase in tax liability, decrease in tax benefit or other adverse effect on
its tax position as a result of such assignment or transfer.

 

13

 

(d)           Indemnification. 
Each of the Company and Parent, jointly and severally, (collectively,
the “Indemnifying Parties” and
individually, the “Indemnifying Party”)
agrees to indemnify and hold harmless Purchaser, its affiliates and its
assignees and their respective directors, officers, employees, agents and
controlling persons (Purchaser and each such person being an “Indemnified Party”) from and against any and all losses,
claims, damages and liabilities (or actions in respect thereof), joint or
several, to which such Indemnified Party may become subject, under the
Securities Act or otherwise, relating to or arising out of the Transaction.
Neither Indemnifying Parties will be liable under the foregoing indemnification
provision to the extent that any loss, claim, damage, liability or expense is
found in a nonappealable judgment by a court of competent jurisdiction to have
resulted from Purchaser’s willful misconduct, gross negligence or bad faith in
performing the services that are subject of the Transaction.  If for any reason the foregoing
indemnification is unavailable to any Indemnified Party or insufficient to hold
harmless any Indemnified Party, then the Indemnifying Parties shall contribute,
to the maximum extent permitted by law, to the amount paid or payable by the
Indemnified Party as a result of such loss, claim, damage or liability.  In addition, the Indemnifying Parties will
reimburse any Indemnified Party for all expenses (including reasonable counsel
fees and expenses) as they are incurred (after notice to the Indemnifying
Parties) in connection with the investigation of, preparation for or defense or
settlement of any pending or threatened claim or any action, suit or proceeding
arising therefrom, whether or not such Indemnified Party is a party thereto and
whether or not such claim, action, suit or proceeding is initiated or brought
by or on behalf of an Indemnifying Party. 
The Indemnifying Parties also agree that no Indemnified Party shall have
any liability to either Indemnifying Party or any person asserting claims on
behalf of or in right of an Indemnifying Party in connection with or as a
result of any matter referred to in this Agreement except to the extent that
any losses, claims, damages, liabilities or expenses incurred by an
Indemnifying Party result from the gross negligence, willful misconduct or bad
faith of the Indemnified Party.  The
provisions of this Section 7(d) shall survive the completion of the
Transaction contemplated by this Confirmation and any assignment and/or
delegation of the Transaction made pursuant to the Agreement or this
Confirmation shall inure to the benefit of any permitted assignee of Purchaser.

 

(e)           Severability; Illegality. 
If compliance by any party with any provision of the Transaction would
be unenforceable or illegal, (i) the parties shall negotiate in good faith
to resolve such unenforceability or illegality in a manner that preserves the
economic benefits of the transactions contemplated hereby and (ii) the
other provisions of the Transaction shall not be invalidated, but shall remain
in full force and effect.

 

(f)            Waiver of Trial by Jury.  Each party 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
proceeding relating to this Confirmation.  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 such a suit
action or proceeding, seek to enforce the foregoing waiver and (b) acknowledges
that it and the other parties have been induced to enter into this Confirmation
by, among other things, the mutual waivers and certifications in this Section.

 

(g)           Governing Law; Submission to Jurisdiction.  THE AGREEMENT AND THIS CONFIRMATION AND ALL
DISPUTES ARISING THEREFROM AND  RELATED
THERETO WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK (WITHOUT REFERENCE TO CHOICE OF LAW DOCTRINE).  EACH PARTY HEREBY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF U.S. FEDERAL AND
NEW YORK STATE COURTS SITTING IN THE BOROUGH OF MANHATTAN, NEW YORK CITY IN
CONNECTION WITH ALL PROCEEDINGS ARISING OUT OF OR RELATING TO THE AGREEMENT AND
THIS CONFIRMATION.

 

(h)           Third Party Rights. 
This Confirmation is not intended and shall not be construed to create
any rights in any person other than the Company, Parent, Purchaser and their
respective successors and assigns and no other person shall assert any rights
as third-party beneficiary hereunder. 
Whenever any of the parties hereto is referred to, such reference shall
be deemed to include the successors and assigns of such party.  All the covenants and agreements herein
contained by or on behalf of the Company, Parent and Purchaser shall bind, and
inure to the benefit of, their respective successors and assigns whether so
expressed or not.

 

(i)            Waiver of Rights. 
Any provision of this Confirmation may be waived if, and only if, such
waiver is in writing and signed by the party or parties against whom the waiver
is to be effective.

 

14

 

(j)            10b5-1.  The parties intend for any settlement hereof to
comply with the requirements of Rule 10b5-1(c)(1)(i)(A) under the
Exchange Act and this Confirmation to constitute a binding contract or
instruction satisfying the requirements of such 10b5-1(c) and to be
interpreted to comply with the requirements of such Rule 10b5-1(c).

 

(k)           Securities Contract; Swap
Agreement.  Purchaser hereto intends itself to be a “financial
institution,” “swap participant” and “financial participant” within the meaning
of Sections 101(22), 101(53C) and 101(22A) of Title 11 of the Bankruptcy Code
(the “Bankruptcy Code”).  The parties hereto further agree and
acknowledge that they intend for (A) this Confirmation to be (i) a “securities
contract,” as such term is defined in Section 741(7) of the
Bankruptcy Code, with respect to which each payment and delivery hereunder is a
“settlement payment,” as such term is defined in Section 741(8) of
the Bankruptcy Code or a “margin payment” within the meaning of Section 741(5) of
the Bankruptcy Code, and (ii) a “swap agreement,” as such term is defined
in Section 101(53B) of the Bankruptcy Code, with respect to which each
payment and delivery hereunder is a “transfer,” as such term is defined in Section 101(54)
of the Bankruptcy Code, and (B) that Purchaser is entitled to the
protections afforded by, among other sections, Sections 362(b)(6), 362(b)(17),
546(e), 546(g), 555 and 560 of the Bankruptcy Code. The provisions set forth in
this paragraph are intended by the parties to apply solely to the Share
Forward Transaction as evidenced by this Confirmation and not to any other
contractual arrangement referred to herein or in any other agreement or
instrument that the parties may separately enter into from time to
time, including without limitation the ABL, the First Lien Notes and the Convertible
Notes.

 

8.             Addresses for Notice:

 

	
  If to Purchaser:

  	
  Sealy Holding LLC

  
	
   

  	
  9 West 57th Street, Suite 4200

  
	
   

  	
  New York, NY 10019

  
	
   

  	
  Attn: General Counsel

  
	
   

  	
  Facsimile No.: (212) 750-0003

  
	
   

  	
   

  
	
  With a copy to:

  	
  Kohlberg Kravis Roberts & Co. L.P.

  
	
   

  	
  9 West 57th Street, Suite 4200

  
	
   

  	
  New York, NY 10019

  
	
   

  	
  Attn: General Counsel

  
	
   

  	
  Facsimile No.: (212) 750-0003

  
	
   

  	
   

  
	
  If to the Company:

  	
  Sealy Mattress Company

  
	
   

  	
  Sealy Drive

  
	
   

  	
  One Office Parkway

  
	
   

  	
  Trinity, North Carolina 27370

  
	
   

  	
  Attn: General Counsel

  
	
   

  	
  Telephone: (336) 861-3500

  
	
   

  	
  Facsimile No.: (336) 861-3786

  
	
   

  	
   

  
	
  If to Parent:

  	
  Sealy Corporation

  
	
   

  	
  Sealy Drive

  
	
   

  	
  One Office Parkway

  
	
   

  	
  Trinity, North Carolina 27370

  
	
   

  	
  Attn: General Counsel

  
	
   

  	
  Telephone: (336) 861-3500

  
	
   

  	
  Facsimile No.: (336) 861-3786

  

 

15

 

9.             Accounts for Payment:

 

To Purchaser:                       Purchaser to advise.

 

To Sellers:                             Sellers to advise.

 

10.          Delivery Instructions:

 

Unless otherwise directed
in writing, any Note to be delivered hereunder shall be delivered as follows:

 

To Purchaser:                       Purchaser to advise.

 

To Sellers:                             Sellers to advise.

 

16

 

	
   

  	
   

  	
  Yours sincerely,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  SEALY
  HOLDING LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Bill Janetschek

  
	
   

  	
   

  	
  Name: Bill
  Janetschek

  
	
   

  	
   

  	
  Title:   Authorized Signatory

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Confirmed as of
  the

  	
   

  	
   

  
	
  date first above
  written:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  SEALY
  MATTRESS COMPANY

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Kenneth L. Walker

  	
   

  	
   

  
	
  Name: Kenneth L.
  Walker

  	
   

  	
   

  
	
  Title:   Senior Vice President

  	
   

  	
   

  
	
    General Counsel & Secretary

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  SEALY
  CORPORATION

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Kenneth L. Walker

  	
   

  	
   

  
	
  Name: Kenneth L.
  Walker

  	
   

  	
   

  
	
  Title:
    Senior
  Vice President

  	
   

  	
   

  
	
    General
  Counsel & Secretary

  	
   

  	
   

  

 

 

Annex
A

 

GUARANTEE

 

GUARANTEE
dated as of [     ], 2009 by Sealy Mattress
Corporation (“Holdings”) and each entity listed
on the signature pages hereof under the caption “Subsidiary Guarantors”
(collectively, the “Subsidiary Guarantors”;
and Holdings and Subsidiary Guarantor, collectively, the “Guarantors”
and, individually, a “Guarantor”) for
the benefit of SEALY HOLDING LLC (with its successors and assigns, the “Beneficiary”).

 

WHEREAS,
Holdings is the parent of Sealy Mattress Company (the “Company”)
and the subsidiary of Sealy Corporation (the “Parent”,
together with the Company, the “Obligors”) and
each other Guarantor (other than the Holdings) is a direct or indirect
subsidiary of the Obligors; and

 

WHEREAS,
the Obligors have entered into a Confirmation with the Beneficiary dated May 15,
2009 (the “Agreement”);

 

NOW,
THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
each Guarantor agrees as follows:

 

1.             Guarantees. 
Each Guarantor unconditionally guarantees the full and punctual payment
of each obligation owing by the Obligors to the Beneficiary under the Agreement
(collectively, the “Obligations”).  If the Obligors fail to pay any Obligation
punctually when due, each Guarantor agrees that it will forthwith on demand pay
the amount not so paid at the place and in the manner specified in the
Agreement.

 

2.             Guarantees
Unconditional.  The obligations of each Guarantor under this
Guarantee shall be unconditional and absolute and, without limiting the
generality of the foregoing, shall not be released, discharged or otherwise
affected by:

 

(i)      any extension, renewal,
settlement, compromise, waiver or release in respect of any obligation of the
Obligors, any other Guarantor or any other person under the Agreement, by
operation of law or otherwise;

 

(ii)     any modification or amendment of or
supplement to the Agreement;

 

(iii)    any release, impairment, non-perfection or
invalidity of any direct or indirect security for any obligation of the
Obligors, any other Guarantor or any other person under the Agreement;

 

(iv)    any change in the corporate existence,
structure or ownership of the Obligors, any other Guarantor or any other person
or any of their respective subsidiaries, or any insolvency, bankruptcy,
reorganization or other similar proceeding affecting the Obligors, any other
Guarantor or any other person or any of their assets or any resulting release
or discharge of any obligation of the Obligors, any other Guarantor or any
other person under the Agreement;

 

(v)     the existence of any claim, set-off or
other right that such Guarantor may have at any time against the Obligors, any
other Guarantor or any other person, whether in connection herewith or any
unrelated transactions, provided
that nothing herein shall prevent the assertion of any such claim by separate
suit or compulsory counterclaim;

 

(vi)    any invalidity or unenforceability relating
to or against the Obligors, any other Guarantor or any other person for any
reason of the Agreement, or any provision of applicable law or regulation
purporting to prohibit the payment of any amounts payable pursuant to the
Agreement; or

 

(vii)   any other act or omission to act or delay of any
kind by the Obligors, any other Guarantor or any other person or any other
circumstance whatsoever which might, but for the provisions of this paragraph,
constitute a legal or equitable discharge of or defense to such Guarantor’s
obligations hereunder.

 

A-1

 

3.             Discharge
Only Upon Payment in Full; Reinstatement In Certain Circumstances. 
Each Guarantor’s obligations hereunder shall remain in full force and
effect until all Obligations shall have been paid in full.  If at any time any payment of any Obligation
is rescinded or must be otherwise restored or returned upon the insolvency,
bankruptcy or reorganization of the Obligors, any other Guarantor or otherwise,
such Guarantor’s obligations hereunder with respect to such payment shall be
reinstated as though such payment had been due but not made at such time.

 

4.             Waiver by Guarantors. 
Each Guarantor irrevocably waives acceptance hereof, presentment,
demand, protest and any notice not provided for herein, as well as any requirement
that at any time any action be taken by any person against the Obligors, any
other Guarantor or any other person.

 

5.             Subrogation. 
A Guarantor that makes a payment with respect to a Obligation hereunder
shall be subrogated to the rights of the payee against the Obligors with
respect to such payment; provided
that no Guarantor shall enforce any payment by way of subrogation so long as
any Obligation remains unpaid.

 

6.             Stay of Acceleration. 
If acceleration of the time for payment of any Obligation by the
Obligors are stayed by reason of the insolvency or receivership of the Obligors
or otherwise, all Obligations otherwise subject to acceleration under the terms
of the Agreement shall nonetheless be payable by the Guarantors hereunder
forthwith on demand by the Beneficiary.

 

                7.             Right
of Set-Off.  If any Obligation is not paid promptly when
due, the Beneficiary and its respective affiliates are authorized, to the
fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other obligations at any time owing by the Beneficiary or affiliate to or for
the credit or the account of any Guarantor against the obligations of such
Guarantor under this Guarantee, irrespective of whether or not the Beneficiary
shall have made any demand thereunder and although such obligations may be
unmatured. The rights of the Beneficiary under this subsection are in addition
to all other rights and remedies (including other rights of set-off) that the
Beneficiary may have.

 

8.             Continuing
Guarantee.  This Guarantee is a continuing guarantee,
shall be binding on the relevant Guarantor and its successors and assigns, and
shall be enforceable by the Beneficiary. 
If all or part of the Beneficiary’s interest in any Obligation is
assigned or otherwise transferred, the transferor’s rights under each
Guarantee, to the extent applicable to the obligation so transferred, shall
automatically be transferred with such obligation.

 

9.             Limitation on Obligations
of Subsidiary Guarantor.  The obligations of each Subsidiary
Guarantor under the Guarantee shall be limited to an aggregate amount equal to
the largest amount that would not render such guarantee subject to avoidance
under Section 548 of the United States Bankruptcy Code or any comparable
provisions of applicable law.

 

10.           Notices. 
All notices and other communications provided for herein shall be in
writing and shall be delivered by hand or overnight courier service, mailed by
certified or registered mail, or sent by telecopy, as follows:  (i) if to any Guarantor, to it at
[address], Attention of [name], Telecopy No. [number] and (ii) if to
the Beneficiary, to it at [address], Attention of [name], Telecopy no.
[number].  Each party hereto may change
its address or telecopy number for notices and other communications hereunder
by notice to the other party.  All
notices and other communications given in accordance with the provisions of
this Guarantee will be deemed to have been given on the date of receipt.

 

11.           No
Waiver.  No failure or delay by the Beneficiary in
exercising any right, power or privilege under this Guarantee or the Agreement
shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power or privilege.

 

12.           Amendments
and Waivers.  Any provision of this Guarantee may be
amended or waived if, but only if, such amendment or waiver is in writing and
is signed by the Beneficiary and each Guarantor.

 

A-2

 

13.           Successors and Assigns. 
This Guarantee shall be binding upon each Guarantor and its successors
and assigns, for the benefit of the Beneficiary and its successors and assigns,
except that no Guarantor may transfer or assign any or all of its rights or
obligations hereunder without the prior written consent of the Beneficiary.

 

14.           Governing
Law; Jurisdiction.  This Guarantee shall be
construed in accordance with and governed by the law of the State of New York.

 

Each
Guarantor hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of the Supreme Court of the State of
New York sitting in New York County and of the United States District Court of
the Southern District of New York, and any relevant appellate court, in any
action or proceeding arising out of or relating to this Guarantee, or for
recognition or enforcement of any judgment, and each party hereto hereby
irrevocably and unconditionally agrees that all claims in respect of any such
action or proceeding may be heard and determined in New York State court or, to
the extent permitted by law, in such Federal court.  Each party hereto agrees that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.  Nothing in this
Guarantee shall affect any right that the Beneficiary may otherwise have to
bring any action or proceeding relating to this Guarantee against such
Guarantor or its properties in the courts of any jurisdiction.

 

Each
Guarantor irrevocably and unconditionally waives, to the fullest extent it may
legally and effectively do so, any objection that it may now or hereafter have
to the laying of venue of any suit, action or proceeding arising out of or
relating to this Guarantee in any court referred to in subsection (b) of
this Section.  Each party hereto
irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of any such suit, action or proceeding in
any such court.

 

15.           WAIVER
OF JURY TRIAL.  EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS GUARANTEE.

 

	
   

  	
   

  
	
   

  	
  [HOLDINGS]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
    By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
    “SUBSIDIARY
  GUARANTORS”

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  [LIST EACH SUBSIDIARY
  GUARANTOR]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
    By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

	
  Agreed to and accepted
  by:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  SEALY HOLDINGS LLC

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
    By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

A-3

 

Annex
B

 

DESCRIPTION OF CONVERTIBLE
NOTES

 

General

 

The Convertible Notes offered hereby will be issued
under an indenture (the “Indenture”),
dated as of
                        ,
2009, among the Company and Parent, as Co-Issuers, all of the Company’s direct
and indirect wholly-owned Domestic Subsidiaries existing on the Issue Date, as
Subsidiary Guarantors (the “Subsidiary
Guarantors”) and Holdings (together with the Subsidiary Guarantors,
the “Guarantors”), and The Bank of New York Mellon
Trust Company, N.A., as Trustee (the “Trustee”)
and as collateral agent (the “Collateral
Agent”).  The Indenture will
be subject to and governed by the Trust Indenture Act of 1939, as amended
(the “Trust Indenture Act” or “TIA”).  The terms of
the Convertible Notes include those stated in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act.

 

The following is a summary of the material terms and
provisions of the Convertible Notes, the Indenture, the Security Documents and
the Intercreditor Agreement.  The following summary does not purport to be
a complete description of the Convertible Notes or such agreements and is
subject to the detailed provisions of, and qualified in its entirety by
reference to, the Indenture, Security Documents and Intercreditor
Agreement.  Copies of such documents have
been filed as exhibits to the registration statement of which this prospectus
supplement forms a part.  Copies may also
be obtained from us upon request.

 

You can find definitions of certain terms used in this description under the heading “—Certain Definitions.”
For purposes of this summary,

 

·                  the term “Co-Issuers” refers to the
Company and Parent, as co-issuers of the Convertible Notes, and not to any of
their respective Subsidiaries or parent companies,

 

·                  the terms “Company,” “we,” “our” and “us”
each refers only to Sealy Mattress Company, and not to any of its Subsidiaries
or parent companies,

 

·                  the term “Parent” refers only to Sealy
Corporation, and not to any of its Subsidiaries or parent companies,

 

·                  the term “Holdings” refers only to Sealy
Mattress Corporation, and not to any of its Subsidiaries or parent companies,

 

·                  the term “Guarantor” refers to Holdings
and each Restricted Subsidiary that guarantees the Convertible Notes, so long
as it guarantees the Convertible Notes, and

 

·                  the term “Common Stock” refers to the
common stock of Parent.

 

Brief Description of the
Convertible Notes and the Guarantees

 

The Convertible Notes will be:

 

·                  general senior obligations of the Company
and Parent;

 

·                  convertible into shares of Common Stock
(plus cash in lieu of fractional shares), as described under “—Conversion
Rights” below;

 

·                  pari passu in right of payment with any existing
and future Senior Indebtedness of the Company and Parent;

 

·                  secured on a third-priority lien basis by
the Collateral, subject to certain Liens permitted under the Indenture;

 

B-1

 

·                  senior in right of payment to any
existing or future Subordinated Indebtedness of the Company and Parent, including
the Senior Subordinated Notes;

 

·                  effectively senior to any unsecured
Indebtedness of the Company and Parent to the extent of the value of the
Collateral remaining after the payment of indebtedness benefiting from prior
liens;

 

·                  structurally subordinated to all
liabilities and preferred stock of Subsidiaries of the Company that are not
Subsidiary Guarantors; and

 

·                  effectively subordinated to obligations
of the Company and Parent that are secured by Liens on the Collateral that are
senior to or prior to the Liens securing the Convertible Notes, including
obligations under the First Lien Notes and the Credit Agreement, in each case,
to the extent of the value of the Collateral securing such senior or prior
liens; and

 

·                  guaranteed on a senior secured basis
(with the Lien priorities described below) by each Guarantor.

 

As of the Issue Date, the Convertible Notes will be
guaranteed by Holdings and all direct and indirect Wholly-Owned Subsidiaries of the Company (other than Unrestricted Subsidiaries
and Foreign Subsidiaries).

 

Each Guarantee will be:

 

·                  a senior obligation of the Guarantor;

 

·                  pari passu in right of payment with any existing
and future Senior Indebtedness of the Guarantor;

 

·                  secured on a third-priority basis by the
Collateral owned by such Guarantor, subject to certain liens permitted under
the Indenture;

 

·                  senior in right of payment to any
existing or future Subordinated Indebtedness of such Guarantor, including the
Senior Subordinated Notes;

 

·                  effectively senior to any unsecured
Indebtedness of such Guarantor to the extent of the value of the Collateral
owned by such Guarantor remaining after the payment of indebtedness benefiting
from prior liens;

 

·                  structurally subordinated to all
liabilities and preferred stock of any Subsidiaries of such Guarantor that are
not Subsidiary Guarantors; and

 

·                  effectively subordinated to Indebtedness
of such Guarantor that is secured by Liens on the Collateral that are senior to
or prior to the Liens securing such Guarantee, including guarantees of the
First Lien Notes and the Credit Agreement, in each case, to the extent of the
value of the Collateral owned by such Guarantor securing such senior or prior
liens.

 

As of the date of the Indenture, all of the Company’s
subsidiaries will be “Restricted Subsidiaries.” However, none of the Company’s
Foreign Subsidiaries will guarantee the Convertible Notes.  Under certain circumstances, the Company will
be permitted to designate certain of its Subsidiaries as “Unrestricted
Subsidiaries” under the First Lien Notes Indenture.  Any of the Company’s Subsidiaries so
designated will automatically become Unrestricted Subsidiaries under the
Indenture.  the Company’s Unrestricted
Subsidiaries will not be subject to the restrictive covenants in the Indenture
and will not guarantee the Convertible Notes.

 

Principal, Maturity and Interest

 

The Convertible Notes are limited to an initial
aggregate principal amount of $177,132,000 and will mature on July 15,
2016.  The Co-Issuers may issue
additional convertible notes under the Indenture (collectively with any 

 

B-2

 

Management Notes, the “Additional Convertible Notes”) from time to time after this
offering with the same terms and with the same CUSIP number as the Convertible
Notes offered hereby; provided that
such Additional Convertible Notes must be part of the same issue as the
Convertible Notes offered hereby for federal income tax purposes.  In addition, any offering of Additional
Convertible Notes is subject to the covenants described below under the caption
“—Certain Covenants—Limitation on Incurrence of Indebtedness and Issuance of
Disqualified Stock and Preferred Stock” and “—Certain Covenants —Liens.”  The Convertible Notes offered hereby and any
Additional Convertible Notes subsequently issued under the Indenture will be
treated as a single class for all purposes under the Indenture, the Security
Documents and the Intercreditor Agreement. 
Unless the context requires otherwise, references to “Convertible Notes”
for all purposes of the Indenture and this “Description of Convertible Notes”
includes any Additional Convertible Notes that are actually issued.  The Convertible Notes will be issued in
minimum denominations of $25.00 initial principal amount and any integral multiple
thereof.

 

Interest on the Convertible Notes will accrue at the
rate of 8.00% per annum and will compound on a semi-annual basis on January 15
and July 15, whether or not any such date is a business day (each, an “interest
payment date”), commencing on July 15, 2009.  Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months. 
The Co-Issuers will not pay interest in cash on an interest payment
date, but instead the principal amount of the Convertible Notes will be
increased as of such interest payment date by an accretion amount equal to the
interest payable for the interest period ending immediately prior to such
interest payment date.  The amount of
interest payable for each interest period will be calculated on the basis of
the accreted principal amount as of the first day of such interest period.  An “interest period” is the period from and
including an interest payment date (or in the case of the first interest
period, from and including the issue date) to but excluding the immediately
succeeding interest payment date.  In the
event of an acceleration, conversion or purchase of a Convertible Note by us at
the option of the holder upon the occurrence of a fundamental change, interest
will cease to accrue on such Convertible Note under the terms of and subject to
the conditions of the Indenture.  If a
fundamental change repurchase date (as defined below) or an accelerated
maturity date occurs on a day that is not an interest payment date, we will pay
the interest accrued on the Convertible Notes from and including the
immediately preceding interest payment date to, but excluding, such fundamental
change repurchase date or maturity date in cash.

 

Listing

 

The Co-Issuers intend to seek listing of the
Convertible Notes for trading on the New York Stock Exchange upon initial
issuance of the Convertible Notes, subject to satisfaction of applicable
listing requirements.

 

Payments

 

Principal and interest on the Convertible Notes is
payable and Convertible Notes may be presented for conversion, registration of
transfer or exchange at the office or agency of the Co-Issuers maintained for
such purpose within the City and State of New York; provided that any payments of principal and interest with
respect to Convertible Notes represented by one or more global notes registered
in the name of or held by DTC or its nominee will be made by wire transfer of
immediately available funds to the accounts specified by the Holder or Holders
thereof.  Until otherwise designated by
the Co-Issuers, their office or agency in New York will be the office of the
trustee maintained for such purpose.

 

Ranking

 

The Indebtedness evidenced by the Convertible Notes
and the Guarantees will be senior Indebtedness of the Co-Issuers and the
Guarantors, as the case may be, will rank pari
passu in right of payment with all existing and future Senior
Indebtedness of the Co-Issuers and the Guarantors, as the case may be.  Indebtedness under the First Lien Notes, the
Credit Agreement, the Convertible Notes, any Management Notes and all related
guarantees will be secured by the Collateral. 
The First Lien Notes will have first-priority with respect to the Notes
Collateral and will be second-priority with respect to the ABL Collateral.  Any Other First Lien Note Obligations
(collectively with obligations under the First Lien Notes, the “First Lien Note Obligations”) incurred after the Issue Date
will share in the Notes Collateral equally and ratably with the First Lien
Notes and may also share in the ABL Collateral equally and ratably with the
First Lien Notes.  The Indebtedness under
the Credit Agreement and any other Lenders Debt (collectively, the “ABL Obligations” and, together with the First Lien Note
Obligations, the “Prior Secured Obligations”)
incurred in the future will have first priority with respect to the ABL
Collateral and will be second-priority with respect to the Notes Collateral.  The Convertible Notes (including the
Guarantees thereof) will have a third-priority Lien on all of the
Collateral.  Any future Third Lien Indebtedness
(collectively with obligations under the Convertible Notes, including the
Guarantees thereof, the “Third Lien Obligations”)
may also share some or all of 

 

B-3

 

the
Collateral equally and ratably with the Convertible Notes.  Such security interests and related intercreditor
provisions are described under “—Security for the Convertible Notes.” The
Indebtedness evidenced by the Convertible Notes and the Guarantees will be
senior in right of payment to all existing and future Subordinated Indebtedness
of the Co-Issuers and the Guarantors, as the case may be, including the Senior
Subordinated Notes.

 

As of March 1, 2009, on an as adjusted basis
after giving effect to the Refinancing, the Company would have had $415.6
million aggregate principal amount of Senior Indebtedness (excluding the
Convertible Notes and the Guarantees) outstanding (excluding unused
commitments) and Parent would not have any Senior Indebtedness (excluding the
Convertible Notes) outstanding.  All of
the operations of the Company are conducted through its Subsidiaries.  Unless the Subsidiary is a Guarantor, claims
of creditors on such Subsidiaries, including trade creditors, and claims of
preferred stockholders (if any) of such Subsidiaries generally will have
priority with respect to the assets and earnings of such Subsidiaries over the
claims of creditors of the Company, including the Holders of the Convertible
Notes.  The Convertible Notes, therefore,
will be structurally subordinated to holders of Indebtedness and other
creditors (including trade creditors) and preferred stockholders (if any) of
Subsidiaries of the Company that are not Guarantors.

 

Although the Indenture will limit the incurrence of
Indebtedness by certain of the Company’s Subsidiaries, such limitation is
subject to a number of significant qualifications.  See “—Certain Covenants—Limitation on Incurrence
of Indebtedness and Issuance of Disqualified Stock and Preferred Stock.”

 

Although the Indenture will contain limitations on the
amount of additional Third Lien Indebtedness and additional priority-secured
Indebtedness that the Company and its Restricted Subsidiaries may incur, under
certain circumstances the amount of such additional Third Lien Indebtedness and
priority-secured Indebtedness could be substantial.  See “Certain Covenants—Limitation on
Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred
Stock” and “Certain Covenants—Liens.”

 

Guarantees

 

The Co-Issuers’ obligations under the Convertible
Notes, the Indenture, the Security Documents and the Intercreditor Agreement
will be jointly and severally guaranteed on a senior secured basis (the “Guarantees”) by Holdings and each
Subsidiary Guarantor.  Not all of our
Subsidiaries will guarantee the Convertible Notes.  Unrestricted Subsidiaries, Subsidiaries that
are not Wholly-Owned Subsidiaries and Foreign Subsidiaries will not be
Guarantors.  As of the Issue Date, we do
not have any Domestic Subsidiaries that are not Wholly-Owned Subsidiaries.  In the event of a bankruptcy, liquidation or
reorganization of any of these non-Guarantor Subsidiaries, these non-Guarantor
Subsidiaries will pay the holders of their debts and their trade creditors
before they will be able to distribute any of their assets to us or any of the
Subsidiary Guarantors.  For the year
ended November 30, 2008 and for the three months ended March 1, 2009,
our non-Guarantor Subsidiaries represented approximately 21.7% and 10.7% of our
net sales, 29.1% and 23.7% of our operating earnings and 8.9% and 11.5% of our
Adjusted EBITDA, respectively.  In addition,
as of March 1, 2009, our non-Guarantor Subsidiaries held approximately
12.2% of our consolidated assets and had approximately $96.3 million of
liabilities (including trade payables), to which the Convertible Notes and
Guarantees would have been structurally subordinated.  Any of our Subsidiaries that are
non-Guarantor Subsidiaries will not be permitted to guarantee the Prior Secured
Obligations.

