Document:

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                                                                   EXHIBIT 10.33

                                                               EXECUTION VERSION

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               AMENDED AND RESTATED SECURITIES PURCHASE AGREEMENT

                                  by and among

                              CELERITY GROUP, INC.

               (formerly known as Kinetics Holdings Corporation),

                              KINETICS GROUP, INC.,

                              KINETIC SYSTEMS, INC.

                            THE SUBSIDIARY GUARANTORS

                                       and

                    ARES CORPORATE OPPORTUNITIES FUND, L.P.,

                    SPECIAL VALUE ABSOLUTE RETURN FUND, LLC,

                          SPECIAL VALUE BOND FUND, LLC,

                        SPECIAL VALUE BOND FUND II, LLC,

                  MIDOCEAN CELERITY INVESTMENT PARTNERS, L.P.,

                            BEHRMAN CAPITAL PARTNERS

                                       AND

                                GRYPHON INVESTORS

                        --------------------------------

 Originally dated as of August 30, 2000 and as amended and restated in full on
                                 April 9, 2004

                        --------------------------------

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                                TABLE OF CONTENTS

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<S>                                                                                                                   <C>
ARTICLE 1  DEFINITIONS...........................................................................................       2
         1.01  Definitions.......................................................................................       2
         1.02  Accounting Terms: Financial Statements............................................................      26
         1.03  Knowledge of Holdings and the Borrower............................................................      27

ARTICLE 2  PURCHASE AND SALE OF THE SECURITIES...................................................................      27
         2.01  Purchase and Sale of the Notes....................................................................      27
         2.02  Purchase and Sale of the Warrants.................................................................      27
         2.03  Purchase Price of the Warrants....................................................................      28
         2.04  Senior Subordinated Liquidation Preference........................................................      28
         2.05  Purchase Price of the Senior Subordinated Liquidation Preference..................................      29
         2.06  Warrants..........................................................................................      29
         2.07  Expenses at Closing...............................................................................      29
         2.08  Closing...........................................................................................      30
         2.09  Financial Accounting Positions; Tax Reporting.....................................................      30

ARTICLE 3  PREPAYMENT OF NOTES...................................................................................      30
         3.01  [Intentionally Omitted]...........................................................................      30
         3.02  Optional Prepayment/Redemption....................................................................      30

ARTICLE 4  CONDITIONS TO THE RESPECTIVE OBLIGATIONS OF THE PURCHASERS TO PURCHASE THE SECURITIES.................      31
         4.01  Representations and Warranties....................................................................      31
         4.02  Compliance with this Agreement....................................................................      31
         4.03  Secretary's Certificates..........................................................................      32
         4.04  Documents; Due Diligence..........................................................................      32
         4.05  Purchase of Securities Permitted by Applicable Laws...............................................      32
         4.06  Opinion of Counsel................................................................................      33
         4.07  Approval of Counsel to the Purchasers.............................................................      33
         4.08  [Intentionally omitted]...........................................................................      33
         4.09  No Material Judgment or Order.....................................................................      33
         4.10  Pro Forma Balance Sheet...........................................................................      33
         4.11  Good Standing Certificates........................................................................      33
         4.12  No Litigation.....................................................................................      33
         4.13  Fees, Expenses, Etc...............................................................................      34
         4.14  Employee Benefit Plans; Management Agreements; Debt Agreements; Senior Debt Documents;
                    Tax Sharing Agreements and Due Diligence.....................................................      34
         4.15  Indebtedness......................................................................................      35
         4.16  Guaranty..........................................................................................      35
         4.17  Adverse Change, Etc...............................................................................      35
         4.18  Solvency Certificate; Solvency Opinion............................................................      35
         4.19  Financial Statements; Projections.................................................................      35
         4.20  Assignment and Assumption Agreement...............................................................      36
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<TABLE>
<S>                                                                                                                    <C>
         4.21  BioKinetics Litigation............................................................................      36
         4.22  Tax Effects.......................................................................................      36
         4.23  Restructuring Agreement...........................................................................      36
         4.24  Amended and Restated Limited Liability Company Agreement..........................................      36
         4.25  Amended and Restated Limited Liability Company Agreement..........................................      36
         4.26  Service of Process................................................................................      36
         4.27  Securities Laws...................................................................................      37
         4.28  Execution of Notes................................................................................      37
         4.29  Warrants..........................................................................................      37
         4.30  Liquidation Certificates..........................................................................      37
         4.31  [Intentionally omitted]...........................................................................      37
         4.32  Amended Debt Documents............................................................................      37
         4.33  [Intentionally omitted]...........................................................................      37
         4.34  SAFECO Forbearance................................................................................      37
         4.35  Parent Non-Recourse Guaranty......................................................................      38
         4.36  Performance; No Default...........................................................................      38

ARTICLE 5  CONDITIONS TO THE OBLIGATIONS OF HOLDINGS AND THE BORROWER TO ISSUE AND SELL THE SECURITIES...........      38
         5.01  Representations and Warranties....................................................................      38
         5.02  Compliance with this Agreement....................................................................      38

ARTICLE 6  REPRESENTATIONS AND WARRANTIES OF HOLDINGS AND THE BORROWER...........................................      38
         6.01  Corporate Status..................................................................................      38
         6.02  Corporate Power and Authority.....................................................................      39
         6.03  No Violation......................................................................................      39
         6.04  Governmental Approvals............................................................................      39
         6.05  Financial Statements; Financial Condition; Undisclosed Liabilities; Projections; Etc..............      39
         6.06  Litigation........................................................................................      41
         6.07  True and Complete Disclosure......................................................................      41
         6.08  Tax Returns and Payments..........................................................................      41
         6.09  Compliance with ERISA.............................................................................      42
         6.10  Representations and Warranties in Documents.......................................................      43
         6.11  Title to Properties; Possession Under Leases......................................................      43
         6.12  Capitalization....................................................................................      44
         6.13  Subsidiaries......................................................................................      44
         6.14  Compliance with Statutes, Etc.....................................................................      45
         6.15  Status under Certain Federal Statutes.............................................................      45
         6.16  Environmental Matters.............................................................................      45
         6.17  Labor Relations...................................................................................      46
         6.18  Patents, Licenses, Franchises and Formulas........................................................      46
         6.19  Indebtedness......................................................................................      49
         6.20  Transactions......................................................................................      49
         6.21  Insurance.........................................................................................      49
         6.22  Subordinated Debt Provisions......................................................................      50
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<TABLE>
<S>                                                                                                                    <C>
         6.23  Withholding and Other Taxes.......................................................................      50
         6.24  Certain Fees......................................................................................      50
         6.25  Corporate Information.............................................................................      50
         6.26  Securities Exemptions.............................................................................      50
         6.26  [Intentionally omitted]...........................................................................      50
         6.27  Board Approval....................................................................................      50
         6.28  Customers.........................................................................................      50
         6.29  Affiliate Transactions............................................................................      51
         6.30  Material Contracts................................................................................      51

ARTICLE 7  REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS......................................................      52
         7.01  Authorization; No Contravention...................................................................      52
         7.02  Binding Effect....................................................................................      52
         7.03  No Legal Bar......................................................................................      53
         7.04  Purchase for Own Account..........................................................................      53
         7.05  ERISA.............................................................................................      53
         7.06  Broker's, Finder's or Similar Fees................................................................      53
         7.07  Governmental Authorization; Third Party Consent...................................................      53

ARTICLE 8  INDEMNIFICATION.......................................................................................      54
         8.01  Indemnification...................................................................................      54
         8.02  Procedure; Notification...........................................................................      55
         8.03  Stockholders Agreement or Unitholders Agreement...................................................      56

ARTICLE 9  AFFIRMATIVE COVENANTS.................................................................................      56
         9.01  Financial Statements and Other Information........................................................      56
         9.02  Preservation of Corporate Existence...............................................................      61
         9.03  Payment of Obligations............................................................................      62
         9.04  Compliance with Laws..............................................................................      62
         9.05  [Intentionally omitted]...........................................................................      62
         9.06  Inspection........................................................................................      62
         9.07  Payment of Note...................................................................................      63
         9.08  Maintenance of Property; Insurance................................................................      63
         9.09  Books and Records.................................................................................      63
         9.10  [Intentionally omitted]...........................................................................      63
         9.11  Board Rights......................................................................................      63
         9.12  End of Fiscal Years; Fiscal Quarters..............................................................      64
         9.13  Private Placement Number..........................................................................      64
         9.14  ACOF Affiliates' Special Rights...................................................................      64
         9.15  Compliance with Environmental Laws................................................................      65
         9.16  ERISA.............................................................................................      66
         9.17  Compliance with Mezzanine Transaction Documents...................................................      67
         9.18  Corporate Franchises..............................................................................      67
         9.19  Maintenance of Corporate Separateness.............................................................      67

ARTICLE 10  NEGATIVE COVENANTS...................................................................................      67
         10.01  Liens............................................................................................      68
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<S>                                                                                                                    <C>
         10.02  Consolidation, Merger, Purchase or Sale of Assets, Etc...........................................      70
         10.03  Dividends........................................................................................      72
         10.04  Indebtedness.....................................................................................      74
         10.05  Advances, Investments and Loans..................................................................      77
         10.06  Transactions with Affiliates.....................................................................      79
         10.07  Capital Expenditures.............................................................................      80
         10.08  Consolidated Interest Coverage Ratio.............................................................      80
         10.09  Consolidated Fixed Charge Coverage Ratio.........................................................      81
         10.10  Leverage Ratio...................................................................................      81
         10.11  Minimum EBITDA...................................................................................      81
         10.12  Limitation on Modifications of Indebtedness; Modifications of Certificate of
                    Incorporation, By-Laws and Certain Other Agreements; Etc.....................................      82
         10.13  Limitation on Certain Restrictions on Subsidiaries...............................................      83
         10.14  Limitation on Issuance of Capital Stock..........................................................      84
         10.15  Limitation on Creation of Subsidiaries...........................................................      84
         10.16  Business.........................................................................................      84
         10.17  Press Release; Public Offering Materials.........................................................      84
         10.18  Limitation on Layering...........................................................................      84
         10.19  Alfa Laval Litigation Settlement.................................................................      85
         10.20  Amendments or Waivers of Related Documents.......................................................      85

ARTICLE 11  [INTENTIONALLY OMITTED]..............................................................................      85

ARTICLE 12  EVENTS OF DEFAULT....................................................................................      85

ARTICLE 13  GUARANTEES...........................................................................................      88

ARTICLE 14  MISCELLANEOUS........................................................................................      94
         14.01  Survival of Representations and Warranties.......................................................      94
         14.02  Notices..........................................................................................      94
         14.03  Successors and Assigns...........................................................................      95
         14.04  Amendment and Waiver.............................................................................      96
         14.05  Signatures; Counterparts.........................................................................      97
         14.06  Headings.........................................................................................      97
         14.07  Governing Law....................................................................................      97
         14.08  Determinations, Request or Consents..............................................................      98
         14.09  Jurisdiction, Jury Trial Waiver, Etc.............................................................      98
         14.10  Severability.....................................................................................      98
         14.11  Rules of Construction............................................................................      99
         14.12  Entire Agreement.................................................................................      99
         14.13  Payment of Expenses, Etc.........................................................................      99
         14.14  Publicity........................................................................................     100
         14.15  Further Assurances...............................................................................     100
         14.16  Obligations of the Purchasers....................................................................     101
         14.17  No Strict Construction...........................................................................     101
         14.18  Right of Setoff..................................................................................     101
</TABLE>

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<TABLE>
<S>                                                                                                                   <C>
ARTICLE 15  APPOINTMENT OF AGENT.................................................................................     101

ARTICLE 16  SUBORDINATION........................................................................................     104
</TABLE>

ANNEX 1                    Warrant and Note Allocations Prior to Transactions
ANNEX 2                    Incremental Warrants
ANNEX 3                    Post-Transaction Allocations

SCHEDULE 6.01              Corporate Status
SCHEDULE 6.06              Litigation
SCHEDULE 6.08              Taxes
SCHEDULE 6.09(a)           ERISA Plans
SCHEDULE 6.09(b)           ERISA Matters
SCHEDULE 6.09(c)           Foreign Pension Plans
SCHEDULE 6.11(a)(i)        Owned Real Property
SCHEDULE 6.11(a)(ii)       Leased Real Property
SCHEDULE 6.11(a)(iii)      Encumbrances on Owned Real Property
SCHEDULE 6.11(c)           Existing Liens on Property (Other Than Liens on Real
                           Property)
SCHEDULE 6.11(e)           Recovery Events
SCHEDULE 6.12              Capital Stock
SCHEDULE 6.13(b)           Borrower's Subsidiaries
SCHEDULE 6.13(c)           Organizational Chart
SCHEDULE 6.16              Environmental Matters
SCHEDULE 6.17              Labor Relations
SCHEDULE 6.18(a)(v)        Intellectual Property Licenses
SCHEDULE 6.18(b)           Intellectual Property Claims of Borrower
SCHEDULE 6.18(c)           Intellectual Property Claims against Borrower
SCHEDULE 6.19              Existing Indebtedness
SCHEDULE 6.19A             Pre-Closing Indebtedness
SCHEDULE 6.21              Insurance
SCHEDULE 6.23              Withholding and Other Taxes
SCHEDULE 6.25              Corporate Information
SCHEDULE 6.28              Customers
SCHEDULE 6.29              Intercompany Contracts
SCHEDULE 6.30(a)           Significant Contracts
SCHEDULE 6.30(b)           Non-Binding Contracts
SCHEDULE 10.01(iii)        Existing Liens
SCHEDULE 10.05             Existing Investments

EXHIBIT A                  Form of Note
EXHIBIT B                  Form of Warrant Exchange Agreement
EXHIBIT C                  Form of Joinder Agreement
EXHIBIT D                  Form of Opinion of Cooley Godward
EXHIBIT D-1                Form of Opinion of Fenwick & West
EXHIBIT D-2                Form of Opinion of General Counsel
EXHIBIT E                  Form of Compliance Certificate
EXHIBIT F                  Form of Solvency Certificate

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EXHIBIT F-1                Form of Solvency Opinion
EXHIBIT G                  Form of Senior Subordinated Liquidation Preference
                           Certificate
EXHIBIT H                  Form of Secretary's Certificate
EXHIBIT H-1                Form of Officer's Certificate
EXHIBIT I                  Form of Restated Certificate of Incorporation

                                       vi

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               AMENDED AND RESTATED SECURITIES PURCHASE AGREEMENT

                  AGREEMENT, dated as of April 9, 2004 by Kinetics Group, Inc.,
a Delaware corporation (the "Borrower"), Kinetic Systems, Inc., a California
corporation ("KSI"), Celerity Group, Inc. (formerly known as Kinetics Holdings
Corporation), a Delaware corporation ("Holdings"), the Subsidiary Guarantors (as
hereinafter defined) party hereto from time to time, the KSI Guarantors (as
hereinafter defined), (KSI, Holdings, the Subsidiary Guarantors, and the KSI
Guarantors, the "Guarantors" and each individually a "Guarantor"), Ares
Corporate Opportunities Fund, L.P. ("ACOF", or, in its capacity as agent for the
Purchasers, the "Agent"), Special Value Absolute Return Fund, LLC ("SVAR"),
Special Value Bond Fund, LLC ("SVBF"), Special Value Bond Fund II, LLC ("SVBF
II"), MidOcean Celerity Investment Partners, L.P. ("MidOcean"), Behrman Capital
III L.P. ("Behrman"), Strategic Entrepreneur Fund III L.P. ("SEP"), Gryphon
Partners II, L.P. and Gryphon Partners II-A, L.P. (together with Gryphon
Partners II, L.P., "Gryphon"). ACOF, SVAR, SVBF, SVBF II, MidOcean, Behrman, SEP
and Gryphon are sometimes referred to herein individually, as a "Purchaser" and
collectively, as the "Purchasers".

                              W I T N E S S E T H:

                  WHEREAS, the Borrower, Holdings and the original purchasers
(the "Original Purchasers") of the Existing Notes (as defined below) entered
into that certain Securities Purchase Agreement dated as of August 30, 2000 (as
amended up to but not including the date hereof, the "Existing Securities
Purchase Agreement") whereby the Original Purchasers purchased $70 million
principal amount of the Borrower's Senior Subordinated Notes due 2006 (the
"Existing Notes") and warrants to acquire shares of stock of Holdings (the
"Original Warrants");

                  WHEREAS, the Original Purchasers received additional warrants
(the "Additional Warrants") to purchase shares of stock of Holdings in July 2003
in connection with certain amendments made to the Existing Securities Purchase
Agreement (the Additional Warrants, together with the Original Warrants, the
"Existing Warrants");

                  WHEREAS, one Original Purchaser transferred its interests in
the Existing Notes and all related warrants to SVAR, SVBF and SVBF II in
accordance with the terms of that certain Assignment and Assumption Agreement
dated as of February 4, 2004 (the "TCP Assignment and Assumption Agreement");

                  WHEREAS, the Borrower, Holdings, KSI, KH LLC, Celerity Group,
Inc., a California corporation, Kinetics Chempure, FTS Systems, Inc. (formerly
Kinetics Thermal Systems, Inc.), Kinetic Systems Caribe, Inc., a Delaware
corporation, Kinetic Systems, Inc., a California corporation, Kinetic Systems
International, Inc., a California corporation, the Purchasers hereto, TCP, J.B.
Fuqua Family Charitable Lead Annuity Trust - 2000, Massachusetts Mutual Life
Insurance Company and Ares Leveraged Investment Fund II, L.P. have entered into
that certain Restructuring Agreement dated as of April 9, 2004 (the
"Restructuring Agreement") whereby the parties thereto have agreed to undertake
the

<PAGE>

restructuring and refinancing transactions described therein in order to
effectuate the initial public offering of Holdings;

                  WHEREAS, each of the Original Purchasers has transferred its
interests in the Existing Notes and certain warrants to purchase shares of
Holdings to ACOF, MidOcean, Behrman and Gryphon in accordance with the terms of
that certain Assignment and Assumption Agreement dated as of the date hereof
(the "Assignment and Assumption Agreement");

                  WHEREAS, in connection with the assignment and assumption of
the Existing Notes and a portion of the Existing Warrants, the Purchasers have
requested that the Borrower, Holdings and the Subsidiary Guarantors under the
Existing Securities Purchase Agreement amend certain provisions of the Existing
Securities Purchase Agreement;

                  WHEREAS, the Borrower, Holdings and the Subsidiary Guarantors
under the Existing Securities Purchase Agreement are willing to amend and
restate the Existing Securities Purchase Agreement in accordance with the terms
hereof to facilitate the transactions under the Assignment and Assumption
Agreement;

                  NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the parties hereto agree:

                                    ARTICLE 1

                                   DEFINITIONS

         1.01     Definitions. As used in this Agreement, and unless the context
requires a different meaning, the following terms have the meanings indicated:

                  "Abandonment Agreement" means the agreement dated as of even
date herewith by which the Original Purchasers surrendered certain fees to the
Borrower for cancellation.

                  "Additional Senior Indebtedness" shall mean Indebtedness of
the Borrower incurred after the date hereof permitted under Section
10.04(ii)(b), which is designated by the borrower(s) in writing as ranking pari
passu in right of payment with the Senior Indebtedness.

                  "Additional Units Letter" shall mean that certain Additional
Units Side Agreement among KH LLC, the Purchasers party hereto and the
Purchasers party to the TCP Purchase Agreement dated as of the date hereof.

                  "Additional Warrants" shall have the meaning assigned to that
term in the preamble.

                  "Affiliate" shall mean, with respect to any Person, any other
Person (including, for purposes of Section 10.06 only, all directors, officers
and partners of such Person) directly or

                                       2

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indirectly Controlling, Controlled by, or under direct or indirect common
Control with, such Person; provided, however, that for purposes of Section
10.06, an Affiliate of Holdings shall include any Person that directly or
indirectly owns more than 10% of any class of the capital stock of Holdings and
any officer or director of Holdings or any of its Subsidiaries; provided that
none of the Purchasers shall be deemed to be an Affiliate for purposes of this
Agreement or the other Mezzanine Transaction Documents.

                  "Affiliated Persons" shall, for purposes of Section 6.29, have
the meaning assigned to that term in Section 6.29(a).

                  "Agent" shall have the meaning assigned to that term in the
first paragraph hereof.

                  "Agreement" shall mean this Agreement, including the exhibits
and schedules attached hereto, as the same may be amended, supplemented or
modified in accordance with the terms hereof.

                  "Alfa Laval Litigation" shall mean the suit filed on March 19,
2004 (including any replacement thereof or modification thereto) brought by Alfa
Laval against the Borrower in relation to the sale of BioKinetics, Inc.

                  "ACOF" shall have the meaning assigned to that term in the
first paragraph hereof.

                  "ACOF Affiliates" shall have the meaning assigned to that term
in Section 9.14.

                   "Asset Sale" shall mean any sale, transfer, issuance or other
disposition by any Credit Party to any Person (including by way of redemption by
such Person) of any property (including, without limitation, any capital stock
or other securities of, or equity interests in, another Person) (other than
dispositions resulting in Net Cash Proceeds from Recovery Events).

                  "Assignment and Assumption Agreement" shall have the meaning
assigned to that term in the preamble.

                  "Behrman" shall have the meaning assigned to that term in the
first paragraph hereof.

                   "Borrower" shall have the meaning assigned to that term in
the first paragraph hereof.

                  "Borrower Intellectual Property" shall have the meaning
assigned to that term in Section 6.18(a).

                  "Business Day" shall mean any day other than a Saturday,
Sunday or other day on which commercial banks in the City of New York are
authorized or required by law or executive order to close.

                                       3

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                  "By-laws" shall mean, unless the context in which such term is
used otherwise requires, the By-laws of Holdings or any of its Subsidiaries.

                  "Capital Contribution Investments" shall mean the offering and
sale of common or preferred equity of Holdings, as applicable.

                  "Capital Contribution Proceeds" shall mean the proceeds of any
issuance of common or preferred equity of Holdings.

                  "Capital Expenditures" shall mean, with respect to any Person,
all expenditures by such Person which are or are required to be capitalized in
accordance with GAAP, including all such expenditures with respect to fixed or
capital assets (including, without limitation, expenditures for maintenance and
repairs which should be capitalized in accordance with GAAP) and the amount of
Capitalized Lease Obligations incurred by such Person.

                  "Capitalized Lease Obligations" of any Person shall mean all
rental obligations which, under GAAP, are or will be required to be capitalized
on the books of such Person, in each case taken at the amount thereof accounted
for as indebtedness in accordance with such principles.

                  "Cash" shall mean the currency of the United States of
America.

                  "Cash Equivalents" shall mean, as to any Person, (i)
securities issued or directly and fully guaranteed or insured by the United
States or any agency or instrumentality thereof (provided that the full faith
and credit of the United States is pledged in support thereof) having maturities
of not more than one year from the date of acquisition, (ii) time deposits and
certificates of deposit of any commercial bank having, or which is the principal
banking subsidiary of a bank holding company organized under the laws of the
United States, any State thereof or the District of Columbia having capital,
surplus and undivided profits aggregating in excess of $500 million and rated at
least AAA or the equivalent thereof by Standard & Poor's Rating Services, with
maturities of not more than one year from the date of acquisition by such
Person, (iii) repurchase obligations with a term of not more than 90 days for
underlying securities of the types described in clause (i) above entered into
with any bank meeting the qualifications specified in clause (ii) above, (iv)
commercial paper issued by any Person incorporated in the United States rated at
least A-1 or the equivalent thereof by Standard & Poor's Rating Services or at
least P-1 or the equivalent thereof by Moody's Investors Service, Inc. and in
each case maturing not more than one year after the date of acquisition by such
Person and (v) investments in money market funds substantially all of whose
assets are comprised of securities of the types described in clauses (i) through
(iv) above.

                  "Celerity Junior Subordinated Notes" shall mean those certain
12.5% junior subordinated promissory notes made by KSI in favor of certain
existing holders of the equity interests of Holdings in the aggregate initial
principal amount of up to $15,750,000, as the same may be amended, restated or
otherwise modified from time to time to the extent that such amendment,
restatement or modification would be permitted pursuant to Section 10.12 hereof,

                                       4

<PAGE>

only to the extent that such notes have become the obligation of the Borrower
(or Holdings following the merger of the Borrower into Holdings as set forth in
the Restructuring Agreement) pursuant to the Shareholder Rescission Letter.

                  "CERCLA" shall have the meaning set forth in the definition of
Environmental Laws, below.

                  "Certificate of Incorporation" shall mean, unless the context
in which it is used shall otherwise require, the Certificate of Incorporation
(or similar organizational documents) of Holdings or any of its Subsidiaries.

                  "Change of Control" shall mean, at any time, a Change of
Control under and as defined in the TCP Purchase Agreement or (a) the failure of
Holdings to own directly shares representing 100% of the aggregate ordinary
voting power and economic interest represented by the issued and outstanding
capital stock of the Borrower; (b) the failure of KH LLC prior to an initial
public offering of the stock of Holdings to own directly shares representing
100% of the aggregate ordinary voting power and economic interest represented by
the issued and outstanding capital stock of Holdings (other than options issued
to employees, and shares of capital stock issued upon the exercise thereof, in
an amount not to exceed 12.5% of the fully-diluted capital stock of Holdings);
(c) prior to the consummation of a Qualified Public Equity Offering, during any
period of two consecutive years, individuals who at the beginning of such period
constituted the board of directors (together with any new directors whose
election by such board of directors or whose nomination for election by the
shareholders of the Borrower, as the case may be, was approved by a vote of at
least a majority of the directors of the Borrower then still in office) cease
for any reason to constitute a majority of the board of directors of the
Borrower then in office; or (d) prior to the consummation of a Qualified Public
Equity Offering, (i) the failure of the Permitted Holders (x) to own
beneficially (within the meaning of the Exchange Act and the rules of the
Commission thereunder as in effect on the date hereof except that beneficial
ownership shall include all shares that any Person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), either directly or through KH LLC shares representing more than 50% of
the aggregate ordinary voting power represented by the issued and outstanding
capital stock of Holdings and (y) to maintain the power to elect, or cause to be
elected, a majority of the directors of Holdings and KH LLC; or (ii) the failure
of MidOcean and its Affiliates to collectively beneficially own at least 50% of
their interest in KH LLC or the capital stock of Holdings, in each case owned by
them as of the date of this Agreement; provided that so long as (x) the
Unitholders Agreement is in full force and effect and (y) United States Filter
Corporation is contractually required to vote its shares of common stock in
favor of the nominees of the Permitted Holders to Holdings' Board of Directors
as set forth in Section 5.1 of the Unitholders Agreement (or any substantially
similar provision of the Unitholders Agreement as amended, amended and restated
or replaced), then the exercise of the United Filter Warrants by United States
Filter Corporation shall not be deemed a Change of Control so long as the
Permitted Holders maintain the power to elect or cause to be elected, a majority
of the directors of Holdings. Notwithstanding the foregoing, it shall not be a
Change of Control if the Permitted Holders fail to own at least 50% of the
capital stock of the Borrower or

                                       5

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Holdings following a Qualified Public Equity Offering; provided that the
Permitted Holders continue (i) to own beneficially (within the meaning of the
Exchange Act and the rules of the Commission thereunder as in effect on the date
hereof except that beneficial ownership shall include all shares that any Person
has the right to acquire, whether such right is exercisable immediately or only
after the passage of time) either directly or through KH LLC shares representing
(x) more than 35% of the aggregate ordinary voting power of KH LLC and (y) more
of the aggregate ordinary voting power of KH LLC than any other Person or group
of related Persons for purposes of Section 13(d) of the Exchange Act owns
beneficially and of record, as determined above.

                  "Closing" shall have the meaning assigned to that term in
Section 2.08.

                  "Closing Date" shall have the meaning assigned to that term in
Section 2.08.

                  "Code" shall mean the Internal Revenue Code of 1986, as
amended, or any successor statute thereto.

                  "Commission" or "SEC" shall mean the Securities and Exchange
Commission or any similar agency then having jurisdiction to enforce the
Securities Act.

                  "Common Stock" shall mean the common stock of Holdings, par
value $0.01 per share, or any other capital stock of Holdings into which such
stock is reclassified or reconstituted.

                  "Compliance Certificate" shall have the meaning assigned to
that term in Section 9.01(c).

                  "Consolidated Cash Interest Expense" shall mean, for any
period, the total consolidated cash interest expense of the Borrower and its
Consolidated Subsidiaries for such period (calculated without regard to any
limitations on the payment thereof) plus, without duplication, (a) charges in
connection with indemnification of surety providers for domestic operations and
(b) that portion of Capitalized Lease Obligations of the Borrower and its
Consolidated Subsidiaries representing the interest factor for such period, but
excluding the amortization of any deferred financing costs incurred in
connection with this Agreement, the Senior Credit Agreement or the TCP Purchase
Agreement; provided that (x) in the event that the period for which the
Consolidated Interest Coverage Ratio is being determined includes any period
prior to the Closing Date, the Consolidated Interest Coverage Ratio shall be
determined on a pro forma basis to give effect to any Indebtedness incurred on
or after the Closing Date (including, without limitation, the Senior
Indebtedness and the Notes) as if such Indebtedness has been incurred at the
beginning of such period and had remained outstanding throughout such period and
(y) for the purposes of calculating Consolidated Cash Interest Expense for any
period pursuant to any determination of the Consolidated Interest Coverage Ratio
or the Consolidated Fixed Charge Coverage Ratio, if during such period the
Borrower or its Subsidiaries shall have made a Permitted Acquisition, utilizing
in all cases recent audited (or, if no recent audited financial statements are
available, recent unaudited) financial statements of the business or entity

                                       6

<PAGE>

subject to such Permitted Acquisition, Consolidated Cash Interest Expense for
such period shall be calculated after giving pro forma effect thereto and any
Indebtedness incurred or assumed in connection therewith as if such Permitted
Acquisition occurred and such Indebtedness had been incurred or assumed on the
first day of such period.

                  "Consolidated EBIT" shall mean, for any period, the
Consolidated Net Income for such period, before interest expense and provision
for taxes based on income and without giving effect to any extraordinary gains
or losses or gains or losses from sales of assets other than inventory sold in
the ordinary course of business.

                  "Consolidated EBITDA" shall mean Consolidated EBIT plus, in
each case that such items were deducted in arriving at Consolidated Net Income
for such period and without duplication, (i) the amortization of intangibles and
depreciation, (ii) fees paid in connection with the amendment, amendment and
restatement, supplement, modification or waiver of Indebtedness, (iii)
non-operating costs in connection with the issuance of Indebtedness, (iv)
non-transactional, non-cash, mark-to-market adjustments on real estate and
Investments, (v) non-cash impairment charges required under FAS 142 promulgated
by the Financial Accounting Standards Board, (vi) the non-cash write-down of
long-lived assets under FAS 144 promulgated by the Financial Accounting
Standards Board, (vii) non-cash deferred and/or variable compensation charges,
(viii) non-cash charges that may arise from the contribution of the Junior
Subordinated Notes to KSI and all other non-cash debt retirement costs as
contemplated in the Restructuring Agreement, and (ix) any cancellation of
indebtedness expense that may arise in the event there is a rescission of the
contribution of the Junior Subordinated Notes as contemplated in the Shareholder
Rescission Letter. Notwithstanding the foregoing, the costs and expenses
incurred in connection with (x) the Transactions and (y) the Qualified Public
Equity Offering shall each be excluded from the calculation of Consolidated
EBITDA.

                  "Consolidated Fixed Charge Coverage Ratio" shall mean, for any
period, the ratio of (i) Consolidated EBITDA for such period to (ii)
Consolidated Fixed Charges for such period; provided that in the event that the
period for which the Consolidated Fixed Charge Coverage Ratio is being
determined includes any period prior to the Closing Date, the Consolidated Fixed
Charge Coverage Ratio shall be determined on a pro forma basis to give effect to
any Indebtedness incurred on or after the Closing Date (including, without
limitation, the Senior Indebtedness and the Notes) as if such Indebtedness had
been incurred at the beginning of such period and had remained outstanding
throughout such period.

                  "Consolidated Fixed Charges" shall mean, for any period, the
sum, without duplication, of (i) Consolidated Cash Interest Expense for such
period, (ii) the amount of all Capital Expenditures made by the Borrower and its
Subsidiaries for such period and (iii) the amount of all cash payments made by
the Borrower and its Subsidiaries in respect of income taxes or income tax
liabilities for such period net of any cash income tax refunds actually received
by the Borrower and its Subsidiaries during such period.

                  "Consolidated Indebtedness" shall mean, as at any date of
determination, the aggregate principal amount of all Indebtedness for borrowed
money of the Borrower and its

                                       7

<PAGE>

Subsidiaries on a consolidated basis; provided that Indebtedness outstanding
pursuant to trade payables incurred in the ordinary course of business shall be
excluded in determining Consolidated Indebtedness.

                  "Consolidated Interest Coverage Ratio" shall mean, for any
period, the ratio of (i) Consolidated EBITDA for such period to (ii)
Consolidated Cash Interest Expense for such period; provided that in the event
that the period for which the Consolidated Interest Coverage Ratio is being
determined includes any period prior to the Closing Date, the Consolidated
Interest Coverage Ratio shall be determined on a pro forma basis to give effect
to any Indebtedness incurred on or after the Closing Date (including, without
limitation, the Senior Indebtedness and the Notes) as if such Indebtedness had
been incurred at the beginning of such period and had remained outstanding
throughout such period.

                  "Consolidated Net Income" shall mean, for any period, the
consolidated net after tax income of the Borrower and its Consolidated
Subsidiaries determined in accordance with GAAP; provided that in the event that
(x) the period for which Consolidated Net Income is being determined includes
any period prior to the Closing Date, the Consolidated Net Income shall be
determined on the basis of the consolidated net after tax income of the Borrower
and its Consolidated Subsidiaries prior to the Closing Date and (y) if any
Permitted Acquisition occurs at any time during such period, utilizing in all
cases recent audited (or if no recent audited financial statements are
available, recent unaudited) financial statements of such Permitted Acquisition,
Consolidated Net Income shall be calculated on a pro forma basis to (I) include
actual earnings of the acquired entity or business for such entire period prior
to such Permitted Acquisition as if such Permitted Acquisition had taken place
on the first day of such period, all as reasonably calculated by the Borrower
based on actual results of operations of the acquired entity or business, (II)
add back one-time or non-recurring, non-cash charges in connection with such
Permitted Acquisition (provided that any such charges are calculated in
accordance with Regulation S-X under the Securities Act) and (III) add back
one-time or non-recurring, non-cash charges relating to in-process research and
development calculated in accordance with GAAP and only to the extent that such
charges do not exceed $10,000,000 in the aggregate for any fiscal year, all as
reasonably calculated by the Borrower based on actual results of operations of
the acquired entity or business.

                  "Consolidated Subsidiaries" shall mean, as to any Person, all
Subsidiaries of such Person which are consolidated with such Person for
financial reporting purposes in accordance with GAAP.

                  "Contingent Obligation" shall mean, as to any Person, any
obligation of such Person guaranteeing or intended to guarantee any
Indebtedness, leases, dividends or other obligations ("primary obligations") of
any other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (i) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (ii) to advance or
supply funds (x) for the purchase or payment of any such primary obligation or
(y) to maintain working capital or equity

                                       8

<PAGE>

capital of the primary obligor or otherwise to maintain the net worth or
solvency of the primary obligor, (iii) 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 or (iv) otherwise to assure or hold harmless the holder of such
primary obligation against loss in respect thereof; provided, however, that the
term Contingent Obligation shall not include endorsements of instruments for
deposit or collection in the ordinary course of business and any product
warranties extended in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determinable amount of the primary obligation in respect of which such
Contingent Obligation is made (or, if less, the maximum amount of such primary
obligation for which such Person may be liable pursuant to the terms of the
instrument evidencing such Contingent Obligation) or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof
(assuming such Person is required to perform thereunder) as determined by such
Person in good faith.

                  "Contractual Obligations" shall mean as to any Person, any
provision of any security issued by such Person or of any agreement,
undertaking, contract, indenture, mortgage, deed of trust or other instrument or
arrangement to which such Person is a party or by which it or any of such
Person's property is bound.

                  "Control" shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of a
Person, whether through the ability to exercise voting power, by contract or
otherwise. The terms "Controlling" and "Controlled" have meanings correlative
thereto.

                  "Copyrights" shall have the meaning assigned to that term in
Section 6.18(a).

                  "Credit Party" shall mean each of KH LLC, Holdings, the
Borrower, the KSI Entities, each Subsidiary Guarantor and any other Subsidiary
which at any time executes and delivers any Mezzanine Transaction Document as
required by this Agreement. For purposes of Article 12 of this Agreement, the
KSI Entities will not be considered a "Credit Party". In addition, for purposes
of Defaults set forth in Section 12(a)(iv), Section 12(a)(xi) and Section
12(a)(xiii), KH LLC will not be considered a "Credit Party".

                  "Default" shall mean any event, act or condition which with
notice or lapse of time, or both, would constitute an Event of Default.

                  "Disqualified Stock" shall mean any capital stock which, by
its terms (or by the terms of any security into which it is convertible or for
which it is exchangeable), or upon the happening of any event, (i) matures
(excluding any maturity as the result of an optional redemption by the issuer
thereof) or is mandatorily redeemable or is otherwise payable in whole or in
part, pursuant to a sinking fund obligation or otherwise, or is redeemable at
the option of the holder thereof, in whole or in part, at any time, or (ii) is
convertible into or exchangeable (unless at the sole option of the issuer
thereof) for (a) debt securities or (b) any capital stock referred to in (i)
above, at any time; provided, that no Existing Indebtedness shall be deemed
Disqualified Stock for purposes of this Agreement.

                                       9

<PAGE>

                  "Dividend" with respect to any Person, shall mean that such
Person has declared or paid a dividend or returned any equity capital to its
stockholders or members or authorized or made any other distribution, payment or
delivery of property (other than common stock of such Person) or cash to its
stockholders or members as such, or redeemed, retired, purchased or otherwise
acquired, directly or indirectly, for consideration any shares of any class of
its capital stock or membership interests outstanding on or after the Closing
Date (or any options or warrants issued by such Person with respect to its
capital stock), or set aside any funds for any of the foregoing purposes, or
shall have permitted any of its Subsidiaries to purchase or otherwise acquire
for consideration any shares of any class of the capital stock of such Person
outstanding on or after the Closing Date (or any options or warrants issued by
such Person with respect to its capital stock). Without limiting the foregoing,
"Dividends" with respect to any Person shall also include all payments made or
required to be made by such Person with respect to any stock appreciation
rights, plans, equity incentive or achievement plans or any similar plans or
setting aside of any funds for the foregoing purposes.

                  "Domestic Subsidiary" shall mean each Subsidiary of the
Borrower that is incorporated or organized in the United States, any State
thereof, the United States Virgin Islands or Puerto Rico.

                  "Domestic Wholly-Owned Subsidiary" shall mean each Domestic
Subsidiary that is a Wholly-Owned Subsidiary of the Borrower.

                  "Effective Date" has the meaning given to such term in Section
2.04.

                  "Employee Benefit Plans" shall have the meaning assigned to
that term in Section 4.14(i).

                  "Environmental Claims" shall mean any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, directives,
claims, liens, notices of noncompliance or violation, investigations or
proceedings relating in any way to any Environmental Law or any permit issued,
or any approval given, under any such Environmental Law (hereafter, "Claims"),
including, without limitation, (a) any and all Claims by governmental or
regulatory authorities for enforcement, cleanup, removal, response, remedial or
other actions or damages (including, without limitation, natural resources
damages) pursuant to any applicable Environmental Law, and (b) any and all
Claims by any third party seeking damages, contribution, indemnification, cost
recovery, compensation or injunctive relief in connection with alleged injury or
threat of injury to health, safety or the environment, or personal injury or
property damage, due to the presence of Hazardous Materials.

                  "Environmental Laws" shall mean any applicable Federal, state,
foreign or local statute, law, rule, regulation, ordinance, code, binding and
enforceable guideline, binding and enforceable written policy and rule of common
law now or hereafter in effect and in each case as amended, and any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, to the extent binding on Holdings, the
Borrower or any of their respective Subsidiaries, relating to the environment,
employee health

                                       10

<PAGE>

and safety or Hazardous Materials, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
Sections 9601 et seq. ("CERCLA"); the Resource Conservation and Recovery Act, 42
U.S.C. Sections 6901 et seq. ("RCRA"); the Federal Water Pollution Control Act,
33 U.S.C. Sections 1251 et seq.; the Toxic Substances Control Act, 15
U.S.C.Sections 2601 et seq.; the Clean Air Act, 42 U.S.C.Sections 7401 et seq.;
the Safe Drinking Water Act, 42 U.S.C. Sections 3803 et seq.; the Oil Pollution
Act of 1990, 33 U.S.C. Sections 2701 et seq.; the Emergency Planning and the
Community Right-to-Know Act of 1986, 42 U.S.C. Sections 11001 et seq.; the
Hazardous Material Transportation Act, 49 U.S.C.Sections 1801 et seq. and the
Occupational Safety and Health Act, 29 U.S.C. Sections 651 et seq.; and any
state and local or foreign counterparts or equivalents, in each case as amended
from time to time.

                  "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended, and the rules and regulations promulgated thereunder.

                  "ERISA Affiliate" shall mean each person (as defined in
Section 3(9) of ERISA) which together with Holdings or any of its Subsidiaries
would be deemed to be a "single employer" within the meaning of Section 414(b),
(c), (m) or (o) of the Code.

                  "Event of Default" shall have the meaning assigned to that
term in Article 12 hereof.

                  "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations of the Commission thereunder.

                  "Existing Indebtedness" shall mean the Indebtedness listed on
Schedule 6.19.

                  "Existing Notes" shall have the meaning assigned to that term
in the preamble.

                  "Existing Securities Purchase Agreement" shall have the
meaning assigned to that term in the preamble.

                  "Existing Warrants" shall have the meaning assigned to that
term in the preamble.

                  "First Note Warrant" shall mean the First Note Warrant issued
by Holdings in favor of the United States Filter Corporation pursuant to the
Junior Warrant Agreement.

                  "First Seller Note" shall mean the First Note dated as of
August 30, 2000 in the initial principal amount of $25,000,000 issued by
Holdings in favor of the United States Filter Corporation.

                  "Foreign Cash Equivalents" shall mean certificates of deposit
or bankers acceptances of any bank organized under the laws of Canada, Japan or
any country that is a member of the European Economic Community whose short term
commercial paper rating from Standard & Poor's Rating Services is at least A-1
or equivalent thereof or from Moody's

                                       11

<PAGE>

Investors Service, Inc. is at least P-1 or the equivalent thereof, in each case
with maturities of not more than twelve months from the date of acquisition.

                  "Foreign Pension Plan" shall mean any plan, fund (including,
without limitation, any superannuation fund) or other similar program
established or maintained outside the United States by the Borrower or any one
or more of its Subsidiaries primarily for the benefit of employees of the
Borrower or such Subsidiaries residing outside the United States, which plan,
fund or other similar program provides, or results in, retirement income, a
deferral of income in contemplation of retirement or payments to be made upon
termination of employment, and which plan is not subject to ERISA or the Code.

                  "Foreign Subsidiary" shall mean each Subsidiary of the
Borrower that is incorporated or organized under the laws of any jurisdiction
other than the United States of America, any State thereof, the United States
Virgin Islands or Puerto Rico.

                  "GAAP" shall mean generally accepted accounting principles in
effect within the United States, consistently applied.

                  "Governmental Authority" shall mean any Federal, state, local
or foreign court or governmental agency, authority, instrumentality or
regulatory body.

                  "Governmental Real Property Disclosure Requirements" shall
mean any Requirement of Law of any Governmental Authority requiring notification
of the buyer, mortgagee or assignee of Real Property, or notification,
registration, or filing to or with any Governmental Authority, prior to the
sale, mortgage or assignment of any Real Property or transfer of control of an
establishment, of the actual or threatened presence or release into the
environment, or the use, storage, treatment, disposal, or handling of Hazardous
Material on, at, under or near the Real Property to be sold or the establishment
for which control is to be transferred.

                  "Gryphon" shall have the meaning assigned to that term in the
first paragraph hereof.

                  "Gryphon Partners" shall have the meaning set forth in the
definition of Gryphon Purchase Agreement below.

                  "Gryphon Purchase Agreement" shall mean the Note and Warrant
Purchase Agreement dated as of July 17, 2003, among Holdings, the Borrower and
Gryphon Partners II, L.P. and Gryphon Partners II-A, L.P (collectively, "Gryphon
Partners") pursuant to which Gryphon Partners purchased $5,250,000 principal
amount of the Junior Subordinated Notes.

                  "Guaranteed Obligations" shall have the meaning assigned to
that term in Section 13.01.

                                       12

<PAGE>

                  "Guarantor" shall have the meaning assigned to that term in
the first paragraph hereof; provided that for purposes of Article 13 hereof, KH
LLC shall be considered a Guarantor by virtue of its obligations under the
Parent Non-Recourse Guaranty.

                  "Guaranty" shall mean the Guaranty of each of Holdings and
each Subsidiary Guarantor pursuant to Article 13 hereof, the Parent Non-Recourse
Guaranty and any other guaranty entered into by a Subsidiary of the Borrower
pursuant to a Joinder Agreement substantially in the form attached hereto as
Exhibit C.

                  "Hazardous Materials" shall mean (a) any petroleum or
petroleum products, radioactive materials, asbestos in any form that is friable,
ureaformaldehyde foam insulation, polychlorinated biphenyls, and radon gas; (b)
any chemicals, materials or substances defined as or included in the definition
of "hazardous substances," "hazardous waste," "hazardous materials" "extremely
hazardous substances," "restricted hazardous waste," "toxic substances," "toxic
pollutants" "contaminants," or "pollutants" under any applicable Environmental
Law; and (c) any other chemical, material or substance subject to regulation or
which can give rise to liability under Environmental Laws.

                  "Holder" shall mean, with respect to any Note, the Person in
whose name such Note is registered in the register maintained by the Borrower
pursuant to Section 12 of that Note.

                  "Holdings" shall have the meaning assigned to that term in the
first paragraph hereof.

                  "Holdings Notes" means the 15% Convertible Senior Subordinated
Notes dated June 6, 2003 and issued by Holdings to (a) MidOcean Capital
Investors, L.P. in the original principal amount of $5,379,446.92, (b) Behrman
Capital III L.P. in the original principal amount of $4,581,509.11 and (c)
Strategic Entrepreneur Fund III, L.P. in the original principal amount of
$39,043.97.

                  "Holdings Subordinated Debt" shall mean the $50 million (plus
capitalized interest thereon) of non-cash interest paying structurally
subordinated debt of Holdings evidenced by the First Seller Note and the Second
Seller Note and issued to refinance certain preexisting intercompany
indebtedness of the Borrower and its Subsidiaries.

                  "Indebtedness" shall mean, as to any Person, without
duplication, (i) all indebtedness (which term shall include principal, interest,
fees, charges and the like relating to the foregoing) of such Person for
borrowed money or for the deferred purchase price of property or services, (ii)
the maximum amount drawn and/or funded under all letters of credit issued for
the account of such Person and all unpaid drawings in respect of such letters of
credit, (iii) all Indebtedness of the types described in clause (i), (ii), (iv),
(v), (vi) or (vii) of this definition secured by any lien on any property owned
by such Person, whether or not such Indebtedness has been assumed by such Person
(to the extent of the value of the respective property), (iv) the aggregate
amount required to be capitalized under leases under which such Person is the
lessee, (v) all obligations of such Person to pay a specified purchase price for
goods or services, whether

                                       13

<PAGE>

or not delivered or accepted, i.e., take-or-pay and similar obligations, (vi)
all Contingent Obligations of such Person and (vii) all obligations under any
Interest Rate Protection Agreement or Other Hedging Agreement or under any
similar type of agreement; provided, however, that notwithstanding anything to
the contrary in the foregoing or any other provision of this Agreement, the term
"Indebtedness" as used for the calculation of financial covenants set forth in
Sections 10.08 through 10.11, inclusive, on any date, (a) shall only include the
principal amount of any Indebtedness outstanding on such date, (b) shall not
include any obligations under the Liquidation Certificates, the Junior
Subordinated Notes or the Celerity Junior Subordinated Notes, (c) shall not
include any issued, but undrawn amounts under letters of credit referenced in
section (ii) of this definition, (d) shall not include undrawn performance
guarantees, performance sureties, performance bonds or similar letter of credit
obligations permitted under this Agreement, and (e) shall not include any
obligations referred to in Section 10.04(xvi).

                  "Initial Note Warrant" shall mean the Initial Note Warrant as
defined in the warrant agreement by and between Holdings and United States
Filter Corporation dated as of August 30, 2000.

                  "Intellectual Property" shall have the meaning assigned to
that term in Section 6.18(a).

                  "Interest" shall have the meaning assigned thereto in the
Notes.

                   "Interest Rate Protection Agreement" shall mean any interest
rate swap agreement, interest rate cap agreement, interest collar agreement,
interest rate hedging agreement, interest rate floor agreement or other similar
agreement or arrangement.

                  "Investments" shall have the meaning provided in Section
10.05.

                  "IPO Registration Statement Amendment" shall have the meaning
provided in Section 6.05(a).

                  "Joint Collateral Agent" shall mean the Bank of Nova Scotia,
in its capacity as initial joint collateral agent under the TCP Intercreditor
Agreement and any successor joint collateral agent appointed pursuant to the
terms of the TCP Intercreditor Agreement, written notice of which has been given
to the Holder.

                  "Junior Subordinated Notes" shall mean those certain 12.5%
junior subordinated promissory notes of the Borrower made in favor of certain
existing holders of the equity interests of Holdings in the aggregate initial
principal amount of up to $15,750,000 issued on July 17, 2003.

                  "KH LLC" shall mean KH LLC, a Delaware limited liability
company.

                  "KSI" means Kinetic Systems, Inc., a California corporation.

                                       14

<PAGE>

                  "KSI Entities" shall mean the KSI Guarantors and KSI.

                  "KSI Guarantors" shall mean Kinetic Systems Caribe, Inc. and
Kinetic Systems International, Inc.

                  "KSI Change of Control" shall mean, at any time, (i) the sale
of any shares of capital stock of KSI by KH LLC (other than shares issued
pursuant to employee stock plans approved by the Board of Directors of KSI not
to exceed 5% of the fully diluted capital stock of KSI) or (ii) the sale of all
or substantially all of the assets of KSI.

                  "KSI Junior Subordinated Notes" shall mean those certain 12.5%
Junior Subordinated Instruments made by KSI in favor of certain existing holders
of the equity interests of Holdings in the aggregate initial principal amount of
up to $15,750,000 issued or to be issued by KSI, as the same may be amended,
restated or otherwise modified from time to time to the extent that such
amendments, restatements and modifications are permitted by Section 10.12, only
to the extent that such notes are the obligation of KSI.

                  "KSI/KGI Revolving Loan Agreement" shall mean that certain
revolving facility dated the date hereof issued by KSI in favor of the Borrower
in an amount not to exceed $24.0 million, which is to be repaid by KSI on the
earliest of (x) a KSI Change of Control, (y) September 25, 2006 and (z) a Change
of Control, which Indebtedness shall be senior in right of payment only to the
KSI Junior Subordinated Notes but otherwise fully subordinated to any other
Indebtedness of KSI, and which shall be cash pay and bear interest at LIBOR plus
5%.

                  "KSI Note" shall mean that certain $13.0 million note dated as
of the date hereof issued by KSI in favor of the Borrower.

                  "KSI Spin-Off" shall have the meaning assigned to such term in
the Restructuring Agreement.

                  "KTS Sale" shall have the meaning ascribed to such term in
Section 10.02(xv) hereof.

                  "Leases" shall mean any and all leases, subleases, tenancies,
options, concession agreements, rental agreements, occupancy agreements,
franchise agreements and any other agreements (including, without limitation,
all amendments, extensions, replacements, renewals, modifications and/or
guarantees thereof), whether or not of record and whether now in existence or
hereafter entered into, affecting the use or occupancy of all or any portion of
any Real Property.

                  "Leverage Ratio" shall mean, at any date of determination, the
ratio of (i) Consolidated Indebtedness on such date to (ii) Consolidated EBITDA
for the Test Period last ended.

                  "Licenses" shall have the meaning assigned to that term in
Section 6.18(a)(v).

                                       15

<PAGE>

                  "Lien" shall mean, with respect to any property, any mortgage,
deed of trust, pledge, hypothecation, assignment, deposit arrangement,
encumbrance, lien (statutory or other), preference, priority, claim, charge or
other security interest of any kind or nature whatsoever (including, without
limitation, any conditional sale agreement, capital lease or other title
retention agreement, any financing or similar statement or notice filed under
the UCC or any other similar recording or notice statute, including any
easement, right-of-way or other encumbrance on title to Real Property, and any
lease having substantially the same effect as any of the foregoing), in each of
the foregoing cases whether voluntary or imposed by law, and any agreement to
give any of the foregoing.

                  "Liquidation Certificates" means the certificates
substantially in the form attached hereto as Exhibit G to be issued to the
Purchasers hereunder representing the Senior Subordinated Liquidation
Preference.

                  "Liquidation Event" means (i) any Change of Control, (ii) the
sale or other disposition (whether by merger, reorganization, sale of assets or
otherwise) of all or substantially all of the assets of KH LLC, Holdings, the
Borrower or one or more of their Subsidiaries that, individually or in the
aggregate, constitute all or substantially all of the assets of KH LLC,
Holdings, the Borrower and their Subsidiaries taken as a whole or (iii) the
liquidation, dissolution or winding up of KH LLC, Holdings, the Borrower or one
or more of their Subsidiaries that, individually or in the aggregate, constitute
all or substantially all of the business, operations or assets of KH LLC,
Holdings, the Borrower and their Subsidiaries, taken as a whole. Notwithstanding
the foregoing, (a) the dividend of all the equity interest in KSI held by the
Borrower to Holdings and from Holdings to its shareholders and the merger of any
of Holdings, the Borrower and their direct Subsidiaries solely among themselves
or (b) a KSI Change of Control shall not be deemed to be a Liquidation Event.

                  "Liquidation Redemption Price" shall have the meaning assigned
to that term in Section 3.01(a).

                  "Litigation Letter" means that certain letter dated as of even
date herewith that provides for the payment by the Permitted Holders of certain
expenses and liabilities that have arisen and may arise under the Alfa Laval
Litigation.

                  "LLC Agreement" shall have the meaning assigned to that term
in Section 4.24.

                  "Management Agreements" shall have the meaning assigned to
that term in Section 4.14(ii).

                  "Material Adverse Effect" shall mean a material adverse effect
on (x) the financial condition, business, operations or prospects of the
Borrower and its Subsidiaries taken as a whole, (y) the ability of the Credit
Parties (other than the KSI Entities) to pay their obligations or perform their
respective agreements under the Mezzanine Transaction Documents or (z) the
validity or enforceability of this Agreement or any of the other Mezzanine
Transaction Documents or any of the material rights or remedies of any Purchaser
hereunder or thereunder.

                                       16

<PAGE>

                  "Maturity Date" shall have the meaning set forth in the Notes.

                  "Mezzanine Purchase Option Agreement" shall mean the Mezzanine
Purchase Option Agreement dated as of April 9, 2004 by and among KSI, Kinetic
Systems Caribe, Inc. and Kinetic Systems International, Inc., and ACOF, SVAR,
SVBF, SVBF II, MidOcean, Behrman Capital III, L.P., SEP and Gryphon Partners.

                  "Mezzanine Transaction Documents" shall mean collectively,
this Agreement, and, after the execution and delivery thereof pursuant to the
terms of this Agreement, each Note, the Warrants and the Liquidation
Certificates, the Parent Non-Recourse Guaranty, the Sale Letter, the Litigation
Letter, the Additional Units Letter, and after the execution and delivery
thereof, each additional guaranty executed pursuant to Section 13.19 hereof.

                  "MidOcean" shall have the meaning assigned to that term in the
first paragraph hereof.

                  "Multiemployer Plan" shall mean any multiemployer plan as
defined in Section 4001(a)(3) of ERISA, which is maintained or contributed to by
(or to which there is an obligation to contribute of) the Borrower or its
Subsidiaries or an ERISA Affiliate and each such plan for the five year period
immediately following the latest date on which the Borrower or its Subsidiaries
maintained, contributed to or had an obligation to contribute to such plan.

                  "Net Cash Proceeds" shall mean (a) with respect to any Asset
Sale, the cash proceeds received by any Credit Party (including cash proceeds
subsequently received (as and when received by any Credit Party) in respect of
noncash consideration initially received), net of (i) selling expenses
(including reasonable broker's fees or commissions, legal fees, transfer and
similar taxes the Borrower's good faith estimate of income taxes paid or payable
in connection with such sale); (ii) amounts provided as a reserve, in accordance
with GAAP, against any liabilities under any indemnification obligations
associated with such Asset Sale (provided that, to the extent and at the time
any such amounts are released from such reserve, such amounts shall constitute
Net Cash Proceeds); (iii) the Borrower's good faith estimate of payments
required to be made with respect to unassumed liabilities relating to the assets
sold within 180 days of such Asset Sale (provided that, to the extent such cash
proceeds are not used to make payments in respect of such unassumed liabilities
within 180 days of such Asset Sale, such cash proceeds shall constitute Net Cash
Proceeds); and (iv) the principal amount, premium or penalty, if any, interest
and other amounts on any Indebtedness for borrowed money which is secured by the
asset sold in such Asset Sale and which is repaid with such proceeds (other than
any such Indebtedness assumed by the purchaser of such asset); (b) with respect
to any (x) capital contribution or sale or issuance of any equity interest and
(y) any incurrence of Indebtedness, the cash proceeds thereof, net of all taxes
and customary fees, commissions, costs and other expenses incurred in connection
therewith; and (c) with respect to any Recovery Event, the cash insurance
proceeds, condemnation awards and other compensation or payment received in
respect thereof, together with any interest earned thereon, less the amount of
any reasonable

                                       17

<PAGE>

third-party expenses incurred in litigating, arbitrating, compromising or
settling any claim out of such Recovery Event.

                  "New Warrants" shall have the meaning assigned thereto in
Section 2.02.

                  "Notes" shall have the meaning assigned thereto in Section
2.01.

                  "Optional Redemption Price" shall have the meaning assigned to
that term in Section 3.02(a).

                  "Original Purchasers" shall have the meaning assigned to that
term in the preamble.

                  "Original Warrants" shall have the meaning assigned to that
term in the preamble.

                  "Other Hedging Agreement" shall mean any foreign exchange
contracts, currency swap agreements, commodity agreements or other similar
agreements or arrangements designed to protect against the fluctuations in
currency or commodity values.

                  "Parent Non-Recourse Guaranty" shall have the meaning assigned
thereto in Section 4.36.

                  "Patents" shall have the meaning assigned to that term in
Section 6.18(a).

                  "PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Section 4002 of ERISA, or any successor thereto.

                  "Permitted Acquisition" means any acquisition by the Borrower
or any of its Subsidiaries of property from any Person or of outstanding equity
interests in any Person that is approved by the Required Holders.

                  "Permitted Holders" shall mean MidOcean, Behrman, and Gryphon,
and each of their respective Affiliates.

                  "Permitted Liens" shall have the meaning provided in Section
10.01.

                  "Person" shall mean any individual, partnership, joint
venture, firm, corporation, association, trust or other enterprise or any
government or political subdivision or any agency, department or instrumentality
thereof.

                  "Plan" shall mean any pension plan as defined in Section 3(2)
of ERISA (other than Multiemployer Plans and other than Foreign Pension Plans),
which is maintained or contributed to by (or to which there is an obligation to
contribute of) the Borrower or one of its Subsidiaries or an ERISA Affiliate,
and each such plan for the five year period immediately

                                       18

<PAGE>

following the latest date on which the Borrower or one of its Subsidiaries or an
ERISA Affiliate maintained, contributed to or had an obligation to contribute to
such plan.

                  "Planned Capital Expenditures" means, with respect to the
Borrower and its Subsidiaries, $6.0 million in fiscal year 2004, $6.5 million in
fiscal year 2005 and for each fiscal year thereafter, representing the planned
amount of Capital Expenditures of the Borrower and its Subsidiaries for such
periods.

                  "Pro Forma Balance Sheet" shall mean the pro forma
consolidated balance sheet of the Borrower and its Subsidiaries delivered
pursuant to Section 4.10.

                  "Projections" shall mean each of the projections described in
Section 9.01(e).

                  "Purchase Money Obligation" of any Person shall mean (i)
Indebtedness for the payment of all or any part of the purchase price of any
fixed assets or (ii) any Indebtedness incurred at the time of or within 90 days
prior to or after the acquisition of any fixed assets for the purpose of
financing all or any part of the purchase price thereof.

                  "Purchasers" shall have the meaning assigned to that term in
the first paragraph hereof.

                  "Qualified Capital Stock" of any Person shall mean any capital
stock of such Person which is not Disqualified Stock.

                  "Qualified Public Equity Offering" means a bona fide
underwritten sale to the public of common stock of Holdings (or any of its
Subsidiaries) pursuant to a registration statement (other than on Form S-8 or
any other form relating to securities issuable under any benefit plan of
Holdings or any of its Subsidiaries, as the case may be) that is declared
effective by the Commission and such offering results in gross cash proceeds to
Holdings or any of its Subsidiaries (exclusive of underwriter's discounts and
commissions and other expenses) of at least $100.0 million.

                  "RCRA" shall have the meaning set forth in the definition of
Environmental Laws, above.

                  "Real Property" shall mean, collectively, all right, title and
interest (including, without limitation, any Leases) in and to any and all
parcels of or interests in real property owned, leased or operated by any
Person, whether by lease, license or other use agreement, together with, in each
case, all easements, hereditaments and appurtenances relating thereto, all
improvements and appurtenant fixtures and equipment, all general intangibles and
contract rights and other property and rights incidental to the ownership, lease
or operation thereof.

                  "Recovery Event" shall mean, with respect to any property
(including Real Property) of Holdings, the Borrower or any Subsidiary, any loss
of title with respect to Real Property or any theft, loss or destruction of or
damage to, or any condemnation or other taking

                                       19

<PAGE>

(including by any Governmental Authority) of, such property (including Real
Property) for which Holdings, the Borrower or any Subsidiary receives insurance
proceeds or proceeds of a condemnation award or other compensation. "Recovery
Event" shall include but not be limited to any taking of any Real Property of
Holdings, the Borrower or any Subsidiary or any part thereof, in or by
condemnation or other eminent domain proceedings pursuant to any law, general or
special, or by reason of the temporary requisition of the use or occupancy of
any Real Property of Holdings, the Borrower or any Subsidiary or any part
thereof, by any Governmental Authority, civil or military, but shall not include
business interruption insurance.

                  "Release" shall mean any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping,
disposing or migration into the environment.

                  "Reportable Event" shall mean an event described in Section
4043(c) of ERISA with respect to a Plan that is subject to Title IV of ERISA
other than those events as to which the 30-day notice period is waived.

                  "Required Holders" shall mean the Holders of greater than 50%
in aggregate principal amount of the Notes then outstanding.

                  "Requirements of Law" shall mean, collectively, any and all
requirements of any Governmental Authority, including, without limitation, any
and all laws, ordinances, rules, regulations or similar statutes or case law.

                  "Restated Certificate of Incorporation" shall mean the
Restated Certificate of Incorporation , substantially in the form attached
hereto as Exhibit I.

                  "Restated Shareholders Agreement" shall mean the Fourth
Amended and Restated Shareholders Agreement dated as of September 26, 2003 among
Holdings, the Purchasers and the other stockholders of Holdings, as amended.

                  "Restructuring Agreement" shall have the meaning assigned
thereto in the preamble hereof.

                  "Sale Letter" shall mean that certain letter agreement dated
as of the date hereof by and among the Agent hereunder, the Agent under and as
defined in the TCP Purchase Agreement, KH LLC and KSI regarding the sale of KSI.

                  "Second Note Warrants" shall mean the Second Note Warrants
issued by Holdings in favor of the United States Filter Corporation pursuant to
the Junior Warrant Agreement.

                  "Second Seller Note" shall mean the Second Note dated as of
August 30, 2000 in the initial principal amount of $25,000,000 issued by
Holdings in favor of United States Filter Corporation.

                                       20

<PAGE>

                  "Securities" shall mean, collectively, the Notes, the Warrants
and the Liquidation Certificates.

                  "Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations thereunder as the same shall be in effect
at the time.

                  "Senior Covenant Default" shall mean any event of default
under (i) the Senior Credit Agreement or the TCP Purchase Agreement and in each
case arising out of a breach of Sections 7.08(a) and (b), 8.01(g), 8.08, 8.11
and 9 of the Senior Credit Agreement and (ii) the corresponding section of the
TCP Purchase Agreement.

                  "Senior Credit Agreement" shall mean the Amended and Restated
Credit Agreement dated as of December 10, 2002 among Holdings, the Borrower, the
Subsidiary Guarantors, the lenders party thereto from time to time, The Bank of
Nova Scotia, Deutsche Bank Trust Company Americas, Deutsche Bank Securities,
Inc. and Banc One Capital markets, Inc., as amended, amended and restated,
extended, supplemented, refinanced or otherwise modified from time to time,
including any agreement extending the maturity of, refinancing, replacing or
otherwise restructuring (including, without limitation, by increasing the amount
of available borrowings thereunder or adding any Subsidiaries of the Borrower as
additional borrowers or guarantors thereunder) all or any portion of the
Indebtedness under such agreement or documents or any successor or replacement
agreement or documents and whether by the same or any other agent, lender or
group of lenders, in each case in accordance with the terms of this Agreement
including, without limitation, Sections 10.04 and 10.12. The TCP Purchase
Agreement shall not constitute an agreement refinancing the Indebtedness under
the Senior Credit Agreement for purposes of this definition.

                  "Senior Debt Documents" shall mean the Senior Credit Agreement
and, after the execution and delivery thereof pursuant to the terms of the
Senior Credit Agreement, each note, each security document and, after the
execution and delivery thereof, each additional guaranty or security document
executed pursuant to Section 8.12 of the Senior Credit Agreement, as the same
may be amended from time to time.

                  "Senior Default" shall mean a Senior Payment Default or a
Senior Covenant Default, as applicable.

                  "Senior Indebtedness" means (i) all Indebtedness currently
outstanding or incurred in the future pursuant to the Senior Credit Agreement,
the TCP Purchase Agreement, the Senior Purchase Option Agreement, the TCP
Purchase Option Agreement, any Interest Rate Protection Agreements and any Other
Hedging Agreements, and any renewals, extensions, refinancings, modifications or
refundings thereof (on terms consistent with Sections 10.04 and 10.12 of this
Agreement) and (ii) Additional Senior Indebtedness.

                                       21

<PAGE>

                  "Senior Obligations" shall mean the Obligations under and as
defined in the Senior Credit Agreement and the Obligations under and as defined
in the TCP Purchase Agreement and any outstanding Additional Senior
Indebtedness.

                  "Senior Payment Default" shall mean any failure to pay
principal, interest or any other amount owing with respect to Senior
Indebtedness as and when such amount has become due and payable, at maturity, by
acceleration, or otherwise.

                  "Senior Purchase Option Agreement" shall mean that certain
Senior Purchase Option Agreement, dated as of the date hereof, executed by KSI
and its Subsidiaries in favor of the Administrative Agent, on behalf of the
Lenders (each under and as defined in the Senior Credit Agreement).

                  "Senior Subordinated Liquidation Preference" shall mean the
amount payable by the Borrower to each of the Purchasers, in an aggregate amount
equal to $10,000,000 on a pro rata basis on the terms set forth in Section 2.04,
as evidenced by the Liquidation Certificates, the form of which is attached
hereto as Exhibit G.

                  "SEP" shall mean Strategic Entrepreneur Fund III L.P.

                  "Shareholder Bridge Agreement" shall mean the $5 million
bridge financing to Celerity Group, Inc., a California corporation evidenced by
the 30 Day Subordinated Secured Note, the Secured Guaranty of KSI and the
Security Agreement each dated as of March 8, 2004 between the Borrower and
certain shareholders of Holdings.

                  "Shareholder Rescission Letter" shall mean that certain letter
dated as of even date herewith from KSI to the holders of the Junior
Subordinated Notes that provides for the rescission of the contribution of the
Junior Subordinated Notes to KSI from the holders thereof.

                  "Shimmon" shall mean David J. Shimmon and Mary Beth Shimmon.

                  "Significant Contracts" shall have the meaning assigned to
that term in Section 6.30(a).

                  "Solvent" shall mean (a) with respect to the Borrower and its
Subsidiaries considered as a whole that (i) the assets and the property of the
Borrower and its Subsidiaries considered as a whole, exceed the aggregate
liabilities (including contingent and unliquidated liabilities) of the Borrower
and its Subsidiaries, considered as a whole, (ii) after giving effect to the
Transactions, the Borrower and its Subsidiaries, considered as a whole, will not
be left with unreasonably small capital, and (iii) after giving effect to the
Transactions, the Borrower and its Subsidiaries, considered as a whole, are able
to both service and pay their liabilities as they mature; and (b), with respect
the Borrower or KSI, that (i) the assets and property of that entity exceed the
liabilities (including contingent and unliquidated liabilities) of such entity,
(ii) after giving effect to the transactions described in the Restructuring
Agreement, such entity will not be left with unreasonably small capital, and
(iii) after giving effect to the Transactions, such entity

                                       22

<PAGE>

is able to both service and pay its liabilities as they mature. In computing the
amount of contingent or unliquidated liabilities at any time, such liabilities
will be computed as the amount that, in light of all the facts and circumstances
existing at such time, represents the amount that is likely to become an actual
or matured liability.

                  "Special Power of Attorney Side Letter" shall mean that side
letter of even date herewith whereby KH LLC grants to the Borrower a special
power of attorney to perform certain acts on behalf of KH LLC to ensure
satisfaction of the Borrower's obligations hereunder.

                  "Subordinated Indebtedness" shall mean (i) the principal of,
premium, if any, and Interest on the Notes; (ii) any other obligations of the
Borrower arising out of or in connection with this Agreement, the Notes or the
other Mezzanine Transaction Documents; and (iii) any obligations of Holdings or
any of the other Credit Parties arising out of or in connection with the
Guaranties or the other Mezzanine Transaction Documents (including, solely for
the purposes of Article 16 hereof, the Liquidation Certificates).

                  "Subsidiary" shall mean, as to any Person, (i) any corporation
more than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person and/or one or
more Subsidiaries of such Person and (ii) any partnership, association, joint
venture or other entity in which such Person and/or one or more Subsidiaries of
such Person has more than a 50% equity interest at the time. For the avoidance
of doubt, for all purposes under this Agreement, no KSI Entity shall be
considered a "Subsidiary" of any Credit Party.

                  "Subsidiary Guarantor" shall mean each Subsidiary of the
Borrower designated as a "Subsidiary Guarantor" on the signature pages hereto or
which executes a Joinder Agreement after the Closing Date. No KSI Entity shall
be considered a Subsidiary Guarantor hereunder.

                  "Support Agreement" has the meaning given to such term in the
Restructuring Agreement.

                  "SVAR" shall have the meaning assigned to that term in the
first paragraph hereof.

                  "SVBF" shall have the meaning assigned to that term in the
first paragraph hereof.

                  "SVBF II" shall have the meaning assigned to that term in the
first paragraph hereof.

                  "Tax" shall mean any federal, state, local or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under Code
Section 59A), customs duties, capital stock, franchise profits, withholding,
social security (or similar), unemployment, disability, real property,

                                       23

<PAGE>

personal property, sales, use, transfer, registration, value added, alternative
or add-on-minimum, estimated, or other tax of any kind whatsoever, including any
interest, penalty, or addition thereto, whether disputed or not.

                  "Tax Sharing Agreement" shall mean that certain Tax Sharing
Agreement dated as of the date hereof between Holdings, the Borrower and KSI,
which agreement shall not be amended without the consent of the Agent.

                  "TCP" shall mean Tennenbaum Capital Partners, LLC, a Delaware
limited liability company.

                  "TCP Additional Assignment and Assumption Agreement" shall
mean the Assignment and Assumption Agreement, dated as of the date hereof, by
and among J.H. Whitney Mezzanine Fund, L.P., J.H. Whitney Market Value Fund,
LLC, The Northwestern Mutual Life Insurance Company, Albion Alliance Mezzanine
Fund II, L.P., MidOcean Celerity Investment Partners, L.P., ACOF, Special Value
Absolute Return Fund, LLC, Special Value Bond Fund, LLC, and Special Value Bond
Fund II, LLC.

                  "TCP Assignment and Assumption Agreement" has the meaning
given to such term in the preamble.

                  "TCP Documentation" shall mean the TCP Purchase Agreement, the
TCP Second Lien Notes, the TCP Warrants, the TCP Intercreditor Agreement and
each other document, certificate or instrument executed in connection with the
TCP Purchase Agreement.

                  "TCP Holders" shall have the meaning set forth in the
definition of TCP Purchase Agreement, below.

                  "TCP Intercreditor Agreement" shall mean that certain
Intercreditor and Subordination agreement, dated as of September 26, 2003, by
and between the Agent, for the benefit of the Lenders, and TCP, concerning the
subordination of liens granted to TCP and related matters, as amended from time
to time.

                  "TCP Purchase Agreement" shall mean the Amended and Restated
Purchase Agreement dated as of April 9, 2004 between the Borrower, Holdings, the
Subsidiary Guarantors, the note purchasers named therein (together with their
successors and registered assigns, the "TCP Holders") and TCP, as agent for the
TCP Holders, together with its successors and assigns in such capacity, as
amended, amended and restated, extended, supplemented, refinanced or otherwise
modified from time to time, including any agreement extending the maturity of,
refinancing, replacing or otherwise restructuring (including, without
limitation, by increasing the amount of available borrowings thereunder or
adding any Subsidiaries of the Borrower as additional borrowers or guarantors
thereunder) all or any portion of the Indebtedness under such agreement or
documents or any successor or replacement agreement or documents and whether by
the same or any other agent, lender or group of lenders, in each case

                                       24

<PAGE>

in accordance with the terms of this Agreement including, without limitation,
Sections 10.04 and 10.12.

                  "TCP Purchase Option Agreement" means that certain TCP
Purchase Option Agreement, dated as of the date hereof, executed by KSI and its
Subsidiaries in favor of the holders of the TCP Second Lien Notes.

                  "TCP Retained Warrants" shall mean one-half of those warrants
issued on August 30, 2000 exercisable at $0.01 held by Special Value Absolute
Return Fund, LLC, Special Value Bond Fund, LLC and Special Value Bond Fund II,
LLC pursuant to that certain Assignment and Assumption Agreement dated as of
February 4, 2004 by and among such parties and J.H. Whitney Market Value Fund,
L.P. The aggregate number of shares of Common Stock underlying the TCP Retained
Warrants is 118,747.