 

As of the date of the Indenture, all of the Company’s
Subsidiaries will be “Restricted Subsidiaries.”  However, under certain circumstances, the
Company will be permitted to designate certain of its Subsidiaries as “Unrestricted
Subsidiaries” under the First Lien Notes Indenture.  Any of the Company’s Subsidiaries so
designated will automatically become Unrestricted Subsidiaries under the
Indenture.  The effect of designating a
Subsidiary as an “Unrestricted Subsidiary” will be:

 

·                  an Unrestricted Subsidiary will not be
subject to the restrictive covenants in the Indenture;

 

·                  a Subsidiary that has previously been a
Guarantor and that is designated an Unrestricted Subsidiary will be released
from its Guarantee; and

 

·                  the assets, income, cash flow and other
financial results of an Unrestricted Subsidiary will not be consolidated with
those of the Company and its Restricted Subsidiaries for purposes of
calculating compliance with the restrictive covenants contained in the
Indenture.

 

B-4

 

The obligations of each Guarantor under its Guarantee
will be limited to the maximum amount as will result in the obligations of such
Guarantor under its Guarantee not constituting a fraudulent conveyance or
fraudulent transfer under federal or state law. 
Each Guarantor that makes a payment for distribution under its Guarantee
will be entitled to a contribution from each other Guarantor in a pro rata amount based on adjusted net
assets of each Guarantor.

 

Conversion Rights

 

Subject
to Parent’s right to terminate conversion rights as described below under “—Parent’s
Right to Terminate Conversion Rights”, at any time prior to the close of
business on the business day immediately preceding the maturity date, Holders
may convert their Convertible Notes into shares of Common Stock in multiples of
$25.00 initial principal amount of Convertible Notes.  The Convertible Notes will be convertible
into shares of Common Stock at an initial conversion price of $1.00 per
share.  The conversion price will not be
increased in connection with an increase in the accreted principal amount of
the Convertible Notes.  However, because
the principal amount of each Convertible Note will automatically increase as a
result of the accretion at the opening of business on each interest payment
date, the number of shares of Common Stock issuable upon conversion of a
Convertible Note will increase on each interest payment date.

 

The
conversion price in effect at any given time will be subject to adjustment as
set forth in “—Conversion Price Adjustments” and “— Make Whole Amount”
below.  A Holder may convert fewer than
all of such Holder’s Convertible Notes so long as the Convertible Notes
converted are an integral multiple of $25.00 initial principal amount.  Parent will not issue fractional shares of
Common Stock upon conversion of the Convertible Notes.  Instead, Parent will pay the cash value of
such fractional shares based upon the closing sale price (as defined below) of
Common Stock on the business day immediately preceding the conversion
date.  Parent will deliver shares of
Common Stock and any cash payable in lieu of fractional shares no later than
the third business day following the conversion date.

 

The
number of shares of Common Stock a Holder will receive upon conversion of its
Convertible Notes will be based on the accreted principal amount of such
Convertible Notes on the conversion date, unless the conversion date occurs
within 15 days of the maturity date, in which case the number of shares of
Common Stock a Holder will receive upon conversion of its Convertible Notes
will be based on the accreted principal amount of such Convertible Notes, as
increased to reflect the interest payable on such maturity date.

 

The
delivery of shares of Common Stock and cash in lieu of any fractional shares of
Common Stock upon conversion of a Convertible Note will be deemed to satisfy in
full all obligations with respect to such Convertible Note.  Accordingly, any accrued but unpaid interest
will be deemed to be paid in full upon conversion, rather than cancelled,
extinguished or forfeited.  For a
discussion of the tax consequences to a Holder of receiving Common Stock upon
conversion, see                                .

 

If a
Holder converts Convertible Notes, Parent will pay any documentary, stamp or
similar issue or transfer tax due on the issue of shares of Common Stock upon
the conversion unless the tax is due because the Holder requests the shares due
upon conversion to be issued or delivered to a person other than such Holder,
in which case such Holder will pay that tax and the shares due upon conversion
will not be delivered until Parent receives satisfactory evidence of the
payment of such tax.

 

If you
hold a beneficial interest in a global note, to convert you must comply with
DTC’s procedures for exchanging a beneficial interest in a global note and, if
required, pay all taxes or duties, if any. 
See “— Global Convertible Notes, Book-Entry Form” below.

 

If you
hold a certificated note, to convert you must:

 

·                  complete
and manually sign the conversion notice on the back of the note, or a facsimile
of the conversion notice;

 

·                  deliver
the conversion notice, which is irrevocable, and the note to the conversion
agent;

 

·                  if
required, furnish appropriate endorsements and transfer documents; and

 

B-5

 

·                  if
required, pay all transfer or similar taxes.

 

The
date you comply with these requirements is the “conversion date” under the
Indenture.

 

If a
Holder has already delivered a repurchase notice with respect to a Convertible
Note, as described under “— Fundamental Change Requires the Co-Issuers to
Repurchase Convertible Notes at the Option of the Holder,” such Holder may not
surrender that Convertible Note for conversion until the Holder has withdrawn
such repurchase notice in accordance with the Indenture.

 

The
conversion agent will, on the Holder’s behalf, convert the Convertible Notes
into shares of Common Stock and Holders will be deemed to be the record owners
of the full number of shares due upon conversion as of the close of business on
the date the conversion shares are issued. 
Holders may obtain copies of the required form of the conversion notice
from the conversion agent.  A
certificate, or a book-entry transfer through DTC for the number of full shares
of Common Stock due upon conversion of any Convertible Notes, together with a
cash payment for any fractional shares, will be delivered through the
conversion agent as soon as practicable, but no later than the third business
day, following the conversion date.  The
Trustee will initially act as the conversion agent on behalf of the Co-Issuers.

 

The “closing
sale price” of Common Stock on any date means the closing sale price per share
(or if no closing sale price is reported, the average of the bid and ask prices
or, if more than one in either case, the average of the average bid and the
average ask prices) on that date as reported in composite transactions for the
principal U.S. securities exchange on which Common Stock is traded.  If Common Stock is not listed for trading on
a U.S. national or regional securities exchange on the relevant date, the “closing
sale price” will be the last quoted bid price for Common Stock in the
over-the-counter market on the relevant date as reported by Pink Sheets LLC or
similar organization. If Common Stock is not so quoted, the “closing sale price”
will be the average of the mid-point of the last bid and ask prices for Common
Stock on the relevant date from each of at least three nationally recognized
independent investment banking firms selected by us for this purpose.

 

Parent’s Right to Terminate
Conversion Rights

 

On or
after July 15, 2012, upon at least 30 and not more than 60 days’
notice to Holders, Parent may elect to terminate all Holders’ conversion rights
in whole, but not in part, if (i) the closing sale price of Common Stock
equals or exceeds 250% of the conversion price then in effect for at least 20
consecutive trading days ending on the trading day immediately preceding the
date of the notice of termination of conversion rights and (ii) as of the
date of the notice of termination of conversion rights, the ratio of Parent’s
Net Debt measured as of the end of the most recently ended fiscal quarter for
which internal financial statements are available to Parent’s EBITDA for the
most recently ended four full fiscal quarters for which internal financial
statements are available is less than 3.4 to 1.0.  If Parent makes such election, it will notify
the Trustee and the Holders of Convertible Notes at their addresses shown in
the register of the registrar and will, on a date not less than 30 days
prior to the date on which the conversion rights terminate, disseminate a press
release through Dow Jones & Company, Inc. or Bloomberg Business
News or other similarly broad public medium that is customary for such press
releases.

 

Limitations on Beneficial
Ownership

Notwithstanding
the foregoing, no Holder of Convertible Notes (other than any Permitted Holder)
will be entitled to receive shares of Common Stock upon conversion to the
extent (but only to the extent) that such receipt would cause such converting
Holder to become, directly or indirectly, a "beneficial owner"
(within the meaning of Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder) of more than 4.9% of the shares of Common
Stock outstanding at such time. In addition, no Holder of Convertible Notes
(other than any Permitted Holder) who holds more than 5% of the Common Stock
outstanding as of the date of this prospectus supplement (any such Holder, a
“5% Holder”) will be entitled to receive shares of Common Stock upon conversion
to the extent (but only to the extent) that such receipt would cause such
converting Holder to become, directly or indirectly, a beneficial owner of more
than an additional 1% of the shares of Common Stock outstanding at such time in
respect of conversions of the Convertible Notes by such 5% Holder. Any
purported delivery of shares of Common Stock upon conversion of Convertible
Notes shall be void and have no effect to the extent (but only to the extent)
that such delivery would result in the converting Holder (other than any
Permitted Holder) becoming the beneficial owner of more than 4.9% of the shares
of Common Stock outstanding at such time or, in the case of a 5% Holder, more
than an additional 1% of the shares of Common Stock outstanding at such time.
If any delivery of shares of Common Stock owed to a Holder upon conversion of
Convertible Notes is not made, in whole or in part, as a result of this
limitation, Parent’s obligation to make such delivery shall not be extinguished
and it shall deliver such shares of Common Stock as promptly as practicable
after any such converting Holder gives notice to us that such delivery would
not result in such limitation being triggered. 
These limitations on beneficial ownership shall be terminated
(i) upon 61 days notice to Parent by any Holder of Convertible Notes,
solely with respect to the Convertible Notes beneficially owned by such Holder,
(ii) immediately upon delivery by Parent of notice of its election to
terminate conversion rights as specified above, (iii) immediately upon
delivery by Parent of notice of a fundamental change as specified below or (iv)
on June 15, 2016.  These limitations
on beneficial ownership shall not constrain in any event Parent’s ability to
exercise its right to terminate conversion rights.

 

Make Whole Amount

 

If the
effective date of a make-whole event (as defined below) occurs on or prior to
the maturity date and a Holder elects to convert its Convertible Notes at any
time following the effective date and prior to the 35th business day following
the effective date (or, if such make-whole event also constitutes a fundamental
change, the relevant fundamental change repurchase date), we will decrease the
conversion price for the Convertible Notes surrendered for conversion resulting
in the issuance of a number of additional shares of Common Stock (the “additional
shares”), as described below.

 

A “make-whole
event” will be deemed to have occurred at such time after the original issuance
of the Convertible Notes when the following has occurred:

 

(1)   the Co-Issuers become aware of (by way of a
report or any other filing pursuant to Section 13(d) of the Exchange
Act, proxy, vote, written notice or otherwise) the acquisition by any Person or
“group” (within the meaning of Section 13(d)(3) or Section 14(d)(2) of
the Exchange Act, or any successor provision), including any group acting for
the purpose of acquiring, holding or disposition of securities (within the
meaning of Rule 13d-5(b)(1) under the Exchange Act), other than the
Permitted Holders, in a single transaction or in a related 

 

B-6

 

series of transactions, by way of merger, consolidation or other
business combination or purchase of beneficial ownership (within the meaning of
Rule 13d-3 under the Exchange Act, or any successor provision) of 50% or
more of the total voting power of the Voting Stock of Parent or the Company, as
applicable; provided that any transaction initiated
by KKR and its Affiliates (other than Parent and its Subsidiaries) shall not
cause a “make-whole event”;

 

(2)   consummation of any transaction or event
(whether by means of a liquidation, share exchange, tender offer,
consolidation, recapitalization, reclassification, merger of Parent or the
Company, as applicable, or any sale, lease or other transfer of the
consolidated assets of Parent or the Company, as applicable and their
respective subsidiaries substantially as an entirety) or a series of related
transactions or events pursuant to which Common Stock or common stock of the
Company, as applicable, is converted for, converted into or constitutes solely
the right to receive cash, securities or other property, other than any merger
or consolidation which is effected solely to change Parent’s or the Company’s,
as applicable, jurisdiction of incorporation and results in a reclassification,
conversion or exchange of outstanding shares of Common Stock or common stock of
the Company, as applicable, solely into shares of common stock of the surviving
entity; or

 

(3)   Common Stock (or other common stock into
which the Convertible Notes are then convertible) is not listed for trading on
the New York Stock Exchange, the NASDAQ Global Market or the NASDAQ Global
Select Market (or their respective successors);

 

provided that
the definition of make-whole event shall not include a merger or consolidation
under clause (1) or any event specified under clause (2), in each case, if
at least 90% of the consideration paid for Common Stock (excluding cash
payments for fractional shares and cash payments made pursuant to dissenters’
appraisal rights and cash dividends) in connection with such event consists of
shares of common stock traded on the New York Stock Exchange, the NASDAQ Global
Market or the NASDAQ Global Select Market (or their respective successors) (or
will be so traded or quoted immediately following the completion of the merger
or consolidation or such other transaction) and, as a result of such
transaction or transactions the Convertible Notes become convertible into such
shares of common stock pursuant to “—Recapitalizations, Reclassifications and
Changes of Parent Common Stock” above.

 

The
definition of make-whole event includes a phrase relating to the sale, lease or
other transfer of the consolidated assets of Parent or the Company, as
applicable, and their respective Subsidiaries “substantially as an entirety.”  There is no precise, established definition
of the phrase “substantially as an entirety” under applicable law.  Accordingly, the issuance of a number of
additional shares of Common Stock upon conversion as a result of a sale, lease
or other transfer of less than all Parent’s or the Company’s assets, as
applicable, may be uncertain.

 

The
Co-Issuers will mail a notice to Holders and issue a press release no later
than 10 business days prior to such transaction’s anticipated effective date
(or within 5 business days following a termination of trading described in
clause (3) or the filing in the case of a transaction described in clause (1) in
the definition of “make-whole event” to the extent we were unaware of such
transaction).

 

The
additional shares to be delivered resulting from the reduction in the
conversion price will be determined by reference to the table below and will be
based on the conversion date and the “applicable price” in connection with such
transaction.

 

The “applicable
price” in connection with a make-whole event means:

 

·                  If the consideration (excluding cash payment
for fractional shares or pursuant to statutory appraisal rights) paid to
holders of Common Stock in connection with such transaction consists
exclusively of cash, the amount of such cash per share of Common Stock; and

 

·                  In all other cases, the average of the
closing sale prices per share of Common Stock for the five consecutive trading
days immediately preceding the effective date of the make-whole event.

 

Upon
conversion of Convertible Notes during the period specified above, Parent will
deliver, on the third business day following the conversion date, a number of
shares of Common Stock (plus cash in lieu of fractional shares) equal to the
accreted principal amount of the Convertible Notes surrendered for conversion divided by the adjusted conversion price.

 

B-7

 

The
applicable prices set forth in the first row of the table (i.e.,
the column headers), will be adjusted as of any date on which the conversion
price of the Convertible Notes is adjusted. 
The adjusted applicable prices will equal the applicable prices in
effect immediately prior to such adjustment multiplied by a fraction, the
numerator of which is the conversion price immediately after the adjustment
giving rise to the stock price adjustment and the denominator of which is the
conversion price immediately prior to such adjustment.  The adjusted conversion prices set forth in
the table are subject to further adjustment as set forth under “—Conversion
Price Adjustments.”

 

The
following table sets forth the applicable prices and the applicable adjusted
conversion prices for the Convertible Notes.

 

	
   

  	
   

  	
  Applicable
  Price

  	
   

  
	
  Conversion Date

  	
   

  	
  $0.75

  	
   

  	
  $1.00

  	
   

  	
  $1.25

  	
   

  	
  $1.50

  	
   

  	
  $1.75

  	
   

  	
  $2.00

  	
   

  	
  $2.25

  	
   

  	
  $2.50

  	
   

  	
  $2.75

  	
   

  	
  $3.00

  	
   

  	
  $3.50

  	
   

  	
  $4.00

  	
   

  	
  $4.50

  	
   

  	
  $5.00

  	
   

  	
  $6.00

  	
   

  	
  $7.00

  	
   

  	
  $8.00

  	
   

  	
  $10.00

  	
   

  
	
  June 26, 2009

  	
   

  	
  $ 0.6114

  	
   

  	
  $ 0.6562

  	
   

  	
  $ 0.6890

  	
   

  	
  $ 0.7145

  	
   

  	
  $ 0.7345

  	
   

  	
  $ 0.7509

  	
   

  	
  $ 0.7639

  	
   

  	
  $ 0.7745

  	
   

  	
  $ 0.7830

  	
   

  	
  $ 0.7900

  	
   

  	
  $ 0.8003

  	
   

  	
  $ 0.8073

  	
   

  	
  $ 0.8121

  	
   

  	
  $ 0.8155

  	
   

  	
  $ 0.8195

  	
   

  	
  $ 0.8217

  	
   

  	
  $ 0.8229

  	
   

  	
  $ 0.8240

  	
   

  
	
  July 15, 2010

  	
   

  	
  $ 0.6374

  	
   

  	
  $ 0.6890

  	
   

  	
  $ 0.7279

  	
   

  	
  $ 0.7593

  	
   

  	
  $ 0.7849

  	
   

  	
  $ 0.8063

  	
   

  	
  $ 0.8235

  	
   

  	
  $ 0.8374

  	
   

  	
  $ 0.8485

  	
   

  	
  $ 0.8574

  	
   

  	
  $ 0.8702

  	
   

  	
  $ 0.8783

  	
   

  	
  $ 0.8835

  	
   

  	
  $ 0.8868

  	
   

  	
  $ 0.8903

  	
   

  	
  $ 0.8919

  	
   

  	
  $ 0.8926

  	
   

  	
  $ 0.8932

  	
   

  
	
  July 15, 2011

  	
   

  	
  $ 0.6609

  	
   

  	
  $ 0.7175

  	
   

  	
  $ 0.7610

  	
   

  	
  $ 0.7986

  	
   

  	
  $ 0.8321

  	
   

  	
  $ 0.8612

  	
   

  	
  $ 0.8856

  	
   

  	
  $ 0.9053

  	
   

  	
  $ 0.9208

  	
   

  	
  $ 0.9325

  	
   

  	
  $ 0.9477

  	
   

  	
  $ 0.9557

  	
   

  	
  $ 0.9598

  	
   

  	
  $ 0.9618

  	
   

  	
  $ 0.9633

  	
   

  	
  $ 0.9637

  	
   

  	
  $ 0.9638

  	
   

  	
  $ 0.9638

  	
   

  
	
  July 15, 2012

  	
   

  	
  $ 0.6853

  	
   

  	
  $ 0.7468

  	
   

  	
  $ 0.7903

  	
   

  	
  $ 0.8288

  	
   

  	
  $ 0.8674

  	
   

  	
  $ 0.9070

  	
   

  	
  $ 0.9460

  	
   

  	
  $ 0.9803

  	
   

  	
  $ 0.9979

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  
	
  July 15, 2013

  	
   

  	
  $ 0.7110

  	
   

  	
  $ 0.7807

  	
   

  	
  $ 0.8234

  	
   

  	
  $ 0.8572

  	
   

  	
  $ 0.8900

  	
   

  	
  $ 0.9235

  	
   

  	
  $ 0.9564

  	
   

  	
  $ 0.9850

  	
   

  	
  $ 0.9989

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  
	
  July 15, 2014

  	
   

  	
  $ 0.7373

  	
   

  	
  $ 0.8236

  	
   

  	
  $ 0.8680

  	
   

  	
  $ 0.8965

  	
   

  	
  $ 0.9211

  	
   

  	
  $ 0.9457

  	
   

  	
  $ 0.9696

  	
   

  	
  $ 0.9901

  	
   

  	
  $ 0.9996

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  
	
  July 15, 2015

  	
   

  	
  $ 0.7500

  	
   

  	
  $ 0.8812

  	
   

  	
  $ 0.9332

  	
   

  	
  $ 0.9547

  	
   

  	
  $ 0.9665

  	
   

  	
  $ 0.9766

  	
   

  	
  $ 0.9866

  	
   

  	
  $ 0.9955

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  
	
  July 15, 2016

  	
   

  	
  $ 0.7500

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  	
  $ 1.0000

  	
   

  

 

The
exact applicable  price and conversion
dates may not be set forth in the table above, in which case:

 

1.         if the applicable price
is between two applicable price amounts in the table or the conversion date is
between two dates in the table, the adjusted conversion price will be
determined by straight-line interpolation between the adjusted conversion
prices set forth for the higher and lower stock price amounts and the two
dates, as applicable, based on a 365 day year;

 

2.         if the applicable price
is in excess of $10.00 per share (subject to adjustment), there will be no
decrease in the conversion price; and

 

3.         if the applicable price
is less than $0.75 per share (subject to adjustment), there will be no decrease
in the conversion price.

 

Notwithstanding
the foregoing, in no event will the conversion price be less than $0.6114 per
share, subject to adjustment in the same manner as any adjustment to the
conversion price as set forth under “—Conversion Price Adjustments.”

 

Our
obligation to adjust the conversion price could be considered a penalty, in
which case the enforceability thereof would be subject to general principles of
reasonableness of economic remedies.

 

Conversion Price
Adjustments

 

The
initial conversion price will be adjusted as described below if any of the
following events:

 

(1)          the issuance of Common
Stock as a dividend or distribution to all holders of Common Stock, or a
subdivision or combination of Common Stock, in which event the conversion price
will be adjusted based on the following formula:

 

	
  CP1

  	
  =

  	
  CP0

  	
  x

  	
  OS0

  
	
  OS1

  

 

where,

 

CP0                            =                                         the
conversion price in effect at the close of business on the record date

 

B-8

 

CP1                            =                                         the
conversion price in effect immediately after the record date

 

OS0                           =                                         the
number of shares of Common Stock outstanding immediately prior to the close of
business on the record date

 

OS1                           =                                         the
number of shares of Common Stock that would be outstanding immediately after,
and solely as a result of, such event

 

(2)          the issuance to all holders
of Common Stock of certain rights or warrants entitling them for a period
expiring 45 days or less from the date of issuance of such rights or warrants
to purchase shares of Common Stock at less than the average closing sale price
of Common Stock for the ten consecutive trading days ending on the trading day
immediately preceding the time of announcement of such issuance; in which event
the conversion price will be adjusted based on the following formula:

 

	
  CP1

  	
  =

  	
  CP0

  	
  x

  	
  OS0 + Y

  
	
  OS0 + X

  

 

where,

 

CP0                            =              the
conversion price in effect at the close of business on the record date

 

CP1                            =              the
conversion price in effect immediately after the record date

 

OS0                           =              the
number of shares of Common Stock outstanding at the close of business on the
record date

 

X                                       =              the
total number of shares of Common Stock issuable pursuant to such rights

 

Y                                        =              the
number of shares of Common Stock equal to the aggregate price payable to
exercise such rights divided by the
average of the closing sale prices of Common Stock for the ten consecutive
trading days prior to the business day immediately preceding the announcement
of the issuance of such rights

 

However,
the conversion price will be readjusted to the extent that such rights or
warrants are not exercised prior to their expiration.

 

(3)          the dividend or other
distribution to all holders of Common Stock of shares of capital stock (other
than Common Stock) or evidences of indebtedness or assets (excluding any
dividend, distribution or issuance as to which an adjustment was effected by
clauses (1) or (2) above or (4) below) in which event the
conversion price will be adjusted based on the following formula:

 

	
  CP1

  	
  =

  	
  CP0

  	
  x

  	
  SP0 – FMV

  
	
  SP0

  

 

where,

 

CP0                            =              the
conversion price in effect at the close of business on the record date

 

CP1                            =              the
conversion price in effect immediately after the record date

 

SP0                             =              the
current market price per share of Common Stock

 

FMV                     =              the
fair market value (as determined by Parent’s board of directors), on the record
date, of the shares of capital stock, evidences of indebtedness or assets so
distributed, expressed as an amount per share of Common Stock

 

However,
if the transaction that gives rise to an adjustment pursuant to this clause (3) is
one pursuant to which the payment of a dividend or other distribution on Common
Stock consist of shares of capital stock of, or similar equity interests in, a
subsidiary or other business unit of Parent, (i.e.,
a spin-off) that are, or, when issued, will be, 

 

B-9

 

traded on a U.S. securities exchange, then the
conversion price will instead be adjusted based on the following formula:

 

	
  CP1

  	
  =

  	
  CP0

  	
  x

  	
  MP0

  
	
  FMV0 + MP0

  

 

where,

 

CP0                            =              the
conversion price in effect at the close of business on the last trading day of
the valuation period referred to below

 

CP1                            =              the
conversion price in effect immediately after the last trading day of the
valuation period referred to below

 

FMV0                =              the
average of the closing sale prices of the capital stock or similar equity
interests distributed to holders of Common Stock applicable to one share of
Common Stock over the 10 consecutive trading day period (the “valuation period”)
commencing on and including the third trading day after the date on which “ex-distribution
trading” commences for such dividend or distribution on the New York Stock
Exchange or such other national or regional exchange or market on which such
capital stock or equity interest is then listed or quoted

 

MP0                        =                                         the
average of the closing sale prices of Common Stock over such valuation period

 

If the
final day of the valuation period occurs after the second business day
immediately preceding the stated maturity date, the valuation period shall be
deemed to be such number of trading days from, and including, the third trading
day after the commencement of ex-distribution trading to, and including, the
second business day immediately preceding the stated maturity date.

 

(4)                                  dividends
or other distributions consisting exclusively of cash to all holders of Common
Stock, in which event the conversion price will be adjusted based on the
following formula:

 

	
  CP1

  	
  =

  	
  CP0

  	
  x

  	
  SP0 – C

  
	
  SP0

  

 

where,

 

CP0                            =                                         the
conversion price in effect at the close of business on the record date

 

CP1                            =                                         the
conversion price in effect immediately after the record date

 

SP0                             =                                         the
current market price per share of Common Stock

 

C                                        =                                         the
amount in cash per share distributed by Parent to holders of Common Stock

 

(5)                                  Parent
or one or more of its Subsidiaries make purchases of Common Stock pursuant to a
tender offer or exchange offer by Parent or one of its Subsidiaries for Common
Stock to the extent that the cash and value of any other consideration included
in the payment per share of Common Stock validly tendered or exchanged exceeds
the closing sale price per share of Common Stock on the trading day next
succeeding the last date on which tenders or exchanges may be made pursuant to
such tender or exchange offer (the “expiration date”), in which event the
conversion price will be adjusted based on the following formula:

 

	
  CP1

  	
  =

  	
  CP0

  	
  x

  	
  OS0 x SP1

  
	
  FMV + (SP1 x OS1)

  

 

where,

 

CP0                            =                                         the
conversion price in effect on the trading day immediately following such
expiration date

 

B-10

 

CP1                            =              the
conversion price in effect on the second trading day immediately following such
expiration date

 

FMV                     =              the
fair market value (as determined by Parent’s board of directors), on the
expiration date, of the aggregate value of all cash and any other consideration
paid or payable for shares validly tendered or exchanged and not withdrawn as
of the expiration date (the “purchased shares”)

 

OS1                           =              the
number of shares of Common Stock outstanding as of the last time tenders or
exchanges may be made pursuant to such tender or exchange offer (the “expiration
time”), after giving effect to the purchase or exchange of shares of Common
Stock pursuant to such tender offer or exchange offer

 

OS0                           =              the
number of shares of Common Stock outstanding at the expiration time, including
any purchased or exchanged shares

 

SP1                             =              the
average of the closing sale prices of common stock for the ten consecutive
trading days ending on the trading day next succeeding the expiration date

 

“Current
market price” of Common Stock on any day means the average of the closing sale
price of Common Stock for each of the 10 consecutive trading days ending on the
trading day before the ex-dividend date with respect to the issuance or
distribution requiring such computation.

 

“Ex-dividend
date” means, with respect to any dividend, issuance or distribution, the first
date on which the shares of Common Stock trade on the applicable exchange or in
the applicable market, regular way, without the right to receive such dividend,
issuance or distribution.

 

“Record
date” means, for purpose of this section, with respect to any dividend,
distribution or other transaction or event in which the holders of Common Stock
have the right to receive any cash, securities or other property or in which
Common Stock (or other applicable security) is converted for or converted into
any combination of cash, securities or other property, the date fixed for
determination of holders of Common Stock entitled to receive such cash,
securities or other property (whether such date is fixed by our board of
directors or by statute, contract or otherwise).

 

“Trading
day” means a day on which (i) trading in the Common Stock generally occurs
on the New York Stock Exchange or, if the Common Stock is not then listed on
the New York Stock Exchange, on the principal other United States national or
regional securities exchange on which the Common Stock is then listed or, if
the Common Stock is not then listed on a United States national or regional
securities exchange, in the principal other market on which the Common Stock is
then traded, and (ii) a closing sale price for the Common Stock is
available on such securities exchange or market.  If the Common Stock (or other security for
which a closing sale price must be determined) is not so listed or traded, “trading
day” means a “business day.”

 

Notwithstanding the
foregoing, we will not make any adjustments to the conversion price as set
forth under clauses (2) through (4) above if Holders of the
Convertible Notes participate (as a result of holding the Convertible Notes,
and at the same time as common stockholders) in any of the transactions
described herein as if such Holders of the Convertible Notes held a number of
shares of Common Stock equal to the accreted principal amount of Convertible
Notes held by such Holders divided by the
applicable conversion price, without having to convert their Convertible Notes.

 

Adjustments
to the conversion price will be calculated to the nearest cent.  No adjustment to the conversion price will be
required unless the adjustment would require an increase or decrease of at
least 1% of the conversion price. 
However, we will carry forward any adjustments that are less than 1% of
the conversion price that we elect not to make and take them into account upon
the earlier of (1) any conversion of Convertible Notes or (2) such
time as all adjustments that have not been made prior thereto would have the
effect of adjusting the conversion price by at least 1%.

 

To the
extent that Parent has a shareholder rights plan (i.e.,
a poison pill) in effect, upon conversion of the Convertible Notes into Common
Stock, you will receive, in addition to the Common Stock due upon conversion,
the rights under the rights plan, unless the rights have separated from the
Common Stock, prior to any conversion, in which case the conversion price will
be adjusted at the time of separation as described in clause (3) above.  A further 

 

B-11

 

adjustment will occur as described in clause (3) above,
if such rights become exercisable to purchase different securities, evidences
of indebtedness or assets, subject to readjustment in the event of the
expiration, termination or redemption of such rights.

 

Except
as stated above, the conversion price will not be adjusted for the issuance of
Common Stock or any securities convertible into or exchangeable for Common
Stock or carrying the right to purchase any of the foregoing.  Without limiting the generality of the
foregoing, we note that the conversion price will not be adjusted:

 

·                  upon
the issuance of any shares of Common Stock pursuant to any present or future
plan providing for the reinvestment of dividends or interest payable on the
securities of Parent or any of its Subsidiaries and the investment of
additional optional amounts in shares of Common Stock under any plan;

 

·                  upon
the issuance of any shares of Common Stock or options or rights to purchase
those shares pursuant to any present or future employee, director or consultant
benefit plan or program of or assumed by Parent or any of its Subsidiaries;

 

·                  upon
the issuance of any shares of Common Stock pursuant to any option, warrant,
right or exercisable, exchangeable or convertible security not described in the
preceding bullet and outstanding as of the date the Convertible Notes were
first issued;

 

·                  for
a change in the par value of the Common Stock; or

 

·                  for
accrued and unpaid interest.