                  "TCP Second Lien Notes" shall mean those certain LIBOR plus
10% Second Lien Notes due 2006 issued by the Borrower to the purchasers under
the TCP Purchase Agreement, as amended, amended and restated, extended,
supplemented, refinanced or otherwise modified from time to time.

                  "TCP Warrants" shall mean those certain detachable warrants to
purchase Holdings' outstanding preferred stock and common stock, that have been
issued by Holdings to the purchasers under the TCP Purchase Agreement.

                  "Test Period" shall mean each period of four consecutive
fiscal quarters of the Borrower, in each case taken as one accounting period,
provided, that as it applies to the determination of Consolidated EBITDA,
Consolidated Cash Interest Expense and Consolidated Fixed Charges for Minimum
EBITDA, for the Consolidated Interest Coverage Ratio, the Consolidated Fixed
Charge Coverage Ratio and the Leverage Ratio, (a) for the fiscal quarter ended
on or nearest to March 31, 2004, Test Period shall mean the fiscal quarter of
the Borrower ended on such date with results from such Test Period annualized by
multiplying any numbers calculated for such period by four, (b) for the fiscal
quarter ended on or nearest June 30, 2004, Test Period shall mean the period of
two consecutive fiscal quarters of the Borrower ended on such date with results
from such Test Period annualized by multiplying any numbers calculated for such
period by two, (c) for the fiscal quarter ended on or nearest September 30,
2004, Test Period shall mean the period of three consecutive fiscal quarters of
the Borrower ended on such date with results from such Test Period annualized by
multiplying any numbers calculated for such period by 1.333.

                  "Trademarks" shall have the meaning assigned to that term in
Section 6.18(a).

                  "Trade Secrets" shall have the meaning assigned to that term
in Section 6.18(a).

                  "Transactions" shall mean, collectively, (i) the Transactions
under and as defined in the Restructuring Agreement, (ii) the transactions under
the Assignment and Assumption Agreement, (iii) the transactions under the TCP
Assignment and Assumption Agreement, (iv) the

                                       25

<PAGE>

transactions and issuances of securities described in this Agreement and (v) the
payment of the fees and expenses owing in connection with the foregoing.

                  "2003 SAFECO Reimbursement Agreement" shall have the meaning
assigned to that term in Section 4.34.

                  "2004 SAFECO Reimbursement Agreement" shall mean the Amended
and Restated Reimbursement Agreement dated of even date herewith by and among
Holdings, the Borrower, Celerity Group, Inc. (CA), KSI, Deutsche Bank AG,
MidOcean Capital Investors L.P., Behrman Capital III LP, Strategic Entrepreneur
Fund III L.P., David J. Shimmon, Mary Beth Shimmon, Gryphon Partners II, L.P.,
Gryphon Partners II-A, L.P., and MidOcean Celerity Investment Partners, LP.

                  "Unfunded Current Liability" of any Plan shall mean the
amount, if any, by which the actuarial present value of the accumulated plan
benefits under the Plan as of the close of its most recent plan year, determined
in accordance with the actuarial assumptions at such time consistent with
Statement of Financial Accounting Standards No. 87, exceeds the market value of
the assets allocable thereto.

                  "United Filter Warrants" shall mean each of the Initial Note
Warrant, First Note Warrant and Second Note Warrant.

                  "Unitholders Agreement" shall have the meaning assigned
thereto in Section 4.25.

                  "Unrestricted Cash" shall mean any cash not subject to any
Lien in favor of any Person other than either the Administrative Agent for the
benefit of the Lenders under the Senior Credit Agreement or the holders of the
TCP Second Lien Notes.

                  "Warrants" shall have the meaning assigned thereto in Section
2.02.

                  "Wholly-Owned Subsidiary" shall mean, as to any Person, (i)
any corporation 100% of whose capital stock (other than director's qualifying
shares) is at the time owned by such Person and/or one or more Wholly-Owned
Subsidiaries of such Person and (ii) any partnership, association, joint venture
or other entity in which such Person and/or one or more Wholly-Owned
Subsidiaries of such Person has a 100% equity interest at such time.

         1.02     Accounting Terms: Financial Statements. The financial
statements to be furnished to the Purchasers pursuant hereto shall be made and
prepared in accordance with GAAP (except as set forth in the notes thereto or as
otherwise disclosed in writing by the Borrower to the Purchasers); provided
that, except as otherwise specifically provided herein, all computations
determining compliance with Sections 10.08 through 10.11, inclusive, shall
utilize accounting principles and policies in conformity with those used to
prepare the historical financial statements delivered to the Purchasers pursuant
to Section 4.19 unless otherwise requested by the Purchasers from time to time.
In addition, except as otherwise specifically provided herein, all computations
made with respect to Sections 10.08 through 10.11, inclusive, shall be
calculated

                                       26

<PAGE>

without giving effect to any impact of FIN 45 (relating to accounting for
interests in variable interest entities) or FIN 46 (regarding accounting for
guaranteed debt of a guarantor), as issued by the Financial Accounting Standards
Board. At the request of the Agent, the Borrower shall promptly provide a
reconciliation of the effects of the foregoing financial pronouncements on the
computations required under Section 10.08 through 10.11, inclusive.

         1.03     Knowledge of Holdings and the Borrower. All references to the
knowledge of Holdings or the Borrower or to facts known by Holdings or the
Borrower shall mean actual knowledge or notice of the Chairman, Chief Executive
Officer, President, Chief Financial Officer, Treasurer, General Counsel or other
executive officer of Holdings or the Borrower, as the case may be, or any of its
Subsidiaries or any division of Holdings, the Borrower or any of its
Subsidiaries or knowledge which such Person could reasonably have acquired
through the exercise of due inquiry.

                                    ARTICLE 2

                       PURCHASE AND SALE OF THE SECURITIES

         2.01     Purchase and Sale of the Notes. The Borrower and each
Guarantor acknowledge that the Existing Notes have been sold by the Original
Purchasers to certain Purchasers under the Assignment and Assumption Agreement
and the remaining Purchasers under the TCP Assignment and Assumption Agreement.
Those Existing Notes will be amended and restated as set forth in this Agreement
and in the form attached hereto as Exhibit A (the "Notes"). Each of the parties
to this agreement acknowledges that the Purchasers currently own Notes in the
principal amount specified opposite such Purchaser's name on Annex 1, and at the
conclusion of the transactions contemplated hereby, each Purchaser will own
Notes in the principal amount specified opposite such Purchaser's name on Annex
3.

         2.02     Purchase and Sale of the Warrants. Subject to the terms and
conditions herein set forth, Holdings agrees that it will issue and sell to the
Purchasers, and each Purchaser agrees that it will acquire from Holdings on the
Closing Date, warrants in form and substance satisfactory to the Purchasers (the
"New Warrants", and together with the warrants to acquire capital stock of
Holdings previously held by the Purchasers, the "Warrants") exercisable for the
number of shares of Common Stock and Preferred Stock specified opposite such
Purchaser's name on Annex 2 in consideration for each Purchaser's participation
in the Transactions. The Warrants listed on Annex 2 do not include the TCP
Retained Warrants. The parties hereto acknowledge that the Warrants purchased by
certain Purchasers hereunder pursuant to the Assignment and Assumption Agreement
may be immediately exchanged into warrant strips as set forth in the Letter
Agreement dated as of the date hereof between the Purchasers and Holdings. The
parties hereto acknowledge that this obligation of Holdings to issue the New
Warrants may be exchanged by the Holder thereof directly into membership
interests in KH LLC in accordance with the terms of the Restructuring Agreement
without requiring the New Warrants to be issued in physical form prior to such
exchange. Upon such exchange, such membership interests in KH LLC will be
subject to the terms of, and will be entitled to all of the rights and benefits
therefor

                                       27

<PAGE>

in, the LLC Agreement and the Unitholders Agreement. Such membership interests
may be transferred separately from the Notes. Each of the parties to this
agreement acknowledges that the Purchasers own (prior to the transactions
contemplated herein) Warrants exercisable for the number of shares of Common
Stock of Holdings specified opposite such Purchaser's name on Annex 1, and at
the conclusion of the transactions contemplated hereby, each Purchaser will,
pursuant to this Agreement, own Warrants exercisable for the number of shares of
Common Stock of Holdings specified opposite such Purchaser's name on Annex 3.
The Warrants listed on Annex 1 and Annex 3 do not include the TCP Retained
Warrants.

         2.03     Purchase Price of the Warrants. (a) The Purchasers (other than
SVAR, SVBF and SVBF II) will pay an aggregate of $756,296.36 to the Borrower for
their respective Warrants (the "Warrant Purchase Price").

         (b) SVAR, SVBF and SVBF II shall simultaneously purchase their
respective Warrants from the Borrower under the TCP Purchase Agreement.

         2.04     Senior Subordinated Liquidation Preference. The Borrower
agrees to issue to each of the Purchasers its pro rata share of the Senior
Subordinated Liquidation Preference on the terms set forth herein, in the form
of a Liquidation Certificate, substantially in the form of Exhibit G hereto.
Payment of the Senior Subordinated Liquidation Preference shall be subject to
the subordination provisions set forth in Article 16 of this Agreement. Subject
to the foregoing, the Senior Subordinated Liquidation Preference shall be
payable to the holders of such Liquidation Certificates in full upon the
earliest of (i) the repayment in full of the Notes, (ii) the acceleration of the
Notes and (iii) the Maturity Date; provided that the Senior Subordinated
Liquidation Preference shall not be payable until all Senior Obligations are
indefeasibly paid in full in cash and, provided, further, that if the Senior
Subordinated Liquidation Preference is not paid on the first to occur of (i)
repayment in full of the Notes, (ii) the acceleration of the Notes or (iii) the
Maturity Date, the Senior Subordinated Liquidation Preference shall increase by
an additional 2.5% per annum, such accretions to accrue daily and compound
quarterly on the last day of each calendar quarter until the Senior Subordinated
Liquidation Preference is paid in full. Payments of the Senior Subordinated
Liquidation Preference shall be made by wire transfer of immediately available
funds to an account or accounts designated by the holders of the Liquidation
Certificates. Each Purchaser's pro rata share shall equal a fraction, the
numerator of which shall be the outstanding principal balance of the Notes held
by such Purchaser on the date on which the Senior Subordinated Liquidation
Preference is issued (the "Effective Date") and the denominator of which shall
be the sum of the outstanding principal balances of all Notes held by the
Purchasers on the Effective Date. Notwithstanding the foregoing, the Purchasers
hereby agree that as among the Purchasers, the Borrower and the holders of the
Junior Subordinated Notes or Celerity Junior Subordinated Notes, as the case may
be, the Borrower shall apply funds available for the payment of the obligations
under the Mezzanine Transaction Documents and in respect of the Junior
Subordinated Notes or Celerity Junior Subordinated Notes, as the case may be,
according to the following priority in time and right of payment:

                                       28

<PAGE>

                           (i)      first, to the payment of all obligations
                  under the Mezzanine Transaction Documents, other than the
                  Senior Subordinated Liquidation Preference and the Warrants,
                  until paid in full in cash;

                           (ii)     second, to the payment of the Senior
                  Subordinated Liquidation Preference until paid in full in
                  cash;

                           (iii)    third, to the payment of principal of and
                  accrued interest under the Junior Subordinated Notes or
                  Celerity Junior Subordinated Notes, as the case may be, until
                  paid in full in cash; and

                           (iv)     fourth, to the payment of the Make-Whole
                  Amount (under and as defined in the Junior Subordinated
                  Notes);

         provided, however, that nothing in this sentence shall affect the
rights of the holders of the obligations under the Senior Debt Documents, the
TCP Documentation or the obligations of the noteholders under the subordination
provisions of the Notes and the Junior Subordinated Notes.

         2.05     Purchase Price of the Senior Subordinated Liquidation
Preference.

         (a) The Purchasers (other than SVAR, SVBF and SVBF II) will pay an
aggregate of $1.375 million to the Borrower for their respective Liquidation
Certificates representing the right to receive an aggregate of $9,166,666.67 of
the Senior Subordinated Liquidation Preference.

         (b) SVAR, SVBF and SVBF II shall simultaneously purchase their
respective Liquidation Certificates representing the right to receive an
aggregate of $833,333.33 of the Senior Subordinated Liquidation Preference from
the Borrower under the TCP Purchase Agreement.

         (c) The Liquidation Certificates and the Senior Subordinated
Liquidation Preference evidenced thereby will be treated by the parties hereto
as equity for tax purposes.

         2.06     Warrants. (a) The Warrants and the shares into which the
Warrants are convertible are subject to the terms of, and are entitled to all of
the rights and benefits therefor in, the Restated Shareholders Agreement until
such time as the Warrants are exchanged for units in KH LLC and then, the LLC
Agreement and the Unitholders Agreement. (b) The Warrants, the Notes and the
Liquidation Certificates may be transferred separately from one another.

         2.07     Expenses at Closing. Concurrently with the execution hereof,
the Borrower shall (a) reimburse all of the Purchasers' reasonable out-of-pocket
expenses (including, without limitation, fees, charges and disbursements of
counsel) incurred in connection with (i) the negotiation and execution and
delivery of this Agreement, the other Mezzanine Transaction Documents and any
instrument delivered in connection therewith as well as any amendments,
modifications or waivers thereto, (ii) the Purchasers' due diligence
investigation and (iii) the transactions contemplated by this Agreement and the
other Mezzanine Transaction Documents,

                                       29

<PAGE>

which payments shall be made by wire transfer of immediately available funds to
an account or accounts designated by the Purchasers.

         2.08     Closing. The purchase and issuance of the Securities shall
take place at the closing (the "Closing") to be held at the offices of Milbank,
Tweed, Hadley & McCloy LLP, 1 Chase Manhattan Plaza, New York, New York at 10:00
a.m., Eastern Standard Time, on April 9, 2004 or at such other place or on such
other Business Day thereafter as may be agreed upon by the parties hereto (the
"Closing Date"). At the Closing, the Borrower shall deliver the Liquidation
Certificates and Holdings shall deliver the Warrants to the Purchasers against
delivery by the applicable Purchasers to the Borrower of the purchase price
therefor. In each case, payment of such purchase price shall be by wire
transfer.

         2.09     Financial Accounting Positions; Tax Reporting. Each of the
parties hereto agrees to take reporting and other positions with respect to the
Securities which are consistent with the purchase price of the Securities set
forth herein for all financial accounting purposes, unless otherwise required by
applicable GAAP or Commission rules (in which case the parties agree only to
take positions inconsistent with the purchase price of the Securities set forth
herein provided that the Purchasers have consented thereto, which consent shall
not be unreasonably withheld). Each of the parties to this Agreement agrees to
take reporting and other positions with respect to the Securities which are
consistent with the purchase price of the Securities set forth herein for all
other purposes, including without limitation, for all federal, state and local
tax purposes.

                                    ARTICLE 3

                               PREPAYMENT OF NOTES

         3.01     [Intentionally Omitted].

         3.02     Optional Prepayment/Redemption. Subject to the subordination
provisions of Article 16 of this Agreement:

                  (a) Upon notice given to the Holder as provided in Section
3.01(b), the Borrower, at its option, may, subject to the provisions of Article
16 of this Agreement, prepay all or any portion of the principal amount of the
Notes at any time, by paying to each Holder an amount equal to 100% of the
outstanding principal amount of each Note (the "Optional Redemption Price"),
together with Interest accrued and unpaid thereon to the date fixed for such
prepayment; provided, however, each prepayment of less than the full outstanding
balance of the principal amount of any Note shall be in an aggregate principal
amount of $1.0 million or integral multiples thereof, and provided, further,
that unless all Notes shall be paid in full in cash, the aggregate principal
balance of the Notes outstanding at any time shall be at least $5.0 million. In
the case of each redemption of less than all of the outstanding Notes, the Notes
shall be redeemed pro rata among all of the Notes at the time outstanding in
proportion, as nearly as practicable, to the respective unpaid principal amounts
thereof not theretofore called for

                                       30

<PAGE>

redemption.

                  (b) The Borrower shall give written notice of prepayment of
any Note, or any portion thereof, pursuant to this Section 3.02 not less than 10
nor more than 60 days prior to the date fixed for such prepayment. Such notice
of prepayment pursuant to this Article 3 shall be given in the manner specified
in Section 14.02. Upon notice of prepayment pursuant to this Article 3 being
given by the Borrower, the Borrower covenants and agrees that it will prepay, on
the date therein fixed for prepayment, the Notes or the portion thereof so
called for prepayment, at the Optional Redemption Price with respect to the
outstanding principal amount of the Notes or the portion thereof so called for
prepayment, together with Interest accrued and unpaid thereon to the date fixed
for such prepayment, and the costs and expenses referred to in Section 3.02(c).

                   (c) All optional prepayments under this Section 3.02 shall
include payment of accrued Interest on the principal amount of the Notes so
prepaid and shall be applied first to all costs, expenses and indemnities
payable under this Agreement, then to payment of default interest, if any, then
to payment of the Interest, and thereafter to principal.

                                    ARTICLE 4

                          CONDITIONS TO THE RESPECTIVE
                          OBLIGATIONS OF THE PURCHASERS
                           TO PURCHASE THE SECURITIES

                  The effectiveness of the amendment and restatement of the
Existing Securities Purchase Agreement and the obligation of the Purchasers to
purchase the Warrants and the Liquidation Certificates, to pay the purchase
prices therefor at the Closing and to perform any obligations hereunder shall be
subject to the satisfaction as determined by, or waived by, the respective
Purchaser of the following conditions on or before the Closing Date, provided,
that the occurrence of the Closing shall constitute evidence of the satisfaction
or waiver of such conditions. None of the Purchasers shall be obligated to
purchase any Warrant or Liquidation Certificate unless the purchase and sale of
all the Warrants and Liquidation Certificates occurs simultaneously.

         4.01     Representations and Warranties. The representations and
warranties of the Credit Parties contained in Article 6 and those otherwise made
in writing by or on behalf of the Credit Parties in connection with the
Transactions shall be true and correct at and as of the date hereof and the
Closing Date as if made at and as of such date (unless such representation or
warranty was made as of a specified date, in which case such representation or
warranty shall be true and correct only as of such specified date).

         4.02     Compliance with this Agreement. The Credit Parties shall have
performed and complied with all of their agreements and conditions set forth or
contemplated herein or in the

                                       31

<PAGE>

Restructuring Agreement that are required to be performed or complied with by
such parties on or before the Closing Date, and the Purchasers shall have
received at the Closing a certificate to the foregoing effect, dated the Closing
Date, and executed by the Chief Executive Officer, President or a Vice President
of the Borrower.

         4.03     Certificates. (a) The Purchasers shall have received
certificates from each Credit Party, dated the Closing Date (a) substantially in
the form of Exhibit H signed by the Secretary or an Assistant Secretary of such
Credit Party, certifying (i) that the attached copies of the Certificate of
Incorporation and By-laws of the Credit Party, and resolutions of the Board of
Directors of the Credit Party approving the Mezzanine Transaction Documents and
the Restructuring Agreement to which it is a party and the transactions
contemplated hereby and thereby are all true, complete and correct and remain
unamended and in full force and effect, and (ii) the incumbency and specimen
signature of each officer of the Credit Party executing any Mezzanine
Transaction Document and the Restructuring Agreement to which it is a party or
any other document delivered in connection herewith and therewith on behalf of
such Credit Party and (b) substantially in the form of Exhibit H-1 signed by the
President, Chief Financial Officer or Treasurer of the such Credit Party
certifying that (i) the conditions to closing set forth in Section 4 have been
satisfied, (ii) the representations and warranties contained in this Agreement
and the other Mezzanine Transaction Documents and the Restructuring Agreement
are true and correct in all material respects and (iii) no Default or Event of
Default has occurred and is continuing or would result from the Transactions.

                           (b) All corporate and legal proceedings and all
material instruments and agreements in connection with the Transactions shall be
reasonably satisfactory in form and substance to the Purchasers, and the
Purchasers shall have received all information and copies of all documents and
papers, including records of corporate proceedings, governmental approvals, good
standing certificates and bring-down telegrams or facsimiles, if any, which the
Purchasers reasonably may have requested in connection therewith, such documents
and papers where appropriate to be certified by proper corporate or governmental
authorities.

         4.04     Documents; Due Diligence. The Purchasers shall have received
true, complete and correct copies of such agreements, schedules, exhibits,
certificates, documents, financial information and filings as they may
reasonably request in connection with or relating to the Transactions
contemplated hereby, all in form and substance satisfactory to the Purchasers.
In addition, the Purchasers shall have, to their sole satisfaction and the
satisfaction of their legal counsel, completed a due diligence review, including
without limitation, with respect to business, legal, accounting, environmental
and tax matters.

         4.05     Purchase of Securities Permitted by Applicable Laws. The
acquisition of and payment for the Securities to be acquired by the Purchasers
hereunder and the consummation of the transactions contemplated hereby and by
the other Mezzanine Transaction Documents or the Restructuring Agreement (a)
shall not be prohibited by any Requirement of Law, (b) shall not subject the
Purchasers to any penalty or other onerous condition under or pursuant to any
Requirement of Law, and (c) shall be permitted by all Requirements of Law to
which either

                                       32

<PAGE>

Purchaser or the transactions contemplated by or referred to herein or in the
other Mezzanine Transaction Documents or the Restructuring Agreement are
subject; and the Purchasers shall have received such certificates or other
evidence as they may reasonably request to establish compliance with this
condition.

         4.06     Opinion of Counsel. The Purchasers shall have received
favorable written opinions of (i) Cooley Godward LLP, special counsel to
Holdings, the Borrower and its Subsidiaries covering the matters set forth in
Exhibit D, (ii) Fenwick & West, special counsel to Holdings, the Borrower and
its Subsidiaries covering the matters set forth in Exhibit D-1 and (iii) general
counsel to Holdings, the Borrower and its Subsidiaries covering the matters set
forth in Exhibit D-2, in each case dated as of the Closing Date, relating to the
transactions contemplated by or referred to herein, in form and substance
acceptable to the Purchasers.

         4.07     Approval of Counsel to the Purchasers. All actions and
proceedings hereunder and all agreements, schedules, exhibits, certificates,
financial information, filings and other documents required to be delivered by
Holdings, the Borrower and each of their Subsidiaries hereunder or in connection
with the consummation of the transactions contemplated hereby, and all other
related matters, shall have been in form and substance acceptable to Milbank,
Tweed, Hadley & McCloy LLP, counsel to certain of the Purchasers, in its
reasonable judgment (including, without limitation, the opinion of counsel
referred to in Section 4.06 hereof).

         4.08     [Intentionally omitted]

         4.09     No Material Judgment or Order. There shall not be on the
Closing Date any judgment or order of a court of competent jurisdiction or any
ruling of any Governmental Authority or any condition imposed under any
Requirement of Law which, in the judgment of the Purchasers, would prohibit the
purchase of the Securities to be purchased hereunder or subject the Purchasers
to any penalty or other onerous condition under or pursuant to any Requirement
of Law if the Securities were to be purchased hereunder.

         4.10     Pro Forma Balance Sheet. The Purchasers shall have received a
Pro Forma Balance Sheet of the Borrower and Holdings, certified by the chief
financial officer of the Borrower and Holdings, respectively that it fairly
presents the pro forma adjustments reflecting the consummation of the
transactions contemplated by the (a) Transactions and (b) the Mezzanine
Transaction Documents, including all material fees and expenses in connection
therewith.

         4.11     Good Standing Certificates. The Purchasers shall have received
good standing certificates for each Credit Party for each of their respective
jurisdictions of incorporation and all other jurisdictions where they are
required to be qualified to conduct business as such business is currently
operated.

         4.12     No Litigation. No action, suit or proceeding before any court
or any Governmental Authority shall have been commenced or threatened, no
investigation by any Governmental Authority shall have been commenced and no
action, suit or proceeding by any

                                       33

<PAGE>

Governmental Authority shall have been threatened against any Purchaser,
Holdings, the Borrower or any of their Subsidiaries (i) seeking to restrain or
prevent the transactions contemplated hereby or questioning the validity or
legality of any of such transactions, or (ii) which would, if resolved adversely
to such Purchaser, Holdings, the Borrower or such Subsidiary, severally or in
the aggregate, have a Material Adverse Effect, other than the Alfa Laval
Litigation.

         4.13     Fees, Expenses, Etc. On the Closing Date, the Borrower shall
have paid to the Purchasers all costs, fees and expenses (including, without
limitation, legal fees and expenses) described herein.

         4.14     Employee Benefit Plans; Management Agreements; Debt
Agreements; Senior Debt Documents; Tax Sharing Agreements and Due Diligence. On
or prior to the Closing Date, there shall have been made available for review by
the Purchasers and their counsel true and correct copies of the following
documents:

                  (i) all Plans (and for each Plan that is required to file an
         annual report on Internal Revenue Service Form 5500-series, a copy of
         the most recent such report (including, to the extent required, the
         related financial and actuarial statements and opinions and other
         supporting statements, certifications, schedules and information) for
         the most recent plan year, and for each Plan that is a "single-employer
         plan," as defined in Section 4001(a)(15) of ERISA, if any, the most
         recently prepared actuarial valuation therefor) and any other "employee
         benefit plans," as defined in Section 3(3) of ERISA, and any other
         material agreements, plans or arrangements, with or for the benefit of
         current or former employees of the Borrower or any of its Subsidiaries
         (provided that the foregoing shall apply in the case of any
         Multiemployer Plan, if any, only to the extent that any document
         described therein is in the possession of the Borrower, KSI or any
         Subsidiary thereof (collectively, the "Employee Benefit Plans"));

                 (ii) all agreements with members of, or with respect to, the
         management of Holdings, the Borrower, KSI or any of their Subsidiaries
         (collectively, the "Management Agreements");

                (iii) all agreements evidencing or relating to Indebtedness of
         Holdings, the Borrower, KSI or any of their Subsidiaries which are to
         remain outstanding after giving effect to the incurrence of
         Indebtedness under this Agreement on the Closing Date (collectively,
         the "Debt Agreements");

                 (iv) all Senior Debt Documents; and

                  (v) all tax sharing, tax allocation and other similar
         agreements entered into by Holdings, the Borrower, KSI or any of their
         respective Subsidiaries;

all of which Employee Benefit Plans, Management Agreements, Debt Agreements,
Senior Debt Documents and the foregoing tax sharing agreements described in (v)
above shall be in form and

                                       34

<PAGE>

substance reasonably satisfactory to the Purchasers and shall be in full force
and effect on the Closing Date.

         4.15     Indebtedness. On the Closing Date, after giving effect to the
consummation of the Transactions, Holdings, the Borrower and their Subsidiaries
shall have no outstanding Indebtedness except Existing Indebtedness and any
Securities issued hereunder that may constitute Indebtedness as defined herein,
and no such party shall be in default in the observance or performance of any
agreement or condition relating thereto, except with respect to the failure to
provide audited financial statements under Section 8.01(b) of the Existing
Securities Purchase Agreement and similar requirements under the Senior Credit
Agreement and the TCP Purchase Agreement.

         4.16     Guaranty. Holdings, the KSI Entities and each Subsidiary
Guarantor existing on the Closing Date shall have guaranteed the obligations of
the Borrower and its Subsidiaries hereunder and duly authorized, executed and
delivered a counterpart of this Agreement.

         4.17     Adverse Change, Etc. (a) On the Closing Date, there shall not
have occurred or been threatened since December 26, 2003 any change (or a series
of changes) that the Purchasers shall determine, has resulted, or could
reasonably be expected to result, in a Material Adverse Effect.

                           (b) On or prior to the Closing Date, all necessary
material governmental (domestic and foreign) and material third party approvals
and/or consents in connection with the Transactions, any of the other
transactions contemplated by this Agreement shall have been obtained and remain
in effect, and all applicable waiting periods shall have expired without any
action being taken by any competent authority which restrains, prevents or
imposes materially adverse conditions upon the consummation of the Transactions
or the other transactions contemplated by this Agreement. Additionally, there
shall not exist any judgment, order, injunction or other restraint prohibiting
or imposing materially adverse conditions upon the Transactions or the other
transactions contemplated by this Agreement.

         4.18     Solvency Certificate; Solvency Opinion. On or before the
Closing Date, the Borrower shall cause to be delivered to the Purchasers a (a)
solvency certificate from the Chief Financial Officer of the Borrower in the
form of Exhibit F hereto, which shall be addressed to the Purchasers and dated
as of the Closing Date, after giving effect to the KSI Spin-Off, setting forth
the conclusion that the Borrower and its Subsidiaries taken as a whole are
Solvent, (b) a solvency opinion from the Chief Financial Officer of the Borrower
and KSI, respectively, in the form of Exhibit F-1 hereto, which shall be
addressed to the Purchasers and dated as of the Closing Date, setting forth the
conclusion that each of KSI and the Borrower is Solvent and (c) a Solvency
Opinion given by a third party as to the solvency of the Borrower and KSI, in
form and substance acceptable to the Purchasers, after giving effect to the
Transactions.

         4.19     Financial Statements; Projections. On or prior to the Closing
date, the Purchasers shall have received and be satisfied with (a) copies of the
financial statements referred to in Section 6.05 (including the pro forma
balance sheet giving effect to the Transactions) and the

                                       35

<PAGE>

projections referred to in Section 6.05(d), (b) an officer's certificate as to
the reasonableness of the assumptions underlying the Projections, and (c) an
officer's certificate as to the scope and substance (as contained in Section
6.05(a)) of the unaudited consolidated financial statements of Holdings, the
Borrower and its Consolidated Subsidiaries provided to the Holders, which
certificate shall provide that the Borrower would have been in compliance with
the covenants under this Agreement based on unaudited financial statements for
fiscal year 2003. A certificate from the Chief Financial Officer of the Borrower
shall be delivered to the Agent confirming that, based on conversations with the
Borrower's outside auditors, no material adjustments or modifications will be
required to be made to Holdings', the Borrower's and its Consolidated
Subsidiaries' financial information contained in the Holdings, the Borrower's
and its Consolidated Subsidiaries' unaudited quarterly and annual financial
statements for fiscal 2003 as a result of such auditors' review in preparation
of the unaudited financial statements for fiscal 2003 for such business.

         4.20     Assignment and Assumption Agreement. The Assignment and
Assumption Agreement shall have been executed and delivered to the Purchasers in
form and substance satisfactory to the Purchasers.

         4.21     BioKinetics Litigation. The Purchasers shall be satisfied with
and have approved the terms of any settlement of the Alfa Laval Litigation to
the extent settlement of such litigation occurs prior to the Closing Date.

         4.22     Tax Effects. The Purchasers shall be satisfied as to the tax
effects to them from the Transactions contemplated hereunder and under the
Restructuring Agreement.

         4.23     Restructuring Agreement. The Restructuring Agreement shall
have been executed and delivered to the Purchasers in form and substance
satisfactory to the Purchasers. The TCP Additional Assignment and Assumption
Agreement and the Abandonment Agreement shall have been executed and delivered
to the Agent hereunder in form and substance satisfactory to the Agent.

         4.24     Amended and Restated Limited Liability Company Agreement. An
amended and restated limited liability company agreement for KH LLC (the "LLC
Agreement") shall have been executed and delivered to the Purchasers in form and
substance satisfactory to the Purchasers.

         4.25     Unitholders Agreement. A unitholders agreement relating to the
membership interests in KH LLC shall have been executed and delivered to the
Purchasers in form and substance satisfactory to the Purchasers (the
"Unitholders Agreement").

         4.26     Service of Process. The Purchasers shall have received
evidence that (i) each Credit Party shall have duly and irrevocably appointed CT
Corporation System as agent for service of process and (ii) CT Corporation
System shall have accepted such appointment.

                                       36

<PAGE>

         4.27     Securities Laws. The offering and sale of the Securities to
the Purchasers shall have complied with all Requirements of Law and shall be
exempt from registration under the Securities Act.

         4.28     Execution of Notes. The Notes, as amended hereby, shall have
been executed by the Borrower, and delivered to the Purchasers, in the amount,
maturity and as otherwise provided herein.

         4.29     Warrant Obligation; Warrant Exchange. A warrant exchange
agreement providing for the exchange of each Purchaser's Warrants into
membership interests in KH LLC shall have been executed by KH LLC and Holdings
and delivered to the Purchasers substantially in the form attached as Exhibit B
hereto.

         4.30     Liquidation Certificates. The Liquidation Certificates shall
have been executed by the Borrower and delivered to the Purchasers substantially
in the form of Exhibit G hereto.

         4.31     [Intentionally omitted]

         4.32     Amended Debt Documents. Amendments to and/or consents under
the Senior Credit Documents and the TCP Debt Documentation shall have been
executed and delivered to the Purchasers in form and substance satisfactory to
the Purchasers.

         4.33     [Intentionally omitted]

         4.34     SAFECO Forbearance. The parties to the SAFECO Reimbursement
Agreement dated as of February 18, 2003 (the "2003 SAFECO Reimbursement
Agreement"), by and among Holdings, the Borrower, KSI, Celerity, MidOcean
Capital Investors, L.P., Behrman, SEP, and Shimmon shall have agreed, in form
and substance reasonably satisfactory to the Agent, to delay the payment due
under such agreement (a) as to Shimmon, until the earliest of the consummation
of a Qualified Public Equity Offering, January 10, 2005, and the earliest date
arising under clause (b) immediately hereafter and (b) as to MidOcean, Behrman
and SEP, until the earlier of (i) such time as all amounts (including principal
and interest thereon, to the extent applicable) payable, regardless of when due
and including principal, under the TCP Second Lien Notes, the Notes, and the
Senior Subordinated Liquidation Preference have each been paid in full, and (ii)
the date upon which the SAFECO surety facility no longer requires the guaranty
or other credit support of any Person other than KH LLC, KSI or any of the
Credit Parties or their Subsidiaries (other than by termination of such SAFECO
surety facility by KH LLC, KSI or any of the Credit Parties or their
subsidiaries). The parties to the 2003 SAFECO Reimbursement Agreement and
Deutsche Bank AG, Gryphon Partners II, L.P., Gryphon Partners II-A, L.P. and
MidOcean Celerity Investment Partners, L.P. shall have entered into the 2004
SAFECO Reimbursement Agreement. In addition, the parties to such agreement shall
further agree, in form and substance reasonably satisfactory to the Agent, to
defer any payment similar to the payment due on March 31, 2004 (subject to the
forbearance above) under the 2003 SAFECO Reimbursement Agreement, and any
extension or replacement thereof, until after the Maturity Date of the TCP
Second Lien Notes and the Notes.

                                       37

<PAGE>

         4.35     Parent Non-Recourse Guaranty. A non-recourse guaranty by KH
LLC in favor of the Holders of the Notes shall have been executed and delivered
to the Purchasers in form and substance satisfactory to the Purchasers (the
"Parent Non-Recourse Guaranty").

         4.36     Performance; No Default. Each Credit Party shall have
performed all of its obligations under this Agreement required to be performed
by such Person at or prior to the Closing, and no Default or Event of Default
shall have occurred and be continuing or would exist after giving effect to the
issuance and sale of the New Securities.

                                    ARTICLE 5

                          CONDITIONS TO THE OBLIGATIONS
          OF HOLDINGS AND THE BORROWER TO ISSUE AND SELL THE SECURITIES

                  The obligations of each of Holdings and the Borrower to issue
and sell the Warrants and the Liquidation Certificates, as applicable, and to
perform its other obligations hereunder relating thereto shall be subject to the
satisfaction as determined by, or waived by, Holdings and the Borrower of the
following conditions on or before the Closing Date:

         5.01     Representations and Warranties. The representations and
warranties of the Purchasers contained in Article 7 hereof shall be true and
correct at and as of the date hereof and the Closing Date as if made at and as
of such date (unless such representation or warranty was made as of a specified
date, in which case such representation or warranty shall be true and correct
only as of such specified date).

         5.02     Compliance with this Agreement. The Purchasers shall have
performed and complied with all of their respective agreements and conditions
set forth or contemplated herein that are required to be performed or complied
with by the Purchasers on or before the Closing Date.

                                    ARTICLE 6

                         REPRESENTATIONS AND WARRANTIES
                          OF HOLDINGS AND THE BORROWER

                  In order to induce the Purchasers to purchase the Securities,
Holdings, the Borrower and the Subsidiary Guarantors make the following
representations, warranties and agreements, in each case after giving effect to
the Transactions as consummated on the Closing Date, all of which shall survive
the execution and delivery of this Agreement and the Securities, on and as of
the Closing Date.

         6.01     Corporate Status. Each of Holdings, the Borrower and each of
their respective Subsidiaries (i) is a duly organized and validly existing
corporation or limited liability company, as the case may be, in good standing
under the laws of the jurisdiction of its incorporation or formation, as the
case may be, (ii) has the corporate or other applicable power and authority to

                                       38

<PAGE>

own its property and assets and to transact the business in which it is engaged
and presently proposes to engage and (iii) except as disclosed on Schedule 6.01,
is duly qualified and is authorized to do business and is in good standing in
each jurisdiction where the conduct of its business requires such qualification.

         6.02     Corporate Power and Authority. Each of Holdings, the Borrower
and each of their respective Subsidiaries has the corporate or other applicable
power and authority to execute, deliver and perform the terms and provisions of
each of the Mezzanine Transaction Documents and the Restructuring Agreement to
which it is party and has taken all necessary corporate or other applicable
action to authorize the execution, delivery and performance by it of each of
such Mezzanine Transaction Documents and the Restructuring Agreement. Each of
such Mezzanine Transaction Documents and the Restructuring Agreement constitutes
the legal, valid and binding obligation of such Person enforceable in accordance
with its terms, except to the extent that the enforceability thereof may be
limited by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar laws generally affecting creditors'
rights and by equitable principles (regardless of whether enforcement is sought
in equity or at law).

         6.03     No Violation. Neither the execution, delivery or performance
by any Credit Party of the Mezzanine Transaction Documents and the Restructuring
Agreement to which it is a party, nor compliance by it with the terms and
provisions thereof, (i) will contravene any provision of any applicable law,
statute, rule or regulation or any applicable order, writ, injunction or decree
of any court or governmental instrumentality, (ii) will conflict with or result
in any breach of any of the terms, covenants, conditions or provisions of, or
constitute a default under, or result in the creation or imposition of (or the
obligation to create or impose) any Lien upon any of the properties or assets of
Holdings, the Borrower or any of their respective Subsidiaries pursuant to the
terms of any indenture, mortgage, deed of trust, credit agreement or loan
agreement, or any other material agreement, contract or instrument, to which
Holdings, the Borrower or any of their respective Subsidiaries is a party or by
which it or any of its property or assets is bound or to which it may be subject
or (iii) will violate any provision of the Certificate of Incorporation or
By-Laws (or equivalent organizational documents) of any Credit Party.

         6.04     Governmental Approvals. Except as required to effect the
Transactions, no order, consent, approval, license, authorization or validation
of, or filing, recording or registration with, or exemption by, any Governmental
Authority is required to authorize, or is required in connection with, (i) the
execution, delivery and performance by any Credit Party of any Mezzanine
Transaction Document and the Restructuring Agreement or (ii) the legality,
validity, binding effect or enforceability as to any Credit Party of any
Mezzanine Transaction Document and the Restructuring Agreement.

         6.05     Financial Statements; Financial Condition; Undisclosed
Liabilities; Projections; Etc. (a) The audited balance sheet of Holdings for the
fiscal year ended on or nearest to December 27, 2002 and the draft audited
balance sheets of Holdings, the Borrower and its Consolidated Subsidiaries for
the fiscal year ended on or nearest to December 26, 2003 in the

                                       39

<PAGE>

form required for Amendment No. 5 of the Registration Statement on Form S-1 for
the initial public offering of Holdings (the "IPO Registration Statement
Amendment") and the unaudited monthly balance sheets of Holdings as of January
23, 2004 and February 20, 2004, and, in each case, the related statements of
income, cash flows and shareholders' equity of Holdings, the Borrower and its
Consolidated Subsidiaries for the fiscal year or month, as the case may be,
ended on such dates, copies of which have been furnished to the Purchasers prior
to the Closing Date, present fairly in all material respects the financial
position of Holdings, the Borrower and its Consolidated Subsidiaries at the
dates of such balance sheets and the results of the operations of Holdings, the
Borrower and its Consolidated Subsidiaries for the periods covered thereby. All
of the foregoing historical financial statements have been prepared in
accordance with GAAP consistently applied. The pro forma consolidated balance
sheet of Holdings, the Borrower and its Consolidated Subsidiaries as of February
20, 2004, as if the Refinancing and as if the Transactions had been effected as
of such date, copies of which have been furnished to the Purchasers prior to the
Closing Date, present fairly in all material respects the pro forma consolidated
financial position of Holdings, the Borrower and its Consolidated Subsidiaries
as of February 20, 2004.

                           (b) On and as of the Closing Date, on a pro forma
basis after giving effect to the Transactions and to all Indebtedness (including
the Notes) being incurred or assumed, with respect to each of Holdings and the
Borrower, individually, and each such Person and its Subsidiaries taken as a
whole, (x) the sum of the assets, at a fair valuation, of each such Person,
individually, and each such Person and its Subsidiaries, taken as a whole, will
exceed its or their debts; (y) such Person has or Persons have not incurred and
do/does not intend to incur, nor believes that it will incur, debts beyond its
ability to pay such debts as such debts mature; and (z) such Person or Persons
will have sufficient capital with which to conduct its/their business. For
purposes of this Section 6.05(b), "debt" means any liability on a claim and
"claim" means a (i) right to payment, whether or not such a right is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured, or unsecured or (ii) right to
an equitable remedy for breach of performance if such breach gives rise to a
payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured
or unsecured.

                           (c) Except (i) as fully disclosed in the financial
statements (including the pro forma financial statements) delivered under this
Agreement, (ii) liabilities incurred in connection with the Transactions, (iii)
the Existing Indebtedness and (iv) for non-material liabilities arising in the
ordinary course of business since February 20, 2004, there were as of the
Closing Date no liabilities or obligations with respect to Holdings, the
Borrower or its Consolidated Subsidiaries of any nature whatsoever (whether
absolute, accrued, contingent or otherwise and whether or not due). As of the
Closing Date, none of the Credit Parties knows of any basis for the assertion
against it of any liability or obligation of any nature that is not fully
disclosed in the financial statements delivered pursuant to Sections 4.10 and
4.19 which, either individually or in the aggregate, could be adverse to
Holdings, the Borrower and their respective Subsidiaries taken as a whole.

                                       40

<PAGE>

                           (d) On and as of the Closing Date, the projections
which have been delivered to the Purchasers on or prior to the Closing Date have
been prepared on a basis consistent with the financial statements referred to in
Section 6.05(a), and are based on good faith estimates and assumptions believed
by management of the Borrower to be reasonable as of the date of such
projections, and there are no statements or conclusions in any of the
projections which are based upon or include information known to Holdings, the
Borrower or any of its Consolidated Subsidiaries to be misleading in any respect
or which fail to take into account information regarding the matters reported
therein. On the Closing Date, the Borrower believes that the projections were
reasonable, it being recognized by the Purchasers, however, that projections as
to future events are not to be viewed as facts and that the actual results
during the period or periods covered by the projections may differ from the
projected results and such differences may be material.

                           (e) Since February 20, 2004 no event has occurred
that is or could reasonably be expected to be materially adverse to the
condition (financial or otherwise), business, operations or prospects of
Holdings, the Borrower and its Consolidated Subsidiaries taken as a whole,
except for the Alfa Laval Litigation.

         6.06     Litigation. Except as described in Schedule 6.06, there are no
actions, suits or proceedings pending or, to the knowledge of any Credit Party,
threatened against any of Holdings, the Borrower or any of their respective
Subsidiaries.

         6.07     True and Complete Disclosure. All factual information
furnished by or on behalf of Holdings, the Borrower and their respective
Subsidiaries in writing to a Purchaser or the Agent for purposes of or in
connection with this Agreement, the other Mezzanine Transaction Documents or any
transaction contemplated herein or therein is, taken as a whole is true and
accurate in all material respects on the date as of which such information is
dated or certified and do not omit to state any fact necessary to make such
information not misleading in any material respect at such time in light of the
circumstances under which such information was provided.

         6.08     Tax Returns and Payments. Each Credit Party has filed all
Federal income tax returns and all other material tax returns, domestic and
foreign, required to be filed by it and has paid all material taxes and
assessments payable by it which have become due, except for those contested in
good faith and adequately disclosed and fully provided for on its financial
statements in accordance with GAAP. Each Credit Party has at all times paid, or
have provided reserves determined adequate in accordance with GAAP for the
payment of, all Federal, state and foreign income taxes applicable for all prior
fiscal years and for the current fiscal year to date. Except as set forth on
Schedule 6.08, there is no action, suit, proceeding, investigation, audit, or
claim now pending or, to the knowledge of each Credit Party, threatened by any
authority regarding any taxes relating to any Credit Party. Except as set forth
on Schedule 6.08, as of the Closing Date, none of the Credit Parties has entered
into an agreement or waiver or been requested to enter into an agreement or
waiver extending any statute of limitations relating to the payment or
collection of taxes of such Credit Party, or is aware of any circumstances that
would cause the taxable years or other taxable periods of such Credit Party not
to be subject to

                                       41

<PAGE>

the normally applicable statute of limitations. None of the Credit Parties has
incurred, or will incur, any tax liability in connection with the Transactions
that could reasonably be expected to have a Material Adverse Effect.

         6.09     Compliance with ERISA. (i) Schedule 6.09(a) sets forth, as of
the Closing Date, each Plan and each Multiemployer Plan. Except as set forth on
Schedule 6.09(b) or to the extent that any breach of the representations set
forth herein would not individually or in the aggregate reasonably be expected
to have a Material Adverse Effect (determined without regard to items disclosed
on Schedule 6.09(b)), each Plan currently maintained or contributed to by the
Borrower or any Subsidiary (and each related trust, insurance contract or fund)
is in substantial compliance with its terms and with all applicable laws,
including without limitation ERISA and the Code; each Plan currently maintained
or contributed to the Borrower or any Subsidiary (and each related trust, if
any) which is intended to be qualified under Section 401(a) of the Code has
received a determination letter from the Internal Revenue Service to the effect
that it meets the requirements of Sections 401(a) and 501(a) of the Code, or
such Plan is within the remedial amendment period for submitting an application
for a determination letter, or has been drafted with the intent that it meets
the requirements of Sections 401(a) and 501(a) of the Code and will be amended
as required by the Internal Revenue Service to meet such requirements; no
Reportable Event has occurred; no Multiemployer Plan is insolvent or in
reorganization; no Plan has an Unfunded Current Liability which, when added to
the aggregate amount of Unfunded Current Liabilities of all other Plans, exceeds
the aggregate amount of such Unfunded Current Liabilities that existed on the
Closing Date by $1,000,000; no Plan which is subject to Section 412 of the Code
or Section 302 of ERISA has an accumulated funding deficiency, within the
meaning of such sections of the Code or ERISA, or has applied for or received a
waiver of an accumulated funding deficiency or an extension of any amortization
period, within the meaning of Section 412 of the Code or Section 303 or 304 of
ERISA; all contributions required to be made with respect to a Plan currently
maintained or contributed to by the Borrower or any Subsidiary or ERISA
Affiliate and each Multiemployer Plan currently maintained or contributed to by
the Borrower or any Subsidiary or ERISA Affiliate have been timely made; neither
the Borrower nor any of its Subsidiaries nor any ERISA Affiliate has incurred
any liability to or on account of a Plan or Multiemployer Plan pursuant to
Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of
ERISA or Section 401(a)(29), 4971 or 4975 of the Code or, to the Borrower's
knowledge, is likely to incur any such liability under any of the foregoing
sections with respect to any Plan; no condition exists which presents a material
risk to the Borrower or any of its Subsidiaries or any ERISA Affiliate of
incurring a liability to or on account of a Plan or Multiemployer Plan pursuant
to the foregoing provisions of ERISA and the Code; no proceedings have been
instituted to terminate or appoint a trustee to administer any Plan which is
subject to Title IV of ERISA; no action, suit, proceeding, hearing, audit or
investigation with respect to the administration, operation or the investment of
assets of any Plan currently maintained or contributed to by the Borrower or any
Subsidiary of the Borrower (other than routine claims for benefits) is pending,
or to the Borrower's knowledge is expected or threatened; the aggregate
liabilities of the Borrower and its Subsidiaries and their ERISA Affiliates to
all Multiemployer Plans in the event of a complete withdrawal therefrom, as of
the close of the most recent fiscal year of each such Multiemployer Plan ended
prior to the date

                                       42

<PAGE>

hereof, would not exceed $1,000,000; each group health plan (as defined in
Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) which covers or has
covered employees or former employees of the Borrower or any of its Subsidiaries
has at all times been operated in compliance with the provisions of Part 6 of
subtitle B of Title I of ERISA and Section 4980B of the Code; no lien imposed
under the Code or ERISA on the assets of the Borrower or any of its Subsidiaries
exists or is reasonably likely to arise on account of any Plan or Multiemployer
Plan; and the Borrower or any of its Subsidiaries may cease contributions to or
terminate any Employee Benefit Plan maintained by any of them without incurring
any material liability.

                  (ii)     Except as set forth on Schedule 6.09(c), each Foreign
Pension Plan has been maintained in substantial compliance with its terms and
with the requirements of any and all applicable laws, statutes, rules,
regulations and orders and has been maintained, where required, in good standing
with applicable regulatory authorities; all contributions required to be made by
the Borrower or any of its Subsidiaries with respect to a Foreign Pension Plan
have been and are expected to be timely made; none of the Credit Parties has
incurred any obligation in connection with the termination of or withdrawal from
any Foreign Pension Plan. The excess of the present value of the accrued benefit
liabilities (whether or not vested) under each Foreign Pension Plan, determined
as of the end of the Borrower's most recently ended fiscal year on the basis of
actuarial assumptions, used by the actuary for such plan in accordance with
applicable local standards, over the current value of the assets of each such
Foreign Pension Plan allocable to such benefit liabilities could not reasonably
be expected to, in the aggregate, have a Material Adverse Effect.

         6.10     Representations and Warranties in Documents. On the Closing
Date, all representations and warranties of any Credit Party set forth in the
other Mezzanine Transaction Documents and the Restructuring Agreement were true
and correct in all material respects at the time as of which such
representations and warranties were made (or deemed made).

         6.11     Title to Properties; Possession Under Leases. (a) Schedule
6.11(a)(i) contains a true and complete list of each parcel of Real Property
owned by the Borrower and/or any Domestic Subsidiary after giving effect to the
KSI Spin-Off and describes the type of interest therein held by the Borrower
and/or the Domestic Subsidiaries. Schedule 6.11(a)(ii) contains a true and
complete list of each Real Property leased, subleased or otherwise occupied or
utilized (including, without limitation, each property subject to Lease) by the
Borrower and/or any Domestic Subsidiary, as lessee, as of the date hereof and
describes the type of interest therein held by the Borrower and/or the Domestic
Subsidiaries and which provides for annual lease payments in excess of $50,000.
Except as set forth on Schedule 6.11(a)(iii), each of the Borrower and the
Subsidiaries has good and indefeasible fee simple title to all its owned Real
Property free and clear of all Liens other than Permitted Liens.

                           (b) On the Closing Date, the lessee under each lease
set forth on Schedule 6.11(a)(ii) is in peaceable or undisturbed possession of
the Real Property and improvements, buildings, machinery, equipment or other
tangible property or assets covered thereby and such lessee is not in material
default thereunder and any prior material default has been cured or

                                       43

<PAGE>

waived except to the extent that any breach of the representations set forth
under this Section 6.11(b) could not individually or in the aggregate reasonably
be expected to have a Material Adverse Effect.

                           (c) Except as set forth on Schedule 6.11(c), title to
all property (other than Real Property) is held by Holdings, the Borrower and/or
each Subsidiary free and clear of all Liens.

                           (d) The owned, leased or otherwise utilized property
of the Borrower and the Subsidiaries, taken as a whole, (i) is in good operating
order, condition and repair (ordinary wear and tear excepted) and (ii)
constitutes all the assets and properties which are required for the business
and operations of the Borrower and the Subsidiaries as presently conducted.

                           (e) Except as set forth on Schedule 6.11(e), as of
the Closing Date, none of the Borrower or any Subsidiary has received any notice
of, or has any knowledge of, the occurrence or pendency or contemplation of any
Recovery Event affecting all or any portion of the property.

                  6.12     Capitalization. On the Closing Date and after giving
effect to the Transactions, the authorized capital stock of (x) Holdings shall
consist of 500,000,000 shares of common stock, $0.0001 par value per share,
93,449,395 of which shall be issued and outstanding, and 120,000,000 shares of
preferred stock, $0.0001 par value per share, 41,295,887 of which shall be
issued and outstanding, and (y) the Borrower shall consist of 1,000 shares of
common stock, $0.01 par value per share, 1,000 of which shall be issued and
outstanding. All such outstanding shares have been duly and validly issued, are
fully paid and non-assessable and have been issued free of preemptive rights.
Except as set forth on Schedule 6.12, as of the Closing Date, neither Holdings,
the Borrower or any Subsidiary has outstanding any securities convertible into
or exchangeable for its capital stock or outstanding any rights to subscribe for
or to purchase, or any options for the purchase of, or any agreement providing
for the issuance (contingent or otherwise) of, or any calls, commitments or
claims of any character relating to, its capital stock. Schedule 6.12 sets
forth, as of the Closing Date, a list of all preemptive rights granted with
regard to the capital stock of Holdings or the Borrower. The Warrants listed on
Annex 3, in aggregate, are exercisable for approximately 6.0% of the total
outstanding shares of capital stock of Holdings on a fully-diluted basis, other
than upon the conversion of the US Filter Notes and Capital Call Notes as
defined in the Restructuring Agreement. The Warrants listed on Annex 3 do not
include the TCP Retained Warrants.

         6.13     Subsidiaries. (a) Holdings has no direct Subsidiaries other
than the Borrower.

                           (b) After giving effect to the KSI Spin-Off, the
Borrower has no Subsidiaries other than (i) those Subsidiaries listed on
Schedule 6.13(b), and (ii) new Subsidiaries created in compliance with Section
10.15.

                                       44

<PAGE>

                           (c) An accurate organization chart, showing the
ownership structure of Holdings, the Borrower and each of their respective
Subsidiaries on the Closing Date but after giving effect to the KSI Spin-Off is
set forth on Schedule 6.13(c).

         6.14     Compliance with Statutes, Etc. Each Credit Party is in
compliance with all applicable statutes, regulations and orders of, and all
applicable restrictions imposed by, all governmental bodies, domestic or
foreign, in respect of the conduct of its business and the ownership of its
property (including applicable statutes, regulations, orders and restrictions
relating to environmental standards and controls), except such noncompliances as
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.

         6.15     Status under Certain Federal Statutes. No Credit Party is (a)
an "investment company," or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended; (b) a
"holding company" or a "subsidiary company" of a "holding company," or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company," as such terms are defined in the Public Utility Holding Company Act of
1935, as amended; (c) a "public utility" as such term is defined in the Federal
Power Act, as amended; or (d) a "rail carrier or a person controlled by or
affiliated with a rail carrier," within the meaning of Title 49, U.S.C., or a
"carrier" to which 49 U.S.C. Section 11301(b)(1) is applicable.

         6.16     Environmental Matters. (a) Except as disclosed on Schedule
6.16, (a) each Credit Party and each of their respective businesses, operations
and Real Properties has complied with, and on the Closing Date will be in
compliance with, all applicable Environmental Laws and the requirements of any
permits and authorizations issued under such Environmental Laws. There is no
Environmental Claim that is (i) pending or, to the best knowledge of each Credit
Party after due inquiry, threatened against any Credit Party or any Real
Property or (ii) pending, or to the best knowledge of each Credit Party after
due inquiry, threatened against any Person whose liability for such
Environmental Claim may have been assumed by contract or otherwise by any Credit
Party or may be imputed by law to any Credit Party. There are no facts,
circumstances, conditions or occurrences that could reasonably be expected (i)
to form the basis of an Environmental Claim against such Credit Party or any
such Real Property, or (ii) to cause any such Real Property to be subject to any
restrictions on the ownership, occupancy, use or transferability of such Real
Property under any applicable Environmental Law. No Credit Party has received
notice that it is or may be identified as a potentially responsible party, or
any request or information, under CERCLA or other Environmental Law.

                           (b) Hazardous Materials have not at any time been
generated, used, treated, stored or disposed on, or transported to or from, any
Real Property owned or operated by any Credit Party where such generation, use,
treatment, storage or disposal has violated or could reasonably be expected to
violate, or resulted or could reasonably be expected to result in an
Environmental Claim against any Credit Party or Real Properties under, any
Environmental Law. Hazardous Materials have not been Released on or from any
Real Property owned or operated by any Credit Party where such Release has
violated or could reasonably be expected to violate, or

                                       45

<PAGE>

resulted or could reasonably be expected to result in an Environmental Claim
against any Credit Party or Real Properties under, any applicable Environmental
Law. No Real Property owned or operated by any Credit Party nor any of their
respective predecessors in interest is (i) listed or proposed for listing on the
National Priorities List promulgated under CERCLA or (ii) listed on the
Comprehensive Environmental Response, Compensation, and Liability Information
System list promulgated under CERCLA, or on any comparable list of contaminated
sites published by any Governmental Authority. No Credit Party nor any of their
respective predecessors in interest has sent any Hazardous Materials to an
off-site location that could reasonably be expected to result in an
Environmental Claim.

                           (c) The execution and delivery of this Agreement and
the consummation of the Transactions will not trigger any Governmental Real
Property Disclosure Requirements.

                           (d) Notwithstanding anything to the contrary in this
Section 6.16, the representations made in this Section 6.16 shall only be untrue
if the aggregate effect of all failures and noncompliances of the types
described in this Section 6.16 could reasonably be expected to have a Material
Adverse Effect.

         6.17     Labor Relations. Except as set forth on Schedule 6.17, none of
the Credit Parties is engaged in any unfair labor practice and there is:

                  (i)      no unfair labor practice complaint pending against
         any Credit Party or, to the best knowledge of the Credit Parties,
         threatened against any of them, before the National Labor Relations
         Board, and no material grievance or arbitration proceeding arising out
         of or under any collective bargaining agreement is so pending against
         any Credit Party or, to the best knowledge of the Credit Parties,
         threatened against any of them,

                  (ii)     no strike, labor dispute, slowdown or stoppage
         pending against any Credit Party or, to the best knowledge of the
         Credit Parties, threatened against any Credit Party and

                  (iii)    to the best knowledge of the Credit Parties, no union
         representation proceeding is pending with respect to the employees of
         Credit Party, except (with respect to any matter specified in clause
         (i), (ii) or (iii) above, either individually or in the aggregate) such
         as could not reasonably be expected to have a Material Adverse Effect.

         6.18     Patents, Licenses, Franchises and Formulas. (a) "Intellectual
Property" means all intellectual property rights of any nature or form of
protection of a similar nature or having equivalent or similar effect to any of
the foregoing, including, without limitation: (1) inventions, discoveries,
processes, designs, techniques, developments, technology, and related
improvements, whether or not patentable, and all United States patents, patent
applications, divisionals, continuations, reissues, renewals, registrations,
confirmations, re-examinations,

                                       46

<PAGE>

certificates of inventorship, extensions, and the like, and any provision
applications of any such patents or patent applications, and any foreign or
international equivalent of any of the foregoing (collectively "Patents"); (2)
any word, name, symbol, color, designation, or device or any combination thereof
(to the extent the same may be trademarked under applicable law), including,
without limitation, any United States or pending trademark, trade dress, service
mark, service name, trade name, brand name, logo, domain name, or business
symbol, and any foreign or international equivalent of any of the foregoing and
all goodwill associated therewith (collectively "Trademarks"); (3) any work,
whether or not a registered copyright in the United States or elsewhere, that
incorporates, is based upon, derived from, or otherwise uses any intellectual
property, including, without limitation, mechanical and electronic design
drawings (including, without limitation, computer-aided design files),
specification, software (including, without limitation, source code and object
code), processes, technical or engineering data, test procedures, schematics,
writings, materials, products, artwork, packaging and advertising materials
algorithms, flowcharts, and know-how (collectively "Copyrights"); (4) technical,
scientific, and other know-how and information, trade secrets, knowledge,
technology, means, methods, processed, practices, formulas, assembly procedures,
computer programs, apparatuses, specifications, books, records, production data,
publications, databases, reports, manuals, data and results, in written,
electronic, or any other form not known or hereafter developed (collectively
"Trade Secrets"); and (5) mask work and similar rights protecting integrated
circuit or chip topographies or designs. "Borrower Intellectual Property" means
all of the Intellectual Property that is owned by any Credit Party or any Credit
Party has the right to use pursuant to written license, sublicense, agreement or
permission, that is used or useful in, related to, or arises out of the conduct
of the business or services of such Credit Party as of the Closing Date
including, but not limited to:

                  (i)      all Patents;

                  (ii)     all Trademarks;

                  (iii)    all Copyrights;

                  (iv)     all Trade Secrets;

                  (v)      all licenses, sublicenses, agreements and permissions
         by which the Credit Party uses Intellectual Property owned by a third
         party, or a third party uses Intellectual Property owned by such Credit
         Party, including those listed on Schedule 6.18(a)(v) (the "Licenses");
         and

                  (vi)     all internet, intranet and world wide web content,
         sites and pages, and all HTML and other code related thereto.

         (b)      Except as set forth on Schedule 6.18(b), no claim has been
threatened or asserted by any Person that a Credit Party has interfered with,
infringed upon, misappropriated or otherwise violated (whether through the use
of the Borrower Intellectual Property or otherwise) any Intellectual Property
rights of any third party, and no claim has been asserted by any Person

                                       47

<PAGE>

as to the use of the Borrower Intellectual Property or alleging any such
interference, infringement, misappropriation or violation (including any claim
that the relevant Credit Party must license or refrain from using any
Intellectual Property rights of any third party), and to the knowledge of any
Credit Party, there is no valid basis for any such claim. To the knowledge of
any Credit Party, no third party has interfered with, infringed upon,
misappropriated or otherwise violated any rights of any Credit Party with
respect to the Borrower Intellectual Property. The Borrower has made available
to the Purchasers all infringement studies, including opinions of counsel,
prepared by or on behalf of any Credit Party.

         (c)      Except as set forth on Schedule 6.18(c), with respect to each
item of Borrower Intellectual Property:

                  (i)      the item is not subject to any outstanding
         injunction, judgment, order, decree, ruling or charge, nor, to the
         knowledge of any Credit Party, is any of the foregoing threatened;

                  (ii)     no claim or investigation is pending or, to the
         knowledge of any Credit Party, threatened which challenges the
         legality, validity, enforceability, use or ownership of the item;

                  (iii)    no Credit Party has agreed to indemnify any Person
         for or against any interference, infringement, misappropriation or
         other violation with respect to the item; and

                  (iv)     no Credit Party has taken, or is aware of, any
         actions, including a sale or offer for sale, the disclosure of which
         could lead to the invalidity of any such item.

         (d)      Schedule 6.18(a)(v) identifies each material license,
sublicense, agreement and permission by which any Credit Party uses the
Intellectual Property owned by a third party or a third party uses the Borrower
Intellectual Property. The Borrower has made available to the Purchasers correct
and complete copies of all such Licenses (as amended to date). With respect to
each License:

                  (i)      the License is legal, valid, binding, enforceable and
         in full force and effect with respect to the applicable Credit Party,
         subject to the qualifications that enforcement of the rights and
         remedies created thereby is subject to (A) bankruptcy, insolvency,
         reorganization, moratorium and other laws of general application
         affecting the rights and remedies of creditors, and (B) general
         principles of equity (regardless of whether such enforcement is
         considered in a proceeding in equity or at law); and

                  (ii)     to the knowledge of the Credit Parties, no Credit
         Party is in breach or default, and no event has occurred which with
         notice or lapse of time would constitute a breach or default or permit
         termination, modification or acceleration thereunder.

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         6.19     Indebtedness. Schedule 6.19 sets forth a true and complete
list of all Indebtedness (excluding the Notes) that will be existing immediately
after the consummation of the Transactions, in each case showing the aggregate
principal amount thereof and the name of the respective company and any other
entity which directly or indirectly will guarantee such debt (the "Existing
Indebtedness"). Schedule 6.19A sets forth a true and complete list of all
Indebtedness (excluding the Notes) existing immediately prior to the
consummation of the Transactions, in each case showing the aggregate principal
amount thereof and the name of the respective company and any other entity which
directly or indirectly guaranteed such debt. Except as set forth on Schedule
6.19A, no default or event, act or condition which with notice or lapse of time,
or both, would constitute a default has occurred that would trigger or is
continuing under the Indebtedness set forth therein.

         6.20     Transactions. At the time of consummation thereof, the
Transactions shall have been consummated in all material respects in accordance
with the terms of the respective Mezzanine Transaction Documents and all
applicable laws. At the time of consummation of the Transactions, all necessary
material consents and approvals of, and filings and registrations with, and all
other actions in respect of, all governmental agencies, authorities or
instrumentalities required in order to make or consummate the Transactions will
have been obtained, given, filed or taken and are or will be in full force and
effect (or effective judicial relief with respect thereto has been obtained).
All applicable waiting periods with respect thereto have or, prior to the time
when required, will have, expired without, in all such cases, any action being
taken by any competent authority which restrains, prevents, or imposes material
adverse conditions upon the Transactions. Additionally, there does not exist any
judgment, order or injunction prohibiting or imposing material adverse
conditions upon the Transactions or the performance by any Credit Party of its
obligations under the respective Mezzanine Transaction Documents. All actions
taken by Holdings or any Credit Party pursuant to or in furtherance of the
Transactions have been taken in all material respects in compliance with the
respective Mezzanine Transaction Documents and all applicable laws.

         6.21     Insurance. Schedule 6.21 sets forth a true and complete
listing of all insurance maintained by the Credit Parties as of the Closing
Date, and with the amounts insured (and any deductibles) set forth therein. Said
insurance policies and arrangements are in full force and effect, all premiums
with respect thereto are currently paid, the Credit Parties are in compliance in
all material respects with the terms thereof and no amounts available under any
such policy have been materially exhausted. The insurance reflected on Schedule
6.21 is adequate and customary for the business engaged in by the Credit Parties
and is sufficient for compliance by the Credit Parties with all requirements of
law and all agreements and leases to which a Credit Party is a party. No Credit
Party has received notice of default under any such insurance policy, and has
not received written notice or oral notice of any pending or threatened
termination or cancellation, coverage limitation or reduction or premium
increase with respect to such insurance policy. Since August 30, 2000, except
with respect to contract surety, no Credit Party has had an application for an
insurance policy rejected.

                                       49

<PAGE>

         6.22     Subordinated Debt Provisions. The subordination provisions
contained in the Holdings Subordinated Debt, the Holdings Notes and the Junior
Subordinated Notes are enforceable against the Credit Parties party thereto.

         6.23     Withholding and Other Taxes. Except as set forth on Schedule
6.23, the Borrower and its Subsidiaries have properly withheld and currently
paid all applicable federal and state unemployment Taxes and other federal and
state Taxes payable with respect to the income of their employees (including
without limitation, all Taxes and other amounts withheld pursuant to their
employees' Internal Revenue Service form W-4, all social security, all Federal
Insurance Contribution Act ("FICA") contributions and all Federal Unemployment
Tax Act contributions), and have currently paid all workers compensation
insurance, disability and insurance benefits properly payable with respect to
their employees, other than immaterial amounts not paid through oversight and
promptly corrected.

         6.24     Certain Fees. Except for the fees and expenses referred to in
Sections 2.07 and 14.13, no broker's or finder's fee or commission has been paid
or will be payable by the Borrower with respect to the offer, issuance and sale
of the Notes.

         6.25     Corporate Information. As of the date hereof, the jurisdiction
of organization, the principal place of business, chief executive office and
location of its books and records of Holdings, the Borrower and each of their
Subsidiaries is set forth on Schedule 6.25 attached hereto and none of Holdings,
the Borrower, nor any of their Subsidiaries, nor any of their respective
predecessors has had any other chief executive office or principal place of
business except as set forth on Schedule 6.25 during the five years immediately
preceding the date hereof.

         6.26     Securities Exemptions. The Holdings Merger, as defined and as
contemplated in the Restructuring Agreement, and each other transaction
involving the issuance of securities by the Company or its Affiliates in the
Phase I Restructuring (as defined in the Restructuring Agreement) is exempt from
the registration requirements of the Securities Act pursuant to a valid
exemption thereunder.

         6.27     Board Approval. The Board of Directors of each Credit Party
has been sent copies of all Mezzanine Transaction Documents and the
Restructuring Agreement and the Board of Directors of each Credit Party has
approved the Transactions and all other transactions contemplated hereby and by
such Mezzanine Transaction Documents and the Restructuring Agreement. In
addition, the Board of Directors of Holdings and the Borrower have been sent and
each approved the annual financial statements and received copies of the
quarterly financial statements, each delivered to the Purchasers pursuant to
Section 6.05.

         6.28     Customers. (a) Schedule 6.28 sets forth a list of the five
largest customers (by revenue) of the Borrower and its Subsidiaries for the
one-year period ended December 26, 2003 together with the approximate dollar
amount of goods or services provided to or by such customer or supplier during
said period.

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<PAGE>

         (b)      Since December 26, 2003, no customer set forth on Schedule
6.28 has (i) discontinued being a customer of the Borrower or its Subsidiaries
or given any notice, oral or written, and no Credit Party has any reason to
believe that, any customer on such schedule is considering discontinuing
business with the Borrower or its Subsidiaries, (ii) materially reduced or given
any notice, oral or written, and no Credit Party has any reason to believe that,
any customer on such schedule is considering materially reducing its current
purchases from the Borrower or its Subsidiaries or (iii) materially changed the
terms or conditions from those previously used in its purchases from the
Borrower or its Subsidiaries, or given notice, oral or written, and no Credit
Party has any reason to believe that, any customer on such schedule is
considering materially changing the terms or conditions from those previously
used in its purchases from the Borrower or its Subsidiaries.

         6.29     Affiliate Transactions. (a) For purposes of this Section 6.29,
the term "Affiliated Person" means any Affiliate or any member of the immediate
family or any of Affiliate.

                  (b)      Except as set forth in Schedule 6.29 or as
contemplated in the Restructuring Agreement, since December 26, 2003, no Credit
Party has, in the ordinary course of business or otherwise, (i) purchased,
leased or otherwise acquired any material property or assets or obtained any
material services from (other than in connection with their role as director,
officer or executive of such Credit Party), (ii) sold, leased or otherwise
disposed of any material property or assets or provided any material services to
(except with respect to remuneration for services rendered in the ordinary
course of business as director, officer or employee of such Credit Party), (iii)
entered into or modified in any manner any material contract with, or (iv)
borrowed any money from, or made or forgiven any loan or other advance (other
than expenses or similar advances made in the ordinary course of business) to,
any Affiliated Person.

                  (c)      Except as set forth in Schedule 6.29 or as
contemplated in the Restructuring Agreement, (i) the contracts of the Credit
Parties do not include any obligation or commitment between any Credit Party and
any Affiliated Person, (ii) the assets of any Credit Party do not include any
receivable or other obligation or commitment from an Affiliated Person to such
Credit Party and (iii) the liabilities of any Credit Party do not include any
payable or other obligation or commitment from such Credit Party to any
Affiliated Person.

                  (d)      No Affiliated Person of any Credit Party is a party
to any contract with any customer or supplier of such Credit Party that
materially and adversely affects in any manner the business, financial condition
or results of operation of such Credit Party.

         6.30     Material Contracts. (a) Set forth on Schedule 6.30(a) is a
list of all contracts, agreements (whether oral or written) to which each Credit
Party is a party or by which the any Credit Party is bound or to which any of
the properties, assets or operations of a Credit Party is subject, in each case
to the extent that such contracts or agreements are material to the business of
such Credit Party (collectively, the "Significant Contracts"). Notwithstanding
the foregoing, the following shall be deemed to be Significant Contracts: (i)
all master contracts or agreements with the Borrower's five largest customers
during calendar year 2003, (ii) all distribution

                                       51

<PAGE>

contracts, supply contracts, national accounts contracts valued in excess of
$1.0 million annually, (iii) any indenture, mortgage, loan agreement, note or
other agreement or instrument for borrowed money, any guarantee of any agreement
or instrument for borrowed money, (iv) any license or grant or agreement
relating to Intellectual Property (other than with respect to readily available
commercial office software), (v) any agreement or instrument under which the
Borrower is obligated to incur liabilities, or render services, valued in excess
of $1.0 million annually, (vi) any acquisition, joint venture, partnership or
other similar contracts or agreements entered into by the Borrower since January
1, 2001, and (vii) any contract or agreement restricting or otherwise affecting
the ability of any Credit Party to compete in its business or otherwise in any
jurisdiction or for any time period. Subject to the following sentence, prior to
the date hereof, the Borrower has provided true and complete copies of all such
Significant Contracts to the Purchasers.

         (b) Except as set forth on Schedule 6.30(b), to the knowledge of all
Credit Parties, each Significant Contract is a legal, valid and binding
agreement of the respective Credit Party to which it relates, no Credit Party
nor any other party thereto is in default under any Significant Contract, and
none of such Significant Contracts has been canceled by the other party thereto;
to the knowledge of any Credit Party, each Significant Contract is in full force
and effect and no event has occurred which, with the passage of time or the
giving of notice or both, would constitute a default, event of default or other
breach by the Borrower which would entitle the other party to such Significant
Contract to terminate the same or declare a default or event of default
thereunder; the Borrower is not in receipt of any claim of default under any
such agreement.

                                    ARTICLE 7

                               REPRESENTATIONS AND
                          WARRANTIES OF THE PURCHASERS

                  Each Purchaser purchasing securities on the date hereof,
severally but not jointly, hereby represents and warrants as to itself as
follows:

         7.01     Authorization; No Contravention. The execution, delivery and
performance by it of this Agreement: (a) is within its power and authority and
has been duly authorized by all necessary action; (b) does not contravene the
terms of its organizational documents or any amendment thereof; and (c) will not
violate, conflict with or result in any breach or contravention of any of its
Contractual Obligations, or any order or decree directly relating to it.

         7.02     Binding Effect. This Agreement has been duly executed and
delivered by it and this Agreement constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency, or similar
laws affecting the enforcement of creditors' rights generally or by equitable
principles relating to enforceability.

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<PAGE>

         7.03     No Legal Bar. The execution, delivery and performance of this
Agreement by it will not violate any Requirement of Law applicable to it.