 

Parent
may from time to time, to the extent permitted by law and subject to applicable
rules of the New York Stock Exchange, decrease the conversion price of the
Convertible Notes by any amount for any period of at least 20 days.  In that case, we will give at least 5 days
notice of such decrease.  To the extent
permitted by law and subject to applicable rules of New York Stock
Exchange, Parent may also make such decreases in the conversion price, in
addition to those set forth above, as Parent’s board of directors deems
advisable, including to avoid or diminish any income tax to holders of Common
Stock resulting from any dividend or distribution of stock (or rights to
acquire stock) or from any event treated as such for income tax purposes.

 

As a
result of any adjustment of the conversion price, the Holders of Convertible
Notes may, in certain circumstances, be deemed to have received a distribution
subject to U.S. federal income tax as a dividend.  In certain other circumstances, the absence
of an adjustment may result in taxable dividend income to the holders of Common
Stock. In addition, non-U.S. Holders (as defined in “Material United States
Federal Income Tax Considerations”) of Convertible Notes in certain
circumstances may be deemed to have received a distribution subject to U.S.
federal withholding tax requirements. See “Material United States Federal
Income Tax Considerations — U.S. Holders — Conversion Price Adjustments” and “Material
United States Federal Income Tax Considerations — Non-U.S. Holders — Conversion
Price Adjustments.”

 

Recapitalizations,
Reclassifications and Changes of Common Stock

 

In the
case of any recapitalization, reclassification or change of Common Stock (other
than changes resulting from a subdivision or combination or a change in par
value or from par value to no par value or vice versa), a consolidation, merger
or combination involving Parent, a sale, lease or other transfer to a third
party of the consolidated assets of Parent and its Subsidiaries substantially
as an entirety, or any statutory share exchange, in each case as a result of
which Common Stock would be converted into, or converted for, stock, other
securities, other property or assets (including cash or any combination
thereof), then, at the effective time of the transaction, the right to convert
a Convertible Note will be changed into a right to convert it into the kind and
amount of shares of stock, other securities or other property or assets
(including cash or any combination thereof) that a Holder would have received
in respect of Common Stock issuable upon conversion of such Convertible Note
immediately prior to such transaction (the “reference property”).  If the transaction causes Common Stock to be
converted into the right to receive more than a single type of consideration
(determined based in part upon any form of stockholder election), the reference
property into which the Convertible Notes will be convertible will be deemed to
be (1) if the holders of a majority of Common Stock make an affirmative
election, the weighted average of the types and amounts of consideration
received by the holders of Common Stock that affirmatively make such an
election or (2) if the 

 

B-12

 

holders of a majority of Common Stock do not make an
affirmative election, the weighted average of the types and amounts of
consideration received by all holders of Common Stock.

 

A
change in the conversion right such as described above could substantially
lessen or eliminate the value of the conversion right.  For example, if a third party acquires us in
a cash merger, each Convertible Note would be convertible solely into cash and would
no longer be potentially convertible into securities whose value could increase
depending on our future financial performance, prospects and other factors.

 

Fundamental Change
Requires the Co-Issuers to Repurchase Convertible Notes at the Option of the
Holder

 

If a
fundamental change (as described below) occurs, each Holder of Convertible
Notes will have the right to require the Co-Issuers to purchase some or all of
that Holder’s Convertible Notes, in integral multiples of $25.00 initial
principal amount, on a repurchase date (the “fundamental change repurchase date”)
of the Co-Issuers choosing that is not less than 15 nor more than 35 business
days after the date of the notice of the fundamental change.  One or both of the Co-Issuers will purchase
such Convertible Notes at a purchase price in cash equal to 100% of the
principal amount of the Convertible Notes to be purchased, plus any accrued and
unpaid interest to, but excluding, the fundamental change repurchase date.

 

Within
15 days after the occurrence of a fundamental change, the Co-Issuers are
required to mail notice to all Holders of Convertible Notes, as provided in the
Indenture, of the occurrence of the fundamental change and of their resulting
repurchase right and the fundamental change repurchase date.  The Co-Issuers must also deliver a copy of
the notice to the Trustee.  To exercise
the repurchase right, a Holder of Convertible Notes must deliver, on or before
the close of business on the business day immediately preceding the fundamental
change repurchase date specified in the notice, written notice to the Trustee
of the Holder’s exercise of its repurchase right.

 

You
may withdraw any written repurchase notice by delivering a written notice of
withdrawal to the paying agent prior to the close of business on the business
day before the fundamental change repurchase date.  The withdrawal notice must state:

 

·                  the
name of the Holder;

 

·                  a
statement that the Holder is withdrawing its election to require us to purchase
its Convertible Notes;

 

·                  the
initial principal amount of the withdrawn Convertible Notes, which must be an
integral multiple of $25.00;

 

·                  if
certificated Convertible Notes have been issued, the certificate number of the
withdrawn Convertible Notes; and

 

·                  the
initial principal amount, if any, that remains subject to the repurchase notice
which must be an integral multiple of $25.00.

 

If the
Convertible Notes are not in certificated form, the notice given by each Holder
must comply with appropriate DTC procedures.

 

Payment
of the repurchase price for a Convertible Note for which a repurchase notice
has been delivered and not withdrawn is conditioned upon book-entry transfer or
delivery of the Convertible Note, together with necessary endorsements, to the
paying agent at its corporate trust office in the Borough of Manhattan, The
City of New York, or any other office of the paying agent, at any time after
delivery of the repurchase notice. 
Payment of the repurchase price for the Convertible Note will be made
promptly following the later of the fundamental change repurchase date and the
time of book-entry transfer or delivery of the Convertible Note.  If the paying agent holds money sufficient to
pay, on the repurchase date, the repurchase price of the Convertible Note, on
the repurchase date, then, as of the repurchase date:

 

·                  the
Convertible Note will cease to be outstanding and interest will cease to
accrue; and

 

·                  all
other rights of the Holder will terminate (other than the right to receive the
repurchase price upon delivery of the Convertible Note, together with necessary
endorsements).

 

B-13

 

This
will be the case whether or not book-entry transfer of the Convertible Notes is
made and whether or not the Convertible Notes are delivered to the paying
agent.

 

The
obligation to make a repurchase in the event of a fundamental change will be
satisfied if a third party makes an offer to repurchase Convertible Notes in
the manner and at the times and otherwise in compliance in all material
respects with the requirements applicable to a fundamental change repurchase
made by the Co-Issuers and purchases all Convertible Notes validly tendered and
not withdrawn for which a repurchase notice has been delivered and not
withdrawn.

 

A “fundamental
change” will be deemed to have occurred at such time after the original
issuance of the Convertible Notes when the following has occurred:

 

(1)          the Co-Issuers become
aware of (by way of a report or any other filing pursuant to Section 13(d) of
the Exchange Act, proxy, vote, written notice or otherwise) the acquisition by
any Person or “group” (within the meaning of Section 13(d)(3) or Section 14(d)(2) of
the Exchange Act, or any successor provision), including any group acting for
the purpose of acquiring, holding or disposition of securities (within the
meaning of Rule 13d-5(b)(1) under the Exchange Act), other than the
Permitted Holders, in a single transaction or in a related series of
transactions, by way of merger, consolidation or other business combination or
purchase of beneficial ownership (within the meaning of Rule 13d-3 under
the Exchange Act, or any successor provision) of 50% or more of the total
voting power of the Voting Stock of Parent or the Company, as applicable; provided that any transaction initiated by KKR and its
Affiliates (other than Parent and its Subsidiaries) shall not be a “fundamental
change”;

 

(2)          consummation of any
transaction or event (whether by means of a liquidation, share exchange, tender
offer, consolidation, recapitalization, reclassification, merger of Parent or the
Company, as applicable, or any sale, lease or other transfer of the
consolidated assets of Parent or the Company, as applicable, and their
respective subsidiaries substantially as an entirety) or a series of related
transactions or events pursuant to which Common Stock or common stock of the
Company, as applicable, is converted for, converted into or constitutes solely
the right to receive cash, securities or other property, other than any merger
or consolidation:

 

·                  that does not
result in a reclassification, conversion, exchange or cancellation of Parent’s
outstanding Common Stock or the Company’s outstanding common stock, as
applicable, and pursuant to which the consideration received by holders of
Common Stock or holders of common stock of the Company, as applicable,
immediately prior to the transaction entitles such Holders to exercise,
directly or indirectly, 50% or more of the voting power of all shares of
capital stock entitled to vote generally in the election of directors of the
continuing or surviving corporation immediately after such transaction; or

 

·                  which is
effected solely to change Parent’s or the Company’s, as applicable,
jurisdiction of incorporation and results in a reclassification, conversion or
exchange of outstanding shares of Common Stock or common stock of the Company,
as applicable, solely into shares of common stock of the surviving entity;

 

(3)          Common Stock (or other
common stock into which the Convertible Notes are then convertible) is not
listed for trading on the New York Stock Exchange, the NASDAQ Global Market or
the NASDAQ Global Select Market (or their respective successors); or

 

The
definition of fundamental change includes a phrase relating to the sale, lease
or other transfer of the consolidated assets of Parent or the Company, as
applicable, and their respective Subsidiaries “substantially as an entirety.”  There is no precise, established definition
of the phrase “substantially as an entirety” under applicable law.  Accordingly, your ability to require Parent
or the Company, as applicable, to repurchase your Convertible Notes as a result
of a sale, lease or other transfer of less than all Parent’s or the Company’s
assets, as applicable, may be uncertain.

 

Rule 13e-4
under the Exchange Act, as amended, requires the dissemination of certain
information to security Holders if an issuer tender offer occurs and may apply
if the repurchase option becomes available to Holders of the Convertible
Notes.  The Co-Issuers will comply with
this rule to the extent applicable at that time.

 

B-14

 

We
may, to the extent permitted by applicable law, at any time purchase the
Convertible Notes in the open market or by tender offer at any price or by
private agreement.  Any Convertible Note
so purchased by us may, to the extent permitted by applicable law, be reissued
or resold or may be surrendered to the Trustee for cancellation.  Any Convertible Notes surrendered to the
Trustee for cancellation may not be reissued or resold and will be canceled
promptly.

 

The
foregoing provisions would not necessarily protect Holders of the Convertible
Notes if highly leveraged or other transactions involving Parent or its
Subsidiaries occur that may adversely affect Holders.

 

Our
ability to repurchase Convertible Notes upon the occurrence of a fundamental
change is subject to important limitations under the First Lien Notes Indenture
and the Credit Agreement including compliance with covenants limiting “Restricted
Payments” thereunder.  In addition,
future credit agreements or other agreements relating to our indebtedness or
otherwise may contain provisions prohibiting repurchase of the Convertible
Notes under certain circumstances, or expressly prohibit our repurchase of the
Convertible Notes upon a fundamental change or may provide that a fundamental
change constitutes an event of default under that agreement.  If a fundamental change occurs at a time when
we are prohibited from repurchasing Convertible Notes, we may seek the consent
of our lenders to repurchase the Convertible Notes or may attempt to refinance
this debt.  If we do not obtain consent,
we would not be permitted to repurchase the Convertible Notes.  Further, there can be no assurance that we
would have the financial resources, or would be able to arrange financing, to
pay the repurchase price for all the Convertible Notes seeking to exercise
their repurchase right.  Our failure to
repurchase tendered Convertible Notes would constitute an event of default
under the Indenture, which might constitute a default under the terms of our
other indebtedness.  [See “Risk Factors —
Risks Related to the Convertible Notes— We may not have the funds necessary to
repurchase the Convertible Notes when necessary, and our indebtedness may
contain limitations on our ability to repurchase the Convertible Notes under
certain circumstances.”]

 

No
Convertible Notes may be purchased by us at the option of the Holders upon a
fundamental change if the principal amount of the Convertible Notes has been
accelerated, and such acceleration has not been rescinded, on or prior to such
date.

 

The
fundamental change repurchase feature of the Convertible Notes may in certain
circumstances make more difficult or discourage a takeover of the
Co-Issuers.  The fundamental change
repurchase feature, however, is not the result of knowledge of any specific
effort to accumulate shares of Common Stock, to obtain control of Parent or the
Company by means of a merger, tender offer solicitation or otherwise, or by
management to adopt a series of antitakeover provisions.  Instead, the fundamental change repurchase
feature is a standard term contained in securities similar to the Convertible
Notes.

 

Form, Denomination and
Registration

 

The
Convertible Notes will be issued in fully registered form, without coupons, in
denominations of $25.00 initial principal amount and whole multiples of $25.00.

 

Calculations
in Respect of Convertible Notes

 

Except as otherwise
provided above, the Co-Issuers will be responsible for making all calculations
called for under the Convertible Notes or in connection with a conversion.  These calculations include, but are not
limited to, determinations of the closing sale prices of Common Stock, accrued
interest payable on the Convertible Notes and the conversion price of the
Convertible Notes.  The Co-Issuers will
provide a schedule of calculations to each of the Trustee and the conversion
agent, and each of the Trustee and conversion agent is entitled to rely
conclusively upon the accuracy of such calculations without independent
verification.  The Trustee will forward
such calculations to any Holder of Convertible Notes upon the request of that
Holder.

 

Security for the Convertible
Notes

 

Subject to the limitations and exclusions described
under “—Limitations on Stock Collateral,” the Convertible Notes and the
Guarantees will be secured by the Collateral, which will consist of (i) the
Notes Collateral as to which the holders of the First Lien Notes and holders of
any future Other First Lien Note Obligations will have a first-priority
security interest, the Bank Lenders and other holders of Lenders Debt will have
a second-priority security interest, the Holders of the Convertible Notes will
have a third-priority security interest and the holders of 

 

B-15

 

any
future Third Lien Indebtedness may have a third-priority security interest (in
each case subject to Permitted Liens) and (ii) the ABL Collateral as to
which the Bank Lenders and certain other holders of Lenders Debt will have a
first-priority security interest, the holders of the First Lien Notes will have
a second-priority security interest, holders of any future Other First Lien
Note Obligations may have a second-priority security interest, the Holders of
the Convertible Notes will have a third-priority security interest and the holders
of any future Third Lien Indebtedness may have a third-priority security
interest (in each case subject to Permitted Liens).

 

The Company and the Guarantors will be able to incur
additional Indebtedness in the future which could share in all or part of the
Collateral.  The amount of all such
additional Indebtedness will be limited by the covenants disclosed under “—Certain
Covenants—Liens” and “—Certain Covenants—Limitation on Incurrence of
Indebtedness and Issuance of Disqualified Stock and Preferred Stock.”  Under certain circumstances the amount of
such additional secured Indebtedness could be significant.

 

Notes Collateral

 

Subject to the limitations and exclusions described
under “—Limitations on Stock Collateral, “ the Notes Collateral generally will
consist of the following assets of the Company and the Subsidiary Guarantors
(and in the case of the Equity Interests of the Company, Holdings):

 

·                  all
of the Equity Interests of the Company;

 

·                  all
of the other Equity Interests held by the Company or any Subsidiary Guarantor
(which, in the case of any equity interest in any Foreign Subsidiary, will be
limited to 100% of the non-voting stock (if any) and 65% of the voting stock of
such Foreign Subsidiary);

 

·                  owned
real properties owned by the Company and the Subsidiary Guarantors with a cost
or book value (whichever is greater) in excess of $1,000,000 and certain
leasehold real properties;

 

·                  equipment;

 

·                  patents,
trademarks and copyrights;

 

·                  general
intangibles, instruments, books and records and supporting obligations related
to the foregoing and proceeds of the foregoing (other than accounts that are
proceeds of the sale of inventory); and

 

·                  substantially
all of the other tangible and intangible assets of the Company and the
Guarantors, other than (i) the ABL Collateral and (ii) Excluded
Assets.

 

ABL Collateral

 

The ‘‘ABL
Collateral’’ generally will consist of all of the following assets of the Company
and the Subsidiary Guarantors:

 

·                  all
accounts;

 

·                  all
inventory;

 

·                  all
deposit accounts and securities accounts (and all assets and amounts contained
therein but excluding (i) identifiable proceeds of the Notes Collateral
and (ii) certain special purpose and de minimis deposit accounts); and

 

·                    all general intangibles, instruments, books and records and supporting
obligations related to the foregoing and proceeds of the foregoing, in each
case held by the Company and the Guarantors.

 

The Convertible Notes’ third-priority Lien on and security
interest in the ABL Collateral will be terminated and automatically released if
the Lien on such ABL Collateral in favor of the ABL Secured Parties is released
in connection with any sale or other disposition of such ABL Collateral in
connection with an enforcement action by the Bank Collateral Agent. Except as
provided in the Intercreditor Agreement, holders of Liens on the ABL Collateral
that are junior relative to the holders of Lenders Debt, including holders of
First Lien Debt and holders of 

 

B-16

 

the
Convertible Notes and any Management Notes, will not be able to take any
enforcement action with respect to the ABL Collateral so long as any Lenders
Debt is outstanding.

 

Convertible Notes and Management Notes Collateral

 

The Convertible Notes and Management Notes will be
secured by a third-priority Lien on and security interest in all of the
Collateral (excluding certain Equity Interests and securities issued by
Subsidiaries), subject to Permitted Liens. The Convertible Notes’ and
Management Notes’ third-priority Lien on and security interest in the
Collateral will be terminated and automatically released if the Liens on such
Collateral in favor of the ABL Secured Parties and the First Lien Notes Secured
Parties are released in connection with any sale or other disposition of such
Collateral in connection with an enforcement action by the First Line Notes
Collateral Agent or the Bank Collateral Agent.

 

Limitations on Stock Collateral

 

The Equity Interests and other securities of a
Subsidiary that are owned by the Company or any Guarantor will constitute
Collateral only to the extent that such Equity Interests and other securities
can secure the Convertible Notes without Rule 3-10 or Rule 3-16 of
Regulation S-X under the Securities Act (or any other U.S. federal law, rule or
regulation) requiring separate financial statements of such Subsidiary to be
filed with the SEC (or any other U.S. federal governmental agency).  In the event that Rule 3-10 or Rule 3-16
of Regulation S-X under the Securities Act requires or is amended, modified or
interpreted by the SEC to require (or is replaced with another rule or
regulation, or any other law, rule or regulation is adopted, which would
require) the filing with the SEC (or any other governmental agency) of separate
financial statements of any Subsidiary due to the fact that such Subsidiary’s
Equity Interests and other securities secure the Convertible Notes, then the
Equity Interests and other securities of such Subsidiary shall automatically be
deemed not to be, and never to have been, part of the Collateral (but only to
the extent necessary to not be subject to such requirement).  In such event, the Security Documents may be
amended or modified, without the consent of any Holder of Convertible Notes, to
the extent necessary to release the third-priority security interests in the
Equity Interests and other securities that are so deemed to no longer
constitute part of the Collateral.  Upon
any such release, the Convertible Notes will be effectively subordinated to the
First Lien Notes and Lenders Debt, which are not subject to the release
provisions described in this paragraph, to the extent of the value of such
released Collateral.

 

In the event that Rule 3-10 or Rule 3-16 of
Regulation S-X under the Securities Act is amended, modified or interpreted by
the SEC to permit (or is replaced with another rule or regulation, or any
other law, rule or regulation is adopted, which would permit) such
Subsidiary’s Equity Interests and other securities to secure the Convertible
Notes in excess of the amount then pledged without the filing with the SEC (or
any other U.S. federal governmental agency) of separate financial statements of
such Subsidiary, then the Equity Interests and other securities of such
Subsidiary shall automatically be deemed to be a part of the Collateral (to the
maximum extent possible without triggering any such financial statement
requirement).  In such event, the Security
Documents may be amended or modified, without the consent of any Holder of
Convertible Notes, to the extent necessary to subject to the Liens under the
Security Documents such additional Equity Interests and other securities.

 

In accordance with the limitations set forth in the
two immediately preceding paragraphs, the Collateral will include Equity
Interests of Subsidiaries of the Company only to the extent that the applicable
value of such Equity Interests (on a Subsidiary-by-Subsidiary basis) is less
than 20% of the aggregate principal amount of the Convertible Notes than
outstanding.  Following the Issue Date,
however, the portion of the Equity Interests of Subsidiaries constituting
Collateral may decrease or increase as described above.

 

After-acquired property

 

Promptly following the acquisition by the Co-Issuers
or any Guarantor of any After-Acquired Property (but subject to the
limitations, if applicable, described under “—Notes Collateral” and “—ABL
Collateral”), the Co-Issuers or such Guarantor shall execute and deliver such
mortgages, deeds of trust, security instruments, financing statements and
certificates and opinions of counsel as shall be reasonably necessary to vest
in the Collateral Agent a perfected security interest in such After-Acquired
Property and to have such After-Acquired Property added to the Collateral and
thereupon all provisions of the Indenture relating to the Collateral shall be
deemed to relate to such After-Acquired Property to the same extent and with
the same force and effect.

 

B-17

 

Information Regarding
Collateral

 

The Co-Issuers will furnish to the Collateral Agent,
with respect to the Co-Issuers or any Guarantor, prompt written notice of any
change in such Person’s (i) legal name, (ii) jurisdiction of
organization or formation, (iii) identity or corporate structure or (iv) Organizational
Identification Number.  The Co-Issuers
and the Guarantors will agree not to effect or permit any change referred to in
the preceding sentence unless all filings have been made under the Uniform Commercial
Code or otherwise that are required in order for the Collateral Agent to continue
at all times following such change to have a valid, legal and perfected
security interest in all the Collateral. 
The Co-Issuers also agree promptly to notify the Collateral Agent if any
material portion of the Collateral is damaged, destroyed or condemned.

 

Each year, at the time of delivery of the annual
financial statements with respect to the preceding fiscal year, the Co-Issuers
shall deliver to the Trustee a certificate of a financial officer setting forth
the information required pursuant to the schedules required by the Security
Documents or confirming that there has been no change in such information since
the date of the prior annual financial statements.

 

Further Assurances

 

The Co-Issuers and the Guarantors shall execute any
and all further documents, financing statements, agreements and instruments,
and take all further action that may be required under applicable law, or that
the Collateral Agent may reasonably request, in order to grant, preserve,
protect and perfect the validity and priority of the security interests and
Liens created or intended to be created by the Security Documents in the Collateral.  In addition, from time to time, the
Co-Issuers will reasonably promptly secure the obligations under the Indenture,
Security Documents and Intercreditor Agreement by pledging or creating, or
causing to be pledged or created, perfected security interests and Liens with
respect to the Collateral.  Such security
interests and Liens will be created under the Security Documents and other
security agreements, mortgages, deeds of trust and other instruments and
documents in form and substance reasonably satisfactory to the Trustee.

 

Security Documents and Certain Related Intercreditor Provisions

 

The Co-Issuers, the Guarantors, the Collateral Agent
and the Trustee will enter into one or more Security Documents creating and
establishing the terms of the security interests and Liens that secure the
Convertible Notes and the Guarantees. 
These security interests and Liens will secure the payment and
performance when due of all of the Obligations of the Co-Issuers and the
Guarantors under the Convertible Notes, the Indenture, the Guarantees, the
Intercreditor Agreement and the Security Documents, as provided in the Security
Documents.  The Co-Issuers and the
Guarantors will use their commercially reasonable efforts to complete on or
prior to the Issue Date all filings and other similar actions required in
connection with the perfection of such security interests.  If they are not able to complete such actions
on or prior to the Issue Date, they will use their commercially reasonable efforts
to complete such actions as soon as reasonably practicable after such
date.  The Trustee will be appointed,
pursuant to the Indenture, as the Collateral Agent.  The Bank Collateral Agent and holders of
Lenders Debt secured on a first priority basis by ABL Collateral are referred
to collectively as “ABL Secured Parties”
and, together with the First Lien Notes Secured Parties (defined below), are
referred to collectively as the “Prior Secured Parties.”
The First Lien Notes Trustee, First Lien Notes Collateral Agent, each holder of
First Lien Notes, each other holder of, or obligee in respect of, any
Obligations in respect of the First Lien Notes secured on a first priority
basis by the Notes Collateral are referred to collectively as the “First Lien  Notes Secured Parties”
and, together with the Convertible Notes Secured Parties, are referred to
collectively as the “Noteholder Secured Parties.”

 

Intercreditor Agreement

 

The following is a description of the Intercreditor
Agreement relating to the ABL Collateral and the relative rights, privileges
and obligations with respect to the ABL Secured Parties on the one hand, and
the Noteholder Secured Parties on the other hand.  The Intercreditor Agreement will also contain
provisions with respect to the Notes Collateral and the relative rights,
privileges and obligations relating thereto as among the First Lien Notes
Secured Parties on the one hand and the ABL Secured Parties and Convertible
Notes Secured Parties on the other hand. 
The relative rights, privileges and obligations with respect to the
Notes Collateral of the First Lien Notes Secured Parties, on the one hand, and
the ABL Secured Parties and Convertible Notes Secured Parties, on the other,
shall be substantially identical to the relative rights, privileges and
obligations provided for under the ABL Intercreditor Agreement with respect to the
ABL Collateral of the ABL Secured Parties, on the one hand, and the Noteholder
Secured Parties on the other.

 

B-18

 

On or prior to the Issue Date, the Co-Issuers, the
Guarantors, the First Lien Notes Collateral Agent, the Bank Collateral Agent
and the Collateral Agent will enter into the Intercreditor Agreement.  Although the holders of First Lien Notes, the
holders of Lenders Debt, the Holders of the Convertible Notes and the holders
of Management Notes are not party to the Intercreditor Agreement, by their
acceptance of the First Lien Notes, Lenders Debt, Convertible Notes and
Management Notes, respectively, they will each agree to be bound thereby.  The Indenture will provide that the
Intercreditor Agreement may be amended from time to time without the consent of
the holders of First Lien Notes, the holders of Lenders Debt, the Holders of
the Convertible Notes or the holders of Management Notes to add other parties
holding Other First Lien Note Obligations, Junior Lien Obligations or holders
of future Third Lien Indebtedness in each case to the extent permitted to be
incurred under the Indenture and other applicable agreements.  See “—Amendment, Supplement and Waiver.”

 

The aggregate amount of the obligations secured by the
ABL Collateral may, subject to the limitations set forth in the Indenture, be
increased.  A portion of the obligations
secured by the ABL Collateral consists or may consist of Indebtedness that is
revolving in nature, and the amount thereof that may be outstanding at any time
or from time to time may be increased or reduced and subsequently reborrowed
and such obligations may, subject to the limitations set forth in the
Indenture, be increased, extended, renewed, replaced, restated, supplemented,
restructured, repaid, refunded, refinanced or otherwise amended or modified
from time to time, all without affecting the subordination of the Liens in
favor of the Noteholder Secured Parties (relative to those of the ABL Secured
Parties) or the provisions of the Intercreditor Agreement defining the relative
rights of the parties thereto.  The Lien
priorities provided for in the Intercreditor Agreement shall not be altered or
otherwise affected by any amendment, modification, supplement, extension,
increase, replacement, renewal, restatement or refinancing of either the obligations
secured by the ABL Collateral or the obligations secured by the Notes
Collateral, by the release of any Collateral or of any guarantees securing any
secured obligations or by any action that any representative or secured party
may take or fail to take in respect of any Collateral.

 

Control of Enforcement With Respect to the ABL Collateral
and Application of Proceeds of ABL Collateral

 

Pursuant to the terms of the Intercreditor Agreement (i) prior
to the Discharge of the ABL Obligations, the Bank Collateral Agent and (ii) following
the Discharge of the ABL Obligations and prior to the Discharge of First Lien
Note Obligations, the First Lien Notes Collateral Agent will have the exclusive
right to control the time and method by which the security interests in the ABL
Collateral will be enforced, including, without limitation, following the
occurrence of an Event of Default under the Indenture.  Prior to the Discharge of Prior Secured
Obligations, the Collateral Agent will not be permitted to enforce the security
interests in the ABL Collateral even if any Event of Default under the
Indenture has occurred and the Convertible Notes have been accelerated except (a) in
any insolvency or liquidation proceeding, solely as necessary to file a proof
of claim or statement of interest with respect to the Third Lien Obligations,
as applicable, or (b) certain protective actions in order to prove, preserve,
perfect or protect (but not enforce) its security interest and rights in, and
the perfection and priority of its Lien on, the ABL Collateral.

 

Any proceeds from any ABL Collateral received in any
insolvency or liquidation proceeding or pursuant to any enforcement of remedies
against the ABL Collateral will be applied to repay the Prior Secured
Obligations in full (including any post-petition interest thereon) until the
Discharge of Prior Secured Obligations has occurred prior to being applied to
the repayment of any Obligations owing to the Convertible Notes Secured
Parties.

 

After the Discharge of Prior Secured Obligations, the
Collateral Agent will distribute all cash proceeds (after payment of the costs
of enforcement and collateral administration, including any amounts owed to the
Trustee in its capacity as Trustee or Collateral Agent) of the ABL Collateral
received by it under the Security Documents for the ratable benefit of the holders
of the Third Lien Obligations.

 

The proceeds from the sale of any ABL Collateral
remaining after the satisfaction of all Prior Secured Obligations may not be
sufficient to satisfy the Obligations under the Indenture and Convertible
Notes.  The Intercreditor Agreement will
have similar provisions regarding the Collateral Agent’s rights relative to
those of the Bank Collateral Agent and First Lien Notes Collateral Agent with
respect to the Notes Collateral.

 

No Duties of Bank Collateral
Agent or First Lien Notes Collateral Agent

 

The Intercreditor Agreement will provide that no Prior
Secured Party will generally have any duties or other obligations to any
Convertible Notes Secured Party with respect to the ABL Collateral, other than
serving as agent for perfection with respect to certain Collateral.  In addition, the Intercreditor Agreement will
further provide that, (i) until the Discharge of ABL Obligations, the Bank
Collateral Agent will be entitled, for the benefit of the ABL Secured Parties,
to sell, transfer or otherwise dispose of or deal with such ABL Collateral
without regard to 

 

B-19

 

any
security interests that are junior relative to those of the ABL Secured Parties
therein or any rights to which any Noteholder Secured Party would otherwise be
entitled as a result of such junior-priority security interest and (ii) following
the Discharge of ABL Obligations and prior to the Discharge of the First Lien
Note Obligations, the First Lien Notes Collateral Agent will be entitled, for
the benefit of the First Lien Notes Secured Parties, to sell, transfer or otherwise
dispose of or deal with such ABL Collateral without regard to any security
interest that are junior relative to those of the First Lien Notes Secured
Parties therein or any rights to which any Convertible Notes Secured Party
would otherwise be entitled as a result of such junior-priority security
interest.  Without limiting the
foregoing, the Collateral Agent will agree in the Intercreditor Agreement for
the Convertible Notes Secured Parties, that no Prior Secured Party will have
any duty or obligation first to marshal or realize upon the ABL Collateral, or
to sell, dispose of or otherwise liquidate all or any portion of the ABL
Collateral, in any manner that would maximize the return to the Convertible
Notes Secured Parties, notwithstanding that the order and timing of any such
realization, sale, disposition or liquidation may affect the amount of proceeds
actually received by the Convertible Notes Secured Parties from such
realization, sale, disposition or liquidation. 
The Intercreditor Agreement will have similar provisions regarding the
duties owed to the ABL Secured Parties and Convertible Notes Secured Parties by
the First Lien Notes Secured Parties with respect to the Notes Collateral.

 

The Collateral Agent will agree in the Intercreditor
Agreement for the Convertible Notes Secured Parties, that the Convertible Notes
Secured Parties will waive any claim they may have as secured creditors against
any Prior Secured Party arising out of (i) any actions which any Prior
Secured Party takes or omits to take with respect to the ABL Collateral (to the
extent consistent with the Intercreditor Agreement) (including, actions with
respect to the creation, perfection or continuation of Liens on any ABL Collateral,
actions with respect to the foreclosure upon, sale, release or depreciation of,
or failure to realize upon, any of the ABL Collateral and actions with respect
to the collection of any claim for all or any part of the Prior Secured
Obligations from any account debtor, guarantor or any other party) or the
valuation, use, protection or release of any security for such Prior Secured
Obligations, (ii) any election by any Prior Secured Party, in any
proceeding instituted under Title 11 of the United States Code (the “Bankruptcy Code”) of the application of Section 1111(b) of
the Bankruptcy Code or (iii) any borrowing of, or grant of a security
interest or administrative expense priority under Section 364 of the
Bankruptcy Code to Parent, Holdings, the Company or any of its Subsidiaries as
debtor-in-possession (except as described under “—Agreements with respect to
Bankruptcy or Insolvency Proceedings”). 
The ABL Secured Parties and the Convertible Notes Secured Parties will
agree to waive similar claims with respect to the actions of any of the First
Lien Notes Secured Parties pursuant to the Intercreditor Agreement.

 

No Interference; Payment
Over; Reinstatement

 

The Collateral Agent will agree in the Intercreditor
Agreement for the Convertible Notes Secured Parties that prior to the Discharge
of Prior Secured Obligations:

 

·                  it will not challenge or question in any
proceeding the validity or enforceability of any Prior Secured Parties’
security interest in the ABL Collateral, the validity, attachment, perfection
or priority of any Lien held by any Prior Secured Parties, or the validity or
enforceability of the priorities, rights or duties established by or other
provisions of the Intercreditor Agreement;

 

·                  it will not take or cause to be taken any
action the purpose or intent of which is to, or could, interfere with, hinder or
delay, in any manner, whether by judicial proceedings or otherwise, any sale,
transfer or other disposition of the ABL Collateral by any Prior Secured
Parties;

 

·                  (A) it will have no right to direct
any Prior Secured Parties to exercise any right, remedy or power with respect
to such ABL Collateral and (B) its consent to the exercise by any Prior
Secured Parties of any right, remedy or power with respect to such ABL Collateral
shall not be required;

 

·                  it will not institute any suit or assert
in any suit, bankruptcy, insolvency or other proceeding any claim against any
Prior Secured Party seeking damages from or other relief by way of specific
performance, instructions or otherwise with respect to, and no Prior Secured
Parties will be liable for, any action taken or omitted to be taken by any
Prior Secured Parties with respect to such ABL Collateral;

 

·                  it will not object to any waiver or
forbearance by the Bank Collateral Agent or the First Lien Notes Collateral
Agent from or in respect of bringing or pursuing any foreclosure proceeding or
action or any other exercise of any rights or remedies relating to the ABL
Collateral;

 

B-20

 

·                  it will not seek, and will waive any
right, to have any Collateral or any part thereof marshaled upon any foreclosure
or other disposition of such Collateral; and

 

·                  it will not attempt, directly or
indirectly, whether by judicial proceedings or otherwise, to challenge the
enforceability of any provision of the Intercreditor Agreement.

 

If any Prior Secured Party is required in any
insolvency or liquidation proceeding or otherwise to turn over or otherwise pay
to the estate of the Co-Issuers or any Guarantor (or any trustee, receiver or
similar person therefor), because the payment of such amount was declared to be
fraudulent or preferential in any respect or for any other reason, any amount,
a “Recovery,” whether received as proceeds
of security, enforcement of any right of setoff or otherwise, then as among the
parties to the Intercreditor Agreement, the applicable Prior Secured
Obligations shall be deemed to be reinstated to the extent of such Recovery and
to be outstanding as if such payment had not occurred and such holder of such
Prior Secured Obligations shall be entitled to a reinstatement of Prior Secured
Obligations with respect to all such recovered amounts and shall have all
rights under the Intercreditor Agreement with respect thereto.  If the Intercreditor Agreement was terminated
(in whole or in part) prior to such Recovery, the Intercreditor Agreement shall
be reinstated in full force and effect, and such prior termination shall not
diminish, release, discharge, impair or otherwise affect the obligations of the
parties thereto.  Any ABL Collateral received
by a Convertible Notes Secured Party prior to the time of such Recovery shall
be deemed to have been received prior to the Discharge of Prior Secured
Obligations and subject to the provisions of the immediately preceding paragraph.  The ABL Secured Parties and Convertible Notes
Secured Parties will agree to similar limitations with respect to their rights
in the Notes Collateral and their ability to bring a suit against the First
Lien Notes Collateral Agent or the holders of First Lien Notes pursuant to the
Intercreditor Agreement.

 

The Collateral Agent will agree in the Intercreditor
Agreement for the Convertible Notes Secured Parties that if any Convertible
Notes Secured Party obtains possession of the ABL Collateral or realizes any
proceeds or payment in respect of the ABL Collateral, pursuant to any Security
Document or by the exercise of any rights available to it under applicable law
or in any bankruptcy, insolvency or similar proceeding or through any other
exercise of remedies, at any time prior to the Discharge of Prior Secured
Obligations, then it will hold such ABL Collateral, proceeds or payment in
trust for (i) prior to the Discharge of ABL Obligations, the ABL Secured
Parties and transfer such ABL Collateral, proceeds or payment, as the case may
be, to the Bank Collateral Agent and (ii) following the Discharge of ABL
Obligations but prior to the Discharge of First Lien Note Obligations, the
First Lien Notes Secured Parties and transfer such ABL Collateral, proceeds or
payment, as the case may be, to the First Lien Notes Collateral Agent.  The Collateral Agent will further agree in
the Intercreditor Agreement for the Convertible Notes Secured Parties that if,
at any time, all or part of any payment with respect to any Prior Secured
Obligations secured by any ABL Collateral previously made shall be rescinded
for any reason whatsoever, it will promptly pay over to (i) prior to the
Discharge of ABL Obligations, the Bank Collateral Agent and (ii) following
the Discharge of ABL Obligations and prior to the Discharge of First Lien Note
Obligations, the First Lien Notes Collateral Agent any payment received by it
in respect of any such ABL Collateral and shall promptly turn any such ABL
Collateral then held by it over to (i) prior to the Discharge of ABL
Obligations, the Bank Collateral Agent and (ii) following the Discharge of
ABL Obligations and prior to the Discharge of First Lien Note Obligations, the
First Lien Notes Collateral Agent, and the provisions set forth in the
Intercreditor Agreement will be reinstated as if such payment had not been
made, until the Discharge of Prior Secured Obligations.  The ABL Secured Parties and Convertible Notes
Secured Parties will be subject to similar limitations with respect to the
Notes Collateral and any proceeds or payments in respect of any Notes Collateral
pursuant to the Intercreditor Agreement.

 

In addition, so long as the Discharge of Prior Secured
Obligations has not occurred, the Collateral Agent shall not acquire or hold
any Lien on any assets of the Co-Issuers or any Guarantor (and neither the
Co-Issuers nor any Guarantor shall grant such Lien) securing any Obligations
under the Convertible Notes or Guarantees or Management Notes or related
guarantees that are not also subject to the Liens in favor of the Prior Secured
Parties having the priority described in “—Security for the Convertible Notes”
above.  If the Collateral Agent shall
acquire or hold any Lien on any assets of the Co-Issuers or a Guarantor that is
not also subject to the Lien in favor of the Bank Collateral Agent for the
benefit of the holders of Lenders Debt, then the Collateral Agent shall,
without the need for any further consent of any party and notwithstanding anything
to the contrary in any other document, be deemed to also hold and have held
such Lien for the benefit of (i) prior to the Discharge of ABL
Obligations, the Bank Collateral Agent as security of the Lenders Debt and (ii) following
the Discharge of ABL Obligations and prior to the Discharge of First Lien Note
Obligations, the First Lien Notes Collateral Agent as security of the First
Lien Notes (subject, in each case, to the applicable Lien priority and other
terms of the Intercreditor Agreement).  

 

B-21

 

The
Bank Collateral Agent and Collateral Agent will be subject to similar
limitations and requirements in favor of the First Lien Notes Collateral Agent
with respect to the Notes Collateral pursuant to the Intercreditor Agreement.

 

Entry Upon Premises by Bank
Collateral Agent and Holders of Lenders Debt

 

The Intercreditor Agreement will provide that if the
Bank Collateral Agent takes any enforcement action with respect to the ABL
Collateral, the Noteholder Secured Parties (i) will cooperate with the
Bank Collateral Agent in its efforts to enforce its security interest in the
ABL Collateral and to finish any work-in-process and assemble the ABL Collateral,
(ii) will not hinder or restrict in any respect the Bank Collateral Agent
from enforcing its security interest in the ABL Collateral or from finishing
any work-in-process or assembling the ABL Collateral, and (iii) will,
subject to the rights of any landlords under real estate leases, permit the
Bank Collateral Agent, its employees, agents, advisers and representatives, at
the sole cost and expense of the ABL Secured Parties, to enter upon and use the
Notes Collateral (including (x) equipment, processors, computers and other
machinery related to the storage or processing of records, documents or files
and (y) trademarks and other intellectual property, which includes a
royalty-free license with respect to intellectual property incorporated into the
ABL Collateral), for a period not to exceed 270 days after the taking of
such enforcement action, for purposes of (A) assembling and storing the
ABL Collateral and completing the processing of and turning into finished goods
of any ABL Collateral consisting of work-in-process, (B) selling any or
all of the ABL Collateral located on such Notes Collateral, whether in bulk, in
lots or to customers in the ordinary course of business or otherwise, (C) removing
any or all of the ABL Collateral located on such Notes Collateral, or (D) taking
reasonable actions to protect, secure, and otherwise enforce the rights of the
ABL Secured Parties in and to the ABL Collateral; provided,
however, that nothing contained in the
Intercreditor Agreement will restrict the rights of the First Lien Notes
Collateral Agent from selling, assigning or otherwise transferring any Notes
Collateral prior to the expiration of such 270 day period if the purchaser,
assignee or transferee thereof agrees to be bound by the provisions of the Intercreditor
Agreement.  If any stay or other order
prohibiting the exercise of remedies with respect to the ABL Collateral has
been entered by a court of competent jurisdiction, such 270 day period shall be
tolled during the pendency of any such stay or other order.  If the Bank Collateral Agent conducts a
public auction or private sale of the ABL Collateral at any of the real
property included within the Notes Collateral, the Bank Collateral Agent shall
provide the First Lien Notes Collateral Agent with reasonable notice and use
reasonable efforts to hold such auction or sale in a manner which would not
unduly disrupt the First Lien Notes Collateral Agent’s use of such real
property.

 

During the period of actual occupation, use or control
by the Bank Collateral Agent or the holders of Lenders Debt or their agents or
representatives of any Notes Collateral, the ABL Secured Parties will be
obligated to repair at their expense any physical damage to such Notes
Collateral or other assets or property resulting from such occupancy, use or
control, ordinary wear and tear excepted.

 

Agreements With Respect to
Bankruptcy or Insolvency Proceedings

 

If the Bank Collateral Agent consents to financing (“DIP Financing”) to be provided by one or
more lenders (the “DIP Lenders”)
under Section 364 of the Bankruptcy Code which is to be secured by any ABL
Collateral or the use of cash collateral representing proceeds of ABL
Collateral under Section 363 of the Bankruptcy Code, the First Lien Notes
Collateral Agent and the Collateral Agent will agree in the Intercreditor
Agreement for the Noteholder Secured Parties, that it will raise no objection
to any such financing or to the Liens on the ABL Collateral securing the same (“DIP Financing Liens”) or to any use of
cash collateral that constitutes ABL Collateral, unless such DIP Financing, DIP
Financing Liens or use of cash collateral is not permitted under the Lenders
Debt so long as:

 

(i)            either (x) all DIP Financing Liens are senior to, or
rank pari passu with, the Liens
of the Lenders Debt in such ABL Collateral (in which case, the First Lien Notes
Collateral Agent and the Collateral Agent will agree for the Noteholder Secured
Parties, to subordinate the Liens of the Noteholder Secured Parties in such ABL
Collateral to the Liens of the Lenders Debt in such ABL Collateral and the DIP
Financing Liens or (y) the Liens of the First Lien Notes Collateral Agent
and the Collateral Agent are not subordinated to such DIP Financing Liens;

 

(ii)           the Noteholder Secured Parties retain liens on all the ABL
Collateral, including proceeds thereof arising after the commencement of such
proceeding, with the same priority as existed prior to the commencement of the
case under the Bankruptcy Code, subject to any super-priority ranking of liens
in favor of the DIP Lenders as provided above
and any “carve out” for administrative expenses agreed to by the Bank
Collateral Agent; and

 

B-22

 

(iii)          no Noteholder Secured Party is required (without its
consent) to lend or incur any monetary obligation in connection with such DIP
Financing.

 

The ABL Secured Parties and Convertible Notes
Secured Parties will agree to similar provisions with respect to any DIP
Financing and DIP Financing Liens related to the Notes Collateral.

 

The First Lien Notes Collateral Agent and the
Collateral Agent will agree in the Intercreditor Agreement for each of  the Noteholder Secured Parties that it will:

 

(i)            not object to or oppose a sale or other disposition of
any ABL Collateral (or any portion thereof) under Section 363 of the
Bankruptcy Code or any other provision of the Bankruptcy Code if the ABL
Secured Parties shall have consented to such sale or disposition of such ABL
Collateral and the proceeds of such sale or disposition are applied in
accordance with the Intercreditor Agreement. 
Notwithstanding the foregoing, the Intercreditor Agreement shall not be
construed to prohibit the Noteholder Secured Parties from exercising a credit
bid in a sale or other disposition of ABL Collateral under Section 363 of
the Bankruptcy Code; provided that
in connection with and immediately after giving effect to any such sale
pursuant to such credit bid there occurs a Discharge of ABL Obligations;

 

(ii)           not object to or otherwise contest (or support any other
Person contesting), any motion for relief from the automatic stay or from any
injunction against foreclosure or enforcement in respect of the ABL Collateral
made by the ABL Secured Parties;

 

(iii)          until the Discharge of the ABL Obligations, not seek relief
from the automatic stay or any other stay in any insolvency or liquidation
proceeding in respect of the ABL Collateral, without the prior written consent
of the Bank Collateral Agent;

 

(iv)          not object to, or otherwise contest (or support any Person
contesting), (a) any request by the ABL Secured Parties for adequate
protection on account of the ABL Collateral or (b) any objection by the
ABL Secured Parties to any motion, relief, action or proceeding based on the
Bank Collateral Agent’s or such holder of Lenders Debt’s claiming a lack of
adequate protection with respect to the ABL Collateral;

 

(v)           until the Discharge of ABL Obligations, not assert or
enforce (or support any Person asserting or enforcing) any claim under Section 506(c) of
the Bankruptcy Code pari passu with
the Liens on the ABL Collateral securing the Lenders Debt for costs or expenses
of preserving or disposing any ABL Collateral; and

 

(vi)          not oppose or otherwise contest (or support any other
Person contesting) any lawful exercise by the ABL Secured Parties of the right
to credit bid at any sale of ABL Collateral.

 

In
addition, no Noteholder Secured Party will file or prosecute in any insolvency
or liquidation proceeding any motion for adequate protection (or any comparable
request for relief) based upon their respective security interests in the ABL
Collateral, except that:

 

(i)            any of them may freely seek and obtain relief granting a
junior Lien co-extensive in all respects with, but subordinated to, all Liens
granted in the insolvency or liquidation proceeding to, or for the benefit of,
the holders of Lenders Debt (and the Intercreditor Agreement will provide that
the ABL Secured Parties will not object to the granting of such junior Lien);
and

 

(ii)           any of them may freely seek and obtain any relief upon a
motion for adequate protection (or any comparable relief), without any
condition or restriction whatsoever, at any time after the Discharge of ABL
Obligations.

 

Without limiting the generality of any provisions of
the Intercreditor Agreement, any vote to accept, and any other act to support
the confirmation or approval of any Non-Conforming Plan of Reorganization by
any Noteholder Secured Party shall be inconsistent with and, accordingly, a
violation of the terms of the Intercreditor Agreement, and the Bank Collateral
Agent shall be entitled to have any such vote to accept a Non-Conforming Plan
of Reorganization dismissed and any such support of any Non-Conforming Plan of
Reorganization withdrawn.

 

B-23

 

The
First Lien Notes Collateral Agent and the Collateral Agent will agree in the
Intercreditor Agreement for the Noteholder Secured Parties that (a) the
Noteholder Secured Parties’ claims against the Co-Issuers and the Guarantors in
respect of the ABL Collateral constitutes junior claims separate and apart (and
of a different class) from the senior claims of the holders of Lenders Debt
against the Co-Issuers and the related guarantors in respect of the ABL
Collateral, (b) the Lenders Debt includes all interest that accrues after
the commencement of any insolvency or liquidation proceeding of the Co-Issuers
or any related guarantor at the rate provided for in the Credit Agreement,
regardless of whether a claim for post-petition interest is allowed or allowable
in any such insolvency or liquidation proceeding and (c) the Intercreditor
Agreement constitutes a “subordination agreement” under Section 510 of the
Bankruptcy Code.

 

The ABL Secured Parties and Convertible Notes Secured
Parties will be subject to similar limitations in favor of the First Lien Notes
Secured Parties pursuant to the Intercreditor Agreement.

 

Insurance

 

Until written notice by the Bank Collateral Agent to
the Trustee that the Discharge of ABL Obligations has occurred, as between the
Bank Collateral Agent, on the one hand, and the Noteholders Secured Parties, on
the other hand, only the Bank Collateral Agent will have the right (subject to
the rights of the grantors under the documents related to the Credit Agreement)
to adjust or settle any insurance policy or claim covering or constituting ABL
Collateral in the event of any covered loss thereunder and to approve any award
granted in any condemnation or similar proceeding affecting the ABL
Collateral.  Unless and until written
notice by the First Lien Notes Trustee to the Bank Collateral Agent that the
Discharge of First Lien Note Obligations has occurred, as between the Bank
Collateral Agent and the Convertible Notes Secured Parties, on the one hand,
and the First Lien Notes Trustee and the First Lien Notes Collateral Agent, as
the case may be, on the other hand, only the First Lien Notes Collateral Agent
will have the right (subject to the rights of the grantors under the documents
related to the First Lien Notes) to adjust or settle any insurance policy or
claim covering or constituting Notes Collateral in the event of any covered
loss thereunder and to approve any award granted in any condemnation or similar
proceeding solely affecting the Notes Collateral.

 

Refinancings of the Credit
Agreement, the First Lien Notes, the Convertible Notes and Management Notes

 

The obligations under the Credit Agreement, the First
Lien Notes, the Convertible Notes and Management Notes may be refinanced or
replaced, in whole or in part, in each case, without notice to, or the consent
(except to the extent a consent is otherwise required to permit the refinancing
transaction under the Credit Agreement or any security document related
thereto, the First Lien Notes Indenture or any security document related
thereto or the Indenture and the Security Documents) of the ABL Secured
Parties, First Lien Notes Secured Parties or Convertible Note Secured Parties
all without affecting the Lien priorities provided for in the Intercreditor
Agreement; provided, however,
that the holders of any such refinancing or replacement Indebtedness (or an
authorized agent or trustee on their behalf) bind themselves in writing to the
terms of the Intercreditor Agreement pursuant to such documents or agreements
(including amendments or supplements to the Intercreditor Agreement) as the
Bank Collateral Agent, First Lien Notes Collateral Agent or Collateral Agent,
as the case may be, shall reasonably request and in form and substance
reasonably acceptable to the Bank Collateral Agent, First Lien Notes Collateral
Agent or Collateral Agent, as the case may be.

 

In addition, if at any time in connection with or
after the Discharge of ABL Obligations, the Co-Issuers enter into any
refinancing of the Credit Agreement secured by the ABL Collateral on a
first-priority basis, then such Discharge of ABL Obligations shall
automatically be deemed not to have occurred for all purposes of the
Intercreditor Agreement, the Credit Agreement, the First Lien Notes Indenture
and the Indenture, and the obligations under such refinancing shall
automatically be treated as Lender Debt for all purposes of the Intercreditor
Agreement, including for purposes of the Lien priorities and rights in respect
of ABL Collateral set forth therein.

 

In connection with any refinancing or replacement
contemplated by the foregoing paragraph, the Intercreditor Agreement may be
amended at the request and sole expense of the Co-Issuers, and without the consent
of any Holder of Convertible Notes, (a) to add parties (or any authorized
agent or trustee therefor) providing any such refinancing or replacement
Indebtedness is in compliance with the Credit Agreement and the Indenture, (b) to
establish that Liens on any Notes Collateral securing such refinancing or
replacement Indebtedness shall have the same priority (or junior priority) as
the Liens on any Notes Collateral securing the Indebtedness being refinanced or
replaced and (c) to establish that the Liens on any ABL Collateral
securing such refinancing or replacement indebtedness shall have the same
priority (or junior priority) as the Liens on any ABL Collateral securing the 

 

B-24

 

Indebtedness
being refinanced or replaced, all on the terms provided for herein immediately
prior to such refinancing or replacement.

 

Subject to the terms of the Security Documents, the
Co-Issuers and the Guarantors will have the right to remain in possession and
retain exclusive control of the Collateral securing the Convertible Notes, to
freely operate the Collateral and to collect, invest and dispose of any income
therefrom.  See “Risk Factors—Risks
Relating to the Convertible Notes—In the Event of our Bankruptcy, the Ability
of the Holders of the Convertible Notes to Realize Upon the Collateral will be
Subject to Certain Bankruptcy Law Limitations.”

 

Relationship between First Lien
Notes Collateral Agent and Collateral Agent after Discharge of ABL Obligations

 

The Intercreditor Agreement will provide that after
the Discharge of ABL Obligations, the First Lien Notes Collateral Agent shall
accede to the rights and obligations of the Bank Collateral Agent
thereunder.  Until the Discharge of First
Lien Note Obligations, the Collateral Agent will retain only the rights and
obligations it had prior to the Discharge of ABL Obligations.

 

Release of Collateral

 

The Co-Issuers and the Guarantors will be entitled to
the releases of property and other assets included in the Collateral from the
Liens securing the Convertible Notes under any one or more of the following
circumstances:

 

·                  to enable the disposition of such
property or assets to the extent not prohibited under the Indenture;

 

·                  the release of Excess ABL Proceeds or
Excess Proceeds that remain unexpended after the conclusion of an ABL Asset
Sale Offer or Asset Sale Offer, as the case may be, conducted in accordance
with the First Lien Notes Indenture;

 

·                  in the case of a Guarantor that is
released from its Guarantee, the release of the property and assets of such
Guarantor; or

 

·                  as described under “—Amendment,
Supplement and Waiver” below.

 

The second-priority lien on the ABL Collateral
securing the First Lien Notes and the third-priority lien on the ABL Collateral
securing the Convertible Notes and any Management Notes will each terminate and
be released automatically if the first-priority liens on the ABL Collateral are
released by the Bank Collateral Agent in connection with a sale, transfer or
disposition of ABL Collateral that occurs in connection with the foreclosure
of, or other exercise of remedies with respect to, such ABL Collateral by the
Bank Collateral Agent (except with respect to any proceeds of such sale,
transfer or disposition that remain after the Discharge of ABL Obligations).

 

The second-priority lien on the Notes Collateral
securing the ABL Obligations and the third-priority lien on the Notes
Collateral securing the Convertible Notes and any Management Notes will each
terminate and be released automatically if the first-priority liens on the
Notes Collateral are released by the First Lien Notes Collateral Agent in
connection with a sale, transfer or disposition of Notes Collateral that occurs
in connection with the foreclosure of, or other exercise of remedies with
respect to, such Notes Collateral by the First Lien Notes Collateral Agent
(except with respect to any proceeds of such sale, transfer or disposition that
remain after the Discharge of the First Lien Note Obligations).

 

The security interests in all Collateral securing the
Convertible Notes and Guarantees also will be released upon (i) payment in
full of the principal of, together with accrued and unpaid interest on, the
Convertible Notes and all other Obligations under the Indenture, the Guarantees
and the Security Documents that are due and payable at or prior to the time
such principal, together with accrued and unpaid interest, are paid or (ii) a
discharge of the Indenture as described under “—Satisfaction and Discharge.”  In the event that both ABL Payment Discharge
and a First Lien Notes Payment Discharge shall have occurred, the Lien on the
Collateral in favor of the Convertible Notes Secured Parties shall become a
first-priority security interest, subject to Permitted Liens.

 

Compliance with Trust Indenture Act

 

The Indenture will provide that the Co-Issuers will
comply with the provisions of TIA § 314 to the extent applicable.  To the extent applicable, the Co-Issuers will
cause TIA § 313(b), relating to reports, and TIA § 314(d), relating
to the release of property or securities subject to the Lien of the Security
Documents, to be complied with.  

 

B-25

 

Any
certificate or opinion required by TIA § 314(d) will be made by an
officer or legal counsel, as applicable, of the Co-Issuers except in cases
where TIA § 314(d) requires that such certificate or opinion be made
by an independent Person, which Person will be an independent engineer,
appraiser or other expert selected by or reasonably satisfactory to the
Trustee.  Notwithstanding anything to the
contrary in this paragraph, the Co-Issuers will not be required to comply with
all or any portion of TIA § 314(d) if it reasonably determines that
under the terms of TIA § 314(d) or any interpretation or guidance as
to the meaning thereof of the SEC and its staff, including “no action” letters
or exemptive orders, all or any portion of TIA § 314(d) is
inapplicable to any release or series of releases of Collateral.

 

Without limiting the generality of the foregoing,
certain no action letters issued by the SEC have permitted an indenture
qualified under the Trust Indenture Act to contain provisions permitting the
release of collateral from Liens under such indenture in the ordinary course of
the issuer’s business without requiring the issuer to provide certificates and
other documents under Section 314(d) of the Trust Indenture Act.  The Co-Issuers and the Guarantors may,
subject to the provisions of the Indenture, among other things, without any
release or consent by the Noteholder Secured Parties, conduct ordinary course
activities with respect to the Collateral, including, without limitation:

 

·                  selling or otherwise disposing of, in any
transaction or series of related transactions, any property subject to the Lien
of the Security Documents that has become worn out, defective, obsolete or not
used or useful in the business;

 

·                  abandoning, terminating, canceling,
releasing or making alterations in or substitutions of any leases or contracts
subject to the Lien of the Indenture or any of the Security Documents;

 

·                  surrendering or modifying any franchise,
license or permit subject to the Lien of the Security Documents that it may own
or under which it may be operating;

 

·                  altering, repairing, replacing, changing
the location or position of and adding to its structures, machinery, systems,
equipment, fixtures and appurtenances;

 

·                  granting a license of any intellectual
property;

 

·                  selling, transferring or otherwise
disposing of inventory in the ordinary course of business;

 

·                  collecting accounts receivable in the
ordinary course of business as permitted under the First Lien Notes Indenture;

 

·                  making cash payments (including for the
repayment of Indebtedness or interest) from cash that is at any time part of
the Collateral in the ordinary course of business that are not otherwise
prohibited by the Indenture and the Security Documents; and

 

·                  abandoning any intellectual property that
is no longer used or useful in the Company’s business.

 

No Sinking Fund or Optional
Redemption by Co-Issuers

 

No sinking fund is provided for the Convertible Notes
and the Co-Issuer’s may not elect to redeem the Convertible Notes prior to the
maturity date.

 

Certain Covenants

 

Limitation on Incurrence
of Indebtedness and Issuance of Disqualified Stock and Preferred Stock.

 

The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, (collectively, “incur” and collectively, an “incurrence”) with
respect to any Indebtedness (including Acquired Indebtedness) and the Company
will not issue any shares of Disqualified Stock and will not permit any
Restricted Subsidiary to issue any shares of Disqualified Stock or preferred
stock; provided, however, that the Company may
incur Indebtedness (including Acquired Indebtedness) or issue shares of
Disqualified Stock, and any Restricted Subsidiary may incur 

 

B-26

 

Indebtedness
(including Acquired Indebtedness), issue shares of Disqualified Stock and issue
shares of preferred stock, if the Fixed Charge Coverage Ratio for Parent and
its Subsidiaries’ most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which such additional Indebtedness is incurred or such Disqualified Stock or preferred
stock is issued would have been at least 2.00 to 1.00, determined on a pro
forma basis (including a pro forma application of the net proceeds therefrom),
as if the additional Indebtedness had been incurred, or the Disqualified Stock
or preferred stock had been issued, as the case may be, and the application of
proceeds therefrom had occurred at the beginning of such four-quarter period;
provided that the amount of Indebtedness (other than Acquired Indebtedness),
Disqualified Stock and preferred stock that may be incurred pursuant to the
foregoing by Restricted Subsidiaries that are not Guarantors of the Convertible
Notes shall not exceed $35.0 million at any one time outstanding.