         7.04     Purchase for Own Account. The Securities to be acquired by it
pursuant to this Agreement are being or will be acquired for its own account and
with no intention of distributing or reselling such securities or any part
thereof in any transaction that would be in violation of the securities laws of
the United States of America, or any state, without prejudice, however, to its
right at all times to sell or otherwise dispose of all or any part of any Note,
Warrant or Liquidation Certificate under an effective registration statement
under the Securities Act, or under an exemption from such registration available
under the Securities Act, and subject, nevertheless, to the disposition of its
property being at all times within its control. If any Purchaser should in the
future decide to dispose of any of the Securities, such Purchaser understands
and agrees that it may do so only in compliance with the Securities Act and
applicable state securities laws, as then in effect. Each Purchaser agrees to
the imprinting of a legend on certificates representing all of the Securities
held by it to the following effect: "THE SECURITIES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT AND SUCH LAWS."

         7.05     ERISA. Either (i) no part of the funds used by it to purchase
the Securities hereunder constitutes assets of any "employee benefit plan" (as
defined in Section 3(3) of ERISA) or "plan" (as defined in Section 4975 of the
Code) or (ii) the purchase of the Warrants and Liquidation Certificates by it is
exempt from the restrictions on prohibited transactions of ERISA and the Code
pursuant to one or more statutory, regulatory or administrative exemptions.

         7.06     Broker's, Finder's or Similar Fees. There are no brokerage
commissions, finder's fees or similar fees or commissions payable in connection
with the transactions contemplated hereby based on any agreement, arrangement or
understanding with it or any action taken by it.

         7.07     Governmental Authorization; Third Party Consent. No approval,
consent, compliance, exemption, authorization, or other action by, or notice to,
or filing with, any Governmental Authority or any other Person in respect of any
Requirement of Law, and no lapse of a waiting period under a Requirement of Law,
is necessary or required in connection with the execution, delivery or
performance by it or enforcement against it of this Agreement or the
transactions contemplated hereby.

                                       53

<PAGE>

                                    ARTICLE 8

                                 INDEMNIFICATION

         8.01     Indemnification. In addition to all other sums due hereunder
or provided for in this Agreement, each of Holdings and the Borrower jointly and
severally agrees to indemnify and hold harmless the Purchasers and their
respective Affiliates and each of their respective officers, directors,
trustees, agents, employees, Subsidiaries, partners, members, attorneys,
accountants and Controlling persons (each, an "Indemnified Party") to the
fullest extent permitted by law from and against any and all losses, claims,
damages, expenses (including, without limitation, reasonable fees, disbursements
and other charges of counsel and costs of investigation incurred by an
Indemnified Party in any action or proceeding between Holdings and the Borrower
(or any of its Subsidiaries) and such Indemnified Party (or Indemnified Parties)
or between an Indemnified Party (or Indemnified Parties) and any third party or
otherwise) or other liabilities, losses, or diminution in value (collectively,
"Liabilities") resulting from or arising out of any breach of any representation
or warranty, covenant or agreement of any Credit Party (only as defined herein)
in this Agreement, the Restated Shareholders Agreement, the LLC Agreement, the
Unitholders Agreement, the Notes, the Warrants, the Liquidation Certificates or
the other Mezzanine Transaction Documents, including without limitation, the
failure to make payment when due of amounts owing pursuant to this Agreement,
the Notes, the Liquidation Certificates or the other Mezzanine Transaction
Documents, on the due date thereof (whether at the scheduled maturity, by
acceleration or otherwise) or any legal, administrative or other actions
(including, without limitation, actions brought by Holdings, the Borrower, any
of its Subsidiaries or any holders of equity or indebtedness of Holdings, the
Borrower or any of its Subsidiaries or derivative actions brought by any Person
claiming through or in Holdings' or the Borrower's or any of its Subsidiaries'
name), proceedings or investigations (whether formal or informal), or written
threats thereof, based upon, relating to or arising out of the Mezzanine
Transaction Documents, the transactions contemplated thereby, or any Indemnified
Party's role therein or in the transactions contemplated thereby; provided,
however, that neither Holdings nor the Borrower shall be liable under this
Section 8.01 to an Indemnified Party: (a) for any amount paid by the Indemnified
Party in settlement of claims by the Indemnified Party without Holdings' or the
Borrower's consent, as the case may be (which consent shall not be unreasonably
withheld), (b) to the extent that it is finally judicially determined that such
Liabilities resulted primarily from the willful misconduct or gross negligence
of such Indemnified Party or (c) to the extent that it is finally judicially
determined that such Liabilities resulted primarily from the breach by such
Indemnified Party of any representation, warranty, covenant or other agreement
of such Indemnified Party contained in this Agreement; provided, further, that
if and to the extent that such indemnification is unenforceable for any reason,
Holdings or the Borrower shall make the maximum contribution to the payment and
satisfaction of such Liabilities which shall be permissible under applicable
laws. In connection with the obligation of Holdings and the Borrower to
indemnify for expenses as set forth above, Holdings and the Borrower further
agree, jointly and severally, upon presentation of appropriate invoices
containing reasonable detail, to reimburse each Indemnified Party for all such
expenses (including, without limitation, reasonable fees, disbursements and
other charges of counsel and costs of investigation incurred

                                       54

<PAGE>

by an Indemnified Party in any action or proceeding between Holdings and the
Borrower (or any of its Subsidiaries) and such Indemnified Party (or Indemnified
Parties) or between an Indemnified Party (or Indemnified Parties) and any third
party or otherwise) as they are incurred by such Indemnified Party; provided,
however, that if an Indemnified Party is reimbursed hereunder for any expenses,
such reimbursement of expenses shall be refunded to the extent it is finally
judicially determined that the Liabilities in question resulted primarily from
(i) the willful misconduct or gross negligence of such Indemnified Party or (ii)
the breach by such Indemnified Party of any representation, warranty, covenant
or other agreement of such Indemnified Party contained in this Agreement or any
other Mezzanine Transaction Document.

         8.02     Procedure; Notification. Each Indemnified Party under this
Article 8 will, promptly after the receipt of notice of the commencement of any
action, investigation, claim or other proceeding against such Indemnified Party
in respect of which indemnity may be sought from Holdings or the Borrower under
this Article 8, notify Holdings and the Borrower in writing of the commencement
thereof. The omission of any Indemnified Party so to notify Holdings and the
Borrower of any such action shall not relieve Holdings or the Borrower from any
liability which it may have to such Indemnified Party unless, and only to the
extent that, such omission results in Holdings' or the Borrower's forfeiture of
substantive rights or defenses. In case any such action, claim or other
proceeding shall be brought against any Indemnified Party and it shall notify
Holdings and the Borrower of the commencement thereof, Holdings and/or the
Borrower shall be entitled to assume the defense thereof at its or their own
expense, with counsel satisfactory to such Indemnified Party in its reasonable
judgment; provided, however, that any Indemnified Party may, at its own expense,
retain separate counsel to participate in such defense. Notwithstanding the
foregoing, in any action, claim or proceeding in which Holdings, the Borrower or
any of its Subsidiaries, on the one hand, and an Indemnified Party, on the other
hand, is, or is reasonably likely to become, a party, such Indemnified Party
shall have the right to employ separate counsel at Holdings' and/or the
Borrower's expense and to control its own defense of such action, claim or
proceeding if, in the reasonable opinion of counsel to such Indemnified Party, a
conflict or potential conflict exists between Holdings, the Borrower or any of
its Subsidiaries, on the one hand, and such Indemnified Party, on the other
hand, that would make such separate representation advisable; provided, however,
that in no event shall either Holdings or the Borrower be required to pay fees
and expenses under this Article 8 for more than one firm of attorneys in any
jurisdiction in any one legal action or group of related legal actions. Holdings
and the Borrower each agrees that it will not, without the prior written consent
of the Purchasers, settle, compromise or consent to the entry of any judgment in
any pending or threatened claim, action or proceeding relating to the matters
contemplated hereby (if any Indemnified Party is a party thereto or has been
actually threatened to be made a party thereto) unless such settlement,
compromise or consent includes an unconditional release of the Purchasers and
each other Indemnified Party from all liability arising or that may arise out of
such claim, action or proceeding. Neither Holdings nor the Borrower shall be
liable for any settlement of any claim, action or proceeding effected against an
Indemnified Party without its written consent, which consent shall not be
unreasonably withheld. The rights accorded to Indemnified Parties hereunder
shall be in addition to any rights that any Indemnified Party may have at common
law, by separate agreement or otherwise.

                                       55

<PAGE>

         8.03     Restated Shareholders Agreement or Unitholders Agreement.
Notwithstanding anything to the contrary in this Article 8, (a) the
indemnification and contribution provisions of the Restated Shareholders
Agreement or the Unitholders Agreement shall govern any claim made with respect
to registration statements filed pursuant thereto or sales made thereunder and
(b) the indemnification provisions of the LLC Agreement shall govern any claim
made by a Covered Party (as defined in the LLC Agreement) under such agreement.

                                    ARTICLE 9

                              AFFIRMATIVE COVENANTS

                  Until the payment of all principal of and interest on the
Notes and all other amounts due to Purchasers under this Agreement, the
Liquidation Certificates and the other Mezzanine Transaction Documents,
including, without limitation, all fees, expenses and amounts due in respect of
indemnity obligations under Article 8, each of Holdings and the Borrower hereby
covenants and agrees, absent the prior written consent of the Required Holders,
as follows:

         9.01     Financial Statements and Other Information. The Borrower shall
maintain, and cause each of its Subsidiaries to maintain, a system of accounting
established and administered in accordance with sound business practices to
permit preparation of financial statements in conformity with GAAP (it being
understood that monthly financial statements are not required to have footnote
disclosures). The Borrower shall deliver to the Purchasers each of the financial
statements and other reports described below in this Section 9.01:

                           (a) (i) Monthly Reports. Within 30 days after the end
of each fiscal month of Holdings, the Borrower and its Consolidated Subsidiaries
(or, if earlier, at the time delivered by the Borrower to its Board of
Directors) (i) the management reports furnished by the Chief Financial Officer
to the Chief Executive Officer and the Chairman of the Board, and, such report
shall include a consolidated balance sheet, income statement, and statement of
cash flow of Holdings, the Borrower and its Consolidated Subsidiaries as at the
end of such month and results of operations for each during such month and the
Consolidated EBITDA for such month in each case setting forth comparative
figures for the corresponding month in the prior fiscal year, (ii) year-to-date
financial statements, including a consolidated balance sheet, income statement,
and statement of cash flow of Holdings, the Borrower and its Consolidated
Subsidiaries (covering the period from the beginning of the then-current fiscal
year to the month of issuance of the statements), (iii) an analysis of 13-week
cash flows provided on a monthly basis as compared to that period's projected
cash flows (described in Section 9.01(d) below) and (iv) a certificate signed by
the Chief Financial Officer or Chief Executive Officer (or, if neither such
officer is available, the Treasurer, provided that the Treasurer shall have
received confirmation from either of such officers that the information
contained in the certificate is correct and that the immediately prior
certificate delivered to the Holders under this subsection was signed by the
Chief Financial Officer or Chief Executive Officer) of the Borrower to the
effect that (x) the consolidated financial statements delivered hereunder have
been prepared in accordance with

                                       56

<PAGE>

GAAP (except for the lack of footnotes and subject to year-end audit
adjustments), fairly present the financial condition and result of operations of
Holdings, the Borrower and its Consolidated Subsidiaries , and (y) there does
not exist any condition or event that constitutes a Default or Event of Default
(or, to the extent of any non-compliance, describing such non-compliance as to
which he or she may have knowledge and what action the Credit Parties have
taken, are taking, or propose to take with respect thereto).

                    (ii) Quarterly Financial Statements. (A) Within 45 days
after the close of each quarterly accounting period in each fiscal year of
Holdings, the Borrower and its Consolidated Subsidiaries, commencing with the
fiscal quarter ending March 31, 2004, (i) the consolidated balance sheets of
Holdings, the Borrower and its Consolidated Subsidiaries as at the end of such
quarterly accounting period and the related consolidated statements of income
and cash flows and results of operations and Consolidated EBITDA, in each case
for such quarterly accounting period and for the elapsed portion of the fiscal
year ended with the last day of such quarterly accounting period, and in each
case, setting forth comparative figures for the related periods in the prior
fiscal year and the budgeted figures for such quarterly periods as set forth in
the respective projection delivered pursuant to Section 9.01(e), all of which
shall be certified by the Chief Financial Officer or Treasurer of the Borrower
subject to normal year-end audit adjustments, (ii) year-to-date financial
statements, including a consolidated balance sheet, income statement, and
statement of cash flow of Holdings, the Borrower and its Consolidated
Subsidiaries (covering the period from the beginning of the then-current fiscal
year to the quarter of issuance of the statements), (iii) an analysis of 13-week
cash flows provided on a quarterly basis as compared to that period's projected
cash flows (described in Section 9.01(e) below), (iv) a comparison of the
quarterly and quarterly year-to-date statements delivered pursuant to (i) and
(ii) above with the budget used by management for such period of each of
Holdings, the Borrower and its Consolidated Subsidiaries for such period, (v) a
comparison of the financial statements provided under this subsection
9.01(a)(ii) against the financial statements provided for the same period during
the prior fiscal year of each of Holdings, the Borrower and its Consolidated
Subsidiaries, (vi) management's discussion and analysis of the important
operational and financial developments during the fiscal quarter and
year-to-date periods and (vii) a certificate signed by the Chief Financial
Officer or Chief Executive Officer (or, if neither such officer is available,
the Treasurer, provided that the Treasurer shall have received confirmation from
either of such officers that the information contained in the certificate is
correct and that the immediately prior certificate delivered to the Holders
under this subsection was signed by the Chief Financial Officer or Chief
Executive Officer) of the Borrower and Holdings, respectively, to the effect
that (x) the consolidated financial statements delivered hereunder have been
prepared in accordance with GAAP (except for the lack of footnotes and subject
to year-end audit adjustments), fairly present the financial condition and
result of operations of Holdings, the Borrower and its Consolidated Subsidiaries
and each has been received and reviewed by the Board of Directors of the
Borrower and Holdings, respectively (and, following the filing of the IPO
Registration Statement Amendment approved by the Board of Directors of the
registrant thereunder) and (y) there does not exist any condition or event that
constitutes a Default or Event of Default (or, to the extent of any
non-compliance, describing such non-compliance as to which he or she may have
knowledge and what action the Credit

                                       57

<PAGE>

Parties have taken, are taking, or propose to take with respect thereto), and
(B) within 75 days after the close of each quarterly accounting period in each
fiscal year of KH LLC, commencing with the fiscal quarter ending March 31, 2004,
the balance sheets of KH LLC as at the end of such quarterly accounting period
and the related statements of income and cash flows for such quarterly
accounting period.

                            (b) Annual Financial Statements. Within 90 days
after the close of each fiscal year of the Borrower and Holdings, (i) the
consolidated balance sheets of Holdings, the Borrower and its Consolidated
Subsidiaries as at the end of such fiscal year and the related consolidated
statements of income, retained earnings, cash flows and Consolidated EBITDA for
such fiscal year setting forth comparative figures for the preceding fiscal year
and as received and approved by the Board of Directors of the Borrower and
Holdings, respectively, and certified, in the case of such consolidated
financial statements, by a firm of independent certified public accountants of
recognized national standing reasonably acceptable to the Required Holders,
together with a report of such accounting firm stating that in the course of its
regular audit of the financial statements of the Borrower and its Consolidated
Subsidiaries and Holdings and its Consolidated Subsidiaries, respectively, which
audit was conducted in accordance with generally accepted auditing standards,
such accounting firm obtained no knowledge of any Event of Default with respect
to the covenants described in Sections 10.08 through 10.11 which has occurred
and is continuing or, if in the opinion of such accounting firm such an Event of
Default has occurred and is continuing, a statement as to the nature thereof,
(ii) a comparison of such annual financial statements with the budget used by
management for such period of the Borrower and Holdings, (iii) an analysis of
cash flow in such year as compared to that year's forecast (as provided in (e)
below), and (iv) management's discussion and analysis of the important
operational and financial developments during such fiscal year. Notwithstanding
anything to the contrary provided in this Section 9.01(b) or any other provision
of this Agreement, (y) the consolidated balance sheets of Holdings for the
fiscal year 2003 and the related consolidated statements of income and retained
earnings and of cash flows for the fiscal year 2003 shall be delivered by the
earlier of two Business Days after receiving an accountants report related to
such financial statements and September 30, 2004 (provided, that if Holdings
completes a Qualified Public Equity Offering by July 15, 2004, the requirement
to deliver such financials is permanently waived) and (z) the consolidated
balance sheet of Holdings, the Borrower and its Consolidated Subsidiaries for
the fiscal year 2003 and the related consolidated statements of income and
retained earnings and of cash flows for fiscal year 2003, after giving effect to
the KSI Spin-Off and the anticipated Qualified Public Equity Offering of
Holdings, in the form required to be filed with the SEC in connection with the
anticipated Qualified Public Equity Offering of Holdings, shall be delivered
concurrently with such filing and in no even later than May 30, 2004.

                           Within 120 days after the close of each fiscal year
of KH LLC, the balance sheets of KH LLC as at the end of such fiscal year and
the related statements of income and retained earnings and of cash flows for
such fiscal year, together with a certificate signed by the Chief Financial
Officer or Chief Executive Officer (or, if neither such officer is available,
the Treasurer, provided that the Treasurer shall have received confirmation from
either of such

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officers that the information contained in the certificate is correct and that
the immediately prior certificate delivered to the Holders under this subsection
was signed by the Chief Financial Officer or Chief Executive Officer) of KH LLC
to the effect that the financial statements delivered hereunder (x) are special
purpose parent financial statements which are non-GAAP because they do not
include the consolidation of its Subsidiaries and (y) present the financial
condition and result of operations of KH LLC and such financial statements have
been received and reviewed by the Board of Managers of KH LLC.

                           (c)      Compliance Certificate. Together with each
delivery of financial statements of the Borrower and its Subsidiaries pursuant
to Sections 9.01(a)(i), 9.01(a)(ii) and 9.01(b) above, the Borrower shall
deliver or cause to be delivered a fully and properly completed compliance
certificate (in substantially the form attached hereto as Exhibit E (or in such
other form or substance as shall be satisfactory to the Agent) and referred to
as a "Compliance Certificate") signed by the chief executive officer or chief
financial officer of the Borrower (or, if neither such officer is available, the
Treasurer, provided that the Treasurer shall have received confirmation from
either of such officers that the information contained in the certificate is
correct and that the immediately prior certificate delivered to the Holders
under this subsection was signed by the Chief Financial Officer or Chief
Executive Officer). The Borrower and the Purchasers acknowledge and agree that
calculations of covenant compliance, with respect to the financial covenants
contained in Sections 10.08 through 10.11 hereof and contained in any such
compliance certificate delivered for a month that is not the last month of a
fiscal quarter, will be for informational purposes only and shall not measure
compliance (or lack of compliance) with such financial covenants.

                           (d)      Accountants' and other Reports. Promptly
upon receipt thereof, the Borrower shall deliver copies of all reports submitted
by (i) the Borrower's firm of independent certified public accountants in
connection with each annual, interim or special audit or review of any type of
the financial statements or related internal control systems of the Borrower and
its Subsidiaries made by such accountants, including any comment letter
submitted by such accountants to management in connection with their services,
(ii) all audit response letters prepared by counsel to any of the Credit
Parties, and (iii) subject to any limitations required to preserve
attorney-client privileges, any legal advisers or consultants of the Borrower
conducting an audit or review of any aspect of the business of any Credit Party.

                           (e)      Projections. No later than 60 days after the
commencement of each fiscal year of the Borrower commencing with its fiscal year
2005, Holdings and the Borrower and its Consolidated Subsidiaries shall prepare
and deliver to the Purchasers projections of Holdings and the Borrower and its
Consolidated Subsidiaries, respectively, in each case in substantially the form
of the projections previously delivered to the Purchasers for (i) each fiscal
quarter of such fiscal year prepared in detail and (ii) each of the years
immediately following such fiscal year up to the Maturity Date prepared in
summary form of Holdings and the Borrower and its Consolidated Subsidiaries,
accompanied by the statement of the Chief Financial Officer or Treasurer of the
Borrower or Holdings, as applicable, setting forth the principal assumptions
upon which such projections are based. In addition, the Borrower shall,

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no later than 15 days after the end of each fiscal month of the Borrower
commencing with the month ending March 31, 2004, provide cash flow projections
for the upcoming 13 weeks indicating anticipated sources and uses of cash and
the liquidity position of the Borrower based on available Unrestricted Cash and
availability under the revolver under the Senior Credit Agreement.

                           (f)      SEC Filings and Press Releases. Promptly,
(i) copies of all financial information, proxy materials and other information
and reports, if any, which Holdings, the Borrower or any of its Subsidiaries
shall file with the SEC or deliver to holders of its Indebtedness pursuant to
the terms of the documentation governing such Indebtedness (or any trustee,
agent or other representative therefor) and (ii) all press releases and other
statements made available by Holdings, the Borrower or any of its Subsidiaries
to the public concerning material developments in the business of Holdings, the
Borrower or any of its Subsidiaries.

                           (g)      Events of Default, Etc. Promptly, and in any
event within five Business Days after a senior officer of any Credit Party
obtains knowledge thereof, the Borrower shall deliver notice of (i) the
occurrence of any event which constitutes a default or Event of Default and (ii)
any litigation or governmental investigation or proceeding pending or threatened
(x) against any Credit Party which could reasonably be expected to have a
Material Adverse Effect (including any material development therein), (y) with
respect to any Indebtedness in excess of $1.0 million of any Credit Party or (z)
with respect to any Mezzanine Transaction Document.

                           (h)      No Defaults. The Borrower shall deliver to
the Purchasers concurrently with the delivery of the financial statements
referred to in Section 9.01(a) and 9.01(b), a certificate of the Borrower's
Chief Financial Officer stating that to his or her knowledge no Event of Default
shall have occurred during the period covered thereby, except as specified in
such certificate.

                           (i)      Environmental Matters. Promptly upon, and in
any event within ten Business Days after, an officer of any Credit Party obtains
knowledge thereof, notice of one or more of the following environmental matters
which occur after the Closing Date, unless such environmental matters could not,
individually or when aggregated with all other such environmental matters, be
reasonably expected to have a Material Adverse Effect:

                  (i)      any Environmental Claim pending or threatened in
writing against any Credit Party or any Real Property owned or operated by any
Credit Party;

                  (ii)     any condition or occurrence, including without
limitation the Release of any Hazardous Materials on, at, under, from, or
arising from any Real Property owned or operated by any Credit Party that (a)
could reasonably be expected to result in noncompliance by any Credit Party with
any applicable Environmental Law or (b) could reasonably be expected to form the
basis of an Environmental Claim against any Credit Party or any such Real
Property;

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                  (iii)    any condition or occurrence on any Real Property
owned or operated by any Credit Party that could reasonably be expected to cause
such Real Property to be subject to any restrictions on the ownership,
occupancy, use or transferability by any Credit Party of such Real Property
under any Environmental Law; and

                  (iv)     the taking of any investigation, removal, remedial or
other corrective action in response to the actual presence or Release of any
Hazardous Material on, at, under, or from any Real Property owned or operated by
any Credit Party as required by any Environmental Law or any governmental or
other administrative agency; provided that in any event the Borrower shall
deliver to the Holders all material notices received by any Credit Party from
any government or governmental agency under, or pursuant to, CERCLA.

                  All such notices shall describe in reasonable detail the
nature of the claim, investigation, condition, occurrence or removal, remedial
or other corrective action and the relevant Credit Party's response thereto. In
addition, the Borrower will provide the Holders with copies of all material
communications with any government or governmental agency and all material
communications with any Person (other than any Credit Party's attorneys)
relating to any Environmental Claim of which notice is required to be given
pursuant to this Section 9.01(i), and such detailed reports of any such
Environmental Claim as may reasonably be requested by the Required Holders.

                           (j)      Subsidiary Guarantor Reports; Joint Venture
Reports. The Borrower shall cause each Subsidiary Guarantor to deliver its
monthly, quarterly and annual financial statements at the time as the Borrower
and Holdings provide their monthly and audited financial statements to the
Holders, but only to the extent such Subsidiary Guarantor's financial statements
are not consolidated with Holdings' or the Borrower's financial statements, and,
at all times after the Required Holders' request therefor, copies of all federal
and foreign income tax returns as soon as the same are available. The Borrower
agrees to deliver to the Holders reasonably promptly after receipt of any
financial statements and any federal or foreign income tax returns of any joint
venture entities in which a Credit Party has an interest.

                           (k)      Amendment Certificates. At the time any
amendment is made to, or any waiver or consent is provided under, this
Agreement, a certificate signed by the Chief Financial Officer or Chief
Executive Officer of the Borrower and Holdings, respectively, to the effect that
the representations and warranties of each Credit Party contained in this
Agreement and the other Mezzanine Transaction Documents are true and correct in
all material respects on and as of the date of such certificate, as though made
on such date (except to the extent that such representations and warranties
relate solely to an earlier date).

                           (l)      Other Information. With reasonable
promptness, Holdings or the Borrower shall deliver such other information and
data with respect to Holdings, the Borrower or any of its Subsidiaries as from
time to time may be reasonably required by any of the Purchasers.

         9.02     Preservation of Corporate Existence. Holdings shall at all
times own 100% of the outstanding capital stock of the Borrower. The Borrower
shall, directly or indirectly, own

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(except to the extent permitted by Section 10.14(b)(iii) or Section 10.15) 100%
of the capital stock of each of its Subsidiaries. Each of Holdings and the
Borrower shall, and shall cause each of its Subsidiaries to:

                           (a)      preserve and maintain in full force and
effect its corporate (or, as applicable, limited liability, partnership or other
entity) existence except as permitted under Section 10.02;

                           (b)      conduct its business in accordance with
sound business practices, keep its properties in good working order and
condition (normal wear and tear excepted), and from time to time make all needed
repairs to, renewals of or replacements of its properties (except to the extent
that any of such properties are obsolete or are being replaced) so that the
efficiency of its business operations shall be fully maintained and preserved;
and

                           (c)      file or cause to be filed in a timely manner
all material reports, applications, estimates and licenses that shall be
required by each Governmental Authority.

         9.03     Payment of Obligations. Each of Holdings and the Borrower
shall, and shall cause each of its Subsidiaries to, pay and discharge as the
same shall become due and payable, all their respective obligations and
liabilities, including without limitation all material Tax liabilities,
assessments and governmental charges or levies upon it or its properties or
assets, unless the same are being contested in good faith by appropriate
proceedings and adequate reserves in accordance with GAAP are being maintained
by Holdings, the Borrower or such Subsidiary.

         9.04     Compliance with Laws. Each of Holdings and the Borrower shall,
and shall cause each of its Subsidiaries to, comply with all Requirements of Law
and with the directions of each Governmental Authority having jurisdiction over
them or their business or property (including, without limitation, all
applicable Environmental Laws), except where failure to comply would not have a
Material Adverse Effect.

         9.05     [Intentionally omitted]

         9.06     Inspection. Each of Holdings and the Borrower will permit, and
will cause each of its Subsidiaries to permit, representatives of the Purchasers
to visit and inspect any of their properties, to examine their corporate,
financial and operating records and make copies thereof or abstracts therefrom,
and to discuss their affairs, finances and accounts with their respective
directors, officers and independent public accountants, all at such reasonable
times during normal business hours and as often as may be reasonably requested,
upon reasonable advance notice; provided, however, that no such inspection,
examination or inquiry, the failure to conduct same, nor any knowledge of any
Purchaser, including, without limitation, any knowledge obtained by such
Purchaser in connection with any such inspection, investigation or inquiry,
shall constitute a waiver of any rights such Purchaser may have under any
representation, warranty, covenant, term or agreement under any of the Mezzanine
Transaction Documents.

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<PAGE>

         9.07     Payment of Note. The Borrower shall pay the principal of,
interest on and other amounts due in respect of, the Notes on the dates and in
the manner provided in the Notes.

         9.08     Maintenance of Property; Insurance. (a) Each of Holdings and
the Borrower will, and will cause each of their Subsidiaries to, (i) keep all
property necessary in its business in good working order and condition (ordinary
wear and tear and loss or damage by casualty or condemnation excepted), (ii)
maintain insurance on all its property in at least such amounts and against at
least such risks as is consistent and in accordance with industry practice and
(iii) furnish to the Purchasers, upon written request, full information as to
the insurance carried.

         (b) Each of Holdings and Borrower will, and the Borrower will cause
each of its Subsidiaries to, do all things necessary to obtain, preserve, renew,
extend and keep in full force and effect the rights, licenses, permits,
franchises, authorizations, patents, copyrights, trademarks and trade names
material to the conduct of its business; maintain and operate such business in
substantially the manner in which it is presently conducted and operated (and
reasonable extensions thereof); comply with all applicable Requirements of Law
(including any zoning, building, Environmental Law, ordinance, code or approval
or any building permits or any restrictions of record or agreements affecting
the Real Property) and decrees and orders of any Governmental Authority, whether
now in effect or hereafter enacted, except where the failure to comply could not
reasonably be expected to have a Material Adverse Effect; and at all times
maintain and preserve all property material to the conduct of such business and
keep such property in good repair, working order and condition and from time to
time make, or cause to be made, all needful and proper repairs, renewals,
additions, improvements and replacements thereto necessary in order that the
business carried on in connection therewith may be properly conducted at all
times; provided, however, that nothing in this Section 9.08(b) shall prevent (i)
sales of assets, consolidations or mergers by or involving Holdings, the
Borrower or any Subsidiary in accordance with Section 10.02; (ii) the withdrawal
by Holdings, the Borrower or any Subsidiary of its qualification as a foreign
corporation in any jurisdiction where such withdrawal could not reasonably be
expected to have a Material Adverse Effect; or (iii) the abandonment by
Holdings, the Borrower or any Subsidiary of any rights, franchises, licenses and
patents that such Person reasonably determines are not useful to its business.

         9.09     Books and Records. Each of Holdings and the Borrower shall,
and shall cause each of its Subsidiaries to, keep proper books of record and
account, in which full and correct entries shall be made of all financial
transactions and the assets and business of Holdings, the Borrower and each of
its Subsidiaries in accordance with GAAP consistently applied to Holdings, the
Borrower and its Subsidiaries taken as a whole.

         9.10     [Intentionally omitted]

         9.11     Board Rights. (a) The Borrower shall give the Holders notice
of (in the same manner as notice is given to directors) all meetings of the
Borrower's Board of Directors. The Borrower's Board of Directors shall meet no
less than quarterly.

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                           (b)      The Borrower shall provide to the Holders
the same information concerning the Borrower, and access thereto, provided to
members of the Borrower's Board of Directors.

                           (c)      So long as ACOF does not already have the
following rights in the LLC Agreement or the Unitholders Agreement, ACOF will
have the right to one seat on the Board of Directors (or, in lieu thereof at
ACOF's option, the right to appoint a board observer) of KH LLC, the Borrower,
and Holdings, provided that after Holdings successfully completes a Qualified
Public Equity Offering, ACOF will no longer be entitled to appoint a member of
its Board of Directors, but shall instead be entitled to appoint an observer to
such board, subject to such observer entering into customary confidentiality
arrangements with Holdings. In addition, so long as ACOF does not already have
the following rights in the LLC Agreement or the Unitholders Agreement and so
long as ACOF and its Affiliates and managed funds and accounts holds at least 1%
of the voting equity of Holdings or KH LLC, ACOF will have the right to one seat
on the Board of Directors of each of the Subsidiaries of KH LLC (other than
Holdings, the Borrower or KSI) so long as any of MidOcean, Behrman or Gryphon or
any of their Affiliates have the right to appoint or has appointed a member to
such Subsidiary's Board of Directors.

                           (d)      So long as ACOF does not already have the
following rights in the LLC Agreement or the Unitholders Agreement, ACOF shall
have the right to appoint a member (or at its option, an observer) to each
committee of the Board of Directors, the executive committee and all other
management committees, in each case, of Holdings, the Borrower and KH LLC. So
long as ACOF does not already have the following rights in the LLC Agreement or
the Unitholders Agreement, in addition to the foregoing, ACOF will have the
right to reasonable advance notice of and participation in all meetings of each
committee of the Board of Directors, the executive committee and all other
management meetings (whether such meetings occur in person, telephonically or
otherwise) of KH LLC and its Subsidiaries for which at least two of MidOcean,
Behrman and Gryphon, or their successors or their representatives, receives
notice or invitation to attend.

         9.12     End of Fiscal Years; Fiscal Quarters. Each of Holdings and the
Borrower shall, and shall cause each of its Subsidiaries to, maintain (i) a
fiscal year that ends for each 52 or 53 week year, as applicable, on or about
December 31 and (ii) fiscal quarters that end on or about March 31, June 30,
September 30 and December 31.

         9.13     Private Placement Number. Within 10 Business Days after the
Closing Date, the Borrower shall have duly made the appropriate filings with
Standard & Poor's CUSIP Service Bureau, as agent for the National Association of
Insurance Commissioners, in order to obtain a private placement number for each
Note and Warrant.

         9.14     ACOF Affiliates' Special Rights. ACOF, so long as it or its
Affiliates or its managed funds or accounts (the "ACOF Affiliates") holds the
Notes, Liquidation Certificates or Warrants, shall be entitled to the special
management rights listed below:

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                           (i) to discuss the business operations, properties,
         financial and other conditions, and plans and prospects of Holdings,
         the Borrower and their Subsidiaries with any director, senior executive
         officer and/or other authorized officer of Holdings or the Borrower
         designated by the Board of Directors of Holdings or the Borrower and,
         upon reasonable notice to Holdings or the Borrower, with any director,
         senior executive officer and/or other authorized officer of any other
         Subsidiary of the Borrower;

                           (ii) to submit suggestions from time to time to the
         management of Holdings or the Borrower with the requirement that one or
         more senior executive officers of Holdings or the Borrower shall
         discuss such suggestions with the ACOF Affiliates within a reasonable
         period of time after such submission; and

                           (iii) to meet with one or more senior executive
         officers of Holdings or the Borrower, at reasonable times and on
         reasonable notice in order to discuss any suggestions made under (ii)
         above or for other purposes.

The rights granted to the ACOF Affiliates hereunder are not in substitution for,
and shall not be deemed to be in limitation of, any rights otherwise available
to them as a holder of any securities of the Borrower or Holdings. In addition,
such parties shall require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and or assets of any such party to expressly assume and agree to
perform the covenants contained in this Section 9.14 on substantially the same
terms hereunder.

         9.15     Compliance with Environmental Laws. (a) Each of Holdings and
the Borrower will comply, and the Borrower will cause each of its Subsidiaries
to comply, in all material respects, with all Environmental Laws applicable to
the business and its operations and to the ownership, operation or use of its
business, assets and Real Property and other assets now or hereafter owned or
operated by the Borrower or any of its Subsidiaries, will promptly pay or cause
to be paid all costs and expenses incurred in connection with such compliance
(except to the extent being contested in good faith, in which case, adequate
reserves shall be maintained), and will keep or cause to be kept all such Real
Property and other assets free and clear of any Liens imposed pursuant to such
Environmental Laws. None of Holdings, the Borrower or any of its Subsidiaries
will generate, use, treat, store, Release or dispose of, or permit the
generation, use, treatment, storage, Release or disposal of Hazardous Materials
on, under, at or from any Real Property and other assets now or hereafter owned
or operated by Holdings, the Borrower or any of its Subsidiaries, or transport
or permit the transportation of Hazardous Materials to or from any such Real
Property except in material compliance with all applicable Environmental Laws
and reasonably required in connection with the operation, use and maintenance of
any such Real Property or otherwise in connection with their businesses.

                      (b) The Borrower will promptly give notice to the Holders
of all matters referenced in Section 9.15(a). In each of the aforementioned
circumstances, immediately following discovery thereof, each of Holdings, and
the Borrower will, and the Borrower will cause each of its Subsidiaries to, take
appropriate steps to initiate and expeditiously complete all

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investigation, compliance, response, corrective and other action required under
any Environmental Law to mitigate and eliminate any such violation or liability
and shall keep the Holders apprised of such action.

         9.16     ERISA. As soon as reasonably possible and, in any event,
within 15 Business Days after Holdings, the Borrower or any of its Subsidiaries
knows or has reason to know of the occurrence of any of the following that could
reasonably be expected to result in liability of Holdings, the Borrower or any
of its Subsidiaries in an aggregate amount exceeding $1,000,000, the Borrower
will deliver to the Holders a certificate of the Chief Executive Officer, Chief
Financial Officer or the Treasurer of the Borrower setting forth the full
details as to such occurrence and the action, if any, that Holdings, the
Borrower, such Subsidiary or an ERISA Affiliate is required or proposes to take,
together with any notices required or proposed to be given to or filed by
Holdings, the Borrower, the Subsidiary, the ERISA Affiliate, or the PBGC, a Plan
participant or the Plan administrator with respect thereto: that a Reportable
Event has occurred (except to the extent that the Borrower has previously
delivered to the Holders a certificate and notices (if any) concerning such
event pursuant to the next clause hereof); that a contributing sponsor (as
defined in Section 4001(a)(13) of ERISA) of a Plan subject to Title IV of ERISA
is subject to the advance reporting requirement of PBGC Regulation Section
4043.61 (without regard to subparagraph (b)(1) thereof), and an event described
in subsection .62, .63, .64, .65, .66, .67 or .68 of PBGC Regulation Section
4043 is reasonably expected to occur with respect to such Plan within the
following 30 days; that an accumulated funding deficiency, within the meaning of
Section 412 of the Code or Section 302 of ERISA, has been incurred or an
application may be or has been made for a waiver or modification of the minimum
funding standard (including any required installment payments) or an extension
of any amortization period under Section 412 of the Code or Section 303 or 304
of ERISA with respect to a Plan or a Multiemployer Plan; that any contribution
required to be made with respect to a Plan or a Multiemployer Plan or Foreign
Pension Plan has not been timely made and such failure could result in a
material liability for Holdings, the Borrower or any of its Subsidiaries; that a
Plan or Multiemployer Plan has been (or notice has been given that it is
expected to be) terminated, reorganized, partitioned or declared insolvent under
Title IV of ERISA; that proceedings have been instituted to terminate or appoint
a trustee to administer a Plan which is subject to Title IV of ERISA; that a
proceeding has been instituted pursuant to Section 515 of ERISA to collect a
delinquent contribution to a Multiemployer Plan; that Holdings, the Borrower or
any of its Subsidiaries will incur any liability to or on account of the
termination of or withdrawal from a Multiemployer Plan under Section 4062, 4063,
4064, 4069, 4201, 4204 or 4212 of ERISA or with respect to a Plan under Section
401(a)(29), 4971 or 4975 of the Code or Section 409 or 502(i) or 502(l) of ERISA
or with respect to a group health plan (as defined in Section 607(l) of ERISA or
Section 4980B(g)(2) of the Code) under Section 4980B of the Code; or that the
Borrower, or any of its respective Subsidiaries may incur any material liability
pursuant to any employee welfare benefit plan (as defined in Section 3(l) of
ERISA) that provides benefits to retired employees or other former employees
(other than as required by Section 601 of ERISA). Upon request, the Borrower
will deliver to the Holders (i) a complete copy of the annual report (on
Internal Revenue Service Form 5500-series) of each Plan (including, to the
extent required, the related financial and actuarial statements and opinions and
other supporting statements,

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certifications, schedules and information) required to be filed with the
Internal Revenue Service and (ii) copies of any records, documents or other
information that must be furnished to the PBGC with respect to any Plan pursuant
to Section 4010 of ERISA. In addition to any certificates or notices delivered
to the Holders pursuant to the first sentence hereof, copies of any records,
documents or other information required to be furnished to the PBGC shall be
delivered to the Holders no later than 15 Business Days after the date such
records, documents and/or information has been furnished to the PBGC.

         9.17     Compliance with Mezzanine Transaction Documents. Each of
Holdings and the Borrower will, and the Borrower will cause each of its
Subsidiaries to, comply in all respects with the obligations owed by such party
under each of the Mezzanine Transaction Documents and the Restructuring
Agreement.

         9.18     Corporate Franchises. Each of Holdings and the Company will,
and the Company will cause each of its Subsidiaries, to do or cause to be done,
all things necessary to preserve and keep in full force and effect its existence
and its material rights, franchises, licenses and patents used in its business;
provided, however, that nothing in this Section 9.18 shall prevent (i) sales of
assets, consolidations or mergers by or involving Holdings, the Company or any
of its Subsidiaries in accordance with Section 10.02, (ii) the withdrawal by
Holdings, the Company or any of its Subsidiaries of their qualification as a
foreign corporation in any jurisdiction where such withdrawal could not
reasonably be expected to have a Material Adverse Effect or (iii) the
abandonment by Holdings, the Company or any of its Subsidiaries of any rights,
franchises, licenses and patents that Holdings, the Company or such Subsidiary
reasonably determines are not useful to its business.

         9.19     Maintenance of Corporate Separateness. Each of Holdings and
the Company will, and the Company will cause each of its respective Subsidiaries
to, satisfy customary corporate formalities, including the holding of regular
board of directors' and shareholders' meetings or action by directors or
shareholders without a meeting and the maintenance of corporate offices and
records. Neither Holdings, the Company nor any of its Subsidiaries shall take
any action, or conduct its affairs in a manner, which is likely to result in the
corporate existence of Holdings, the Company or any of its Subsidiaries being
ignored, or in the assets and liabilities of Holdings, the Company or any of its
Subsidiaries being substantively consolidated with those of any other such
Person in a bankruptcy, reorganization or other insolvency proceeding.

                                   ARTICLE 10

                               NEGATIVE COVENANTS

                  Until the payment of all principal of and interest on the
Notes and all other amounts due at the time of payment of such principal and
interest to the Purchasers under this Agreement and the other Mezzanine
Transaction Documents, including, without limitation, rights to payment under
the Liquidation Certificates, all fees, expenses and amounts due at such

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time in respect of indemnity obligations under Article 8, each of Holdings and
the Borrower hereby covenants and agrees, absent the prior written consent of
the Required Holders, that Holdings and the Borrower shall not, and shall not
permit any of its Subsidiaries to undertake the following:

         10.01    Liens. Each of Holdings and the Borrower will not, and will
not permit any of its Subsidiaries to create, incur, assume or permit to exist
any Lien upon or with respect to any property of any Credit Party, whether now
owned or hereafter acquired, or on any income or revenues or rights in respect
of any thereof, except for the following (the "Permitted Liens"):

                  (i)      inchoate Liens for taxes, assessments or governmental
         charges or levies not yet due and payable or Liens for taxes,
         assessments or governmental charges or levies being contested in good
         faith and by appropriate proceedings for which adequate reserves have
         been established in accordance with GAAP (or the equivalent thereof in
         any country in which a Foreign Subsidiary is doing business, as
         applicable);

                  (ii)     Liens in respect of property of the Borrower or any
         of its Subsidiaries imposed by law, which were incurred in the ordinary
         course of business and do not secure Indebtedness for borrowed money,
         such as carriers', warehousemen's, materialmen's and mechanics' liens
         and other similar Liens arising in the ordinary course of business, and
         (x) which do not in the aggregate materially detract from the value of
         the property of the Borrower or such Subsidiary and do not materially
         impair the use thereof in the operation of the business of the Borrower
         or such Subsidiary or (y) which are being contested in good faith by
         appropriate proceedings, which proceedings (or orders entered in
         connection with such proceedings) have the effect of preventing the
         forfeiture or sale of the property subject to any such Lien;

                  (iii)    Liens in existence on the Closing Date which are
         listed, and the property subject thereto described, on Schedule
         10.01(iii), but only to the respective date, if any, set forth on such
         Schedule 10.01(iii) for the removal and termination of any such Liens,
         plus renewals and extensions of such Liens to the extent set forth on
         Schedule 10.01(iii); provided that with respect to any renewal or
         extension (x) the aggregate principal amount of the Indebtedness, if
         any, secured by such Liens does not increase from the amount
         outstanding at the time of any such renewal or extension and (y) any
         such renewal or extension does not encumber any additional properties
         of the Borrower or any of its Subsidiaries;

                  (iv)     Liens created pursuant to the Senior Debt Documents
         (including liens securing swaps and hedges);

                  (v)      Liens arising pursuant to licenses, leases or
         subleases granted to other Persons in the ordinary course of business
         not materially interfering with the conduct of the business of the
         Borrower and its Subsidiaries taken as a whole and not resulting in
         material deterioration in the value of the property covered;

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                  (vi)     Liens arising pursuant to Capitalized Lease
         Obligations and Purchase Money Obligations or security interests
         securing Indebtedness representing the purchase price (or financing of
         the purchase price within 90 days after the respective purchase) of
         assets acquired after the Closing Date; provided that (x) any such
         Liens attach only to the assets so purchased and do not encumber any
         other asset of the Borrower or any of its Subsidiaries, (y) the
         Indebtedness secured by any such Lien (including refinancings thereof)
         does not exceed 100% of the lesser of the fair market value or the
         purchase price of the property being purchased at the time of the
         incurrence of such Indebtedness and (z) the aggregate outstanding
         principal amount of all Indebtedness secured by Liens permitted by this
         clause (vi) shall not at any time exceed $3.5 million;

                  (vii)    easements, rights-of-way, restrictions (including
         zoning restrictions), covenants, encroachments, protrusions and other
         similar charges or encumbrances, and minor title deficiencies, in each
         case whether now or hereafter in existence, not securing Indebtedness
         and not materially interfering with the conduct of the business of the
         Borrower and its Subsidiaries taken as a whole;

                  (viii)   Liens arising from precautionary UCC financing
         statement filings regarding operating leases entered into by the
         Borrower or any of its Subsidiaries in the ordinary course of business;

                  (ix)     Liens arising out of judgments or awards in respect
         of which the Borrower or any of its Subsidiaries shall in good faith be
         prosecuting an appeal or proceedings for review in respect of which
         there shall have been secured a subsisting stay of execution pending
         such appeal or proceedings, provided that the aggregate amount of all
         such judgments or awards does not exceed $1.5 at any time outstanding;

                  (x)      Liens (other than any Lien imposed by ERISA) (x)
         incurred or deposits made in the ordinary course of business in
         connection with workers' compensation, unemployment insurance and other
         types of social security, (y) to secure the performance of project
         contracts and work completed under project contracts under ordinary
         course bonding arrangements of the Borrower and its Domestic
         Subsidiaries and any statutory obligations (other than excise taxes)
         arising in relation thereto on an arm's-length basis (exclusive of
         obligations for the payment of borrowed money) or (z) arising by virtue
         of deposits made in the ordinary course of business to secure liability
         for premiums to insurance carriers;

                  (xi)     Liens on property acquired pursuant to a Permitted
         Acquisition, or on property or assets of a Subsidiary of the Borrower
         in existence at the time such Subsidiary is acquired pursuant to a
         Permitted Acquisition; provided that (x) any Indebtedness that is
         secured by such Liens is permitted to exist under Section 10.04(xi),
         (y) such Liens are not incurred in connection with or in contemplation
         or anticipation of such Permitted Acquisition and (z) such Liens may
         not extend to any other property of the Borrower or any of its
         Subsidiaries;

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                  (xii)    Liens securing reimbursement of obligations in
         respect of letters of credit incurred under Section 10.04(ix); provided
         that such Liens attach only to the documents, the goods covered thereby
         and/or the proceeds thereof;

                  (xiii)   Liens in favor of customs and revenues authorities
         arising as a matter of law to secure payment of customs duties in
         connection with the importation of goods;

                  (xiv)    Foreign Subsidiaries may grant Liens on their assets
         to secure Indebtedness outstanding under Section 10.04(xiii);

                  (xv)     Liens consisting of set-off of a customary nature or
         bankers' liens on amounts on deposit, whether arising by contract or
         operation of law, incurred in the ordinary course of business;

                  (xvi)    additional Liens incurred in the ordinary course of
         business by the Borrower and its Subsidiaries so long as such Liens do
         not arise in connection with the incurrence of Indebtedness and the
         value of the property subject to such Liens and any other obligations
         secured thereby do not exceed $250,000 at any one time outstanding;

                  (xvii)   Liens in favor of holders under the TCP
         Documentation, including those Liens granted to secure the Borrower's
         obligations under the TCP Purchase Agreement and any refinancing or
         replacement thereof permitted under this Agreement and under the TCP
         Purchase Agreement;

                  (xviii)  [Intentionally omitted]

                  (xix)    Liens to secure Additional Senior Indebtedness
         permitted under Section 10.04(ii)(b).

         10.02    Consolidation, Merger, Purchase or Sale of Assets, Etc. Each
of Holdings and the Borrower will not, and will not permit any of its
Subsidiaries to, wind up, liquidate or dissolve its affairs or enter into any
transaction of merger or consolidation, or convey, sell, lease or otherwise
dispose of (or agree to do any of the foregoing at any future time) all or any
part of its property, or enter into any sale-leaseback transactions, or purchase
or otherwise acquire (in one or a series of related transactions) any part of
the property (other than purchases or other acquisitions of inventory,
materials, equipment and intangible assets in the ordinary course of business or
reinvestments in assets) of any Person if permitted hereby and in the Senior
Credit Agreement and the TCP Purchase Agreement (or agree to do any of the
foregoing at any future time), except that:

                  (i)      Capital Expenditures by the Borrower and its
         Subsidiaries shall be permitted to the extent not in violation of
         Section 10.07;

                  (ii)     each of the Borrower and its Subsidiaries may (x) in
         the ordinary course of business, sell, lease or otherwise dispose of
         any property which, in the reasonable

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         judgment of such Person, is obsolete, worn out or otherwise no longer
         useful in the conduct of such Person's business and (y) sell, lease or
         otherwise dispose of any other property; provided that the aggregate
         Net Cash Proceeds of all assets subject to sales or other dispositions
         pursuant to this sub-clause (ii)(y) shall not exceed $1.0 million in
         the aggregate in any four consecutive fiscal quarters of the Borrower;

                  (iii)    investments may be made to the extent permitted by
         Section 10.05;

                  (iv)     each of the Borrower and its Subsidiaries may lease
         (as lessee) real or personal property in the ordinary course of
         business (so long as any such lease does not create a Capitalized Lease
         Obligation except to the extent permitted by Section 10.04 (vi));

                  (v)      each of the Borrower and its Subsidiaries may make
         sales or transfers of inventory in the ordinary course of business and
         that are consistent with past practices;

                  (vi)     the Borrower and its Subsidiaries may sell or
         discount, in each case without recourse and in the ordinary course of
         business, overdue accounts receivable arising in the ordinary course of
         business, but only in connection with the compromise or collection
         thereof consistent with customary industry practice (and not as part of
         any bulk sale);

                  (vii)    [Intentionally omitted]

                  (viii)   the Borrower or any Domestic Wholly-Owned Subsidiary
         of the Borrower may transfer assets or lease to or acquire or lease
         assets from the Borrower or any other Domestic Wholly-Owned Subsidiary
         or any Domestic Wholly-Owned Subsidiary may be merged into the Borrower
         or any other Domestic Wholly-Owned Subsidiary of the Borrower;

                  (ix)     Permitted Acquisitions shall be permitted;

                  (x)      any Credit Party may sell or exchange specific items
         of equipment in the ordinary course of business, so long as the purpose
         of each such sale or exchange is to acquire (and results within 270
         days of such sale or exchange in the acquisition of) replacement items
         of equipment which are, in the reasonable business judgment of such
         Credit Party, the functional equivalent of the item of equipment so
         sold or exchanged;

                  (xi)     the Borrower and its Domestic Subsidiaries may
         transfer assets in the ordinary course of business to Foreign
         Subsidiaries of the Borrower having a fair market value (as determined
         in good faith by the Board of Directors or senior management of the
         Borrower) not to exceed $1.0 million in any fiscal year of the
         Borrower;

                  (xii)    the assets of any Foreign Subsidiary of the Borrower
         may be transferred to the Borrower or any Subsidiary of the Borrower
         and any Foreign Subsidiary may be

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         merged into the Borrower or any of its Subsidiaries so long as the
         Borrower or such Subsidiary is the surviving entity;

                  (xiii)   disposition of Cash Equivalents, Foreign Cash
         Equivalents and other investments permitted under Section 10.05(ii);

                  (xiv)    [Intentionally omitted]

                  (xv)     the Borrower may sell FTS Systems, Inc., formerly
         known as Kinetics Thermal Systems, Inc. (such transaction, the "KTS
         Sale"); provided that the Net Cash Proceeds to be received as a result
         of the KTS Sale shall not be less than $5.0 million and either (a) if
         the obligations under any indemnity arrangements with the purchaser of
         FTS Systems, Inc. in the KTS Sale do not expose any seller thereof to
         liability in excess of $1.0 million, the net proceeds of such sale are
         used by the Borrower for working capital and general operations, or (b)
         the net proceeds of such sale shall be used to repay and permanently
         reduce the Indebtedness of the Borrower, prior to any other use
         thereof.

         10.03    Dividends. Each of Holdings and the Borrower shall not, and
shall not permit any of its Subsidiaries to, authorize, declare or pay any
Dividends with respect to Holdings, the Borrower or any of its Subsidiaries,
except that:

                  (i)      any Subsidiary of the Borrower (x) may pay cash
         Dividends to the Borrower or any Wholly-Owned Subsidiary of the
         Borrower and (y) if such Subsidiary is not a Wholly-Owned Subsidiary,
         may pay cash Dividends to its shareholders generally so long as the
         Borrower or its respective Subsidiary which owns the equity interest or
         interests in the Subsidiary paying such Dividends receives at least its
         proportionate share thereof (based upon its relative equity interests
         in the Subsidiary paying such Dividends and taking into account the
         relative preferences, if any, of the various classes of equity
         interests in such Subsidiary);

                  (ii)     so long as there shall exist no default or Event of
         Default (both before and after giving effect to the payment thereof),
         (A) the Borrower may, or may pay cash to Holdings, such cash to be used
         to, repurchase outstanding shares of its common stock (or options to
         purchase such common stock) following the death, disability, retirement
         or termination of employment of employees, officers or directors of
         Holdings, the Borrower or any of its Subsidiaries; provided that (x)
         all amounts used to effect such repurchases are obtained by Holdings
         from an issuance of its common stock (or options to purchase such
         common stock) within one year (either before or after) of such
         repurchase to other employees, members of management, executive
         officers or directors of Holdings, the Borrower or any of their
         Subsidiaries or (y) to the extent the proceeds used to effect any
         repurchase pursuant to this clause (y) are not obtained as described in
         preceding clause (x), the aggregate amount of Dividends paid by
         Holdings or the Borrower pursuant to this clause (ii) (exclusive of
         amounts paid as described pursuant to preceding clause (x)) shall not
         exceed $200,000 plus the amount of any keyman life insurance proceeds
         actually received in any fiscal year;

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                  (iii)    (a) prior to the Qualified Public Equity Offering,
         the Borrower may pay cash Dividends, so long as all proceeds thereof
         are used by KH LLC or Holdings to pay its reasonable operating expenses
         incurred in the ordinary course of business and other corporate
         overhead costs at KH LLC and Holdings, including, without limitation,
         income tax when and as due for Holdings, and expenses directly
         attributable to the operations of its Subsidiaries (including, without
         limitation, legal and accounting expenses and similar expenses and
         expressly excluding (v) the payment of principal, interest or any other
         amount on or in respect of the Holdings Notes, (w) the payment of
         principal and interest on the Holdings Subordinated Debt, (x) the
         payment of any put price of securities issued in connection with the
         Holdings Subordinated Debt, (y) the payment of management fees or the
         like to MidOcean, Behrman, Gryphon Partners or their respective
         Affiliates and (z) the payment of fees to directors or board observers
         (excluding reimbursement of reasonable expenses of individual directors
         or board observers for performing their duties as a director or board
         observer); provided that the aggregate amount of Dividends paid by the
         Borrower pursuant to this clause (iii)(a) for all such operating
         expenses and other corporate overhead costs other than income taxes
         plus all amounts loaned or paid pursuant to Sections 10.04(xiv) and
         10.05(xii) shall not exceed $750,000 (exclusive of any fees or expenses
         associated with the contemplated Qualified Public Equity Offering that
         are not otherwise paid or payable by the Borrower); and

                  (b)      following the Qualified Public Equity Offering, the
         Borrower may pay cash Dividends, so long as all proceeds thereof are
         used by KH LLC to pay its reasonable operating expenses incurred in the
         ordinary course of business and other corporate overhead costs at KH
         LLC, other and expenses directly attributable to the operations of the
         Borrower's Subsidiaries (including, without limitation, legal and
         accounting expenses and similar expenses) and expressly excluding (v)
         the payment of principal, interest or any other amount on or in respect
         of the Holding Notes, (w) the payment of principal and interest on the
         Holdings Subordinated Debt, (x) the payment of any put price of
         securities issued in connection with the Holdings Subordinated Debt,
         (y) the payment of management fees or the like to MidOcean, Behrman,
         Gryphon Partners or their Affiliates and (z) the payment of fees to
         directors or board observers (excluding reimbursement of reasonable
         expenses of individual directors or board observers for performing
         their duties as a director or observer); provided that the aggregate
         amount of Dividends paid by the Borrower pursuant to this clause
         (iii)(b) for all such operating expenses and other corporate overhead
         costs other than income taxes plus all amounts loaned or paid pursuant
         to Section 10.04(xv)(b) and Section 10.05(xi)(b) shall not exceed in
         any fiscal year of the Borrower $400,000 (exclusive of any fees or
         expenses associated with the contemplated Qualified Public Equity
         Offering that are not otherwise paid or payable by the Borrower);

If the Borrower pays a Dividend under either subclause (a) or (b) above, the
Borrower shall promptly provide to the Agent documentation setting forth the
specific use(s) of proceeds from such Dividend paid by the Borrower pursuant to
this Section 10.03(iii);

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<PAGE>

         (iv)     The Borrower may dividend KSI to KH LLC such that KH LLC owns
         KSI in accordance with the terms of the Restructuring Agreement; and

         (v)      The Borrower and Holdings may, as of December, 2003,
         repurchase of the stock of Daniel Rubin; provided that (a) such stock
         was repurchased at fair market value, and (b) the amount of stock so
         repurchased did not exceed $125,000.

         10.04    Indebtedness. Each of Holdings and the Borrower will not, and
will not permit any of its Subsidiaries to, contract, create, incur, assume or
suffer or permit to exist any Indebtedness, except:

                  (i)      Indebtedness incurred pursuant to this Agreement and
         the other Mezzanine Transaction Documents;

                  (ii)     (a)      [intentionally omitted]

                           (b)      Additional Senior Indebtedness of the
         Borrower and the obligations and/or guarantees thereof by Holdings and
         the Subsidiary Guarantors in an aggregate principal amount not to
         exceed $15.0 million at any one time outstanding; provided, that the
         Additional Senior Indebtedness permitted under this Section
         10.04(ii)(b) shall only be permitted if ACOF or its Affiliates has the
         right to provide at least 50% of any such issuance on such terms and
         conditions as such additional Senior Indebtedness is provided by the
         other parties providing such Indebtedness, including without limitation
         fees, equity interests, liquidation preference, fees and similar
         compensation, and the borrower thereunder utilizes the proceeds from
         such issuance of Additional Senior Indebtedness for working capital and
         general operations (and not for the refinancing or repayment of
         Indebtedness, payment of dividends or litigation expenses or for any
         acquisition financing).

                           (c)      additional Indebtedness of the Borrower in
         an aggregate amount not to exceed $100,000 at any one time outstanding,
         which Indebtedness shall be subordinate and junior in right of payment
         to the Notes but senior in right of payment to the Senior Subordinated
         Liquidation Preference evidenced by the Liquidation Certificates.

                  (iii)    Existing Indebtedness shall be permitted to the
         extent actually outstanding on the Closing Date and as the same is
         listed on Schedule 6.19 less the aggregate amount of all repayments or
         reductions in commitments effected after the Closing Date (any such
         repayments and reductions in commitments may not be reborrowed, other
         than such repayments that do not result in a permanent reduction in the
         Revolving Loan Commitments under and as defined in the Senior Credit
         Agreement) and any refinancing of such Indebtedness, provided that such
         refinancing shall (A) not be in a principal amount which exceeds the
         principal amount of the Existing Indebtedness being refinanced plus any
         premiums with respect thereto, (B) not be incurred if any Default or
         Event of Default has occurred and is continuing or would result
         therefrom, (C) not have a

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         stated maturity or a weighted average life that is shorter than that of
         the Existing Indebtedness being refinanced, (D) not be on financial and
         other terms, including interest rate, liquidation preference, fee or
         other equity kickers, that are, taken as a whole, materially less
         favorable to any Credit Party or any Holder than the Existing
         Indebtedness being refinanced, (E) if such Existing Indebtedness is
         subordinated, have subordination provisions which are substantially
         similar to those contained in the Existing Indebtedness being
         refinanced, and (F) with respect to the Celerity Junior Subordinated
         Notes and the junior subordinated notes issued pursuant to Section
         10.04(xvi), accrue interest that may be paid only in kind and not in
         cash.

                  (iv)     accrued expenses and trade accounts payable incurred
         in the ordinary course;

                  (v)      Indebtedness under Interest Rate Protection
         Agreements entered into in compliance with Section 8.13 of the Senior
         Credit Agreement, and such other non-speculative Interest Rate
         Protection Agreements which may be entered into from time to time by
         the Borrower and which the Borrower in good faith believes will provide
         protection against fluctuations in interest rates with respect to
         outstanding floating rate Indebtedness then outstanding, and permitted
         to remain outstanding, pursuant to the other provisions of this Section
         10.04;

                  (vi)     Indebtedness subject to Liens permitted under Section
         10.01(vi), so long as the outstanding principal amount of such
         Indebtedness does not exceed the $3.5 million limitation provided in
         Section 10.01(vi) and any refinancing of such Indebtedness so long as
         the principal amount thereof is not increased and the terms of such
         refinancing Indebtedness is on substantially similar terms as the
         Indebtedness being refinanced;

                  (vii)    intercompany Indebtedness of the Borrower and its
         Subsidiaries outstanding to the extent permitted by Section 10.05(vi);

                  (viii)   Indebtedness evidenced by Other Hedging Agreements
         entered into pursuant to Section 10.05(v);

                  (ix)     Indebtedness of Holdings, the Borrower, or their
         Domestic Subsidiaries) under performance guarantees, performance
         sureties, performance bonds, and similar letter of credit obligations,
         in each case incurred in the ordinary course of business in
         transactions negotiated on an arm's length basis that are expected to
         generate revenue for Holdings, the Borrower or their Domestic
         Subsidiaries;

                  (x)      Indebtedness consisting of guarantees (x) by the
         Borrower of Indebtedness, leases and other obligations permitted to be
         incurred by any Subsidiary Guarantor under this Agreement, (y) by
         Subsidiaries of the Borrower of Indebtedness, leases and other
         obligations permitted to be incurred by the Borrower or another
         Subsidiary of the Borrower (which, in the case of a guarantee to be
         executed by a Subsidiary Guarantor, must be a Subsidiary Guarantor)
         under this Agreement and (z) by

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         Holdings of Indebtedness of Foreign Subsidiaries of the Borrower
         permitted under Section 10.04(xiii);

                  (xi)     Indebtedness of a Subsidiary of the Borrower acquired
         pursuant to a Permitted Acquisition (or Indebtedness assumed at the
         time of a Permitted Acquisition of an asset securing such
         Indebtedness), and any refinancing of such Indebtedness so long as the
         principal amount thereof is not increased; provided that such
         Indebtedness was not incurred in connection with or in anticipation of
         such Permitted Acquisition;

                  (xii)    Indebtedness of the Borrower and its Subsidiaries
         consisting of customary indemnities or earn-out, incentive,
         non-compete, deferred compensation or similar arrangements entered into
         in connection with Permitted Acquisitions; provided that such
         arrangements (for which value may be ascertained readily) for any
         Permitted Acquisition shall not exceed 10% of the value of the
         consideration paid for such Permitted Acquisition;

                  (xiii)   Indebtedness of Foreign Subsidiaries in respect of
         local lines of credit, letters of credit, bank guarantees and similar
         extensions of credit and renewals and refinancing thereof, each
         incurred in the ordinary course of business in an aggregate outstanding
         principal amount not to exceed $2.0 million at any time;

                  (xiv)    (a) Indebtedness incurred for the purpose of paying
         the operating costs and other overhead expenses contemplated in Section
         10.03(iii)(a) hereof, to the extent limited therein, and to the extent
         that such Indebtedness, after taking into account all amounts loaned or
         paid to Holdings or KH LLC by the Borrower under this section and under
         Sections 10.03(iii)(a) and 10.05(xii)(a), does not exceed $750,000 in
         the aggregate (exclusive of any fees or expenses associated with the
         contemplated Qualified Public Equity Offering that are not otherwise
         paid or payable by Borrower);

                           (b) Indebtedness incurred for the purpose of paying
         the operating costs and other overhead expenses contemplated in Section
         10.03 (iii)(b) hereof to the extent limited therein, and to the extent
         that such Indebtedness, after taking into account all amounts loaned or
         paid to KH LLC under this section and under Sections 10.03(iii)(b) and
         10.05(xi)(b), does not exceed $400,000 in the aggregate (exclusive of
         any fees or expenses associated with the contemplated Qualified Public
         Equity Offering that are not otherwise paid or payable by Borrower) in
         any fiscal year of the Borrower;

                  (xv)     Indebtedness under letters of credit to provide
         security for worker's compensation claims and bank overdrafts incurred
         in the ordinary course of business; provided that any obligations
         arising in connection with such bank overdraft Indebtedness is
         extinguished within five Business Days; and

                  (xvi)    Indebtedness incurred to pay liabilities and expenses
         of the Alfa Laval Litigation in an amount not to exceed $15.0 million
         at any one time outstanding, of

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         ranking no more senior in right of payment than the Junior Subordinated
         Notes (with subordination, remedies standstill and the like no more
         favorable than those set forth in the Junior Subordinated Notes) with a
         maturity at least six months after the Maturity Date of the Notes or
         the maturity date of the TCP Second Lien Notes (whichever is longer)
         and with an interest rate and fees that on a blended basis do not
         exceed 15% per annum, which shall be payable only in kind; provided
         that amounts borrowed under this Section 10.04(xvi) and repaid shall
         not be available for re-borrowing.

         10.05    Advances, Investments and Loans. Each of Holdings and the
Borrower will not, and will not permit any of its Subsidiaries to, directly or
indirectly, lend money or credit or make advances to any Person, or purchase or
acquire any stock, obligations or securities of, or any other interest in, or
make any capital contribution to, any other Person, or purchase or own a futures
contract or otherwise become liable for the purchase or sale of currency or
other commodities at a future date in the nature of a futures contract, or hold
any cash or Cash Equivalents or Foreign Cash Equivalents (each of the foregoing
an "Investment" and, collectively, "Investments"), except that the following
shall be permitted:

                  (i)      the Borrower and its Subsidiaries may acquire and
         hold accounts receivable, notes receivable, retention balances,
         deposits and advances owing to any of them;

                  (ii)     the Borrower and its Subsidiaries may acquire and
         hold cash and Cash Equivalents (and, with respect to Foreign
         Subsidiaries, Foreign Cash Equivalents);

                  (iii)    the Borrower and its Subsidiaries may make loans and
         advances in the ordinary course of business to their respective
         employees so long as the aggregate principal amount thereof at any time
         outstanding (determined without regard to any write-downs or write-offs
         of such loans and advances) shall not exceed $1.0 million at any time;

                  (iv)     the Borrower may enter into Interest Rate Protection
         Agreements to the extent permitted in Section 10.04(v);

                  (v)      the Borrower may enter into and perform its
         obligations under Other Hedging Agreements entered into in the ordinary
         course of business and so long as any such Other Hedging Agreement is
         not speculative in nature and is (x) related to income derived from
         foreign operations of the Borrower or any Subsidiary or otherwise
         related to purchases permitted hereunder from foreign suppliers or (y)
         entered into to protect the Borrower and/or its Subsidiaries against
         fluctuations in the prices of raw materials used in their businesses;

                  (vi)     any Wholly-Owned Subsidiary may make intercompany
         loans, advances or cash contributions to the Borrower or any
         Wholly-Owned Subsidiary and the Borrower may make intercompany loans,
         advances and cash contributions to any Wholly-Owned Subsidiary;
         provided that (x) neither the Borrower nor any Domestic Subsidiaries of
         the

                                       77

<PAGE>

         Borrower may make loans, advances or equity contributions to any
         Foreign Subsidiaries of the Borrower pursuant to this clause (vi)
         (other than loans, advances and cash contributions in an amount not to
         exceed $2.0 million in the aggregate outstanding at any one time,
         provided, that the foregoing amount shall be permanently reduced by the
         amount of any such loans, advances and cash contributions cancelled,
         forgiven or otherwise written off by the maker of such loan, advance or
         contribution) and (y) any loans made by any Foreign Subsidiaries to the
         Borrower or any of its Domestic Subsidiaries pursuant to this clause
         (vi) shall be subordinated to the obligations of the Credit Parties
         under the Mezzanine Transaction Documents in form and substance
         reasonably acceptable to the Required Holders;

                  (vii)    the Borrower and its Subsidiaries may purchase, sell
         or transfer assets (including equity) to the extent permitted by
         Section 10.02;

                  (viii)   the Borrower may establish Subsidiaries to the extent
         permitted by Section 10.15;

                  (ix)     Holdings may make equity contributions in the
         Borrower;

                  (x)      the Borrower and its Subsidiaries may make
         investments in joint ventures in an amount not to exceed $6.0 million
         at any one time outstanding in the aggregate, including investments
         made prior to the date hereof;

                  (xi)     so long as no KSI Change of Control has occurred, the
         Borrower may make loans to KSI under the KSI/KGI Revolving Loan
         Agreement, in an amount not to exceed $24.0 million outstanding at any
         time;

                  (xii)    (a) Holdings and the Borrower may make loans to
         Holdings and/or KH LLC for the purposes of funding the operating costs
         and other overhead expenses contemplated in Section 10.03 (iii) hereof
         to the extent limited therein, and to the extent that such
         Indebtedness, after taking into account all amounts loaned or paid to
         Holdings or KH LLC under this section and under Sections 10.03(iii)(a)
         and 10.04(xv)(a), does not exceed $750,000 in the aggregate (exclusive
         of any fees or expenses associated with the contemplated Qualified
         Public Equity Offering that are not otherwise paid or payable by
         Borrower) in any fiscal year of the Borrower;

                           (b) Holdings and the Borrower may make loans to KH
         LLC for the purposes of funding the operating costs and other overhead
         expenses contemplated in Section 10.03 (iii)(b) hereof to the extent
         limited therein, and to the extent that such Indebtedness, after taking
         into account all amounts loaned or paid to KH LLC under this section
         and under Sections 10.03(iii)(b) and 10.04(xv)(b), does not exceed
         $400,000 in the aggregate (exclusive of any fees or expenses associated
         with the contemplated Qualified Public Equity Offering that are not
         otherwise paid or payable by the Borrower) in any fiscal year of the
         Borrower;

                                       78

<PAGE>

                  (xiii)   investments existing on the Closing Date set forth on
          Schedule 10.05; and

                  (xiv)    the entry by the Borrower and/or any of its
         Affiliates into the Tax Sharing Agreement.

         10.06    Transactions with Affiliates. Each of Holdings and the
Borrower will not, and will not permit any of its Subsidiaries to, enter into
any transaction or series of related transactions, whether or not in the
ordinary course of business, with any Affiliate of Holdings, the Borrower or any
of its Subsidiaries, other than in the ordinary course of business and on terms
and conditions substantially as favorable to Holdings, the Borrower or such
Subsidiary as would reasonably be obtained by Holdings, the Borrower or such
Subsidiary at that time in a comparable arm's-length transaction with a Person
other than an Affiliate (in any such transaction or series of transactions
valued in excess of $1.0 million, except for the sale by Holdings or the
Borrower of debt or equity securities, at the option of the Agent, the board of
directors of the relevant entity shall obtain the opinion as to the fairness of
such transaction from an investment banking, accounting or valuation firm
reasonably acceptable to the Required Holders prior to undertaking or entering
into such transaction or series of transactions), except that:

                  (i)      Dividends may be paid to the extent provided in
         Section 10.03;

                  (ii)     Loans may be made and other transactions may be
         entered into between KH LLC, Holdings, the Borrower and its
         Subsidiaries to the extent permitted by Sections 10.04 and 10.05 and
         otherwise in accordance with the terms of this Agreement;

                  (iii)    employment arrangements may be entered into in the
         ordinary course of business with officers of Holdings and its
         Subsidiaries;

                  (iv)     reimbursement of out-of-pocket expenses of, and
         indemnification and similar arrangements may be made with, members of
         the Board of Directors of Holdings;

                  (v)      the issuance by Holdings of its Qualified Capital
         Stock or options exercisable for its Qualified Capital Stock;

                  (vi)     the KSI Note in principal amount not to exceed $13.0
         million shall be permitted;

                  (vii)    the Celerity Junior Subordinated Notes shall be
         permitted;

                  (viii)   the notes permitted to be issued under, and
         consistent with the limitations of, Section 10.04(xvi);

                  (ix)     the Borrower may incur Indebtedness evidenced by the
         KSI/KGI Revolving Loan Agreement in a principal amount not to exceed
         $24 million outstanding at any time;

                                       79

<PAGE>

                  (x)      the entry by the Borrower and/or any of its
         Affiliates into the Tax Sharing Agreement shall be permitted;

                  (xi)     the Indebtedness permitted to be issued under, and
         consistent with the limitations of, Section 10.04(xvi) shall be
         permitted;

                  (xii)    the Dividends permitted to be issued under, and
         consistent with the limitations of, Section 10.03(iii) shall be
         permitted;

                  (xiii)   the Indebtedness permitted to be issued under, and
         consistent with the limitations of, Section 10.04(xiv), shall be
         permitted;

                  (xiv)    the loans permitted to be issued under, and
         consistent with the limitations of, Section 10.05(xii) shall be
         permitted; and

                  (xv)     the Additional Senior Indebtedness permitted to be
         issued under, and consistent with the limitation of, Section
         10.04(ii)(b) shall be permitted.

         10.07    Capital Expenditures. The Borrower will not, and will not
permit any of its Subsidiaries to, make any Capital Expenditures, except that
the Borrower and its Subsidiaries may make Capital Expenditures during any
fiscal year in an aggregate amount not to exceed $9.0 million for fiscal year
2004 and each fiscal year thereafter, provided, that the Borrower may roll
forward to the following year an amount equal to one-half of any unused amount
of Planned Capital Expenditures for the previous fiscal year, in addition to the
amount otherwise permitted hereunder for such fiscal year.

         10.08    Consolidated Interest Coverage Ratio. The Borrower will not
permit the Consolidated Interest Coverage Ratio for any Test Period ended on the
last day of a fiscal quarter described below to be less than the ratio set forth
opposite such fiscal quarter below:

<TABLE>
<CAPTION>
                   Fiscal Quarter Ended on or about                              Ratio
                   --------------------------------                              -----
<S>                                                                        <C>
March 31, 2004........................................................     Requirement Waived
June 30, 2004.........................................................     Requirement Waived
September 30, 2004....................................................     Requirement Waived
December 31, 2004.....................................................     Requirement Waived
March 31, 2005........................................................     Requirement Waived
June 30, 2005.........................................................     Requirement Waived
September 30, 2005....................................................     2.1 to 1.0
December 31, 2005.....................................................     2.2 to 1.0
March 31, 2006........................................................     2.8 to 1.0
June 30, 2006 and thereafter..........................................     3.3 to 1.0
</TABLE>

                                       80
<PAGE>

         10.09    Consolidated Fixed Charge Coverage Ratio. The Borrower will
not permit the Consolidated Fixed Charge Coverage Ratio for any Test Period
ended on the last day of a fiscal quarter described below to be less than the
amount set forth opposite such fiscal quarter below:

<TABLE>
<CAPTION>
                    Fiscal Quarter Ended on or about                          Ratio
                    --------------------------------                          -----
<S>                                                                        <C>
March 31, 2004........................................................     0.41 to 1.0
June 30, 2004.........................................................     0.56 to 1.0
September 30, 2004....................................................     0.63 to 1.0
December 31, 2004.....................................................     0.79 to 1.0
March 31, 2005........................................................     1.04 to 1.0
June 30, 2005.........................................................     1.30 to 1.0
September 30, 2005....................................................     1.10 to 1.0
December 31, 2005.....................................................     1.20 to 1.0
March 31, 2006........................................................     1.20 to 1.0
June 30, 2006 and thereafter..........................................     1.30 to 1.0
</TABLE>

         10.10    Leverage Ratio. The Borrower will not permit the Leverage
Ratio for any Test Period ending on the last day of a fiscal quarter set forth
below to be greater than the ratio set forth opposite such fiscal quarter below:

<TABLE>
<CAPTION>
                    Fiscal Quarter Ended on or about                          Ratio
                    --------------------------------                          -----
<S>                                                                       <C>
March 31, 2004........................................................    18.4 to 1.0
June 30, 2004.........................................................    13.3 to 1.0
September 30, 2004....................................................    11.7 to 1.0
December 31, 2004.....................................................     9.1 to 1.0
March 31, 2005........................................................     6.4 to 1.0
June 30, 2005.........................................................     4.8 to 1.0
September 30, 2005....................................................     4.2 to 1.0
December 31, 2005.....................................................     3.8 to 1.0
March 31, 2006........................................................     3.4 to 1.0
June 30, 2006 and thereafter..........................................     3.1 to 1.0
</TABLE>

         10.11    Minimum EBITDA. The Borrower will not permit Consolidated
EBITDA for any Test Period ended on the last day of a fiscal quarter described
below to be less than the amount set forth opposite such fiscal quarter below:

<TABLE>
<CAPTION>
                    Fiscal Period Ended on or about                       Minimum EBITDA
                    -------------------------------                       -------------
<S>                                                                       <C>
March 31, 2004........................................................     $12,702,000
June 30, 2004.........................................................     $18,127,000
</TABLE>

                                       81
<PAGE>

<TABLE>
<S>                                                                        <C>
September 30, 2004....................................................     $20,912,000
December 31, 2004.....................................................     $26,565,000
March 31, 2005........................................................     $35,559,000
June 30, 2005.........................................................     $43,640,000
September 30, 2005....................................................     $52,500,000
December 31, 2005.....................................................     $58,000,000
March 31, 2006........................................................     $62,500,000
June 30, 2006 and thereafter..........................................     $67,000,000
</TABLE>

         10.12    Limitation on Modifications of Indebtedness; Modifications of
Certificate of Incorporation, By-Laws and Certain Other Agreements; Etc. Each of
Holdings and the Borrower will not, and will not permit any of its Subsidiaries
to:

                  (i)      amend or modify, or permit the amendment or
         modification of, any provision of the Existing Indebtedness or of any
         agreement (including, without limitation, any purchase agreement,
         indenture, loan agreement or security agreement) relating to any
         Existing Indebtedness, other than any amendments or modifications to
         the Existing Indebtedness (other than Existing Indebtedness and the
         agreements related thereto subject to the restrictions in clause (iii)
         hereof) which do not in any way adversely affect the interests of the
         Holders and are otherwise permitted under Section 10.04(iii);

                  (ii)     make (or give any notice in respect thereof) any cash
         interest payments on Indebtedness that is contractually subordinated to
         the Notes or any voluntary or optional or mandatory payment or
         prepayment on or redemption or acquisition for value of, or any
         prepayment or redemption as a result of any asset sale, change of
         control or similar event of, any Indebtedness that is contractually
         subordinated to the Notes (other than an amount not to exceed $5,000),
         except as is otherwise permitted in the Senior Credit Agreement and in
         the TCP Purchase Agreement or the redemption or repayment of the
         Shareholder Bridge Agreement on or about the Closing Date and in an
         amount not to exceed $5.0 million plus interest stated thereon through
         the date of repayment;

                  (iii)    amend or modify, or permit the amendment or
         modification of, any provision of any Senior Debt Document, any of the
         TCP Documentation, the Holdings Subordinated Debt or any agreement
         relating thereto other than amendments or modifications which do not in
         any way prohibit or materially restrict payment by the Borrowers when
         due of the principal of, premium, if any, or interest on the Notes,
         provided that no such amendment or modification shall (y) increase the
         per annum interest rate on the obligations under the TCP Purchase
         Agreement in an amount that exceeds an additional 5% per annum unless
         the per annum interest rate on the Notes is increased by the same
         percent, or (z) advance the maturity date of the obligations under the
         TCP Purchase Agreement unless the provisions of this Agreement and the
         Notes are similarly amended.

                                       82
<PAGE>

                  (iv)     amend, modify, change or replace its Certificate of
         Incorporation (including, without limitation, by the filing or
         modification of any certificate of designation) or By-Laws (or
         equivalent organizational documents) or any agreement entered into by
         it, with respect to its capital stock (or equivalent interests), or
         enter into any new agreement with respect to its capital stock, other
         than any amendments, modifications, changes or replacements pursuant to
         this clause (iv) or any such new agreements pursuant to this clause
         (iv) which do not in any way adversely affect in any material respect
         the interests of the Purchasers; provided, that to the extent
         amendments to the Restated Shareholders Agreement, By-Laws or
         Certificate of Incorporation are required to effectuate the
         transactions contemplated by the Restructuring Agreement, such
         amendments shall be permitted; or

                  (v)      amend or modify, or permit the amendment or
         modification of, any provision of any of the Shareholder Bridge
         Agreement, the KSI Junior Subordinated Notes, the Celerity Junior
         Subordinated Notes or any Indebtedness issued pursuant to Section
         10.04(xvi), or make any principal, cash interest or other payments (or
         make any redemption or acquisition for value thereof) on the
         Shareholder Bridge Agreement, the KSI Junior Subordinated Notes, the
         Celerity Junior Subordinated Notes or any Indebtedness issued pursuant
         to Section 10.04(xvi).

                  (vi)     Notwithstanding anything else to the contrary herein,
         Holdings, the Borrower and their Subsidiaries may undertake the
         Transactions (and make necessary modifications to documentation) in
         order to complete the Phase I Restructuring on the terms and as defined
         in the Restructuring Agreement.

         10.13    Limitation on Certain Restrictions on Subsidiaries. Each of
Holdings and the Borrower will not, and will not permit any of its Subsidiaries
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction on the ability of any such
Subsidiary to (a) pay dividends or make any other distributions on its capital
stock or any other interest or participation in its profits owned by the
Borrower or any of its Subsidiaries, or pay any Indebtedness owed to the
Borrower or any of its Subsidiaries, (b) make loans or advances to the Borrower
or any of its Subsidiaries or (c) transfer any of its properties or assets to
the Borrower or any of its Subsidiaries, except for such encumbrances or
restrictions existing under or by reason of (i) applicable law, (ii) this
Agreement, the other Mezzanine Transaction Documents, the Senior Credit
Agreement or the TCP Documentation, (iii) customary provisions restricting
subletting or assignment of any Lease governing a leasehold interest of the
Borrower or any of its Subsidiaries, (iv) customary provisions restricting
assignment of any agreement entered into by the Borrower or any of its
Subsidiaries in the ordinary course of business, (v) Permitted Liens restricting
the transfer of the asset or assets subject thereto, and (vi) restrictions which
are not more restrictive than those contained in this Agreement contained in any
documents governing any Indebtedness incurred after the Closing Date in
accordance with the provisions of this Agreement.

                                       83
<PAGE>

         10.14    Limitation on Issuance of Capital Stock. (a) Holdings has not
and will not issue any capital stock that is not Qualified Capital Stock. The
Borrower has not and will not issue any capital stock of any form other than as
set forth in Section 6.12.

                           (b)      The Borrower will not permit any of its
Subsidiaries to issue any capital stock (including by way of sales of treasury
stock) or any options or warrants to purchase, or securities convertible into,
capital stock, except (i) for transfers and replacements of then outstanding
shares of capital stock, (ii) for stock splits, stock dividends and additional
issuances which do not decrease the percentage ownership of the Borrower or any
of its Subsidiaries in any class of the capital stock of such Subsidiary, (iii)
in the case of Foreign Subsidiaries of the Borrower, to qualify directors to the
extent required by applicable law, and (iv) Subsidiaries of the Borrower formed
after the Closing Date pursuant to Section 10.15 may issue capital stock to the
Borrower or the respective Subsidiary of the Borrower which is to own such
stock.

         10.15    Limitation on Creation of Subsidiaries. The Borrower shall not
establish, create or acquire any additional Subsidiaries without the prior
written consent of the Purchasers; provided that the Borrower may establish or
create one or more Wholly-Owned Subsidiaries of the Borrower without such
consent so long as upon, or promptly after, the creation or establishment of any
such new Domestic Wholly-Owned Subsidiary, such Domestic Wholly-Owned Subsidiary
executes a Joinder Agreement.

         10.16    Business. (a) Notwithstanding anything to the contrary set
forth herein, Holdings will not engage in any business activities (other than
activities incidental to its corporate existence, as permitted under Section
10.04 or pursuant to any Capital Contribution Investments) and will not have
assets or liabilities, other than its ownership of the capital stock of the
Borrower and its Subsidiaries, Capital Contribution Proceeds and activities and
liabilities incidental thereto, and its guarantee under this Agreement.

                           (b)      The Borrower will not, and will not permit
any of its Subsidiaries to, engage (directly or indirectly) in any business
other than as currently engaged and other businesses reasonably related thereto.

         10.17    Press Release; Public Offering Materials. Neither Holdings nor
the Borrower will disclose the name of any Purchaser or any of its Affiliates in
any press release or in any prospectus, proxy statement or other materials filed
with the governmental entity relating to a public offering of the capital stock
or other equity interest of Holdings, the Borrower, any of their respective
Affiliates or any of their respective Subsidiaries without such Purchaser's or
such Affiliate's prior written consent.

         10.18    Limitation on Layering. (a) Notwithstanding the provisions of
Section 10.04, none of Holdings, the Borrower or any of its Subsidiaries shall
incur any Indebtedness that is subordinate or junior in right of payment to any
Indebtedness arising under the Senior Credit Agreement and senior in any respect
in right of payment to any Indebtedness arising under this Agreement and the
Notes.

                                       84
<PAGE>

         (b)      Notwithstanding the provisions of Section 10.04, none of
Holdings, the Borrower or any of its Subsidiaries shall incur any Indebtedness
that is subordinate or junior in right of payment to any Indebtedness arising
under this Agreement and the Notes and senior to the Junior Subordinated Notes
(other than the Liquidation Certificates to the extent treated as Indebtedness
for purposes of this Article 10 ).

         10.19    Alfa Laval Litigation Settlement. Neither KH LLC, the
Borrower, nor any of their Affiliates shall settle the Alfa Laval Litigation
without the consent of the Required Holders hereunder, not to be unreasonably
withheld.

         10.20    Amendments or Waivers of Related Documents. Neither Holdings
nor the Borrower will agree to any material amendment to, or waive any of its
material rights under, or agree to terminate, the Restructuring Agreement
without in each case obtaining the consent of Required Holders to such
amendment, waiver or termination.

                                   ARTICLE 11

                             [INTENTIONALLY OMITTED]

                                   ARTICLE 12

                                EVENTS OF DEFAULT

         (a)      An Event of Default shall exist upon the occurrence of any of
the following specified events (each an "Event of Default"):

                  (i)      the Borrower shall default in the payment of the
principal of any Note, when and as the same shall become due and payable,
whether at maturity or at a date fixed for prepayment or by acceleration or
otherwise; or

                  (ii)     the Borrower shall default in the payment of any
installment of Interest according to its terms, when and as the same shall
become due and payable and such default shall continue for a period of five
Business Days; or

                  (iii)    Holdings, the Borrower or any of their Subsidiaries
shall default in the due observance or performance of any covenant to be
observed or performed by such Person pursuant to Sections 9.01(g), 9.02(a), 9.11
or 9.12 or Article 10 of this Agreement or Holdings, the Borrower, or any of
their Subsidiaries shall default in the due observance or performance of the
covenants to be observed or performed by such Person pursuant to Section 9.01 of
this Agreement (except subsection (g) thereof) and such default shall continue
for the first to occur of (x) five Business Days after delivery by the Required
Holders of notice thereof and (y) 30 days; or

                                       85
<PAGE>

                  (iv)     Holdings, the Borrower or any of their Subsidiaries
shall default in the due observance or performance by such Person of any other
covenant, condition or agreement to be observed or performed by such Person
pursuant to the terms hereof or pursuant to the terms of the Notes or the other
Mezzanine Transaction Documents (other than those referred to in clauses (i),
(ii) or (iii) of this Section 12(a)), and such default shall continue 30 days
after the date of written notice thereof, specifying such default and, if such
default is capable of being remedied, requesting that the same be remedied,
shall have been given to Holdings or the Borrower by the Holder; or

                  (v)      any representation, warranty, statement or
certification made by or on behalf of Holdings, the Borrower or any of their
Subsidiaries in this Agreement, any Note, the other Mezzanine Transaction
Documents or in any certificate or other document delivered pursuant hereto or
thereto shall have been incorrect in any respect (or in any material respect if
such representation, warranty, statement or certification is not by its terms
already qualified as to materiality) when made (or deemed made); or

                  (vi)     any event or condition shall occur that results in
the acceleration of the maturity of Indebtedness of Holdings, the Borrower or
any of their Subsidiaries aggregating $3.67 million or more shall be declared
due and payable, or required to be prepaid other than by regularly scheduled
prepayment, prior to the stated maturity thereof; or

                  (vii)    Holdings, the Borrower or any of their Subsidiaries
shall default in any payment of any Indebtedness (other than the Notes) at its
final maturity in a principal amount aggregating $3.67 million or more; or

                  (viii)   an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent jurisdiction seeking
(a) relief in respect of Holdings, the Borrower or any of their material
Subsidiaries, or of a substantial part of its property or assets, under Title 11
of the United States Code, as now constituted or hereafter amended, or any other
Federal or state bankruptcy, insolvency, receivership or similar law, (b) the
appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for Holdings, the Borrower or any of their material
Subsidiaries, or for a substantial part of its property or assets or (c) the
winding up or liquidation of Holdings, the Borrower or any of their material
Subsidiaries; and such proceeding or petition shall continue undismissed for 60
days, or an order or decree approving or ordering any of the foregoing shall be
entered; or

                  (ix)     Holdings, the Borrower or any of their material
Subsidiaries shall (a) voluntarily commence any proceeding or file any petition
seeking relief under Title 11 of the United States Code, as now constituted or
hereafter amended, or any other Federal or state bankruptcy, insolvency,
receivership or similar law, (b) consent to the institution of, or fail to
contest in a timely and appropriate manner, any proceeding or the filing of any
petition described in paragraph (viii) of this Section 12(a), (c) apply for or
consent to the appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for Holdings, the Borrower or any of their
material Subsidiaries, or for a substantial part of its property or assets, (d)
file an answer

                                       86
<PAGE>

admitting the material allegations of a petition filed against it in any such
proceeding, (e) make a general assignment for the benefit of creditors, (f)
become unable, admit in writing its inability or fail generally to pay its debts
as they become due or (g) take any action for the purpose of effecting any of
the foregoing; or

                  (x)      one or more judgments or decrees shall be entered
against Holdings, the Borrower or any of their material Subsidiaries and such
judgments and decrees either shall be final and non-appealable or shall not be
vacated, discharged or stayed for any period of 30 consecutive days, and the
aggregate amount of all such judgments (to the extent not paid or to the extent
not covered by insurance provided by a carrier that has acknowledged coverage)
equals or exceeds $2.0 million (or in the case of non-monetary judgments or
decrees, has or is reasonably likely to have a Material Adverse Effect); or

                  (xi)     any of the Mezzanine Transaction Documents shall for
any reason fail to constitute the valid and binding agreement of Holdings, the
Borrower or any of their Subsidiaries or any such party shall so assert in
writing (except to the extent contemplated in the Transactions); or

                  (xii)    any Credit Party shall be convicted under any
criminal law that could lead to a forfeiture of any property of such entity; or

                  (xiii)   a Change of Control shall occur; or

                  (xiv)    the Alfa Laval Litigation shall result in costs,
expense, settlement or judgment that in the aggregate exceed $15.0 million,
regardless of the source of payment to satisfy such settlement or judgment; or

                  (xv)     any Guaranty (other than the Guarantees by the KSI
Entities), or any provision thereof, shall cease to be in full force and effect
as to the relevant Guarantor (unless, in the case of a Guarantor that is a
Subsidiary, such Guarantor is no longer a Subsidiary by virtue of a liquidation,
sale, merger or consolidation permitted by Section 10.02 or with respect to any
Subsidiary that is not a Material Subsidiary that is in circumstances described
in Article 12(a)(viii) or (ix)), or any Guarantor (other than the KSI Entities)
or Person acting by or on behalf of such Guarantor shall deny or disaffirm such
Guarantor's obligations under the relevant Guaranty, or any Guarantor (other
than the KSI Entities) shall default in the due performance or observance of any
term, covenant or agreement on its part to be performed or observed pursuant to
its Guaranty.

                  (b)      Acceleration. If an Event of Default occurs under
Section 12(a)(viii) or (ix), then the outstanding principal of, premium, if any,
and all accrued Interest on the Notes shall automatically become immediately due
and payable, without presentment, demand, protest or notice of any kind, all of
which are hereby expressly waived. If any Event of Default occurs and is
continuing under Section 12(a)(i) or (ii), each Holder, by written notice to the
Borrower, may, subject to Article 16, declare the principal of, premium, if any,
and accrued Interest on the Notes

                                       87
<PAGE>

held by such Holder to be immediately due and payable. If any other Event of
Default occurs and is continuing, the Agent, acting at the direction of the
Required Holders, by written notice to the Borrower, may, subject to Article 16,
declare the aggregate principal of, premium, if any, and accrued Interest on the
Notes to be immediately due and payable. Upon such declaration, such principal,
premium, if any, and Interest shall become immediately due and payable. A Holder
that has delivered written notice pursuant to this Section 12(b) may rescind an
acceleration and its consequences if all existing Events of Default have been
cured or waived, except nonpayment of principal, premium, if any, or Interest
that has become due solely because of the acceleration, and if the rescission
would not conflict with any judgment or decree. Any notice or rescission shall
be given in the manner specified in Section 14.02 hereof.

                                   ARTICLE 13

                                   GUARANTEES

         13.01    Each Guarantor irrevocably, absolutely and unconditionally
guarantees: (i) to the Holders the full and prompt payment when due (whether at
the stated maturity, by acceleration or otherwise) of (x) the principal of,
premium, if any, and interest on the Notes issued by the Borrower hereunder and
(y) all other obligations (including obligations which, but for the automatic
stay under Section 362(a) of the Bankruptcy Code, would become due), liabilities
and indebtedness owing by the Borrower to the Holders under this Agreement, the
Notes and the Liquidation Certificates (including, without limitation,
indemnities, fees and interest thereon), whether now existing or hereafter
incurred under, arising out of or in connection with this Agreement, the Notes
and the Liquidation Certificates and the due performance and compliance by the
Borrower with all of the terms, conditions and agreements contained in this
Agreement, the Notes and the Liquidation Certificates (all such principal,
premium, interest, liabilities, indebtedness, obligations and indemnities being
herein collectively called the "Guaranteed Obligations"). Each Guarantor
understands, agrees and confirms that the Holders may enforce the Guaranty up to
the amount of the Guaranteed Obligations against any Guarantor without
proceeding against any other Guarantor or the Borrower, or under any other
guaranty covering all or a portion of the Guaranteed Obligations.

         13.02    The Purchasers recognize and acknowledge that, notwithstanding
anything to the contrary contained in this Article 13, the Guarantors'
obligations in this Article 13, and all of the Holders' rights and remedies in
this Article 13, are subordinated on the same basis as the Guaranteed Obligation
to which any such Guaranty relates, as set forth in this Agreement and the other
Mezzanine Transaction Documents.

         13.03    Additionally, each Guarantor unconditionally, absolutely and
irrevocably, guarantees the payment of any and all Guaranteed Obligations,
whether or not due or payable by the Borrower upon the occurrence of any of the
events specified in Section 12(a)(viii) or 12(a)(ix), and unconditionally and
irrevocably, jointly and severally, promises to pay such Guaranteed Obligations
to the Holders, or order, on demand, in legal tender of the United States.

                                       88
<PAGE>

         13.04    The liability of each Guarantor hereunder is primary, absolute
and unconditional and is exclusive and independent of any security for or other
guaranty of the indebtedness of the Borrower whether executed by such Guarantor,
any other Guarantor, any other guarantor or by any other party, and the
liability of each Guarantor hereunder shall not be affected or impaired by any
circumstance or occurrence whatsoever, including, without limitation: (a) any
direction as to application of payment by the Borrower or by any other party,
(b) any other continuing or other guaranty, undertaking or maximum liability of
a guarantor or of any other party as to the Guaranteed Obligations, (c) any
payment on or in reduction of any such other guaranty or undertaking, (d) any
dissolution, termination or increase, decrease or change in personnel by the
Borrower, (e) any payment made to the Holders on the indebtedness which the
Holders repay the Borrower pursuant to court order in any bankruptcy,
reorganization, arrangement, moratorium or other debtor relief proceeding, and
each Guarantor waives any right to the deferral or modification of their
obligations hereunder by reason of any such proceeding, (f) any action or
inaction by the Holders as contemplated in Section 13.07 hereof or (g) any
invalidity, irregularity or unenforceability of all or any part of the
Guaranteed Obligations or of any security therefor.

         13.05    The obligation of each Guarantor hereunder is independent of
the obligation of any other Guarantor, any other guarantor or the Borrower, and
a separate action or actions may be brought and prosecuted against a Guarantor
whether or not action is brought against any other Guarantor, any other
guarantor or the Borrower and whether or not any other Guarantor, any other
guarantor or the Borrower be joined in any such action or actions. Each
Guarantor waives, to the fullest extent permitted by law, the benefits of any
statute of limitations affecting its liability hereunder or the enforcement
thereof. Any payment by the Borrower or other circumstance which operates to
toll any statute of limitations as to the Borrower shall operate to toll the
statute of limitations as to each Guarantor.

         13.06    Each Guarantor hereby waives (to the fullest extent permitted
by applicable laws) notice of acceptance hereof and notice of any liability to
which it may apply, and waive promptness, diligence, presentment, demand of
payment, protest, notice of dishonor or nonpayment of any such liabilities, suit
or taking of other action by the Holders against, and any other notice to, any
party liable thereon (including each Guarantor, any other Guarantor, any other
guarantor or the Borrower).

         13.07    The Holders may at any time and from time to time without the
consent of, or notice to, the Guarantors, without incurring responsibility to
the Guarantors, without impairing or releasing the obligations of the Guarantors
hereunder, upon or without any terms or conditions and in whole or in part:

                  (a)      change the manner, place or terms of payment of,
and/or change, increase or extend the time of payment of, renew or alter, any of
the Guaranteed Obligations (including any increase or decrease in the rate of
interest thereon or the principal amount thereof) or any liability incurred
directly or indirectly in respect thereof, and the guaranty herein made shall
apply to the Guaranteed Obligations as so changed, extended, renewed or altered;

                                       89
<PAGE>

                  (b)      take and hold security for the payment of the
Guaranteed Obligations and sell, exchange, release, surrender, impair, realize
upon or otherwise deal with in any manner and in any order any property by
whomsoever at any time pledged or mortgaged to secure, or howsoever securing,
the Guaranteed Obligations or any liabilities (including any of those hereunder)
incurred directly or indirectly in respect thereof or hereof, and/or any offset
there against;

                  (c)      exercise or refrain from exercising any rights
against the Borrower or any Subsidiary thereof or otherwise act or refrain from
acting;

                  (d)      release or substitute any one or more endorsers,
Guarantors, other guarantors, the Borrower or other obligors;

                  (e)      settle or compromise any of the Guaranteed
Obligations or any liability (including any of those hereunder) incurred
directly or indirectly in respect thereof or hereof, and may subordinate the
payment of all or any part thereof to the payment of any liability (whether due
or not) of the Borrower to creditors of the Borrower other than the Holders;

                  (f)      apply any sums by whomsoever paid or howsoever
realized to any liability or liabilities of the Borrower to the Holders
regardless of what liabilities of the Borrower remain unpaid;

                  (g)      consent to or waive any breach of or any act,
omission or default under, any of the Mezzanine Transaction Documents or any of
the instruments or agreements referred to therein, or otherwise amend, modify or
supplement any of the Mezzanine Transaction Documents or any of such other
instruments or agreements;

                  (h)      act or fail to act in any manner referred to in this
Article 13 which may deprive the Guarantors of their rights to subrogation
against the Borrower to recover full indemnity for any payments made pursuant to
this Article 13; and/or

                  (i)      take any other action which would, under otherwise
applicable principles of common law, give rise to a legal or equitable discharge
of the Guarantors from their liabilities under this Article 13.

         13.08    The Guaranty is continuing and all liabilities to which the
Guaranty applies or may apply under the terms hereof shall be conclusively
presumed to have been created in reliance hereon. No failure or delay on the
part of the Holders in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein expressly specified are cumulative and not exclusive of any
rights or remedies which the Holders would otherwise have. No notice to or
demand on a Guarantor in any case shall entitle such Guarantor to any other
further notice or demand in similar or other circumstances or constitute a
waiver of the rights of the Holders to any other or further action in any
circumstances without notice or

                                       90
<PAGE>

demand. It is not necessary for the Holders to inquire into the capacity or
powers of the Borrower or the officers, directors, partners or agents acting or
purporting to act on its behalf, and any indebtedness made or created in
reliance upon the professed exercise of such powers shall be guaranteed
hereunder.

         13.09    Any indebtedness of the Borrower now or hereafter held by the
Guarantors is hereby subordinated to the indebtedness of the Borrower to the
Holders, and such indebtedness of the Borrower to the Guarantors, if the
Holders, after the occurrence and during the continuance of an Event of Default,
so request, shall be collected, enforced and received by the Guarantors as
trustee for the Holders and be paid over to the Holders on account of the
indebtedness of the Borrower owing to the Holders, but without affecting or
impairing in any manner the liability of the Guarantors under the other
provisions of this Article 13. Without limiting the generality of the foregoing
each Guarantor hereby agrees with the Purchasers that it will not exercise any
right of subrogation which it may at any time otherwise have as a result of the
guarantee under this Article 13 (whether contractual, under Section 509 of the
Bankruptcy Code or otherwise) until all Guaranteed Obligations have been
irrevocably paid in full in cash.

         13.10    (a) Each Guarantor waives any right (except as shall be
required by applicable law and cannot be waived) to require the Holders to: (i)
proceed against the Borrower, any other Guarantor, any other guarantor of the
Guaranteed Obligations or any other party; (ii) proceed against or exhaust any
security held from the Borrower, any other Guarantor, any other guarantor of the
Guaranteed Obligations or any other party; or (iii) pursue any other remedy in
the Holders' power whatsoever. Each Guarantor waives any defense based on or
arising out of any defense of the Borrower, any other Guarantor, any other
guarantor of the Guaranteed Obligations or any other party other than payment in
full of the Guaranteed Obligations, including, without limitation, any defense
based on or arising out of the disability of the Borrower, any other Guarantor,
any other guarantor of the Guaranteed Obligations or any other party, or the
unenforceability of the Guaranteed Obligations or any part thereof from any
cause, or the cessation from any cause of the liability of the Borrower other
than payment in full of the Guaranteed Obligations.

                  (b)      Each Guarantor waives all presentments, demands for
performance, protests and notices, including, without limitation, notices of
nonperformance, notices of protest, notices of dishonor, notices of acceptance
of the guarantee under this Article 13, and notices of the existence, creation
or incurring of new or additional indebtedness. Each Guarantor assumes all
responsibility for being and keeping itself informed of the Borrower's financial
condition and assets, and of all other circumstances bearing upon the risk of
nonpayment of the Guaranteed Obligations and the nature, scope and extent of the
risks which such Guarantor assumes and incurs hereunder, and agrees that the
Holders shall have no duty to advise any Guarantor of information known to it
regarding such circumstances or risks.

         13.11    Each Guarantor covenants and agrees that on and after the date
of the Guaranty and until such time as no Note remains outstanding and all
Guaranteed Obligations (other than indemnity obligations which are not then due
and payable) have been paid in full, such

                                       91
<PAGE>

Guarantor will comply, and will cause each of its Subsidiaries to comply, with
all of the applicable provisions, covenants and agreements contained in Articles
9 and 10 of this Agreement, and will take, or will refrain from taking, as the
case may be, all actions that are necessary to be taken or not taken so that it
is not in violation of any provision, covenant or agreement contained in
Articles 9 and 10 of this Agreement, and so that no default or Event of Default
is caused by the actions of such Guarantor or any of its Subsidiaries.

         13.12    Each Guarantor hereby agrees to pay all reasonable
out-of-pocket costs and expenses of the Holders in connection with the
enforcement of the Guaranty and in connection with any amendment, waiver or
consent relating hereto (including in each case, without limitation, the
reasonable fees and disbursements of counsel employed by the Holders).

         13.13    The Guaranty shall be binding upon each Guarantor and its
respective successors and assigns and shall inure to the benefit of the
Purchasers and their successors and assigns.

         13.14    In addition to any rights now or hereafter granted under
applicable law (including, without limitation, Section 151 of the New York
Debtor and Secured Creditor Law) and not by way of limitation of any such
rights, upon the occurrence and during the continuance of an Event of Default
(such term to mean and include any "Event of Default" as defined in this
Agreement continuing after any applicable grace period), the Holders are hereby
authorized, at any time or from time to time, without notice to the Guarantors
or to any other Person, any such notice being expressly waived, to set off and
to appropriate and apply any and all deposits (general or special) and any other
indebtedness at any time held or owing by the Holders to or for the credit or
the account of the Guarantors, against and on account of the obligations and
liabilities of the Guarantors to the Holders under the Guaranty, irrespective of
whether or not the Holders shall have made any demand hereunder and although
said obligations, liabilities, deposits or claims, or any of them, shall be
contingent or unmatured.

         13.15    If claim is ever made upon the Holders for repayment or
recovery of any amount or amounts received in payment or on account of any of
the Guaranteed Obligations and any of the aforesaid payees repays all or part of
said amount by reason of (i) any judgment, decree or order of any court or
administrative body having jurisdiction over such payee or any of its property
or (ii) any settlement or compromise of any such claim effected by such payee
with any such claimant (including the Borrower) then and in such event each
Guarantor agrees that any such judgment, decree, order, settlement or compromise
shall be binding upon such Guarantor, notwithstanding any revocation hereof or
other instrument evidencing any liability of the Borrower, and such Guarantor
shall be and remain liable to the aforesaid payees hereunder for the amount so
repaid or recovered to the same extent as if such amount had never originally
been received by any such payee.

         13.16    At any time a payment in respect of the Guaranteed Obligations
is made under this Article 13, the right of contribution of a Guarantor against
each other Guarantor (as described in Section 13.17 hereof) shall be determined
as provided in the immediately following sentence, with the right of
contribution of the Guarantor to be revised and restated as of each date on
which a payment (a "Relevant Payment") is made on the Guaranteed Obligations
under this

                                       92
<PAGE>

or any other Guaranty. At any time that a Relevant Payment is made by a
Guarantor that results in the aggregate payments made by the Guarantor in
respect of the Guaranteed Obligations to and including the date of the Relevant
Payment exceeding the Guarantor's Contribution Percentage (as defined below) of
the aggregate payments made by all Guarantors in respect of the Guaranteed
Obligations to and including the date of the Relevant Payment (such excess, the
"Aggregate Excess Amount"), each Guarantor shall have a right of contribution
against each other Guarantor who has made no payments or payments in respect of
the Guaranteed Obligations to and including the date of the Relevant Payment in
an aggregate amount less than such other Guarantor's Contribution Percentage of
the aggregate payments made to and including the date of the Relevant Payment by
all Guarantors in respect of the Guaranteed Obligations (the aggregate amount of
such deficit, the "Aggregate Deficit Amount") in an amount equal to (x) a
fraction the numerator of which is the Aggregate Excess Amount of the Guarantor
and the denominator of which is the Aggregate Excess Amount of all Guarantors
multiplied by (y) the Aggregate Deficit Amount of such other Guarantor. A
Guarantor's right of contribution pursuant to the preceding sentences shall
arise at the time of each computation, subject to adjustment to the time of each
computation; provided, that no Guarantor may take any action to enforce such
right until the Guaranteed Obligations have been irrevocably paid in full in
cash, it being expressly recognized and agreed by all parties hereto that the
Guarantor's right of contribution arising pursuant to this Section 13.16 against
any other Guarantor shall be expressly junior and subordinate to such other
Guarantor's obligations and liabilities in respect of the Guaranteed Obligations
and any other obligations owing under the Guaranty. As used in this Section
13.16: (i) the Guarantor's "Contribution Percentage" shall mean the percentage
obtained by dividing (x) the Adjusted Net Worth (as defined below) of the
Guarantor by (y) the aggregate Adjusted Net Worth of all Guarantors; (ii) the
"Adjusted Net Worth" of the Guarantor shall mean the greater of (x) the Net
Worth (as defined below) of the Guarantor and (y) zero; and (iii) the "Net
Worth" of the Guarantor shall mean the amount by which the fair salable value of
the Guarantor's assets on the date of any Relevant Payment exceeds its existing
debts and other liabilities (including contingent liabilities, but without
giving effect to any Guaranteed Obligations arising under the Guaranty or any
liabilities under the Senior Credit Agreement or the TCP Documentation) on such
date. All parties hereto recognize and agree that, except for any right of
contribution arising pursuant to this Section 13.16, the Guarantor who makes any
payment in respect of the Guaranteed Obligations shall have no right of
contribution or subrogation against any other Guarantor in respect of such
payment until all of the Guaranteed Obligations (other than indemnity
obligations which are not then due and payable) have been irrevocably paid in
full in cash. The Guarantor recognizes and acknowledges that the rights to
contribution arising hereunder shall constitute an asset in favor of the party
entitled to such contribution. In this connection, the Guarantor has the right
to waive its contribution right against any other Guarantor to the extent that
after giving effect to such waiver the Guarantor would remain solvent, in the
determination of the Holders.

         13.17    Each Guarantor and the Purchasers (by their acceptance of the
benefits hereof) hereby confirm that it is their intention that the guarantee
hereunder not constitute a fraudulent transfer or conveyance for purposes of the
Bankruptcy Code, the Uniform Fraudulent Conveyance Act of any similar Federal or
state law. To effectuate the foregoing intention, each

                                       93
<PAGE>

Guarantor and the Purchasers (by their acceptance of the benefits of the
guarantee hereunder) hereby irrevocably agree that the Guaranteed Obligations
guaranteed by the Guarantors shall be limited to such amount as will, after
giving effect to such maximum amount and all other (contingent or otherwise)
liabilities of the Guarantors that are relevant under such laws (taking into
account the subordination arrangements with respect to the Notes), and after
giving effect to any rights to contribution pursuant to any agreement providing
for an equitable contribution among each Guarantor and other Guarantors, result
in the Guaranteed Obligations of each Guarantor in respect of such maximum
amount not constituting a fraudulent transfer or conveyance.

         13.18    All payments made by the Guarantor hereunder will be made
without setoff, counterclaim or other defense and on the same basis as payments
are made by the Borrower under this Agreement and the Notes.

         13.19    It is understood and agreed that any Subsidiary of the
Borrower that is acquired or created after the date of the Purchase Agreement
shall become a Guarantor by executing a Joinder Agreement substantially in the
form of Exhibit C hereof and delivering the same to the Holders and that such
Persons shall constitute other Guarantors.

         13.20    Each of the Purchasers and the Agent agrees that (i) upon the
receipt by the Borrower of not less than $5 million in proceeds from the KTS
Sale, KTS shall be released from its obligations as a Guarantor hereunder and
(ii) upon the receipt by the Borrower of proceeds form the sale of KSI in
accordance with the Sale Side Letter, KSI shall be released from its obligations
as a Guarantor hereunder.

                                   ARTICLE 14

                                  MISCELLANEOUS

         14.01    Survival of Representations and Warranties. All of the
representations and warranties made herein shall survive the execution and
delivery of this Agreement, any investigation by or on behalf of the Purchasers,
acceptance of the Securities and payment therefor, or termination of this
Agreement.

         14.02    Notices. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be by
telecopier (with receipt confirmed and followed by first class mail), courier
service or personal delivery:

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<PAGE>

                           (a)      if to a Purchaser, to such Purchaser at the
                                    address listed below its signature below

                           (b)      if to Holdings:

                                    Kinetics Holdings Corporation
                                    2805 Mission College Boulevard
                                    Santa Clara, CA  95054
                                    Telecopier No.: (408) 567-9861
                                    Attention: John Ferron

                           (c)      if to the Borrower:

                                    Kinetics Group, Inc.
                                    2805 Mission College Boulevard
                                    Santa Clara, CA  95054
                                    Telecopier No.: (408) 567-9861
                                    Attention: John Ferron

                                    with a copy to:

                           (d)      if to the Subsidiary Guarantors:

                                    2805 Mission College Boulevard
                                    Santa Clara, CA  95054
                                    Telecopier No.: (408) 567-9861
                                    Attention: John Ferron

                  All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; when delivered
by courier, if delivered by commercial overnight courier service; if mailed,
five Business Days after being deposited in the mail, postage prepaid; or if
telecopied, when receipt is acknowledged.

         14.03    Successors and Assigns. (a) This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of the
parties hereto. Subject to applicable securities laws, the Purchasers may assign
any of their respective rights under any of the Mezzanine Transaction Documents
to any Person and any holder of the Notes, the Liquidation Certificates, the
Warrants or Common Stock issuable upon exercise of the Warrants may assign, in
whole or in part, such securities to any Person. Neither Holdings, the Borrower
nor any Subsidiary Guarantor may assign any of its rights, or delegate any of
its obligations, under this Agreement without the prior written consent of the
Required Holders, and any such purported assignment by Holdings or the Borrower,
as the case may be, without the written consent of each of the Purchasers shall
be void and of no effect. Except as provided in Article 8, no Person other than
the parties hereto and their successors and permitted assigns is intended to be
a beneficiary of any of the Mezzanine Transaction Documents.

                                       95
<PAGE>

                           (b)      ERISA. Each of the Purchasers hereby
covenants and agrees with Holdings and the Borrower that it will not dispose of
the Securities to be purchased by it or any interest therein (including, without
limitation, any transfer by reason of a change in the capacity in which such
Purchaser holds its investment in such Securities) to any Person unless such
Person shall (i) make the representations and warranties of such Purchaser
contained in Section 7.05 and (ii) assume all covenants of such Purchaser
contained in this clause (b) and Section 14.03(c).

                           (c)      Transfer and Exchange of Notes. Each of the
Purchasers hereby covenants and agrees with Holdings and the Borrower that no
transfer of any Security shall be valid until the transferee has made the
representations to the Borrower contained in Section 7.05.

                           (d)      Each Holder shall be bound by the
Restructuring Agreement, and any transferee of any Note hereunder shall
automatically become subject to the Restructuring Agreement.

         14.04    Amendment and Waiver.

                           (a)      No failure or delay on the part of any of
the parties hereto in exercising any right, power or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy. The remedies provided for in
this Agreement are cumulative and are not exclusive of any remedies that may be
available to the parties hereto at law, in equity or otherwise.

                           (b)      Any amendment, supplement or modification of
or to any provision of this Agreement or the Securities, any waiver of any
provision of this Agreement or the Securities and any consent to any departure
by any party from the terms of any provision of this Agreement or the Securities
shall be effective (i) only if it is made or given in writing and signed by
Holdings, the Borrower and (a) the Agent acting at the direction of the Required
Holders, (b) the approval of the Holders as provided in the Mezzanine
Transaction Documents and (ii) only in the specific instance and for the
specific purpose for which made or given. Notwithstanding the foregoing, no
amendment or waiver may, without the written consent of the Holder of each
Security at the time outstanding affected thereby, (A) reduce or extend the
amount or time of any prepayment or payment of principal of, or reduce the rate
or extend the time of payment or method of computation of interest or of the
premium on, any Security, (B) change to an earlier date any redemption date of,
or waive a default in the payment of the principal of, premium, if any, or
interest on, any such Security or any premium payable upon the redemption
thereof, (C) change the percentage of the principal amount of the Securities the
holders of which are required to consent to any such amendment or waiver
hereunder (D) amend, waive or modify Articles 12 or 16 hereof or (E) modify any
provision of any Warrant or Liquidation Certificate in any manner adverse to the
Holder thereof. Except where notice is specifically required by this Agreement,
no notice to or demand on Holdings or the Borrower in any case shall entitle
Holdings or the Borrower to any other or further notice or demand in similar or
other circumstances.

                                       96
<PAGE>

                           (c)      Holdings and the Borrower will provide each
Holder with sufficient information, reasonably far in advance of the date a
decision is required, to enable such Holder to make an informed and considered
decision with respect to any proposed amendment, waiver or consent in respect of
any of the provisions hereof. Holdings and the Borrower will deliver executed or
true and correct copies of each amendment, waiver or consent effected pursuant
to the provisions of this Section 14.04 to each Holder promptly following the
date on which it is executed and delivered by, or receives the consent or
approval of, the required number of Purchasers.

                           (d)      Neither Holdings nor the Borrower will
directly or indirectly pay or cause to be paid any remuneration, whether by way
of supplemental or additional interest, fee or otherwise, or grant any security,
to any Holder as consideration for or as an inducement to the entering into by
any Holder of any waiver or amendment of any of the terms and provisions hereof
unless such remuneration is concurrently paid, or security is concurrently
granted, on the same terms, ratably to each Holder then outstanding even if such
Holder did not consent to such waiver or amendment.

                           (e)      Any amendment or waiver consented to as
provided in this Section 14.04 applies equally to all Holders and is binding
upon them and upon each future Holder of any Security and upon Holdings, the
Borrower and the Subsidiary Guarantors without regard to whether such Securities
have been marked to indicate such amendment or waiver. No such amendment or
waiver will extend to or affect any obligation, covenant, agreement, default or
Event of Default not expressly amended or waived or impair any right consequent
thereon. No course of dealing between Holdings, the Borrower and/or any Holder
nor any delay in exercising any rights hereunder or under any Security shall
operate as a waiver of any rights of any Purchaser.

         14.05    Signatures; Counterparts. Telefacsimile transmissions of any
executed original document and/or retransmission of any executed telecopy
transmission shall be deemed to be the same as the delivery of an executed
original. At the request of any party hereto, the other parties hereto shall
confirm telecopy transmissions by executing duplicate original documents and
delivering the same to the requesting party or parties. This Agreement may be
executed in any number of counterparts and by the parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.

         14.06    Headings. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.

         14.07    GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED
IN ACCORDANCE WITH, AND ENFORCED UNDER, THE LAW OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS OR INSTRUMENTS ENTERED INTO AND PERFORMED ENTIRELY
WITHIN SUCH STATE.

                                       97
<PAGE>

         14.08    Determinations, Request or Consents. Subject to the provisions
of Section 14.04, all determinations, requests, consents, waivers or amendments
to be made by the Purchasers in their respective opinions or judgments or with
their approval or otherwise pursuant to the Mezzanine Transaction Documents
shall be made (i) with respect to any Note, by the holder of such Note or (ii)
with respect to any Warrant, by the holder of such Warrant.

         14.09    JURISDICTION, JURY TRIAL WAIVER, ETC.

                           (a)      EACH PARTY TO THIS AGREEMENT HEREBY
IRREVOCABLY AGREES THAT ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT, THE NOTES, THE WARRANTS, THE LIQUIDATION
CERTIFICATES OR ANY AGREEMENTS OR TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY
MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF
AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK AND HEREBY EXPRESSLY SUBMITS TO
THE PERSONAL JURISDICTION AND VENUE OF SUCH COURTS FOR THE PURPOSES THEREOF AND
EXPRESSLY WAIVES ANY CLAIM OF IMPROPER VENUE AND ANY CLAIM THAT SUCH COURTS ARE
AN INCONVENIENT FORUM. EACH PARTY HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF
PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH SUIT, ACTION OR
PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL,
POSTAGE PREPAID, TO ITS ADDRESS SET FORTH IN SECTION 14.02, SUCH SERVICE TO
BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING.

                           (b)      EACH PARTY TO THIS AGREEMENT HEREBY WAIVES
ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY
DISPUTE IN CONNECTION WITH THIS AGREEMENT, THE NOTES, THE WARRANTS, THE
LIQUIDATION CERTIFICATES OR ANY OF THE OTHER MEZZANINE TRANSACTION DOCUMENTS,
ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER OR THE PERFORMANCE OF SUCH
RIGHTS AND OBLIGATIONS. EACH OF HOLDINGS, THE BORROWER AND THEIR SUBSIDIARIES
(I) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE PURCHASERS HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE PURCHASERS WOULD NOT, IN THE EVENT
OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND (II) ACKNOWLEDGES THAT
THE PURCHASERS HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT, AND THE OTHER
MEZZANINE TRANSACTION DOCUMENTS TO WHICH THEY ARE PARTY BY, AMONG OTHER THINGS,
THE WAIVERS AND CERTIFICATIONS CONTAINED HEREIN.

         14.10    Severability. If any one or more of the provisions contained
in this Agreement, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired, unless the

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provisions held invalid, illegal or unenforceable shall substantially impair the
benefits of the remaining provisions of this Agreement. The parties hereto
further agree to replace such invalid, illegal or unenforceable provision of
this Agreement with a valid, legal and enforceable provision that will achieve,
to the extent possible, the economic, business and other purposes of such
invalid, illegal or unenforceable provision.

         14.11    Rules of Construction. Unless the context otherwise requires,
"or" is not exclusive, and references to sections or subsections refer to
sections or subsections of this Agreement.

         14.12    Entire Agreement. This Agreement, together with the exhibits
and schedules hereto and the other Mezzanine Transaction Documents, is intended
by the parties as a final expression of their agreement and intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein and therein.
There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein or therein. This Agreement, together with
the exhibits and schedules hereto, and the other Mezzanine Transaction Documents
supersede all prior agreements and understandings between the parties with
respect to such subject matter.

         14.13    Payment of Expenses, Etc. The Borrower shall: (i) whether or
not the transactions herein contemplated are consummated, pay all reasonable
out-of-pocket costs and expenses of the Purchasers and the Agent (including,
without limitation, the reasonable fees and disbursements of Milbank, Tweed,
Hadley & McCloy LLP and local counsel) in connection with the preparation,
execution and delivery of this Agreement and the other Mezzanine Transaction
Documents and the documents and instruments referred to herein and therein, (ii)
pay for all reasonable out-of-pocket expenses incurred by the Holders and the
Agent in connection with any amendment, waiver or consent relating hereto or
thereto (whether or not such amendment, waiver or consent shall become
effective), and, after an Event of Default, reimburse the Holders and the Agent
for all costs and expenses, including reasonable attorneys' fees (including
allocated costs of internal counsel) and costs of settlement incurred in
connection with the enforcement of this Agreement, the LLC Agreement, the
Unitholders Agreement and the other Mezzanine Transaction Documents and the
documents and instruments referred to herein and therein or the collection of
any amounts due under any Mezzanine Transaction Documents including pursuant to
any insolvency or bankruptcy proceedings (including, without limitation, the
reasonable fees and disbursements of counsel (including in-house counsel) for
the Holders and the Agent); (iii) pay and hold the Holders and the Agent
harmless from and against any and all present and future stamp, excise and other
similar taxes with respect to the foregoing matters and save the Holders and the
Agent harmless from and against any and all liabilities with respect to or
resulting from any delay or omission (other than to the extent attributable to
the Holders and the Agent) to pay such taxes; and (iv) indemnify the Holders and
the Agent, and their respective officers, directors, trustees, employees,
representatives and agents from and hold each of them harmless against any and
all liabilities, obligations (including removal or remedial actions), losses,
damages, penalties, claims, actions, judgments, suits, costs, expenses and
disbursements (including reasonable attorneys' and consultants' fees and
disbursements)

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incurred by, imposed on or assessed against any of them as a result of, or
arising out of, or in any way related to, or by reason of, (a) any
investigation, litigation or other proceeding (whether or not any Holder or the
Agent is a party thereto) related to the entering into and/or performance of
this Agreement, the LLC Agreement, the Unitholders Agreement or any other
Mezzanine Transaction Document or the Restructuring Agreement or the use of any
proceeds of any Notes hereunder or the consummation of any transactions
contemplated herein (including, without limitation, the Transactions), or in any
other Mezzanine Transaction Document, or (b) the exercise of any of their rights
or remedies provided herein or in the other Mezzanine Transaction Documents, or
(c) the actual or alleged presence or Release of Hazardous Materials in the air,
surface water or groundwater or on the surface or subsurface of any Real
Property or at or emanating from any facility or equipment owned or at any time
operated by the Borrower or any of its Subsidiaries, the generation, storage,
transportation, handling, disposal or Release of Hazardous Materials by any
Credit Party at any location, whether or not owned or operated by the Borrower
or any of its Subsidiaries, the noncompliance by any Credit Party or of any Real
Property owned or operated by any Credit Party with Environmental Laws, or any
Environmental Claim asserted against the Borrower, any of its Subsidiaries or
any Real Property owned or at any time operated by the Borrower or any of its
Subsidiaries, including, in each case, without limitation, the reasonable fees
and disbursements of counsel and other consultants incurred in connection with
any such investigation, litigation or other proceeding (but excluding any
losses, liabilities, claims, damages or expenses to the extent incurred by
reason of the gross negligence or willful misconduct of the Person to be
indemnified). To the extent that the undertaking to indemnify, pay or hold
harmless the Holders set forth in the preceding sentence may be unenforceable
because it is violative of any law or public policy, the Borrower shall make the
maximum contribution to the payment and satisfaction of each of the indemnified
liabilities which is permissible under applicable law.

         14.14    Publicity. Except as may be required by applicable law, none
of the parties hereto shall issue a publicity release or announcement or
otherwise make any public disclosure concerning this Agreement or the
transactions contemplated hereby without prior approval by the other party
hereto. If any announcement is required by law to be made by any party hereto,
prior to making such announcement such party will deliver a draft of such
announcement to the other parties and shall give the other parties an
opportunity to comment thereon. Notwithstanding the foregoing, the Purchasers
and their Affiliates may list the Borrower's name and logo, describe their
respective investments in the Borrower and describe the Borrower's business in
their marketing and fundraising materials and may post such information on their
website.

         14.15    Further Assurances. Each of the parties shall execute such
documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations, or other actions by, or
giving any notices to, or making any filings with, any Governmental Authority or
any other Person) as may be reasonably required or desirable to carry out or to
perform the provisions of this Agreement, including without limitation, any
post-closing assignment(s) by the Purchasers of a portion of the Securities to a
Person not currently a party hereto.

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         14.16    Obligations of the Purchasers. Each Purchaser's obligations
and the obligations of Holdings and the Borrower hereunder are subject to the
execution and delivery of this Agreement by the other Purchasers. The
obligations of each Purchaser shall be several and not joint and no Purchaser
shall be liable or responsible for the acts or omissions of any other Purchaser.

         14.17    No Strict Construction. The parties hereto have participated
jointly in the negotiation and drafting of this Agreement and the other
Mezzanine Transaction Documents. In the event an ambiguity or question of intent
or interpretation arises under any provision of this Agreement or any Mezzanine
Transaction Document, this Agreement or such other Mezzanine Transaction
Document shall be construed as if drafted jointly by the parties thereto, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement or any other
Mezzanine Transaction Document. No knowledge of, or investigation, including
without limitation, due diligence investigation, conducted by, or on behalf of,
any Purchaser shall limit, modify or affect the representations set forth in
Article 6 of this Agreement or the right of any Purchaser to rely thereon.

         14.18    Right of Setoff. In addition to any rights now or hereafter
granted under applicable law or otherwise, and not by way of limitation of any
such rights, upon the occurrence of an Event of Default, each Holder is hereby
authorized at any time or from time to time, without presentment, demand,
protest or other notice of any kind to any Guarantor or the Borrower or to any
other Person, any such notice being hereby expressly waived, to set off and to
appropriate and apply any and all deposits (general or special) and any other
Indebtedness at any time held or owing by the Holders (including, without
limitation, by branches and agencies of such Lender wherever located) to or for
the credit or the account of the Borrower or any Guarantor but in any event
excluding assets held in trust for any such Person against and on account of the
Obligations and liabilities of the Borrower or such Guarantor, as applicable, to
the Holders under this Agreement or under any of the other Mezzanine Transaction
Documents and all other claims of any nature or description arising out of or
connected with this Agreement or any other Mezzanine Transaction Document,
irrespective of whether or not the Holders shall have made any demand hereunder
and although said Obligations, liabilities or claims, or any of them, shall be
contingent or unmatured.

                                   ARTICLE 15

                              APPOINTMENT OF AGENT

         15.01    Each of the Holders hereby irrevocably appoints the Agent as
its agent hereunder and under the other Mezzanine Transaction Documents, and
authorizes the Agent to take such

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actions on its behalf and to exercise such powers as are delegated to the Agent
by the terms hereof or thereof, together with such actions and powers as are
reasonably incidental thereto.

         15.02    The Person serving as the Agent hereunder shall have the same
rights and powers in its capacity as a Holder as any other Holder and may
exercise the same as though it were not the Agent, and such Person and its
Affiliates may accept deposits from, lend money to and generally engage in any
kind of business with the Holdings, the Borrower or any Subsidiary or other
Affiliate thereof as if it were not the Agent hereunder.

         15.03    The Agent shall not have any duties or obligations except
those expressly set forth herein and in the other Mezzanine Transaction
Documents. Without limiting the generality of the foregoing, (a) the Agent shall
not be subject to any fiduciary or other implied duties, regardless of whether a
Default has occurred and is continuing, (b) the Agent shall not have any duty to
take any discretionary action or exercise any discretionary powers, except
discretionary rights and powers expressly contemplated hereby or by the other
Mezzanine Transaction Documents that the Agent is required to exercise in
writing by the Required Holders, and (c) except as expressly set forth herein
and in the other Mezzanine Transaction Documents, the Agent shall not have any
duty to disclose, and shall not be liable for the failure to disclose, any
information relating to Holdings, the Borrower or any of its Subsidiaries that
is communicated to or obtained by the Agent or any of its Affiliates in any
capacity. The Agent shall not be liable for any action taken or not taken by it
with the consent or at the request of the Required Holders or in the absence of
its own gross negligence or willful misconduct. The Agent shall be deemed not to
have knowledge of any Default unless and until notice thereof is given to the
Agent by the Borrower or a Holder, and the Agent shall not be responsible for or
have any duty to ascertain or inquire into (v) any statement, warranty or
representation made in or in connection with this Agreement or any other
Mezzanine Transaction Document, (w) the contents of any certificate, report or
other document delivered hereunder or thereunder or in connection herewith or
therewith, (x) the performance or observance of any of the covenants, agreements
or other terms or conditions set forth herein or therein, (y) the validity,
enforceability, effectiveness or genuineness of this Agreement, any other
Mezzanine Transaction Document or any other agreement, instrument or document,
or (z) the satisfaction of any condition set forth herein or therein, other than
to confirm receipt of items expressly required to be delivered to the Agent.

         15.04    The Agent shall be entitled to rely upon, and shall not incur
any liability for relying upon, any notice, request, certificate, consent,
statement, instrument, document or other writing believed by it to be genuine
and to have been signed or sent by the proper Person. The Agent also may rely
upon any statement made to it orally or by telephone and believed by it to be
made by the proper Person, and shall not incur any liability for relying
thereon. The Agent may consult with legal counsel (who may be counsel for a
Credit Party), independent accountants and other experts selected by it, and
shall not be liable for any action taken or not taken by it in accordance with
the advice of any such counsel, accountants or experts.

         15.05    The Agent may perform any and all its duties and exercise its
rights and powers by or through any one or more sub-agents appointed by the
Agent. The Agent and any such

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sub-agent may perform any and all its duties and exercise its rights and powers
through their respective Affiliates. The exculpatory provisions of the preceding
paragraphs shall apply to any such sub-agent and to the Affiliates of the Agent
and any such sub-agent, and shall apply to their respective activities in
connection with the syndication of the credit facilities provided for herein as
well as activities as Agent.

         15.06    Subject to the appointment and acceptance of a successor Agent
as provided below, the Agent may resign at any time by notifying the Holders and
the Borrower. Upon any such resignation, the Required Holders shall have the
right, in consultation with the Borrower, to appoint a successor. If no
successor shall have been so appointed by the Required Holders and shall have
accepted such appointment within 30 days after the retiring Agent gives notice
of its resignation, then the retiring Agent may, upon not less than ten days'
notice, on behalf of the Holders, appoint a successor Agent. Upon the acceptance
of its appointment as Agent hereunder by a successor, such successor shall
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring (or retired) Agent and the retiring Agent shall be discharged
from its duties and obligations hereunder. The fees payable by the Borrower to a
successor Agent shall be the same as those payable to its predecessor unless
otherwise agreed between the Borrower and such successor. After the Agent's
resignation hereunder, the provisions of this Article shall continue in effect
for its benefit in respect of any actions taken or omitted to be taken by it
while it was acting as Agent.

         15.07    Each Holder acknowledges that it has, independently and
without reliance upon the Agent or any other Holder and based on such documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Holder also acknowledges that it
will, independently and without reliance upon the Agent or any other Holder and
based on such documents and information as it shall from time to time deem
appropriate, continue to make its own decisions in taking or not taking action
under or based upon this Agreement, any other Mezzanine Transaction Document or
any related agreement or any document furnished hereunder or thereunder.

         15.08    Subject to section 14.04, the Agent may take any action on
behalf of the Required Holders that has been approved by the Required Holders.
For the avoidance of doubt and subject to section 14.04, the Agent may, with the
prior consent of the Required Holders (but not otherwise), consent to any
amendment, restatement, supplement, waiver or other modification under any of
the Mezzanine Transaction Documents.

         15.09    Agent Indemnification. Each Holder agrees to indemnify the
Agent for, and hold it harmless against, any loss, liability or expense
including taxes incurred without willful misconduct or gross negligence on its
part, arising out of or in connection with the acceptance or administration of
this Agreement or its duties hereunder, including the reasonable costs and
expenses of defending itself against any claim (whether assessed by a Credit
Party, any Holder or any other Person) or liability in connection with the
exercise or performance of any of its powers or duties hereunder.

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                                   ARTICLE 16

                                  SUBORDINATION

                  Subject to the limitations set forth in Section 16(b) below,
the Notes hereunder shall at all times be wholly subordinate and junior in right
of payment to all Senior Indebtedness to the extent and in the manner provided
in this Article 16.

                  (a)      [Intentionally omitted].

                  (b)      General. Until the Senior Indebtedness is paid in
full in cash, or such payment is duly provided for in cash in a manner
satisfactory to the holders of such Senior Indebtedness, the payment in respect
of the Subordinated Indebtedness payable by or on behalf of the Credit Parties
shall be subordinate and junior in right of payment to the prior payment in full
of the Senior Indebtedness on the terms set forth herein.

                  Notwithstanding any provision in Article 16 to the contrary
and subject to Section 16(c), (i) for so long as no Blockage Period is in
effect, the Credit Parties may pay and each Holder may receive (A) all regularly
scheduled payments of interest under the Notes, (B) all amounts payable
thereunder on the Maturity Date (provided, for the purpose of clarity, that if
the TCP Second Lien Notes outstanding on the date hereof have not been amended
to extend the maturity date therefor nor has payment on the maturity date of the
TCP Second Lien Notes been waived, that such TCP Second Lien Notes shall have
been paid in full in cash on or before payment to any Holder) and (C) all
amounts due to the Holders or their Affiliates pursuant to Section 2.07, 8.01 or
14.13 hereof, (ii) for so long as no Event of Default (as defined in the Senior
Credit Agreement and the TCP Purchase Agreement, respectively) has occurred and
is continuing or would occur as a result of such prepayment, the Credit Parties
may prepay the Notes in accordance with the provisions of Article 3 hereof, and
the Holders may receive and retain such prepayments and (iii) the Holders may
receive any distributions provided for in Section 16(e)(ii) or 16(e)(iv) hereof.

                  (c)      Limitation on Payment.

                  (i)      Upon receipt by the Borrower and the Holder of a
Blockage Notice (as defined below), then unless and until (A) all Senior
Defaults that gave rise to the Blockage Notice shall have been remedied or
effectively waived or shall have ceased to exist or (B) the Senior Indebtedness
in respect of which such Senior Defaults shall have occurred shall have been
paid in full in cash, no direct or indirect payment (in cash, property,
securities or by set-off or otherwise) of or on account of the principal of or
Interest on the Notes or as a sinking fund for the Notes or in respect of any
redemption, retirement, purchase or other acquisition of the Notes shall be made
during any period prior to the expiration of the Blockage Period (as defined
below). Notwithstanding the foregoing, but subject to Section 16(b), all
interest and other amounts paid with respect to the Notes prior to the receipt
of the Blockage Notice in question by

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the Holders thereof may be kept by such Holders.

                  (ii)     For purposes of this Article 16, a "Blockage Notice"
is a notice of a Senior Default that in fact has occurred and is continuing,
given to the Borrower and the Holders by the Joint Collateral Agent pursuant to
the terms of the TCP Intercreditor Agreement; provided that a Senior Default
that occurs under either the Senior Credit Agreement or the TCP Purchase
Agreement that gave rise to a Blockage Notice shall be deemed under the
corresponding provisions of the other agreement constituting Senior Indebtedness
to be a Senior Default giving rise to such Blockage Notice. If at any time that
the TCP Intercreditor Agreement shall not be in effect (as evidenced by written
notification thereof from the Joint Collateral Agent to the Holder), by the
holder of either a majority in principal amount of the Senior Indebtedness then
outstanding under the Senior Credit Agreement (or their authorized agent) or a
majority in principal amount of the Senior Indebtedness then outstanding under
the TCP Purchase Agreement; provided, however, that any such Blockage Notice
sent on behalf of the holders of Senior Indebtedness under the Senior Credit
Agreement or the TCP Purchase Agreement shall be deemed to be a Blockage Notice
sent on behalf of all holders of the Senior Indebtedness for all purposes of
this Section 16.

                  (iii)    For purposes of this Section 16, a "Blockage Period"
with respect to a Blockage Notice is the period commencing upon the Borrower's
receipt of such Blockage Notice and having a duration as follows:

                           1.   360 days if the Senior Default to which the
                                Blockage Notice refers is a Senior Payment
                                Default; or

                           2.   180 days if the Senior Default to which the
                                Blockage Notice refers is a Senior Covenant
                                Default.

Notwithstanding any provision contained herein to the contrary: (A) the Credit
Parties shall not be prohibited from making, and the Holder shall not be
prohibited from receiving, payments under this Note pursuant to Section
16(c)(iii)(2) hereof for more than an aggregate of 180 days within any 360 day
period, (B) no more than two Blockage Periods may occur under this Section 16(c)
in any 360 day period in respect of a Senior Covenant Default, (C) no Senior
Covenant Default existing on the date any Blockage Notice is given to the Holder
shall be used as a basis for any subsequent such notice, unless such Senior
Covenant Default shall have ceased to exist for a period of at least 120
consecutive days (it being acknowledged that any subsequent action or any breach
of any financial covenants for a period commencing after the date of
commencement of such Blockage Period that in either case would give rise to a
Senior Covenant Default pursuant to any provision under which a Senior Covenant
Default previously existed or was continuing, shall constitute a new Senior
Covenant Default) and (D) once all Senior Defaults which gave rise to the
Blockage Notice in question shall have been remedied or effectively waived or
shall have ceased to exist, or the Senior Indebtedness in respect of which such
Senior Defaults shall have occurred shall have been paid in full in cash,
thereafter (unless another

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Blockage Period shall then be in effect) all amounts which would have been
payable hereunder but for the existence of the Blockage Period effected by the
Blockage Notice delivered with respect to the Senior Default in question shall
be payable in their entirety.

If a Blockage Period (or Blockage Periods) under Section 16(c)(iii)(1) has been
in effect for more than an aggregate of 360 days in any 365 day period and the
Holder has not received any payments under this Note during such 365 day period,
then no Blockage Period may be initiated under Section 16(c)(iii)(1) until the
expiration of the period of 15 days from the last day of the then current
Blockage Period. Notwithstanding anything to the contrary contained herein, on
the date any Blockage Notice is given under Section 16(c)(iii)(1), such Blockage
Notice shall be deemed to include any and all Senior Payment Defaults that
existed on the date of such Blockage Notice.

                  (iv)     Notwithstanding the foregoing provisions of Section
16(c), in the event that the requisite holders of the Senior Indebtedness under
the Senior Credit Agreement and the TCP Purchase Agreement consent to any
prepayment under Section 3, nothing any Note shall restrict the Holder from
receiving and retaining such prepayment.

                  (d)      Limitation on Remedies. As long as any Senior
Indebtedness remains outstanding, upon the occurrence of an Event of Default
under the Notes, no Holder shall, unless the holders of any Senior Indebtedness
shall have caused such Senior Indebtedness to become due prior to its stated
maturity or any Event of Default pursuant to Section 12(a)(viii) or (ix) shall
have commenced with respect to any Credit Party, declare or join in any
declaration of the Notes to be due and payable by reason of such Event of
Default or otherwise take any action against the Credit Parties (including,
without limitation, commencing any legal action against the Credit Parties or
filing or joining in the filing of any insolvency petition against the Credit
Parties) prior to the expiration of 90 days after the written notice of such
Holder's ability to accelerate on account of the occurrence of such Event of
Default (a "Remedy Notice") shall have been given by such Holder to the Borrower
and the holders of the Senior Indebtedness (or their authorized agent) (a
"Remedy Standstill Period").

Notwithstanding the foregoing, the Remedy Standstill Period shall be
inapplicable or cease to be effective if the holders of any Senior Indebtedness
shall have caused such Senior Indebtedness to become due prior to its stated
maturity or an Event of Default pursuant to Section 12(a)(viii) or (ix) shall
have occurred with respect to a Credit Party. In addition, any Remedy Standstill
Period shall cease to be effective if at any time during such period: (i) the
holders of the Senior Indebtedness commence the exercise of remedies against
collateral or (ii) payment or any distribution of any character, whether in
cash, securities or other property of the Credit Parties shall be made to or
received by any creditor outside the ordinary course of business on any
Indebtedness which is on the same level of priority with or junior and
subordinate in right of payment to the Notes.

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<PAGE>

Upon the expiration or termination of any Remedy Standstill Period, each Holder
shall be entitled to exercise any of its rights with respect to the Notes (but
otherwise subject to the subordination provisions of the Notes) other than any
right to accelerate the maturity date of this Note based upon the occurrence of
any Event of Default in respect thereto which has been cured or otherwise
remedied during the Remedy Standstill Period.

                  (e)      Subordination Upon Certain Events. Upon the
occurrence of any Event of Default with respect to any Credit Party under
Sections 12(a)(viii) or (ix):

                  (i)      Upon any payment or distribution of assets of such
Credit Party to creditors of the Borrower, holders of Senior Indebtedness shall
be entitled to receive indefeasible payment in full in cash of all obligations
with respect to the Senior Indebtedness before the Holder shall be entitled to
receive any payment in respect of the Subordinated Indebtedness.

                  (ii)     Until all Senior Indebtedness is indefeasibly paid in
full in cash, any distribution to which the Holder would be entitled but for
this Section 16 shall be made to the holders of Senior Indebtedness, ratably as
their interests may appear, except that the Holder may, pursuant to a plan of
reorganization under Chapter 11 of the Bankruptcy Code of 1978, as amended, or
any similar provision of any successor legislation thereto, receive securities
that are unsecured, have a maturity date which is not earlier than the maturity
date of the Notes, do not contain any mandatory repayment provisions which are
more favorable to the Holders than the terms contained in the Notes, such
securities shall not be entitled to the benefits of covenants or defaults
materially more beneficial to the holders of such securities than those in
effect with respect to the Notes on the date hereof, the rate of interest on
such securities shall not exceed the effective rate of interest on the Notes,
and such securities are subordinate to the Senior Indebtedness, at least to the
same extent as the Notes, if pursuant to such plan the distributions to the
holders of the Senior Indebtedness in the form of cash, securities or other
property, by set-off or otherwise, provide for payment of the full amount of the
allowed claim of the holders of the Senior Indebtedness (it being acknowledged
that such securities shall not be deemed to be so subordinated if the holder is
permitted to receive and retain cash payments thereon prior to the indefeasible
payment of the Senior Indebtedness in full in cash).

                  (iii)    For purposes of this Section 16, a distribution may
consist of cash, securities or other property, by set-off or otherwise.

                  (iv)     Notwithstanding the foregoing provisions of Section
16(b), (c) or (e), if payment or delivery by such Credit Parties of cash,
securities or other property to the Holder is authorized by an order or decree
giving effect, and stating in such order or decree that effect is given, to the
subordination of the Notes to the Senior Indebtedness and made by a court of
competent jurisdiction in a proceeding under any applicable bankruptcy or
reorganization law, payment or delivery by such Credit Party of such cash,
securities or other property shall be made to the Holders in accordance with
such order or decree.

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<PAGE>

                  (f)      Payments and Distributions Received. If any Holder
shall have received any payment from or distribution of assets of a Credit Party
in respect of the Subordinated Indebtedness in contravention of the terms of
this Section 16 before all Senior Indebtedness is paid in full in cash, then and
in such event such payment or distribution shall be received and held in trust
for and shall be promptly paid over or delivered to the holders of Senior
Indebtedness to the extent necessary to pay all such Senior Indebtedness in full
in cash.

                  (g)      Proofs of Claim. If, while any Senior Indebtedness is
outstanding, any Event of Default under Section 12(a)(viii) or (ix) occurs with
respect to a Credit Party, the Holder shall file appropriate claims or proofs of
claim in respect of the Subordinated Indebtedness. Upon the failure of any
Holder to take such action within 10 Business Days following receipt by such
Holder of written notice thereof by any holder of Senior Indebtedness, each
holder of Senior Indebtedness is hereby irrevocably authorized and empowered,
but shall have no obligation, to file claims and proofs of claim as it may deem
necessary or advisable for the preservation of any of the rights or interests of
such Holder with respect to the Subordinated Indebtedness.

                  (h)      Subrogation. After all amounts payable under or in
respect of Senior Indebtedness are paid in full in cash, the Holders shall be
subrogated to the rights of holders of Senior Indebtedness to receive payments
or distributions applicable to Senior Indebtedness, to the extent that
distributions otherwise payable to the Holders have been applied to the payment
of Senior Indebtedness. A distribution made under this Section 16 to a holder of
Senior Indebtedness which otherwise would have been made to the Holder is not,
as between the Credit Parties and the Holders, a payment by a Credit Party on
Senior Indebtedness.

                  (i)      Relative Rights. This Section defines the relative
rights of the Holders and the holders of Senior Indebtedness. Nothing in this
Section shall: (1) impair, as between the Credit Parties and the Holders, the
obligations of the Credit Parties, which are absolute and unconditional, to pay
principal of and interest (including default interest) on the Notes in
accordance with its terms; (2) affect the relative rights of the Holders and
creditors of the Credit Parties other than holders of Senior Indebtedness or (3)
prevent the Holders from exercising their available remedies upon a default or
Event of Default, subject to the rights, if any, under this Section 16 of
holders of Senior Indebtedness.

                  (j)      Subordination May Not Be Impaired by a Credit Party.
No right of any holder of any Senior Indebtedness to enforce the subordination
of the Subordinated Indebtedness, shall be impaired by any failure to act by a
Credit Party or such holder of Senior Indebtedness or by the failure of any
Credit Party or such holder to comply with this Note. The provisions of this
Section 16 shall continue to be effective or be reinstated, as the case may be,
if at any time any payment of any of the Senior Indebtedness is rescinded or
must otherwise be returned by any holder of Senior Indebtedness, as a result of
the insolvency, bankruptcy or reorganization of a Credit Party or otherwise, all
as though such payment had not been made.

                  (k)      Payments. A payment with respect to principal of,
premium, if any, or interest on the Subordinated Indebtedness shall include,
without limitation, payment of principal

                                      108
<PAGE>

of, and Interest on this Note, any depositing of funds for the defeasance of the
Subordinated Indebtedness, any sinking fund and any payment on account of
mandatory prepayment or optional prepayment provisions.

                  (l)      Section Not to Prevent Events of Default. The failure
to make a payment on account of principal of or interest on or other amounts
constituting Subordinated Indebtedness by reason of any provision of this
Section 16 shall not be construed as preventing the occurrence of an Event of
Default under Section 12.