 

The foregoing limitations will not apply to:

 

(a)   the
incurrence of Indebtedness of the Company or any of the Restricted Subsidiaries
under Credit Facilities in an aggregate amount at any time outstanding not to
exceed the greater of (i) $125.0 million and (ii) the Borrowing Base
as of the date of such incurrence;

 

(b)   [Reserved];

 

(c)   the
incurrence by the Company and any Guarantor of Indebtedness represented by (i) the
First Lien Notes (including any related guarantees) (other than any Additional
First Lien Notes) (ii) the Convertible Notes (including any accreted
interest and any Guarantee) and (iii) any Management Notes;

 

(d)   Existing
Indebtedness (other than Indebtedness described in clauses (a) and (c));

 

(e)   Indebtedness
(including Capitalized Lease Obligations), Disqualified Stock and preferred
stock incurred by the Company or any of its Restricted Subsidiaries, to finance
the purchase, lease or improvement of property (real or personal) or equipment
that is used or useful in a Similar Business, whether through the direct
purchase of assets or the Capital Stock of any Person owning such assets, in an
aggregate principal amount which, when aggregated with the principal amount of
all other Indebtedness, Disqualified Stock and preferred stock then outstanding
and incurred pursuant to this clause (e) and including all Refinancing
Indebtedness incurred to refund, refinance or replace any other Indebtedness,
Disqualified Stock and preferred stock incurred pursuant to this
clause (e), does not exceed the greater of (x) $60.0 million and
(y) 6.0% of Total Assets;

 

(f)    Indebtedness
incurred by the Company or any Restricted Subsidiary constituting reimbursement
obligations with respect to letters of credit issued in the ordinary course of
business, including without limitation letters of credit in respect of workers’
compensation claims, or other Indebtedness with respect to reimbursement type
obligations regarding workers’ compensation claims; provided,
however, that upon the drawing of such letters of credit or the
incurrence of such Indebtedness, such obligations are reimbursed within
30 days following such drawing or incurrence;

 

(g)   Indebtedness
arising from agreements of the Company or a Restricted Subsidiary providing for
indemnification, adjustment of purchase price or similar obligations, in each
case, incurred or assumed in connection with the disposition of any business,
assets or a Subsidiary, other than guarantees of Indebtedness incurred by any
Person acquiring all or any portion of such business, assets or a Subsidiary for
the purpose of financing such acquisition; provided that the maximum assumable
liability in respect of all such Indebtedness shall at no time exceed the gross
proceeds including noncash proceeds (the fair market value of such noncash
proceeds being measured at the time received and without giving effect to any
subsequent changes in value) actually received by the Company and the
Restricted Subsidiaries in connection with such disposition;

 

(h)   Indebtedness
of the Company to a Restricted Subsidiary; provided that any such Indebtedness
owing to a non-Guarantor is subordinated in right of payment to the Convertible
Notes; provided further that any subsequent issuance or transfer of any Capital
Stock or any other event which results in any such Restricted Subsidiary
ceasing to be a Restricted Subsidiary or any other subsequent transfer of any
such Indebtedness (except to the Company or another Restricted Subsidiary)
shall be deemed, in each case to be an incurrence of such Indebtedness not
permitted by this clause (h);

 

(i)    Indebtedness
of a Restricted Subsidiary to the Company or another Restricted Subsidiary; provided that:

 

(1)     any such Indebtedness is made pursuant to
an intercompany note; and

 

(2)     if a Guarantor incurs such Indebtedness to a Restricted Subsidiary that is not the
Company or a Guarantor such
Indebtedness is subordinated in right of payment to the Guarantee 

 

B-27

 

of
such Guarantor; provided further that any
subsequent transfer of any such Indebtedness (except to the Company or another
Restricted Subsidiary) shall be deemed, in each case to be an incurrence of
such Indebtedness not permitted by this clause (i);

 

(j)    shares
of preferred stock of a Restricted Subsidiary issued to the Company or another
Restricted Subsidiary; provided that
any subsequent issuance or transfer of any Capital Stock or any other event
which results in any such Restricted Subsidiary ceasing to be a Restricted
Subsidiary or any other subsequent transfer of any such shares of preferred
stock (except to the Company or another Restricted Subsidiary) shall be deemed
in each case to be an issuance of such shares of preferred stock not permitted
by this clause (j);

 

(k)   Hedging
Obligations (excluding Hedging Obligations entered into for speculative purposes)
for the purpose of limiting:

 

(A)    interest rate risk with respect to any
Permitted Indebtedness; or

 

(B)     exchange rate risk with respect to any
currency exchange; or

 

(C)     commodity risk;

 

(l)    obligations
in respect of performance, bid, appeal and surety bonds and completion guarantees
provided by the Company or any Restricted Subsidiary in the ordinary course of
business;

 

(m)  Indebtedness
of any Guarantor in respect of such Guarantor’s Guarantee;

 

(n)   Indebtedness,
Disqualified Stock and preferred stock of the Company or any Restricted Subsidiary
otherwise permitted pursuant to Section [    ] of the
First Lien Notes Indenture;

 

(o)              (1) any guarantee by the Company or a Guarantor
of Indebtedness or other obligations of any Restricted Subsidiary so long as
the incurrence of such Indebtedness incurred by such Restricted
Subsidiary is permitted under the terms of the Indenture, or

 

(2) any guarantee by a Restricted Subsidiary of
Indebtedness of the Company; provided that such guarantee is incurred in
accordance with the covenant described below under “—Limitation on Guarantees
of Indebtedness by Restricted Subsidiaries;”

 

(p)   the
incurrence by the Company or any Restricted Subsidiary of Indebtedness,
Disqualified Stock or preferred stock which serves to refund or refinance any
Indebtedness, Disqualified Stock or preferred stock incurred as permitted under
the first paragraph of this covenant and clauses (c) and (d) above,
this clause (p) and clause (q) below or any Indebtedness,
Disqualified Stock or preferred stock issued to so refund or refinance such
Indebtedness, Disqualified Stock or preferred stock including additional
Indebtedness, Disqualified Stock or preferred stock incurred to pay premiums,
defeasance costs and fees in connection therewith (the “Refinancing
Indebtedness”) prior to its respective maturity; provided, however, that such Refinancing Indebtedness:

 

(1)   has a Weighted Average Life to Maturity at the time such Refinancing
Indebtedness is incurred which is not less than the remaining Weighted Average
Life to Maturity of the Convertible Notes, in the case of Refinancing
Indebtedness refinancing the Senior Subordinated Notes or in all other cases,
of the Indebtedness, Disqualified Stock or preferred stock being refunded or refinanced;

 

(2)   to the extent such Refinancing Indebtedness refinances (i) the
Senior Subordinated Notes and related guarantees, such Refinancing Indebtedness is pari passu or
subordinated in right of payment to the Convertible Notes and Guarantees, (ii) Indebtedness
subordinated or pari passu in right of payment to
the Convertible Notes and Guarantees (other than the Senior Subordinated Notes
or related guarantees), such Refinancing Indebtedness is subordinated or pari passu in right of payment to the Convertible Notes and
Guarantees at least to the same extent as the Indebtedness being refinanced or
refunded or (iii) Disqualified Stock or preferred stock, such Refinancing
Indebtedness must be Disqualified Stock or preferred stock, respectively; and

 

(3)   shall not include

 

B-28

 

(x)           Indebtedness,
Disqualified Stock or preferred stock of a Subsidiary that refinances
Indebtedness, Disqualified Stock or preferred stock of the Company;

 

(y)   Indebtedness, Disqualified Stock or
preferred stock of a Subsidiary that is not a Guarantor that refinances Indebtedness,
Disqualified Stock or preferred stock of a Guarantor; or

 

(z)           Indebtedness,
Disqualified Stock or preferred stock of the Company or a Restricted Subsidiary
that refinances Indebtedness, Disqualified Stock or preferred stock of an
Unrestricted Subsidiary;

 

(q)         Indebtedness, Disqualified Stock or preferred stock of Persons that are
acquired by the Company or any Restricted Subsidiary or merged into the Company
or a Restricted Subsidiary in accordance with the terms of the Indenture;
provided that such Indebtedness, Disqualified Stock or preferred stock is not incurred
in contemplation of such acquisition or merger; provided further that after
giving effect to such acquisition or merger, either:

 

(1)          the Company would be
permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first sentence of this
covenant; or

 

(2)          the Fixed Charge
Coverage Ratio is greater than immediately prior to such acquisition or merger;

 

(r)            Indebtedness arising from the honoring by a bank or
other financial institution of a check, draft or similar instrument drawn
against insufficient funds in the ordinary course of business; provided that
such Indebtedness is extinguished within two Business Days of its incurrence;

 

(s)          Indebtedness of Foreign Subsidiaries in an aggregate amount not to exceed
$15.0 million at any time outstanding; provided that Indebtedness under this
clause (s) may be incurred under any Credit Facility;

 

(t)            Indebtedness of the Company or any Restricted
Subsidiary supported by a letter of credit issued pursuant to the Credit
Agreement, in a principal amount not in excess of the stated amount of such letter
of credit; and

 

(u)         Indebtedness of the Company or any Restricted Subsidiary consisting of (i) the
financing of insurance premiums or (ii) take-or-pay obligations contained
in supply arrangements, in each case, in the ordinary course of business.

 

For purposes of determining compliance with this
covenant, in the event that an item of Indebtedness, Disqualified Stock
or Preferred Stock meets the criteria of more than one of the categories of
permitted Indebtedness, Disqualified Stock or Preferred Stock described in
clauses (a) through (u) above or is entitled to be incurred pursuant
to the first paragraph of this covenant, the Company shall, in its sole
discretion, classify or reclassify such item of Indebtedness in any manner that
complies with this covenant and such item of Indebtedness, Disqualified Stock
or Preferred Stock will be treated as having been incurred pursuant to only one
of such clauses or pursuant to the first paragraph hereof; provided
that any Indebtedness, Disqualified Stock or Preferred Stock incurred pursuant
to clause (n) hereof shall be deemed to have been incurred for the
purposes of the first paragraph of this covenant from and after the first date
on which the Company or such Restricted Subsidiary could have incurred such
Indebtedness, Disqualified Stock or preferred stock under the first paragraph of
this covenant without reliance on clause (n). 
Accrual of interest, the accretion of accreted value and the payment of
interest in the form of additional Indebtedness, Disqualified Stock or
Preferred Stock will not be deemed to be an incurrence of Indebtedness,
Disqualified Stock or Preferred Stock for purposes of this covenant.

 

For purposes of determining compliance with any U.S.
dollar-denominated restriction on the incurrence of Indebtedness, the U.S.
dollar-equivalent principal amount of Indebtedness denominated in a foreign
currency shall be calculated based on the relevant currency exchange rate in
effect on the date such Indebtedness was incurred, in the case of term debt, or
first committed, in the case of revolving credit debt; provided that if such Indebtedness is incurred
to refinance other Indebtedness denominated in a foreign currency, and such
refinancing would cause the applicable U.S. dollar denominated restriction to
be exceeded if calculated at the relevant currency exchange rate in effect on
the date of such refinancing, such U.S. dollar-denominated restriction shall be
deemed not to have been exceeded so long as the principal amount of such
refinancing Indebtedness does not exceed the principal amount of such
Indebtedness being refinanced.

 

B-29

 

The principal amount of any Indebtedness incurred to
refinance other Indebtedness, if incurred in a different currency from
the Indebtedness being refinanced, shall be calculated based on the currency
exchange rate applicable to the currencies in which such respective
Indebtedness is denominated that is in effect on the date of such refinancing.

 

The Indenture will provide that the Company will not,
and will not permit any Guarantor to directly or indirectly, incur any Indebtedness (including Acquired Indebtedness) that is subordinated
or junior in right of payment to any Indebtedness of the Company or such
Guarantor, as the case may be, unless such Indebtedness is expressly subordinated
in right of payment to the Convertible Notes or such Guarantor’s Guarantee to
the extent in the same manner as such Indebtedness is subordinated in right of
payment to other Indebtedness of the Company or such Guarantor as the case may
be.

 

The Indenture will not treat (1) unsecured
Indebtedness as subordinated or junior to Secured Indebtedness merely because
it is unsecured or (2) Senior Indebtedness as
subordinated or junior to any other Senior Indebtedness merely because it has a
junior priority with respect to the same collateral.

 

Liens

 

The Company will not, and will not permit any of its
Restricted Subsidiaries to, create, incur, assume or otherwise cause or suffer to
exist or become effective any Lien that secures obligations under any
Indebtedness or any related guarantees (the “Initial Lien”)
of any kind upon any of their property or assets, now owned or hereafter acquired,
except:

 

(1)          in the case of Initial Liens on any Collateral, any Initial Lien if (i) such
Initial Lien expressly has Junior Lien Priority on the Collateral relative to the Convertible
Notes; or (ii) such Initial Lien is a Permitted Lien; and

 

(2)          in the case of any other asset or property, any Initial Lien if (i) the
Convertible Notes are equally and ratably secured with (or on a senior basis
to, in the case such Initial Lien secures any Subordinated Indebtedness) the
obligations secured by such Initial Lien or (ii) such Initial Lien is a Permitted
Lien.

 

Any Lien created for the benefit of the Holders
of the Convertible Notes pursuant to clause (2) of the preceding paragraph shall provide by its terms that such Lien shall be automatically and
unconditionally released and discharged upon the release and discharge of the
Initial Lien which release and discharge in the case of any sale of any such
asset or property shall not affect any Lien that the Collateral Agent may have
on the proceeds from such sale.

 

Merger, Consolidation or Sale of All or Substantially All Assets

 

Neither of the Co-Issuers, may consolidate or merge
with or into or wind up into (whether or not it is the surviving corporation),
or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its respective properties or assets in one or more related
transactions, to any Person unless:

 

(1)          such Co-Issuer is the surviving corporation or the Person formed by or
surviving any such consolidation or merger (if other than such Co-Issuer) or to
which such sale, assignment, transfer, lease, conveyance or other disposition will
have been made is a corporation organized or existing under the laws of the
United States, any state thereof, the District of Columbia, or any territory
thereof (such Person, as the case may be, being herein called the “Successor Company”);

 

(2)          the Successor Company, if other than such Co-Issuer, expressly assumes all
the obligations of such Co-Issuer under the Indenture, the Convertible Notes and the Security Documents
pursuant to supplemental indentures or other documents or instruments in form
reasonably satisfactory to the Trustee;

 

(3)          immediately after such transaction no Default or Event of
Default exists;

 

(4)          immediately  after giving pro forma effect to such transaction, as if
such transaction had occurred at the beginning of the applicable four-quarter
period,

 

(A)      the Successor Company would be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the first sentence of the 

 

B-30

 

covenant described under “—Limitation
on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred
Stock” or

 

(B)        the
Fixed Charge Coverage Ratio for the Successor Company and the Restricted
Subsidiaries would be greater than such Ratio for Parent and its Subsidiaries
immediately prior to such transaction;

 

(5)          each Guarantor, unless it is the other party to the
transactions described above, in which case clause (2) of the second
succeeding paragraph shall apply, shall have by supplemental indenture confirmed
that its Guarantee shall apply to such Person’s obligations under the Indenture
and the Convertible Notes;

 

(6)          such Co-Issuer shall have delivered to the Trustee an Officers’ Certificate and an
opinion of counsel, each stating that such consolidation, merger or transfer
and such supplemental indentures, if any, comply with the Indenture and, if a
supplemental indenture or any supplement to any Security Document is required
in connection with such transaction, such supplement shall comply with the
applicable provisions of the Indenture;

 

(7)          to the extent any assets of the Person which is merged or consolidated
with or into the Successor Company are assets of the type which would constitute Collateral under
the Security Documents, the Successor Company shall have taken such action as
may be reasonably necessary to cause such property and assets to be made
subject to the Lien of the Security Documents in the manner and to the extent
required in the Indenture or any of the Security Documents and shall have taken
all reasonably necessary action so that such Lien is perfected to the extent
required by the Security Documents; and

 

(8)          the Collateral owned by or transferred to the Successor Company shall:

 

(a)                                  continue to constitute Collateral under the Indenture
and the Security Documents,

 

(b)                                 be subject to a Lien in favor of the Collateral Agent for the benefit of the Trustee
and the Holders of the Convertible Notes, and

 

(c)                                  not be subject to any Lien other than
Permitted Liens.

 

The Successor Company will succeed to, and be
substituted for such Co-Issuer under the Indenture and the Convertible
Notes.  Notwithstanding the foregoing
clauses (3) and (4),

 

(a)          any Restricted Subsidiary may consolidate with, merge
into or transfer all or part of its properties and assets to a Co-Issuer; and

 

(b)         each Co-Issuer may merge with an Affiliate incorporated solely for the purpose of
reincorporating a Guarantor or such Co-Issuer in another State of the United
States so long as the amount of Indebtedness of such Co-Issuer and the Restricted
Subsidiaries is not increased thereby.

 

Subject to certain limitations described in the
Indenture governing release of a Guarantee upon the sale, disposition or
transfer of a Guarantor, each Guarantor will not, and each Co-Issuer will not
permit any Guarantor to, consolidate or merge with or into or wind up into
(whether or not such Guarantor is the surviving corporation), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions to, any Person unless:

 

(A)      (1)                                  such Guarantor is the surviving corporation or the
Person formed by or surviving any such consolidation or merger (if other than such Guarantor) or to
which such sale, assignment, transfer, lease, conveyance or other disposition
will have been made is a corporation organized or existing under the laws of
the United States, any state thereof, the District of Columbia, or any
territory thereof (such Guarantor or such Person, as the case may be, being herein
called the “Successor Person”);

 

(2)          the Successor Person, if other than such Guarantor, expressly assumes all
the obligations of such Guarantor under the Indenture and such Guarantor’s
Guarantee pursuant to supplemental indentures or other documents or instruments
in form reasonably satisfactory to the Trustee;

 

(3)          immediately after such transaction no Default or Event of
Default exists;

 

B-31

 

(4)          the Co-Issuers shall have delivered to the Trustee an Officers’
Certificate and an opinion of counsel, each stating that such consolidation,
merger or transfer and such supplemental indentures, if any, comply with the
Indenture and, if a supplemental indenture or any supplement to any Security
Document is required in connection with such transaction, such supplement shall
comply with the applicable provisions of the Indenture;

 

(5)          to the extent any assets of the Person which is merged or consolidated
with or into the Successor Company are assets of the type which would constitute Collateral under
the Security Documents, the Successor Company shall have taken such action as
may be reasonably necessary to cause such property and assets to be made
subject to the Lien of the Security Documents in the manner and to the extent
required in the Indenture or any of the Security Documents and shall have taken
all reasonably necessary action so that such Lien is perfected to the extent
required by the Security Documents; and

 

(6)          the Collateral owned by or transferred to the Successor Person shall:

 

(i)             continue
to constitute Collateral under the Indenture and the Security Documents,

 

(ii)          be
subject to the Lien in favor of the Collateral Agent for the benefit of the
Trustee and the Holders of the Convertible Notes, and

 

(iii)       not be subject to any Lien other than Permitted Liens; or

 

(B)        the transaction is made in compliance with Section [    ] of the
First Lien Notes Indenture describing permissible asset sales.

 

Subject to certain limitations described in the
Indenture, the Successor Person will succeed to, and be substituted for, such
Guarantor under the Indenture and such Guarantor’s Guarantee.  Notwithstanding the foregoing, any Guarantor may
merge into or transfer all or part of its properties and assets to another Guarantor
or to the Co-Issuers.

 

Transactions with Affiliates

 

The Company will not, and will not permit any
Restricted Subsidiary to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property
or assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate of the Company (each of the foregoing, an “Affiliate Transaction”) involving aggregate
payments or consideration in excess of $5.0 million, unless:

 

(a)          such Affiliate Transaction is on terms that are not materially less favorable to the
Company or the relevant Restricted Subsidiary than those that would have been
obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person; and

 

(b)         the Company delivers to the Trustee with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate payments or consideration
in excess of $10.0 million, a resolution adopted by the majority of the
Board of Directors approving such Affiliate Transaction and set forth in an
Officers’ Certificate certifying that such Affiliate Transaction complies with
clause (a) above.

 

The foregoing provisions will not apply to the following:

 

(1)          transactions between or among the Company and/or any of the
Restricted Subsidiaries;

 

(2)          Restricted Payments permitted by Section [    ]
of the First Lien Notes Indenture and the definition of “Permitted Investments”;

 

(3)          the payment of management, consulting, monitoring and advisory fees and related expenses
to KKR and its Affiliates in an aggregate amount in any fiscal year not to
exceed an amount approved by the disinterested members of the Board of
Directors;

 

(4)          the payment of reasonable and customary fees paid to, and indemnities
provided on behalf of, officers, directors, employees or consultants of the Company, any of
its direct or indirect parents or any Restricted Subsidiary;

 

B-32

 

(5)          payments by the Company or any Restricted Subsidiary to KKR and its
Affiliates made for any financial advisory, financing, underwriting or placement services or
in respect of other investment banking activities, including, without
limitation, in connection with acquisitions or divestitures which payments are
approved by a majority of the Board of Directors of the Company in good faith;

 

(6)          transactions in which the Company or any Restricted Subsidiary, as the
case may be, delivers to the Trustee a letter from an Independent Financial Advisor stating that such
transaction is fair to the Company or such Restricted Subsidiary from a
financial point of view or meets the requirements of clause (a) of
the preceding paragraph;

 

(7)          payments or loans (or cancellation of loans) to employees or consultants
of the Company, any of its direct or indirect parents or any Restricted Subsidiary which are
approved by a majority of the Board of Directors of the Company in good faith;

 

(8)          any agreement as in effect as of the Issue Date, or any amendment thereto
(so long as any such amendment is not disadvantageous to the Holders in any material respect);

 

(9)          the existence of, or the performance by the Company or any of its Restricted
Subsidiaries of its obligations under the terms of, any stockholders agreement
(including any registration rights agreement or purchase agreement related
thereto) to which it is a party as of the Issue Date and any similar agreements
which it may enter into thereafter; provided,
however, that the existence of,
or the performance by the Company or any Restricted Subsidiary of obligations
under any future amendment to any such existing agreement or under any similar
agreement entered into after the Issue Date shall only be permitted by this
clause (9) to the extent that the terms of any such amendment or new
agreement are not otherwise disadvantageous to the Holders in any material
respect;

 

(10)    the issuance of any Additional Convertible Notes or any Management Notes;

 

(11)    transactions with customers, clients, suppliers, or purchasers or sellers
of goods or services, in each case in the ordinary course of business and
otherwise in compliance with the terms of the Indenture which are fair to the
Company and the Restricted Subsidiaries, in the reasonable determination of the
Board of Directors of the Company or the senior management thereof, or are on
terms at least as favorable as might reasonably have been obtained at such time
from an unaffiliated party;

 

(12)    the issuance of Equity Interests (other than Disqualified Stock) of the Company to any
Permitted Holder or to any director, officer, employee or consultant; and

 

(13)    sales of accounts receivable, or participations therein, in connection with any Receivables
Facility.

 

Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries

 

The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or consensual
restriction on the ability of any such Restricted Subsidiary to:

 

(a)          (1)          pay dividends or make any other distributions to the
Company or any Restricted Subsidiary on its Capital Stock or with respect to
any other interest or participation in, or measured by, its profits or

 

(2)            pay any Indebtedness owed to the Company or any Restricted
Subsidiary;

 

(b)         make loans or advances to the Company or any Restricted
Subsidiary; or

 

(c)          sell, lease or transfer any of its properties or assets to the Company or
any Restricted Subsidiary,

 

except (in each case) for such encumbrances or
restrictions existing under or by reason of:

 

(1)          contractual encumbrances or restrictions in effect on the
Issue Date, including, without limitation, pursuant to the First Lien Notes and
the First Lien Notes Indenture, the Credit Agreement and its related
documentation and the Senior Subordinated Notes and the indenture governing the
Senior Subordinated Notes;

 

(2)          the Convertible Notes and any Third Lien Indebtedness and
the indentures relating thereto;

 

(3)          purchase money obligations for property acquired in the
ordinary course of business that impose restrictions of the nature discussed in
clause (c) above on the property so acquired;

 

(4)          applicable law or any applicable rule, regulation or order;

 

B-33

 

(5)          any agreement or other instrument of a Person acquired by
the Company or any Restricted Subsidiary in existence at the time of such
acquisition (but not created in contemplation thereof), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the Person, so
acquired;

 

(6)          contracts for the sale of assets, including, without
limitation, customary restrictions with respect to a Subsidiary pursuant to an
agreement that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock or assets of such Subsidiary that impose
restrictions on the assets to be sold;

 

(7)          secured Indebtedness otherwise permitted to be incurred
pursuant to the covenants described under “—Limitation on Incurrence of
Indebtedness and Issuance of Disqualified Stock and Preferred Stock” and “—Liens”
that limit the right of the debtor to dispose of the assets securing such Indebtedness;

 

(8)          restrictions on cash or other deposits or net worth imposed
by customers under contracts entered into in the ordinary course of business;

 

(9)          other Indebtedness, Disqualified Stock or preferred stock
of Foreign Subsidiaries permitted to be incurred subsequent to the Issue Date
pursuant to the provisions of the covenant described under “—Limitation on
Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred
Stock” that impose restrictions solely on the Foreign Subsidiaries party
thereto;

 

(10)    customary provisions in joint venture agreements and other
similar agreements relating solely to such joint venture;

 

(11)    customary provisions contained in leases and other
agreements entered into in the ordinary course of business;

 

(12)    any encumbrances or restrictions of the type referred to in
clauses (a), (b) and (c) above imposed by any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings of the contracts, instruments or obligations
referred to in clauses (1) through (11) above; provided that such
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings are, in the good faith judgment of the
Company’s board of directors, no more restrictive with respect to such
encumbrance and other restrictions than those prior to such amendment,
modification, restatement, renewal, increase, supplement, refunding,
replacement or refinancing; and

 

(13)    restrictions created in connection with any Receivables
Facility that, in the good faith determination of the board of directors of the
Company, are necessary or advisable to effect such Receivables Facility.

 

Limitation on Guarantees of Indebtedness by Restricted Subsidiaries

 

(a)          The Company will not permit any
Restricted Subsidiary that is a Domestic Subsidiary, other than a Guarantor or
a special-purpose Restricted Subsidiary formed in connection with Receivables
Facilities, to guarantee the payment of any Indebtedness of the Company or any
other Guarantor unless:

 

(A)   such
Restricted Subsidiary simultaneously executes and delivers supplemental
indentures to the Indenture providing for a guarantee of payment of the
Convertible Notes by such Restricted Subsidiary, except that if such Indebtedness is by its express terms subordinated in
right of payment to the Convertible Notes or such Guarantor’s Guarantee of the
Convertible Notes, any such guarantee of such Restricted Subsidiary with
respect to such Indebtedness shall be subordinated in right of payment to such
Restricted Subsidiary’s Guarantee with respect to the Convertible Notes
substantially to the same extent as such Indebtedness is subordinated in right
of payment to the Convertible Notes;

 

(B)     such Restricted Subsidiary waives and will not in
any manner whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the Company
or any other Restricted Subsidiary as a result of any payment by such
Restricted Subsidiary under its guarantee; and

 

(C)     such Restricted Subsidiary shall deliver to the
Trustee an opinion of counsel to the effect that:

 

(1)          such Guarantee of the
Convertible Notes has been duly executed and authorized and

 

B-34

 

(2)          such Guarantee of the Convertible Notes constitutes a valid, binding
and enforceable obligation of such Restricted Subsidiary, except insofar as
enforcement thereof may be limited by bankruptcy, insolvency or similar laws
(including, without limitation, all laws relating to fraudulent transfers) and
except insofar as enforcement thereof is subject to general principles of
equity.

 

(b)         Notwithstanding the foregoing and the
other provisions of the Indenture, any Guarantee by a Restricted Subsidiary of
the Convertible Notes shall provide by its terms that it shall be automatically
and unconditionally released and discharged upon:

 

(A)      any sale, exchange or transfer (by merger or otherwise) of
all of the Company’s Capital Stock in such Guarantor (including any sale,
exchange or transfer following which the applicable Guarantor is no longer a
Restricted Subsidiary) or all or substantially all the assets of such
Guarantor, which sale, exchange or transfer is made in compliance with the
applicable provisions of the Indenture,

 

(B)        the release or discharge of the guarantee by such
Restricted Subsidiary which resulted in the creation of such Guarantee, except
a discharge or release by or as a result of payment under such guarantee,

 

(C)        if such Guarantor is designated as an Unrestricted
Subsidiary or otherwise ceases to be a Restricted Subsidiary, in each case in
accordance with the provisions of the Indenture, upon effectiveness of such
designation or when it first ceases to be a Restricted Subsidiary,
respectively; or

 

(D)       if the Company’s obligations under the Indenture are
discharged in accordance with the terms of the Indenture.

 

Reports and Other Information

 

Notwithstanding that Parent may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act or
otherwise report on an annual and quarterly basis on forms provided for such
annual and quarterly reporting pursuant to rules and regulations
promulgated by the Securities and Exchange Commission (the “Commission”), the Indenture
will require Parent to file with the Commission (and make available to the
Trustee and Holders of the Convertible Notes (without exhibits), without cost
to each Holder, within 15 days after it files them with the Commission),

 

(a)          within 90 days (or the successor time period then in
effect under the rules and regulations of the Exchange Act) after the end
of each fiscal year, annual reports on Form 10-K, or any successor or
comparable form, containing the information required to be contained therein,
or required in such successor or comparable form;

 

(b)         within 45 days (or the successor time period then in
effect under the rules and regulations of the Exchange Act) after the end
of each of the first three fiscal quarters of each fiscal year, reports on Form 10-Q,
containing the information required to be contained therein, or any successor
or comparable form;

 

(c)          promptly from time to time after the occurrence of an event
required to be therein reported, such other reports on Form 8-K, or any
successor or comparable form; and

 

(d)         any other information, documents and other reports which
Parent would be required to file with the Commission if it were subject to Section 13
or 15(d) of the Exchange Act;

 

provided that Parent shall not be so obligated to file such
reports with the Commission if the Commission does not permit such filing, in
which event Parent will make available such information to prospective purchasers
of Convertible Notes, in addition to providing such
information to the Trustee and the Holders of the Convertible Notes, in each
case within 15 days after the time Parent would be required to file such
information with the Commission, if it were subject to Sections 13
or 15(d) of the Exchange Act.