                  (m)      Subordination Not Impaired: Benefit of Subordination.
Each Holder agrees and consents that without notice to or assent by such Holder,
and without affecting the liabilities and obligations of the Credit Parties and
the rights and benefits of the holders of the Senior Indebtedness set forth in
this Section 16:

                  (i)      The obligations and liabilities of the Credit Parties
and any other party or parties for or upon the Senior Indebtedness may, from
time to time, be increased, renewed, refinanced, extended, modified, amended,
restated, compromised, supplemented, terminated, waived or released, except as
prohibited by Sections 10.04 and 10.12 hereof or the provisions set forth in the
Notes;

                  (ii)     The holders of Senior Indebtedness, and any
representative or representatives acting on behalf thereof, may exercise or
refrain from exercising any right, remedy or power granted by or in connection
with any agreements relating to the Senior Indebtedness; and

                  (iii)    Any balance or balances of funds with any holder of
Senior Indebtedness at any time outstanding to the credit of the Credit Parties
may, from time to time, in whole or in part, be surrendered or released;

all as the holders of the Senior Indebtedness, and any representative or
representatives acting on behalf thereof, may deem advisable, and all without
impairing, abridging, diminishing, releasing or affecting the subordination of
the Subordinated Indebtedness to the Senior Indebtedness provided for herein.

                  (n)      Modification of Section 16. The provisions of this
Section 16 are for the benefit of the holders from time to time of Senior
Indebtedness and, so long as any Senior Indebtedness remains unpaid, may not be
modified, rescinded or canceled in whole or in part without the prior written
consent thereto of the holders of Senior Indebtedness in accordance with the
terms of the respective documents pursuant to which the Senior Indebtedness was
incurred.

                  (o)      Covenants of Holder. Until all of the Senior
Indebtedness has been fully paid in cash:

                  (i)      The Holders shall not hereafter give any
subordination in respect of the Notes.

                                      109
<PAGE>

                  (ii)     Upon the occurrence and during the continuance of a
Senior Default, the Holders shall not release, exchange, extend the time of
payment of, compromise, set off or otherwise discharge any part of the Notes or
modify or amend the Notes; provided, however, that at such time or times as the
actions referred to in this Section 16(o)(ii) may be taken by any Holder, such
Holder shall give the holders of Senior Indebtedness five Business Days prior
written notice before taking any of such actions.

                  (iii)    The Holders hereby undertake and agree for the
benefit of the holders of Senior Indebtedness that, upon the occurrence and
during the continuance of a Senior Default, it shall take any actions reasonably
requested by any holder of Senior Indebtedness to effectuate the full benefit of
the subordination contained herein.

                  (p)      Covenant of the Borrower; Limitation on Indebtedness.
Until all Subordinated Indebtedness shall have been paid in full in cash, the
Borrower shall not, and shall not cause, suffer or permit any of its
Subsidiaries to, directly or indirectly, collectively and in the aggregate,
issue, assume or otherwise incur Senior Indebtedness or other Indebtedness
except as permitted hereunder or under Section 10.04 of this Agreement, as it
now exists or may be amended or modified.

                  (q)      Miscellaneous.

                  (i)      To the extent permitted by applicable law, the
Holders and the Borrower hereby waive (A) notice of acceptance hereof by the
holders of the Senior Indebtedness and (B) all diligence in the collection or
protection of or realization upon the Senior Indebtedness.

                  (ii)     The Borrower and the Holders hereby expressly agree
that the holders of Senior Indebtedness may enforce any and all rights derived
herein by suit, either in equity or law, for specific performance of any
agreement contained in this Section 16 or for judgment at law and any other
relief whatsoever appropriate to such action or procedure.

                  (iii)    The Holders acknowledge and agree that the foregoing
subordination provisions are, and are intended to be, an inducement and a
consideration to each holder of Senior Indebtedness, whether such Senior
Indebtedness was created or acquired before or after the issuance of this Note,
and each holder of Senior Indebtedness shall be deemed conclusively to have
relied upon such subordination provisions in acquiring and continuing to hold
such Senior Indebtedness.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                      110
<PAGE>

                  IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered by their respective officers hereunto
duly authorized as of the date first above written.

                                KINETICS GROUP, INC.,
                                as Borrower

                                By: /s/ John Goodman
                                    ____________________________________________
                                Name:
                                Title:

                                CELERITY GROUP, INC. (formerly known as Kinetics
                                Holding Corporation),
                                as Guarantor

                                By: /s/ John Goodman
                                    ____________________________________________
                                Name:
                                Title:

                                KINETIC SYSTEMS, INC.,
                                as Guarantor

                                By: /s/ John Goodman
                                    ____________________________________________
                                Name:
                                Title:

                                KINETICS CHEMPURE SYSTEMS, INC.
                                as a Subsidiary Guarantor

                                By: /s/ John Goodman
                                    ____________________________________________
                                Name:
                                Title:

                [SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]

<PAGE>

                                KINETIC SYSTEMS CARIBE, INC.,
                                as Guarantor

                                By: /s/ John Goodman
                                   ____________________________________________
                                Name:
                                Title:

                                KINETIC SYSTEMS INTERNATIONAL, INC.,
                                as Guarantor

                                By: /s/ John Goodman
                                   ____________________________________________
                                Name:
                                Title:

                [SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]

<PAGE>

                                CELERITY GROUP, INC. (formerly known as Kinetics
                                Fluid Systems, Inc.),
                                as a Subsidiary Guarantor

                                By: /s/ John Goodman
                                   ---------------------------------------------
                                Name:
                                Title:

                                FTS SYSTEMS, INC. (formerly known as Kinetics
                                Thermal Systems, Inc.),
                                as a Subsidiary Guarantor

                                By: /s/ John Goodman
                                   ---------------------------------------------
                                Name:
                                Title:

                [SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]

<PAGE>

                                ARES CORPORATE OPPORTUNITIES FUND, L.P.,
                                as Agent and Purchaser

                                By: ACOF Management, L.P., its General Partner
                                By: ACOF Operating Manager, L.P., its General
                                Partner
                                By: Ares Management, Inc., its General Partner

                                By: ____________________________________________
                                Name: Eric Beckman
                                Title: _________________________________________

                                Address for Notices:
                                1999 Avenue of the Stars
                                Suite 1900
                                Los Angeles, CA 90067
                                Attention: Eric Beckman
                                           Kevin Frankel
                                Fax: 310-201-4157

                [SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]

<PAGE>

                                SPECIAL VALUE ABSOLUTE RETURN FUND, LLC,
                                as Purchaser

                                By: SVAR/MM, LLC, its Managing Member
                                By: Tennenbaum Capital Partners, LLC, its
                                Managing Member
                                By: Tennenbaum & Co., LLC, its Managing Member

                                SPECIAL VALUE BOND FUND, LLC,
                                as Purchaser

                                By: SVIM/MSM, LLC, its Manager
                                By: Tennenbaum & Co., LLC, its Managing Member

                                SPECIAL VALUE BOND FUND II, LLC,
                                as Purchaser

                                By: SVIM/MSM II, LLC, its Managing Member
                                By: Tennenbaum & Co., LLC, its Managing Member

                                Each of the above by:

                                -------------------------
                                Name: __________________________________________
                                Title: _________________________________________

                                Address for Notices:
                                11100 Santa Monica Blvd.
                                Suite 210
                                Los Angeles, CA 90025
                                Attention: David A. Hollander

                [SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]

<PAGE>

                                BEHRMAN CAPITAL III L.P.,
                                as Purchaser

                                By: Behrman Brothers III, LLC, its General
                                Partner

                                By: /s/ William Matthes
                                    --------------------------------------------
                                Name: William Matthes
                                Title: Managing Member

                                Address for Notices:
                                   Behrman Capital
                                   Four Embarcadero Center, Suite 3640
                                   San Francisco, CA  94111

                                Attention: John Batchelor

                                STRATEGIC ENTREPRENEUR FUND III L.P.,
                                as Purchaser

                                By: /s/ William Matthes
                                    --------------------------------------------
                                Name: William Matthes
                                Title: General Partner

                                Address for Notices:
                                   Behrman Capital
                                   Four Embarcadero Center, Suite 3640
                                   San Francisco, CA  94111

                                Attention: John Batchelor

                [SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]

<PAGE>

                                GRYPHON PARTNERS II, L.P.,
                                as Purchaser

                                By: Gryphon GenPar II, L.L.C., its General
                                Partner

                                By: /s/ Jeffrey L. Ott
                                    ____________________________________________
                                Name: Jeffrey L. Ott
                                Title: Member and Principal

                                Address for Notices:

                                Attention:

                                GRYPHON PARTNERS II-A, L.P.,
                                as Purchaser

                                By: Gryphon GenPar II, L.L.C., its General
                                Partner

                                By: /s/ Jeffrey L. Ott
                                    ____________________________________________
                                Name: Jeffrey L. Ott
                                Title: Member and Principal

                                Address for Notices:

                                Attention:

                [SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]

<PAGE>

                                MIDOCEAN CELERITY INVESTMENT PARTNERS,
                                L.P., as Purchaser

                                By: MidOcean Celerity Holdings, LLC, its General
                                Partner

                                By: ____________________________________________
                                Name: __________________________________________
                                Title: _________________________________________

                                Address for Notices:

                                Attention:

                [SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]

<PAGE>

                                                                         ANNEX 1

                WARRANT AND NOTE ALLOCATIONS PRIOR TO TRANSACTION
                        (EXCLUDING TCP RETAINED WARRANTS)

PURCHASERS

<TABLE>
<CAPTION>
                                                   PRINCIPAL     COMMON STOCK     COMMON STOCK    COMMON STOCK
                                                   AMOUNT OF     WARRANTS WITH    WARRANTS WITH   WARRANTS WITH
                                                  NOTES HELD     $0.01 EXERCISE  $0.75 EXERCISE  $3.00 EXERCISE
              PURCHASER                               ($)          PRICE HELD       PRICE HELD      PRICE HELD
              ---------                               ---          ----------       ----------      ----------
<S>                                              <C>             <C>             <C>             <C>
Ares Corporate Opportunities Fund, L.P.          45,000,000.00     2,087,458       1,179,242         481,416
MidOcean Celerity Investment Partners, LP         4,420,793.97       205,072         115,848          47,294
Behrman Capital III L.P.                          3,223,394.89       149,527          84,470          34,484
Strategic Entrepreneur Fund III L.P.                 27,681.45         1,284             725             296
Gryphon Partners II, L.P.                         2,175,134.32       100,900          57,000          23,270
Gryphon Partners II-A, L.P.                         152,995.37         7,097           4,009           1,637
Special Value Absolute Return Fund, LLC           2,000,000.00        78,503          44,348          18,105
Special Value Bond Fund, LLC                      1,000,000.00        39,251          22,174           9,052
Special Value Bond Fund II, LLC                   2,000,000.00        78,503          44,348          18,105
</TABLE>

<TABLE>
<CAPTION>
                                                  PREFERRED      PREFERRED
                                                 STOCK SERIES   STOCK SERIES
                                                 A-1 WARRANTS   B-1 WARRANTS
             PURCHASER                               HELD           HELD
             ---------                               ----           ----
<S>                                              <C>            <C>
Ares Corporate Opportunities Fund, L.P.            545,384        354,312
MidOcean Celerity Investment Partners, LP           53,578         34,808
Behrman Capital III L.P.                            39,066         25,380
Strategic Entrepreneur Fund III L.P.                   335            218
Gryphon Partners II, L.P.                           26,362         17,126
Gryphon Partners II-A, L.P.                          1,854          1,205
Special Value Absolute Return Fund, LLC             20,510         13,325
Special Value Bond Fund, LLC                        10,255          6,662
Special Value Bond Fund II, LLC                     20,510         13,325
</TABLE>

                                     Annex 1

<PAGE>

                                                                         ANNEX 2

             INCREMENTAL WARRANTS (EXCLUDING TCP RETAINED WARRANTS)

PURCHASERS

<TABLE>
<CAPTION>
                                             COMMON STOCK     COMMON STOCK       COMMON STOCK
                                             WARRANTS WITH    WARRANTS WITH      WARRANTS WITH       PREFERRED        PREFERRED
                                            $0.01 EXERCISE   $0.75 EXERCISE     $3.00 EXERCISE      STOCK SERIES     STOCK SERIES
                                                 PRICE           PRICE              PRICE          A-1 WARRANTS      B-1 WARRANTS
             PURCHASER                         PURCHASED       PURCHASED          PURCHASED         PURCHASED         PURCHASED
             ---------                         ---------       ---------          ---------         ---------         ---------
<S>                                         <C>              <C>                <C>                <C>               <C>
Ares Corporate Opportunities Fund, L.P.       3,728,041        2,106,035           859,774            974,011          632,776
MidOcean Celerity Investment Partners, LP       366,241          206,897            84,464             95,686           62,164
Behrman Capital III L.P.                        267,043          150,858            61,587             69,770           45,326
Strategic Entrepreneur Fund III L.P.              2,293            1,296               529                600              389
Gryphon Partners II, L.P.                       180,200          101,798            41,558             47,080           30,586
Gryphon Partners II-A, L.P.                      12,675            7,161             2,923              3,312            2,151
Special Value Absolute Return Fund, LLC         179,964          101,664            41,503             47,019           30,546
Special Value Bond Fund, LLC                     89,982           50,832            20,753             23,509           15,273
Special Value Bond Fund II, LLC                 179,964          101,664            41,503             47,019           30,546
</TABLE>

                                     Annex 2
<PAGE>

                                                                         ANNEX 3

         POST-TRANSACTION ALLOCATIONS (EXCLUDING TCP RETAINED WARRANTS)

PURCHASERS

<TABLE>
<CAPTION>
                                               PRINCIPAL      COMMON STOCK       COMMON STOCK       COMMON STOCK
                                               AMOUNT OF      WARRANTS WITH      WARRANTS WITH      WARRANTS WITH
                                              NOTES HELD     $0.01 EXERCISE     $0.75 EXERCISE     $3.00 EXERCISE
              PURCHASER                          ($)           PRICE HELD          PRICE HELD         PRICE HELD
              ---------                          ---           ----------          ----------         ----------
<S>                                          <C>             <C>                <C>                <C>
Ares Corporate Opportunities Fund, L.P.      45,000,000.00     5,815,499          3,285,277          1,341,190
MidOcean Celerity Investment Partners, LP     4,420,793.97       571,313            322,745            131,758
Behrman Capital III L.P.                      3,223,394.89       416,570            235,328             96,071
Strategic Entrepreneur Fund III L.P.             27,681.45         3,577              2,021                825
Gryphon Partners II, L.P.                     2,175,134.32       281,100            158,798             64,828
Gryphon Partners II-A, L.P.                     152,995.37        19,772             11,170              4,560
Special Value Absolute Return Fund, LLC       2,000,000.00       258,467            146,012             59,608
Special Value Bond Fund, LLC                  1,000,000.00       129,233             73,006             29,805
Special Value Bond Fund II, LLC               2,000,000.00       258,467            146,012             59,608
</TABLE>

<TABLE>
<CAPTION>
                                                            PREFERRED          PREFERRED
                                                           STOCK SERIES      STOCK SERIES
                                                           A-1 WARRANTS      B-1 WARRANTS
            PURCHASER                                          HELD              HELD
            ---------                                          ----              ----
<S>                                                        <C>               <C>
Ares Corporate Opportunities Fund, L.P.                     1,519,395          987,088
MidOcean Celerity Investment Partners, LP                     149,264           96,972
Behrman Capital III L.P.                                      108,836           70,706
Strategic Entrepreneur Fund III L.P.                              935              607
Gryphon Partners II, L.P.                                      73,442           47,712
Gryphon Partners II-A, L.P.                                     5,166            3,356
Special Value Absolute Return Fund, LLC                        67,529           43,871
Special Value Bond Fund, LLC                                   33,764           21,935
Special Value Bond Fund II, LLC                                67,529           43,871
</TABLE><PAGE>

                                                                   EXHIBIT 10.34

--------------------------------------------------------------------------------

                              KINETICS GROUP, INC.

                                  $125,000,000
                          Senior Secured Notes due 2006

    Warrants to Purchase Equity Interests in Celerity Group, Inc. (Delaware)

                               ------------------

                     AMENDED AND RESTATED PURCHASE AGREEMENT

                               ------------------

                    Originally dated as of September 26, 2003
                as amended by Amendment No. 1 on January 21, 2004
            and as fully amended and restated hereby on April 9, 2004

--------------------------------------------------------------------------------

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                             Page
                                                                                                             ----
<S>                                                                                                          <C>
SECTION 1.      Authorization of Notes and Warrants...................................................          3

SECTION 2.      Sale and Purchase of Securities.......................................................          5

   2.01         Purchase Price........................................................................          5
   2.02         Warrants..............................................................................          6
   2.03         Security Interest.....................................................................          6
   2.04         Holder Expenses.......................................................................          7

SECTION 3.      Closing; Fees.........................................................................          7

   3.01         Closing...............................................................................          7
   3.03         Expenses..............................................................................          8
   3.04         Obligation of the Purchasers..........................................................          8

SECTION 4.      Prepayment of Notes; Payments; Taxes..................................................          9

   4.01         Optional Redemptions of Notes.........................................................          9
   4.02         Redemption Procedure..................................................................          9
   4.03         Net Payments; Taxes...................................................................         10
   4.04         Legal Defeasance and Covenant Defeasance..............................................         11

SECTION 5.      Conditions to Purchaser's Obligations.................................................         19

   5.01         Representations and Warranties........................................................         20
   5.02         Compliance with Agreements............................................................         20
   5.03         Certificates..........................................................................         20
   5.04         Documents; Due Diligence..............................................................         21
   5.05         Purchase of Securities Permitted by Applicable Laws...................................         21
   5.06         Opinion of Counsel....................................................................         21
   5.07         Approval of Counsel to the Purchasers.................................................         21
   5.09         No Material Judgment or Order.........................................................         21
   5.10         Pro Forma Balance Sheet...............................................................         22
   5.12         Good Standing Certificates............................................................         22
   5.13         No Litigation.........................................................................         22
</TABLE>

                                      -i-

<PAGE>

<TABLE>
<CAPTION>
                                                                                                             Page
                                                                                                             ----
<S>                                                                                                          <C>
   5.14         Fees, Expenses, Etc...................................................................         22
   5.15         Employee Benefit Plans; Management Agreements; Debt Agreements; Senior Debt
                  Documents; Tax Sharing Agreements and Due Diligence.................................         22
   5.16         Indebtedness..........................................................................         23
   5.17         Guarantees............................................................................         23
   5.18         Adverse Change, Etc...................................................................         23
   5.19         Solvency Certificate; Solvency Opinion................................................         24
   5.20         Financial Statements; Projections.....................................................         24
   5.21         Assignment and Assumption Agreements..................................................         24
   5.22         BioKinetics Litigation................................................................         25
   5.23         Tax Effects...........................................................................         25
   5.24         Restructuring Agreement...............................................................         25
   5.25         Amended and Restated Limited Liability Agreement......................................         25
   5.26         Unitholders Agreement.................................................................         25
   5.27         Service of Process....................................................................         25
   5.28         Securities Laws.......................................................................         25
   5.29         Execution of Notes....................................................................         25
   5.30         Warrant Obligation; Warrant Exchange..................................................         25
   5.31         Amended Debt Documents................................................................         26
   5.33         Intercreditor Agreement...............................................................         26
   5.34         Liens.................................................................................         26
   5.35         UCCs..................................................................................         26
   5.36         SAFECO Forbearance....................................................................         26
   5.38         Parent Non-Recourse Guaranty and Pledge Agreement.....................................         27
   5.40         Performance; No Default...............................................................         27

SECTION 6.      Conditions to Company's Obligations...................................................         27

   6.01         Sale of Securities....................................................................         27
   6.02         Representations and Warranties of the Purchaser.......................................         27

SECTION 7.      Representations, Warranties and Agreements............................................         27

   7.01         Corporate Status......................................................................         28
   7.02         Corporate Power and Authority.........................................................         28
   7.03         No Violation..........................................................................         28
   7.04         Governmental Approvals................................................................         29
</TABLE>

                                       ii

<PAGE>

<TABLE>
<CAPTION>
                                                                                                             Page
                                                                                                             ----
<S>                                                                                                          <C>
   7.05         Financial Statements; Financial Condition; Undisclosed Liabilities; Projections; Etc..         29
   7.06         Litigation............................................................................         30
   7.07         True and Complete Disclosure..........................................................         31
   7.09         Tax Returns and Payments..............................................................         31
   7.10         Compliance with ERISA.................................................................         31
   7.11         The Security Documents................................................................         33
   7.12         Representations and Warranties in Documents...........................................         34
   7.13         Title to Properties; Possession Under Leases..........................................         34
   7.14         Capitalization........................................................................         35
   7.15         Subsidiaries..........................................................................         35
   7.16         Compliance with Statutes, Etc.........................................................         35
   7.17         Status under Certain Federal Statutes.................................................         36
   7.18         Environmental Matters.................................................................         36
   7.19         Labor Relations.......................................................................         37
   7.20         Patents, Licenses, Franchises and Formulas............................................         37
   7.21         Indebtedness..........................................................................         40
   7.22         Transaction...........................................................................         40
   7.23         Insurance.............................................................................         40
   7.24         Subordinated Debt Provisions..........................................................         41
   7.25         Withholding and Other Taxes...........................................................         41
   7.26         Certain Fees..........................................................................         41
   7.27         Corporate Information.................................................................         41
   7.28         Securities Exemptions.................................................................         42
   7.29         Board Approval........................................................................         42
   7.30         Customers.............................................................................         42
   7.31         Affiliate Transactions................................................................         42
   7.32         Material Contracts....................................................................         43

SECTION 8.      Representations and Warranties of the Purchaser.......................................         44

   8.01         Purchaser Intent......................................................................         44
   8.02         Status of Purchaser...................................................................         44
   8.03         Source of Funds.......................................................................         44
   8.04         Authorization; No Contravention.......................................................         45
   8.05         Binding Effect........................................................................         45
   8.06         No Legal Bar..........................................................................         45
   8.07         Broker's, Finder's or Similar Fees....................................................         45
   8.08         Governmental Authorization............................................................         45
</TABLE>

                                     -iii-

<PAGE>

<TABLE>
<CAPTION>
                                                                                                             Page
                                                                                                             ----
<S>                                                                                                          <C>
   8.09         Purchasers and Agent..................................................................         45

SECTION 9.      Affirmative Covenants.................................................................         45

   9.01         Information Covenants.................................................................         45
   9.02         Books, Records and Inspections........................................................         52
   9.03         Maintenance of Property; Insurance....................................................         52
   9.04         Corporate Franchises..................................................................         54
   9.05         Compliance with Statutes, Etc.........................................................         54
   9.06         Compliance with Environmental Laws....................................................         54
   9.07         ERISA.................................................................................         55
   9.08         End of Fiscal Years; Fiscal Quarters..................................................         57
   9.09         Performance of Obligations............................................................         57
   9.10         Payment of Taxes......................................................................         57
   9.11         Ownership of Subsidiaries; Preservation of Corporate Existence........................         57
   9.12         Further Assurances; Additional Collateral.............................................         57
   9.13         Foreign Subsidiaries Security.........................................................         59
   9.14         Maintenance of Corporate Separateness.................................................         59
   9.15         Interest Rate Protection..............................................................         60
   9.16         Revolving Loan Reductions.............................................................         60
   9.17         Service of Process....................................................................         60
   9.18         Additional Collateral.................................................................         60
   9.19         Board Rights..........................................................................         60
   9.20         Ares Affiliates' Special Rights.......................................................         61
   9.21         Compliance with Transaction Documents.................................................         62

SECTION 10.     Negative Covenants....................................................................         62

   10.01        Liens.................................................................................         62
   10.02        Consolidation, Merger, Purchase or Sale of Assets, Etc................................         65
   10.03        Dividends.............................................................................         67
   10.04        Indebtedness..........................................................................         69
   10.05        Advances, Investments and Loans.......................................................         73
   10.06        Transactions with Affiliates..........................................................         75
   10.07        Capital Expenditures..................................................................         77
   10.08        Consolidated Interest Coverage Ratio..................................................         77
   10.09        Consolidated Fixed Charge Coverage Ratio..............................................         77
   10.10        Leverage Ratios.......................................................................         78
</TABLE>

                                      -iv-

<PAGE>

<TABLE>
<CAPTION>
                                                                                                             Page
                                                                                                             ----
<S>                                                                                                          <C>
   10.11        Minimum EBITDA; Liquidity.............................................................         79
   10.12        Limitation on Modifications of Indebtedness; Modifications of Certificate of
                  Incorporation, By-Laws and Certain Other Agreements; Etc............................         79
   10.13        Limitation on Certain Restrictions on Subsidiaries....................................         81
   10.14        Limitation on Issuance of Capital Stock...............................................         82
   10.15        Limitation on Creation of Subsidiaries................................................         82
   10.16        Business..............................................................................         83
   10.17        Senior Indebtedness...................................................................         83
   10.18        Compensation..........................................................................         83
   10.19        Alfa Laval Litigation Settlement......................................................         83
   10.20        Amendments or Waivers of Related Agreements...........................................         83

SECTION 11.     Events of Default.....................................................................         83

   11.01        Payments..............................................................................         83
   11.02        Representations, Etc..................................................................         84
   11.03        Covenants.............................................................................         84
   11.04        Default Under Other Agreements........................................................         84
   11.05        Bankruptcy, Etc.......................................................................         84
   11.06        ERISA.................................................................................         85
   11.07        Security Documents....................................................................         86
   11.08        Guarantee.............................................................................         86
   11.09        Judgments.............................................................................         86
   11.10        Change of Control.....................................................................         87
   11.11        Conviction............................................................................         87

SECTION 12      Definitions and Accounting Terms......................................................         87

   12.01        Defined Terms.........................................................................         87
   12.02        Accounting Terms: Financial Statements................................................        116
   12.03        Knowledge of Holdings and the Company.................................................        116

SECTION 13.     Guarantees............................................................................        117

   13.01        The Guarantee.........................................................................        117
   13.02        Obligations Unconditional.............................................................        117
   13.03        Reinstatement.........................................................................        118
   13.04        Subrogation; Subordination............................................................        119
</TABLE>

                                      -v-

<PAGE>

<TABLE>
<CAPTION>
                                                                                                             Page
                                                                                                             ----
<S>                                                                                                          <C>
   13.05        Remedies..............................................................................        119
   13.06        Instrument for the Payment of Money...................................................        119
   13.07        Continuing Guarantee..................................................................        120
   13.08        General Limitation on Guarantee Obligations...........................................        120
   13.09        Release of BioKinetics and KTS........................................................        120

SECTION 14.     Miscellaneous.........................................................................        120

   14.01        Payment of Expenses, Etc..............................................................        120
   14.02        Right of Setoff.......................................................................        122
   14.03        Notices...............................................................................        122
   14.04        Benefit of Agreement..................................................................        123
   14.05        No Waiver; Remedies Cumulative........................................................        123
   14.06        Calculations; Computations............................................................        123
   14.07        Governing Law; Submission to Jurisdiction; Venue; Waiver of Jury Trial................        124
   14.08        Counterparts..........................................................................        125
   14.09        Headings Descriptive..................................................................        125
   14.10        Amendment or Waiver; Etc..............................................................        125
   14.11        Survival..............................................................................        125
   14.12        Confidentiality.......................................................................        126
   14.13        Special Provisions Regarding Pledges of Equity Interests in, and
                     Promissory Notes Owed by, Persons Not Organized in the United
                     States...........................................................................        127
   14.14        Registration of Notes.................................................................        128
   14.15        Restructuring Agreement...............................................................        128

SECTION 15.     Appointment of Agent..................................................................        128
</TABLE>

ANNEX 1         EXISTING SECURITIES HOLDERS
ANNEX 2         SCHEDULE OF PURCHASERS
ANNEX 3         TCP MEZZANINE PURCHASERS
ANNEX 4         GROSS-UP ALLOCATIONS
ANNEX 5         POST-TRANSACTION ALLOCATIONS

SCHEDULE 7.01   CORPORATE STATUS
SCHEDULE 7.06   LITIGATION
SCHEDULE 7.09   TAXES

                                      -vi-

<PAGE>

SCHEDULE 7.10(a)                ERISA PLANS
SCHEDULE 7.10(b)                ERISA MATTERS
SCHEDULE 7.10(c)                FOREIGN PENSION PLANS
SCHEDULE 7.11(b)                MORTGAGED REAL PROPERTY RECORDING LOCATIONS
SCHEDULE 7.13(a)(i)             OWNED REAL PROPERTY
SCHEDULE 7.13(a)(ii)            LEASED REAL PROPERTY
SCHEDULE 7.13(a)(iii)           ENCUMBRANCES ON OWNED REAL PROPERTY
SCHEDULE 7.13(c)                EXISTING LIENS ON PROPERTY (OTHER THAN LIENS ON
                                REAL PROPERTY)
SCHEDULE 7.13(e)                RECOVERY EVENTS
SCHEDULE 7.14                   CAPITAL STOCK
SCHEDULE 7.15(b)                COMPANY'S SUBSIDIARIES
SCHEDULE 7.15(c)                ORGANIZATIONAL CHART
SCHEDULE 7.18                   ENVIRONMENTAL MATTERS
SCHEDULE 7.19                   LABOR RELATIONS
SCHEDULE 7.20(a)(v)             INTELLECTUAL PROPERTY LICENSES
SCHEDULE 7.20(b)                INTELLECTUAL PROPERTY CLAIMS OF COMPANY
SCHEDULE 7.20(c)                INTELLECTUAL PROPERTY CLAIMS AGAINST COMPANY
SCHEDULE 7.21                   EXISTING INDEBTEDNESS
SCHEDULE 7.21A                  PRE-CLOSING INDEBTEDNESS
SCHEDULE 7.23                   INSURANCE
SCHEDULE 7.25                   WITHHOLDING AND OTHER TAXES
SCHEDULE 7.27                   CORPORATE INFORMATION
SCHEDULE 7.30                   CUSTOMERS
SCHEDULE 7.31                   INTERCOMPANY CONTRACTS
SCHEDULE 7.32(a)                SIGNIFICANT CONTRACTS
SCHEDULE 7.32(b)                NON-BINDING CONTRACTS
SCHEDULE 10.01(iii)             EXISTING LIENS
SCHEDULE 10.02(xiv)             ASSETS
SCHEDULE 10.05                  EXISTING INVESTMENTS

EXHIBIT A                       Form of Series A Note
EXHIBIT A-1                     Form of Series B Note
EXHIBIT A-2                     Form of Series C Note
EXHIBIT B                       Form of Warrant Exchange Agreement
EXHIBIT C                       Form of Opinion of Cooley Godward LLP
EXHIBIT C-1                     Form of Opinion of Fenwick & West LLP
EXHIBIT C-2                     Form of Opinion of Company's General Counsel
EXHIBIT D                       Form of Compliance Certificate
EXHIBIT E                       Form of Officer's Certificate
EXHIBIT E-1                     Form of Secretary's Certificate
EXHIBIT F                       Form of Security Agreement

                                     -vii-

<PAGE>

EXHIBIT H                       Form of Solvency Certificate for Company
EXHIBIT H-1                     Form of Solvency Certificate for KSI
EXHIBIT I                       Form of Restated Certificate of Incorporation
EXHIBIT J                       Form of Joinder Agreement
EXHIBIT K                       Form of Intercreditor Agreement
EXHIBIT L                       Form of Trustee Joinder Agreement

                                     -viii-

<PAGE>

         AMENDED AND RESTATED PURCHASE AGREEMENT dated as of April 9, 2004 (the
"Agreement") among KINETICS GROUP, INC., a Delaware corporation (the "Company"),
CELERITY GROUP, INC., a Delaware corporation ("Holdings"), KINETIC SYSTEMS,
INC., a California corporation ("KSI"), the SUBSIDIARY GUARANTORS (as
hereinafter defined) party hereto from time to time, the KSI GUARANTORS (as
hereinafter defined), (Holdings, KSI, the Subsidiary Guarantors and the KSI
GUARANTORS, the "Guarantors" and each individually a "Guarantor"), SPECIAL VALUE
ABSOLUTE RETURN FUND, LLC, a Delaware limited liability company, SPECIAL VALUE
BOND FUND, LLC, a Delaware limited liability company, SPECIAL VALUE BOND FUND
II, LLC, a Delaware limited liability company, J.B. FUQUA FAMILY CHARITABLE LEAD
ANNUITY TRUST - 2000, a trust organized under the laws of Georgia, ARES III CLO
LTD., a company organized under the laws of the Cayman Islands, ARES IV CLO
LTD., a company organized under the laws of the Cayman Islands, ARES TOTAL VALUE
FUND, L.P., a Delaware limited partnership (Ares III CLO Ltd., Ares IV CLO Ltd.
and Ares Total Value Fund, L.P., collectively, "Ares") and MASSACHUSETTS MUTUAL
LIFE INSURANCE COMPANY, a Delaware corporation (each of Special Value Absolute
Fund, LLC, Special Value Bond Fund, LLC, Special Value Bond Fund II, LLC, J.B.
Fuqua Family Charitable Lead Annuity Trust - 2000, Ares III CLO Ltd., Ares IV
CLO Ltd., Ares Total Value Fund, L.P. and Massachusetts Mutual Life Insurance
Company, a "Purchaser" and together, the "Purchasers") and TENNENBAUM CAPITAL
PARTNERS, LLC, a Delaware limited liability company, as agent for the Purchasers
(in such capacities, the "Collateral Agent" or, alternatively, the "Agent").

         WHEREAS, the Company, Holdings, the Subsidiary Guarantors party thereto
and the purchasers party thereto (the "Original Purchasers") entered into that
certain Purchase Agreement dated as of September 26, 2003 (the "Original
Purchase Agreement") whereby the Original Purchasers purchased $75 million
principal amount of the Company's Senior Secured Notes due 2006 (as amended and
in substantially the form attached hereto as Exhibit A, the "Series A Notes")
and warrants to acquire shares of stock of Holdings (the "Series A Warrants");

         WHEREAS, the Company, Holdings, the Subsidiary Guarantors party thereto
and the Original Purchasers entered into that certain Amendment No. 1
("Amendment No. 1") to the Original Purchase Agreement dated as of January 21,
2004 (as amended, the "Existing Purchase Agreement") whereby the Original
Purchasers purchased an additional $16 million principal amount of the Company's
Senior Secured Notes due 2006 (as amended and in substantially the form attached
hereto as Exhibit A-1, the "Existing Series B Notes" and, together with the
Series A Notes, the "Existing Notes") and warrants to acquire shares of stock of
Holdings (the "Existing Series B Warrants" and, together with the Series A
Warrants, the "Existing Warrants", and the Existing Warrants together with the
Series A Notes and the Existing Series B Notes, the "Existing Securities");

<PAGE>

                                      -2-

         WHEREAS, pursuant to certain assignment and assumption agreements, the
Original Purchasers transferred a portion of their interest in the Existing
Notes to Ares Leveraged Investment Fund II, L.P. and Massachusetts Mutual Life
Insurance Company, and Ares Leveraged Investment Fund II, L.P. subsequently
allocated a portion of its interest in the Existing Notes to Ares VII CLO Ltd.
and Ares VIII CLO Ltd.;

         WHEREAS, the Company, Holdings, KSI, KH LLC, Celerity Group, Inc., a
California corporation, Kinetics Chempure, FTS Systems, Inc. (formerly Kinetics
Thermal Systems, Inc.), Kinetic Systems Caribe, Inc., and Kinetic Systems
International, Inc., the Purchasers hereto, the Agent, Ares Corporate
Opportunities Fund, L.P., MidOcean Celerity Investment Partners, L.P.
("MidOcean"), Behrman Capital Partners ("Behrman"), Gryphon Investors
("Gryphon"), Ares Leveraged Investment Fund II, L.P., Ares VII CLO Ltd. and Ares
VIII CLO Ltd. have entered into that certain Restructuring Agreement dated as of
April 9, 2004 (the "Restructuring Agreement") whereby the parties thereto have
agreed to undertake the restructuring and refinancing transactions described
therein in order to effectuate the initial public offering of Holdings;

         WHEREAS, pursuant to this agreement, the Purchasers identified on Annex
2 hereto as TCP Note Purchasers have agreed to pay to the Company an aggregate
of $29 million in consideration ($19 million of which is payable in cash and $10
million of which is payable by the transfer of $10 million aggregate principal
amount of Old Mezzanine Notes, as defined hereinafter) to purchase (i) $25
million aggregate principal amount of Series C Notes (as defined hereinafter),
(ii) $4 million aggregate principal amount of the New Series B Notes (as defined
hereinafter), and (iii) warrants for shares of Holdings' preferred and common
stock, each in the amounts indicated opposite such Purchaser's name on Annex 2;

         WHEREAS, the Purchasers identified on Annex 2 hereto as Ares Note
Purchasers have agreed to pay to the Company $5 million in cash to purchase (i)
$5 million aggregate principal amount of Series C Notes and (ii) warrants for
shares of Holdings' preferred and common stock, each in the amounts indicated
opposite such Purchaser's name on Annex 2;

         WHEREAS, the Purchasers identified on Annex 3 hereto as TCP Mezzanine
Liquidation Certificate Purchasers have agreed to pay to the Company (i)
$125,000 in cash to purchase $833,333.33 aggregate face amount of Liquidation
Certificates, as defined in the Senior Subordinated Note Purchase Agreement (the
"TCP Liquidation Certificates") and (ii) $74,676.64 in cash for the New TCP
Mezzanine Warrants (as defined herein), each in the amounts indicated opposite
such Purchaser's name on Annex 3;

         WHEREAS, the Company, Holdings and the Subsidiary Guarantors have
agreed that the Notes hereunder will be secured by the liens created under the
Security Documents; and

<PAGE>

                                      -3-

         WHEREAS, pursuant to Section 14.10, the Required Holders have the right
to amend various provisions of the Transaction Documents, consent to various
departures of any Restricted Party therefrom or take action contemplated in the
Transaction Documents on the terms and limitations set forth herein; and

         WHEREAS, subject to and in accordance with the terms and conditions
hereinafter set forth, the Required Holders are willing to amend and restate the
Existing Purchase Agreement in accordance with the terms hereof to facilitate
the transactions under the Restructuring Agreement.

         NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:

         SECTION 1. Authorization of Notes and Warrants. The Company and each
Guarantor acknowledges:

                  (i)      the authorization, issuance and sale of $75 million
         aggregate principal amount of the Series A Notes (pursuant to the
         Original Purchase Agreement) and $16 million aggregate principal amount
         of the Existing Series B Notes (pursuant to Amendment No. 1) to the
         Existing Purchasers;

                  (ii)     the authorization, issuance and sale of the Series A
         Warrants (pursuant to the Original Purchase Agreement) and the Existing
         Series B Warrants (pursuant to Amendment No. 1) to the Existing
         Purchasers;

                  (iii)    the authorization and issuance of the shares from
         time to time underlying the Existing Warrants upon exercise of the
         Existing Warrants.

The Existing Notes and Existing Warrants are currently held by the holders
listed on Annex 1 hereto, in the amounts indicated opposite such holder's name
thereon.

         (b)      the Company hereby authorizes:

                  (i)      the issuance and sale of an additional $4,000,000
         aggregate principal amount of its Series B Senior Secured Notes due
         2006 substantially in the form of Exhibit A-1 hereto (the "New Series B
         Notes") to the Purchasers in the amount indicated opposite such
         Purchaser's name on Annex 2 hereto;

                  (ii)     the issuance and sale of $30,000,000 aggregate
         principal amount of its Series C Senior Secured Notes due 2006
         substantially in the form of Exhibit A-2 hereto (the "Series C Notes",
         and together with the New Series B Notes, the "New Notes", and the New
         Notes together with the Existing Notes, the "Notes"), the Notes bearing
         interest at a rate of LIBOR plus 10% per annum (the "Base Amount")

<PAGE>

                                      -4-

         subject to Section 2.04 hereof, interest payable quarterly in arrears
         with no amortization, to the Purchasers in the amount indicated
         opposite such Purchaser's name on Annex 2 hereto;

                  (iii)    the issuance and sale of detachable warrants to
         purchase 0.53% of each of Holdings' outstanding series of preferred and
         common stock on a fully-diluted basis as of the Closing Date after
         giving effect to the transactions contemplated hereby (the "New Series
         B Warrants"), to the Purchasers in the amount indicated opposite such
         Purchaser's name on Annex 2 hereto;

                  (iv)     the sale of the TCP Liquidation Certificates having
         the rights, benefits and limitations given thereto in the Senior
         Subordinated Note Purchase Agreement and the issuance and sale of
         detachable warrants to purchase 0.348% of each of Holdings' outstanding
         series of preferred and common stock on a fully-diluted basis as of the
         Closing Date after giving effect to the transactions contemplated
         hereby (the "New TCP Mezzanine Warrants"), each to the Purchasers in
         the amount indicated opposite such Purchaser's name on Annex 3;

                  (v)      the issuance and sale of detachable warrants to
         purchase 3.00% of each of Holdings' outstanding series of preferred and
         common stock on a fully-diluted basis as of the Closing Date after
         giving effect to the transactions contemplated hereby (the "Series C
         Warrants", and together with the New Series B Warrants and the New TCP
         Mezzanine Warrants, the "New Warrants", and the New Warrants together
         with the New Notes and the TCP Liquidation Certificates, the "New
         Securities", and the New Securities together with the Existing
         Securities, the "Securities") to the Purchasers in the amount indicated
         opposite such Purchaser's name on Annex 2 hereto; and

                  (vi)     the issuance of the shares from time to time
         underlying the New Warrants (the "Warrant Shares") upon exercise of the
         New Warrants.

<PAGE>

                                      -5-

The warrants to be issued to the each of the holders of the Existing Warrants
pursuant to the anti-dilution provisions of such holder's Existing Warrants and
the term sheet attached to the Restructuring Agreement as a result of the
issuance of certain of the New Warrants and warrants being issued in connection
with the Senior Subordinated Note Purchase Agreement are set forth on Annex 4,
in the amounts indicated opposite such holder's name thereon. The Securities to
be held by each of the holders of Securities immediately following the
consummation of the transactions contemplated herein (exclusive of the TCP
Retained Warrants) are set forth on Annex 5, in the amounts indicated opposite
such holder's name thereon.

         SECTION 2.        Sale and Purchase of Securities.

         2.01     Purchase Price.

         (a)      The Company has issued and sold to the Original Purchasers,
pursuant to the Original Purchase Agreement, the Existing Securities in the
principal amount (in the case of the Series A Notes) and exercisable for the
number of shares of common stock and preferred stock (in the case of the Series
A Warrants) specified opposite such Original Purchaser's name on Annex 1, for an
aggregate purchase price equal to 100% of the principal amount of the Series A
Notes (the "Original Purchase Price"); and in that regard, the parties to the
Original Purchase Agreement agreed that $71,700,000 of the $75,000,000 aggregate
Original Purchase Price paid for the Series A Notes and the Series A Warrants
was allocated to the Notes for United States federal income tax purposes and the
remaining $3,300,000 of the Original Purchase Price was allocated to the Series
A Warrants.

         (b)      The Company has issued and sold to the Original Purchasers
pursuant to Amendment No. 1 (or, an Original Purchaser has sold to a Purchaser)
the Existing Securities in the principal amount (in the case of the Existing
Series B Notes) and exercisable for the number of shares of common stock and
preferred stock (in the case of the Existing Series B Warrants) specified
opposite such Original Purchaser's or Purchaser's name, as the case may be, on
Annex 1, for an aggregate purchase price equal to 100% of the principal amount
of the Existing Series B Notes (the "Series B Purchase Price"); and in that
regard, the parties to Amendment No. 1 agreed that $15,296,000 of the
$16,000,000 aggregate Series B Purchase Price paid for the Series B Notes and
the Existing Series B Warrants shall be allocated to the Existing Series B Notes
for United States federal income tax purposes and the remaining $704,000 of the
Series B Purchase Price shall be allocated to the Existing Series B Warrants.

         (c)      The Company will hereby issue and sell to the Purchasers and,
subject to the terms and conditions of this Agreement, the Purchasers will buy
from the Company, at the Closing provided for in Section 3, the New Securities
in the principal amount (in the case of the New Notes), in the face amount (in
the case of the Liquidation Certificates) and exercisable for the number of
shares of common stock and preferred stock (in the case of the New
<PAGE>

                                      -6-
Warrants) specified opposite such Purchaser's name on Annex 2
and Annex 3, for an aggregate purchase price equal to 100% of the principal
amount of the New Notes specified therein (the "Purchase Price"); and in that
regard, the parties hereto agree that the aggregate Purchase Price paid for the
New Securities shall be allocated for federal income tax purposes as follows:

<TABLE>
<CAPTION>
      NEW SECURITY                        PURCHASE PRICE ALLOCATION
<S>                                       <C>
New Notes                                      $33,042,423.36

New Series B Warrants                          $   114,400.00

Series C Warrants                              $   643,500.00

New TCP Mezzanine Warrants                     $    74,676.64

TCP Liquidation Certificates                   $   125,000.00
</TABLE>

         (d)      The consideration for the New Securities will consist of
$24,000,000 in cash and $10,000,000 in Old Mezzanine Notes. The allocation of
the Purchase Price among the Purchasers is set forth on Annex 2 and Annex 3.

         2.02     Warrants. (a) The New Warrants and the Warrant Shares are
subject to the terms of, and are entitled to all of the rights and benefits
therefor in, the Restated Shareholders Agreement. The New Warrants may be
transferred separately from the Notes. The parties hereto acknowledge that the
Warrants purchased by certain of the Purchasers hereunder pursuant to the TCP
Assignment and Assumption Agreement may be immediately exchanged into warrant
strips as set forth in the Letter Agreement dated as of the date hereof between
the Purchasers under the Senior Subordinated Note Purchase Agreement and
Holdings. The parties hereto acknowledge that this obligation of Holdings to
issue the New Warrants may be exchanged by the Holder thereof directly into
membership interests in KH LLC in accordance with the terms of the Restructuring
Agreement without requiring the New Warrants to be issued in physical form prior
to such exchange. Upon such exchange, such membership interests in KH LLC will
be subject to the terms of, and will be entitled to all of the rights and
benefits therefor in, the LLC Agreement and the Unitholders Agreement. Such
membership interests may be transferred separately from the Notes.

         2.03     Security Interest. Each of the Notes shall be obligations of
the Company secured by Liens on the Company's interests in the Collateral with
such Liens having the relative priority set forth in the Intercreditor Agreement
substantially in the form of Exhibit K, and supported by guaranties made by the
Guarantors.

<PAGE>

                                      -7-

         2.04     Holder Expenses. If any Holder incurs costs or expenses of the
type specified or similar to those described in Section 1.10 of the Senior
Credit Agreement or is funding any portion of its Notes through a credit
agreement, line of credit or other loan arrangement ("funding source agreement")
which contains provisions similar to those set forth in Section 1.10 of the
Senior Credit Agreement and such Holder is required by the terms of such funding
source agreement to pay to one or more lenders under such funding source
agreement increased amounts similar to those payable under Section 1.10 of the
Senior Credit Agreement, then the Company shall promptly pay to such Holder,
such additional amount or amounts as may be necessary to compensate such Holder
for the increased amounts payable under such funding source agreement. Such
Holder may assume for purposes of apportioning such increased amounts that the
Notes issued hereunder by such Holder were funded entirely by borrowings under
such funding source agreement.

         SECTION 3.        Closing; Fees.

         3.01     Closing. The sale of the New Securities to be purchased by the
Purchasers shall take place at the offices of Milbank, Tweed, Hadley & McCloy
LLP, 1 Chase Manhattan Plaza, New York, New York, at 10:00 a.m., Eastern
Standard Time, at a closing (the "Closing") on April 9, 2004 or at such other
place and on such other Business Day thereafter (the "Closing Date") as may be
agreed upon by the Company and the Purchasers. At the Closing the Company will
deliver to each Purchaser the New Securities indicated opposite such Purchaser's
name on Annex 2 hereto subject to the following:

         (a)      the New Notes to be issued to each Purchaser shall be
registered in the names, and in the denominations, set forth in Annex 2, and
dated the Closing Date; and

         (b)      the New Warrants to be issued to each Purchaser shall be
registered in the names, and in respect of the number of Warrant Shares, set
forth on Annex 2 and Annex 3, and dated the Closing Date (the parties hereto
acknowledge that this obligation of Holdings to issue the New Warrants may be
exchanged by the Holder thereof directly into membership interests in KH LLC in
accordance with the terms of the Restructuring Agreement without requiring the
New Warrants to be issued in physical form prior to such exchange; upon such
exchange, such membership interests in KH LLC will be subject to the terms of,
and will be entitled to all of the rights and benefits therefor in, the
Unitholders Agreement, and such membership interests may be transferred
separately from the Notes);

against delivery by each Purchaser to the Company of the consideration specified
above in the amount of the purchase price therefor. The portion of the Purchase
Price to be paid in cash shall be paid in immediately available funds. The
portion of the Purchase Price to be paid by tender of Old Mezzanine Notes shall
be paid by delivery of such consideration to the Company for immediate
cancellation at Closing. The transactions set forth herein and the obligations
of the Purchasers hereunder are conditioned upon the Company's simultaneous
cancella-

<PAGE>

                                      -8-

tion of the Old Mezzanine Notes. If at the Closing the Company shall fail to
tender such Securities to the Purchasers as provided above in this Section 3, or
any of the conditions specified in Section 5 shall not have been satisfied to
the Purchasers' satisfaction, each Purchaser shall, at its election, be relieved
of all further obligations under this Agreement, without thereby waiving any
other rights it may have by reason of such failure to deliver the New Securities
or such failure of condition precedent.

         3.02     Advisory Fee. At the Closing, the Company shall pay to the
Agent or its designees a fee (the "Advisory Fee") in an amount equal to 1.5% of
the principal amount of the New Notes.

         3.03     Expenses. Subject to Section 14.01, whether or not the New
Securities are sold, on the Closing Date, the Company will pay to each Purchaser
the reasonable fees and disbursements of legal counsel and consultants and such
other expenses, including search fees, diligence fees and expenses,
documentation fees and filing fees, incurred by the Purchasers or them in
connection with the transactions contemplated herein, set forth in a statement
(accompanied by reasonable detail) delivered to the Company on or prior to the
date of the Closing, and thereafter the Company will pay, promptly upon receipt
of a supplemental statement therefor (accompanied by reasonable detail), such
additional reasonable fees and expenses, if any, as may be incurred in
connection with such transactions.

         3.04     Obligation of the Purchasers. The Company hereby acknowledges
and agrees that the Purchasers shall have no obligation to purchase the New
Securities or otherwise consummate the transactions contemplated by this
Agreement if any of the conditions to closing described in Section 5 has not
been satisfied at or prior to the Closing.

<PAGE>

                                      -9-

         SECTION 4.        Prepayment of Notes; Payments; Taxes.

         4.01     Optional Redemption of Notes. (a) Other than pursuant to
Section 4.01(b), the Company may not voluntarily redeem any portion of the Notes
from the Closing Date through September 26, 2005. At its option from and after
September 26, 2005 through the Maturity Date, upon notice as provided in Section
4.01(c), the Company may redeem at any time, or from time to time, all or any
part of the Notes at the redemption price (expressed as percentages of the
principal amount of Notes outstanding) set forth below (the "Redemption
Premium") plus accrued and unpaid interest thereon, if any, to the applicable
redemption date:

<TABLE>
<CAPTION>
                                                  Optional Redemption Price as a Percentage of
                Period                                        the Principal Amount
-----------------------------------------         --------------------------------------------
<S>                                               <C>
From and after September 26, 2003 through                        Not Redeemable
          September 26, 2005

From September 27, 2005 through                                       101.5%
          the Maturity Date
</TABLE>

         (b) Any time subsequent to the Closing, in the event that the Company
completes a Qualified Public Equity Offering, the Company may redeem up to 20%
of the then outstanding Notes at 101.5% of the principal face amount of such
Notes plus accrued and unpaid interest thereon, if any, to the applicable
redemption date. Such redemption shall be made pro rata across all tranches of
Notes issued hereunder.

         (c) The Company will give each holder of a Note written notice of each
optional redemption under this Section 4.01 not less than 30 days and not more
than 60 days prior to the date fixed for such redemption, in each case
specifying such date, the aggregate principal amount of the Notes to be
redeemed, and the principal amount of each Note held by such holder to be
redeemed. Such notice shall be accompanied by an officer's certificate
certifying that the conditions of this Section 4.01 have been fulfilled and
specifying the particulars of such fulfillment.

         (d) Notwithstanding anything to the contrary contained herein, the
Company may not redeem any portion of the Notes under Sections 4.01(a) or (b) if
a Default or Event of Default shall be continuing.

         4.02     Redemption Procedure.

<PAGE>

                                      -10-

                  (a) In the case of each redemption of less than all of the
outstanding Notes pursuant to Section 4.01(a), the Notes shall be redeemed pro
rata among all of the Notes at the time outstanding in proportion, as nearly as
practicable, to the respective unpaid principal amounts thereof not theretofore
called for redemption, with adjustments, to the extent practicable, to
compensate for any prior redemptions not made exactly in such proportion. In the
case of a redemption of Notes pursuant to Section 4.01(b), the Notes shall be
redeemed pro rata among all Notes of the series at the time outstanding being
redeemed in accordance with the percentages allocated to such series in such
section above, in proportion, as nearly as practicable, to the respective unpaid
principal amounts thereof not therefore called for redemption.

                  (b) In the case of each redemption pursuant to Section 4.01(a)
or (b), the principal amount of each Note to be redeemed shall mature and become
due and payable on the date fixed for such redemption, together with interest on
such principal amount accrued to such date and the applicable premium, if any.
From and after such date, unless the Company shall fail to pay such principal
amount when so due and payable, together with the interest and premium, if any,
as aforesaid, interest on such principal amount shall cease to accrue. Any Note
paid or redeemed in full shall be surrendered to the Company and canceled and
shall not be reissued, and no Note shall be issued in lieu of any redeemed
principal amount of any Note.

         4.03     Net Payments; Taxes. (a) All payments made by any Restricted
Party hereunder or under any Note will be made without setoff, counterclaim or
other defense. All such payments will be made free and clear of, and without
deduction or withholding for, any present or future taxes, levies, imposts,
duties, fees, assessments or other charges of whatever nature now or hereafter
imposed by any jurisdiction or by any political subdivision or taxing authority
thereof or therein with respect to such payments (but excluding, except as
provided in the second succeeding sentence, any tax (including, without
limitation, franchise taxes) imposed on or measured by the net income or net
profits of a Holder pursuant to the laws of the United States of America, the
jurisdiction in which it is organized or the jurisdiction in which the principal
office of such Holder is located or any subdivision thereof or therein) and all
interest, penalties or similar liabilities with respect to such non-excluded
taxes, levies, imposts, duties, fees, assessments or other charges (all such
non-excluded taxes, levies, imposts, duties, fees, assessments or other charges
being referred to collectively as "Taxes"). If any Taxes are so levied or
imposed, the Company agrees to pay the full amount of such Taxes, and such
additional amounts as may be necessary so that every payment of all amounts due
under this Agreement or under any Note, after withholding or deduction for or on
account of any Taxes, will not be less than the amount provided for herein or in
such Note. If any amounts are payable in respect of Taxes pursuant to the
preceding sentence, the Company agrees to reimburse any Holder, upon the written
request of such Holder, for taxes (including, without limitation, franchise
taxes) imposed on or measured by the net income or net profits of the Purchasers

<PAGE>

                                      -11-

pursuant to the laws of the jurisdiction in which the Holder is organized or in
which the principal office of such Holder is located or under the laws of any
political subdivision or taxing authority of any such jurisdiction in which such
Holder is organized or in which the principal office of such Holder is located
and for any withholding of taxes as such Holder shall determine are payable by,
or withheld from, such Holder, in respect of such amounts so paid to or on
behalf of such Holder pursuant to the preceding sentence and in respect of any
amounts paid to or on behalf of the Holder pursuant to this sentence. The
Company will furnish to such Holder within 45 days after the date the payment of
any Taxes is due pursuant to applicable law certified copies of tax receipts
evidencing such payment by the Company. The Company agrees to indemnify and hold
harmless each Holder, and reimburse such Holder upon its written request, for
the amount of any Taxes so levied or imposed and paid by such Holder.

         (b) If a Holder in its sole discretion determines that it has received
a refund of, or in respect of, any U.S. Taxes for which the Company has paid
additional amounts pursuant to this Section 4.03 or, after the payment of such
U.S. Taxes or additional amounts, the Purchaser in its sole discretion
determines that it has received a tax credit, deduction or other benefit by
reason of the payment or accrual of such U.S. Taxes, such Holder shall within
120 days from the date of the receipt of such refund or realization of such
credit, deduction or benefit, pay to the Company an amount equal to such refund,
credit, deduction or tax benefit. Nothing in this Section 4.03(b) shall require
any Holder to disclose its tax returns to any Restricted Party.

         4.04     Legal Defeasance And Covenant Defeasance.

         (a)      Option to Effect Legal Defeasance or Covenant Defeasance.

                  The Company may, at the option of its Board of Directors
evidenced by a resolution set forth in an officer's certificate, at any time,
elect to have either subsection (b) or (c) of this Section 4.04 be applied to
all outstanding Notes upon compliance with the conditions set forth below in
this Section 4.04.

         (b)      Legal Defeasance and Discharge.

                  Upon the Company's exercise under Section 4.04(a) above of the
option applicable to this Section 4.04(b), each of the Restricted Parties, as
applicable, shall, subject to the satisfaction of the applicable conditions set
forth in Section 4.04(d) hereof, be deemed to have been discharged from its
obligations with respect to all outstanding Notes and Guarantees, as applicable,
on the date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that the Company shall be

<PAGE>

                                      -12-

deemed to have paid and discharged all amounts owed under the outstanding Notes
and the Guarantors shall be deemed to have paid and discharged the entire
Indebtedness represented by the outstanding Guarantees, which shall thereafter
be deemed to be "outstanding" only for the purposes of Section 4.04(e) hereof
and the other Sections of this Agreement referred to in (i) and (ii) of this
Section 4.04(b) below, and to have satisfied all its other obligations under
such Notes, such Guarantees and this Agreement, except for the following
provisions which shall survive until otherwise terminated or discharged
hereunder: (i) the rights of Holders of outstanding Notes to receive solely from
the trust fund described in Section 4.04(d) hereof, and as more fully set forth
in such Section 4.04(d), payments in respect of the principal of, the premium,
(including the premium described in Section 4.04(e) below) and interest on such
Notes when such payments are due, (ii) the Company's obligations with respect to
such Notes under Sections 14.01, 14.07 and 14.14 hereof, and (iii) this Section
4.04. Subject to compliance with this Section 4.04, the Company may exercise its
option under this Section 4.04(b) notwithstanding the prior exercise of its
option under Section 4.04(c) hereof.

         (c)      Covenant Defeasance.

                  Upon the Company's exercise under Section 4.04(a) hereof of
the option applicable to this Section 4.04(c), subject to the satisfaction of
the applicable conditions set forth in Section 4.04(d) hereof, the Restricted
Parties shall be released from their respective obligations under Sections 9.01
(as to any particular information thereunder to the extent such information is
not at the applicable time being prepared for any other provider of debt
financing or credit to the Company or any Subsidiary of the Company), 9.03,
9.04, 9.05, 9.06, 9.07, 9.08, 9.09, 9.11, 9.12, 9.13, 9.14, 9.15, 9.16, 9.18,
9.19, 9.20, 9.21 and all of Section 10 hereof, in each case on and after the
date the conditions set forth below are satisfied (hereinafter, "Covenant
Defeasance"), and the Notes and the Guarantees shall thereafter be deemed not
"outstanding" for the purposes of any direction, waiver, consent or declaration
or act of Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "outstanding" for all other purposes
hereunder (it being understood that such Notes and Guarantees shall not be
deemed outstanding for accounting purposes). For this purpose, Covenant
Defeasance means that, with respect to the outstanding Notes, the Restricted
Parties may omit to comply with and shall have no liability in respect of any
term, condition or limitation set forth in any such covenant, whether directly
or indirectly, by reason of any reference elsewhere herein to any such covenant
or by reason of any reference in any such covenant to any other provision herein
or in any other document and such omission to comply shall not constitute a
Default or an Event of Default under Section 11 hereof, but, except as specified
above, the remainder of this Agreement and such Notes and Guarantees shall be
unaffected thereby. In addition, upon the Company's exercise under Section
4.04(a) hereof of the option applicable to this Section 4.04(c) hereof, subject
to the satisfaction of the applicable conditions set forth in Section 4.04(d)
hereof, (x) Sections 11.02, 11.03, 11.04, 11.06, 11.07, 11.09 and 11.11 hereof
shall not constitute Events of Default and (y) Sections 11.05

<PAGE>

                                      -13-

(with respect to Subsidiaries of the Company only), 11.08 and 11.10 shall not
constitute an Event of Default as of the 91st day following the occurrence of
the Company's exercise of Covenant Defeasance; provided, however that for all
other purposes as set forth herein, such Covenant Defeasance provisions shall be
effective.

         (d)      Conditions to Legal or Covenant Defeasance.

     The following shall be the conditions to the application of either Section
4.04(b) or 4.04(c) hereof to the outstanding Notes and Guarantees:

                           (i) the Company must irrevocably deposit with the
Trustee, in trust, for the benefit of the Holders, cash in United States legal
tender, U.S. Government Obligations, or a combination thereof, in amounts that
will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the Defeasance Amount as described in
Section 4.04(e) below and the Trustee will have been granted for the benefit of
the Holders, a valid, perfected exclusive security interest in such trust;

                           (ii) only in the case of an election under Section
4.04(b) hereof, the Company must deliver to the Holders an opinion of counsel in
the United States reasonably acceptable to the Holders confirming that (A) the
Company has received from, or there has been published by, the Internal Revenue
Service a ruling or (B) since the date of this Agreement, there has been a
change in the applicable federal income tax law, in either case to the effect
that, the Holders of the outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Legal Defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Legal Defeasance had
not occurred;

                           (iii) only in the case of an election under Section
4.04(c) hereof, the Company must deliver to the Holders an opinion of counsel in
the United States reasonably acceptable to the Holders confirming that either
(A) Holders of the outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Covenant Defeasance had not
occurred, provided that in giving such opinion, counsel shall be entitled to
rely upon a certificate of the Company as to factual matters (including, by way
of example and not limitation, a representation from the Company as to the
effect of such Covenant Defeasance on the Holders' expectations of repayment),
or (B) the Company has received from the Internal Revenue Service a ruling to
the same effect;

<PAGE>

                                      -14-

                           (iv) in the case of Legal Defeasance no Event of
Default specified in Section 11.05 shall have occurred at any time from the date
of the deposit to the 91st calendar day thereafter (it being understood that
this condition to Legal Defeasance may not be satisfied until such 91st calendar
day after the date of deposit);

                           (v) the Defeasance may not result in a breach or
violation of, or constitute a default under this Agreement or any other material
agreement or instrument to which any Restricted Party is a party or by which a
Restricted Party is bound;

                           (vi) the Company must deliver to the Trustee an
officers' certificate stating that the deposit was not made by the Company with
the intent to hinder, delay or defraud any other of the Company's creditors;

                           (vii) the Company shall have delivered to the Trustee
and the Holders an opinion of counsel to the effect that after the 91st day
following the deposit, the trust funds (except as to trust funds that would be
payable to holders of Notes who are "Insiders" as that term is defined by the
United States Bankruptcy Code) will not be subject to Section 547 of the United
States Bankruptcy Code; and

                           (viii) the Company must deliver to the Trustee an
officers' certificate confirming the satisfaction of the conditions in clauses
(i) through (viii) of this Section 4.04(d) above, and an opinion of counsel,
confirming the satisfaction of the conditions in clauses (i) of this Section
4.04(d) (with respect to the validity and perfection of the security interest)
and (v) of this Section 4.04(d).

     Legal Defeasance or Covenant Defeasance, as the case may be, shall be
deemed to occur on the date all of the applicable conditions set forth in this
Section 4.04(d) are satisfied as to such Defeasance.

         (e)      Defeasance Amount.

                  The Defeasance Amount is equal to the sum of the following:

                           (i)      the principal of the outstanding Notes;

                           (ii)     accrued but unpaid interest on the
outstanding Notes through date of Defeasance;

                           (iii)    interest on the outstanding Notes (computed
as mutually determined by the Company and the Agent in good faith) through the
earlier of the applicable redemption date as may be permitted under Section 4.01
(as may be specified by the Company

<PAGE>

                                      -15-

upon exercise of its option for Legal Defeasance or Covenant Defeasance) or the
stated date of maturity of the outstanding Notes; and

                           (iv)     the Redemption Premium, if applicable.

         (f)      Deposited Money and Government Securities to be Held in Trust;
                  Other Miscellaneous Provisions.

                  Subject to Section 4.04(g) hereof, all money and U.S.
Government Obligations (including the proceeds thereof) deposited with the
Trustee pursuant to Section 4.04(d) hereof in respect of the outstanding Notes
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Agreement, to the payment to the Holders of
such Notes of all sums due and to become due thereon in respect of principal,
premium, if any, and interest, but such money need not be segregated from other
funds except to the extent required by law.

                  The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the cash or U.S.
Government Obligations deposited pursuant to Section 4.04(d) hereof or the
principal and interest received in respect thereof, other than any such tax, fee
or other charge which by law is for the account of the Holders of the
outstanding Notes.

                  Anything in this Section 4.04 to the contrary notwithstanding,
the Trustee shall deliver or pay to the Company from time to time upon the
request of the Company any money or U.S. Government Obligations held by it as
provided in Section 4.04(d) hereof which, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Holders are in excess of the amount
thereof that would then be required to be deposited to effect an equivalent
Legal Defeasance or Covenant Defeasance.

         (g)      Repayment to Company.

                  Any money deposited with the Trustee in trust for the payment
of the Defeasance Amount and remaining unclaimed for two years after such amount
has become due and payable shall be paid to the Company on its written request
and the Holder of such Note shall thereafter, as a creditor, look only to the
Company for payment thereof, and all liability of the Trustee with respect to
such trust money, shall thereupon cease; provided, however, that the Trustee,
before being required to make any such repayment, may at the expense of the
Company cause to be published once, in the New York Times and The Wall Street
Journal (national edition), notice that such money remains unclaimed and that,
after a date

<PAGE>

                                      -16-

specified therein, which shall not be less than 30 days from the date of such
notification or publication, any unclaimed balance of such money then remaining
will be repaid to the Company.

         (h)      Reinstatement.

                  If the Trustee is unable to apply any United States legal
tender or U.S. Government Obligations in accordance with Section 4.04(b) or
4.04(c) hereof, as the case may be, by reason of any order directing the
repayment of the deposited money to the Company or otherwise making the deposit
unavailable to make payments under the Notes when due, or if any court enters an
order avoiding the deposit of money with the Trustee or otherwise requires the
payment of the money so deposited to the Company or to a fund for the benefit of
its creditors, then (so long as the insufficiency exists or the order remains in
effect) the Restricted Parties' obligations under this Agreement, the Notes and
the Guarantees shall be revived and reinstated as though no deposit had occurred
pursuant to Section 4.04(b) or 4.04(c) hereof until such time as the Trustee or
Paying Agent is permitted to apply all such money in accordance with Section
4.04(b) or 4.04(c) hereof, as the case may be; provided, however, that, if the
Company makes any payment of principal of, premium, if any, or interest on any
Note following the reinstatement of its obligations, the Company shall be
subrogated to the rights of the Holders of such Notes to receive such payment
from the money held by the Trustee.

         (i)      Release of Collateral. Provided all conditions for Legal
Defeasance or Covenant Defeasance in Section 4.04(d) have been met (except that
the provisions of Section 4.04(d)(iv) shall have been met with respect to both
Legal Defeasance and Covenant Defeasance) and the Legal Defeasance or Covenant
Defeasance, as the case may be, has been deemed to have occurred, the Collateral
Agent shall execute documents and deliver such instruments as may be required to
reconvey, release, assign and deliver to the Company the Collateral Agent's
interest in the Collateral.

         (j)      The Trustee.

                           (i) Appointment of Trustee. Each of the Agent and the
Company hereby agree that upon the Company's notice to the Agent of its
intention to pursue defeasance under Section 4.04(b) or Section 4.04(c) the
Company shall choose a party to act as trustee for purposes of this Section
4.04, subject to the reasonable written approval of the Agent. The Company and
the Agent agree to act reasonably to amend the terms of this Section 4.04(j) as
reasonably requested by a prospective trustee or its counsel in order for it to
enter into this Agreement. Thereafter, such mutually agreed upon party shall
become party to this Agreement by signing the Trustee Joinder Agreement attached
hereto as Exhibit L (upon signing the Trustee Joinder Agreement such party, the
"Trustee"). Thereafter, the Trustee shall be empowered to take such actions and
to exercise such powers as are delegated to the

<PAGE>

                                      -17-

Trustee by the terms of this Section 4.04, together with such actions and powers
as are reasonably incidental thereto.

                           (ii) Duties of Trustee. (1) The duties of the Trustee
shall be determined solely by the express provisions of this Section 4.04 and
the Trustee need perform only those duties that are specifically set forth in
this Section 4.04 and no others, and no implied covenants or obligations shall
be read into this Section 4.04 against the Trustee; and in the absence of bad
faith on its part, the Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Section 4.04. However, the Trustee shall examine the
certificates and opinions to determine whether or not they conform to the
requirements of this Agreement.

                                    (2) The Trustee may not be relieved from
liabilities for its own negligent action, its own negligent failure to act, or
its own willful misconduct, except that: the Trustee shall not be liable for any
error of judgment made in good faith by an officer of the Trustee, unless it is
proved that the Trustee was negligent in ascertaining the pertinent facts and no
provision of this Agreement shall require the Trustee to expend or risk its own
funds or incur any liability.

                           (iii) Rights of Trustee.

                                    (1) In connection with the Trustee's rights
and duties under this Section 4.04, the Trustee may conclusively rely upon any
document believed by it to be genuine and to have been signed or presented by
the proper Person. The Trustee need not investigate any fact or matter stated in
the document.

                                    (2) Before the Trustee acts or refrains from
acting under this Section 4.04, it may require an officers' certificate or an
opinion of counsel or both. The Trustee shall not be liable for any action it
takes or omits to take in good faith in reliance on such officers' certificate
or opinion of counsel. The Trustee may consult with counsel and the written
advice of such counsel or any opinion of counsel shall be full and complete
authorization and protection from liability in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance thereon.

                                    (3) The Trustee may act through its
attorneys and agents and shall not be responsible for the misconduct or
negligence of any agent appointed with due care.

                                    (4) The Trustee shall not be liable for any
action it takes or omits to take in good faith that it believes to be authorized
or within the rights or powers conferred upon it by this Section 4.04.

<PAGE>

                                      -18-

                                    (5) The Trustee shall not be bound to make
any investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness or other
paper or document, but the Trustee may, in its discretion, make such further
inquiry or investigation into such facts or matters as it may see fit.

                           (iv) Compensation and Indemnity. The Company shall
pay to the Trustee from time to time reasonable compensation for its acceptance
of this Section 4.04 and services hereunder. The Trustee's compensation shall
not be limited by any law on compensation of a trustee of an express trust. The
Company shall reimburse the Trustee promptly upon request for all reasonable
disbursements, advances and expenses incurred or made by it in addition to the
compensation for its services. Such expenses shall include the reasonable
compensation, disbursements and expenses of the Trustee's agents and counsel.

                           The Company shall indemnify the Trustee against any
and all losses, liabilities or expenses (including reasonable attorneys' fees)
incurred by it arising out of or in connection with the acceptance or
administration of its duties under this Section 4.04, including the costs and
expenses defending itself against any claim (whether asserted by the Company or
any Holder or any other Person) or liability in connection with the exercise or
performance of any of its powers or duties hereunder, except to the extent any
such loss, liability or expense may be attributable to its negligence, bad faith
or willful misconduct. The Trustee shall notify the Company promptly of any
claim for which it may seek indemnity. Failure by the Trustee to so notify the
Company shall not relieve the Company of its obligations hereunder. The Company
shall defend the claim and the Trustee shall cooperate in the defense. The
Trustee may have separate counsel and the Company shall pay the reasonable fees
and expenses of such counsel. The Company need not pay for any settlement made
without its consent, which consent shall not be unreasonably withheld.

                           The obligations of the Company under this Section
4.04 shall survive the satisfaction and discharge of this Agreement.

                           To secure the Company's payment obligations in this
Section 4.04, the Trustee shall have a Lien prior to the Notes on all money or
property held or collected by the Trustee, except that held in trust to pay
principal and interest on particular Notes. Such Lien shall survive the
satisfaction and discharge of this Agreement.

                           (v) Replacement of Trustee. A resignation or removal
of the Trustee and appointment of a successor Trustee shall become effective
only upon the successor Trustee's acceptance of appointment as provided in this
Section.

<PAGE>

                                      -19-

                           The Trustee may resign in writing at any time and be
discharged from the trust hereby created by so notifying the Company. The
Required Holders may remove the Trustee by so notifying the Trustee and the
Company in writing. The Company may remove the Trustee if: (1) the Trustee is
adjudged a bankrupt or an insolvent or an order for relief is entered with
respect to the Trustee under any Bankruptcy Law; (2) a custodian or public
officer takes charge of the Trustee or its property; or (3) the Trustee becomes
incapable of acting.

                           If the Trustee resigns or is removed or if a vacancy
exists in the office of Trustee for any reason, the Company shall promptly
appoint a successor Trustee, subject to the written reasonable approval of the
Agent.

                           A successor Trustee shall deliver a written
acceptance of its appointment to the retiring Trustee and to the Company.
Thereupon, the resignation or removal of the retiring Trustee shall become
effective, and the successor Trustee shall have all the rights, powers and
duties of the Trustee under this Agreement. The successor Trustee shall mail a
notice of its succession to Holders of the Notes. The retiring Trustee shall
promptly transfer all property held by it as Trustee to the successor Trustee;
provided all sums owing to the Trustee hereunder have been paid. Notwithstanding
replacement of the Trustee pursuant to this Section 4.04(j)(v), the Company's
obligations under Section 4.04(j)(iv) hereof shall continue for the benefit of
the retiring Trustee.

                           (vi) Successor Trustee by Merger, etc. If the Trustee
consolidates, merges or converts into, or transfers all or substantially all of
its corporate trust business to, another corporation, the successor corporation
without any further act shall be the successor Trustee.

                           (vii) Eligibility; Disqualification. Any Trustee
appointed hereunder shall be a corporation or trust company (or a member of a
bank holding company) organized and doing business under the laws of the United
States of America or of any state thereof that is authorized under such laws to
exercise corporate trustee power, that is subject to supervision or examination
by federal or state authorities and that has (or the bank holding company of
which it is a member has) a combined capital and surplus of at least $50,000,000
as set forth in its most recent published annual report of condition.