 

Events of Default and Remedies

 

The following events constitute Events of Default
under the Indenture:

 

(1)          failure to pay when due the principal of any of the
Convertible Notes at final maturity, upon acceleration or exercise of a
repurchase right or otherwise;

 

B-35

 

(2)          failure to deliver, within the period specified in the
Indenture, the shares of Common Stock and any other securities or property
together with cash in lieu of any fractional shares, due upon conversion of the
Convertible Notes and that failure continues for five days;

 

(3)          failure by the Co-Issuers or any Guarantor for 30 days
after receipt of written notice given by the Trustee or the Holders of at least
30% in principal amount of the Convertible Notes then outstanding and issued
under the Indenture to comply with any of its other agreements in the
Indenture, the Security Documents, the Intercreditor Agreement or the
Convertible Notes;

 

(4)          default under any mortgage, indenture or instrument under
which there is issued or by which there is secured or evidenced any
Indebtedness for money borrowed by the Company or any Restricted Subsidiary or
the payment of which is guaranteed by the Company or any Restricted Subsidiary,
other than Indebtedness owed to the Company or a Restricted Subsidiary, whether
such Indebtedness or guarantee now exists or is created after the issuance of
the Convertible Notes, if both:

 

(A)      such default either:

 

·                  results from the
failure to pay any such Indebtedness at its stated final maturity (after giving
effect to any applicable grace periods); or

 

·                  relates to an
obligation other than the obligation to pay principal of any such Indebtedness
at its stated final maturity and results in the holder or holders of such
Indebtedness causing such Indebtedness to become due prior to its stated
maturity; and

 

(B)        the principal amount of such Indebtedness, together with the principal
amount of any other such Indebtedness in default for failure to pay principal
at stated final maturity (after giving effect to any applicable grace periods),
or the maturity of which has been so accelerated, aggregate $25.0 million
or more at any one time outstanding;

 

(5)          failure by the Co-Issuers or any Significant Subsidiary to
pay final judgments aggregating in excess of $25.0 million, which final
judgments remain unpaid, undischarged and unstayed for a period of more than
60 days after such judgment becomes final, and in the event such judgment
is covered by insurance, an enforcement proceeding has been commenced by any
creditor upon such judgment or decree which is not promptly stayed;

 

(6)          certain events of bankruptcy or insolvency with respect to
the Co-Issuers or any Significant Subsidiary;

 

(7)          the Guarantee of any Significant Subsidiary shall for any
reason cease to be in full force and effect or be declared null and void or any
responsible officer of any Guarantor that is a Significant Subsidiary, as the
case may be, denies that it has any further liability under its Guarantee or
gives notice to such effect, other than by reason of the termination of the
related Indenture or the release of any such Guarantee in accordance with the
Indenture;

 

(8)          failure to give notice of a fundamental change or a
make-whole event and such failure continues for five days after the final date
that the Co-Issuers are required to provide such notice to Holders of
Convertible Notes under the Indenture;

 

(9)          any security interest and Lien purported to be created by
any Security Document with respect to any Collateral, individually or in the
aggregate, having a fair market value in excess of $25.0 million shall
cease to be in full force and effect, or shall cease to give the Collateral
Agent, for the benefit of the Convertible Notes Secured Parties, the Liens,
rights, powers and privileges purported to be created and granted thereby
(including a perfected third-priority security interest in and Lien on, all of
the Collateral thereunder (except as otherwise expressly provided in the
Indenture, the Security Documents and the Intercreditor Agreement)) in favor of
the Collateral Agent, for a period of 30 days after notice, or shall be
asserted by the Co-Issuers, Holdings or any Guarantor to not be, a valid,
perfected, third-priority (except as otherwise expressly provided in the Indenture,
the Security Documents or the Intercreditor Agreement) security interest in or
Lien on the Collateral covered thereby; except to the extent that any such loss
of perfection or priority results from the failure of the Trustee to make
filings, renewals and continuations (or other equivalent filings) or take other
appropriate action or the 

 

B-36

 

failure of the Trustee to maintain possession of
certificates actually delivered to it representing securities pledged under the
Security Documents.

 

If
any Event of Default (other than of a type specified in clause (6) above)
occurs and is continuing under the Indenture, the Trustee or the Holders of at
least 30% in principal amount of the then outstanding Convertible Notes issued
under the Indenture may declare the principal, premium, if any, interest and
any other monetary obligations on all the then outstanding Convertible Notes
issued under the Indenture to be due and payable immediately.  Upon the effectiveness of such declaration,
such principal and interest will be due and payable immediately.

 

Notwithstanding
the foregoing, in the case of an Event of Default arising under clause (6) of
the first paragraph of this section, all outstanding Convertible Notes will
become due and payable without further action or notice.  Holders may not enforce the Indenture or the
Convertible Notes except as provided in the Indenture.  Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding Convertible Notes issued
under the Indenture, other than Convertible Notes beneficially owned by the
Co-Issuers or their Affiliates, may direct the Trustee in its exercise of any trust
or power.  The Indenture provides that
the Trustee may withhold from Holders notice of any continuing Default or Event
of Default, except a Default or Event of Default relating to the payment of
principal, premium, if any, or interest, if it determines that withholding
notice is in their interest.  In
addition, the Trustee shall have no obligation to accelerate the Convertible
Notes if in the best judgment of the Trustee acceleration is not in the best
interest of the Holders of such Convertible Notes.

 

The
Indenture provides that the Holders of a majority in aggregate principal amount
of the then outstanding Convertible Notes issued thereunder, other than
Convertible Notes beneficially owned by the Co-Issuers or their Affiliates, by
notice to the Trustee may on behalf of the Holders of all of such Convertible
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except:

 

·                  a
Default or Event of Default in the payment of principal of, or interest on, the
Convertible Notes;

 

·                  in
respect of the failure to deliver shares of Common Stock upon conversion of the
Convertible Notes; or

 

·                  in
respect of the covenants or provisions in the Indenture that may not be
modified or amended without the consent of the holder of each Convertible Note
affected as described in “— Amendment, Supplement and Waiver”.

 

In
the event of any Event of Default specified in clause (4) above, such
Event of Default and all consequences thereof (excluding any resulting payment
default) shall be annulled, waived and rescinded, automatically and without any
action by the Trustee or the Holders, if within 20 days after such Event
of Default arose

 

·                  the
Indebtedness or guarantee that is the basis for such Event of Default has been
discharged, or

 

·                  the
holders thereof have rescinded or waived the acceleration, notice or action (as
the case may be) giving rise to such Event of Default, or

 

·                  if
the default that is the basis for such Event of Default has been cured.

 

The Indenture provides that the Co-Issuers are
required to deliver to the Trustee annually a statement regarding compliance
with the Indenture, and the Co-Issuers are required, within five Business Days,
upon becoming aware of any Default or Event of Default or any default under any
document, instrument or agreement representing Indebtedness of the Co-Issuers
or any Guarantor, to deliver to the Trustee a statement specifying such Default or Event of Default.

 

No Personal Liability of Directors, Officers,
Employees and Stockholders

 

No director, officer, employee, incorporator or stockholder of the
Co-Issuers or any Guarantor or any of their parent companies shall have any
liability for any obligations of the Co-Issuers or the Guarantors under the
Convertible Notes, the Guarantees or the Indenture or for any claim based on,
in respect of, or by reason of such 

 

B-37

 

obligations
or their creation.  Each Holder by
accepting a Convertible Note waives and releases all such liability.  The waiver and release are part of the
consideration for issuance of the Convertible Notes.  Such waiver may not be effective to waive
liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.

 

Satisfaction and Discharge

 

The Indenture will be discharged and will cease to be of
further effect as to all Convertible Notes issued thereunder, when either

 

(a)          all such Convertible Notes theretofore authenticated and
delivered, except lost, stolen or destroyed Convertible Notes which have been
replaced, paid or converted and Convertible Notes for whose payment moneys or
conversion shares of Common Stock have theretofore been deposited in trust,
have been delivered to the Trustee for cancellation; or

 

(b)     (1)        all such Convertible Notes not theretofore delivered to
such Trustee for cancellation or conversion have become due and payable and the
Co-Issuers or any Guarantor have irrevocably deposited or caused to be deposited
with such Trustee as trust funds in trust solely for the benefit of the
Holders, cash in U.S. dollars, in such amounts as will be sufficient to pay and
discharge the entire indebtedness on such Convertible Notes not theretofore
delivered to the Trustee for cancellation or conversion for principal and
accrued interest to the date of maturity;

 

(2)                                  no
Default or Event of Default (other than that resulting from borrowing funds to
be applied to make such deposit) with respect to the Indenture or the
Convertible Notes issued thereunder shall have occurred and be continuing on
the date of such deposit or shall occur as a result of such deposit and such
deposit will not result in a breach or violation of, or constitute a default
under, any other instrument to which the Co-Issuers or any Guarantor are a
party or by which the Co-Issuers or any Guarantor are bound;

 

(3)          the Co-Issuers have paid or caused to be paid
all sums payable by it under the Indenture; and

 

(4)          the Co-Issuers have delivered irrevocable
instructions to the Trustee under the Indenture to apply the deposited money or
shares of Common Stock toward the payment or conversion of such Convertible
Notes.

 

In addition, the Co-Issuers must deliver an Officers’
Certificate and an opinion of counsel to the Trustee stating that all
conditions precedent to satisfaction and discharge have been satisfied.

 

Paying Agent and Registrar for the Convertible Notes

 

The
Co-Issuers will maintain one or more paying agents for the Convertible Notes in
the Borough of Manhattan, City of New York. 
The initial paying agent for the Convertible Notes will be the Trustee.

 

The
Co-Issuers will also maintain a registrar with offices in the Borough of
Manhattan, City of New York.  The initial
registrar will be the Trustee.  The
registrar will maintain a register reflecting ownership of the Convertible
Notes outstanding from time to time and will make payments on and facilitate
transfer of Convertible Notes on behalf of the Co-Issuers.

 

The
Co-Issuers may change the paying agents or the registrars without prior notice
to the Holders.  The Co-Issuers or any
Guarantor may act as a paying agent or registrar.

 

Transfer and Exchange

 

A
Holder may transfer or exchange Convertible Notes in accordance with the
Indenture.  The registrar and the Trustee
may require a Holder, among other things, to furnish appropriate endorsements
and transfer documents and the Co-Issuers may require a Holder to pay any taxes
and fees required by law or permitted by the Indenture.  The Co-Issuers are not required to transfer
or exchange any Convertible Note selected for redemption.  Also, the Co-Issuers are not required to
transfer or exchange any Convertible Note for a period of 15 days before a
selection of Convertible Notes to be redeemed.

 

B-38

 

The
registered Holder of a Convertible Note will be treated as the owner of the
Convertible Note for all purposes.

 

Amendment, Supplement and Waiver

 

Except
as provided in the next five succeeding paragraphs, (i) the Indenture,
Security Documents, Intercreditor Agreement, any related Guarantee and the
Convertible Notes issued thereunder may be amended or supplemented and (ii) compliance
with any provision of the Indenture or the Convertible Notes issued thereunder
may be waived with the consent of the Holders of at least a majority in
principal amount of the Convertible Notes then outstanding and issued under the
Indenture, including, without limitation, consents obtained in connection with
a purchase of, or tender offer or exchange offer for, Convertible Notes.

 

Any
existing Default or Event of Default may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding Convertible
Notes issued under the Indenture, other than Convertible Notes beneficially
owned by the Co-Issuers or their Affiliates.

 

The
Indenture provides that, without the consent of each Holder affected, an amendment or waiver may not,
with respect to any Convertible Notes issued under the Indenture and held by a
non-consenting Holder:

 

(1)   reduce the principal
amount of Convertible Notes whose Holders must consent to an amendment, supplement
or waiver,

 

(2)   reduce the
principal of or change the fixed maturity of any such Convertible Note (other
than provisions relating to the covenants described under the captions “—Make
Whole Amount” and “—Fundamental Change Requires the Co-Issuers to Repurchase
Convertible Notes at the Option of the Holder”),

 

(3)   reduce the rate
of or change the time for payment of interest on any Convertible Note,

 

(4)   waive a Default
or Event of Default in the payment of principal of, or interest on, the
Convertible Notes issued under the Indenture, except a rescission of
acceleration of the Convertible Notes by the Holders of at least a majority in
aggregate principal amount of the Convertible Notes and a waiver of the payment
default that resulted from such acceleration, or in respect of a covenant or
provision contained in the Indenture or any Guarantee which cannot be amended
or modified without the consent of all Holders,

 

(5)   make any
Convertible Note payable in money other than that stated in the Convertible
Notes,

 

(6)   make any change
in these amendment and waiver provisions,

 

(7)   impair the right
of any Holder to receive payment of principal of, or interest on such Holder’s
Convertible Notes on or after the due dates therefor or to institute suit for
the enforcement of any payment on or with respect to such Holder’s Convertible
Notes,

 

(8)   make any change
in any Security Document, any Intercreditor Agreement or the provisions in the
Indenture dealing with the Collateral or the Security Documents or the
application of trust proceeds of the Collateral that would adversely affect the
Holders in any material respect or release all or substantially all of the
Collateral from the Liens of the Security Documents (except as permitted by the
terms of the Indenture, the Security Documents and the Intercreditor Agreement)
or change or alter the priority of the security interests in the Collateral in
any manner adverse to the Holders of the Convertible Notes,

 

(9)   make any change
to or modify the ranking of the Convertible Notes that would adversely affect
the Holders, or

 

(10) except as
otherwise permitted or contemplated by provisions of the Indenture, impair or
adversely affect the conversion rights of Holders of the Convertible Notes,
including any adverse change to the conversion price.

 

In addition, the Intercreditor Agreement will provide
that, subject to certain exceptions, any amendment, waiver or consent to any of
the collateral documents securing the obligations under the Credit Agreement,
to the extent applicable to the ABL Collateral, will also apply automatically
to the comparable Security Documents with respect to the Holders’ interest in
the ABL Collateral.  The Intercreditor
Agreement will have a similar provision regarding the effect of any amendment,
waiver or consent to any of the Security Documents, to the extent applicable to
the Notes Collateral, on the corresponding collateral documents with respect to
any obligations under the Credit Agreement and the Indenture.

 

B-39

 

Notwithstanding the foregoing, without the consent of
any Holder, the Co-Issuers, any Guarantor (with respect to a Guarantee or the Indenture to which it is a party) and the Trustee may amend or
supplement the Indenture, any Guarantee, the Convertible Notes, the Security
Documents or the Intercreditor Agreement:

 

(1)   to cure any
ambiguity, omission, mistake, defect or inconsistency;

 

(2)   to provide for
uncertificated Convertible Notes in addition to or in place of certificated
Convertible Notes;

 

(3)   to comply with
the covenant relating to mergers, consolidations and sales of assets;

 

(4)   to provide the
assumption of the obligations of either of the Co-Issuers’, or any Guarantor’s
obligations, to Holders;

 

(5)   to make any
change that would provide any additional rights or benefits to the Holders or
that does not adversely affect the rights under the Indenture of any such
Holder;

 

(6)   to add covenants
for the benefit of the Holders or to surrender any right or power conferred
upon one or both of the Co-Issuers;

 

(7)   to comply with
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act;

 

(8)   to evidence and
provide for the acceptance and appointment under the Indenture of a successor
Trustee pursuant to the requirements thereof;

 

(9)   to add a
Guarantor under the Indenture or to add additional assets as Collateral;

 

(10) to conform the
text of the Indenture, Guarantees or the Convertible Notes or any Security
Document or any Intercreditor Agreement to any provision of this “Description
of Convertible Notes”;

 

(11) in the case of
the Intercreditor Agreement, in order to subject the security interests in the
Collateral in respect of any Other First Lien Note Obligations and Lender Debt
to the terms of the Intercreditor Agreement, in each case to the extent the
Incurrence of such Indebtedness, and the grant of all Liens on the Collateral
held for the benefit of such Indebtedness were permitted hereunder; or

 

(12) .to provide for
conversion rights of Holders of Convertible Notes upon any recapitalization,
reclassification or change of Common Stock, a consolidation, merger or
combination involving the, a sale, lease or other transfer to another
corporation of the consolidated assets of Parent and its Subsidiaries
substantially as an entirety, or any statutory share exchange.

 

The Intercreditor Agreement may be amended from time
to time with the consent of certain parties thereto.  In addition, the Intercreditor Agreement and Security Documents may be
amended from time to time at the sole request and expense of the Co-Issuers,
and without the consent of the Bank Collateral Agent, the First Lien Notes Collateral
Agent, the Collateral Agent or any Third Lien Collateral Agent:

 

(1)   (A) 
to add other parties (or any authorized agent thereof or trustee therefor)
holding Other First Lien Note Obligations that are incurred in compliance with the Credit
Agreement, the First Lien Notes Indenture and the Security Documents, (B) to
establish that the Liens on any Notes Collateral securing such Other First Lien
Note Obligations shall be pari passu
under the Intercreditor Agreement with the Liens on such Notes Collateral
securing the Obligations under the First Lien Notes Indenture, the First Lien
Notes and the related guarantees and senior to the Liens on such Notes
Collateral securing (x) any Obligations under the Credit Agreement and (y) the
Convertible Notes and Management Notes, all on the terms provided for in the
Intercreditor Agreement in effect immediately prior to such amendment and (C) to
establish that the Liens on any ABL Collateral securing such Other First Lien
Note Obligations to the extent required by the terms of such Other First Lien
Note Obligations, shall be either pari passu
under the Intercreditor Agreement with the Liens on such ABL Collateral
securing the Obligations under the First Lien Notes Indenture, the First Lien
Notes and the related guarantees, junior and subordinated to the Liens on such
ABL Collateral securing any obligations under the Credit Agreement and senior
to the Liens on such ABL Collateral securing the Convertible Notes and
Management Notes or pari passu with
the Liens on such ABL Collateral securing the Convertible Notes and Management
Notes and junior and subordinated to the Liens on such ABL Collateral securing
obligations under the Credit Agreement, the First Lien Notes Indenture, the
First Lien Notes and the related guarantees, all on the terms provided for in
the Intercreditor Agreement as in effect immediately prior to such amendment;
and

 

B-40

 

(2)   (A) 
to add other parties (or any authorized agent thereof or trustee therefor) holding
Third Lien Indebtedness that is incurred in compliance with the Credit
Agreement and the Indenture and the Security Documents, (B) to establish
that the Liens on any ABL Collateral securing such Indebtedness shall be pari passu under the Intercreditor Agreement with the Liens
on such ABL Collateral securing the obligations under the Convertible Notes and
Management Notes and junior to the Liens on such ABL Collateral securing any
obligations under the First Lien Notes Indenture, the First Lien Notes and the
related guarantees and the Credit Agreement, all on the terms provided for in
the Intercreditor Agreement in effect immediately prior to such amendment and (C) to
establish that the Liens on any Notes Collateral securing such Indebtedness
shall be pari passu under the Intercreditor
Agreement with the Liens on such Notes Collateral securing the obligations
under the Convertible Notes and Management Notes, junior and subordinated to
the Liens on such Notes Collateral securing any obligations under the First
Lien Notes Indenture, the First Lien Notes and the related guarantees and the
Credit Agreement, all on the terms provided for in the Intercreditor Agreement
in effect immediately prior to such amendment. 
Any such additional party and the Bank Collateral Agent, Trustee, First
Lien Notes Collateral Agent and Collateral Agent shall be entitled to rely upon
a certificate delivered by an Officer certifying that such Other First Lien
Note Obligations or Third Lien Indebtedness, as the case may be, were issued or
borrowed in compliance with the Credit Agreement and the First Lien Notes
Indenture and the Security Documents. 
Any amendment of the Intercreditor Agreement or Security Documents that
is proposed to be effected without the consent of the Bank Collateral Agent,
the First Lien Notes Collateral Agent or the Collateral Agent, as applicable,
will be submitted to such Person for its review at least 5 business days prior
to the proposed effectiveness of such amendment.

 

The Security Agreements or the Intercreditor Agreement
will provide that, as between collateral agents in whose favor equal priority
Liens have been granted on the applicable Collateral for the benefit of holders
of different series of Indebtedness (e.g. the First Lien Notes Collateral Agent
and the collateral agent for any Other First Lien Note Obligations as to their
respective first priority Liens on the Notes Collateral), the “Applicable Authorized Representative” will have the right to direct foreclosures
and take other actions with respect to the applicable Collateral and the other
collateral agent shall have no right to take actions with respect to such
Collateral.  The Applicable Authorized
Agent shall be the collateral agent representing the series of Indebtedness
with the greatest outstanding aggregate principal amount.

 

The consent of the holders of the Convertible Notes is
not necessary under the Indenture, any Security Document or the Intercreditor
Agreement to approve the particular form of any proposed amendment.  It is sufficient if such consent approves the substance of the proposed amendment.

 

See also “Security for the Convertible Notes—Intercreditor
Agreement—Refinancings of the Credit Agreement, the First Lien Notes, the
Convertible Notes and Management Notes.”

 

Notices

 

Notices given by publication will be deemed given on
the first date on which publication is made and notices given by first-class
mail, postage prepaid, will be deemed given five calendar days after mailing.

 

Concerning the Trustee

 

The Indenture contains certain limitations on the
rights of the Trustee, should it become a creditor of the Co-Issuers, to obtain
payment of claims in certain cases, or to realize on certain property received
in respect of any such claim as security or otherwise.  The Trustee will be permitted to engage in
other transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.

 

The Indenture provides that the Holders of a majority
in principal amount of the outstanding Convertible Notes issued thereunder will
have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions.  The Indenture
provides that in case an Event of Default shall occur (which shall not be
cured), the Trustee will be required, in the exercise of its power,
to use the degree of care of a prudent person in the conduct of his own
affairs.  Subject to such provisions, the
Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture at the request of any Holder of the Convertible Notes,
unless such Holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense.

 

B-41

 

Global Convertible Notes: Book-Entry Form

 

The Convertible Notes will be evidenced by one or more
global Convertible Notes deposited with the Trustee as custodian for DTC, and
registered in the name of Cede & Co., as DTC’s nominee.  Record ownership of the global Convertible
Notes may be transferred, in whole or in part, only to another nominee of DTC
or to a successor of DTC or its nominee, except as set forth below.

 

Ownership of beneficial interests in a global
Convertible Note will be limited to persons that have accounts with DTC or its
nominee (“participants”) or persons that may hold interests through
participants.  Transfers between direct
DTC participants will be effected in the ordinary way in accordance with DTC’s rules and
will be settled in same-day funds. 
Holders may also beneficially own interests in the global Convertible
Notes held by DTC through certain banks, brokers, dealers, trust companies and other
parties that clear through or maintain a custodial relationship with a direct
DTC participant, either directly or indirectly.

 

So long as Cede & Co., as nominee of DTC, is
the registered owner of the global Convertible Notes, Cede & Co. for
all purposes will be considered the sole Holder of the global Convertible
Notes.  Except as provided below, owners
of beneficial interests in the global Convertible Notes will not be entitled to
have certificates registered in their names, will not receive or be entitled to
receive physical delivery of certificates in definitive form, and will not be
considered Holders thereof.  The laws of
some states require that certain persons take physical delivery of securities
in definitive form.  Consequently, the
ability to transfer or pledge a beneficial interest in the global Convertible
Notes to such persons may be limited.

 

We will wire, through the facilities of the Trustee,
the principal, and interest payments on the global Convertible Notes to Cede &
Co., the nominee for DTC, as the registered owner of the global Convertible
Notes.  We, the Trustee and any paying
agent will have no responsibility or liability for paying amounts due on the
global Convertible Notes to owners of beneficial interests in the global
Convertible Notes.

 

It is DTC’s current practice, upon receipt of any
payment of principal of, and interest on the global Convertible Notes, to
credit participants’ accounts on the payment date in amounts proportionate to
their respective beneficial interests in the Convertible Notes represented by
the global Convertible Notes, as shown on the records of DTC, unless DTC
believes that it will not receive payment on the payment date.  Payments by DTC participants to owners of beneficial
interests in Convertible Notes represented by the global Convertible Notes held
through DTC participants will be the responsibility of DTC participants, as is
now the case with securities held for the accounts of customers registered in “street
name.”

 

If a Holder would like to convert Convertible Notes
into common stock pursuant to the terms of the Convertible Notes, the Holder
should contact the Holder’s broker or other direct or indirect DTC participant
to obtain information on procedures, including proper forms and cut-off times,
for submitting those requests.

 

Because DTC can only act on behalf of DTC
participants, who in turn act on behalf of indirect DTC participants and other
banks, a Holder’s ability to pledge the Holder’s interest in the Convertible
Notes represented by global Convertible Notes to persons or entities that do
not participate in the DTC system, or otherwise take actions in respect of such
interest, may be affected by the lack of a physical certificate.

 

Neither the Co-Issuers nor the Trustee (nor any
registrar, paying agent or conversion agent under the Indenture) will have any
responsibility for the performance by DTC or direct or indirect DTC
participants of their obligations under the rules and procedures governing
their operations.  DTC has advised the
Co-Issuers that it will take any action permitted to be taken by a Holder of
Convertible Notes, including, without limitation, the presentation of
Convertible Notes for conversion as described below, only at the direction of
one or more direct DTC participants to whose account with DTC interests in the
global Convertible Notes are credited and only for the principal amount of the
Convertible Notes for which directions have been given.

 

DTC has advised us as follows: DTC is a limited
purpose trust company organized under the laws of the State of New York, a
member of the Federal Reserve System, a “clearing corporation” within the
meaning of the Uniform Commercial Code and a “clearing agency” registered
pursuant to the provisions of Section 17 A of the Exchange Act.  DTC was created to hold securities for DTC
participants and to facilitate the clearance and settlement of securities
transactions between DTC participants through electronic book-entry changes to
the 

 

B-42

 

accounts
of its participants, thereby eliminating the need for physical movement of
certificates.  Participants include
securities brokers and dealers, banks, trust companies and clearing
corporations and may include certain other organizations such as the initial
purchasers of the Convertible Notes. 
Certain DTC participants or their representatives, together with other
entities, own DTC.  Indirect access to
the DTC system is available to others such as banks, brokers, dealers and trust
companies that clear through, or maintain a custodial relationship with, a
participant, either directly or indirectly.

 

Although DTC has agreed to the foregoing procedures in
order to facilitate transfers of interests in the global Convertible Notes
among DTC participants, it is under no obligation to perform or continue to
perform such procedures, and such procedures may be discontinued at any
time.  If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
us within 90 days, we will cause Convertible Notes to be issued in definitive
registered form in exchange for the global Convertible Notes.  None of the Co-Issuers, the Trustee or any of
such enities’ respective agents will have any responsibility for the
performance by DTC or direct or indirect DTC participants of their obligations
under the rules and procedures governing their operations, including
maintaining, supervising or reviewing the records relating to, or payments made
on account of, beneficial ownership interests in global Convertible Notes.

 

According to DTC, the foregoing information with
respect to DTC has been provided to its participants and other members of the
financial community for informational purposes only and is not intended to
serve as a representation, warranty or contract modification of any kind.

 

Certificated Convertible Notes

 

We will issue the Convertible Notes in definitive
certificated form if DTC notifies us that it is unwilling or unable to continue
as depositary or DTC ceases to be a clearing agency registered under the U.S.
Securities Exchange Act of 1934, as amended and a successor depositary is not
appointed by us within 90 days. In addition, beneficial interests in a global
Convertible Note may be converted for definitive certificated Convertible Notes
upon request by or on behalf of DTC in accordance with customary
procedures.  The Indenture permits us to
determine at any time and in our sole discretion that Convertible Notes shall
no longer be represented by global Convertible Notes.  DTC has advised us that, under its current
practices, it would notify its participants of our request, but will only
withdraw beneficial interests from the global Convertible Notes at the request
of each DTC participant.  We would issue
definitive certificates in exchange for any such beneficial interests
withdrawn.

 

Any Convertible Note that is convertible pursuant to
the preceding sentence is convertible for Convertible Notes registered in the
names which DTC will instruct the Trustee. 
It is expected that DTC’s instructions may be based upon directions
received by DTC from its participants with respect to ownership of beneficial
interests in that global Convertible Note. 
Subject to the foregoing, a global Convertible Note is not exchangeable
except for a global Convertible Note or global Convertible Notes of the same
aggregate denominations to be registered in the name of DTC or its nominee.

 

Governing Law

 

The Indenture, the Convertible Notes, the Guarantees,
the Security Documents and the Intercreditor Agreement will be governed by and
construed in accordance with the laws of the State of New York.

 

Certain Definitions

 

Set forth below are certain defined terms used in the
Indenture.  Reference is made to the
Indenture for a full disclosure of all such terms, as well as any other
capitalized terms used herein for which no definition is provided.  For purposes of the Indenture, unless
otherwise specifically indicated, the term “consolidated” with respect to any
Person refers to such Person consolidated with its Restricted Subsidiaries, and
excludes from such consolidation any Unrestricted Subsidiary as if such
Unrestricted Subsidiary were not an Affiliate of such Person.

 

“ABL Collateral”
means the portion of the Collateral as to which the holders of the Lenders Debt
and related guarantees have a first-priority security interest, subject to
Permitted Liens, as described under “Security for the Convertible Notes—ABL
Collateral.”

 

B-43

 

“Acquired Indebtedness”
means, with respect to any specified Person,

 

(1)   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, including,
without limitation, Indebtedness incurred in connection with, or
in contemplation of, such other Person merging with or into or becoming a
Restricted Subsidiary of such specified Person, and

 

(2)   Indebtedness
secured by a Lien encumbering any asset acquired by such specified Person.

 

“Additional
First Lien Notes” means any additional first lien notes (other than
the First Lien Notes) issued after the original issuance of the
First Lien Notes that are substantially similar to the First Lien Notes and are
secured by any of the Collateral with Pari passu Lien
Priority relative to the First Lien Notes and with respect to which
the holders (or a trustee or agent on behalf of such holders) shall have
executed a supplement to the Intercreditor Agreement agreeing to be bound
thereby on the same terms applicable to the holders of First Lien Notes.

 

“Affiliate”
of any specified Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such specified Person.  For purposes of
this definition, “control” (including, with correlative meanings, the terms “controlling,”
“controlled by” and “under common control with”), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise.

 

“After-Acquired Property” means any property of the Co-Issuers or any
Guarantor acquired after the Issue Date that is intended to secure the
Obligations under the Indenture and the Convertible Notes pursuant to the
Security Documents.

 

“Bank
Collateral Agent”
means JPMorgan Chase Bank, N.A.

 

“Bank
Lenders” means the lenders or holders of Indebtedness issued under
the Credit Agreement.

 

“Bankruptcy
Law” means Title 11 of the United States Code, as amended, or any
similar federal or state law for the relief of debtors.

 

“Borrowing
Base” means, as of any date, an amount equal to the sum of (x) 85%
of the book value of the accounts receivable and (y) 65% of the book value
of the inventory, in each case of the Company and the Guarantors on a
consolidated basis as of the end of the most recently completed fiscal quarter
preceding such date for which internal financial statements are available.

 

“Capital
Stock” means

 

(1)   in the case of a
corporation, corporate stock,

 

(2)   in the case of
an association or business entity, any and all shares, interests, participations,
rights or other equivalents (however designated) of corporate stock,

 

(3)   in the case of a
partnership or limited liability company, partnership or membership interests
(whether general or limited), and

 

(4)   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 assets of, the issuing
Person.

 

“Capitalized
Lease Obligation” means, at the time any determination thereof is to
be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized and reflected as a liability on a
balance sheet (excluding the footnotes thereto) in accordance with GAAP.