         SECTION 5.        Conditions to Purchasers' Obligations. The
effectiveness of the amendment and restatement of the Existing Purchase
Agreement and the Purchasers' obligation to purchase and pay for the New
Securities at the Closing is subject to the fulfillment, to the Purchasers'
satisfaction or written waiver, on or before the Closing Date, of

<PAGE>

                                      -20-

the following conditions, provided, the occurrence of the Closing shall
constitute evidence of the satisfaction or waiver of such conditions:

         5.01     Representations and Warranties. The representations and
warranties of the Restricted Parties contained in Section 7 hereof and those
otherwise made in writing by or on behalf of the Restricted Parties in
connection with the Transactions shall be true and correct at and as of the date
hereof and the Closing Date as if made at and as of such date (unless such
representation or warranty was made as of a specified date, in which case such
representation or warranty shall be true and correct only as of such specified
date).

         5.02     Compliance with Agreements. The Restricted Parties shall have
performed and complied with all of their agreements and conditions set forth or
contemplated herein or in the Restructuring Agreement that are required to be
performed or complied with by such parties on or before the Closing Date, and
Agent shall have received at the Closing a certificate to the foregoing effect,
dated the Closing Date, and executed by the Chief Executive Officer, President
or a Vice President of the Company.

         5.03     Certificates. (a) The Agent shall have received certificates
from each Restricted Party, dated the Closing Date (a) substantially in the form
of Exhibit E-1 signed by the Secretary or an Assistant Secretary of such
Restricted Party, certifying (i) that the attached copies of the Certificate of
Incorporation and By-laws of the Restricted Party, and resolutions of the Board
of Directors of the Restricted Party approving the Transaction Documents and the
Restructuring Agreement to which it is a party and the transactions contemplated
hereby and thereby are all true, complete and correct and remain unamended and
in full force and effect, and (ii) the incumbency and specimen signature of each
officer of the Restricted Party executing any Transaction Document and the
Restructuring Agreement to which it is a party or any other document delivered
in connection herewith and therewith on behalf of such Restricted Party and (b)
substantially in the form of Exhibit E signed by the President, Chief Financial
Officer or Treasurer of Restricted Party certifying that (i) the conditions to
closing set forth in Section 5 have been satisfied, (ii) the representations and
warranties contained in this Agreement and the other Transaction Documents and
the Restructuring Agreement are true and correct in all material respects and
(iii) no Default or Event of Default has occurred and is continuing or would
result from the Transactions.

         (b) All corporate and legal proceedings and all material instruments
and agreements in connection with the Transactions shall be reasonably
satisfactory in form and substance to the Purchasers, and the Agent shall have
received all information and copies of all documents and papers, including
records of corporate proceedings, governmental approvals, good standing
certificates and bring-down telegrams or facsimiles, if any, which the Agent
reasonably may have requested in connection therewith, such documents and papers
where appropriate to be certified by proper corporate or governmental
authorities.

<PAGE>

                                      -21-

         5.04     Documents; Due Diligence. The Agent shall have received true,
complete and correct copies of such agreements, schedules, exhibits,
certificates, documents, financial information and filings as they may
reasonably request in connection with or relating to the Transactions
contemplated hereby, all in form and substance satisfactory to the Agent. In
addition, the Purchasers shall have, to their sole satisfaction and the
satisfaction of their legal counsel, completed a due diligence review, including
without limitation, with respect to business, legal, accounting, environmental
and tax matters.

         5.05     Purchase of Securities Permitted by Applicable Laws. The
acquisition of and payment for the Securities to be acquired by the Purchasers
hereunder and the consummation of the transactions contemplated hereby and by
the other Transaction Documents or the Restructuring Agreement (a) shall not be
prohibited by any Requirement of Law, (b) shall not subject the Purchasers to
any penalty or other onerous condition under or pursuant to any Requirement of
Law, and (c) shall be permitted by all Requirements of Law to which any
Purchaser or the transactions contemplated by or referred to herein or in the
other Transaction Documents or the Restructuring Agreement are subject; and the
Agent shall have received such certificates or other evidence as they may
reasonably request to establish compliance with this condition.

         5.06     Opinion of Counsel. The Purchasers shall have received
favorable written opinions of (i) Cooley Godward LLP, special counsel to
Holdings, the Company and its Subsidiaries covering the matters set forth in
Exhibit C, (ii) Fenwick & West, special counsel to Holdings, the Company and its
Subsidiaries covering the matters set forth in Exhibit C-1 and (iii) general
counsel to Holdings, the Company and its Subsidiaries covering the matters set
forth in Exhibit C-2, in each case dated as of the Closing Date, relating to the
transactions contemplated by or referred to herein, in form and substance
acceptable to the Agent.

         5.07     Approval of Counsel to the Purchasers. All actions and
proceedings hereunder and all agreements, schedules, exhibits, certificates,
financial information, filings and other documents required to be delivered by
Holdings, the Company, KSI and each of their Subsidiaries hereunder or in
connection with the consummation of the transactions contemplated hereby, and
all other related matters, shall have been in form and substance acceptable to
Milbank, Tweed, Hadley & McCloy LLP, counsel to certain of the Purchasers, in
its reasonable judgment (including, without limitation, the opinions of counsel
referred to in Section 5.06 hereof).

         5.08     [Intentionally omitted]

         5.09     No Material Judgment or Order. There shall not be on the
Closing Date any judgment or order of a court of competent jurisdiction or any
ruling of any Governmental Authority or any condition imposed under any
Requirement of Law which, in the judgment of the Agent, would prohibit the
purchase of the Securities to be purchased hereunder or subject

<PAGE>

                                      -22-

the Purchasers to any penalty or other onerous condition under or pursuant to
any Requirement of Law if the Securities were to be purchased hereunder.

         5.10     Pro Forma Balance Sheet. The Agent shall have received a Pro
Forma Balance Sheet of Holdings and the Company, each certified by the chief
financial officer of Holdings and the Company, as applicable, that it fairly
presents the pro forma adjustments reflecting the consummation of the
transactions contemplated by the (a) Transactions and (b) the Transaction
Documents, including all material fees and expenses in connection therewith.

         5.11     [intentionally omitted]

         5.12     Good Standing Certificates. The Agent shall have received good
standing certificates for each Restricted Party for each of their respective
jurisdictions of incorporation and all other jurisdictions where they are
required to be qualified to conduct business as such business is currently
operated.

         5.13     No Litigation. No action, suit or proceeding before any court
or any Governmental Authority shall have been commenced or threatened, no
investigation by any Governmental Authority shall have been commenced and no
action, suit or proceeding by any Governmental Authority shall have been
threatened against any Purchaser, Holdings, the Company, KSI or any of their
Subsidiaries (i) seeking to restrain or prevent the transactions contemplated
hereby or questioning the validity or legality of any of such transactions, or
(ii) which would, if resolved adversely to such Purchaser, Holdings, the Company
or such Subsidiary, severally or in the aggregate, have a Material Adverse
Effect, other than the Alfa Laval Litigation.

         5.14     Fees, Expenses, Etc. On the Closing Date, the Company shall
have paid to the Purchasers all costs, fees and expenses (including, without
limitation, legal fees and expenses and the Advisory Fee set forth in Section
3.02) described herein.

         5.15     Employee Benefit Plans; Management Agreements; Debt
Agreements; Senior Debt Documents; Tax Sharing Agreements and Due Diligence. On
or prior to the Closing Date, there shall have been made available for review by
the Purchasers and their counsel true and correct copies of the following
documents:

         (i)      all Plans (and for each Plan that is required to file an
    annual report on Internal Revenue Service Form 5500-series, a copy of the
    most recent such report (including, to the extent required, the related
    financial and actuarial statements and opinions and other supporting
    statements, certifications, schedules and information) for the most recent
    plan year, and for each Plan that is a "single-employer plan," as defined in
    Section 4001(a)(15) of ERISA, if any, the most recently prepared actuarial
    valuation therefor) and any other "employee benefit plans," as defined in
    Section 3(3) of ERISA,

<PAGE>

                                      -23-

    and any other material agreements, plans or arrangements, with or for the
    benefit of current or former employees of the Company or any of its
    Subsidiaries (provided that the foregoing shall apply in the case of any
    Multiemployer Plan, if any, only to the extent that any document described
    therein is in the possession of the Company, KSI or any Subsidiary thereof
    (collectively, the "Employee Benefit Plans"));

         (ii)     all agreements with members of, or with respect to, the
    management of Holdings, the Company, KSI or any of their Subsidiaries
    (collectively, the "Management Agreements");

         (iii)    all agreements evidencing or relating to Indebtedness of
    Holdings, the Company, KSI or any of their Subsidiaries which are to remain
    outstanding after giving effect to the incurrence of Indebtedness under this
    Agreement on the Closing Date (collectively, the "Debt Agreements"); and

         (v)      all tax sharing, tax allocation and other similar agreements
    entered into by Holdings, the Company, KSI or any of their respective
    Subsidiaries;

all of which Employee Benefit Plans, Management Agreements, Debt Agreements and
the foregoing tax sharing agreements described in (v) above shall be in form and
substance reasonably satisfactory to the Agent and shall be in full force and
effect on the Closing Date.

         5.16     Indebtedness. On the Closing Date, after giving effect to the
consummation of the Transactions, Holdings, the Company and their Subsidiaries
shall have no outstanding Indebtedness except Existing Indebtedness and any
Securities issued hereunder that may constitute Indebtedness as defined herein,
and no such party shall be in default in the observance or performance of any
agreement or condition relating thereto, except with respect to the failure to
provide audited financial statements under Section 9.01(b) of the Original
Purchase Agreement and similar requirements under the Senior Credit Agreement
and the Senior Subordinated Note Purchase Agreement.

         5.17     Guarantees. Holdings, KSI, the KSI Guarantors and each
Subsidiary Guarantor existing on the Closing Date shall have guaranteed the
obligations of the Company and its Subsidiaries hereunder and duly authorized,
executed and delivered a counterpart of this Agreement.

         5.18     Adverse Change, Etc. (a) On the Closing Date, there shall not
have occurred or been threatened since December 26, 2003 any change (or a series
of changes) that the Purchasers shall determine, has resulted, or could
reasonably be expected to result, in a Material Adverse Effect.

<PAGE>

                                      -24-

         (b) On or prior to the Closing Date, all necessary material
governmental (domestic and foreign) and material third party approvals and/or
consents in connection with the Transactions, any of the other transactions
contemplated by this Agreement shall have been obtained and remain in effect,
and all applicable waiting periods shall have expired without any action being
taken by any competent authority which restrains, prevents or imposes materially
adverse conditions upon the consummation of the Transactions or the other
transactions contemplated by this Agreement. Additionally, there shall not exist
any judgment, order, injunction or other restraint prohibiting or imposing
materially adverse conditions upon the Transactions or the other transactions
contemplated by this Agreement.

         5.19     Solvency Certificate; Solvency Opinion. On or before the
Closing Date, the Company shall cause to be delivered to the Agent a (a)
solvency certificate from the Chief Financial Officer of the Company in the form
of Exhibit H hereto, which shall be addressed to the Purchasers and dated as of
the Closing Date, after giving effect to the KSI Spin-Off, setting forth the
conclusion that the Company and its Subsidiaries taken as a whole are Solvent,
(b) a solvency opinion from the Chief Financial Officer of the Company and KSI,
respectively, in the form of Exhibit H-1 hereto, which shall be addressed to the
Purchasers and dated as of the Closing Date, setting forth the conclusion that
each of Company and KSI is Solvent and (c) a Solvency Opinion given by a third
party as to the solvency of the Company and KSI, in form and substance
acceptable to the Purchasers, after giving effect to the Transactions.

         5.20     Financial Statements; Projections. On or prior to the Closing
Date, the Purchasers shall have received and be satisfied with (a) copies of the
financial statements referred to in Section 7.05 (including the pro forma
balance sheet giving effect to the Transactions) and the projections referred to
in Section 7.05(d), (b) an officer's certificate as to the reasonableness of the
assumptions underlying the Projections and (c) an officer's certificate as to
the scope and substance (as contained in Section 7.05(a)) of the unaudited
consolidated financial statements of Holdings, the Company and its Consolidated
Subsidiaries provided to the Holders, which certificate shall provide that the
Company would have been in compliance with the covenants under this Agreement
based on unaudited financial statements for fiscal year 2003. A certificate from
the Chief Financial Officer of the Company shall be delivered to the Agent
confirming that, based on conversations with the Company's outside auditors, no
material adjustments or modifications will be required to be made to Holdings',
the Company's or its Consolidated Subsidiaries' financial information contained
in Holdings', the Company's and its Consolidated Subsidiaries' unaudited
quarterly and annual financial statements for fiscal 2003 as a result of such
auditors' review in preparation of the unaudited financial statements for fiscal
2003 for such business.

         5.21     Assignment and Assumption Agreements. The Ares Assignment and
Assumption Agreement shall have been executed and delivered to the Agent under
the Senior

<PAGE>

                                      -25-

Subordinated Note Purchase Agreement in form and substance satisfactory to the
Agent. The TCP Assignment and Assumption Agreement and the Abandonment Agreement
shall have been executed and delivered to the Agent hereunder in form and
substance satisfactory to the Agent.

         5.22     BioKinetics Litigation. The Purchasers shall be satisfied with
and have approved the terms of any settlement of the Alfa Laval Litigation to
the extent settlement of such litigation occurs prior to the Closing Date.

         5.23     Tax Effects. The Purchasers shall be satisfied as to the tax
effects to them from the Transactions contemplated hereunder and under the
Restructuring Agreement.

         5.24     Restructuring Agreement. The Restructuring Agreement shall
have been executed and delivered to the Agent in form and substance satisfactory
to the Purchasers.

         5.25     Amended and Restated Limited Liability Company Agreement. An
amended and restated limited liability company agreement for KH LLC (the "LLC
Agreement") shall have been executed and delivered to the Purchasers in form and
substance satisfactory to the Purchasers.

         5.26     Unitholders Agreement. A unitholders agreement relating to the
membership interests in KH LLC shall have been executed and delivered to the
Purchasers in form and substance satisfactory to the Purchasers (the
"Unitholders Agreement").

         5.27     Service of Process. The Agent shall have received evidence
that (i) each Restricted Party shall have duly and irrevocably appointed CT
Corporation System as agent for service of process and (ii) CT Corporation
System shall have accepted such appointment.

         5.28     Securities Laws. The offering and sale of the Securities to
the Purchasers shall have complied with all Requirements of Law and shall be
exempt from registration under the Securities Act.

         5.29     Execution of Notes. The New Notes, as amended hereby, shall
have been executed by the Company, and delivered to the Purchasers, in the
amount, maturity and as otherwise provided herein.

         5.30     Warrant Obligation; Warrant Exchange. A warrant exchange
agreement providing for the exchange of each Purchaser's Warrants or rights to
Warrants into membership interests in KH LLC shall have been executed by KH LLC
and Holdings and delivered to the Purchasers substantially in the form attached
as Exhibit B hereto.
<PAGE>

                                      -26-

         5.31     Amended Debt Documents. Amendments to and/or consents under
the Senior Credit Documents and the Senior Subordinated Note Documents shall
have been executed and delivered to the Agent in form and substance satisfactory
to the Purchasers.

         5.32     [Intentionally omitted]

         5.33     Intercreditor Agreement. The intercreditor and collateral
agency agreement among the Company, the Guarantors, the Collateral Agent and The
Bank of Nova Scotia, as Collateral Agent and Agent for the Lenders (under and as
defined in the Senior Credit Agreement) (as amended or restated from time to
time, the "Intercreditor Agreement") shall have been amended and be in form and
substance satisfactory to the Collateral Agent.

         5.34     Liens. The liens in favor of the Agent, for the benefit of the
Secured Parties, granted pursuant to the Transaction Documents (including,
without limitation, the New Notes) shall continue to be valid, enforceable and
perfected and the properties and assets of the Restricted Parties shall be
subject to no other Lien not otherwise permitted under Section 10.01 hereof.

         5.35     UCCs. The UCC financing statement of KH LLC under the Parent
Pledge Agreement in favor of the Agent shall have been delivered, in
satisfactory form and substance, to the Agent.

         5.36     SAFECO Forbearance. The parties to the SAFECO Reimbursement
Agreement dated as of February 18, 2003 (the "2003 SAFECO Reimbursement
Agreement"), by and among Holdings, the Company, KSI, Celerity, MidOcean Capital
Investors, L.P., Behrman, SEP, and Shimmon shall have agreed, in form and
substance reasonably satisfactory to the Agent, to delay the payment due under
such agreement (a) as to Shimmon, until the earliest of the consummation of a
Qualified Public Equity Offering, January 10, 2005, and the earliest date
arising under clause (b) immediately hereafter and (b) as to MidOcean, Behrman
and SEP, until the earlier of (i) such time as all amounts (including principal
and interest thereon, to the extent applicable) payable, regardless of when due
and including principal, under the Notes, the Senior Subordinated Notes and the
Senior Subordinated Liquidation Preference have each been paid in full, and (ii)
the date upon which the SAFECO surety facility no longer requires the guaranty
or other credit support of any Person other than KH LLC, KSI or any of the
Restricted Parties or their Subsidiaries (other than by termination of such
SAFECO surety facility by KH LLC, KSI or any of the Restricted Parties or their
Subsidiaries). The parties to the 2003 SAFECO Reimbursement Agreement and
Deutsche Bank AG, Gryphon Partners II, L.P., Gryphon Partners II-A, L.P. and
MidOcean Celerity Investment Partners, L.P. shall have entered into the 2004
SAFECO Reimbursement Agreement. In addition, the parties to such agreement shall
further agree, in form and substance reasonably satisfactory to the Agent, to
defer any payment similar to the payment due on March 31, 2004 (subject to the

<PAGE>

                                      -27-

forbearance above) under the 2003 SAFECO Reimbursement Agreement, any extension
or replacement thereof, until after the Maturity Date of the Notes and the
Senior Subordinated Notes.

         5.37     [Intentionally omitted]

         5.38     Parent Non-Recourse Guaranty and Pledge Agreement. A
non-recourse guaranty by KH LLC in favor of the Holders of the Notes shall have
been executed and delivered to the Purchasers in form and substance satisfactory
to the Purchasers (the "Parent Non-Recourse Guaranty"). A pledge agreement
securing the Parent Non-Recourse Guaranty by KH LLC in favor of the Holders of
the Notes shall have been executed and delivered to the Purchasers in form and
substance satisfactory to the Purchasers (the "Parent Pledge Agreement").
Pursuant to the terms of the Parent Pledge Agreement, all of the shares of stock
of Holdings shall have been delivered by KH LLC to the Joint Collateral Agent
(as defined in the Intercreditor Agreement) for the benefit of the Holders and
the lenders under the Senior Credit Agreement.

         5.39     [Intentionally omitted]

         5.40     Performance; No Default. Each Restricted Party shall have
performed all of its obligations under this Agreement required to be performed
by such Person at or prior to the Closing; and no Default or Event of Default
shall have occurred and be continuing or would exist after giving effect to the
issuance and sale of the New Securities.

         SECTION 6.        Conditions to Company's Obligations. The Company's
and Holding's obligation to sell the New Securities to be delivered to the
Purchasers at the Closing is subject to the fulfillment, to the Company's and
Holding's satisfaction or waiver, on or before the Closing Date, of the
following conditions:

         6.01     Sale of Securities. Each Purchaser shall have delivered
payment to the Company in respect of its purchase of the New Securities pursuant
to Section 2.01.

         6.02     Representations and Warranties of the Purchaser. The
representations and warranties of each Purchaser contained in this Agreement and
those otherwise made in writing by or on behalf of each Purchaser in connection
with the Transactions shall be correct in all material respects when made and at
the Closing Date (unless such warranty was made as of a specified date, in which
case such representation or warranty shall be true and correct only as of such
specified date).

         SECTION 7.        Representations, Warranties and Agreements of the
Company and Holdings. In order to induce the Purchasers to purchase the New
Securities, Holdings, the Company, and the Subsidiary Guarantors make the
following representations,

<PAGE>

                                      -28-

warranties and agreements, in each case after giving effect to the Transactions
as consummated on the Closing Date, all of which shall survive the execution and
delivery of this Agreement and the New Securities, on and as of the Closing
Date.

         7.01     Corporate Status. Each of Holdings, the Company and each of
their respective Subsidiaries (i) is a duly organized and validly existing
corporation or limited liability company, as the case may be, in good standing
under the laws of the jurisdiction of its incorporation or formation, as the
case may be, (ii) has the corporate or other applicable power and authority to
own its property and assets and to transact the business in which it is engaged
and presently proposes to engage and (iii) except as disclosed on Schedule 7.01,
is duly qualified and is authorized to do business and is in good standing in
each jurisdiction where the conduct of its business requires qualification.

         7.02     Corporate Power and Authority. Each of Holdings, the Company
and each of their respective Subsidiaries has the corporate or other applicable
power and authority to execute, deliver and perform the terms and provisions of
each of the Transaction Documents and the Restructuring Agreement to which it is
party and has taken all necessary corporate or other applicable action to
authorize the execution, delivery and performance by it of each of such
Transaction Documents and the Restructuring Agreement. Each of Holdings, the
Company and each of their respective Subsidiaries has duly executed and
delivered each of the Securities Documents to which it is party, and each of
such Transaction Documents and the Restructuring Agreement constitutes the
legal, valid and binding obligation of such Person enforceable in accordance
with its terms, except to the extent that the enforceability thereof may be
limited by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar laws generally affecting creditors'
rights and by equitable principles (regardless of whether enforcement is sought
in equity or at law).

         7.03     No Violation. Neither the execution, delivery or performance
by any Restricted Party of the Transaction Documents and the Restructuring
Agreement to which it is a party, nor compliance by it with the terms and
provisions thereof, (i) will contravene any provision of any applicable law,
statute, rule or regulation or any applicable order, writ, injunction or decree
of any court or governmental instrumentality, (ii) will conflict with or result
in any breach of any of the terms, covenants, conditions or provisions of, or
constitute a default under, or result in the creation or imposition of (or the
obligation to create or impose) any Lien (except pursuant to the Security
Documents) upon any of the properties or assets of Holdings, the Company or any
of their respective Subsidiaries pursuant to the terms of any indenture,
mortgage, deed of trust, credit agreement or loan agreement, or any other
material agreement, contract or instrument, to which Holdings, the Company or
any of their respective Subsidiaries is a party or by which it or any of its
property or assets is bound or to which it may be subject or (iii) will violate
any provision of the Certificate of Incorporation or By-Laws (or equivalent
organizational documents) of any Restricted Party.

<PAGE>

                                      -29-

         7.04     Governmental Approvals. Except as required to effect the
Transactions, no order, consent, approval, license, authorization or validation
of, or filing, recording or registration with (except as have been obtained or
made or, in the case of any filings or recordings in respect of the Security
Documents executed on the Closing Date, will be made in accordance with the
provisions thereof), or exemption by, any Governmental Authority is required to
authorize, or is required in connection with, (i) the execution, delivery and
performance by any Restricted Party of any Transaction Document and the
Restructuring Agreement or (ii) the legality, validity, binding effect or
enforceability as to any Restricted Party of any Transaction Document and the
Restructuring Agreement.

         7.05     Financial Statements; Financial Condition; Undisclosed
Liabilities; Projections; Etc. (a) The audited balance sheet of Holdings for the
fiscal year ended on or nearest to December 27, 2002 and the draft audited
balance sheets of Holdings, the Company and its Consolidated Subsidiaries for
the fiscal year ended on or nearest to December 26, 2003 in the form required
for Amendment No. 5 of the Registration Statement on Form S-1 for the initial
public offering of Holdings (the "IPO Registration Statement Amendment") and the
unaudited monthly balance sheets of Holdings as of January 23, 2004 and February
20, 2004 and, in each case, the related statements of income, cash flows and
shareholders' equity of Holdings, the Company and its Consolidated Subsidiaries
for the fiscal year ended on such dates, copies of which have been furnished to
the Purchasers prior to the Closing Date, present fairly in all material
respects the financial position of Holdings, the Company and its Consolidated
Subsidiaries at the dates of such balance sheets and the results of the
operations of Holdings, the Company and its Consolidated Subsidiaries for the
periods covered thereby. All of the foregoing historical financial statements
have been prepared in accordance with GAAP consistently applied. The pro forma
consolidated balance sheet of Holdings, the Company and its Consolidated
Subsidiaries as of February 20, 2004, as if the Transactions and the other
transactions contemplated by this Agreement had been effected as of such date,
copies of which have been furnished to the Purchasers prior to the Closing Date,
present fairly in all material respects the pro forma consolidated financial
position of the Holdings, the Company and its Consolidated Subsidiaries as of
February 20, 2004.

         (b) On and as of the Closing Date, on a pro forma basis after giving
effect to the Transactions and all other transactions contemplated by the
Transaction Documents and to all Indebtedness (including the Notes) being
incurred or assumed, and Liens created by each Restricted Party in connection
therewith, with respect to each of Holdings and the Company, individually, and
each such Person and its Subsidiaries taken as a whole, (x) the sum of the
assets, at a fair valuation, of each such Person, individually, and each such
Person and its Subsidiaries, taken as a whole, will exceed its or their debts;
(y) such Person has or Persons have not incurred and does/do not intend to
incur, nor believes that it/they will incur, debts beyond its ability to pay
such debts as such debts mature; and (z) such Person or Persons will have
sufficient capital with which to conduct its/their business. For purposes of
this Section

<PAGE>

                                      -30-

7.05(b), "debt" means any liability on a claim and "claim" means a (i) right to
payment, whether or not such a right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
legal, equitable, secured, or unsecured or (ii) right to an equitable remedy for
breach of performance if such breach gives rise to a payment, whether or not
such right to an equitable remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed, secured or unsecured.

         (c) Except (i) as fully and specifically disclosed in the financial
statements (including the pro forma financial statements) delivered under this
Agreement, (ii) liabilities incurred in connection with the Transactions, (iii)
the Existing Indebtedness and (iv) for non-material liabilities arising in the
ordinary course of business since February 20, 2004, there were as of the
Closing Date no liabilities or obligations with respect to Holdings, the Company
or its Consolidated Subsidiaries of any nature whatsoever (whether absolute,
accrued, contingent or otherwise and whether or not due). As of the Closing
Date, none of the Restricted Parties knows of any basis for the assertion
against it of any liability or obligation of any nature that is not fully
disclosed in the financial statements delivered pursuant to Section 5.15 which,
either individually or in the aggregate, could be adverse to Holdings, the
Company and their respective Subsidiaries taken as a whole.

         (d) On and as of the Closing Date, the projections which have been
delivered to the Purchasers on or prior to the Closing Date have been prepared
on a basis consistent with the financial statements referred to in Section
7.05(a), and are based on good faith estimates and assumptions believed by
management of the Company to be reasonable as of the date of such projections,
and there are no statements or conclusions in any of the projections which are
based upon or include information known to Holdings, the Company or any of its
Consolidated Subsidiaries to be misleading in any respect or which fail to take
into account information regarding the matters reported therein. On the Closing
Date, the Company believes that the projections were reasonable, it being
recognized by the Purchasers, however, that projections as to future events are
not to be viewed as facts and that the actual results during the period or
periods covered by the projections may differ from the projected results and
such differences may be material.

         (e) Since February 20, 2004 no event has occurred that is or could
reasonably be expected to be materially adverse to the condition (financial or
otherwise), business, operations or prospects of Holdings, the Company and its
Consolidated Subsidiaries taken as a whole, except for the Alfa Laval
Litigation.

         7.06     Litigation. Except as described in Schedule 7.06, there are no
actions, suits or proceedings pending or, to the knowledge of any Restricted
Party, threatened against any of Holdings, the Company or any of their
respective Subsidiaries.

<PAGE>

                                      -31-

         7.07     True and Complete Disclosure. All factual information
furnished by or on behalf of Holdings, the Company and their respective
Subsidiaries in writing to a Purchaser or the Agent for purposes of or in
connection with this Agreement, the other Transaction Documents or any
transaction contemplated herein or therein is, taken as a whole is true and
accurate in all material respects on the date as of which such information is
dated or certified and do not omit to state any fact necessary to make such
information not misleading in any material respect at such time in light of the
circumstances under which such information was provided.

         7.08     [Intentionally omitted].

         7.09     Tax Returns and Payments. Each Restricted Party has filed all
Federal income tax returns and all other material tax returns, domestic and
foreign, required to be filed by it and has paid all material taxes and
assessments payable by it which have become due, except for those contested in
good faith and adequately disclosed and fully provided for on its financial
statements in accordance with GAAP. Each Restricted Party has at all times paid,
or have provided reserves determined adequate in accordance with GAAP for the
payment of, all Federal, state and foreign income taxes applicable for all prior
fiscal years and for the current fiscal year to date. Except as set forth on
Schedule 7.09, there is no action, suit, proceeding, investigation, audit, or
claim now pending or, to the knowledge of each Restricted Party, threatened by
any authority regarding any taxes relating to any Restricted Party. Except as
set forth on Schedule 7.09, as of the Closing Date, none of the Restricted
Parties has entered into an agreement or waiver or been requested to enter into
an agreement or waiver extending any statute of limitations relating to the
payment or collection of taxes of such Restricted Party, or is aware of any
circumstances that would cause the taxable years or other taxable periods of
such Restricted Party not to be subject to the normally applicable statute of
limitations. None of the Restricted Parties has incurred, or will incur, any tax
liability in connection with the Transactions that could reasonably be expected
to have a Material Adverse Effect.

         7.10     Compliance with ERISA. (i) Schedule 7.10(a) sets forth, as of
the Closing Date, each Plan and each Multiemployer Plan. Except as set forth on
Schedule 7.10(b) or to the extent that any breach of the representations set
forth herein would not individually or in the aggregate reasonably be expected
to have a Material Adverse Effect (determined without regard to items disclosed
on Schedule 7.10(b)), each Plan currently maintained or contributed to by the
Company or any Subsidiary (and each related trust, insurance contract or fund)
is in substantial compliance with its terms and with all applicable laws,
including without limitation ERISA and the Code; each Plan currently maintained
or contributed to the Company or any Subsidiary (and each related trust, if any)
which is intended to be qualified under Section 401(a) of the Code has received
a determination letter from the Internal Revenue Service to the effect that it
meets the requirements of Sections 401(a) and 501(a) of the Code, or such Plan
is within the remedial amendment period for submitting an application for

<PAGE>

                                      -32-

a determination letter, or has been drafted with the intent that it meets the
requirements of Sections 401(a) and 501(a) of the Code and will be amended as
required by the Internal Revenue Service to meet such requirements; no
Reportable Event has occurred; no Multiemployer Plan is insolvent or in
reorganization; no Plan has an Unfunded Current Liability which, when added to
the aggregate amount of Unfunded Current Liabilities of all other Plans, exceeds
the aggregate amount of such Unfunded Current Liabilities that existed on the
Closing Date by $1,000,000; no Plan which is subject to Section 412 of the Code
or Section 302 of ERISA has an accumulated funding deficiency, within the
meaning of such sections of the Code or ERISA, or has applied for or received a
waiver of an accumulated funding deficiency or an extension of any amortization
period, within the meaning of Section 412 of the Code or Section 303 or 304 of
ERISA; all contributions required to be made with respect to a Plan currently
maintained or contributed to by the Company or any Subsidiary or ERISA Affiliate
and each Multiemployer Plan currently maintained or contributed to by the
Company or any Subsidiary or ERISA Affiliate have been timely made; neither the
Company nor any of its Subsidiaries nor any ERISA Affiliate has incurred any
liability to or on account of a Plan or Multiemployer Plan pursuant to Section
409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or
Section 401(a)(29), 4971 or 4975 of the Code or, to the Company's knowledge, is
likely to incur any such liability under any of the foregoing sections with
respect to any Plan; no condition exists which presents a material risk to the
Company or any of its Subsidiaries or any ERISA Affiliate of incurring a
liability to or on account of a Plan or Multiemployer Plan pursuant to the
foregoing provisions of ERISA and the Code; no proceedings have been instituted
to terminate or appoint a trustee to administer any Plan which is subject to
Title IV of ERISA; no action, suit, proceeding, hearing, audit or investigation
with respect to the administration, operation or the investment of assets of any
Plan currently maintained or contributed to by the Company or any Subsidiary of
the Company (other than routine claims for benefits) is pending, or to the
Company's knowledge is expected or threatened; the aggregate liabilities of the
Company and its Subsidiaries and their ERISA Affiliates to all Multiemployer
Plans in the event of a complete withdrawal therefrom, as of the close of the
most recent fiscal year of each such Multiemployer Plan ended prior to the date
hereof, would not exceed $1,000,000; each group health plan (as defined in
Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) which covers or has
covered employees or former employees of the Company or any of its Subsidiaries
has at all times been operated in compliance with the provisions of Part 6 of
subtitle B of Title I of ERISA and Section 4980B of the Code; no lien imposed
under the Code or ERISA on the assets of the Company or any of its Subsidiaries
exists or is reasonably likely to arise on account of any Plan or Multiemployer
Plan; and the Company or any of its Subsidiaries may cease contributions to or
terminate any Employee Benefit Plan maintained by any of them without incurring
any material liability.

         (ii)     Except as set forth on Schedule 7.10(c), each Foreign Pension
Plan has been maintained in substantial compliance with its terms and with the
requirements of any and all applicable laws, statutes, rules, regulations and
orders and has been maintained, where re-

<PAGE>

                                      -33-

quired, in good standing with applicable regulatory authorities; all
contributions required to be made by the Company or any of its Subsidiaries with
respect to a Foreign Pension Plan have been and are expected to be timely made;
none of the Restricted Parties has incurred any obligation in connection with
the termination of or withdrawal from any Foreign Pension Plan. The excess of
the present value of the accrued benefit liabilities (whether or not vested)
under each Foreign Pension Plan, determined as of the end of the Company's most
recently ended fiscal year on the basis of actuarial assumptions, used by the
actuary for such plan in accordance with applicable local standards, over the
current value of the assets of each such Foreign Pension Plan allocable to such
benefit liabilities could not reasonably be expected to, in the aggregate, have
a Material Adverse Effect.

         7.11     The Security Documents. (a) The Security Agreement is
effective to create in favor of the Collateral Agent for the benefit of the
Secured Parties a legal, valid and enforceable security interest in the
Collateral, and when (i) the financing statements and other filings in
appropriate form are filed as required by Section 5 of the Security Agreement,
and (ii) the Intercreditor Agreement is executed and delivered, the Liens
created pursuant to the Security Agreement shall constitute a fully perfected
Lien on, and security interest in, all right, title and interest of the grantors
thereunder in such Pledged Collateral (other than the Intellectual Property, as
defined in the Security Agreement), in each case prior and superior in right to
any other person except as provided in this Agreement and subject to no other
Liens except for Permitted Collateral Liens. When the Security Agreement is
filed in the United States Patent and Trademark Office and the United States
Copyright Office, the Security Agreement shall constitute a fully perfected Lien
on, and security interest in, all right, title and interest of the grantors
thereunder in the Intellectual Property Collateral (as defined in the Security
Agreement), in each case prior and superior in right to any other person except
as provided in this Agreement (it being understood that subsequent recordings in
the United States Patent and Trademark Office and the United States Copyright
Office may be necessary to perfect a lien on registered trademarks, trademark
applications and copyrights acquired by the grantors after the date hereof), and
subject to no other Liens except for Permitted Collateral Liens.

         (b) The Mortgages are effective to create in favor of the Collateral
Agent, for the benefit of the Secured Parties, a legal, valid and enforceable
Lien on all of the Restricted Parties' right, title and interest in and to the
Mortgaged Real Property thereunder, and when the Mortgages are recorded in the
offices specified on Schedule 7.11(b), the Liens created pursuant to the
Mortgages shall constitute a fully perfected Lien on, and security interest in,
all right, title and interest of the Restricted Parties in such Mortgaged Real
Property, in each case prior and superior in right to any other person except as
provided in this Agreement and subject to no other Liens except for Permitted
Collateral Liens.

         (c) Each Security Document delivered pursuant to Section 9.12 will,
upon execution and delivery thereof, be effective to create in favor of the
Collateral Agent, for the rat-

<PAGE>

                                      -34-

able benefit of the Secured Parties, a legal, valid and enforceable Lien on all
of the Restricted Parties' right, title and interest in and to the Collateral
thereunder, and when such Security Document is filed or recorded in the
appropriate offices as may be required under applicable law, such Security
Document will constitute a fully perfected Lien on, and security interest in,
all right, title and interest of the Restricted Parties in such Collateral, in
each case prior and superior in right to any other Person except as provided in
this Agreement, and subject to no other Liens except for Permitted Collateral
Liens.

         7.12     Representations and Warranties in Documents. On the Closing
Date, all representations and warranties of any Restricted Party set forth in
the other Transaction Documents and the Restructuring Agreement were true and
correct in all material respects at the time as of which such representations
and warranties were made (or deemed made).

         7.13     Title to Properties; Possession Under Leases. (a) Schedule
7.13(a)(i) contains a true and complete list of each parcel of Real Property
owned by the Company and/or any Domestic Subsidiary after giving effect to the
KSI Spin-Off and describes the type of interest therein held by the Company
and/or the Domestic Subsidiaries. Schedule 7.13(a)(ii) contains a true and
complete list of each Real Property leased, subleased or otherwise occupied or
utilized (including, without limitation, each property subject to Lease) by the
Company and/or any Domestic Subsidiary, as lessee, as of the date hereof and
describes the type of interest therein held by the Company and/or the Domestic
Subsidiaries and which provides for annual lease payments in excess of $50,000.
Except as set forth on Schedule 7.13(a)(iii), each of the Company and the
Subsidiaries has good and indefeasible fee simple title to all its owned Real
Property free and clear of all Liens other than Permitted Liens or Permitted
Collateral Liens.

         (b) On the Closing Date, the lessee under each lease set forth on
Schedule 7.13(a)(ii) is in peaceable or undisturbed possession of the Real
Property and improvements, buildings, machinery, equipment or other tangible
property or assets covered thereby and such lessee is not in material default
thereunder and any prior material default has been cured or waived except to the
extent that any breach of the representations set forth under this Section
7.13(b) could not individually or in the aggregate reasonably be expected to
have a Material Adverse Effect.

         (c) Except as set forth on Schedule 7.13(c), title to all property
(other than Real Property) is held by Holdings, the Company and/or each
Subsidiary free and clear of all Liens.

         (d) The owned, leased or otherwise utilized property of the Company and
the Subsidiaries, taken as a whole, (i) is in good operating order, condition
and repair (ordinary wear and tear excepted) and (ii) constitutes all the assets
and properties which are required for the business and operations of the Company
and the Subsidiaries as presently conducted.

<PAGE>

                                      -35-

         (e) Except as set forth on Schedule 7.13(e), as of the Closing Date,
none of the Company or any Subsidiary has received any notice of, or has any
knowledge of, the occurrence or pendency or contemplation of any Recovery Event
affecting all or any portion of the property.

         7.14     Capitalization. On the Closing Date and after giving effect to
the Transactions, the authorized capital stock of (x) Holdings shall consist of
500,000,000 shares of common stock, $0.0001 par value per share, 93,449,395 of
which shall be issued and outstanding, and 120,000,000 shares of preferred
stock, $0.0001 par value per share, 41,295,887 of which shall be issued and
outstanding, and (y) the Company shall consist of 1,000 shares of common stock,
$0.01 par value per share, 1,000 of which shall be issued and outstanding. All
such outstanding shares have been duly and validly issued, are fully paid and
non-assessable and have been issued free of preemptive rights. Except as set
forth on Schedule 7.14, as of the Closing Date, neither Holdings, the Company or
any Subsidiary has outstanding any securities convertible into or exchangeable
for its capital stock or outstanding any rights to subscribe for or to purchase,
or any options for the purchase of, or any agreement providing for the issuance
(contingent or otherwise) of, or any calls, commitments or claims of any
character relating to, its capital stock. Schedule 7.14 sets forth, as of the
Closing Date, a list of all preemptive rights granted with regard to the capital
stock of Holdings or the Company. The Warrants listed on Annex 5 in the table
titled "TCP Notes and Warrants", in aggregate, are exercisable for 15.432% of
the total outstanding shares of capital stock of Holdings on a fully-diluted
basis, other than upon the conversion of the US Filter Notes and Capital Call
Notes as defined in the Restructuring Agreement. The Warrants listed on Annex 5
in the table titled "TCP Mezzanine Notes and Warrants", in aggregate, are
exercisable for 0.5% of the total outstanding shares of capital stock of
Holdings on a fully-diluted basis (other than the TCP Retained Warrants), and
other than upon the conversion of the US Filter Notes and Capital Call Notes as
defined in the Restructuring Agreement.

         7.15     Subsidiaries. (a) Holdings has no direct Subsidiaries other
than the Company.

         (b) After giving effect to the KSI Spin-Off, the Company has no
Subsidiaries other than (i) those Subsidiaries listed on Schedule 7.15(b), and
(ii) new Subsidiaries created in compliance with Section 10.15.

         (c) An accurate organization chart, showing the ownership structure of
Holdings, the Company and each of their respective Subsidiaries on the Closing
Date but after giving effect to the KSI Spin-Off is set forth on Schedule
7.15(c).

         7.16     Compliance with Statutes, Etc. Each Restricted Party is in
compliance with all applicable statutes, regulations and orders of, and all
applicable restrictions imposed by, all governmental bodies, domestic or
foreign, in respect of the conduct of its business and

<PAGE>

                                      -36-

the ownership of its property (including applicable statutes, regulations,
orders and restrictions relating to environmental standards and controls),
except such noncompliances as could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.

         7.17     Status under Certain Federal Statutes. No Restricted Party is
(a) an "investment company," or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended;
(b) a "holding company" or a "subsidiary company" of a "holding company," or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company," as such terms are defined in the Public Utility Holding Company Act of
1935, as amended; (c) a "public utility" as such term is defined in the Federal
Power Act, as amended; or (d) a "rail carrier or a person controlled by or
affiliated with a rail carrier," within the meaning of Title 49, U.S.C., or a
"carrier" to which 49 U.S.C. Section 11301(b)(1) is applicable.

         7.18     Environmental Matters. (a) Except as disclosed on Schedule
7.18, (a) each Restricted Party and each of their respective businesses,
operations and Real Properties has complied with, and on the Closing Date will
be in compliance with, all applicable Environmental Laws and the requirements of
any permits and authorizations issued under such Environmental Laws. There is no
Environmental Claim that is (i) pending or, to the best knowledge of each
Restricted Party after due inquiry, threatened against any Restricted Party or
any Real Property or (ii) pending, or to the best knowledge of each Restricted
Party after due inquiry, threatened against any Person whose liability for such
Environmental Claim may have been assumed by contract or otherwise by any
Restricted Party or may be imputed by law to any Restricted Party. There are no
facts, circumstances, conditions or occurrences that could reasonably be
expected (i) to form the basis of an Environmental Claim against such Restricted
Party or any such Real Property, or (ii) to cause any such Real Property to be
subject to any restrictions on the ownership, occupancy, use or transferability
of such Real Property under any applicable Environmental Law. No Restricted
Party has received notice that it is or may be identified as a potentially
responsible party, or any request or information, under CERCLA or other
Environmental Law.

         (b) Hazardous Materials have not at any time been generated, used,
treated, stored or disposed on, or transported to or from, any Real Property
owned or operated by any Restricted Party where such generation, use, treatment,
storage or disposal has violated or could reasonably be expected to violate, or
resulted or could reasonably be expected to result in an Environmental Claim
against any Restricted Party or Real Properties under, any Environmental Law.
Hazardous Materials have not been Released on or from any Real Property owned or
operated by any Restricted Party where such Release has violated or could
reasonably be expected to violate, or resulted or could reasonably be expected
to result in an Environmental Claim against any Restricted Party or Real
Properties under, any applicable Environmental Law. No Real Property owned or
operated by any Restricted Party nor any of their

<PAGE>

                                      -37-

respective predecessors in interest is (i) listed or proposed for listing on the
National Priorities List promulgated under CERCLA or (ii) listed on the
Comprehensive Environmental Response, Compensation, and Liability Information
System list promulgated under CERCLA, or on any comparable list of contaminated
sites published by any Governmental Authority. No Restricted Party nor any of
their respective predecessors in interest has sent any Hazardous Materials to an
off-site location that could reasonably be expected to result in an
Environmental Claim.

         (c) The execution and delivery of this Agreement and the consummation
of the Transactions will not trigger any Governmental Real Property Disclosure
Requirements.

         (d) Notwithstanding anything to the contrary in this Section 7.18, the
representations made in this Section 7.18 shall only be untrue if the aggregate
effect of all failures and noncompliances of the types described in this Section
7.18 could reasonably be expected to have a Material Adverse Effect.

         7.19     Labor Relations. Except as set forth on Schedule 7.19, none of
the Restricted Parties is engaged in any unfair labor practice and there is:

         (i) no unfair labor practice complaint pending against any Restricted
    Party or, to the best knowledge of the Restricted Parties, threatened
    against any of them, before the National Labor Relations Board, and no
    material grievance or arbitration proceeding arising out of or under any
    collective bargaining agreement is so pending against any Restricted Party
    or, to the best knowledge of the Restricted Parties threatened against any
    of them,

         (ii) no strike, labor dispute, slowdown or stoppage pending against any
    Restricted Party or, to the best knowledge of the Restricted Parties,
    threatened against any Restricted Party, and

         (iii) to the best knowledge of the Restricted Parties, no union
    representation proceeding is pending with respect to the employees of
    Restricted Party, except (with respect to any matter specified in clause
    (i), (ii) or (iii) above, either individually or in the aggregate) such as
    could not reasonably be expected to have a Material Adverse Effect.

         7.20     Patents, Licenses, Franchises and Formulas. (a) "Intellectual
Property" means all intellectual property rights of any nature or form of
protection of a similar nature or having equivalent or similar effect to any of
the foregoing, including, without limitation: (1) inventions, discoveries,
processes, designs, techniques, developments, technology, and related
improvements, whether or not patentable, and all United States patents, patent
applications,

<PAGE>

                                      -38-

divisionals, continuations, reissues, renewals, registrations, confirmations,
re-examinations, certificates of inventorship, extensions, and the like, and any
provision applications of any such patents or patent applications, and any
foreign or international equivalent of any of the foregoing (collectively
"Patents"); (2) any word, name, symbol, color, designation, or device or any
combination thereof (to the extent the same may be trademarked under applicable
law), including, without limitation, any United States or pending trademark,
trade dress, service mark, service name, trade name, brand name, logo, domain
name, or business symbol, and any foreign or international equivalent of any of
the foregoing and all goodwill associated therewith (collectively "Trademarks");
(3) any work, whether or not a registered copyright in the United States or
elsewhere, that incorporates, is based upon, derived from, or otherwise uses any
intellectual property, including, without limitation, mechanical and electronic
design drawings (including, without limitation, computer-aided design files),
specification, software (including, without limitation, source code and object
code), processes, technical or engineering data, test procedures, schematics,
writings, materials, products, artwork, packaging and advertising materials
algorithms, flowcharts, and know-how (collectively "Copyrights"); (4) technical,
scientific, and other know-how and information, trade secrets, knowledge,
technology, means, methods, processed, practices, formulas, assembly procedures,
computer programs, apparatuses, specifications, books, records, production data,
publications, databases, reports, manuals, data and results, in written,
electronic, or any other form not known or hereafter developed (collectively
"Trade Secrets"); and (5) mask work and similar rights protecting integrated
circuit or chip topographies or designs. "Company Intellectual Property" means
all of the Intellectual Property that is owned by any Restricted Party or any
Restricted Party has the right to use pursuant to written license, sublicense,
agreement or permission, that is used or useful in, related to, or arises out of
the conduct of the business or services of such Restricted Party as of the
Closing Date including, but not limited to:

         (i)      all Patents;

         (ii)     all Trademarks;

         (iii)    all Copyrights;

         (iv)     all Trade Secrets;

         (v)      all licenses, sublicenses, agreements and permissions by which
    the Restricted Party uses Intellectual Property owned by a third party, or a
    third party uses Intellectual Property owned by such Restricted Party,
    including those listed on Schedule 7.20(a)(v) (the "Licenses"); and

         (vi)     all internet, intranet and world wide web content, sites and
    pages, and all HTML and other code related thereto.

<PAGE>

                                      -39-

         (b)      Except as set forth on Schedule 7.20(b), no claim has been
threatened or asserted by any Person that a Restricted Party has interfered
with, infringed upon, misappropriated or otherwise violated (whether through the
use of the Company Intellectual Property or otherwise) any Intellectual Property
rights of any third party, and no claim has been asserted by any Person as to
the use of the Company Intellectual Property or alleging any such interference,
infringement, misappropriation or violation (including any claim that the
relevant Restricted Party must license or refrain from using any Intellectual
Property rights of any third party), and to the knowledge of any Restricted
Party, there is no valid basis for any such claim. To the knowledge of any
Restricted Party, no third party has interfered with, infringed upon,
misappropriated or otherwise violated any rights of any Restricted Party with
respect to the Company Intellectual Property. The Company has made available to
the Purchasers all infringement studies, including opinions of counsel, prepared
by or on behalf of any Restricted Party.

         (c)      Except as set forth on Schedule 7.20(c), with respect to each
item of Company Intellectual Property:

         (i)      the item is not subject to any outstanding injunction,
    judgment, order, decree, ruling or charge, nor, to the knowledge of any
    Restricted Party, is any of the foregoing threatened;

         (ii)     no claim or investigation is pending or, to the knowledge of
    any Restricted Party, threatened which challenges the legality, validity,
    enforceability, use or ownership of the item;

         (iii)    no Restricted Party has agreed to indemnify any Person for or
    against any interference, infringement, misappropriation or other violation
    with respect to the item; and

         (iv)     no Restricted Party has taken, or is aware of, any actions,
    including a sale or offer for sale, the disclosure of which could lead to
    the invalidity of any such item.

         (d)      Schedule 7.20(a)(v) identifies each material license,
sublicense, agreement and permission by which any Restricted Party uses the
Intellectual Property owned by a third party or a third party uses the Company
Intellectual Property. The Company has made available to the Purchasers correct
and complete copies of all such Licenses (as amended to date). With respect to
each License:

         (i)      the License is legal, valid, binding, enforceable and in full
    force and effect with respect to the applicable Restricted Party, subject to
    the qualifications that enforcement of the rights and remedies created
    thereby is subject to (A) bankruptcy,

<PAGE>

                                      -40-

    insolvency, reorganization, moratorium and other laws of general application
    affecting the rights and remedies of creditors, and (B) general principles
    of equity (regardless of whether such enforcement is considered in a
    proceeding in equity or at law); and

         (ii)     to the knowledge of the Restricted Parties, no Restricted
    Party is in breach or default, and no event has occurred which with notice
    or lapse of time would constitute a breach or default or permit termination,
    modification or acceleration thereunder.

         7.21     Indebtedness. Schedule 7.21 sets forth a true and complete
list of all Indebtedness (excluding the Notes) that will be outstanding after
the consummation of the Transactions, in each case showing the aggregate
principal amount thereof and the name of the respective company and any other
entity which directly or indirectly will guarantee such debt (the "Existing
Indebtedness"). Notwithstanding the introductory paragraph to this Article 7,
Schedule 7.21A sets forth a true and complete list of all Indebtedness existing
immediately prior to the consummation of the Transactions, in each case showing
the aggregate principal amount thereof and the name of the respective company
and any other entity which directly or indirectly guaranteed such debt. Except
as set forth on Schedule 7.21A, no default or event, act or condition which with
notice or lapse of time, or both, would constitute a default that is continuing
under the Indebtedness set forth therein.

         7.22     Transactions. At the time of consummation thereof, the
Transactions shall have been consummated in all material respects in accordance
with the terms of the respective Transaction Documents and all applicable laws.
At the time of consummation of the Transactions, all necessary material consents
and approvals of, and filings and registrations with, and all other actions in
respect of, all governmental agencies, authorities or instrumentalities required
in order to make or consummate the Transactions will have been obtained, given,
filed or taken and are or will be in full force and effect (or effective
judicial relief with respect thereto has been obtained). All applicable waiting
periods with respect thereto have or, prior to the time when required, will
have, expired without, in all such cases, any action being taken by any
competent authority which restrains, prevents, or imposes material adverse
conditions upon the Transactions. Additionally, there does not exist any
judgment, order or injunction prohibiting or imposing material adverse
conditions upon the Transactions or the performance by any Restricted Party of
its obligations under the respective Transaction Documents. All actions taken by
Holdings or any Restricted Party pursuant to or in furtherance of the
Transactions have been taken in all material respects in compliance with the
respective Transaction Documents and all applicable laws.

         7.23     Insurance. Schedule 7.23 sets forth a true and complete
listing of all insurance maintained by the Restricted Parties as of the Closing
Date, and with the amounts insured (and any deductibles) set forth therein. Said
insurance policies and arrangements are in

<PAGE>

                                      -41-

full force and effect, all premiums with respect thereto are currently paid, the
Restricted Parties are in compliance in all material respects with the terms
thereof and no amounts available under any such policy have been materially
exhausted. The insurance reflected on Schedule 7.23 is adequate and customary
for the business engaged in by the Restricted Parties and is sufficient for
compliance by the Restricted Parties with all requirements of law and all
agreements and leases to which a Restricted Party is a party. No Restricted
Party has received notice of default under any such insurance policy, and has
not received written notice or oral notice of any pending or threatened
termination or cancellation, coverage limitation or reduction or premium
increase with respect to such insurance policy. Since August 30, 2000, except
with respect to contract surety, no Restricted Party has had an application for
an insurance policy rejected.

         7.24     Subordinated Debt Provisions. The subordination provisions
contained in the Senior Subordinated Notes, the Holdings Subordinated Debt, the
Holdings Notes and the Junior Subordinated Notes are enforceable against the
Restricted Parties party thereto and the holders thereof, and all Obligations
and Guaranteed Obligations are within the definition of "Senior Indebtedness" or
"Guarantor Senior Indebtedness," as the case may be, included in such
subordination provisions.

         7.25     Withholding and Other Taxes. Except as set forth on Schedule
7.25, the Company and its Subsidiaries have properly withheld and currently paid
all applicable federal and state unemployment Taxes and other federal and state
Taxes payable with respect to the income of their employees (including without
limitation, all Taxes and other amounts withheld pursuant to their employees'
Internal Revenue Service form W-4, all social security, all Federal Insurance
Contribution Act ("FICA") contributions and all Federal Unemployment Tax Act
contributions), and have currently paid all workers compensation insurance,
disability and insurance benefits properly payable with respect to their
employees, other than immaterial amounts not paid through oversight and promptly
corrected.

         7.26     Certain Fees. Except for the fees and expenses referred to in
Sections 3.03 and 14.01, no broker's or finder's fee or commission has been paid
or will be payable by the Company with respect to the offer, issuance and sale
of the Notes.

         7.27     Corporate Information. As of the date hereof, the jurisdiction
of organization, the principal place of business, chief executive office and
location of its books and records of Holdings, the Company and each of their
Subsidiaries is set forth on Schedule 7.27 attached hereto and none of Holdings,
the Company, nor any of their Subsidiaries, nor any of their respective
predecessors has had any other chief executive office or principal place of
business except as set forth on Schedule 7.27 during the five years immediately
preceding the date hereof.

<PAGE>

                                      -42-

         7.28     Securities Exemptions. The Holdings Merger, as defined and as
contemplated in the Restructuring Agreement, and each other transaction
involving the issuance of securities by the Company or its Affiliates in the
Phase I Restructuring (as defined in the Restructuring Agreement) is exempt from
the registration requirements of the Securities Act pursuant to a valid
exemption thereunder.

         7.29     Board Approval. The Board of Directors of each Restricted
Party has been sent copies of all Transaction Documents and the Restructuring
Agreement and the Board of Directors of each Restricted Party has approved the
Transactions and all other transactions contemplated hereby and by such
Transaction Documents and the Restructuring Agreement. In addition, the Board of
Directors of Holdings and the Company have been sent and each approved the
annual financial statements and received copies of the quarterly financial
statements, each delivered to the Purchasers pursuant to Section 7.05.

         7.30     Customers. (a) Schedule 7.30 sets forth a list of the five
largest customers of the Company and its Subsidiaries for the one-year period
ended December 26, 2003 together with the approximate dollar amount of goods or
services provided to or by such customer or supplier during said period.

         (b)      Since December 26, 2003, no customer set forth on Schedule
7.30 has (i) discontinued being a customer of the Company or its Subsidiaries or
given any notice, oral or written, and no Restricted Party has any reason to
believe that, any customer on such schedule is considering discontinuing
business with the Company or its Subsidiaries, (ii) materially reduced or given
any notice, oral or written, and no Restricted Party has any reason to believe
that, any customer on such schedule is considering materially reducing its
current purchases from the Company or its Subsidiaries or (iii) materially
changed the terms or conditions from those previously used in its purchases from
the Company or its Subsidiaries, or given notice, oral or written, and no
Restricted Party has any reason to believe that, any customer on such schedule
is considering materially changing the terms or conditions from those previously
used in its purchases from the Company or its Subsidiaries.

         7.31     Affiliate Transactions. (a) For purposes of this Section 7.31,
the term "Affiliated Person" means any Affiliate or any member of the immediate
family or any of Affiliate.

         (b)      Except as set forth on Schedule 7.31 or as contemplated in the
Restructuring Agreement, since December 26, 2003, no Restricted Party has, in
the ordinary course of business or otherwise, (i) purchased, leased or otherwise
acquired any material property or assets or obtained any material services from
(other than in connection with their role as director, officer or executive of
such Restricted Party), (ii) sold, leased or otherwise disposed of any material
property or assets or provided any material services to (except with respect to

<PAGE>

                                      -43-

remuneration for services rendered in the ordinary course of business as
director, officer or employee of such Restricted Party), (iii) entered into or
modified in any manner any material contract with, or (iv) borrowed any money
from, or made or forgiven any loan or other advance (other than expenses or
similar advances made in the ordinary course of business) to, any Affiliated
Person.

         (c)      Except as set forth on Schedule 7.31 or as contemplated in the
Restructuring Agreement, (i) the contracts of the Restricted Parties do not
include any obligation or commitment between any Restricted Party and any
Affiliated Person, (ii) the assets of any Restricted Party do not include any
receivable or other obligation or commitment from an Affiliated Person to such
Restricted Party and (iii) the liabilities of any Restricted Party do not
include any payable or other obligation or commitment from such Restricted Party
to any Affiliated Person.

         (d)      No Affiliated Person of any Restricted Party is a party to any
contract with any customer or supplier of such Restricted Party that materially
and adversely affects in any manner the business, financial condition or results
of operation of such Restricted Party.

         7.32     Material Contracts. (a) Set forth on Schedule 7.32(a) is a
list of all contracts, agreements (whether oral or written) to which each
Restricted Party is a party or by which the any Restricted Party is bound or to
which any of the properties, assets or operations of a Restricted Party is
subject, in each case to the extent that such contracts or agreements are
material to the business of such Restricted Party (collectively, the
"Significant Contracts"). Notwithstanding the foregoing, the following shall be
deemed to be Significant Contracts: (i) all master contracts or agreements with
the Company's five largest customers during calendar year 2003, (ii) all
distribution contracts, supply contracts, national accounts contracts valued in
excess of $1.0 million annually, (iii) any indenture, mortgage, loan agreement,
note or other agreement or instrument for borrowed money, any guarantee of any
agreement or instrument for borrowed money, (iv) any license or grant or
agreement relating to Intellectual Property (other than with respect to readily
available commercial office software), (v) any agreement or instrument under
which the Company is obligated to incur liabilities, or render services, valued
in excess of $1.0 million annually, (vi) any acquisition, joint venture,
partnership or other similar contracts or agreements entered into by the Company
since January 1, 2001, and (vii) any contract or agreement restricting or
otherwise affecting the ability of any Restricted Party to compete in its
business or otherwise in any jurisdiction or for any time period. Subject to the
following sentence, prior to the date hereof, the Company has provided true and
complete copies of all such Significant Contracts to the Purchasers.

         (b) Except as set forth on Schedule 7.32(b), to the knowledge of all
Restricted Parties, each Significant Contract is a legal, valid and binding
agreement of the respective Restricted Party to which it relates, no Restricted
Party nor any other party thereto is in default

<PAGE>

                                      -44-

under any Significant Contract, and none of such Significant Contracts has been
canceled by the other party thereto; to the knowledge of any Restricted Party,
each Significant Contract is in full force and effect and no event has occurred
which, with the passage of time or the giving of notice or both, would
constitute a default, event of default or other breach by the Company which
would entitle the other party to such Significant Contract to terminate the same
or declare a default or event of default thereunder; the Company is not in
receipt of any claim of default under any such agreement.

         SECTION 8. Representations and Warranties of the Purchasers. In order
to induce the company to sell the New Securities, each Purchaser purchasing
securities on the date hereof (and the Agent only as to Sections 8.04, 8.05 and
8.09), severally but not jointly, makes the following representations and
warranties as to itself as of the date hereof and as of the Closing Date.

         8.01     Purchaser Intent. Each Purchaser represents that it is
purchasing the Securities hereunder for its own account, not with a view to the
distribution thereof or with any present intention of distributing or selling
any of such Securities except in compliance with the Securities Act and any
applicable state securities laws, provided that the disposition of the
Purchaser's property shall at all times be within its control.

         8.02     Status of Purchaser. Each Purchaser represents that it is an
"accredited investor" within the meaning of Rule 501 of the Securities Act, with
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of a prospective investment in the Securities
and that it is capable of bearing the economic risks of such investment. Each
Purchaser understands that no public market now exists for the Securities and
there can be no assurance that a public market will ever exist for such
Securities. Each Purchaser represents that it has had an opportunity to discuss
the Company's business, management and financial affairs with the Company's
management and an opportunity to review the Company's facilities. Each Purchaser
agrees to the imprinting of a legend on certificates representing all of the
Securities held by it to the following effect: "THE SECURITIES REPRESENTED
HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS."

         8.03     Source of Funds. Each Purchaser represents that all or a
portion of the funds to be used by it to pay the Purchase Price consists of
funds which do not constitute assets of any employee benefit plan and the
remaining portion, if any, of such funds consists of funds which may be deemed
to constitute assets of one or more specific employee benefit

<PAGE>

                                      -45-

plans, complete and accurate information as to the identity of each of which the
Purchaser has delivered to the Company. As used in this Section 8.03, the terms
"employee benefit plan" and "government plan" shall have the respective meanings
assigned to such terms in Section 3 of ERISA.

         8.04     Authorization; No Contravention. The execution, delivery and
performance of this Agreement by the Agent and each Purchaser: (a) is within its
power and authority and has been duly authorized by all necessary action and (b)
does not contravene the terms of its organizational documents or any amendment
thereof.

         8.05     Binding Effect. This Agreement has been duly executed and
delivered by the Agent and each Purchaser and this Agreement constitutes the
legal, valid and binding obligation, enforceable against it in accordance with
its terms, except to the extent that the enforceability thereof may be limited
by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or other similar laws generally affecting creditors' rights and by
equitable principles (regardless of whether enforcement is sought in equity or
at law).

         8.06     No Legal Bar. The execution, delivery and performance of this
Agreement by each Purchaser will not violate any Requirement of Law applicable
to it.

         8.07     Broker's, Finder's or Similar Fees. There are no brokerage
commissions, finder's fees or similar fees or commissions payable by the Company
in connection with the transactions contemplated hereby based on any agreement,
arrangement or understanding with any Purchaser or any action taken by any
Purchaser.

         8.08     Governmental Authorization. No approval, consent, compliance,
exemption, authorization, or other action by, or notice to, or filing with, an
Governmental Authority in respect of any Requirement of Law, and no lapse of a
waiting period under a Requirement of Law, is necessary or required in
connection with the execution, delivery or performance by it or enforcement
against it of this Agreement or the Transactions.

         8.09     Purchasers and Agent. The Agent represents that it is
currently investment manager or investment advisor for each of the Purchasers
and has the power and authority to cause such Purchasers to enter into this
Agreement.

         SECTION 9.        Affirmative Covenants. Each of Holdings and the
Company hereby covenants and agrees that from the date of this Agreement through
the Closing and thereafter so long as any of the Notes are outstanding and any
other amounts are due to the Purchasers under this Agreement, absent the prior
written consent of the Required Holders:

         9.01     Information Covenants. The Company will furnish to the Holders
the following:

<PAGE>

                                      -46-

                  (a) Monthly Reports. Within 30 days after the end of each
    fiscal month of Holdings, the Company and its Consolidated Subsidiaries (or,
    if earlier, at the time delivered by the Company to its Board of Directors)
    (i) the management reports furnished by the Chief Financial Officer to the
    Chief Executive Officer and the Chairman of the Board, and, such report
    shall include a consolidated balance sheet, income statement, and statement
    of cash flow of Holdings, the Company and its Consolidated Subsidiaries as
    at the end of such month and results of operations for each during such
    month and the Consolidated EBITDA for such month in each case setting forth
    comparative figures for the corresponding month in the prior fiscal year;
    (ii) year-to-date financial statements, including a consolidated balance
    sheet, income statement and statement of cash flow of Holdings, the Company
    and its Consolidated Subsidiaries (covering the period from the beginning of
    the then-current fiscal year to the month of issuance of the statements),
    (iii) an analysis of 13-week cash flows provided on an monthly basis as
    compared to that period's projected cash flows (described in Section 9.01(e)
    below) and (iv) a certificate signed by the Chief Financial Officer or Chief
    Executive Officer (or, if neither such officer is available, the Treasurer,
    provided that the Treasurer shall have received confirmation from either of
    such officers that the information contained in the certificate is correct
    and that the immediately prior certificate delivered to the Holders under
    this subsection was signed by the Chief Financial Officer or Chief Executive
    Officer) of the Company to the effect that (x) the consolidated financial
    statements delivered hereunder have been prepared in accordance with GAAP
    (except for the lack of footnotes and subject to year-end audit
    adjustments), fairly present the financial condition and result of
    operations of Holdings, the Company and its Consolidated Subsidiaries and
    (y) there does not exist any condition or event that constitutes a Default
    or Event of Default (or, to the extent of any non-compliance, describing
    such non-compliance as to which he or she may have knowledge and what action
    the Restricted Parties have taken, are taking, or propose to take with
    respect thereto).

         (b) Quarterly Financial Statements. (A) Within 45 days after the close
    of each quarterly accounting period in each fiscal year of Holdings, the
    Company and its Consolidated Subsidiaries, commencing with the fiscal
    quarter ending March 31, 2004, (i) the consolidated balance sheets of
    Holdings, the Company and its Consolidated Subsidiaries as at the end of
    such quarterly accounting period and the related consolidated statements of
    income and cash flows and results of operations and Consolidated EBITDA, in
    each case for such quarterly accounting period and for the elapsed portion
    of the fiscal year ended with the last day of such quarterly accounting
    period, and in each case, setting forth comparative figures for the related
    periods in the prior fiscal year and the budgeted figures for such quarterly
    periods as set forth in the respective projection delivered pursuant to
    Section 9.01(e), all of which shall be certified by the Chief Financial
    Officer or Treasurer of the Company, subject to normal year-end audit

<PAGE>

                                      -47-

    adjustments, (ii) year-to-date financial statements, including a
    consolidated balance sheet, income statement, and statement of cash flow of
    Holdings, the Company and its Consolidated Subsidiaries (covering the period
    from the beginning of the then-current fiscal year to the quarter of
    issuance of the statements), (iii) an analysis of 13-week cash flows
    provided on a quarterly basis as compared to that period's projected cash
    flows (described in Section 9.01(e) below), (iv) a comparison of the
    quarterly and quarterly year-to-date statements delivered pursuant to (i)
    and (ii) above with the budget used by management for such period of each of
    Holdings, the Company and its Consolidated Subsidiaries for such period, (v)
    a comparison of the financial statements provided under this subsection
    9.01(b) against the financial statements provided for the same period during
    the prior fiscal year of each of Holdings, the Company and its Consolidated
    Subsidiaries, (vi) management's discussion and analysis of the important
    operational and financial developments during the fiscal quarter and
    year-to-date periods and (vii) a certificate signed by the Chief Financial
    Officer or Chief Executive Officer (or, if neither such officer is
    available, the Treasurer, provided that the Treasurer shall have received
    confirmation from either of such officers that the information contained in
    the certificate is correct and that the immediately prior certificate
    delivered to the Holders under this subsection was signed by the Chief
    Financial Officer or Chief Executive Officer) of the Company and Holdings,
    respectively, to the effect that (x) the consolidated financial statements
    delivered hereunder have been prepared in accordance with GAAP (except for
    the lack of footnotes and subject to year-end audit adjustments), fairly
    present the financial condition and result of operations of Holdings, the
    Company and its Consolidated Subsidiaries and each has been received and
    reviewed by the Board of Directors of the Company and Holdings, respectively
    (and, following the filing of the IPO Registration Statement Amendment
    approved by the Board of Directors of the registrant thereunder) and (y)
    there does not exist any condition or event that constitutes a Default or
    Event of Default (or, to the extent of any non-compliance, describing such
    non-compliance as to which he or she may have knowledge and what action the
    Restricted Parties have taken, are taking, or propose to take with respect
    thereto), and (B) within 75 days after the close of each quarterly
    accounting period in each fiscal year of KH LLC, commencing with the fiscal
    quarter ending March 31, 2004, the balance sheets of KH LLC as at the end of
    such quarterly accounting period and the related statements of income and
    cash flows for such quarterly accounting period.

         (c) Annual Financial Statements. Within 90 days after the close of each
    fiscal year of the Company and Holdings, (i) the consolidated balance sheets
    of Holdings, the Company and its Consolidated Subsidiaries as at the end of
    such fiscal year and the related consolidated statements of income, retained
    earnings, cash flows and Consolidated EBITDA for such fiscal year setting
    forth comparative figures for the preceding fiscal year and as received and
    approved by the Board of Directors of the

<PAGE>

                                      -48-

    Company and Holdings and certified, in the case of such consolidated
    financial statements, by an independent certified public accountants of
    recognized national standing reasonably acceptable to the Required Holders,
    together with a report of such accounting firm stating that in the course of
    its regular audit of the financial statements of Holdings, the Company and
    its Consolidated Subsidiaries, which audit was conducted in accordance with
    generally accepted auditing standards, such accounting firm obtained no
    knowledge of any Event of Default with respect to the covenants described in
    Sections 10.08 through 10.11 which has occurred and is continuing or, if in
    the opinion of such accounting firm such an Event of Default has occurred
    and is continuing, a statement as to the nature thereof, (ii) a comparison
    of such annual financial statements with the budget used by management for
    such period of the Company and Holdings, (iii) an analysis of cash flow in
    such year as compared to that year's forecast (as provided in (e) below),
    and (iv) management's discussion and analysis of the important operational
    and financial developments during such fiscal year. Notwithstanding anything
    to the contrary provided in this Section 9.01(c) or any other provision of
    this Agreement, (y) the consolidated balance sheet of Holdings, the Company
    and its Consolidated Subsidiaries for the fiscal year 2003 and the related
    consolidated statements of income and retained earning and of cash flows for
    the fiscal year 2003 shall be delivered by the earlier of two Business Days
    after receiving an accountants' report related to such financial statements
    and September 30, 2004 (provided, that if Holdings completes a Qualified
    Public Equity Offering by July 15, 2004, the requirement to deliver such
    financials is permanently waived) and (z) the consolidated balance sheet of
    Holdings, the Company and its Consolidated Subsidiaries for the fiscal year
    2003 and the related consolidated statements of income and retained earnings
    and of cash flows for fiscal year 2003, after giving effect to the KSI
    Spin-Off and the anticipated Qualified Public Equity Offering of Holdings,
    in the form required to be filed with the SEC in connection with the
    anticipated Qualified Public Equity Offering of Holdings, shall be delivered
    concurrently with such filing and in no event later than May 30, 2004.

         Within 120 days after the close of each fiscal year of KH LLC, the
    balance sheets of KH LLC as at the end of such fiscal year and the related
    statements of income and retained earnings and of cash flows for such fiscal
    year, together with a certificate signed by the Chief Financial Officer or
    Chief Executive Officer (or, if neither such officer is available, the
    Treasurer, provided that the Treasurer shall have received confirmation from
    either of such officers that the information contained in the certificate is
    correct and that the immediately prior certificate delivered to the Holders
    under this subsection was signed by the Chief Financial Officer or Chief
    Executive Officer) of KH LLC to the effect that the financial statements
    delivered hereunder (x) are special purpose parent financial statements
    which are non-GAAP because they do not include the consolidation of its
    Subsidiaries and (y) fairly present the financial condi-

<PAGE>

                                      -49-

    tion and results of operations of KH LLC and such financial statements have
    been received and reviewed by the Board of Managers of KH LLC.

         (d) Management Letters. Promptly after the receipt thereof by Holdings,
    the Company or any of its Subsidiaries, a copy of any "management letter"
    received by any such Person from its independent certified public
    accountants and the management's responses thereto.

         (e) Projections. No later than 60 days after the commencement of each
    fiscal year of the Company commencing with its fiscal year 2005, Holdings,
    the Company and its Consolidated Subsidiaries shall prepare and deliver to
    the Purchasers projections of Holdings, the Company and its Consolidated
    Subsidiaries (in substantially the form of the projections previously
    delivered to the Purchasers) for (i) each fiscal quarter of such fiscal year
    prepared in detail and (ii) each of the years immediately following such
    fiscal year up to the Maturity Date prepared in summary form of Holdings,
    the Company and its Consolidated Subsidiaries, accompanied by the statement
    of the Chief Financial Officer or Treasurer of the Company or Holdings, as
    applicable, setting forth the principal assumptions upon which such
    projections are based. In addition, the Company shall, no later than 15 days
    after the end of each fiscal month of the Company commencing with the month
    ending March 31, 2004, provide cash flow projections for the upcoming 13
    weeks indicating anticipated sources and uses of cash and the liquidity
    position of the Company based on available Unrestricted Cash and
    availability under the revolver under the Senior Credit Agreement.

         (f) Compliance Certificate. Together with each delivery of financial
    statements of the Company and its Subsidiaries pursuant to Sections 9.01(a),
    (b) and (c) above, the Company shall deliver or cause to be delivered a
    fully and properly completed compliance certificate (in substantially the
    form attached hereto as Exhibit D (or in such other form or substance as
    shall be satisfactory to the Agent) and referred to as a "Compliance
    Certificate") signed by the chief executive officer or chief financial
    officer of the Company (or, if neither such officer is available, the
    Treasurer, provided that the Treasurer shall have received confirmation from
    either of such officers that the information contained in the certificate is
    correct and that the immediately prior certificate delivered to the Holders
    under this subsection was signed by the Chief Financial Officer or Chief
    Executive Officer). The Company and the Purchasers acknowledge and agree
    that calculations of covenant compliance, with respect to the financial
    covenants contained in Sections 10.08 through 10.11 hereof and contained in
    any such compliance certificate delivered for a month that is not the last
    month of a fiscal quarter, will be for informational purposes only and shall
    not measure compliance (or lack of compliance) with such financial
    covenants.