 

“Cash
Equivalents” means

 

(1)   United States
dollars,

 

(2)   pounds sterling,

 

(3)   (a)  euro,
or any national currency of any participating member state in the European Union
or,

 

(b)   in the case of
any Foreign Subsidiary that is a Restricted Subsidiary, such local currencies
held by them from time to time in the ordinary course of business,

 

B-44

 

(4)   securities
issued or directly and fully and unconditionally guaranteed or insured by the
United States government or any agency or instrumentality thereof the
securities of which are unconditionally guaranteed as a full faith and credit
obligation of such government with maturities of 24 months or less from
the date of acquisition,

 

(5)   certificates of
deposit, time deposits and eurodollar time deposits with maturities of one year
or less from the date of acquisition, bankers’ acceptances with maturities not
exceeding one year and overnight bank deposits, in each case with any
commercial bank having capital and surplus in excess of $500.0 million,

 

(6)   repurchase
obligations for underlying securities of the types described in clauses (4) and
(5) entered into with any financial institution meeting the qualifications
specified in clause (5) above,

 

(7)   commercial paper
rated at least P-2 by Moody’s or at least A-2 by S&P and in each case
maturing within 12 months after the date of creation thereof,

 

(8)   investment funds
investing 95% of their assets in securities of the types described in clauses (1) through
(7) above,

 

(9)   readily
marketable direct obligations issued by any state of the United States of
America or any political subdivision thereof having one of the two highest
rating categories obtainable from either Moody’s or S&P with maturities of
24 months or less from the date of acquisition and

 

(10) Indebtedness or
preferred stock issued by Persons with a rating of “A” or higher from S&P
or “A2” or higher from Moody’s with maturities of 12 months or less from
the date of acquisition.

 

Notwithstanding the foregoing, Cash Equivalents shall
include amounts denominated in currencies other than those set forth in clauses
(1) through (3) above; provided that
such amounts are converted into any currency listed in clauses (1) through (3) as promptly as practicable and in any event
within ten Business Days following the receipt of such amounts.

 

“Collateral”
means all the assets and properties subject to
the Liens created by the Security Documents.

 

“Collateral Agent”
means The Bank of New York Mellon Trust Company, N.A., in its capacity as “Collateral
Agent” under the Indenture and under the Security Documents, and any successor
thereto in such capacity.

 

“Consolidated
Depreciation and Amortization Expense” means with respect to any
Person for any period, the total amount of depreciation and amortization
expense, including the amortization of deferred financing fees, of such Person
and its Restricted Subsidiaries for such period on a consolidated basis and
otherwise determined in accordance with GAAP.

 

“Consolidated Interest Expense” means, with respect to any Person for
any period, the sum, without duplication, of:

 

(a)   consolidated
interest expense of such Person and its Restricted Subsidiaries for such period,
to the extent such expense was deducted in computing Consolidated Net Income
(including amortization of original issue discount resulting from the issuance
of Indebtedness at less than par, non-cash interest payments (but excluding any
non-cash interest expense attributable to the movement in the mark to market
valuation of Hedging Obligations or other derivative instruments pursuant to
Financial Accounting Standards Board Statement No. 133 — Accounting for
Derivative Instruments and Hedging Activities”), the interest component of
Capitalized Lease Obligations and net payments, if any, pursuant to interest
rate Hedging Obligations, and excluding amortization of deferred financing fees
and any expensing of bridge or other financing fees), and

 

(b)   consolidated
capitalized interest of such Person and its Restricted Subsidiaries for such
period, whether paid or accrued less

 

(c)   interest
income for such period.

 

B-45

 

“Consolidated Net Income” means, with respect to any Person for
any period, the aggregate of the Net Income, of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, and otherwise determined
in accordance with GAAP; provided,
however, that

 

(1)   any
net after-tax extraordinary, non-recurring or unusual gains or losses (less all
fees and expenses relating thereto) or expenses (including, without limitation,
relating to severance, relocation and new product introductions) shall be
excluded,

 

(2)   the
Net Income for such period shall not include the cumulative effect of a
change in accounting principles during such period,

 

(3)   any
net after-tax income (loss) from disposed or discontinued operations and any
net after-tax gains or losses on disposal of disposed or discontinued
operations shall be excluded,

 

(4)   any
net after-tax gains or losses (less all fees and expenses relating thereto)
attributable to asset dispositions other than in the ordinary course of business, as determined in
good faith by the board of directors of the Company, shall be excluded,

 

(5)   the
Net Income for such period of any Person that is not a Subsidiary, or is an Unrestricted
Subsidiary, or that is accounted for by the equity method of accounting, shall be excluded;
provided that Consolidated Net Income
of the Company shall be increased by the amount of dividends or distributions
or other payments that are actually paid in cash (or to the extent converted
into cash) to the referent Person or a Restricted Subsidiary thereof in respect
of such period,

 

(6)   solely for the
purpose of determining the amount available for Restricted Payments under Section [    ]
of the First Lien Notes Indenture, the Net Income for such period of any
Restricted Subsidiary (other than any Guarantor) shall be excluded if the declaration
or payment of dividends or similar distributions by that Restricted Subsidiary
of its Net Income is not at the date of determination wholly permitted without
any prior governmental approval (which has not been obtained) or, directly or
indirectly, by the operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule, or governmental regulation applicable
to that Restricted Subsidiary or its stockholders, unless such restriction with
respect to the payment of dividends or in similar distributions has been
legally waived; provided that Consolidated Net
Income of the Company will be increased by the amount of dividends or other
distributions or other payments actually paid in cash (or to the extent
converted into cash) to the Company or a Restricted Subsidiary thereof in
respect of such period, to the extent not already included therein,

 

(7)   the
effects of adjustments resulting from the application of purchase accounting in
relation to any acquisition that is consummated after the Issue Date, net of
taxes, shall be excluded,

 

(8)   any
net after-tax income (loss) from the early extinguishment of Indebtedness or
Hedging Obligations or other derivative instruments shall be excluded,

 

(9)   any
impairment charge or asset write-off pursuant to Financial Accounting Standards
Board Statement No. 142 and No. 144 and the amortization of
intangibles arising pursuant to No. 141 shall be excluded, and

 

(10) any non-cash compensation expense recorded from grants of stock
appreciation or similar rights, stock options or other rights to officers,
directors or employees shall be excluded.

 

“Consolidated Senior
Secured Debt Ratio” means, as of any date of determination, the
ratio of (1) the sum of Lenders Debt plus the
aggregate amount outstanding under any Receivables Facility plus the aggregate principal amount of the First Lien Notes plus the aggregate principal amount (or accreted value) of
any Other First Lien Note Obligations to (2) the Company’s EBITDA for the
most recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which such event for
which such calculation is being made shall occur, in each case with such pro
forma adjustments as are appropriate and consistent with the pro forma adjustment provisions set forth in the definition
of Fixed Charge Coverage Ratio.

 

“Contingent
Obligations” means, with respect to any Person, any obligation of
such Person guaranteeing any leases, dividends or other obligations that do not
constitute Indebtedness (“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,

 

(1)   to
purchase any such primary obligation or any property constituting direct or
indirect security therefor,

 

B-46

 

(2)   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, or

 

(3)   to
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 against loss in respect thereof.

 

“Convertible Notes Secured
Parties” means the Trustee, the Collateral Agent, each Holder of
Convertible Notes, any Additional Convertible Notes and each other holder
of, or obligee in respect of, any obligations in respect of the Convertible
Notes outstanding at such time,  in each
case, in its capacity as such and not in any other capacity.

 

“Credit Agreement”
means the Credit Agreement dated as of May 13, 2009 among the Company, the
Guarantors, the various lenders and agents party thereto and J.P. Morgan Chase
Bank, N.A. as Administrative Agent, together with any amendments, supplements,
modifications, extensions, renewals, restatements or refundings thereof and any
indentures or credit facilities or commercial paper facilities with banks or
other institutional lenders or investors that replace, refund or refinance any
part of the loans, notes, other credit facilities or commitments thereunder,
including any such replacement, refunding or refinancing facility or indenture
that increases the amount borrowable thereunder, alters the maturity thereof or
adds Restricted Subsidiaries as additional borrowers or guarantors thereunder
and whether by the same or any other agent, lender or group of lenders.

 

“Credit Facilities”
means, with respect to the Company, one or more debt facilities, including,
without limitation, the Credit Agreement, or commercial paper facilities with
banks or other institutional lenders or investors or indentures providing for
revolving credit loans, term loans, receivables financing, including through
the sale of receivables to such lenders or to special purpose entities formed
to borrow from such lenders against receivables, letters of credit or other
long-term indebtedness, including any guarantees, collateral documents,
instruments and agreements executed in connection therewith, and any
amendments, supplements, modifications, extensions, renewals, restatements or
refundings thereof and any indentures or credit facilities or commercial paper
facilities with banks or other institutional lenders or investors that replace,
refund or refinance any part of the loans, notes, other credit facilities or
commitments thereunder, including any such replacement, refunding or
refinancing facility or indenture that increases the amount borrowable
thereunder or alters the maturity thereof.

 

“Default”
means any event that is, or with the passage of
time or the giving of notice or both would be, an Event of Default.

 

“Designated
Preferred Stock” means preferred stock of the Company or any parent
thereof (in each case other than Disqualified Stock) that is issued for cash
(other than to a Guarantor or a Restricted Subsidiary) and is so designated as
Designated Preferred Stock, pursuant to an Officers’ Certificate executed by an
executive vice president and the principal financial officer of the
Company or the applicable parent thereof, as the case may be, on the issuance
date thereof, the cash proceeds of which are excluded from the calculation set
forth in Section [    ] of the First Lien Notes
Indenture.

 

“Discharge of ABL
Obligations” means the date on which the Lenders Debt has been paid
in full, in cash, all commitments to extend credit thereunder shall have been
terminated and the Lenders Debt is no longer secured by such ABL
Collateral; provided that the Discharge of ABL
Obligations shall not be deemed to have occurred in connection with a
refinancing of such Lenders Debt with Indebtedness secured by such ABL
Collateral on a first-priority basis under an agreement that has been
designated in writing by the administrative agent under the Credit Facility so
refinancing the Credit Agreement and the First Lien Notes Trustee to be in
accordance with the terms of the Intercreditor Agreement.

 

“Discharge of First Lien
Note Obligations” means the date on which the First Lien Note
Obligations have been paid in full and are no longer secured by the Notes Collateral; provided that the Discharge of First Lien Note Obligations
shall not be deemed to have occurred in connection with a refinancing of such
First Lien Notes with Indebtedness secured by such Notes Collateral on a
first-priority basis under an agreement so refinancing the First 

 

B-47

 

Lien
Notes that has been designated in writing by the administrative agent under the
Credit Facility and the First Lien Notes Trustee to be in accordance with the
terms of the Intercreditor Agreement.

 

“Discharge of Prior Secured
Obligations” means the first date on which the Discharge of ABL
Obligations and the Discharge of First Lien Note Obligations shall have
occurred.

 

“Disqualified Stock
“ means, with respect to any Person, any Capital Stock of such
Person which, by its terms, or by the terms of any security into which it is
convertible or for which it is putable or exchangeable, or upon the happening
of any event, matures or is mandatorily redeemable, other than as a result of a
change of control or asset sale, pursuant to a sinking fund obligation or
otherwise, or is redeemable at the option of the holder thereof, other than as
a result of a change of control or asset sale, in
whole or in part, in each case prior to the date 91 days after the earlier
of the maturity date of the Convertible Notes or the date the Convertible Notes
are no longer outstanding; provided,
however, that if such Capital
Stock is issued to any plan for the benefit of employees of the Company or its
Subsidiaries or by any such plan to such employees, such Capital Stock shall
not constitute Disqualified Stock solely because it may be required to be
repurchased by the Company or its Subsidiaries in order to satisfy applicable statutory
or regulatory obligations.

 

“Domestic
Subsidiary” means, with respect to any Person, any direct or
indirect wholly-owned Restricted Subsidiary of such Person other than a Foreign
Subsidiary.

 

“EBITDA”
means, with respect to any Person for any period, the Consolidated Net Income
of such Person for such period plus (without duplication)

 

(a)   provision
for taxes based on income or profits, plus franchise or similar taxes, of such
Person for such period deducted in computing Consolidated Net Income, plus

 

(b)   Consolidated
Interest Expense of such Person for such period to the extent the same was deducted
in calculating such Consolidated Net Income, plus

 

(c)   Consolidated
Depreciation and Amortization Expense of such Person for such period to the
extent such depreciation and amortization were deducted in computing
Consolidated Net Income, plus

 

(d)   any
expenses or charges related to any Equity Offering, Permitted Investment,
acquisition, disposition, recapitalization or Indebtedness permitted to be incurred by the
Indenture (whether or not successful), including such fees, expenses or charges
related to the offering of the First Lien Notes, the Convertible Notes and the
Credit Facilities, and deducted in computing Consolidated Net Income, plus

 

(e)   the
amount of any restructuring charge deducted in such period in computing Consolidated
Net Income, including any one-time costs incurred in connection with
acquisitions after the Issue Date, plus

 

(f)    any
other non-cash charges reducing Consolidated Net Income for such period, excluding
any such charge that represents an accrual or reserve for a cash expenditure
for a future period, plus

 

(g)   the
amount of any minority interest expense deducted in calculating Consolidated
Net Income (less the amount of any cash dividends paid to the holders of such minority
interests), plus

 

(h)   any
net gain or loss resulting from currency exchange risk Hedging Obligations, plus

 

(i)    the
amount of management, monitoring, consulting and advisory fees and related expenses
paid to KKR or any of its Affiliates, plus

 

(j)    expenses related to
the implementation of enterprise resource planning system, less

 

(k)   non-cash items
increasing Consolidated Net Income of such Person for such period, excluding
any items which represent the reversal of any accrual of, or cash reserve for,
anticipated cash charges in any prior period.

 

“EMU” means
economic and monetary union as contemplated in the Treaty on European Union.

 

“Equity Interests”
means Capital Stock and all warrants, options
or other rights to acquire Capital Stock, but excluding any debt security that
is convertible into, or exchangeable for, Capital Stock.

 

B-48

 

“Equity Offering”
means any public or private sale of common stock or preferred stock of the
Company or any of its direct or indirect parents (excluding Disqualified Stock),
other than

 

(a)   public
offerings with respect to the Company’s or any direct or indirect parent’s
common stock registered on Form S-8; and

 

(b)   any
sales to Parent or any of its Subsidiaries.

 

“euro”
means the single currency of participating member states of the EMU.

 

“Exchange Act”
means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated
thereunder.

 

“Excluded Assets”
means the collective reference to (i) any interest in real property if the
greater of the cost and the book value of such interest is less than
$1,000,000; (ii) any property or asset only to the extent and for so long
as the grant of a security interest in such property or asset is prohibited by
any applicable law or requires a consent not obtained of any governmental
authority pursuant to applicable law; (iii) any right, title or interest
in any permit, license or contract held by the Company or any Guarantor or to
which the Company or any Guarantor is a party or any of its right, title or
interest thereunder, in each case only to the extent and for so long as the terms
of such permit, license or contract validly prohibits the creation by the
Company or a Guarantor, as applicable, of a security interest in such permit,
license or contract in favor of the First Lien Notes Collateral Agent (after
giving effect to Section 9-406, 9-407, 9-408 or 9-409 of the Uniform
Commercial Code (or any successor provisions) of any relevant jurisdiction or
any other applicable law (including Title 11 of the United States Code) or
principles of equity); (iv) Capital Stock of a Person that constitutes a
Subsidiary (other than a Wholly Owned Subsidiary) the pledge of which would
violate a contractual obligation to the owners of the other Capital Stock of
such Person that is binding on or relating to such Capital Stock; (v) any
equipment or real property (and proceeds thereof) of the Company or any
Guarantor that is subject to a purchase money Lien or Capital Lease Obligation
permitted under the Indenture to the extent the documents relating to such
purchase money Lien or Capital Lease Obligation would not permit such equipment
or real property (and proceeds thereof) to be subject to the Liens created
under the Security Documents; provided,
that immediately upon the ineffectiveness, lapse or termination of any such
restriction, such equipment or real property shall cease to be an “Excluded
Asset”; (vi) assets of the Company or any Guarantor located outside of the
United States to the extent a Lien on such assets cannot be created and
perfected under United States federal or state law; and (vii) After-Acquired
Property subject to Permitted Liens described in clause (8) or (9) of
the definition of Permitted Liens so long as the documents governing such
Permitted Liens do not permit any other Liens on such After-Acquired Property; provided, however, that
Excluded Assets will not include (a) any proceeds, substitutions or
replacements of any Excluded Assets referred to above (unless such proceeds,
substitutions or replacements would constitute Excluded Assets) or (b) any
asset which secures obligations with respect to the Lenders Debt.

 

“Existing
Indebtedness” means Indebtedness of the Company or the Restricted
Subsidiaries in existence on the Issue Date, plus interest accruing thereon.

 

“First Lien Notes”
means the       % Senior Secured Notes due 2016
issued on or prior to the Issue Date in an aggregate amount not to exceed
$350,000,000 and all guarantees thereof.

 

“First Lien Notes
Collateral Agent” means The Bank of New York Mellon Trust Company,
N.A., in its capacity as “Collateral Agent” under the First Lien Notes
Indenture and under the related security documents, and any successor thereto
in such capacity.

 

“First Lien Notes
Indenture” means the indenture dated as of May [    ],
2009, among the Company, as issuer, the guarantors party thereto and The Bank of New York Mellon Trust
Company, N.A., as First Lien Notes Trustee and First Lien Notes Collateral Agent; provided that “First Lien Notes Indenture”
refers to the First Lien Notes Indenture in effect on the Issue Date and for
the avoidance of doubt does not incorporate any amendments to the First Lien
Notes Indenture made after the Issue Date.

 

“First Lien Notes
Trustee” means The Bank of New York Mellon Trust Company, N.A..

 

B-49

 

“Fixed Charge
Coverage Ratio” means, with respect to any Person for any period,
the ratio of EBITDA of such Person for such period to the Fixed Charges of such
Person for such period.  In the event
that the Company or any Restricted Subsidiary incurs, assumes, guarantees or
redeems, retires or extinguishes any Indebtedness (other than reductions in
amounts outstanding under revolving facilities unless accompanied by a
corresponding termination of commitment) or issues or redeems Disqualified
Stock or preferred stock subsequent to the commencement of the period for which
the Fixed Charge Coverage Ratio is being calculated but prior to the event for
which the calculation of the Fixed Charge Coverage Ratio is made (the “Calculation Date”), then the Fixed Charge Coverage Ratio
shall be calculated giving pro forma effect to such incurrence, assumption,
guarantee or redemption, retirement or extinguishment of Indebtedness, or such
issuance or redemption of Disqualified Stock or preferred stock, as if the same
had occurred at the beginning of the applicable four-quarter period.

 

For purposes of making the computation referred to
above, Investments, acquisitions, dispositions, mergers, consolidations and
disposed operations (as determined in accordance with GAAP) that have been made
by the Company or any Restricted Subsidiary during the
four-quarter reference period or subsequent to such reference period and on or
prior to or simultaneously with the Calculation Date shall be calculated on a
pro forma basis assuming that all such Investments, acquisitions, dispositions,
mergers, consolidations and disposed operations (and the change in any
associated fixed charge obligations and the change in EBITDA resulting
therefrom) had occurred on the first day of the four-quarter reference period.  If since the beginning of such period any
Person (that subsequently became a Restricted Subsidiary or was merged with or
into the Company or any Restricted Subsidiary since the beginning of such
period) shall have made any Investment, acquisition, disposition, merger,
consolidation or disposed operation that would have required adjustment
pursuant to this definition, then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect thereto for such period as if such Investment, acquisition,
disposition, merger, consolidation or disposed operation had occurred at the
beginning of the applicable four-quarter period.

 

For purposes of this definition, whenever pro forma
effect is to be given to a transaction, the pro forma calculations shall be
made in good faith by a responsible financial or accounting officer of the
Company.  If any Indebtedness bears a
floating rate of interest and is being given pro forma effect, the interest on
such Indebtedness shall be calculated as if the rate in effect on the Calculation
Date had been the applicable rate for the entire period (taking into account
any Hedging Obligations applicable to such Indebtedness).  Interest on a Capitalized Lease Obligation
shall be deemed to accrue at an interest rate reasonably determined by a
responsible financial or accounting officer of the Company to be the rate of
interest implicit in such Capitalized Lease Obligation in accordance with
GAAP.  For purposes of making the
computation referred to above, interest on any Indebtedness under a revolving
credit facility computed on a pro forma basis shall be computed based upon the
average daily balance of such Indebtedness during the applicable period.  Interest on Indebtedness that may optionally
be determined at an interest rate based upon a factor of a prime or similar
rate, a eurocurrency interbank offered rate, or other rate, shall be deemed to
have been based upon the rate actually chosen, or, if none, then based upon
such optional rate chosen as the Company may designate.

 

“Fixed Charges”
means, with respect to any Person for any period, the sum of

 

(a)   Consolidated
Interest Expense (excluding amounts for interest payments that are payments-in-kind
or any accretion to principal amount on the Convertible Notes of such Person for such
period),

 

(b)   all
cash dividend payments (excluding items eliminated in consolidation) on any
series of preferred stock (including any Designated Preferred Stock) or any
Refunding Capital Stock of such Person, and

 

(c)   all
cash dividend payments (excluding items eliminated in consolidation) on any
series of Disqualified Stock.

 

“Foreign Subsidiary” means, with respect to any Person, any Restricted Subsidiary of such
Person that is not organized or existing under the laws of the United States,
any state thereof or the District of Columbia.

 

“GAAP”
means generally accepted accounting principles in the United States which are
in effect on the Issue Date.  At any time
after the Issue Date, the Company may elect to apply IFRS accounting principles
in lieu of GAAP and, upon any such election, references herein to GAAP shall
thereafter be construed to mean IFRS (except as otherwise provided in the
Indenture); provided that any such election, once
made, shall be irrevocable; provided, further, any calculation or determination in the Indenture
that requires the application of GAAP for periods that include fiscal quarters
ended prior to the Company’s election to apply IFRS shall remain as previously
calculated or 

 

B-50

 

determined
in accordance with GAAP.  The Company
shall give notice of any such election made in accordance with this definition
to the Trustee and the Holders of Convertible Notes.

 

“Government Securities” means securities that are

 

(a)   direct
obligations of the United States of America for the timely payment of which its full
faith and credit is pledged, or

 

(b)   obligations
of a Person controlled or supervised by and acting as an agency or instrumentality
of the United States of America the timely payment of which is unconditionally
guaranteed as a full faith and credit obligation by the United States of
America,

 

which, in either case, are not callable or
redeemable at the option of the issuers thereof, and shall also include a depository
receipt issued by a bank (as defined in Section 3(a)(2) of the
Securities Act), as custodian with respect to any such Government Securities or a specific payment
of principal of or interest on any such Government Securities held by such
custodian for the account of the holder of such depository receipt; provided that (except as required by law)
such custodian is not authorized to make any deduction from the amount payable
to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Securities or the specific payment of
principal of or interest on the Government Securities evidenced by such depository
receipt.

 

“guarantee”
means a guarantee (other than by endorsement of negotiable instruments for
collection in the ordinary course of business), direct or indirect, in any
manner (including, without limitation, letters of credit and reimbursement
agreements in respect thereof), of all or any part of any Indebtedness or other
obligations.

 

“Guarantee”
means the guarantee by any Guarantor of the
Co-Issuers’ Obligations under the Indenture.

 

“Hedging
Obligations” means, with respect to any Person, the obligations of
such Person under

 

(a)   currency exchange,
interest rate or commodity swap agreements, currency exchange, interest rate or
commodity cap agreements and currency exchange, interest rate or commodity
collar agreements; and

 

(b)   other
agreements or arrangements designed to protect such Person against fluctuations
in currency exchange, interest rates or commodity prices.

 

“Holder” means a holder of the Convertible
Notes.

 

“Holdings Guaranty” means the Guarantee by Holdings of the
Co-Issuers’ obligations with respect to the Convertible Notes, including any
Guarantee entered into after the Issue Date.

 

“Indebtedness” means,
with respect to any Person,

 

(a)   any indebtedness (including principal and premium) of
such Person, whether or not contingent

 

(1)   in respect
of borrowed money,

 

(2)   evidenced by bonds, notes, debentures or similar instruments or
letters of credit or bankers’ acceptances (or, without double counting,
reimbursement agreements in respect thereof),

 

(3)   representing the balance deferred and unpaid of the purchase price
of any property (including Capitalized Lease Obligations), except any such
balance that constitutes a trade payable or similar obligation to a trade
creditor, in each case accrued in the ordinary course of business, or

 

(4)   representing any Hedging Obligations,

 

if
and to the extent that any of the foregoing Indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance sheet
(excluding the footnotes thereto) of such Person prepared in accordance with
GAAP,

 

(b)   to
the extent not otherwise included, any obligation by such Person to be liable for, or
to pay, as obligor, guarantor or otherwise, on the Indebtedness of another
Person, other than by endorsement of negotiable instruments for collection in
the ordinary course of business, and

 

B-51

 

(c)   to
the extent not otherwise included, Indebtedness of another Person secured by a Lien
on any asset owned by such Person, whether or not such Indebtedness is assumed
by such Person;

 

provided, however,
that Contingent Obligations incurred in the ordinary course of business shall
be deemed not to constitute Indebtedness; and obligations under or in respect of Receivables Facilities shall
not be deemed to constitute Indebtedness.

 

“Independent
Financial Advisor” means an accounting, appraisal, investment
banking firm or consultant to Persons engaged in Similar Businesses of
nationally recognized standing that is, in the good faith judgment of the
Company, qualified to perform the task for which it has been engaged.

 

“Intercreditor Agreement”
means the intercreditor agreement dated as of the Issue Date among the Bank
Collateral Agent, the Trustee, the First Lien Notes Collateral Agent, the
Collateral Agent, the Company and each Guarantor, as it
may be amended from time to time in accordance with the Indenture.

 

“Investments”
means, with respect to any Person, all investments by such Person in other
Persons (including Affiliates) in the form of loans (including guarantees),
advances or capital contributions (excluding accounts receivable, trade credit,
advances to customers, commission, travel and similar advances to officers and employees, in each case made in the ordinary course of business), purchases or
other acquisitions for consideration of Indebtedness, Equity Interests or other
securities issued by any other Person and investments that are required by GAAP
to be classified on the balance sheet (excluding the footnotes) of the Company
in the same manner as the other investments included in this definition to the
extent such transactions involve the transfer of cash or other property.  For purposes of the definition of “Unrestricted
Subsidiary,”

 

(1)   “Investments”
shall include the portion (proportionate to the Company’s equity interest in
such Subsidiary) of the fair market value of the net assets of a Subsidiary of
the Company at the time that such Subsidiary is designated an Unrestricted
Subsidiary; provided, however, that upon a redesignation of such
Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue
to have a permanent “Investment” in an Unrestricted Subsidiary in an amount (if
positive) equal to

 

(x)    the Company’s
“Investment” in such Subsidiary at the time of such redesignation less

 

(y)   the portion (proportionate to the Company’s equity interest in such Subsidiary) of the fair market
value of the net assets of such Subsidiary at the time of such redesignation;
and

 

(2)   any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its fair market value at the time of such transfer, in each case as determined
in good faith by the Company.

 

“Issue Date”
means
                    ,
2009.

 

“Junior Lien Priority”
means, relative to specified Indebtedness, having Lien priority that is junior
to the Convertible Notes on specified Collateral and either
subject to the Intercreditor Agreement or an intercreditor agreement on a basis
that is no more favorable to the holder of such specified indebtedness than the
provisions applicable to the holders of Convertible Notes relative to the Prior
Secured Parties.

 

“KKR”
means Kohlberg Kravis Roberts & Co. L.P.

 

“Lenders Debt”
means any (i) Indebtedness outstanding from time to time under the Credit
Agreement, (ii) any Indebtedness which has a first-priority security
interest in the ABL Collateral (subject to Permitted Liens) and (iii) all
cash management Obligations and Hedging Obligations incurred with any Bank
Lender (or their affiliates).

 

“Lien”
means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law, including any conditional sale or other title retention agreement, any
lease in the nature thereof, any option or other agreement to sell or give a
security interest in and any filing of or agreement to give any financing

 

B-52

 

statement
under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction;
provided that in no event shall
an operating lease be deemed to constitute a Lien.

 

“Management Group”
means at any time, the Chairman of the Board, any President, any Executive Vice
President or Vice President, any Managing Director, any Treasurer and any
Secretary or other executive officer of any of Parent or its Subsidiaries at
such time.

 

“Management Notes”
means up to $25,000,000 aggregate principal amount of 8.00% convertible senior
secured third lien notes due 2016 of the Co-Issuers, having terms and
conditions that are not less favorable to the Co-Issuers than the Convertible
Notes and with respect to which the holders (or a trustee or agent on behalf of
such holders) shall have executed a supplement to the Intercreditor Agreement
agreeing to be bound thereby on the same terms applicable to the holders of
Convertible Notes.

 

“Moody’s”
means Moody’s Investors Service, Inc.

 

“Net Debt”
means, on a consolidated basis, (i) the Indebtedness of Parent and its
Subsidiaries (excluding the Convertible Notes and Management Notes) less (ii) Cash
Equivalents held by Parent and its Subsidiaries.

 

 “Net Income” means, with respect to any
Person, the net income (loss) of such Person, determined in accordance with
GAAP and before any reduction in respect of
preferred stock dividends.

 

“Non-Conforming Plan of
Reorganization” means any plan of reorganization that (i) does
not provide for payment in full of the ABL Obligations, (ii) is not approved
by the Bank Collateral Agent and (iii) grants any Noteholder Secured Party
any right or benefit, directly or indirectly, which right or benefit is
prohibited at such time by the provisions of the Intercreditor Agreement.

 

“Notes Collateral”
means the portion of the Collateral as to which First Lien  Notes and related guarantees have a
first-priority security interest subject to Permitted Liens as
described under “Security for the Convertible Notes—Notes collateral.”

 

“Obligations”
means any principal, interest (including any interest accruing subsequent to
the filing of a petition in bankruptcy, reorganization or similar proceeding at
the rate provided for in the documentation with respect thereto, whether or not
such interest is an allowed claim under applicable state, federal or foreign
law), penalties, fees, indemnifications, reimbursements (including, without
limitation, reimbursement obligations with respect to letters of credit and
banker’s acceptances), damages and other liabilities, and guarantees of payment
of such principal, interest, penalties, fees, indemnifications, reimbursements,
damages and other liabilities, payable under the documentation governing any
Indebtedness.

 

“Officer”
means the Chairman of the board of directors, the
President, any Executive Vice President, Senior Vice President or Vice
President, the Treasurer or the Secretary of Parent or the the Company, as
applicable.