<PAGE>

                                      -50-

         (g) Notice of Default or Litigation. Promptly, and in any event within
    five Business Days after a senior officer of any Restricted Party obtains
    knowledge thereof, notice of (i) the occurrence of any event which
    constitutes a Default or Event of Default and (ii) any litigation or
    governmental investigation or proceeding pending or threatened (including
    any material development therein) (x) against any Restricted Party which
    could reasonably be expected to have a Material Adverse Effect, (y) with
    respect to any Indebtedness in excess of $1,000,000 of any Restricted Party
    or (z) with respect to any Transaction Document.

         (h) SEC Filings and Press Releases. Promptly, (i) copies of all
    financial information, proxy materials and other information and reports, if
    any, which Holdings, the Company or any of its Subsidiaries shall file with
    the Securities and Exchange Commission or any successor thereto (the "SEC")
    or deliver to holders of its Indebtedness pursuant to the terms of the
    documentation governing such Indebtedness (or any trustee, agent or other
    representative therefor) and (ii) all press releases and other statements
    made available by Holdings, the Company or any of its Subsidiaries to the
    public concerning material developments in the business of Holdings, the
    Company or any of its Subsidiaries.

         (i) No Defaults. The Company shall deliver to the Purchasers
    concurrently with the delivery of the financial statements referred to in
    Section 9.01 a certificate of the Company's Chief Financial Officer stating
    that to his or her knowledge no Event of Default shall have occurred during
    the period covered thereby, except as specified in such certificate.

         (j) Environmental Matters. Promptly upon, and in any event within ten
    Business Days after, an officer of any Restricted Party obtains knowledge
    thereof, notice of one or more of the following environmental matters which
    occur after the Closing Date, unless such environmental matters could not,
    individually or when aggregated with all other such environmental matters,
    be reasonably expected to have a Material Adverse Effect:

                  (i)      any Environmental Claim pending or threatened in
         writing against any Restricted Party or any Real Property owned or
         operated by any Restricted Party;

                  (ii)     any condition or occurrence, including without
         limitation the Release of any Hazardous Materials on, at, under, from,
         or arising from any Real Property owned or operated by any Restricted
         Party that (a) could reasonably be expected to result in noncompliance
         by any Restricted Party with any applicable Environmental Law or (b)
         could reasonably be expected to form

<PAGE>

                                      -51-

         the basis of an Environmental Claim against any Restricted Party or any
         such Real Property;

                  (iii)    any condition or occurrence on any Real Property
         owned or operated by any Restricted Party that could reasonably be
         expected to cause such Real Property to be subject to any restrictions
         on the ownership, occupancy, use or transferability by any Restricted
         Party of such Real Property under any Environmental Law; and

                  (iv)     the taking of any investigation, removal, remedial or
         other corrective action in response to the actual presence or Release
         of any Hazardous Material on, at, under, or from any Real Property
         owned or operated by any Restricted Party as required by any
         Environmental Law or any governmental or other administrative agency;
         provided that in any event the Company shall deliver to the Holders all
         material notices received by any Restricted Party from any government
         or governmental agency under, or pursuant to, CERCLA.

    All such notices shall describe in reasonable detail the nature of the
    claim, investigation, condition, occurrence or removal, remedial or other
    corrective action and the relevant Restricted Party's response thereto. In
    addition, the Company will provide the Holders with copies of all material
    communications with any government or governmental agency and all material
    communications with any Person (other than any Restricted Party's attorneys)
    relating to any Environmental Claim of which notice is required to be given
    pursuant to this Section 9.01(j), and such detailed reports of any such
    Environmental Claim as may reasonably be requested by the Required Holders.

         (k) Real Property Certificate. Within 45 days after the end of each
    fiscal quarter of each fiscal year, a certificate of the Chief Financial
    Officer or Treasurer of the Company (i) certifying that no Real Property
    having an aggregate value in excess of $5,000,000 for all such Real Property
    has been acquired subsequent to the Closing Date or the date of the last
    certificate delivered under this Section 9.01(k), as appropriate, or if such
    Real Property has been so acquired, certifying which Real Property has been
    so acquired; (ii) if such Real Property has been so acquired, certifying
    that such Real Property has been made subject to the Lien of the Security
    Documents in accordance with the provisions of Section 9.12; and (iii)
    certifying that no property has been acquired subsequent to the Closing Date
    or the date of the last certificate delivered under this Section 9.01(k), as
    appropriate, which property has not been made subject to the Lien of the
    Security Documents in accordance with the provisions of Section 9.12.

         (l) Subsidiary Guarantor Reports; Joint Venture Reports. The Company
    shall cause each Subsidiary Guarantor to deliver its monthly, quarterly and
    annual financial statements at the time when the Company and Holdings
    provide their monthly and au-

<PAGE>

                                      -52-

    dited financial statements to the Holders, but only to the extent such
    Subsidiary Guarantor's financial statements are not consolidated with
    Holdings' or the Company's financial statements, and, at all times after the
    Required Holders' request therefor, copies of all federal and foreign income
    tax returns as soon as the same are available. The Company agrees to deliver
    to the Holders reasonably promptly after receipt of any financial statements
    and any federal or foreign income tax returns of any joint venture entities
    in which a Restricted Party has an interest.

         (m) Amendment Certificates. At the time any amendment is made to, or
    any waiver or consent is provided under, this Agreement, a certificate
    signed by the Chief Financial Officer or Chief Executive Officer of the
    Company and Holdings, respectively, to the effect that the representations
    and warranties of each Restricted Party contained in this Agreement and the
    other Transaction Documents are true and correct in all material respects on
    and as of the date of such certificate, as though made on such date (except
    to the extent that such representations and warranties relate solely to an
    earlier date).

         (n) Other Information. In addition to the foregoing, the Company shall
    provide such other information or documents (financial or otherwise) with
    respect to any Restricted Party as the Holders may reasonably request in
    writing.

         9.02     Books, Records and Inspections. Each of Holdings and the
Company will, and the Company will cause each of its Subsidiaries to, keep
proper books of record and account in which full, true and correct entries in
conformity with GAAP and all requirements of law shall be made of all dealings
and transactions in relation to its business and activities. Holdings and the
Company will, and the Company will cause each of its Subsidiaries to, permit
officers and designated representatives of the Purchasers, at its own cost, to
visit and inspect, during regular business hours and under guidance of officers
of such Person, any of its properties, and to examine the books of account of
such Person and discuss the affairs, finances and accounts of such Person with,
and be advised as to the same by, its officers and independent accountants, all
upon reasonable advance notice and at such reasonable times and intervals and to
such reasonable extent as the Required Holders may request.

         9.03     Maintenance of Property; Insurance. (a) Each of Holdings and
the Company will, and the Company will cause each of its Subsidiaries to, (i)
keep all property necessary in its business in good working order and condition
(ordinary wear and tear and loss or damage by casualty or condemnation
excepted), (ii) maintain insurance on all its property in at least such amounts
and against at least such risks as is consistent and in accordance with industry
practice and (iii) furnish to the Holders, upon written request, full
information as to the insurance carried.

<PAGE>

                                      -53-

         (b) Each of Holdings and Company will, and the Company will cause each
of its Subsidiaries to, do all things necessary to obtain, preserve, renew,
extend and keep in full force and effect the rights, licenses, permits,
franchises, authorizations, patents, copyrights, trademarks and trade names
material to the conduct of its business; maintain and operate such business in
substantially the manner in which it is presently conducted and operated (and
reasonable extensions thereof); comply with all applicable Requirements of Law
(including any zoning, building, Environmental Law, ordinance, code or approval
or any building permits or any restrictions of record or agreements affecting
the Real Property) and decrees and orders of any Governmental Authority, whether
now in effect or hereafter enacted, except where the failure to comply could not
reasonably be expected to have a Material Adverse Effect; and at all times
maintain and preserve all property material to the conduct of such business and
keep such property in good repair, working order and condition and from time to
time make, or cause to be made, all needful and proper repairs, renewals,
additions, improvements and replacements thereto necessary in order that the
business carried on in connection therewith may be properly conducted at all
times; provided, however, that nothing in this Section 9.03(b) shall prevent (i)
sales of assets, consolidations or mergers by or involving Holdings, the Company
or any Subsidiary in accordance with Section 10.02; (ii) the withdrawal by
Holdings, the Company or any Subsidiary of its qualification as a foreign
corporation in any jurisdiction where such withdrawal could not reasonably be
expected to have a Material Adverse Effect; or (iii) the abandonment by
Holdings, the Company or any Subsidiary of any rights, franchises, licenses and
patents that such Person reasonably determines are not useful to its business.

         (c) Each of Holdings and the Company will, and will cause its
Subsidiaries to, at all times keep their respective property insured in favor of
the Collateral Agent, and all policies or certificates (or certified copies
thereof) with respect to such insurance (and any other insurance maintained by
the Company or any of its Subsidiaries) (i) shall be endorsed to the Collateral
Agent's reasonable satisfaction for the benefit of the Collateral Agent
(including, without limitation, by naming the Collateral Agent as loss payee or
as an additional insured as its interest may appear together with a "standard"
or "New York" lender's loss payable endorsement), (ii) shall state that such
insurance policies shall not be cancelled without 30 days' prior written notice
thereof by the respective insurer to the Collateral Agent, (iii) if reasonably
available, shall provide that the respective insurers irrevocably waive any and
all rights of subrogation with respect to the Collateral Agent and the Secured
Parties, (iv) shall contain the standard non-contributing mortgagee clause
endorsement in favor of the Collateral Agent with respect to hazard liability
insurance, (v) shall, except in the case of public liability insurance, provide
that any losses shall be payable notwithstanding (A) any act or neglect of any
Restricted Party, (B) the occupation or use of the properties for purposes more
hazardous than those permitted by the terms of the respective policy, (C) any
foreclosure or other proceeding relating to the insured properties or (D) any
change in the title to or ownership or pos-

<PAGE>

                                      -54-

session of the insured properties and (vi) shall comply with the insurance
requirements contained in each applicable Security Document.

         (d) If Holdings, the Company or any of its Subsidiaries shall fail to
maintain all insurance in accordance with this Section 9.03, the Holders shall
have the right (but shall be under no obligation), upon ten days' advance notice
to Holdings, the Company or any of its Subsidiaries, as the case may be, to
procure such insurance and the Company agrees to reimburse the Holders for all
reasonable costs and expenses of procuring such insurance.

         9.04     Corporate Franchises. Each of Holdings and the Company will,
and the Company will cause each of its Subsidiaries, to do or cause to be done,
all things necessary to preserve and keep in full force and effect its existence
and its material rights, franchises, licenses and patents used in its business;
provided, however, that nothing in this Section 9.04 shall prevent (i) sales of
assets, consolidations or mergers by or involving Holdings, the Company or any
of its Subsidiaries in accordance with Section 10.02, (ii) the withdrawal by
Holdings, the Company or any of its Subsidiaries of their qualification as a
foreign corporation in any jurisdiction where such withdrawal could not
reasonably be expected to have a Material Adverse Effect or (iii) the
abandonment by Holdings, the Company or any of its Subsidiaries of any rights,
franchises, licenses and patents that Holdings, the Company or such Subsidiary
reasonably determines are not useful to its business.

         9.05     Compliance with Statutes, Etc. Each of Holdings and the
Company will, and the Company will cause each of its Subsidiaries to, comply
with all applicable statutes, regulations and orders of, and all applicable
restrictions imposed by, all governmental bodies, domestic or foreign, in
respect of the conduct of its business and the ownership of its property, except
such noncompliances as could not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect.

         9.06     Compliance with Environmental Laws. (a) Each of Holdings and
the Company will comply, and the Company will cause each of its Subsidiaries to
comply, in all material respects, with all Environmental Laws applicable to the
business and its operations and to the ownership, operation or use of its
business, assets and Real Property and other assets now or hereafter owned or
operated by the Company or any of its Subsidiaries, will promptly pay or cause
to be paid all costs and expenses incurred in connection with such compliance
(except to the extent being contested in good faith, in which case, adequate
reserves shall be maintained), and will keep or cause to be kept all such Real
Property and other assets free and clear of any Liens imposed pursuant to such
Environmental Laws. None of Holdings, the Company or any of its Subsidiaries
will generate, use, treat, store, Release or dispose of, or permit the
generation, use, treatment, storage, Release or disposal of Hazardous Materials
on, under, at or from any Real Property and other assets now or hereafter owned
or operated by Holdings, the Company or any of its Subsidiaries, or transport or
permit the transportation of Hazardous Materials to or from any such Real
Property except in material com-

<PAGE>

                                      -55-

pliance with all applicable Environmental Laws and reasonably required in
connection with the operation, use and maintenance of any such Real Property or
otherwise in connection with their businesses.

         (b) The Company will promptly give notice to the Holders of all matters
referenced in Section 9.01(i). In each of the aforementioned circumstances,
immediately following discovery thereof, each of Holdings, and the Company will,
and the Company will cause each of its Subsidiaries to, take appropriate steps
to initiate and expeditiously complete all investigation, compliance, response,
corrective and other action required under any Environmental Law to mitigate and
eliminate any such violation or liability and shall keep the Holders apprised of
such action. If Holdings, the Company or any Subsidiary fails to take such
steps, the Holders may, in addition to any other remedies set forth herein, at
the Company's sole expense, cause any such actions to be taken, and Holdings,
the Company or any Subsidiary shall grant the Holders and their agents an
indefeasible non-exclusive license, subject to the rights of tenants for such
purpose.

         (c) At the written request of the Required Holders, which request shall
specify in reasonable detail the basis therefor, the Company will provide, at
the Company's sole cost and expense, an environmental site assessment report
concerning any Real Property now or hereafter owned or operated by Holdings, the
Company or any of its Subsidiaries, prepared by an environmental consulting firm
reasonably acceptable to the Holders, indicating the presence or absence of
Hazardous Materials and the potential cost of any investigation, removal,
remedial or other corrective action in connection with any Hazardous Materials
on, at, under or emanating from such Real Property; provided, that such request
may be made only if (i) there has occurred and is continuing an Event of Default
or (ii) the Holders reasonably believe that the Company or any such Real
Property is not in compliance with Environmental Law and such non-compliance
could reasonably be expected to have a Material Adverse Effect, or circumstances
exist, in each case, that reasonably could be expected to form the basis of a
Environmental Claim against the Company or any such Real Property that could
reasonably be expected to have a Material Adverse Effect. If the Company fails
to provide the same within 90 days after such request was made, the Required
Holders may order the same, and the Company shall grant and hereby grants to the
Holders and their agents access to such Real Property and specifically grants to
the Holders an irrevocable non-exclusive license, subject to the rights of
tenants, to perform such an assessment, all at the Company's expense.

         9.07     ERISA. As soon as reasonably possible and, in any event,
within 15 Business Days after Holdings, the Company or any of its Subsidiaries
knows or has reason to know of the occurrence of any of the following that could
reasonably be expected to result in liability of Holdings, the Company or any of
its Subsidiaries in an aggregate amount exceeding $1,000,000, the Company will
deliver to the Holders a certificate of the Chief Executive Officer, Chief
Financial Officer or the Treasurer of the Company setting forth the full details

<PAGE>

                                      -56-

as to such occurrence and the action, if any, that Holdings, the Company, such
Subsidiary or an ERISA Affiliate is required or proposes to take, together with
any notices required or proposed to be given to or filed by Holdings, the
Company, the Subsidiary, the ERISA Affiliate, or the PBGC, a Plan participant or
the Plan administrator with respect thereto: that a Reportable Event has
occurred (except to the extent that the Company has previously delivered to the
Holders a certificate and notices (if any) concerning such event pursuant to the
next clause hereof); that a contributing sponsor (as defined in Section
4001(a)(13) of ERISA) of a Plan subject to Title IV of ERISA is subject to the
advance reporting requirement of PBGC Regulation Section 4043.61 (without regard
to subparagraph (b)(1) thereof), and an event described in subsection .62, .63,
..64, .65, .66, .67 or .68 of PBGC Regulation Section 4043 is reasonably expected
to occur with respect to such Plan within the following 30 days; that an
accumulated funding deficiency, within the meaning of Section 412 of the Code or
Section 302 of ERISA, has been incurred or an application may be or has been
made for a waiver or modification of the minimum funding standard (including any
required installment payments) or an extension of any amortization period under
Section 412 of the Code or Section 303 or 304 of ERISA with respect to a Plan or
a Multiemployer Plan; that any contribution required to be made with respect to
a Plan or a Multiemployer Plan or Foreign Pension Plan has not been timely made
and such failure could result in a material liability for Holdings, the Company
or any of its Subsidiaries; that a Plan or Multiemployer Plan has been (or
notice has been given that it is expected to be) terminated, reorganized,
partitioned or declared insolvent under Title IV of ERISA; that proceedings have
been instituted to terminate or appoint a trustee to administer a Plan which is
subject to Title IV of ERISA; that a proceeding has been instituted pursuant to
Section 515 of ERISA to collect a delinquent contribution to a Multiemployer
Plan; that Holdings, the Company or any of its Subsidiaries will incur any
liability to or on account of the termination of or withdrawal from a
Multiemployer Plan under Section 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of
ERISA or with respect to a Plan under Section 401(a)(29), 4971 or 4975 of the
Code or Section 409 or 502(i) or 502(l) of ERISA or with respect to a group
health plan (as defined in Section 607(l) of ERISA or Section 4980B(g)(2) of the
Code) under Section 4980B of the Code; or that the Company, or any of its
respective Subsidiaries may incur any material liability pursuant to any
employee welfare benefit plan (as defined in Section 3(l) of ERISA) that
provides benefits to retired employees or other former employees (other than as
required by Section 601 of ERISA). Upon request, the Company will deliver to the
Holders (i) a complete copy of the annual report (on Internal Revenue Service
Form 5500-series) of each Plan (including, to the extent required, the related
financial and actuarial statements and opinions and other supporting statements,
certifications, schedules and information) required to be filed with the
Internal Revenue Service and (ii) copies of any records, documents or other
information that must be furnished to the PBGC with respect to any Plan pursuant
to Section 4010 of ERISA. In addition to any certificates or notices delivered
to the Holders pursuant to the first sentence hereof, copies of any records,
documents or other information required to be furnished to the PBGC shall be
delivered to the Holders no later than

<PAGE>

                                      -57-

15 Business Days after the date such records, documents and/or information has
been furnished to the PBGC.

         9.08     End of Fiscal Years; Fiscal Quarters. Each of Holdings and the
Company shall, and the Company shall cause each of its Subsidiaries, to maintain
(i) a fiscal year that ends for each 52 or 53 week year, as applicable, on or
about December 31 and (ii) fiscal quarters that end on or about March 31, June
30, September 30 and December 31.

         9.09     Performance of Obligations. Each of Holdings and the Company
will, and the Company will cause each of its Subsidiaries to, perform all of its
obligations under the terms of each mortgage, indenture, security agreement and
other debt instrument by which it is bound, except such non-performances as
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.

         9.10     Payment of Taxes. Each of Holdings and the Company will pay
and discharge, and the Company will cause each of its Subsidiaries to pay and
discharge, all material (individually or in the aggregate) taxes, assessments
and governmental charges or levies imposed upon it or upon its income or
profits, or upon any properties belonging to it, prior to the date on which
penalties attach thereto, and all lawful claims for sums that have become due
and payable which, if unpaid, might become a Lien not otherwise permitted under
Section 10.01(i); provided that none of Holdings, the Company nor any of its
Subsidiaries shall be required to pay any such tax, assessment, charge, levy or
claim which is being contested in good faith and by proper proceedings if it has
maintained adequate reserves with respect thereto in accordance with GAAP.

         9.11     Ownership of Subsidiaries; Preservation of Corporate
Existence. (a) Holdings shall at all times own 100% of the outstanding capital
stock of the Company. The Company shall, directly or indirectly, own (except to
the extent permitted by Section 10.14(b)(iii) or Section 10.15) 100% of the
capital stock of each of its Subsidiaries.

                  (b)      Each of Holdings and the Company will, and the
Company will cause each of its Subsidiaries to, preserve and maintain in full
force and effect its corporate (or, as applicable, limited liability,
partnership or other entity) existence except as permitted under Section 10.02.

         9.12     Further Assurances; Additional Collateral. (a) Each of
Holdings and the Company will, and the Company will cause each of the Subsidiary
Guarantors and KH LLC to, execute any and all further documents, financing
statements, agreements and instruments, and take all further action (including,
without limitation, filing UCC and other financing statements, recording
assignments of leases and rents, mortgages, deeds of trust and memoranda of
leases and filings with the United States Patent and Trademark Office and the
United States Copyright Office) that may be required under applicable law, or
that the Collat-

<PAGE>

                                      -58-

eral Agent may reasonably request, in order to effectuate the transactions
contemplated by the Transaction Documents and in order to grant, preserve,
protect and perfect the validity and first priority of the security interests
created or intended to be created by the Security Documents, subject only to
Permitted Collateral Liens and the Intercreditor Agreement.

         (b) The Company will cause any subsequently acquired (to the extent
permitted hereunder) or organized Domestic Wholly-Owned Subsidiary (and any
Domestic non-Wholly Owned Subsidiary acquired in connection with a Permitted
Acquisition) to execute a Joinder Agreement and each applicable Security
Document in favor of the Collateral Agent as shall be necessary or appropriate
to grant a first priority Lien on and security interest in the property owned or
held by such Domestic Wholly-Owned Subsidiary (and any Domestic non-Wholly Owned
Subsidiary acquired in connection with a Permitted Acquisition) and to take all
further action of the type described in this Section 9.12 in order to grant,
preserve, protect and perfect such Lien and security interest.

         (c) The parties hereto acknowledge and agree that it is their intention
that the Obligations shall be secured by, among other things, a first priority
Lien, subordinated only as set forth in the Intercreditor Agreement, on
substantially all the property of the Restricted Parties (including, without
limitation, real and other property acquired subsequent to the Closing Date).
Any property acquired after the Closing Date (other than Real Properties having
an aggregate value of $5,000,000) by KH LLC, Holdings, the Company, and/or the
Subsidiary Guarantors or if the lenders under the Senior Credit Agreement take a
perfected first priority security interest on any existing property owned by any
Restricted Party as to which the lenders under the Senior Credit Agreement do
not, as of the date hereof, have a perfected first priority security interest,
the Company will, at its cost and expense, within 90 days of such acquisition,
secure the Obligations by pledging or creating, or causing to be pledged or
created, perfected first priority security interests with respect to such
property. 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 satisfactory to the Collateral
Agent, and the Company shall deliver or cause to be delivered to the Collateral
Agent all such instruments and documents (including, without limitation, legal
opinions, title insurance policies, surveys, appraisals, certificates of title,
consents, lien waivers, subordination, non-disturbance and attornment agreements
and lien searches) as the Collateral Agent shall reasonably request to evidence
compliance with this Section 9.12. The Company shall take all further action of
the type described in Section 9.12(a) in order to grant, preserve, protect and
perfect such Lien and security interest.

         (d) Each Restricted Party shall grant, at the Restricted Parties' sole
cost and expense, to the Collateral Agent, for the benefit of the Secured
Parties, at the request of the Collateral Agent, at any time, a perfected first
priority security interest in and Lien on any Real Property acquired after the
Closing Date (other than Real Properties having an aggregate

<PAGE>

                                      -59-

value of $5,000,000) or vehicles owned by any such Restricted Party and any
other property of such Restricted Party and not already subject to the Lien of
the Security Documents, subject only to Prior Liens acceptable to the Collateral
Agent. Each Restricted Party shall take all actions requested by the Collateral
Agent (including, without limitation, the obtaining of Mortgages, legal
opinions, title insurance policies, surveys, appraisals, certificates of title,
consents, lien waivers, subordination, non-disturbance and attornment
agreements, lien searches and other documents necessary under applicable law, in
each case, in form and substance acceptable to Collateral Agent) in connection
with the granting of such security interest and Lien.

         (e) The Company agrees, from time to time, to provide such evidence as
the Collateral Agent shall reasonably request as to the perfection and priority
status of each security interest and Lien contemplated herein.

         (f) Each Restricted Party agrees that each action required by this
Section 9.12 shall be completed within 90 days of the date such action is
requested or required to be taken; provided that in no event shall any
Restricted Party be required to take any action, other than using its reasonable
commercial efforts without any material expenditure, to obtain consents from
third parties in connection with its compliance with this Section 9.12.

         9.13     Foreign Subsidiaries Security. If following a change in the
relevant sections of the Code or the regulations, rules, rulings, notices or
other official pronouncements issued or promulgated thereunder, counsel for the
Company and its Subsidiaries acceptable to the Required Holders does not within
30 days after a request from the Required Holders deliver to the Holders
evidence, in form and substance satisfactory to the Required Holders, with
respect to any Foreign Subsidiary which has not already had all of its stock
pledged pursuant to the Security Agreement that a pledge of 66-2/3% or more of
the total combined voting power of all classes of capital stock of such Foreign
Subsidiary entitled to vote, would cause the undistributed earnings of such
Foreign Subsidiary as determined for Federal income tax purposes to be treated
as a deemed dividend to such Foreign Subsidiary's United States parent for
Federal income tax purposes, then that portion of such Foreign Subsidiary's
outstanding capital stock not theretofore pledged pursuant to the Security
Agreement shall be pledged to the Collateral Agent for the benefit of the
Secured Parties pursuant to the Security Agreement (or another agreement in
substantially similar form, if needed), to the extent that the entering into
such Security Agreement is permitted by the laws of the respective foreign
jurisdiction and with all documents delivered pursuant to this Section 9.13 to
be in form and substance reasonably satisfactory to the Required Holders.

         9.14     Maintenance of Corporate Separateness. Each of Holdings and
the Company will, and the Company will cause each of its respective Subsidiaries
to, satisfy customary corporate formalities, including the holding of regular
board of directors' and shareholders' meetings or action by directors or
shareholders without a meeting and the mainte-

<PAGE>

                                      -60-

nance of corporate offices and records. Neither Holdings, the Company nor any of
its Subsidiaries shall take any action, or conduct its affairs in a manner,
which is likely to result in the corporate existence of Holdings, the Company or
any of its Subsidiaries being ignored, or in the assets and liabilities of
Holdings, the Company or any of its Subsidiaries being substantively
consolidated with those of any other such Person in a bankruptcy, reorganization
or other insolvency proceeding.

         9.15     Interest Rate Protection. The Company shall enter into
Interest Rate Protection Agreements in accordance with the provisions of the
Senior Credit Agreement.

         9.16     Revolving Loan Reductions. The Company shall make the payments
required by the Senior Credit Agreement to reduce the Revolving Loan Commitments
(under and as defined in the Senior Credit Agreement) on a timely basis in
accordance with the Senior Credit Agreement.

         9.17     Service of Process. Each Restricted Party shall maintain an
agent for service of process in New York until the Notes have been indefeasibly
paid in full. The Company shall notify the Agent if the appointment of CT
Corporation System as agent for service of process in New York by any Restricted
Party, shall be terminated for any reason.

         9.18     Additional Collateral. No later than 60 days after the Closing
Date, (a) each Restricted Party shall take all commercially reasonable steps to
record leasehold mortgages (and take all steps commercially reasonable to permit
such recording) on those leases that the Agent, in its reasonable discretion,
determines within 30 days of the Closing Date and (b) act and cooperate with the
Agent to secure any additional Collateral under the Security Agreement, as such
additional Collateral is reasonably specified by the Agent.

         9.19     Board Rights. (a) The Company shall give to the Purchasers
notice of (in the same manner that notice is given to directors) all meetings of
the Company's Board of Directors. The Company's Board of Directors shall meet no
less than quarterly.

         (b)      The Company shall provide to the Purchasers the same
information concerning the Company, and access thereto, provided to members of
the Company's Board of Directors.

         (c)      So long as TCP does not already have the following rights in
the LLC Agreement or the Unitholders Agreement, TCP will have the right to one
seat on the Board of Directors (or, in lieu thereof at TCP's option, the right
to appoint a board observer) of KH LLC, the Company, and Holdings, provided that
after Holdings successfully completes a Qualified Public Equity Offering, TCP
will no longer be entitled to appoint a member of its Board of Directors, but
shall instead be entitled to appoint an observer to such board, subject to such
observer entering into customary confidentiality arrangements with Holdings. In
addi-

<PAGE>

                                      -61-

tion, so long as TCP does not already have the following rights in the LLC
Agreement or the Unitholders Agreement and so long as TCP and its Affiliates and
managed funds and accounts holds at least 1% of the voting equity of Holdings or
KH LLC, TCP will have the right to one seat on the Board of Directors of each of
the Subsidiaries of KH LLC (other than Holdings, the Company or KSI) so long as
any of MidOcean, Behrman or Gryphon or any of their affiliates have the right to
appoint or has appointed a member to such Subsidiary's Board of Directors.

         (d)      So long as TCP does not already have the following rights in
the LLC Agreement or the Unitholders Agreement, TCP shall have the right to
appoint a member (or at its option, an observer) to each committee of the Board
of Directors, the executive committee and all other management committees, in
each case, of Holdings, the Company and KH LLC. So long as TCP does not already
have the following rights in the LLC Agreement or the Unitholders Agreement, in
addition to the foregoing, TCP will have the right to reasonable advance notice
of and participation in all meetings of each committee of the Board of
Directors, the executive committee and all other management meetings (whether
such meetings occur in person, telephonically or otherwise) of KH LLC and its
Subsidiaries for which at least two of MidOcean, Behrman and Gryphon, or their
successors or their representatives, receives notice or invitation to attend.

         9.20     TCP Affiliates' Special Rights. TCP, so long as it or its
Affiliates or its managed funds or accounts (the "TCP Affiliates") holds the
Notes or Warrants, shall be entitled to the special management rights listed
below:

                  (i) to discuss the business operations, properties, financial
    and other conditions, and plans and prospects of Holdings, the Company and
    their Subsidiaries with any director, senior executive officer and/or other
    authorized officer of Holdings or the Company designated by the Board of
    Directors of Holdings or the Company and, upon reasonable notice to Holdings
    or the Company, with any director, senior executive officer and/or other
    authorized officer of any other Subsidiary of the Company;

                  (ii) to submit suggestions from time to time to the management
    of Holdings or the Company with the requirement that one or more senior
    executive officers of Holdings or the Company shall discuss such suggestions
    with the TCP Affiliates within a reasonable period of time after such
    submission; and

                  (iii) to meet with one or more senior executive officers of
    Holdings or the Company, at reasonable times and on reasonable notice in
    order to discuss any suggestions made under (ii) above or for other
    purposes.

<PAGE>

                                      -62-

The rights granted to the TCP Affiliates hereunder are not in substitution for,
and shall not be deemed to be in limitation of, any rights otherwise available
to them as a holder of any securities of the Company or Holdings. In addition,
such parties shall require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and or assets of any such party to expressly assume and agree to
perform the covenants contained in this Section 9.20 on substantially the same
terms hereunder.

         9.21     Compliance with Transaction Documents. Each of Holdings and
the Company will, and the Company will cause each of its Subsidiaries to, comply
in all respects with the obligations owed by such party under each of the
Transaction Documents and the Restructuring Agreement.

         SECTION 10.       Negative Covenants. Each of Holdings and the
Company and hereby covenants and agrees that from the date of this Agreement
through the Closing and thereafter so long as any of the Notes are outstanding,
absent the prior written consent of the Required Holders, that Holdings and the
Company shall not, and shall not permit any of its Subsidiaries to undertake the
following:

         10.01    Liens. Each of Holdings and the Company will not, and the
Company will not permit any of its Subsidiaries to, (i) create, incur, assume or
permit to exist any Liens upon or with respect to any Collateral except for
Permitted Collateral Liens and (ii) create, incur, assume or permit to exist any
Lien upon or with respect to any property of any Restricted Party that does not
constitute Collateral, whether now owned or hereafter acquired, or on any income
or revenues or rights in respect of any thereof, except for the following (the
"Permitted Liens"):

         (i)      inchoate Liens for taxes, assessments or governmental charges
    or levies not yet due and payable or Liens for taxes, assessments or
    governmental charges or levies being contested in good faith and by
    appropriate proceedings for which adequate reserves have been established in
    accordance with GAAP (or the equivalent thereof in any country in which a
    Foreign Subsidiary is doing business, as applicable);

         (ii)     Liens in respect of property of the Company or any of its
    Subsidiaries imposed by law, which were incurred in the ordinary course of
    business and do not secure Indebtedness for borrowed money, such as
    carriers', warehousemen's, materialmen's and mechanics' liens and other
    similar Liens arising in the ordinary course of business, and (x) which do
    not in the aggregate materially detract from the value of the property of
    the Company or such Subsidiary and do not materially impair the use thereof
    in the operation of the business of the Company or such Subsidiary or (y)
    which are being contested in good faith by appropriate proceedings, which
    pro-

<PAGE>

                                      -63-

    ceedings (or orders entered in connection with such proceedings) have the
    effect of preventing the forfeiture or sale of the property subject to any
    such Lien;

         (iii)    Liens in existence on the Closing Date which are listed, and
    the property subject thereto described, on Schedule 10.01(iii), but only to
    the respective date, if any, set forth on such Schedule 10.01(iii) for the
    removal and termination of any such Liens, plus renewals and extensions of
    such Liens to the extent set forth on Schedule 10.01(iii); provided that
    with respect to any renewal or extension (x) the aggregate principal amount
    of the Indebtedness, if any, secured by such Liens does not increase from
    that amount outstanding at the time of any such renewal or extension and (y)
    any such renewal or extension does not encumber any additional properties of
    the Company or any of its Subsidiaries;

         (iv)     Liens created pursuant to the Security Documents (including
    liens securing swaps and hedges);

         (v)      Liens arising pursuant to licenses, leases or subleases
    granted to other Persons in the ordinary course of business not materially
    interfering with the conduct of the business of the Company and its
    Subsidiaries taken as a whole and not resulting in material deterioration in
    the value of the property covered;

         (vi)     Liens arising pursuant to Capitalized Lease Obligations and
    Purchase Money Obligations or security interests securing Indebtedness
    representing the purchase price (or financing of the purchase price within
    90 days after the respective purchase) of assets acquired after the Closing
    Date; provided that (x) any such Liens attach only to the assets so
    purchased and do not encumber any other asset of the Company or any of its
    Subsidiaries, (y) the Indebtedness secured by any such Lien (including
    refinancings thereof) does not exceed 100% of the lesser of the fair market
    value or the purchase price of the property being purchased at the time of
    the incurrence of such Indebtedness and (z) the aggregate outstanding
    principal amount of all Indebtedness secured by Liens permitted by this
    clause (vi) shall not at any time exceed $3,500,000;

         (vii)    easements, rights-of-way, restrictions (including zoning
    restrictions), covenants, encroachments, protrusions and other similar
    charges or encumbrances, and minor title deficiencies, in each case whether
    now or hereafter in existence, not securing Indebtedness and not materially
    interfering with the conduct of the business of the Company and its
    Subsidiaries taken as a whole;

         (viii)   Liens arising from precautionary UCC financing statement
    filings regarding operating leases entered into by the Company or any of its
    Subsidiaries in the ordinary course of business;

<PAGE>

                                      -64-

         (ix)     Liens arising out of judgments or awards in respect of which
    the Company or any of its Subsidiaries shall in good faith be prosecuting an
    appeal or proceedings for review in respect of which there shall have been
    secured a subsisting stay of execution pending such appeal or proceedings,
    provided that the aggregate amount of all such judgments or awards does not
    exceed $1,500,000 at any time outstanding;

         (x)      Liens (other than any Lien imposed by ERISA) (x) incurred or
    deposits made in the ordinary course of business in connection with workers'
    compensation, unemployment insurance and other types of social security, (y)
    to secure the performance of project contracts and work completed under
    project contracts under ordinary course bonding arrangements of the Company
    and its Domestic Subsidiaries and any statutory obligations (other than
    excise taxes) arising in relation thereto on an arm's-length basis
    (exclusive of obligations for the payment of borrowed money) or (z) arising
    by virtue of deposits made in the ordinary course of business to secure
    liability for premiums to insurance carriers;

         (xi)     Liens on property acquired pursuant to a Permitted
    Acquisition, or on property or assets of a Subsidiary of the Company in
    existence at the time such Subsidiary is acquired pursuant to a Permitted
    Acquisition; provided that (x) any Indebtedness that is secured by such
    Liens is permitted to exist under Section 10.04(xi), (y) such Liens are not
    incurred in connection with or in contemplation or anticipation of such
    Permitted Acquisition; and (z) such Liens may not extend to any other
    property of the Company or any of its Subsidiaries;

         (xii)    Liens securing reimbursement of obligations in respect of
    letters of credit incurred under Section 10.04(ix); provided that such Liens
    attach only to the documents, the goods covered thereby and/or the proceeds
    thereof;

         (xiii)   Liens in favor of customs and revenues authorities arising as
    a matter of law to secure payment of customs duties in connection with the
    importation of goods;

         (xiv)    Foreign Subsidiaries may grant Liens on their assets to secure
    Indebtedness outstanding under Section 10.04(xiv);

         (xv)     Liens consisting of set-off of a customary nature or bankers'
    liens on amounts on deposit, whether arising by contract or operation of
    law, incurred in the ordinary course of business;

         (xvi)    additional Liens incurred in the ordinary course of business
    by the Company and its Subsidiaries so long as such Liens do not arise in
    connection with the incurrence of Indebtedness and the value of the property
    subject to such Liens and any

<PAGE>

                                      -65-

    other obligations secured thereby do not exceed $250,000 at any one time
    outstanding; and

         (xvii)   Liens created pursuant to the Senior Credit Agreement.

         10.02    Consolidation, Merger, Purchase or Sale of Assets, Etc. Each
of Holdings and the Company will not, and the Company will not permit any of its
Subsidiaries to, wind up, liquidate or dissolve its affairs or enter into any
transaction of merger or consolidation, or convey, sell, lease or otherwise
dispose of (or agree to do any of the foregoing at any future time) all or any
part of its property, or enter into any sale-leaseback transactions, or purchase
or otherwise acquire (in one or a series of related transactions) any part of
the property (other than purchases or other acquisitions of inventory,
materials, equipment and intangible assets in the ordinary course of business or
reinvestments in assets) of any Person if permitted hereby and in the Senior
Credit Agreement (or agree to do any of the foregoing at any future time),
except that:

         (i)      Capital Expenditures by the Company and its Subsidiaries shall
    be permitted to the extent not in violation of Section 10.07;

         (ii)     each of the Company and its Subsidiaries may (x) in the
    ordinary course of business, sell, lease or otherwise dispose of any
    property which, in the reasonable judgment of such Person, is obsolete, worn
    out or otherwise no longer useful in the conduct of such Person's business
    and (y) sell, lease or otherwise dispose of any other property; provided
    that the aggregate Net Cash Proceeds of all assets subject to sales or other
    dispositions pursuant to this sub-clause (ii)(y) shall not exceed $1,000,000
    in the aggregate in any four consecutive fiscal quarters of the Company;

         (iii)    investments may be made to the extent permitted by Section
    10.05;

         (iv)     each of the Company and its Subsidiaries may lease (as lessee)
    real or personal property in the ordinary course of business (so long as any
    such lease does not create a Capitalized Lease Obligation except to the
    extent permitted by Section 10.01 (vi));

         (v)      each of the Company and its Subsidiaries may make sales or
    transfers of inventory in the ordinary course of business and that are
    consistent with past practices;

         (vi)     the Company and its Subsidiaries may sell or discount, in each
    case without recourse and in the ordinary course of business, overdue
    accounts receivable arising in the ordinary course of business, but only in
    connection with the compromise

<PAGE>

                                      -66-

    or collection thereof consistent with customary industry practice (and not
    as part of any bulk sale);

         (vii)    the Company or any Domestic Wholly-Owned Subsidiary of the
    Company may transfer assets or lease to or acquire or lease assets from the
    Company or any other Domestic Wholly-Owned Subsidiary or any Domestic
    Wholly-Owned Subsidiary may be merged into the Company or any other Domestic
    Wholly-Owned Subsidiary of the Company;

         (viii)   Permitted Acquisitions shall be permitted;

         (ix)     any Restricted Party may sell or exchange specific items of
    equipment in the ordinary course of business, so long as the purpose of each
    such sale or exchange is to acquire (and results within 270 days of such
    sale or exchange in the acquisition of) replacement items of equipment which
    are, in the reasonable business judgment of such Restricted Party, the
    functional equivalent of the item of equipment so sold or exchanged;

         (x)      the Company and its Domestic Subsidiaries may transfer assets
    in the ordinary course of business to Foreign Subsidiaries of the Company
    having a fair market value (as determined in good faith by the Board of
    Directors or senior management of the Company) not to exceed $1.0 million in
    any fiscal year of the Company,

         (xi)     the assets of any Foreign Subsidiary of the Company may be
    transferred to the Company or any other Subsidiary of the Company and any
    Foreign Subsidiary may be merged into the Company or any of its Subsidiaries
    so long as the Company or such Subsidiary is the surviving entity;

         (xii)    the disposition of Cash Equivalents, Foreign Cash Equivalents
    and other investments to the extent permitted under Section 10.05(ii); and

         (xiii)   the Company may sell FTS Systems, Inc., formerly known as
    Kinetics Thermal Systems, Inc. (such transaction, the "KTS Sale"); provided
    that the Net Cash Proceeds to be received as a result of the KTS Sale shall
    not be less than $5.0 million and either (a) if the obligations under any
    indemnity arrangements with the purchaser of FTS Systems, Inc. in the KTS
    Sale do not expose any seller thereof to liability in excess of $1.0
    million, the net proceeds of such sale are used by the Company for working
    capital and general operations, or (b) if the foregoing indemnity
    arrangements are in excess of such amount, then all of the net proceeds of
    such sale shall be used to repay and permanently reduce the Indebtedness of
    the Company, prior to any other use thereof.

<PAGE>

                                      -67-

To the extent the Required Holders waive the provisions of this Section 10.02
with respect to the sale of any Collateral, or any Collateral is sold as
permitted by this Section 10.02, such Collateral (unless sold to any Restricted
Party) shall be sold free and clear of the Liens created by the Security
Documents (but the Liens created by the Security Documents shall attach to the
proceeds of such sale), and the Collateral Agent shall be authorized to take any
actions deemed appropriate in order to effect the foregoing. To the extent that
any proceeds from a transaction described in this Section 10.02 are used to pay
down Revolving Loans (under and as defined in the Senior Credit Agreement), the
Company shall simultaneously cause the Revolving Loan Commitments (under and as
defined in the Senior Credit Agreement) to be reduced by an amount equal to such
payment, unless and to the extent (a) no reduction in Revolving Loan Commitments
is required under (and as defined in) the Senior Credit Agreement, (b) with
respect to no more than $10,000,000 of net cash proceeds from the sale of assets
in any consecutive four fiscal quarters of the Company, no Default or Event of
Default exists at the time of the respective Asset Sale and the Company has (A)
delivered an officer's certificate to the Agent on or prior to such date stating
that such net cash proceeds shall be used to purchase assets (including equity
interests in another Person) useful in the business of the Company and permitted
under this Section 10.02 no later than 270 days following the date of such sale
of assets (which certificate shall set forth the estimates of the proceeds to be
so expended) and (B) deposited any such net cash proceeds in excess of
$5,000,000 in respect of Collateral into the Collateral Account, and (c) if all
or any portion of such net cash proceeds, for which amount the Revolving Loan
Commitments have not been reduced pursuant to the preceding clause (b), are not
so reinvested in assets within such 270-day period, such reduction in the
Revolving Loan Commitments (under and as defined in the Senior Credit Agreement)
shall be made as provided above in this Section 10.02 without regard to the
preceding clause (b).

         10.03    Dividends. Each of Holdings and the Company shall not, and the
Company shall not permit any of its Subsidiaries to, authorize, declare or pay
any Dividends with respect to Holdings, the Company or any of the Company's
Subsidiaries, except that:

         (i)      any Subsidiary of the Company (x) may pay cash Dividends to
    the Company or any Wholly-Owned Subsidiary of the Company and (y) if such
    Subsidiary is not a Wholly-Owned Subsidiary, may pay cash Dividends to its
    shareholders generally so long as the Company or its respective Subsidiary
    which owns the equity interest or interests in the Subsidiary paying such
    Dividends receives at least its proportionate share thereof (based upon its
    relative equity interests in the Subsidiary paying such Dividends and taking
    into account the relative preferences, if any, of the various classes of
    equity interests in such Subsidiary);

         (ii)     so long as there shall exist no Default or Event of Default
    (both before and after giving effect to the payment thereof), (A) the
    Company may, or may pay cash

<PAGE>

                                      -68-

    to Holdings, such cash to be used to, repurchase outstanding shares of its
    common stock (or options to purchase such common stock) following the death,
    disability, retirement or termination of employment of employees, officers
    or directors of Holdings, the Company or any of its Subsidiaries; provided
    that (x) all amounts used to effect such repurchases are obtained by
    Holdings from (either before or after) an issuance of its common stock (or
    options to purchase such common stock) within one year of such repurchase to
    other employees, members of management, executive officers or directors of
    Holdings, the Company or any of their Subsidiaries or (y) to the extent the
    proceeds used to effect any repurchase pursuant to this clause (y) are not
    obtained as described in preceding clause (x), the aggregate amount of
    Dividends paid by the Company or Holdings pursuant to this clause (ii)
    (exclusive of amounts paid as described pursuant to preceding clause (x))
    shall not exceed $200,000 plus the amount of any keyman life insurance
    proceeds actually received in any fiscal year;

         (iii)    (a) prior to the Qualified Public Equity Offering, the Company
    may pay cash Dividends, so long as all proceeds thereof are used by KH LLC
    or Holdings to pay its reasonable operating expenses incurred in the
    ordinary course of business and other corporate overhead costs at KH LLC and
    Holdings, including without limitation income tax when and as due for
    Holdings, and expenses directly attributable to the operations of its
    Subsidiaries (including, without limitation, legal and accounting expenses
    and similar expenses) and expressly excluding (v) the payment of principal,
    interest or any other amount on or in respect of the Holding Notes, (w) the
    payment of principal and interest on the Holdings Subordinated Debt, (x) the
    payment of any put price of securities issued in connection with the
    Holdings Subordinated Debt, (y) the payment of management fees or the like
    to MidOcean, Behrman, Gryphon Partners or their Affiliates and (z) the
    payment of fees to directors or board observers (excluding reimbursement of
    reasonable expenses of individual directors or board observers for
    performing their duties as a director or observer); provided that the
    aggregate amount of Dividends paid by the Company pursuant to this clause
    (iii)(a) for all such operating expenses and other corporate overhead costs
    other than income taxes plus all amounts loaned or paid pursuant to Section
    10.04(xv)(a) and Section 10.05(xi)(a) shall not exceed $750,000 (exclusive
    of any fees or expenses associated with the contemplated Qualified Public
    Equity Offering that are not otherwise paid or payable by the Company); and

                  (b) following the Qualified Public Equity Offering, the
    Company may pay cash Dividends, so long as all proceeds thereof are used by
    KH LLC to pay its reasonable operating expenses incurred in the ordinary
    course of business and other corporate overhead costs at KH LLC and expenses
    directly attributable to the operations of the Company's Subsidiaries
    (including, without limitation, legal and accounting expenses and similar
    expenses) and expressly excluding (v) the payment of principal, in-
<PAGE>

                                      -69-

    terest or any other amount on or in respect of the Holding Notes, (w) the
    payment of principal and interest on the Holdings Subordinated Debt, (x) the
    payment of any put price of securities issued in connection with the
    Holdings Subordinated Debt, (y) the payment of management fees or the like
    to MidOcean, Behrman, Gryphon Partners or their Affiliates and (z) the
    payment of fees to directors or board observers (excluding reimbursement of
    reasonable expenses of individual directors or board observers for
    performing their duties as a director or observer); provided that the
    aggregate amount of Dividends paid by the Company pursuant to this clause
    (iii)(b) for all such operating expenses and other corporate overhead costs
    other than income taxes plus all amounts loaned or paid pursuant to Section
    10.04(xv)(b) and Section 10.05(xi)(b) shall not exceed in any fiscal year of
    the Company $400,000 (exclusive of any fees or expenses associated with the
    contemplated Qualified Public Equity Offering that are not otherwise paid or
    payable by the Company).

    If the Company pays Dividends under either subclause (a) or (b) above, the
Company shall promptly provide to the Agent documentation setting forth the
specific uses of proceeds from such Dividend paid by the Company pursuant to
this Section 10.03(iii);

         (iv)     the Company may dividend KSI to KH LLC such that KH LLC owns
    KSI in accordance with the terms of the Restructuring Agreement; and

         (v)      the Company may, as of December, 2003, repurchase of the stock
    of Daniel Rubin; provided that (a) such stock was repurchased at fair market
    value, and (b) the amount of stock so repurchased did not exceed $125,000.

         10.04    Indebtedness. Each of Holdings and the Company will not, and
    the Company will not permit any of its Subsidiaries to, contract, create,
    incur, assume or suffer or permit to exist any Indebtedness, except:

         (i)      Indebtedness incurred pursuant to this Agreement;

         (ii)     (a) Additional Subordinated Indebtedness of the Company and
    the guarantees thereof by Holdings and the Subsidiary Guarantors in an
    aggregate principal amount not to exceed $15.0 million at any one time
    outstanding; provided, the Additional Subordinated Indebtedness permitted
    under this Section 10.04(ii)(a) shall only be permitted if the Agent or its
    Affiliates have the right to provide at least 50% of any such issuance and
    the borrower thereunder utilizes the proceeds from such issuance of
    Additional Subordinated Indebtedness for working capital and general
    operations (and not for the refinancing or repayment of Indebtedness,
    payment of dividends or litigation expenses or for any acquisition
    financing); and

<PAGE>

                                      -70-

                  (b) additional Indebtedness of the Company in an aggregate
    amount not to exceed $100,000 at any one time outstanding, which
    Indebtedness shall be subordinate and junior in right of payment to the
    Senior Subordinated Notes but senior in right of payment to the Senior
    Subordinated Liquidation Preference evidenced by the Liquidation
    Certificates.

         (iii)    Existing Indebtedness shall be permitted to the extent
    actually outstanding on the Closing Date and as the same is listed on
    Schedule 7.21 and any guarantees thereon as the same are existing on the
    Closing Date, less the aggregate amount of all repayments or reductions in
    commitments effected after the Closing Date (any such repayments and
    reductions in commitments may not be reborrowed, other than such repayments
    that do not result in a permanent reduction in the Revolving Loan
    Commitments under and as defined in the Senior Credit Agreement), and any
    refinancing of such Existing Indebtedness provided that such refinancing
    shall (A) not be in a principal amount which exceeds the principal amount of
    the Existing Indebtedness being refinanced plus any premiums with respect
    thereto, (B) not be incurred if any Default or Event of Default has occurred
    and is continuing or would result therefrom, (C) not have a stated maturity
    or a weighted average life that is shorter than that of the Existing
    Indebtedness being refinanced, (D) not be on financial and other terms,
    including interest rate, liquidation preference, fee or other equity kicker,
    that are, taken as a whole, materially less favorable to any Restricted
    Party or any Holder than the Existing Indebtedness being refinanced, (E) if
    such Existing Indebtedness is subordinated, have subordination provisions
    which are substantially similar to those contained in the Existing
    Indebtedness being refinanced, and (F) with respect to the Celerity Junior
    Subordinated Notes and the junior subordinated notes issued pursuant to
    Section 10.04(xvii), accrue interest that may be paid only in kind and not
    in cash, provided further, that the debt under the Senior Credit Agreement
    (or any subsequent refinancing thereof) will not be refinanced unless (i)
    the Holders shall have been given notice by the Company of the Company's
    desire to refinance the Indebtedness under the Senior Credit Agreement,
    whereby, any one or more of the Holders shall have the right to offer to be
    the source of such refinancing (the "Refinancing Source") according to terms
    and conditions provided by such Holder or Holders; provided that (x) if,
    within 15 days of the receipt of such notice by the Holders, no Holder
    offers to act as the Refinancing Source, the Company may proceed to engage
    in discussions with and accept an offer from a third-party or parties to act
    as the Refinancing Source, and (y) if a Holder or Holders make an offer to
    be the Refinancing Source within the time period set forth in clause (x)
    above (such offer a "First Refinancing Offer"), then the Company may (a)
    accept the First Refinancing Offer, upon which acceptance the Holder or
    Holders that made such offer shall become the Refinancing Source and such
    Holder or Holders shall make good faith efforts to consummate such
    refinancing within 45 days of the Company's acceptance subject to the terms
    and conditions set forth in the First

<PAGE>

                                      -71-

    Refinancing Offer, or (b) reject the First Refinancing Offer, provided that,
    for a period of 60 days after such rejection, the Company will be permitted
    to engage in discussions with a third-party or parties regarding the
    possibility of such party or parties acting as the Refinancing Source but
    will not be permitted to accept any offer by such third-party or parties to
    act as the Refinancing Source unless such offer is on the same or better
    terms than the First Refinancing Offer; and provided further that, after
    such 60 day period, the Company shall be permitted to accept an offer by a
    third-party or parties to act as the Refinancing Source, regardless of
    whether such offer is on the same or better terms as the First Refinancing
    Offer, and (ii) the Holders shall have been consulted in good faith
    regarding the identity of the Refinancing Source and the terms of such
    refinancing at least 15 Business Days prior to the consummation of any
    refinancing by a party other than a Holder;

         (iv)     accrued expenses and trade accounts payable incurred in the
    ordinary course;

         (v)      Indebtedness under Interest Rate Protection Agreements entered
    into in compliance with the Senior Credit Agreement and Section 9.16 hereof
    and Indebtedness under non-speculative Interest Rate Protection Agreements
    which may be entered into from time to time by the Company and which the
    Company in good faith believes will provide protection against fluctuations
    in interest rates with respect to outstanding floating rate Indebtedness
    then outstanding, and permitted to remain outstanding, pursuant to the other
    provisions of this Section 10.04;

         (vi)     Indebtedness subject to Liens permitted under Section
    10.01(vi), so long as the outstanding principal amount of such Indebtedness
    does not exceed the $3.5 million as described in Section 10.01(vi) and any
    refinancing of such Indebtedness so long as the principal amount thereof is
    not increased and the terms of such refinancing Indebtedness is on
    substantially similar terms as the Indebtedness being refinanced;

         (vii)    intercompany Indebtedness of the Company and its Subsidiaries
    outstanding to the extent permitted by Section 10.05(vi);

         (viii)   Indebtedness evidenced by Other Hedging Agreements entered
    into pursuant to Section 10.05(v);

         (ix)     Indebtedness of Holdings, the Company, or their Domestic
    Subsidiaries under performance guarantees, performance sureties, performance
    bonds, similar letter of credit obligations, in each case incurred in the
    ordinary course of business in transactions negotiated on an arm's-length
    basis that are expected to generate revenue for Holdings, the Company or
    their Domestic Subsidiaries;

<PAGE>

                                      -72-

         (x)      Indebtedness consisting of guarantees (x) by the Company of
    Indebtedness, leases and other obligations permitted to be incurred by any
    Subsidiary Guarantor under this Agreement, (y) by any Subsidiary of the
    Company of Indebtedness, leases and other obligations permitted to be
    incurred by the Company or another Subsidiary of the Company (which, in the
    case of a guarantee to be executed by a Subsidiary Guarantor, must be a
    Subsidiary Guarantor) of the Company under this Agreement and (z) by
    Holdings of Indebtedness of Foreign Subsidiaries of the Company permitted
    under Section 10.04 (xiv);

         (xi)     Indebtedness of a Subsidiary of the Company acquired pursuant
    to a Permitted Acquisition (or Indebtedness assumed at the time of a
    Permitted Acquisition of an asset securing such Indebtedness), and any
    refinancing of such Indebtedness so long as the principal amount thereof is
    not increased; provided that such Indebtedness was not incurred in
    connection with or in anticipation of such Permitted Acquisition;

         (xii)    Indebtedness of the Company and its Subsidiaries consisting of
    customary indemnities or earn-out, incentive, non-compete, deferred
    compensation or similar arrangements entered into in connection with
    Permitted Acquisitions; provided that such arrangements (for which value may
    be ascertained readily) for any Permitted Acquisition shall not exceed 10%
    of the value of the consideration paid for such Permitted Acquisition;

         (xiii)   Indebtedness refinancing the Senior Subordinated Notes;
    provided that such refinancing or other Indebtedness shall (A) not be in a
    principal amount which exceeds the principal amount of the Senior
    Subordinated Notes being refinanced plus any premiums with respect thereto,
    (B) not be incurred if any Default or Event of Default has occurred and is
    continuing or would result therefrom, (C) not have a stated maturity or a
    weighted average life that is shorter than that of the Senior Subordinated
    Notes being refinanced, (D) not be on financial and other terms that are,
    taken as a whole, materially less favorable to any Restricted Party or any
    Holder than the Senior Subordinated Notes being refinanced and (E) have
    subordination provisions which are substantially similar to those contained
    in the Senior Subordinated Notes or the Holdings Subordinated Debt being
    refinanced;

         (xiv)    Indebtedness of Foreign Subsidiaries in respect of local lines
    of credit, letters of credit, bank guarantees and similar extensions of
    credit and renewals and refinancing thereof, each incurred in the ordinary
    course of business, in an aggregate outstanding principal amount not to
    exceed $2.0 million at any time;

         (xv)     (a) Indebtedness incurred for the purpose of paying the
    operating costs and other overhead expenses contemplated in Section 10.03
    (iii)(a) hereof to the extent limited therein, and to the extent that such
    Indebtedness, after taking into account all

<PAGE>

                                      -73-

    amounts loaned or paid to Holdings or KH LLC by the Company under this
    section and under Sections 10.03(iii)(a) and 10.05(xi)(a), does not exceed
    $750,000 in the aggregate (exclusive of any fees or expenses associated with
    the contemplated Qualified Public Equity Offering that are not otherwise
    paid or payable by Company);

                  (b) Indebtedness incurred for the purpose of paying the
    operating costs and other overhead expenses contemplated in Section 10.03
    (iii)(b) hereof to the extent limited therein, and to the extent that such
    Indebtedness, after taking into account all amounts loaned or paid to KH LLC
    under this section and under Sections 10.03(iii)(b) and 10.05(xi)(b), does
    not exceed $400,000 in the aggregate (exclusive of any fees or expenses
    associated with the contemplated Qualified Public Equity Offering that are
    not otherwise paid or payable by Company) in any fiscal year of the Company;

         (xvi)    Indebtedness under letters of credit to provide security for
    worker's compensation claims and bank overdrafts incurred in the ordinary
    course of business; provided that any obligations arising in connection with
    such bank overdraft Indebtedness is extinguished within five Business Days;
    and

         (xvii)   Indebtedness incurred to pay liabilities and expenses of the
    Alfa Laval Litigation in an amount not to exceed $15.0 million at any one
    time outstanding, of ranking no more senior in right of payment than the
    Junior Subordinated Notes (with subordination, remedies standstill and the
    like no more favorable than those set forth in the Junior Subordinated
    Notes) with a maturity at least six months after the Maturity Date of the
    Notes or the Senior Subordinated Notes (whichever is longer) and with an
    interest rate and fees that on a blended basis do not exceed 15% per annum,
    which shall be payable only in kind; provided that amounts borrowed under
    this Section 10.04(xvii) and repaid shall not be available for re-borrowing.

         10.05    Advances, Investments and Loans. Each of Holdings and the
Company will not, and the Company will not permit any of its Subsidiaries to,
directly or indirectly, lend money or credit or make advances to any Person, or
purchase or acquire any stock, obligations or securities of, or any other
interest in, or make any capital contribution to, any other Person, or purchase
or own a futures contract or otherwise become liable for the purchase or sale of
currency or other commodities at a future date in the nature of a futures
contract, or hold any cash or Cash Equivalents or Foreign Cash Equivalents (each
of the foregoing an "Investment" and, collectively, "Investments"), except that
the following shall be permitted:

         (i)      the Company and its Subsidiaries may acquire and hold accounts
    receivable, notes receivable, retention balances, deposits and advances
    owing to any of them;

<PAGE>

                                      -74-

         (ii)     the Company and its Subsidiaries may acquire and hold cash and
    Cash Equivalents (and, with respect to Foreign Subsidiaries, Foreign Cash
    Equivalents);

         (iii)    the Company and its Subsidiaries may make loans and advances
    in the ordinary course of business to their respective employees so long as
    the aggregate principal amount thereof at any time outstanding (determined
    without regard to any write-downs or write-offs of such loans and advances)
    shall not exceed $1.0 million at any time;

         (iv)     the Company may enter into Interest Rate Protection Agreements
    to the extent permitted by Section 10.04(v).

         (v)      the Company may enter into and perform its obligations under
    Other Hedging Agreements entered into in the ordinary course of business and
    so long as any such Other Hedging Agreement is not speculative in nature and
    is (x) related to income derived from foreign operations of the Company or
    any Subsidiary or otherwise related to purchases permitted hereunder from
    foreign suppliers or (y) entered into to protect the Company and/or its
    Subsidiaries against fluctuations in the prices of raw materials used in
    their businesses;

         (vi)     any Wholly-Owned Subsidiary may make intercompany loans,
    advances or cash contributions to the Company or any Wholly-Owned Subsidiary
    and the Company may make intercompany loans, advances and cash contributions
    to any Wholly-Owned Subsidiary; provided that (x) any promissory notes
    evidencing such intercompany loans shall be pledged (and delivered) by the
    Company or the respective Domestic Wholly-Owned Subsidiary that is the
    lender of such intercompany loan as Collateral pursuant to the Security
    Agreement, (y) neither the Company nor any Domestic Subsidiaries of the
    Company may make loans, advances or equity contributions to any Foreign
    Subsidiaries of the Company pursuant to this clause (vi) (other than loans,
    advances and cash contributions in an amount not to exceed $1.0 million in
    the aggregate outstanding at any one time, provided, that the foregoing
    amount shall be permanently reduced by the amount of any such loans,
    advances and cash contributions cancelled, forgiven or otherwise written off
    by the maker of such loan, advance or contribution) and (z) any loans made
    by any Foreign Subsidiaries to the Company or any of its Domestic
    Subsidiaries pursuant to this clause (vi) shall be subordinated to the
    obligations of the Restricted Parties in form and substance reasonably
    acceptable to the Required Holders;

         (vii)    the Company and its Subsidiaries may purchase, sell or
    transfer assets (including equity) to the extent permitted by Section 10.02;

<PAGE>

                                      -75-

         (viii)   the Company may establish Subsidiaries to the extent permitted
    by Section 10.15;

         (ix)     Holdings may make equity contributions in the Company;

         (x)      the Company and its Subsidiaries may make investments in joint
    ventures in an amount not to exceed $5.0 million at any one time outstanding
    in the aggregate, including investments made prior to the date hereof; and

         (xi)     (a) Holdings and the Company may make loans to Holdings and/or
    KH LLC for the purposes of funding the operating costs and other overhead
    expenses contemplated in Section 10.03(iii)(a) hereof to the extent limited
    therein, and to the extent that such Indebtedness, after taking into account
    all amounts loaned or paid to Holdings or KH LLC under this section and
    under Sections 10.03(iii)(a) and 10.04(xv)(a), does not exceed $750,000 in
    the aggregate (exclusive of any fees or expenses associated with the
    contemplated Qualified Public Equity Offering that are not otherwise paid or
    payable by the Company) at any time of the Company;

                  (b) Holdings and the Company may make loans to KH LLC for the
    purposes of funding the operating costs and other overhead expenses
    contemplated in Section 10.03 (iii)(b) hereof to the extent limited therein,
    and to the extent that such Indebtedness, after taking into account all
    amounts loaned or paid to KH LLC under this section and under Sections
    10.03(iii)(b) and 10.04(xv)(b), does not exceed $400,000 in the aggregate
    (exclusive of any fees or expenses associated with the contemplated
    Qualified Public Equity Offering that are not otherwise paid or payable by
    the Company) in any fiscal year of the Company;

         (xii)    investments existing on the Closing Date set forth on Schedule
    10.05;

         (xiii)   the entry by the Company and/or any of its Affiliates into the
    Tax Sharing Agreement; and

         (xiv)    so long as no KSI Change of Control has occurred, the Company
    may make loans to KSI under the KSI/KGI Revolving Loan Agreement, in an
    amount not to exceed $22 million outstanding at any time.

         10.06    Transactions with Affiliates. Each of Holdings and the Company
will not, and the Company will not permit any of its Subsidiaries to, enter into
any transaction or series of related transactions, whether or not in the
ordinary course of business, with any Affiliate of Holdings, the Company or any
of its Subsidiaries, other than in the ordinary course of business and on terms
and conditions substantially as favorable to Holdings, the Company or such
Subsidiary as would reasonably be obtained by Holdings, the Company or such
Sub-

<PAGE>

                                      -76-

sidiary at that time in a comparable arm's-length transaction with a Person
other than an Affiliate (in any such transaction or series of transactions
valued in excess of $1.0 million, except for the sale by Holdings or the Company
of debt or equity securities, at the option of the Agent, the board of directors
of the relevant entity shall obtain the opinion as to the fairness of such
transaction from an investment banking, accounting or valuation firm reasonably
acceptable to the Required Holders prior to undertaking or entering into such
transaction or series of transactions), except that:

         (i)      Dividends may be paid to the extent provided in Section 10.03;

         (ii)     loans may be made and other transactions may be entered into
    between KH LLC, Holdings, the Company and its Subsidiaries to the extent
    permitted by Sections 10.04 and 10.05 and otherwise in accordance with the
    terms of this Agreement;

         (iii)    employment arrangements may be entered into in the ordinary
    course of business with officers of Holdings and its Subsidiaries;

         (iv)     reimbursement of out-of-pocket expenses of, and
    indemnification and similar arrangements may be made with, members of the
    Board of Directors of Holdings;

         (v)      the issuance by Holdings of its Qualified Capital Stock or
    options exercisable for its Qualified Capital Stock; and

         (vi)     the notes permitted to be issued under, and consistent with
    the limitations of, Section 10.04(xvii);

         (vii)    the Company may incur Indebtedness evidenced by the KSI/KGI
    Revolving Loan Agreement in a principal amount not to exceed $22.0 million
    outstanding at any;

         (viii)   the entry by the Company and/or any of its Affiliates into the
    Tax Sharing Agreement;

         (ix)     the KSI Note in a principal amount not to exceed $13.0 million
    shall be permitted;

         (x)      the Celerity Junior Subordinated Notes shall be permitted;

         (xi)     the Additional Subordinated Indebtedness permitted to be
    issued under, and consistent with the limitations of, Section 10.04(ii)
    shall be permitted;

<PAGE>

                                      -77-

         (xii)    the Indebtedness permitted to be issued under, and consistent
    with the limitations of, Section 10.04(xvii), shall be permitted;

         (xiii)   the Dividends permitted to be issued under, and consistent
    with the limitations of, Section 10.03(iii), shall be permitted;

         (xiv)    the Indebtedness permitted to be issued under, and consistent
    with the limitations of, Section 10.04(xv), shall be permitted; and

         (xv)     the loans permitted to be issued under, and consistent with
    the limitations of, Section 10.05(xi), shall be permitted.

         10.07    Capital Expenditures. The Company will not, and will not
permit any of its Subsidiaries to, make any Capital Expenditures, except that
the Company and its Subsidiaries may make Capital Expenditures during any fiscal
year in an aggregate amount not to exceed $8.0 million for fiscal year 2004 and
each fiscal year thereafter, provided, that the Company may roll forward to the
following year an amount equal to one-half of any unused amount of Planned
Capital Expenditures for the previous fiscal year, in addition to the amount
otherwise permitted hereunder for such fiscal year.

         10.08    Consolidated Interest Coverage Ratio. The Company will not
permit the Consolidated Interest Coverage Ratio for any Test Period ended on the
last day of a fiscal quarter to be less than the ratio set forth opposite such
fiscal quarter below:

<TABLE>
<CAPTION>
                                                                  Ratio shall not be less
               Fiscal Quarter Ended on or about                            than:
----------------------------------------------------------------  -----------------------
<S>                                                               <C>
March 31, 2004..................................................     Requirement Waived
June 30, 2004...................................................     Requirement Waived
September 30, 2004..............................................     Requirement Waived
December 31, 2004...............................................     Requirement Waived
March 31, 2005..................................................     Requirement Waived
June 30, 2005...................................................     Requirement Waived
September 30, 2005..............................................         2.50 to 1.0
December 31, 2005...............................................         2.80 to 1.0
March 31, 2006..................................................         3.30 to 1.0
June 30, 2006...................................................         3.90 to 1.0
</TABLE>

         10.09    Consolidated Fixed Charge Coverage Ratio. The Company will not
permit the Consolidated Fixed Charge Coverage Ratio for any Test Period ended on
the last day of a fiscal quarter to be less than the ratio set forth opposite
such fiscal quarter below:

<PAGE>

                                      -78-

<TABLE>
<CAPTION>
                                                                    Ratio shall not be less
              Fiscal Quarter Ended on or about                              than:
---------------------------------------------------------------     ------------------------
<S>                                                                 <C>
March 31, 2004.................................................          0.47 to 1.0
June 30, 2004..................................................          0.63 to 1.0
September 30, 2004.............................................          0.71 to 1.0
December 31, 2004..............................................          0.89 to 1.0
March 31, 2005.................................................          1.18 to 1.0
June 30, 2005..................................................          1.48 to 1.0
September 30, 2005.............................................          1.30 to 1.0
December 31, 2005..............................................          1.40 to 1.0
March 31, 2006.................................................          1.50 to 1.0
June 30, 2006..................................................          1.60 to 1.0
</TABLE>

         10.10    Leverage Ratios. (a) The Company will not permit the Leverage
Ratio for any Test Period ended on the last day of a fiscal quarter to be
greater than the ratio set forth opposite such fiscal quarter below:

<TABLE>
<CAPTION>
                                                                    Ratio shall not be less
              Fiscal Quarter Ended on or about                              than:
---------------------------------------------------------------     ------------------------
<S>                                                                 <C>
March 31, 2004.................................................          17.0 to 1.0
June 30, 2004..................................................          12.3 to 1.0
September 30, 2004.............................................          10.8 to 1.0
December 31, 2004..............................................           8.4 to 1.0
March 31, 2005.................................................           5.9 to 1.0
June 30, 2005..................................................           4.4 to 1.0
September 30, 2005.............................................           3.6 to 1.0
December 31, 2005..............................................           3.3 to 1.0
March 31, 2006.................................................           3.0 to 1.0
June 30, 2006..................................................           2.8 to 1.0
</TABLE>

    (b)  The Company will not permit the Senior Leverage Ratio for any Test
Period ended on the last day of a fiscal quarter to be greater than the ratio
set forth opposite such fiscal quarter below:

<TABLE>
<CAPTION>
                                                                    Ratio shall not be less
              Fiscal Quarter Ended on or about                              than:
---------------------------------------------------------------     ------------------------
<S>                                                                 <C>
March 31, 2004..................................................       Requirement Waived
June 30, 2004...................................................       Requirement Waived
September 30, 2004..............................................       Requirement Waived
</TABLE>

<PAGE>

                                      -79

<TABLE>
<CAPTION>
                                                                    Ratio shall not be less
              Fiscal Quarter Ended on or about                              than:
---------------------------------------------------------------     ------------------------
<S>                                                                 <C>
December 31, 2004...............................................       Requirement Waived
March 31, 2005..................................................       Requirement Waived
June 30, 2005...................................................       Requirement Waived
September 30, 2005..............................................             2.10 to 1
December 31, 2005...............................................             2.00 to 1
March 31, 2006..................................................             1.80 to 1
June 30, 2006...................................................             1.60 to 1
</TABLE>

         10.11    Minimum EBITDA.

         The Company will not permit Consolidated EBITDA for any Test Period
ended on the last day of a fiscal quarter to be less than the amount set forth
opposite such fiscal quarter below.

<TABLE>
<CAPTION>
                                                Ratio shall not be less
Fiscal Quarter Ended on or about                          than:
--------------------------------                -----------------------
<S>                                             <C>
March 31, 2004                                        $14,656,000
June 30, 2004                                         $20,717,000
September 30, 2004                                    $23,817,000
December 31, 2004                                     $30,017,000
March 31, 2005                                        $40,300,000
June 30, 2005                                         $49,459,000
September 30, 2005                                    $62,000,000
December 31, 2005                                     $66,000,000
March 31, 2006                                        $73,500,000
June 30, 2006                                         $78,800,000
</TABLE>

         10.12    Limitation on Modifications of Indebtedness; Modifications of
Certificate of Incorporation, By-Laws and Certain Other Agreements; Etc. Each of
Holdings and the Company will not, and the Company will not permit any of its
Subsidiaries to,

         (i) amend or modify, or permit the amendment or modification of, any
provision of the Existing Indebtedness or of any agreement (including, without
limitation, any purchase agreement, indenture, loan agreement or security
agreement) relating to any Existing Indebtedness, other than any amendments or
modifications to the Existing Indebtedness (other than Existing Indebtedness and
the agreements related thereto subject to the restrictions in clause (iv)
hereof) which do not in any way adversely affect the interests of the Holders
under the Notes and are otherwise permitted under Section 10.04(iii) and except
to the extent per-

<PAGE>

                                      -80

mitted by Section 10.12 of the Senior Subordinated Note Purchase Agreement as in
effect as of the date hereof;

         (ii) make (or give any notice in respect of) any cash interest payments
on the Senior Subordinated Notes or any other Subordinated Debt or any voluntary
or optional or mandatory payment or prepayment on or redemption or acquisition
for value of such Senior Subordinated Notes or other Subordinated Debt, or any
prepayment or redemption as a result of any asset sale, change of control or
similar event in respect of the Senior Subordinated Notes or other Subordinated
Debt; except:

                  (w) with respect to that portion of the Net Cash Proceeds from
         a Qualified Public Equity Offering or the KSI Sale paid to holders of
         the Senior Subordinated Notes under and in accordance with the
         Restructuring Agreement, so long as permitted under the Senior Credit
         Agreement and so long as no Event of Default is continuing hereunder;

                  (x) interest payments and principal payments at maturity on
         the Senior Subordinated Notes in accordance with the terms of Article
         16 of the Senior Subordinated Note Purchase Agreement;

                  (y) refinancing of the Senior Subordinated Notes on terms that
         do not adversely effect the interests of the Holders in any material
         respect; and

                  (z) the repayment in full of the Shareholder Bridge Agreement
         on or about the Closing Date in an amount not to exceed $5.0 million
         plus interest stated thereon through the date of repayment.