 

“Officers’
Certificate” means a certificate signed on behalf of the Co-Issuers
by two Officers of each of the Co-Issuers, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of each Co-Issuer that meets the requirements set
forth in the Indenture.

 

“Other First Lien
Note Obligations” means any Additional First Lien Notes and any
other Indebtedness having Pari passu Lien
Priority relative to the First Lien Notes with respect to First Lien Notes
Collateral, either Pari passu Lien
Priority, Junior Lien Priority or no Lien with respect to the ABL Collateral
and substantially identical terms as the First Lien Notes (other than issue
price, interest rate, yield and redemption terms) and any Indebtedness that
refinances or refunds (or successive refinancings and refundings) any First
Lien Notes or Additional First Lien Notes and all obligations with respect to
such Indebtedness; provided, that such Indebtedness may (a) contain
terms and covenants that are, in the reasonable opinion of the Company, less
restrictive to the Company and the Restricted Subsidiaries than the terms and
covenants under the First Lien Notes; provided that
such Indebtedness has Pari passu Lien
Priority relative to the First Lien Notes; and (b) contain terms and
covenants that are more restrictive to the Company and its Restricted
Subsidiaries than the terms and covenants under the First Lien Notes so long as
prior to or substantially simultaneously with the issuance of any such
Indebtedness, the First Lien Notes and the First Lien Indenture are amended to
contain any such more restrictive terms and covenants;

 

B-53

 

provided further, that such Indebtedness shall have a Stated Maturity
date that is the same as or later than that of the First Lien Notes.

 

“Pari Passu Lien Priority”
means, relative to specified Indebtedness, having equal Lien priority on specified
Collateral and either subject to the Intercreditor Agreement on a substantially
identical basis as the holders of such specified Indebtedness or subject to intercreditor agreements
providing holders of the Indebtedness intended to have Pari passu
Lien Priority with substantially the same rights and obligations that the
holders of such specified Indebtedness have pursuant to the Intercreditor
Agreement as to the specified Collateral.

 

“Permitted Holders”
means KKR, its Affiliates and the Management Group.

 

“Permitted
Investments” has the meaning set forth in the First Lien Notes
Indenture.

 

“Permitted Liens”
means, with respect to any Person:

 

(1)   pledges
or deposits by such Person under workmen’s compensation laws, unemployment
insurance laws or similar legislation, or good faith deposits in connection with bids,
tenders, contracts (other than for the payment of Indebtedness) or leases to
which such Person is a party, or deposits to secure public or statutory
obligations of such Person or deposits of cash or U.S. government bonds to
secure surety or appeal bonds to which such Person is a party, or deposits as
security for contested taxes or import duties or for the payment of rent, in
each case incurred in the ordinary course of business;

 

(2)   Liens
imposed by law, such as carriers’, warehousemen’s and mechanics’ Liens, in each
case for sums not yet due or being contested in good faith by appropriate
proceedings or other Liens arising out of judgments or awards against such
Person with respect to which such Person shall then be proceeding with an
appeal or other proceedings for review;

 

(3)   Liens
for taxes, assessments or other governmental charges not yet due or payable or
subject to penalties for nonpayment or which are being contested in good faith
by appropriate proceedings;

 

(4)   Liens
in favor of issuers of performance and surety bonds or bid bonds or with
respect to other regulatory requirements or letters of credit issued pursuant to the request
of and for the account of such Person in the ordinary course of its business;

 

(5)   minor
survey exceptions, minor encumbrances, easements or reservations of, or rights
of others for, licenses, rights-of-way, sewers, electric lines, telegraph and
telephone lines and other similar purposes, or zoning or other restrictions as to
the use of real properties or Liens incidental, to the conduct of the business
of such Person or to the ownership of its properties which were not incurred in
connection with Indebtedness and which do not in the aggregate materially
adversely affect the value of said properties or materially impair their use in
the operation of the business of such Person;

 

(6)   (A) Liens
securing Senior Indebtedness permitted to be incurred pursuant to the first
paragraph of the covenant described under “—Certain Covenants—Limitation on Incurrence
of Indebtedness and Issuance of Disqualified Stock and Preferred Stock”; provided that any such Indebtedness has Pari passu
Lien Priority relative to the First Lien Notes; provided
further that at the time of incurrence and after giving pro forma effect thereto, the Consolidated Secured Debt
Ratio would be no greater than 2.75 to 1.0 and (B) Liens securing
Indebtedness permitted to be incurred pursuant to clause (e) of the
second paragraph of the covenant described under “—Certain Covenants—Limitation
on incurrence of indebtedness and issuance of Disqualified Stock and preferred
stock”; provided that Liens securing
Indebtedness incurred pursuant to clause (e) are solely on acquired
property or the assets of the acquired entity;

 

(7)   Liens
existing on the Issue Date (other than Liens in favor of secured parties under
the Credit Agreement and First Lien Notes);

 

(8)   Liens
on property or shares of stock of a Person at the time such Person becomes a Subsidiary;
provided, however, such Liens are not created or
incurred in connection with, or in contemplation of, such other Person becoming
such a subsidiary; provided, further, however,
that such Liens may not extend to any other property owned by the Company or
any Restricted Subsidiary;

 

(9)   Liens
on property at the time the Company or a Restricted Subsidiary acquired the
property, including any acquisition by means of a merger or consolidation with or into the
Company or any Restricted Subsidiary; provided,

 

B-54

 

however, that such Liens are not created or incurred in
connection with, or in contemplation of, such acquisition; provided, further, however, that the Liens may not
extend to any other property owned by the Company or any Restricted Subsidiary;

 

(10) Liens securing Indebtedness or other obligations of a Restricted
Subsidiary owing to the Company or another Restricted Subsidiary
permitted to be incurred in accordance with the covenant described under “—Certain
Covenants— Limitation on Incurrence of Indebtedness and Issuance of
Disqualified Stock and Preferred Stock”;

 

(11) Liens securing Hedging Obligations so long as the related
Indebtedness is, and is permitted to be under the Indenture, secured by a Lien
on the same property securing such Hedging Obligations;

 

(12) Liens on specific items of inventory of 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;

 

(13) leases and subleases of real property granted to others in the
ordinary course of business so long as such leases and subleases are
subordinate in all respects to the Liens granted and evidenced by the Security
Documents and which do not materially interfere with the ordinary conduct of
the business of the Company or any of the Restricted subsidiaries;

 

(14) Liens arising from Uniform Commercial Code financing statement
filings regarding operating leases entered into by the Company and its
Restricted Subsidiaries in the ordinary course of business;

 

(15) Liens in favor of the Company or any Guarantor;

 

(16) Liens on equipment of the Company or any Restricted Subsidiary granted
in the ordinary course of business to the Company’s client at which such
equipment is located;

 

(17) Liens on accounts receivable and related assets incurred in
connection with a Receivables Facility;

 

(18) Liens to secure any refinancing, refunding, extension, renewal or
replacement (or successive refinancing, refunding, extensions, renewals or
replacements) as a whole, or in part, of any Indebtedness secured by any Lien referred to in the
foregoing clauses (6)(B), (7), (8), (9), (10), (11) and (15); provided however, that (x) such new
Lien shall be limited to all or part of the same property that secured the
original Lien (plus improvements on such property), (y) the Indebtedness
secured by such Lien at such time is not increased to any amount greater than
the sum of (A) the outstanding principal amount or, if greater, committed
amount of the Indebtedness described under clauses (6)(B), (7), (8), (9), (10),
(11) and (15) at the time the original Lien became a Permitted Lien
under the Indenture, and (B) an amount necessary to pay any fees and
expenses, including premiums, related to such refinancing, refunding,
extension, renewal or replacement and (z) the new Lien has no greater
priority and the holders of the Indebtedness secured by such Lien have no
greater intercreditor rights relative to the Convertible Notes and Holders
thereof than the original Liens and the related Indebtedness;

 

(19) other Liens securing obligations incurred in the ordinary course of
business which obligations do not exceed $50.0 million at any one time
outstanding; provided that if such Liens
attach to Collateral, such Liens have Pari passu Lien
Priority relative to the First Lien Notes;

 

(20) (A) Liens securing Indebtedness Incurred pursuant to clause (a) of
the second paragraph of the covenant described under “—Certain
Covenants—Limitation on Incurrence of Indebtedness and Issuance of Disqualified
Stock and Preferred Stock” and (B) Liens securing Indebtedness Incurred
pursuant to clause (c)(i) of the second paragraph of the covenant
described under “—Certain Covenants—Limitation on Incurrence of Indebtedness
and Issuance of Disqualified Stock and Preferred Stock and any Refinancing
Indebtedness with respect thereto; provided that
with respect to clause (A) or (B), the holder of such Lien is a party to
or agrees to become party to or bound by the Intercreditor Agreement or
intercreditor agreements consistent with the Intercreditor Agreement;”

 

(21) Liens securing the Convertible Notes and the Management Notes,
Refinancing Indebtedness with respect to the Convertible Notes and the Management
Notes, Holdings Guaranty, the Subsidiary Guarantees and other guarantees
relating thereto and any obligations with respect to such Convertible Notes and
Management Notes, Refinancing Indebtedness, Holdings Guaranty, Subsidiary
Guarantees or other guarantees;

 

(22) Liens on the Collateral in favor of any collateral agent relating to such
collateral agent’s administrative expenses with respect to the Collateral;

 

B-55

 

(23) Liens to secure Indebtedness of any Foreign Subsidiary permitted by
clause (s) of the second paragraph of the covenant entitled “— Certain
Covenants — Limitation on Incurrence of Indebtedness and Issuance of
Disqualified Stock and Preferred Stock” covering only the assets of such
Foreign Subsidiary; and

 

(24) Liens to secure any Third Lien
Indebtedness or any Indebtedness with Junior Lien Priority to the extent such
Liens and such Indebtedness are permitted pursuant to the First Lien Notes
Indenture.

 

For purposes of determining compliance with this
definition, (A) Permitted Liens need not be incurred solely by reference
to one category of Permitted Liens described above but are permitted to be
incurred in part under any combination thereof and (B) in the event that a
Lien (or any portion thereof) meets the criteria of one or more of the
categories of Permitted Liens described above, the Company shall, in its sole
discretion, classify (but not reclassify) such item of Permitted Liens (or any
portion thereof) in any manner that complies with this definition and will only
be required to include the amount and type of such item of Permitted Liens in
one of the above clauses and such Lien will be treated as having been incurred
pursuant to only one of such clauses.

 

“Person”
means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.

 

“preferred stock”
means any Equity Interest with preferential
rights of payment of dividends or upon liquidation, dissolution, or winding up.

 

“Receivables
Facility” means one or more receivables financing facilities, as
amended from time to time, the Indebtedness of which is non-recourse (except for
standard representations, warranties, covenants and indemnities made
in connection with such facilities) to the Company and the Restricted
Subsidiaries pursuant to which the Company and/or any of its Restricted
Subsidiaries sells its accounts receivable to a Person that is not a Restricted
Subsidiary.

 

“Receivables Fees”
means distributions or payments made directly or by means of discounts with
respect to any participation interest issued or sold in connection with,
and other fees paid to a Person that is not a Restricted Subsidiary in
connection with, any Receivables Facility.

 

“Refinancing”
means the Refinancing as described elsewhere in this
prospectus supplement.

 

“Restricted
Subsidiary” means, at any time, any direct or indirect
Subsidiary of the Company (including any Foreign Subsidiary) that is not then
an Unrestricted Subsidiary; provided,
however, that upon the occurrence
of an Unrestricted Subsidiary ceasing to be an Unrestricted Subsidiary, such
Subsidiary shall be included in the definition of “Restricted Subsidiary.”

 

“S&P”
means Standard and Poor’s Ratings Group.

 

“Securities Act”
means the Securities Act of 1933 and the rules and
regulations of the Commission promulgated thereunder.

 

“Security Documents”
means the security agreements, pledge agreements, mortgages, deeds of trust,
deeds to secure debt, collateral assignments, control agreements and related
agreements (including, without limitation, finance statements under
the Uniform Commercial Code of the relevant states), as amended, supplemented,
restated, renewed, refunded, replaced, restructured, repaid, refinanced or
otherwise modified from time to time, creating the security interests in the
Collateral as contemplated by the Indenture.

 

“Senior Indebtedness” means

 

(a)   all
Indebtedness of the Company or any Guarantor outstanding under the Credit Agreement
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization of the Company or any Guarantor, regardless of
whether or not a claim for post-filing interest is allowed in such proceedings);

 

(b)   all
Hedging Obligations (and guarantees thereof) permitted to be incurred under the terms of the
Indenture;

 

B-56

 

(c)   any
other Indebtedness of the Company or any Guarantor permitted to be incurred
under the terms of the Indenture, unless the instrument under which such
Indebtedness is incurred expressly provides that it is on a parity with or
subordinated in right of payment to First Lien Notes or any Subsidiary
Guarantee; and

 

(d)   all
Obligations with respect to the items listed in the preceding clauses (a), (b) and
(c).

 

“Senior Subordinated Notes”
means the Company’s 8.25% senior subordinated
notes due 2014 outstanding on the Issue Date.

 

“Significant Subsidiary”
means any Restricted Subsidiary that would be a “significant subsidiary” as defined
in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such regulation is in effect on the date
hereof.

 

“Similar Business”
means any business conducted or proposed to be
conducted by the Company and its Restricted Subsidiaries on the date of the
Indenture or any business that is similar, reasonably related, incidental or
ancillary thereto.

 

“Subordinated
Indebtedness” means:

 

(a)   with respect to
the Co-Issuers, any Indebtedness of the Co-Issuers which is by its terms
subordinated in right of payment to Convertible Notes, and

 

(b)   with respect to
any Guarantor, any Indebtedness of such Guarantor which is by its terms subordinated
in right of payment to the Guarantee of such Guarantor.

 

“Subsidiary” means, with
respect to any Person,

 

(1)   any
corporation, association, or other business entity (other than a partnership,
joint venture, limited liability company or similar entity) of which more than
50% of the total voting power of shares of Capital Stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time of determination owned
or controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of that Person or a combination thereof; and

 

(2)   any
partnership, joint venture, limited liability company or similar entity of
which

 

(x)            more
than 50% of the capital accounts, distribution rights, total equity and voting
interests or general or limited partnership interests, as applicable, are owned or
controlled, directly or indirectly, by such Person or one or more of the other
Subsidiaries of that Person or a combination thereof whether in the form of
membership, general, special or limited partnership or otherwise, and

 

(y)           such
Person or any Restricted
Subsidiary of such Person is a controlling general partner or otherwise controls
such entity.

 

“Third Lien Indebtedness”
means any Indebtedness (other than Convertible Notes, but including any Additional
Convertible Notes) that is secured by the Collateral with Pari passu
Lien Priority relative to the Convertible Notes or is secured by some of the
Collateral with Pari passu Lien Priority relative
to the Convertible Notes and is not secured by the balance of the Collateral and with respect to
which the holders (or a trustee or agent on behalf of such holders) shall have
executed a supplement to the Intercreditor Agreement agreeing to be bound
thereby on the same terms applicable to the holders of Convertible Notes.

 

“Total Assets”
means the total assets of the Company and the Restricted Subsidiaries, as shown
on the most recent balance sheet of the Company.

 

“Unrestricted
Subsidiary” means

 

(1)   any
Subsidiary of the Company which at the time of determination is an Unrestricted Subsidiary
(as designated by the board of directors of the Company pursuant to the First
Lien Indenture); and

 

(2)   any
Subsidiary of an Unrestricted Subsidiary.

 

B-57

 

“Voting Stock”
of any Person as of any date means the Capital Stock of such Person that is at
the time entitled to vote in the election of the Board of Directors of such
Person.

 

“Weighted Average Life
to Maturity” means, when applied to any Indebtedness, Disqualified
Stock or preferred stock, as the case may be, at any date, the quotient
obtained by dividing

 

(1)   the
sum of the products of the number of years from the date of determination to
the date of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Disqualified Stock or
preferred stock multiplied by the amount of such payment, by

 

(2)   the
sum of all such payments.

 

“Wholly-Owned
Restricted Subsidiary” is any Wholly-Owned Subsidiary that is a
Restricted Subsidiary.

 

“Wholly-Owned
Subsidiary” of any Person means a Subsidiary of such Person, 100% of the
outstanding Capital Stock or other ownership interests of which (other than directors’
qualifying shares) shall at the time be owned by such Person or by one or more
Wholly-Owned Subsidiaries of such Person.

 

B-58Exhibit 10.1

 

FORM OF
DIRECTORS AND OFFICERS

INDEMNIFICATION
AGREEMENT

 

INDEMNIFICATION
AGREEMENT

 

This
Indemnification Agreement (this “Agreement”) is made and entered into as of May 15,
2009, by and between Comfort Systems USA, Inc., a Delaware corporation
(the “Company”), and [NAME] (the “Indemnitee”).

 

WHEREAS,
qualified persons are reluctant to serve organizations as directors or officers
or in other capacities unless they are provided with adequate protection
against risks of claims and actions against them arising out of their service
to and activities on behalf of such organizations;

 

WHEREAS,
the parties hereto recognize that the legal risks and potential liabilities,
and the threat thereof, associated with lawsuits filed against persons serving
the Company and/or its subsidiaries, and the resultant substantial time,
expense and anxiety spent and endured in defending lawsuits bears no reasonable
relationship to the compensation received by such persons, and thus poses a
significant deterrent and increased reluctance on the part of experienced and
capable individuals to serve the Company and/or its subsidiaries;

 

WHEREAS,
the uncertainties related to obtaining adequate insurance and indemnification
have increased the difficulty of attracting and retaining such persons;

 

WHEREAS,
it is reasonable, prudent and necessary for the Company to contractually agree
to indemnify such persons to the fullest extent permitted by law, so that such
persons will serve or continue to serve the Company and/or its subsidiaries
free from undue concern that they will not be adequately indemnified; and

 

WHEREAS,
the Indemnitee is willing to serve, continue to serve and to take on additional
service for an on behalf of the Company on the condition that the Indemnitee is
indemnified according to the terms of this Agreement;

 

NOW,
THEREFORE, in consideration of the premises and of Indemnitee’s agreement to
provide services to the Company and/or its subsidiaries and intending to be
legally bound hereby, the parties hereto agree as follows:

 

1.                                       Certain
Definitions:

 

(a)           Change
in Control:  shall be deemed to have
occurred if (i) any “person” (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended), other than a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or a corporation owned directly or indirectly by the stockholders
of the Company in substantially the same proportions as their ownership of
stock of the Company, is or becomes the “beneficial owner” (as defined in Rule 13d-3
under said Act), directly or indirectly, of securities of the Company
representing 30% or more of the total voting power represented by the Company’s
then 

 

 

outstanding Voting Securities or any such person or any affiliate
thereof that is such a 30% beneficial owner as of the date hereof), or (ii) during
any period of two consecutive years, individuals who at the beginning of such
period constitute the Board of Directors of the Company and any new director
whose election by the Board of Directors or nomination for election by the
Company’s stockholders was approved by a vote of at least two-thirds (2/3) of
the directors then still in office who either were directors at the beginning
of the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority thereof, or (iii) the
stockholders of the Company approve a merger or consolidation of the Company
with any other corporation, other than a merger or consolidation which would
result in the Voting Securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into Voting Securities of the surviving entity) at least 60% of the
total voting power represented by the Voting Securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation, or
the stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of (in one
transaction or a series of transactions) all or substantially all the Company’s
assets.

 

(b)           Claim:  any threatened, pending or completed action,
suit or proceeding (including any mediation, arbitration or other alternative
dispute resolution proceeding), whether instituted by or in the right of the
Company or by any other party, or any inquiry or investigation that Indemnitee
in good faith believes might lead to the institution of any such action, suit
or proceeding, whether civil (including intentional and unintentional tort
claims), criminal, administrative, investigative or other.

 

(c)           Expenses:  include attorneys’ fees and all other costs,
expenses and obligations paid or incurred in connection with investigating,
defending, being a witness in or participating in (including on appeal), or
preparing to defend, be a witness in or participate in any Claim relating to
any Indemnifiable Event.

 

(d)           Indemnifiable
Event:  any event or occurrence
related to the fact that Indemnitee is or was serving as a member of the
Company’s Board of Directors or an Officer of the Company, whichever the case
may be, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise.

 

(e)           Independent
Legal Counsel:  a law firm, or a
member of a law firm, that is experienced in matters of corporation law and
neither presently is, nor in the five years previous to the selection or
appointment has been, retained to represent: 
(i) the Company or Indemnitee in any matter material to either such
party or (ii) any other party to the Claim for which Indemnitee is seeking
indemnification hereunder (other than with respect to matters concerning the
rights of Indemnitee under this Agreement, or of other indemnitees under
similar indemnity agreements). 
Notwithstanding the foregoing, the term “Independent Legal Counsel”
shall not include any person who, under applicable standards of professional
conduct then prevailing, would have a conflict of interest in representing
either the Company or Indemnitee in an action to determine Indemnitee’s rights
under this Agreement.

 

2

 

(f)            Reviewing
Party:  (i) member or members of
the Company’s Board of Directors who are not a party to the particular Claim,
issue or matter for which Indemnitee is seeking indemnification, or (ii) Independent
Legal Counsel.

 

(g)           Voting
Securities:  any securities of the
Company that vote generally in the election of directors.

 

2.                                       Basic
Indemnification Arrangement.

 

(a)           In
the event Indemnitee was, is or becomes a party to or witness or other
participant in, or is threatened to be made a party to or witness or other
participant in, a Claim by reason of (or arising in part out of) an
Indemnifiable Event, the Company shall indemnify Indemnitee to the fullest
extent permitted by law as soon as practicable but in any event no later than
thirty days after written demand is presented to the Company, against any and
all Expenses, liabilities, losses, judgments, fines, excise taxes, penalties
and amounts paid in settlement (including all interest, assessments and other
charges paid or payable in connection with or in respect of such Expenses,
liabilities, losses, judgments, fines, excise taxes, penalties or amounts paid
in settlement) of such Claim.  If so
requested by Indemnitee, the Company shall advance (within ten business days of
such request) any and all Expenses to Indemnitee (an “Expense Advance”).  Expense Advances shall be made without regard
to the ability of Indemnitee to repay such amounts.  Any such Expense Advances shall be made on an
unsecured basis and be interest-free.

 

(b)           Notwithstanding
the foregoing, (i) the obligations of the Company under Section 2(a) shall
be subject to the condition that the Reviewing Party shall not have determined
(in a written opinion, in any case in which the Independent Legal Counsel
referred to in Section 3 hereof is involved) that Indemnitee would not be
permitted to be indemnified under applicable law, and (ii) the obligation
of the Company to make an Expense Advance pursuant to Section 2(a) shall
be subject to the condition that, if, when and to the extent that the Reviewing
Party ultimately determines that Indemnitee would not be permitted to be so
indemnified under applicable law, the Company shall be entitled to be
reimbursed by Indemnitee (who hereby agrees and undertakes to reimburse the
Company) for all such amounts theretofore paid; provided, however, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court
of competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, any determination made by the Reviewing Party
that Indemnitee would not be permitted to be indemnified under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expense Advance until a final judicial determination is made
with respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed).  If there has not
been a Change in Control, the Reviewing Party shall be members of the Company’s
Board of Directors who are not a party to the particular Claim, issue or matter
for which Indemnitee is seeking indemnification, and if there has been such a
Change in Control (other than a Change in Control which has been approved by a
majority of the Company’s Board of Directors who were directors immediately
prior to such Change in Control) or if no such disinterested directors are
available, the Reviewing Party shall be the Independent Legal Counsel referred
to in Section 3 hereof.  If there
has been no determination by the Reviewing Party or if the Reviewing Party
determines that Indemnitee substantively would not be permitted to be
indemnified in whole or in part under applicable law, Indemnitee shall have the
right to commence litigation in any court in the State of Texas or Delaware
having subject matter jurisdiction thereof and in which venue is proper seeking
an initial determination by the court or challenging any such determination by
the Reviewing Party or any 

 

3

 

aspect thereof, including the legal or factual bases therefor, and the
Company hereby consents to service of process and to appear in any such
proceeding.  In the event that the
Indemnitee does not commence such litigation following a determination by the
Reviewing Party, such determination by the Reviewing Party shall be conclusive
and binding on the Company and Indemnitee.

 

(c)           The
Company shall not be liable to indemnify Indemnitee under this Agreement for
any amounts paid in settlement of any action or Claim effected without its
written consent. The Company shall not settle any action or claim in any manner
which would impose any penalty or limitation on Indemnitee without Indemnitee’s
written consent. Neither the Company nor Indemnitee will unreasonably withhold
their consent to any proposed settlement.

 

3.             Change in
Control.  The Company agrees that if
there is a Change in Control of the Company (other than a Change in Control
which has been approved by a majority of the Company’s Board of Directors who
were directors immediately prior to such Change in Control), then with respect
to all matters thereafter arising concerning the rights of Indemnitee to
indemnity payments and Expense Advances under this Agreement or any other
agreement or Company charter or bylaw provision now or hereafter in effect
relating to Claims for Indemnifiable Events, the Company shall seek legal
advice only from Independent Legal Counsel selected by Indemnitee and approved
by the Company (which approval shall not be unreasonably withheld).  Such counsel, among other things, shall
render its written opinion to the Company and Indemnitee as to whether and to
what extent the Company would be permitted to indemnify Indemnitee under
applicable law.  The Company agrees to
pay the reasonable fees and expenses of the Independent Legal Counsel referred
to above and to fully indemnify such counsel against any and all expenses
(including attorneys’ fees), claims, liabilities and damages arising out of or
relating to this Agreement or its engagement pursuant hereto.

 

4.             Indemnification for Additional
Expenses.  The Company shall, to the
maximum extent permitted by law, indemnify Indemnitee against any and all
expenses (including attorneys’ fees) and, if requested by Indemnitee, shall
(within ten business days of such request) advance such expenses to Indemnitee,
which are incurred by Indemnitee in connection with any action brought by
Indemnitee for (i) indemnification or Expense Advances under this
Agreement or any other agreement or Company charter or bylaw provision now or
hereafter in effect relating to Claims for Indemnifiable Events, or (ii) recovering
under any directors’ and officers’ liability insurance policies maintained by
the Company, regardless of whether Indemnitee ultimately is determined to be
entitled to such indemnification, advance expense payment or insurance
recovery, as the case may be.

 

5.             Partial
Indemnity.  If Indemnitee is entitled
under any provision of this Agreement to indemnification by the Company for
some or a portion of the Expenses, judgments, fines, penalties and amounts paid
in settlement of a Claim but not, however, for all of the total amount thereof,
the Company shall nevertheless indemnify Indemnitee for the portion thereof to
which Indemnitee is entitled.  Moreover,
notwithstanding any other provision of this Agreement, to the extent that
Indemnitee has been successful on the merits or otherwise in defense of any or
all Claims relating in whole or in part to an Indemnifiable Event or in defense
of any issue or matter therein, including dismissal without prejudice, Indemnitee
shall be indemnified against all Expenses incurred in connection therewith.

 

6.             Burden of Proof.  In connection with any determination by the
Reviewing Party or otherwise as to whether Indemnitee is entitled to be
indemnified hereunder, the burden of proof shall be on the Company to establish
that Indemnitee is not so entitled.

 

4

 

7.             No Presumptions.  For purposes of this Agreement, the
termination of any claim, action, suit or proceeding by judgment, order,
settlement (whether with or without court approval) or conviction, or upon a
plea of nolo contendere or its equivalent shall not create a presumption that
Indemnitee did not meet any particular standard of conduct or have any
particular belief or that a court has determined that indemnification is not
permitted by applicable law.  In
addition, neither the failure of the Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by the
Reviewing Party that Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal proceedings by Indemnitee
to secure a judicial determination that Indemnitee should be indemnified under
applicable law, shall be a defense to Indemnitee’s claim or create a
presumption that Indemnitee has not met any particular standard of conduct or
did not have any particular belief.

 

8.             Nonexclusivity; Subsequent
Change in Law.  The rights of the
Indemnitee hereunder shall be in addition to any other rights Indemnitee may
have under the Company’s charter or bylaws or Delaware law, or otherwise.  To the extent that a change in Delaware law
(whether by statute or judicial decision) permits greater indemnification by
agreement than would be afforded currently under the Company’s charter or
bylaws and this Agreement, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits so afforded by
such change.

 

9.             D&O Liability Insurance.
The Company currently maintains a directors’ and officers’ liability insurance
policy and intends to continue to maintain such policies or replacements
thereof as long as, in its sole discretion, such coverages are economically
feasible. To the extent the Company maintains a directors’ and officers’
liability insurance policy or policies, and as long as Indemnitee remains an
officer or director of the Company, Indemnitee shall be covered by such policy
or policies in accordance with its or their terms, to the maximum extent of the
coverage available for any director or officer of the Company.  Further, after Indemnitee no longer serves as
an officer or director of the Company for any reason, the Company will use its
commercially reasonable efforts to continue to cover Indemnitee as a named
insured under the Company’s insurance policy or policies providing directors’
and officers’ liability insurance for a period of time that shall commence on
the date of termination and end on the date that is the sooner of (i) six
years after the date of termination, or (ii) the date on which the Company
ceases to maintain an insurance policy providing directors’ and officers’
liability insurance.

 

10.           Amendments; Waiver.  No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by both of the
parties hereto.  No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provisions hereof (whether or not similar) nor shall such waiver
constitute a continuing waiver.

 

11.           Subrogation.  In the event of payment under this Agreement,
the Company shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the Company effectively to
bring suit to enforce such rights.

 

12.           Binding Effect.  This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto and their
respective successors or assigns (including any direct or indirect successor by
purchase, merger, consolidation or otherwise to all or

 

5

 

substantially all of the business and/or
assets of the Company), spouses, heirs, executors and personal or legal
representatives.  This Agreement shall
continue in effect regardless of whether Indemnitee continues to serve as an
officer or director of the Company, whichever the case may be.

 

13.           Severability.  The provisions of this Agreement shall be
severable in the event that any of the provisions hereof (including any
provision within a single section, paragraph or sentence) is held by a court of
competent jurisdiction to be invalid, void or otherwise unenforceable in any
respect, and the validity and enforceability of any such provision in every
other respect and of the remaining provisions hereof shall not be in any way
impaired and shall remain enforceable to the fullest extent permitted by law.

 

14.           Governing Law.  This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware
applicable to contracts made and to be performed in such state without giving
effect to the principles of conflicts of laws.

 

[Signature page follows]

 

6

 

 

IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date
set forth above.

 

 

	
   

  	
  COMFORT SYSTEMS USA, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  INDEMNITEE

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

7

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