         (iii) amend, modify, change or replace its Certificate of Incorporation
(including, without limitation, by the filing or modification of any certificate
of designation) or By-Laws (or equivalent organizational documents) or any
agreement entered into by it, with respect to its capital stock (or equivalent
interests), or enter into any new agreement with respect to its capital stock,
other than any amendments, modifications, changes or replacements pursuant to
this clause (iii) or any such new agreements pursuant to this clause (iii) which
do not in any way adversely affect in any material respect the interests of the
Holders, provided, that to the extent amendments to the Restated Shareholders
Agreement, By-Laws or Certificate of Incorporation are required to effectuate
the transactions contemplated by the Restructuring Agreement, such amendments
shall be permitted;

         (iv) amend, modify or permit the amendment, modification of, any
provision of any of the Senior Credit Agreement, or any documents setting forth
the terms of or governing any Subordinated Debt (including, without limitation,
the increase of interest rates or fees payable under any such documents), other
than amendments or modifications which do not

<PAGE>

                                       81

adversely affect the interests of the Holders, or make any principal, cash
interest or other payments on any such Subordinated Debt (including but not
limited to the repurchase or retirement of such Indebtedness prior to its
maturity) except as permitted by clause (ii) of this Section 10.12;

         (v) reborrow any amounts repaid at any time under the Revolving Loans
(under and as defined in the Senior Credit Agreement) in connection with a
commensurate reduction of commitments, including, without limitation any amount
repaid pursuant to Section 10.02 and 10.14 of this Agreement or the mandatory
prepayment provisions of Section 4.02 of the Senior Credit Agreement; or

         (vi) notwithstanding anything else to the contrary herein, Holdings,
the Company and their Subsidiaries may undertake the transactions (and make
necessary modifications to documentation) in order to complete the Phase I
Restructuring on the terms and as defined in the Restructuring Agreement.

         10.13    Limitation on Certain Restrictions on Subsidiaries. Each of
Holdings and the Company will not, and the Company will not permit any of its
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
such Subsidiary to

         (a) pay dividends or make any other distributions on its capital stock
or any other interest or participation in its profits owned by the Company or
any Subsidiary of the Company, or pay any Indebtedness owed to the Company or a
Subsidiary of the Company,

         (b) make loans or advances to the Company or any of the Company's
Subsidiaries, or

         (c) transfer any of its properties or assets to the Company or any of
the Company's Subsidiaries,

except for such encumbrances or restrictions existing under or by reason of (i)
applicable law, (ii) this Agreement, the Senior Credit Documents and the Senior
Subordinated Note Documents, (iii) customary provisions restricting subletting
or assignment of any Lease governing a leasehold interest of the Company or a
Subsidiary of the Company, (iv) customary provisions restricting assignment of
any agreement entered into by the Company or a Subsidiary of the Company in the
ordinary course of business, (v) Permitted Liens restricting the transfer of the
asset or assets subject thereto and (vi) restrictions which are not more
restrictive than those contained in this Agreement contained in any documents
governing any Indebtedness incurred after the Closing Date in accordance with
the provisions of this Agreement.

<PAGE>

                                      -82-

         10.14    Limitation on Issuance of Capital Stock. (a) Holdings has not
and will not issue any capital stock which is not Qualified Capital Stock. The
Company has not and will not issue any capital stock of any form other than as
set forth in Section 7.14.

         (b) The Company will not permit any of its Subsidiaries to issue any
capital stock (including by way of sales of treasury stock) or any options or
warrants to purchase, or securities convertible into, capital stock, except

         (i) for transfers and replacements of then outstanding shares of
    capital stock,

         (ii) for stock splits, stock dividends and additional issuances which
    do not decrease the percentage ownership of the Company or any of its
    Subsidiaries in any class of the capital stock of such Subsidiary,

         (iii) in the case of Foreign Subsidiaries of the Company, to qualify
    directors to the extent required by applicable law, and

         (iv) Subsidiaries of the Company formed after the Closing Date pursuant
    to Section 10.15 may issue capital stock to the Company or the respective
    Subsidiary of the Company which is to own such stock in accordance with the
    requirements of Section 9.11.

All capital stock issued in accordance with this Section 10.14(b) shall, to the
extent required by the Security Agreement, be delivered to the Collateral Agent
for pledge pursuant to the Security Agreement. In addition, to the extent that
any proceeds from the issuance of Qualified Capital Stock are used to pay down
Revolving Loans (under and as defined in the Senior Credit Agreement) the
Company simultaneously shall cause the Revolving Loan Commitments (under and as
defined in the Senior Credit Agreement) to be reduced by an amount equal to such
payment.

         10.15    Limitation on Creation of Subsidiaries. The Company shall not
establish, create or acquire any additional Subsidiaries without the prior
written consent of the Required Holders; provided that the Company may establish
or create one or more Wholly-Owned Subsidiaries of the Company without such
consent so long as (i) 100% of the capital stock of any new Domestic Subsidiary
owned by any Restricted Party (or all capital stock of any new Foreign
Subsidiary which is owned by any Restricted Party, except that not more than
66-2/3% of the voting stock of any such Foreign Subsidiary shall be required to
be so pledged) is as promptly as practicable after the creation or establishment
of any such new Subsidiary pledged and delivered to the Collateral Agent for the
benefit of the Secured Parties under the Security Agreement and (ii) upon the
creation or establishment of any such new Wholly-Owned Domestic Subsidiary, such
Wholly-Owned Domestic Subsidiary executes the

<PAGE>

                                      -83-

additional Security Documents and guaranty required to be executed by it in
accordance with Section 9.12.

         10.16    Business. (a) Notwithstanding anything to the contrary set
forth herein, Holdings will not engage in any business activities (other than
activities incidental to its corporate existence, as permitted under Section
10.04 and any other Capital Contribution Investments) and will have no assets or
liabilities, other than its ownership of the capital stock of the Company and
its Subsidiaries, any other Capital Contribution Investments and as permitted by
Section 10.04, including its liabilities pursuant to the Security Agreement and
its guarantee under this Agreement.

         (b) The Company will not, and will not permit any of its Subsidiaries
to, engage (directly or indirectly) in any business other than as currently
engaged and other businesses reasonably related thereto.

         10.17    Senior Indebtedness. In no event will the Company designate
any indebtedness as "Senior Indebtedness" for purposes of any documentation
relating to Existing Indebtedness (other than Senior Indebtedness) unless the
Required Holders specifically consent thereto in writing.

         10.18    Compensation. Any compensation paid by a Restricted Party (or
any affiliate of a Restricted Party) to any member of the Board of Directors of
a Restricted Party shall be for a customary purpose for, and in an amount that
is customarily paid to, board members.

         10.19    Alfa Laval Litigation Settlement. Neither KH LLC, the Company
nor any of their Affiliates shall settle the Alfa Laval Litigation without the
consent of the Required Holders hereunder, not to be unreasonably withheld.

         10.20    Amendments or Waivers of Related Agreements. Neither Holdings
nor the Company will agree to any material amendment to, or waive any of its
material rights under, or agree to terminate, the Restructuring Agreement
without in each case obtaining the consent of Required Holders to such
amendment, waiver or termination.

         SECTION 11.       Events of Default. (a) Upon the occurrence of any
of the following specified events (each an "Event of Default"):

         11.01    Payments. The Company shall (i) default in the payment when
due of any principal of any Note or (ii) default, and such default shall
continue unremedied for three or more Business Days, in the payment when due of
any interest on any Note, or any Fees or any other amounts owing hereunder; or

<PAGE>

                                      -84-

         11.02    Representations, Etc. Any representation, warranty or
statement made by any Restricted Party herein or in any other Transaction
Document or in any certificate delivered pursuant hereto or thereto shall prove
to be untrue in any material respect (or, with respect to any representation and
warranty that is qualified as to "materiality" or "Material Adverse Effect,"
shall prove to be untrue in any respect) on the date as of which made or deemed
made; or

         11.03    Covenants. (i) Any Restricted Party shall default in the due
performance or observance by it of any term, covenant or agreement contained in
Section 7.08(a), Section 9.01(g), 9.08, 9.11(b), 9.19 or Section 10, (ii) the
Company shall default in the due observance or performance of the covenants to
be observed or performed pursuant to Section 9.01 (except subsection (g)
thereof) and such default shall continue for the first to occur of (x) five
Business Days after delivery by the Required Holders of notice thereof and (y)
30 days, or (iii) any Restricted Party default in the due performance or
observance by it of any other term, covenant or agreement contained in this
Agreement and such default shall continue unremedied either 30 days or for such
lesser period of time ending on the date that is 5 Business Days after delivery
by a Holder or notice thereof; or

         11.04    Default Under Other Agreements. Any Restricted Party shall:

         (i) default in any payment of any Indebtedness (other than the
Obligations) beyond the period of grace, if any, provided in the instrument or
agreement under which such Indebtedness was created or

         (ii) default in the observance or performance of any agreement or
condition relating to any Indebtedness (other than the Obligations) or contained
in any instrument or agreement evidencing, securing or relating thereto, or any
other event shall occur or condition exist, the effect of which default or other
event or condition is to cause, or to permit the holder or holders of such
Indebtedness (or a trustee or agent on behalf of such holder or holders) to
cause (determined without regard to whether any notice is required), any such
Indebtedness to become due prior to its stated maturity or

         (iii) any Indebtedness (other than the Obligations) of any Restricted
Party shall be declared to be due and payable, or required to be prepaid other
than by a regularly scheduled required prepayment, prior to the stated maturity
thereof;

provided that it shall not be a Default or Event of Default under this Section
11.04 unless the aggregate principal amount of all Indebtedness as described in
preceding clauses (i) through (iii), inclusive, is at least $2.0 million; or

         11.05    Bankruptcy, Etc. Holdings, the Company or any of its
Subsidiaries (other than an Immaterial Subsidiary) shall commence a voluntary
case concerning itself un-

<PAGE>

                                      -85-

der Title 11 of the United States Code entitled "Bankruptcy," as now or
hereafter in effect, or any successor thereto (the "Bankruptcy Code"); or an
involuntary case is commenced against Holdings, the Company or any of its
Subsidiaries (other than an Immaterial Subsidiary) and the petition is not
controverted within 15 days, or is not dismissed within 60 days, after
commencement of the case; or a custodian (as defined in the Bankruptcy Code) is
appointed for, or takes charge of, all or substantially all of the property of
Holdings, the Company or any of its Subsidiaries (other than an Immaterial
Subsidiary) or Holdings, the Company or any of its Subsidiaries (other than an
Immaterial Subsidiary) commences any other proceeding under any reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction whether now or hereafter in
effect relating to Holdings, the Company or any of its Subsidiaries (other than
an Immaterial Subsidiary) or there is commenced against Holdings, the Company or
any of its Subsidiaries (other than an Immaterial Subsidiary) any such
proceeding which remains undismissed for a period of 60 days, or Holdings, the
Company or any of its Subsidiaries (other than an Immaterial Subsidiary) is
adjudicated insolvent or bankrupt; or any order of relief or other order
approving any such case or proceeding is entered; or Holdings, the Company or
any of its Subsidiaries (other than an Immaterial Subsidiary) suffers any
appointment of any custodian or the like for it or any substantial part of its
property to continue undischarged or unstayed for a period of 60 days; or
Holdings, the Company or any of its Subsidiaries (other than an Immaterial
Subsidiary) makes a general assignment for the benefit of creditors; or any
corporate action is taken by Holdings, the Company or any of its (other than an
Immaterial Subsidiary) Subsidiaries for the purpose of effecting any of the
foregoing; or

         11.06    ERISA. (a) Any Plan shall fail to satisfy the minimum funding
standard required for any plan year or part thereof under Section 412 of the
Code or Section 302 of ERISA or a waiver of such standard or extension of any
amortization period is sought or granted under Section 412 of the Code or
Section 303 or 304 of ERISA, a Reportable Event shall have occurred, a
contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan
subject to Title IV of ERISA shall be subject to the advance reporting
requirement of PBGC Regulation Section 4043.61 (without regard to subparagraph
(b)(1) thereof) and an event described in subsection .62, .63, .64, .65, .66,
..67 or .68 of PBGC Regulation Section 4043 shall be reasonably expected to occur
with respect to such Plan within the following 30 days, any Plan which is
subject to Title IV of ERISA shall have had a trustee appointed to administer
such Plan, any Plan or Multiemployer Plan which is subject to Title IV of ERISA
is, or shall have been terminated or is the subject of termination proceedings
under ERISA, a contribution required to be made by the Company or any of its
Subsidiaries with respect to a Plan or Multiemployer Plan or a Foreign Pension
Plan has not been timely made, the Company has incurred any liability to or on
account of a Plan or Multiemployer Plan under Section 409, 502(i), 502(l), 515,
4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971
or 4975 of the Code or on account of a group health plan (as defined in Section
607(l) of ERISA or Section 4980B(g)(2) of the Code) under Section 4980B of the
Code,

<PAGE>

                                      -86-

or the Company, or any of its Subsidiaries has incurred or is reasonably likely
to incur liabilities pursuant to one or more employee welfare benefit plans (as
defined in Section 3(l) of ERISA) that provide benefits to retired employees or
other former employees (other than as required by Section 601 of ERISA);

         (b) there shall result from any such event or events the imposition of
a Lien, the granting of a security interest, or a liability or a material risk
of incurring a liability; and

         (c) such Lien, or security interest or liability, individually, and/or
in the aggregate, has a Material Adverse Effect; or

         11.07    Security Documents. At any time after the execution and
delivery thereof, any of the Security Documents shall cease to be in full force
and effect, or shall cease in any material respect to give the Collateral Agent
for the benefit of the Secured Parties the liens, rights, powers and privileges
purported to be created thereby (including, without limitation, a perfected
security interest in, and lien on, all of the Collateral), in favor of the
Collateral Agent, superior to and prior to the rights of all third Persons
(except as permitted by Section 10.01), and subject to no other liens (except as
permitted by Section 10.01), or any Restricted Party shall default in the due
performance or observance of any term, covenant or agreement on its part to be
performed or observed pursuant to any of the Security Documents and such default
shall continue beyond any grace period (if any) specifically applicable thereto
pursuant to the terms of such Security Document; or

         11.08    Guaranty. Any Guaranty (other than any Guaranty by the KSI
Entities) or any provision thereof shall cease to be in full force or effect as
to the relevant Guarantor (unless, in the case of a Guarantor that is a
Subsidiary, such Guarantor is no longer a Subsidiary by virtue of a liquidation,
sale, merger or consolidation permitted by Section 10.02 or with respect to any
Immaterial Subsidiary that is in circumstances described in Section 11.05), or
any Guarantor (other than the KSI Entities) or Person acting by or on behalf of
such Guarantor shall deny or disaffirm such Guarantor's obligations under the
relevant Guaranty, or any Guarantor (other than the KSI Entities) shall default
in the due performance or observance of any term, covenant or agreement on its
part to be performed or observed pursuant to its Guaranty; or

         11.09    Judgments. One or more judgments or decrees shall be entered
against any one or more Restricted Parties and such judgments and decrees either
shall be final and non-appealable or shall not be vacated, discharged or stayed
for any period of 30 consecutive days, and the aggregate amount of all such
judgments (to the extent not paid or to the extent not covered by insurance
provided by a carrier that has acknowledged coverage) equals or exceeds $2.0
million (or in the case of non-monetary judgments or decrees, has or is
reasonably likely to have a Material Adverse Effect); or
<PAGE>

                                      -87-

                  11.10 Change of Control. A Change of Control shall occur; or

                  11.11 Conviction. Any Restricted Party shall be convicted
under any criminal law that could lead to a forfeiture of any property of such
entity;

                  11.12 Alfa Laval Litigation. The Alfa Laval Litigation shall
result in costs, expense, settlement or judgment that in the aggregate exceed
$15.0 million, regardless of the source of payment to satisfy such settlement or
judgment.

(b) upon the occurrence of any such Event of Default, and in any such event, and
at any time thereafter, if any Event of Default shall then be continuing, the
Agent shall (at the request of the Required Holders), by written notice to the
Company, take any or all of the following actions, without prejudice to the
rights of any Holder to enforce its claims against any Restricted Party
(provided that, if an Event of Default specified in Section 11.05 shall occur
with respect to the Company, the result which would occur upon the giving of
written notice by the Agent to the Company as specified in clause (i) below
shall occur automatically without the giving of any such notice):

                  (i) declare the principal of and any accrued interest in
respect of all Notes and all Obligations owing hereunder and thereunder to be,
whereupon the same shall become, forthwith due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
each Restricted Party; and

                  (ii) enforce all of the liens and security interests created
pursuant to the Security Documents.

(c) If any Holder has instituted any proceeding to enforce any right or remedy
under this Agreement and such proceeding has been discontinued or abandoned for
any reason, or has been determined adversely to such Holder, then and in every
such case the Company and the Holders shall, subject to any determination in
such proceeding, be restored severally and respectively to their former
positions hereunder, and thereafter all rights and remedies of the Holders shall
continue as though no such proceeding had been instituted.

                  SECTION 12. Definitions and Accounting Terms.

                  12.01 Defined Terms. As used in this Agreement, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):

                  "Abandonment Agreement" means the agreement dated as of even
date herewith by which the holders of Senior Subordinated Notes prior to the
date hereof surrendered certain fees to the Company for cancellation.

<PAGE>
                                      -88-

                  "Additional Subordinated Indebtedness" shall mean unsecured
Indebtedness of the Company that is contractually subordinated to any
Indebtedness of the Company and permitted hereunder by Section 10.04(ii)(a) and
having terms, covenants and conditions, including subordination, remedies
standstill and the like, no more favorable than those set forth in the Senior
Subordinated Notes.

                  "Additional Units Letter" shall mean that certain Additional
Units Side Agreement among KH LLC, the Purchasers party hereto and the
Purchasers party to the Senior Subordinated Note Purchase Agreement dated as of
the date hereof.

                  "Advisory Fee" shall have the meaning provided in Section
3.02.

                  "Affiliate" shall mean, with respect to any Person, any other
Person (including, for purposes of Section 11.06 only, all directors, officers
and partners of such Person) directly or indirectly Controlling, Controlled by,
or under direct or indirect common Control with, such Person; provided, however,
that for purposes of Section 11.06, an Affiliate of Holdings shall include any
Person that directly or indirectly owns more than 10% of any class of the
capital stock of Holdings and any officer or director of Holdings or any of its
Subsidiaries; provided, that none of the Purchasers shall be deemed to be an
Affiliate for purposes of this Agreement or the other Transaction Documents.

                  "Affiliated Person" shall, for purposes of Section 7.31, have
the meaning assigned to that term in Section 7.31(a).

                  "Agent" shall have the meaning set forth in the first
paragraph of this Agreement.

                  "Agreement" shall have the meaning given thereto in the first
paragraph hereof.

                  "Alfa Laval Litigation" shall mean the suit filed on March 19,
2004 (including any replacement thereof or modification thereto) brought by Alfa
Laval against the Company in relation to the sale of BioKinetics, Inc.

                  "Amendment No. 1" shall have the meaning provided in the
preambles hereof.

                  "Ares Assignment and Assumption Agreement" shall mean the
Assignment and Assumption Agreement, dated as of the date hereof, by and between
J.H. Whitney Mezzanine Fund, L.P., J.H. Whitney Market Value Fund, LLC, The
Northwestern Mutual Life Insurance Company, Albion Alliance Mezzanine Fund II,
L.P., Deutsche Bank Securities, Inc. and Ares Corporate Opportunities Fund,
L.P., MidOcean Celerity Investment Partners, L.P., Behrman Capital Partners and
Gryphon Investors.

<PAGE>
                                      -89-

                  "Asset Sale" shall mean any sale, transfer, issuance or other
disposition by any Restricted Party to any Person (including by way of
redemption by such Person) of any property (including, without limitation, any
capital stock or other securities of, or equity interests in, another Person)
(other than dispositions resulting in Net Cash Proceeds from Recovery Events).

                  "Bankruptcy Code" shall have the meaning provided in Section
11.05.

                  "Base Amount" shall have the meaning provided in Section 1(a).

                  "Behrman" shall have the meaning provided in the preamble
hereto.

                  "Business Day" shall mean any day other than a Saturday,
Sunday or other day on which commercial banks generally in the City of New York
are authorized or required by law or executive order to close.

                  "Capital Contribution Investments" shall mean the offering and
sale of common or preferred equity of Holdings, as applicable.

                  "Capital Expenditures" shall mean, with respect to any Person,
all expenditures by such Person which are or are required to be capitalized in
accordance with GAAP, including all such expenditures with respect to fixed or
capital assets (including, without limitation, expenditures for maintenance and
repairs which should be capitalized in accordance with GAAP) and the amount of
Capitalized Lease Obligations incurred by such Person.

                  "Capitalized Lease Obligations" of any Person shall mean all
rental obligations which, under GAAP, are or will be required to be capitalized
on the books of such Person, in each case taken at the amount thereof accounted
for as indebtedness in accordance with such principles.

                  "Cash Equivalents" shall mean, as to any Person, (i)
securities issued or directly and fully guaranteed or insured by the United
States or any agency or instrumentality thereof (provided that the full faith
and credit of the United States is pledged in support thereof) having maturities
of not more than one year from the date of acquisition, (ii) time deposits and
certificates of deposit of any commercial bank having, or which is the principal
banking subsidiary of a bank holding company organized under the laws of the
United States, any State thereof or the District of Columbia having capital,
surplus and undivided profits aggregating in excess of $500 million and rated at
least AAA or the equivalent thereof by Standard & Poor's Rating Services, with
maturities of not more than one year from the date of acquisition by such
Person, (iii) repurchase obligations with a term of not more than 90 days for
underlying securities of the types described in clause (i) above entered into
with any bank meeting the qualifications specified in clause (ii) above, (iv)
commercial paper issued by any

<PAGE>
                                      -90-

Person incorporated in the United States rated at least A-1 or the equivalent
thereof by Standard & Poor's Rating Services or at least P-1 or the equivalent
thereof by Moody's Investors Service, Inc. and in each case maturing not more
than one year after the date of acquisition by such Person, and (v) investments
in money market funds substantially all of whose assets are comprised of
securities of the types described in clauses (i) through (iv) above.

                  "Celerity Junior Subordinated Notes" shall mean those certain
12.5% junior subordinated promissory notes made by KSI in favor of certain
existing holders of the equity interests of Holdings in the aggregate initial
principal amount of up to $15,750,000, as the same may be amended, restated or
otherwise modified from time to time to the extent that such amendment,
restatement or modification would be permitted pursuant to Section 10.12 hereof,
only to the extent that such notes have become the obligation of the Company (or
Holdings following the merger of the Company into Holdings as set forth in the
Restructuring Agreement) pursuant to the Shareholder Rescission Letter.

                  "CERCLA" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as the same may be amended from time to
time, 42 U.S.C. Sections 9601 et seq.

                  "Certificate of Incorporation" shall mean, unless the context
in which it is used shall otherwise require, the Certificate of Incorporation
(or similar organizational documents) of Holdings or any of its Subsidiaries.

                  "Change of Control" shall mean, at any time, a Liquidation
Event, a Change of Control under and as defined in the Senior Subordinated Note
Purchase Agreement or (a) the failure of Holdings to own directly shares
representing 100% of the aggregate ordinary voting power and economic interest
represented by the issued and outstanding capital stock of the Company; (b) the
failure of KH LLC prior to an initial public offering of the stock of Holdings
to own directly shares representing 100% of the aggregate ordinary voting power
and economic interest represented by the issued and outstanding capital stock of
Holdings (other than options issued to employees, and shares of capital stock
issued upon the exercise thereof, in an amount not to exceed 12.5% of the
fully-diluted capital stock of Holdings); (c) prior to the consummation of a
Qualified Public Equity Offering, during any period of two consecutive years,
individuals who at the beginning of such period constituted the board of
directors (together with any new directors whose election by such board of
directors or whose nomination for election by the shareholders of the Company,
as the case may be, was approved by a vote of at least a majority of the
directors of the Company then still in office) cease for any reason to
constitute a majority of the board of directors of the Company then in office;
or (d) prior to the consummation of a Qualified Public Equity Offering, (i) the
failure of the Permitted Holders (x) to own beneficially (within the meaning of
the Exchange Act and the rules of the SEC thereunder as in effect on the date
hereof except that beneficial ownership shall include all shares that any Person
has the right to acquire, whether such right is exercis-

<PAGE>
                                      -91-

able immediately or only after the passage of time), either directly or through
KH LLC shares representing more than 50% of the aggregate ordinary voting power
represented by the issued and outstanding capital stock of Holdings and (y) to
maintain the power to elect, or cause to be elected, a majority of the directors
of Holdings and KH LLC; or (ii) the failure of MidOcean and its Affiliates to
collectively beneficially own at least 50% of their interest in KH LLC or the
capital stock of Holdings, in each case owned by them as of the date of this
Agreement; provided, that so long as (x) the Unitholders Agreement is in full
force and effect and (y) United States Filter Corporation is contractually
required to vote its shares of common stock in favor of the nominees of the
Permitted Holders to Holdings' Board of Directors as set forth in Section 5.1 of
the Unitholders Agreement (or any substantially similar provision of the
Unitholders Agreement, as amended, amended and restated, or replaced), then the
exercise of the United Filter Warrants by United States Filter Corporation shall
not be deemed a Change of Control so long as the Permitted Holders maintain the
power to elect or cause to be elected, a majority of the directors of Holdings.
Notwithstanding the foregoing, it shall not be a Change of Control if the
Permitted Holders fail to own at least 50% of the capital stock of the Company
or Holdings following a Qualified Public Equity Offering; provided that the
Permitted Holders continue (i) to own beneficially (within the meaning of the
Exchange Act and the rules of the SEC thereunder as in effect on the date hereof
except that beneficial ownership shall include all shares that any Person has
the right to acquire, whether such right is exercisable immediately or only
after the passage of time) either directly or through KH LLC shares representing
(x) more than 35% of the aggregate ordinary voting power of KH LLC and (y) more
of the aggregate ordinary voting power of KH LLC than any other Person or group
of related Persons for purposes of Section 13(d) of the Exchange Act owns
beneficially and of record, as determined above.

                  "Closing" shall have the meaning provided in Section 3.01.

                  "Closing Date" shall have the meaning provided in Section
3.01.

                  "Code" shall mean the Internal Revenue Code of 1986, as
amended, or any successor statute thereto.

                  "Collateral" shall mean all of the Pledged Collateral, the
Mortgaged Property Collateral and all other property of whatever kind and nature
pledged as collateral under any Security Document.

                  "Collateral Account" shall have the meaning provided in the
Security Agreement.

                  "Collateral Agent" shall have the meaning provided in the
Security Agreement.

<PAGE>
                                      -92-

                  "Company" shall have the meaning set forth in the first
paragraph of this Agreement.

                  "Common Stock" shall mean the common stock of Holdings, par
value $0.01 per share, or any other capital stock of Holdings into which such
stock is reclassified or reconstituted.

                  "Company Intellectual Property" shall have the meaning
provided in Section 7.20(a).

                  "Consolidated Cash Interest Expense" shall mean, for any
period, the total consolidated cash interest expense of the Company and its
Consolidated Subsidiaries for such period (calculated without regard to any
limitations on the payment thereof) plus, without duplication, (a) charges in
connection with indemnification of surety providers for domestic operations and
(b) that portion of Capitalized Lease Obligations of the Company and its
Consolidated Subsidiaries representing the interest factor for such period, but
excluding the amortization of any deferred financing costs incurred in
connection with this Agreement, the Senior Credit Agreement or the Senior
Subordinated Note Purchase Agreement; provided that (x) in the event that the
period for which the Consolidated Interest Coverage Ratio is being determined
includes any period prior to the Closing Date, the Consolidated Interest
Coverage Ratio shall be determined on a pro forma basis to give effect to any
Indebtedness incurred on or after the Closing Date (including, without
limitation, the Loans (under and as defined in the Senior Credit Agreement), the
Senior Subordinated Notes and the Notes) as if such Indebtedness has been
incurred at the beginning of such period and had remained outstanding throughout
such period and (y) for the purposes of calculating Consolidated Cash Interest
Expense for any period pursuant to any determination of the Consolidated
Interest Coverage Ratio or the Consolidated Fixed Charge Coverage Ratio, if
during such period the Company or its Subsidiaries shall have made a Permitted
Acquisition, utilizing in all cases recent audited (or, if no recent audited
financial statements are available, recent unaudited) financial statements of
the business or entity subject to such Permitted Acquisition, Consolidated Cash
Interest Expense for such period shall be calculated after giving pro forma
effect thereto and any Indebtedness incurred or assumed in connection therewith
as if such Permitted Acquisition occurred and such Indebtedness had been
incurred or assumed on the first day of such period.

                  "Consolidated EBIT" shall mean, for any period, the
Consolidated Net Income for such period, before interest expense and provision
for taxes based on income and without giving effect to any extraordinary gains
or losses or gains or losses from sales of assets other than inventory sold in
the ordinary course of business.

                  "Consolidated EBITDA" shall mean Consolidated EBIT plus, in
each case that such items were deducted in arriving at Consolidated Net Income
for such period and without duplication (i) the amortization of intangibles and
depreciation, (ii) fees paid in connection

<PAGE>
                                      -93-

with the amendment, amendment and restatement, supplement, modification or
waiver of Indebtedness, (iii) non-operating costs in connection with the
issuance of Indebtedness, (iv) non-transactional, non-cash, mark-to-market
adjustments on real estate and Investments, (v) non-cash impairment charges
required under FAS 142 promulgated by the Financial Accounting Standards Board,
(vi) the non-cash write-down of long-lived assets under FAS 144 promulgated by
the Financial Accounting Standards Board, and (vii) non-cash deferred and/or
variable compensation charges, (viii) non-cash charges that may arise from the
contribution of the Junior Subordinated Notes to KSI and all other non-cash debt
retirement costs as contemplated in the Restructuring Agreement, and (ix) any
cancellation of indebtedness expense that may arise in the event there is a
rescission of the contribution of the Junior Subordinated Notes as contemplated
in the Shareholder Rescission Letter. Notwithstanding the foregoing, the costs
and expenses incurred in connection with (x) the Transactions and (y) the
Qualified Public Equity Offering shall each be excluded from the calculation of
Consolidation EBITDA.

                  "Consolidated Fixed Charge Coverage Ratio" shall mean, for any
period, the ratio of (i) Consolidated EBITDA for such period to (ii)
Consolidated Fixed Charges for such period; provided that in the event that the
period for which the Consolidated Fixed Charge Coverage Ratio is being
determined includes any period prior to the Closing Date, the Consolidated Fixed
Charge Coverage Ratio shall be determined on a pro forma basis to give effect to
any Indebtedness incurred on or after the Closing Date (including, without
limitation, the Notes and the Senior Subordinated Notes) as if such Indebtedness
had been incurred at the beginning of such period and had remained outstanding
throughout such period.

                  "Consolidated Fixed Charges" shall mean, for any period, the
sum, without duplication, of (i) Consolidated Cash Interest Expense for such
period, (ii) the amount of all Capital Expenditures made by the Company and its
Subsidiaries pursuant to Section 10.07 for such period, and (iii) the amount of
all cash payments made by the Company and its Subsidiaries in respect of income
taxes or income tax liabilities for such period net of any cash income tax
refunds actually received by the Company and its Subsidiaries during such
period.

                  "Consolidated Indebtedness" shall mean, as at any date of
determination, the aggregate principal amount of all Indebtedness for borrowed
money of the Company and its Subsidiaries on a consolidated basis; provided that
Indebtedness outstanding pursuant to trade payables incurred in the ordinary
course of business shall be excluded in determining Consolidated Indebtedness.

                  "Consolidated Interest Coverage Ratio" shall mean, for any
period, the ratio of (i) Consolidated EBITDA for such period to (ii)
Consolidated Cash Interest Expense for such period; provided, that in the event
that the period for which the Consolidated Interest Coverage Ratio is being
determined includes any period prior to the Closing Date, the Consolidated
Interest Coverage Ratio shall be determined on a pro forma basis to give effect
to any Indebtedness incurred on or after the Closing Date (including, without
limitation, the Notes and the

<PAGE>
                                      -94-

Senior Subordinated Notes) as if such Indebtedness had been incurred at the
beginning of such period and had remained outstanding throughout such period.

                  "Consolidated Net Income" shall mean, for any period, the
consolidated net after tax income of the Company and its Consolidated
Subsidiaries determined in accordance with GAAP; provided that in the event that
(x) the period for which Consolidated Net Income is being determined includes
any period prior to the Closing Date, the Consolidated Net Income shall be
determined on the basis of the consolidated net after tax income of the Company
and its Consolidated Subsidiaries prior to the Closing Date and (y) if any
Permitted Acquisition occurs at any time during such period, utilizing in all
cases recent audited (or if no recent audited financial statements are
available, recent unaudited) financial statements of such Permitted Acquisition,
Consolidated Net Income shall be calculated on a pro forma basis to (I) include
actual earnings of the acquired entity or business for such entire period prior
to such Permitted Acquisition as if such Permitted Acquisition had taken place
on the first day of such period, all as reasonably calculated by the Company
based on actual results of operations of the acquired entity or business, (II)
add back one-time or non-recurring, non-cash charges in connection with such
Permitted Acquisition (provided that any such charges are calculated in
accordance with Regulation S-X under the Securities Act) and (III) add back
one-time or non-recurring, non-cash charges relating to in-process research and
development calculated in accordance with GAAP and only to the extent that such
charges do not exceed $10,000,000 in the aggregate for any fiscal year and, all
as reasonably calculated by the Company based on actual results of operations of
the acquired entity or business.

                  "Consolidated Subsidiaries" shall mean, as to any Person, all
Subsidiaries of such Person which are consolidated with such Person for
financial reporting purposes in accordance with GAAP.

                  "Contested Liens" shall mean, collectively any Liens incurred
in respect of any charges imposed on or against all or any portion of the
Collateral to the extent that the amounts owing in respect thereof are not yet
delinquent or have been delinquent for no more than 30 days or are being
contested; provided, however, that such Liens shall in all respects be subject
and subordinate in priority to the Lien and security interest created and
evidenced by the Security Agreement, except if and to the extent that the law or
regulation creating, permitting or authorizing such Lien provides that such Lien
must be superior to the Lien and security interest created and evidenced
thereby.

                  "Contingent Obligation" shall mean, as to any Person, any
obligation of such Person guaranteeing or intended to guarantee any
Indebtedness, leases, dividends or other obligations ("primary obligations") of
any other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (i) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (ii) to advance or
supply funds (x) for the purchase

<PAGE>
                                      -95-

or payment of any such primary obligation or (y) to maintain working capital or
equity capital of the primary obligor or otherwise to maintain the net worth or
solvency of the primary obligor, (iii) to purchase property, securities or
services primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such primary
obligation or (iv) otherwise to assure or hold harmless the holder of such
primary obligation against loss in respect thereof; provided, however, that the
term Contingent Obligation shall not include endorsements of instruments for
deposit or collection in the ordinary course of business and any product
warranties extended in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determinable amount of the primary obligation in respect of which such
Contingent Obligation is made (or, if less, the maximum amount of such primary
obligation for which such Person may be liable pursuant to the terms of the
instrument evidencing such Contingent Obligation) or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof
(assuming such Person is required to perform thereunder) as determined by such
Person in good faith.

                  "Control" shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of a
Person, whether through the ability to exercise voting power, by contract or
otherwise. The terms "Controlling" and "Controlled" have meanings correlative
thereto.

                  "Copyrights" shall have the meaning assigned to that term in
Section 7.20(a).

                  "Covenant Defeasance" shall have the meaning assigned to that
term in Section 4.04(c).

                  "Default" shall mean any event, act or condition which with
notice or lapse of time, or both, would constitute an Event of Default.

                  "Disqualified Stock" shall mean any capital stock which, by
its terms (or by the terms of any security into which it is convertible or for
which it is exchangeable), or upon the happening of any event, (i) matures
(excluding any maturity as the result of an optional redemption by the issuer
thereof) or is mandatorily redeemable or is otherwise payable in full, pursuant
to a sinking fund obligation or otherwise, or is redeemable at the option of the
holder thereof, in whole or in part, at any time, or (ii) is convertible into or
exchangeable (unless at the sole option of the issuer thereof) for (a) debt
securities or (b) any capital stock referred to in (i) above, at any time;
provided, that no Existing Indebtedness shall be deemed Disqualified Stock for
purposes of this Agreement.

                  "Dividend" with respect to any Person, shall mean that such
Person has declared or paid a dividend or returned any equity capital to its
stockholders or members or authorized or made any other distribution, payment or
delivery of property (other than common

<PAGE>
                                      -96-

stock of such Person) or cash to its stockholders or members as such, or
redeemed, retired, purchased or otherwise acquired, directly or indirectly, for
consideration any shares of any class of its capital stock or membership
interests outstanding on or after the Closing Date (or any options or warrants
issued by such Person with respect to its capital stock), or set aside any funds
for any of the foregoing purposes, or shall have permitted any of its
Subsidiaries to purchase or otherwise acquire for consideration any shares of
any class of the capital stock of such Person outstanding on or after the
Closing Date (or any options or warrants issued by such Person with respect to
its capital stock). Without limiting the foregoing, "Dividends" with respect to
any Person shall also include all payments made or required to be made by such
Person with respect to any stock appreciation rights, plans, equity incentive or
achievement plans or any similar plans or setting aside of any funds for the
foregoing purposes.

                  "Dollars" and the sign "$" shall each mean lawful money of the
United States.

                  "Domestic Subsidiary" shall mean each Subsidiary of the
Company that is incorporated or organized in the United States, any State
thereof, the United States Virgin Islands or Puerto Rico.

                  "Domestic Wholly-Owned Subsidiary" shall mean each Domestic
Subsidiary that is a Wholly-Owned Subsidiary of the Company.

                  "Eligible Transferee" shall mean and include a commercial
bank, insurance company, financial institution, fund or other Person which
regularly purchases interests in notes of the type made pursuant to this
Agreement, any other Person which would constitute a "qualified institutional
buyer" within the meaning of Rule 144A under the Securities Act as in effect on
the Closing Date or other institutional "accredited investor" (as defined in
Regulation D of the Securities Act).

                  "Employee Benefit Plan" shall have the meaning given thereto
in Section 5.14.

                  "Environmental Claims" shall mean any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, directives,
claims, liens, notices of noncompliance or violation, investigations or
proceedings relating in any way to any Environmental Law or any permit issued,
or any approval given, under any such Environmental Law (hereafter, "Claims"),
including, without limitation, (a) any and all Claims by governmental or
regulatory authorities for enforcement, cleanup, removal, response, remedial or
other actions or damages (including, without limitation, natural resources
damages) pursuant to any applicable Environmental Law, and (b) any and all
Claims by any third party seeking damages, contribution, indemnification, cost
recovery, compensation or injunctive relief in connection with alleged injury or
threat of injury to health, safety or the environment, or personal injury or
property damage, due to the presence of Hazardous Materials.

<PAGE>
                                      -97-

                  "Environmental Law" shall mean any applicable Federal, state,
foreign or local statute, law, rule, regulation, ordinance, code, binding and
enforceable guideline, binding and enforceable written policy and rule of common
law now or hereafter in effect and in each case as amended, and any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, to the extent binding on Holdings, the
Company or any of their respective Subsidiaries, relating to the environment,
employee health and safety or Hazardous Materials, including, without
limitation, CERCLA; RCRA; the Federal Water Pollution Control Act, 33 U.S.C.
Sections 1251 et seq.; the Toxic Substances Control Act, 15 U.S.C. Sections 2601
et seq.; the Clean Air Act, 42 U.S.C. Sections 7401 et seq.; the Safe Drinking
Water Act, 42 U.S.C. Sections 3803 et seq.; the Oil Pollution Act of 1990, 33
U.S.C. Sections 2701 et seq.; the Emergency Planning and the Community
Right-to-Know Act of 1986, 42 U.S.C. Sections 11001 et seq.; the Hazardous
Material Transportation Act, 49 U.S.C. Sections 1801 et seq. and the
Occupational Safety and Health Act, 29 U.S.C. Sections 651 et seq.; and any
state and local or foreign counterparts or equivalents, in each case as amended
from time to time.

                  "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended, and the rules and regulations promulgated thereunder.

                  "ERISA Affiliate" shall mean each person (as defined in
Section 3(9) of ERISA) which together with Holdings or any of its Subsidiaries
would be deemed to be a "single employer" within the meaning of Section 414(b),
(c), (m) or (o) of the Code.

                  "Event of Default" shall have the meaning assigned to that
term in Section 11 hereof.

                  "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations of the SEC thereunder.

                  "Existing Indebtedness" shall mean the Indebtedness listed on
Schedule 7.21.

                  "Existing Notes" shall have the meaning provided in the
preambles hereof.

                  "Existing Purchase Agreement" shall have the meaning provided
in the preambles hereof.

                  "Existing Securities" shall have the meaning provided in the
preambles hereof.

                  "Existing Series B Notes" shall have the meaning provided in
the preambles hereof.

                  "Existing Series B Warrants" shall have the meaning provided
in the preambles hereof.

<PAGE>
                                      -98-

                  "Existing Warrants" shall have the meaning provided in the
preambles hereof.

                  "Fees" shall mean any amounts payable by the Company to the
Purchasers or the Agent in consideration for the purchase of the Notes and the
Warrants.

                  "First Amendment Effective Date" shall have the meaning
provided in Section 3.01 of Amendment No. 1.

                  "First Note Warrant" shall mean the First Note Warrant issued
by Holdings in favor of United States Filter Corporation pursuant to the Junior
Warrant Agreement.

                  "First Refinancing Offer" shall have the meaning provided in
Section 10.04(iii).

                  "First Seller Note" shall mean the First Note dated as of
August 30, 2000 in the initial principal amount of $25,000,000 issued by
Holdings in favor of United States Filter Corporation.

                  "Foreign Cash Equivalents" shall mean certificates of deposit
or bankers acceptances of any bank organized under the laws of Canada, Japan or
any country that is a member of the European Economic Community whose short term
commercial paper rating from Standard & Poor's Rating Services is at least A-1
or equivalent thereof or from Moody's Investors Service, Inc. is at least P-1 or
the equivalent thereof, in each case with maturities of not more than twelve
months from the date of acquisition.

                  "Foreign Pension Plan" shall mean any plan, fund (including,
without limitation, any superannuation fund) or other similar program
established or maintained outside the United States by the Company or any one or
more of its Subsidiaries primarily for the benefit of employees of the Company
or such Subsidiaries residing outside the United States, which plan, fund or
other similar program provides, or results in, retirement income, a deferral of
income in contemplation of retirement or payments to be made upon termination of
employment, and which plan is not subject to ERISA or the Code.

                  "Foreign Subsidiary" shall mean each Subsidiary of the Company
that is incorporated or organized under the laws of any jurisdiction other than
the United States of America, any State thereof, the United States Virgin
Islands or Puerto Rico.

                  "GAAP" shall have the meaning provided in Section 14.06(a).

                  "Governmental Authority" shall mean any Federal, state, local
or foreign court or governmental agency, authority, instrumentality or
regulatory body.

<PAGE>
                                      -99-

                  "Governmental Real Property Disclosure Requirements" shall
mean any Requirement of Law of any Governmental Authority requiring notification
of the buyer, mortgagee or assignee of Real Property, or notification,
registration, or filing to or with any Governmental Authority, prior to the
sale, mortgage or assignment of any Real Property or transfer of control of an
establishment, of the actual or threatened presence or release into the
environment, or the use, storage, treatment, disposal, or handling of Hazardous
Material on, at, under or near the Real Property to be sold or the establishment
for which control is to be transferred.

                  "Gryphon Partners" shall have the meaning set forth in the
definition of Gryphon Purchase Agreement, below.

                  "Gryphon Purchase Agreement" shall mean the Note and Warrant
Purchase Agreement dated as of July 17, 2003, among Holdings, the Company and
Gryphon Partners II, L.P. and Gryphon Partners II-A, L.P (collectively, "Gryphon
Partners") pursuant to which Gryphon Partners purchased $5,250,000 principal
amount of the Junior Subordinated Notes.

                  "Guaranteed Obligations" shall have the meaning provided in
Section 13.01.

                  "Guarantor" shall have the meaning assigned to that term in
the first paragraph hereof; provided that for purposes of Section 11.08, KH LLC
shall be considered a Guarantor by virtue of its obligations under the Parent
Non-Recourse Guaranty.

                  "Guaranty" shall mean the guaranty by Holdings and the
Subsidiary Guarantors pursuant to Section 13 hereof, the Parent Non-Recourse
Guaranty and any other guaranty executed and delivered by a Subsidiary of the
Company pursuant to Section 9.12.

                  "Hazardous Materials" shall mean (a) any petroleum or
petroleum products, radioactive materials, asbestos in any form that is friable,
ureaformaldehyde foam insulation, polychlorinated biphenyls, and radon gas; (b)
any chemicals, materials or substances defined as or included in the definition
of "hazardous substances," "hazardous waste," "hazardous materials" "extremely
hazardous substances," "restricted hazardous waste," "toxic substances," "toxic
pollutants" "contaminants," or "pollutants," under any applicable Environmental
Law; and (c) any other chemical, material or substance subject to regulation or
which can give rise to liability under Environmental Laws.

                  "Holder" shall mean, with respect to any Note, the Person in
whose name such Note is registered in the register maintained by the Company
pursuant to Section 14.14.

                  "Holdings" shall have the meaning assigned to that term in the
first paragraph hereof.

<PAGE>
                                     -100-

                  "Holdings Notes" means the 15% Convertible Senior Subordinated
Notes dated June 6, 2003 and issued by Holdings to (a) MidOcean Capital
Investors, L.P. in the original principal amount of $5,379,446.92, (b) Behrman
Capital III L.P. in the original principal amount of $4,581,509.11 and (c)
Strategic Entrepreneur Fund III, L.P. in the original principal amount of
$39,043.97.

                  "Holdings Subordinated Debt" shall mean the $50 million (plus
capitalized interest thereon) of non-cash interest paying structurally
subordinated debt of Holdings evidenced by the First Seller Note and the Second
Seller Note and issued to refinance certain pre-existing intercompany
indebtedness of the Company and its Subsidiaries.

                  "Immaterial Subsidiary" shall mean any Subsidiary of the
Company who represents less than 2.5% of Net Worth.

                  "Indebtedness" shall mean, as to any Person, without
duplication, (i) all indebtedness (which term shall include principal, interest,
fees, charges and the like relating to the foregoing) of such Person for
borrowed money or for the deferred purchase price of property or services, (ii)
the maximum amount drawn and/or funded under all letters of credit issued for
the account of such Person and all unpaid drawings in respect of such letters of
credit, (iii) all Indebtedness of the types described in clause (i), (ii), (iv),
(v), (vi) or (vii) of this definition secured by any lien on any property owned
by such Person, whether or not such Indebtedness has been assumed by such Person
(to the extent of the value of the respective property), (iv) the aggregate
amount required to be capitalized under leases under which such Person is the
lessee, (v) all obligations of such Person to pay a specified purchase price for
goods or services, whether or not delivered or accepted, i.e., take-or-pay and
similar obligations, (vi) all Contingent Obligations of such Person and (vii)
all obligations under any Interest Rate Protection Agreement or Other Hedging
Agreement or under any similar type of agreement; provided, however, that
notwithstanding anything to the contrary in the foregoing or any other provision
of this Agreement, the term "Indebtedness" as used for the calculation of
financial covenants set forth in Sections 10.08 through 10.11, inclusive, on any
date, (a) shall only include the principal amount of any Indebtedness
outstanding on such date, (b) shall not include any obligations under the
Liquidation Certificates, Junior Subordinated Notes or the Celerity Junior
Subordinated Notes, (c) shall not include any issued, but undrawn amounts under
letters of credit referenced in section (ii) of this definition, (d) shall not
include undrawn performance guarantees, performance sureties, performance bonds
or similar letter of credit obligations permitted under this Agreement, and (e)
shall not include any obligations referred to in Section 10.04(xvii).

                  "Intellectual Property" shall have the meaning provided in
Section 7.20(a).

                  "Intercreditor Agreement" shall have the meaning provided in
Section 5.33.

<PAGE>
                                     -101-

                  "Interest Rate Protection Agreement" shall mean any interest
rate swap agreement, interest rate cap agreement, interest collar agreement,
interest rate hedging agreement, interest rate floor agreement or other similar
agreement or arrangement.

                  "Investments" shall have the meaning provided in Section
10.05.

                  "Joinder Agreement" shall mean the joinder agreement
substantially in the form of Exhibit J.

                  "Junior Subordinated Notes" shall mean those certain 12.5%
Junior Subordinated Notes of the Company in favor of certain existing holders of
the equity interests of Holdings in the aggregate initial principal amount of up
to $15,750,000 issued on July 17, 2003.

                  "Junior Warrant Agreement" shall mean the Warrant Agreement,
dated as of August 30, 2000, by and between Holdings and United States Filter
Corporation, as in effect on the date hereof.

                  "KH LLC" shall mean KH LLC, a Delaware limited liability
company.

                  "KSI" shall mean Kinetic Systems, Inc., a California
corporation.

                  "KSI Entities" shall mean the KSI Guarantors and KSI.

                  "KSI Guarantors" shall mean Kinetic Systems Caribe, Inc. and
Kinetic Systems International, Inc.

                  "KSI Change of Control" shall mean, at any time, (i) the sale
of any shares of capital stock of KSI by KH LLC (other than shares issued
pursuant to employee stock plans approved by the Board of Directors of KSI not
to exceed 5% in the aggregate of the fully diluted capital stock of KSI) or (ii)
the sale of all or substantially all of the assets of KSI.

                  "KSI Junior Subordinated Notes" shall mean those certain 12.5%
Junior Subordinated Instruments made by KSI in favor of certain existing holders
of the equity interests of Holdings in the aggregate initial principal amount of
up to $15,750,000 issued or to be issued by KSI, as the same may be amended,
restated or otherwise modified from time to time, to the extent that such
amendments, restatements and modifications are permitted by Section 10.12, only
to the extent that such notes are the obligation of KSI.

                  "KSI Note" shall mean that certain $13.0 million note dated as
of the date hereof issued by the Company in favor of the KSI.

<PAGE>
                                     -102-

                  "KSI/KGI Revolving Loan Agreement" shall mean that certain
revolving facility dated the date hereof issued by KSI in favor of the Company
in an amount not to exceed $22.0 million, which is to be repaid by KSI on the
earliest of (x) a KSI Change of Control, (y) September 25, 2006 and (z) a Change
of Control, which Indebtedness shall be senior in right of payment only to the
KSI Junior Subordinated Notes but otherwise fully subordinated to any other
Indebtedness of KSI, and which shall be cash pay and bear interest at LIBOR plus
5%.

                  "KSI Spin-Off" shall have the meaning assigned to such term in
the Restructuring Agreement.

                  "KTS" shall mean FTS Systems, Inc., formerly known as Kinetics
Thermal Systems, Inc.

                  "KTS Sale" shall have the meaning provided in Section
10.02(xiii).

                  "Leases" shall mean any and all leases, subleases, tenancies,
options, concession agreements, rental agreements, occupancy agreements,
franchise agreements and any other agreements (including, without limitation,
all amendments, extensions, replacements, renewals, modifications and/or
guarantees thereof), whether or not of record and whether now in existence or
hereafter entered into, affecting the use or occupancy of all or any portion of
any Real Property.

                  "Legal Defeasance" shall have the meaning provided in Section
4.04(b).

                  "Leverage Ratio" shall mean, at any date of determination, the
ratio of (i) Consolidated Indebtedness on such date to (ii) Consolidated EBITDA
for the Test Period last ended.

                  "LIBOR" shall mean, for any calendar quarter, the rate per
annum obtained by dividing (i) (A) the rate per annum (rounded upward to the
nearest 1/16 of one percent) that appears on Bloomberg as the interbank offered
rate for Dollar deposits with 3 month maturities as of approximately 11:00 a.m.
(London time) two Business Days prior to the commencement of such calendar
quarter or (B) if such rate is not available at such time for any reason, the
rate determined by the Collateral Agent as the rate of interest (rounded upward
to the nearest 1/16 of one percent) that would be offered to first class banks
in the interbank Eurodollar market by major banks for Dollar deposits of amounts
in same day funds comparable to the principal amount of the Notes for which the
LIBOR is then being determined with 3 month maturities as of approximately 11:00
A.M. (London time) two Business Days prior to the commencement of such calendar
quarter by (ii) a percentage equal to 100% minus the stated maximum rate of all
reserve requirements (including any marginal, emergency, supplemental, special
or other reserves) applicable on the commencement date of such calendar

<PAGE>
                                     -103-

quarter to any member bank of the Federal Reserve System in respect of
"Eurocurrency liabilities" as defined in Regulation D (or any successor category
of liabilities under Regulation D).

                  "Licenses" shall have the meaning assigned to that term in
Section 7.20(a)(v).

                  "Lien" shall mean, with respect to any property, any mortgage,
deed of trust, pledge, hypothecation, assignment, deposit arrangement,
encumbrance, lien (statutory or other), preference, priority, claim, charge or
other security interest of any kind or nature whatsoever (including, without
limitation, any conditional sale agreement, capital lease or other title
retention agreement, any financing or similar statement or notice filed under
the UCC or any other similar recording or notice statute, including any
easement, right-of-way or other encumbrance on title to Real Property, and any
lease having substantially the same effect as any of the foregoing), in each of
the foregoing cases whether voluntary or imposed by law, and any agreement to
give any of the foregoing.

                  "Liquidation Certificates" shall mean the certificates to be
issued to the purchasers under the Senior Subordinated Note Purchase Agreement
representing the Senior Subordinated Liquidation Preference.

                  "Liquidation Event" shall mean (i) the sale or other
disposition (whether by merger, reorganization, sale of assets or otherwise) of
all or substantially all of the assets of KH LLC, Holdings, the Company or one
or more of their Subsidiaries that, individually or in the aggregate, constitute
all or substantially all of the assets of KH LLC, Holdings, the Company and
their Subsidiaries taken as a whole or (ii) the liquidation, dissolution or
winding up of KH LLC, Holdings, the Company or one or more of their Subsidiaries
that, individually or in the aggregate, constitute all or substantially all of
the business, operations or assets of KH LLC, Holdings, the Company and their
Subsidiaries, taken as a whole. Notwithstanding the foregoing, (a) the dividend
of all the equity interest in KSI held by the Company to Holdings and from
Holdings to its shareholders, and the merger of any of Holdings, the Company and
their direct Subsidiaries solely among themselves, or (b) a KSI Change of
Control shall not be deemed to be a Liquidation Event.

                  "Litigation Letter" means that certain letter dated as of even
date herewith that provides for the payment by the Permitted Holders of certain
expenses and liabilities that have arisen and may arise under the Alfa Laval
Litigation.

                  "LLC Agreement" shall have the meaning given thereto in
Section 5.25.

                  "Material Adverse Effect" shall mean a material adverse effect
on (x) the financial condition, business, operations or prospects of the Company
and its Subsidiaries taken as a whole, (y) the ability of the Restricted Parties
(other than the KSI Entities) to pay the Obligations or perform their respective
agreements under the Transaction Documents or (z) the

<PAGE>
                                     -104-

validity or enforceability of this Agreement or any of the other Transaction
Documents or any of the material rights or remedies of the Purchaser hereunder
or thereunder.

                  "Maturity Date" shall mean August 25, 2006.

                  "Mezzanine Purchase Option Agreement" shall mean the Mezzanine
Purchase Option Agreement dated as of April 9, 2004 by and among KSI, Kinetic
Systems Caribe, Inc. and Kinetic Systems International, Inc., and Ares, SVAR,
SVBF, SVBF II, MidOcean, Behrman Capital III, L.P., SEP and Gryphon Partners.

                  "MidOcean" shall mean MidOcean Capital Investors, L.P.

                  "Mortgage" shall mean an agreement, including, but not limited
to, a fee or leasehold mortgage, deed of trust or any other document acceptable
to the Collateral Agent, creating and evidencing a Lien on a Mortgaged Real
Property, which shall be substantially in the form of Exhibit G, with such
schedules and including such provisions as shall be necessary to conform such
document to applicable Requirements of Law or as shall be customary under such
applicable Requirements of Law, as the same may at any time be amended in
accordance with the terms thereof and hereof.

                  "Mortgaged Property Collateral" shall have the meaning
assigned to the term "Mortgaged Property" in any Mortgage delivered on the
Closing Date or thereafter pursuant to Section 9.12.

                  "Mortgaged Real Property" shall mean the Real Property of the
Company and any Subsidiary Guarantor specified on Schedule 7.11(b) which shall
be subject to a Mortgage, and each additional Real Property which shall be
subject to a Mortgage delivered pursuant to the provisions of Section 9.12.

                  "Multiemployer Plan" shall mean any multiemployer plan as
defined in Section 4001(a)(3) of ERISA, which is maintained or contributed to by
(or to which there is an obligation to contribute of) the Company or its
Subsidiaries or an ERISA Affiliate and each such plan for the five year period
immediately following the latest date on which the Company or its Subsidiaries
maintained, contributed to or had an obligation to contribute to such plan.

                  "Net Cash Proceeds" shall mean (a) with respect to any Asset
Sale, the cash proceeds received by any Restricted Party (including cash
proceeds subsequently received (as and when received by any Restricted Party) in
respect of noncash consideration initially received), net of (i) selling
expenses (including reasonable broker's fees or commissions, legal fees,
transfer and similar taxes and the Company's good faith estimate of income taxes
paid or payable in connection with such sale); (ii) amounts provided as a
reserve, in accordance with GAAP, against any liabilities under any
indemnification obligations associated with such As-

<PAGE>
                                     -105-

set Sale (provided that, to the extent and at the time any such amounts are
released from such reserve, such amounts shall constitute Net Cash Proceeds);
(iii) the Company's good faith estimate of payments required to be made with
respect to unassumed liabilities relating to the assets sold within 180 days of
such Asset Sale (provided that, to the extent such cash proceeds are not used to
make payments in respect of such unassumed liabilities within 180 days of such
Asset Sale, such cash proceeds shall constitute Net Cash Proceeds); and (iv) the
principal amount, premium or penalty, if any, interest and other amounts on any
Indebtedness for borrowed money which is secured by the asset sold in such Asset
Sale and which is repaid with such proceeds (other than any such Indebtedness
assumed by the purchaser of such asset); (b) with respect to any (x) capital
contribution or sale or issuance of any equity interest and (y) any incurrence
of Indebtedness, the cash proceeds thereof, net of all taxes and customary fees,
commissions, costs and other expenses incurred in connection therewith; and (c)
with respect to any Recovery Event, the cash insurance proceeds, condemnation
awards and other compensation or payment received in respect thereof, together
with any interest earned thereon, less the amount of any reasonable third-party
expenses incurred in litigating, arbitrating, compromising or settling any claim
out of such Recovery Event.

                  "Net Worth" shall mean the amount, computed as of the most
recent fiscal quarter of the Company for which financial statements are
available and in a manner consistent with Section 14.06(a), equal to the
Company's and its Consolidated Subsidiaries' assets minus all of its
liabilities.

                  "New Notes" shall mean the New Series B Notes and the Series C
Notes.

                  "New Securities" shall mean the New Series B Notes, the Series
C Notes and the New Warrants.

                  "New Series B Notes" shall have the meaning provided in
Section 1(b).

                  "New Series B Warrants" shall have the meaning provided in
Section 1(b).

                  "New Warrants" shall have the meaning provided in Section
1(b).

                  "Notes" shall have the meaning provided in Section 1(b).

                  "Obligations" shall mean all amounts, direct or indirect,
contingent or absolute, of every type or description, and at any time existing,
owing to the Holders or the Collateral Agent or their respective successors,
transferees or assignees pursuant to the terms of this Agreement or the Notes or
secured by any of the Security Documents, whether or not the right of such
person to payment in respect of such obligations and liabilities is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal,

<PAGE>
                                     -106-

equitable, secured or unsecured and whether or not such claim is discharged,
stayed or otherwise affected by any bankruptcy case or insolvency or liquidation
proceeding.

                  "Old Mezzanine Notes" shall mean the outstanding senior
subordinated notes of the Company issued pursuant to the purchase agreement
dated as of August 30, 2000, among Holdings, the Company, certain subsidiaries
of the Company and J.H. Whitney Mezzanine Fund, L.P., J.H. Whitney Market Value
Fund, L.P., The Northwestern Mutual Life Insurance Company, Albion Alliance
Mezzanine, L.P., Albion Alliance Mezzanine Fund II, L.P. and Deutsche Bank
Securities, Inc., as amended.

                  "Original Purchase Agreement" shall have the meaning provided
in the preambles hereof.

                  "Original Purchase Price" shall have the meaning provided in
Section 2.01(a).

                  "Original Purchasers" shall have the meaning provided in the
preambles hereof.

                   "Other Hedging Agreement" shall mean any foreign exchange
contracts, currency swap agreements, commodity agreements or other similar
agreements or arrangements designed to protect against the fluctuations in
currency or commodity values.

                  "Parent Non-Recourse Guaranty" shall have the meaning assigned
thereto in Section 5.38.

                  "Parent Pledge Agreement" shall have the meaning assigned
thereto in Section 5.38.

                  "Patents" shall have the meaning assigned to that term in
Section 7.20(a).

                  "PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Section 4002 of ERISA, or any successor thereto.

                  "Permitted Acquisition" means any acquisition by the Company
or any of its Subsidiaries of property from any Person or of outstanding equity
interests in any Person that is approved by the Required Holders.

                  "Permitted Collateral Liens" shall mean (i) with respect to
the Mortgaged Real Property (a) Prior Liens (as identified on Schedule B of the
applicable Mortgage), (b) the Lien and security interest created by the
applicable Mortgage, (c) Contested Liens (as defined in the applicable
Mortgage), (d) matters of title shown in the title policy and (e) Leases to the
extent permitted pursuant to the provisions of Article V of the applicable
Mortgage, and (ii) with respect to Pledged Collateral (a) Prior Liens, (b) the
Lien and security interest created by the Se-

<PAGE>
                                     -107-

curity Agreement, (c) Contested Liens and (d) the Liens described in clauses
(v), (x), (xi), (xiii), (xv), (xvi) and (xvii) of Section 10.01.

                  "Permitted Holders" shall mean MidOcean, Behrman Capital,
Gryphon Partners and each of their respective Affiliates.

                  "Permitted Liens" shall have the meaning provided in Section
10.01.

                  "Person" shall mean any individual, partnership, joint
venture, firm, corporation, association, trust or other enterprise or any
government or political subdivision or any agency, department or instrumentality
thereof.

                  "Plan" shall mean any pension plan as defined in Section 3(2)
of ERISA (other than Multiemployer Plans and other than Foreign Pension Plans),
which is maintained or contributed to by (or to which there is an obligation to
contribute of) the Company or one of its Subsidiaries or an ERISA Affiliate, and
each such plan for the five year period immediately following the latest date on
which the Company or one of its Subsidiaries or an ERISA Affiliate maintained,
contributed to or had an obligation to contribute to such plan.

                  "Planned Capital Expenditures" means, with respect to the
Company and its Subsidiaries, $6.0 million in fiscal year 2004, $6.5 million in
fiscal year 2005 and for each fiscal year thereafter, representing the planned
amount of Capital Expenditures of the Company and its Subsidiaries for such
periods.

                  "Pledged Collateral" shall have the meaning assigned to the
term "Pledged Collateral" in any Security Agreement delivered on the Closing
Date or thereafter pursuant to Section 9.12.

                  "Prior Liens" shall mean Liens which, pursuant to the
provisions of any applicable Security Document, are or may be superior to the
Lien of such Security Document.

                  "Projections" shall mean each of the projections described in
Section 9.01(e).

                  "property" shall mean any right, title or interest in or to
property or assets of any kind whatsoever, whether real, personal or mixed and
whether tangible or intangible and including equity interests or other ownership
interests of any Person and whether now in existence or owned or hereafter
entered into or acquired.

                  "Purchase Money Obligation" of any Person shall mean (i)
Indebtedness for the payment of all or any part of the purchase price of any
fixed assets or (ii) any Indebtedness incurred at the time of or within 90 days
prior to or after the acquisition of any fixed assets for the purpose of
financing all or any part of the purchase price thereof.

<PAGE>
                                     -108-

                  "Purchase Price" shall have the meaning provided in Section
2.01.

                  "Purchasers" shall have the meaning assigned to that term in
the first paragraph hereof.

                  "Qualified Capital Stock" of any Person shall mean any capital
stock of such Person which is not Disqualified Stock.

                  "Qualified Public Equity Offering" means a bona fide
underwritten sale to the public of common stock of Holdings (or any of its
Subsidiaries) pursuant to a registration statement (other than on Form S-8 or
any other form relating to securities issuable under any benefit plan of
Holdings or any of its Subsidiaries, as the case may be) that is declared
effective by the SEC and such offering results in gross cash proceeds to
Holdings or any of its Subsidiaries (exclusive of underwriter's discounts and
commissions and other expenses) of at least $100.0 million.

                  "RCRA" shall mean the Resource Conservation and Recovery Act,
as the same may be amended from time to time, 42 U.S.C. Sections 6901 et seq.

                  "Real Property" shall mean, collectively, all right, title and
interest (including, without limitation, any Leases) in and to any and all
parcels of or interests in real property owned, leased or operated by any
Person, whether by lease, license or other use agreement, together with, in each
case, all easements, hereditaments and appurtenances relating thereto, all
improvements and appurtenant fixtures and equipment, all general intangibles and
contract rights and other property and rights incidental to the ownership, lease
or operation thereof.

                  "Recovery Event" shall mean, with respect to any property
(including Real Property) of Holdings, the Company or any Subsidiary, any loss
of title with respect to Real Property or any theft, loss or destruction of or
damage to, or any condemnation or other taking (including by any Governmental
Authority) of, such property (including Real Property) for which Holdings, the
Company or any Subsidiary receives insurance proceeds or proceeds of a
condemnation award or other compensation. "Recovery Event" shall include but not
be limited to any taking of any Real Property of Holdings, the Company or any
Subsidiary or any part thereof, in or by condemnation or other eminent domain
proceedings pursuant to any law, general or special, or by reason of the
temporary requisition of the use or occupancy of any Real Property of Holdings,
the Company or any Subsidiary or any part thereof, by any Governmental
Authority, civil or military, but shall not include business interruption
insurance.

                  "Redemption Premium" shall have the meaning provided in
Section 4.01(a).

                  "Refinancing Source" shall have the meaning provided in
Section 10.04(iii).

<PAGE>
                                     -109-

                  "Regulation D" shall mean Regulation D of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor to all or a portion thereof establishing reserve requirements.

                  "Release" shall mean any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping,
disposing or migration into the environment.

                  "Reportable Event" shall mean an event described in Section
4043(c) of ERISA with respect to a Plan that is subject to Title IV of ERISA
other than those events as to which the 30-day notice period is waived.

                  "Required Holders" shall mean the Holders of greater than 50%
in aggregate principal amount of the Notes then outstanding.

                  "Requirements of Law" shall mean, collectively, any and all
requirements of any Governmental Authority, including, without limitation, any
and all laws, ordinances, rules, regulations or similar statutes or case law.

                  "Restated Certificate of Incorporation" shall mean the
Restated Certificate of Incorporation, substantially in the form attached hereto
as Exhibit I.

                  "Restated Charter" shall mean the amendments to the
Certificate of Incorporation of Holdings, setting forth the rights, preferences,
privileges and restrictions of the Series A-1 and B-1 Preferred Stock and
certain other matters, pursuant to the Restated Certificate of Incorporation.

                  "Restated Shareholders Agreement" shall mean the Fourth
Amended and Restated Shareholders Agreement dated as of September 26, 2003 among
Holdings, the Purchasers and the other stockholders of Holdings, as amended.

                  "Restricted Party" shall mean each of KH LLC, Holdings, the
Company, the KSI Entities, each Subsidiary Guarantor and any other Subsidiary
which at any time executes and delivers any Transaction Document as required by
this Agreement. For purposes of Section 11 of this Agreement, no KSI Entity will
be considered a "Restricted Party". In addition, for purposes of Defaults set
forth in Section 11.04, 11.09 and 11.11, KH LLC will not be considered a
"Restricted Party".

                  "Restructuring Agreement" shall have the meaning provided in
the preamble hereof.

                  "Sale Letter" shall mean that certain letter agreement dated
as of the date hereof by and among the Agent hereunder and the Agent under and
as defined in the Senior

<PAGE>
                                     -110-

Subordinated Note Purchase Agreement, KH LLC and KSI regarding the potential
sale of KSI.

                  "SEC" shall have the meaning provided in Section 9.01(h).

                  "Second Note Warrants" shall mean the Second Note Warrants
issued by Holdings in favor of United States Filter Corporation pursuant to the
Junior Warrant Agreement.

                  "Second Seller Note" shall mean the Second Note dated as of
August 30, 2000 in the initial principal amount of $25,000,000 issued by
Holdings in favor of United States Filter Corporation.

                  "Secured Parties" shall have the meaning assigned that term in
the Security Documents.

                  "Securities" shall have the meaning given thereto in Section
1(b).

                  "Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations thereunder as the same shall be in effect
at the time.

                  "Security Agreement" shall mean the Security Agreement,
substantially in the form of Exhibit F, among Holdings, the Company, the
Subsidiary Guarantors and the Collateral Agent for the benefit of the Secured
Parties, as the same may be amended in accordance with the terms thereof and
hereof or such other agreements acceptable to the Collateral Agent as shall be
necessary to comply with applicable Requirements of Law and effective to grant
to the Collateral Agent a perfected first priority Lien on and security interest
in the Pledged Collateral.

                  "Security Documents" shall mean each Mortgage, the Security
Agreement, the Parent Pledge Agreement and each other security document or
pledge agreement required by applicable Requirements of Law to grant a valid,
perfected first priority Lien on and security interest in any property required
to be made subject to the Lien of the Security Documents pursuant to Section
9.12, and all UCC or other financing statements or instruments of perfection
required by this Agreement, the Security Agreement, the Parent Pledge Agreement
or any Mortgage to be filed with respect to the security interests in property
created pursuant to the Parent Pledge Agreement, any Security Agreement or any
Mortgage and any other document or instrument utilized to pledge or grant a
security interest in any property of whatever kind or nature as Collateral for
the Obligations, including, without limitation, any and all documents or
instruments delivered pursuant to Section 9.12.

                  "Senior Credit Agreement" shall mean the Amended and Restated
Credit Agreement dated as of December 10, 2002 among Holdings, the Company, the
Subsidiary

<PAGE>
                                     -111-

Guarantors party thereto, the lenders party thereto from time to time, The Bank
of Nova Scotia, Deutsche Bank Trust Company Americas, Deutsche Bank Securities,
Inc. and Banc One Capital Markets, Inc., as amended, amended and restated,
extended, supplemented, refinanced or otherwise modified from time to time,
including any agreement extending the maturity of, refinancing, replacing or
otherwise restructuring (including, without limitation, by increasing the amount
of available borrowings thereunder or adding any Subsidiaries of the Company as
additional borrowers or guarantors thereunder) all or any portion of the
Indebtedness under such agreement or documents or any successor or replacement
agreement or documents and whether by the same or any other agent, lender or
group of lenders, in each case in accordance with the terms of this Agreement
including, without limitation, Sections 10.04 and 10.12. This Agreement shall
not constitute an agreement refinancing the Indebtedness under the Senior Credit
Agreement for purposes of this definition.

                  "Senior Credit Documents" shall mean the Senior Credit
Agreement and, after the execution and delivery thereof pursuant to the terms of
the Senior Credit Agreement, each note, each security document and, after the
execution and delivery thereof, each additional guaranty or security document
executed pursuant to Section 8.12 of the Senior Credit Agreement, as the same
may be amended from time to time.

                  "Senior Indebtedness" shall mean all Indebtedness currently
outstanding or incurred in the future pursuant to the Senior Credit Agreement,
this Agreement, the Senior Purchase Option Agreement, the TCP Purchase Option
Agreement, any Interest Rate Protection Agreements and any Other Hedging
Agreements, and any renewals, extensions, refinancings, modifications or
refundings thereof (on terms consistent with Sections 10.04 and 10.12 of this
Agreement).

                  "Senior Leverage Ratio" shall mean, at any date of
determination, the ratio of (i) Senior Indebtedness on such date to (ii)
Consolidated EBITDA for the Test Period last ended.

                  "Senior Purchase Option Agreement" shall mean that certain
Senior Purchase Option Agreement, dated as of the date hereof, executed by KSI
and its Subsidiaries in favor of the Administrative Agent, on behalf of the
Lenders (each under and as defined in the Senior Credit Agreement).

                  "Senior Subordinated Liquidation Preference" shall mean the
amount payable by the Company to each of the purchasers under the Senior
Subordinated Note Purchase Agreement, in an aggregate amount equal to
$10,000,000 on a pro rata basis as evidenced by the Liquidation Certificates.

                  "Senior Subordinated Note Documents" shall mean the Senior
Subordinated Notes, the Senior Subordinated Note Purchase Agreement and all
other documents executed

<PAGE>
                                     -112-

and delivered with respect to the Senior Subordinated Notes or Senior
Subordinated Note Purchase Agreement.

                  "Senior Subordinated Note Purchase Agreement" shall mean the
purchase agreement dated as of the date hereof, by and among Holdings, the
Company, KSI, certain subsidiaries of the Company, and Ares Corporate
Opportunities Fund, L.P., Special Value Absolute Return Fund, LLC, Special Value
Bond Fund, LLC, Special Value Bond Fund II, LLC, MidOcean Celerity Investment
Partners, L.P., Behrman Capital Partners and Gryphon Investors.

                  "Senior Subordinated Notes" shall mean the Company's 12.5%
Senior Subordinated Notes due 2006 issued pursuant to the Senior Subordinated
Note Purchase Agreement.

                  "SEP" shall mean Strategic Entrepreneur Fund III L.P.

                  "Series A Notes" shall have the meaning provided in the
preambles hereof.

                  "Series A Warrants" shall have the meaning provided in the
preambles hereof.

                  "Series B Notes" shall have the meaning provided in the
preambles hereof.

                  "Series B Purchase Price" shall have the meaning provided in
Section 2.01(b).

                  "Series B Warrants" shall have the meaning provided in the
preambles hereof.

                  "Series C Notes" shall have the meaning provided in Section
1(b).

                  "Series C Warrants" shall have the meaning provided in Section
1(b).

                  "Shareholder Bridge Agreement" shall mean the $5 million
bridge financing to Celerity Group, Inc., a California corporation evidenced by
the 30 Day Subordinated Secured Note, the Secured Guaranty of KSI and the
Security Agreement each dated as of March 8, 2004 between the Company and
certain shareholders of Holdings.

                  "Shareholder Bridge Notes" shall mean the notes issued to
certain shareholders of Holdings pursuant to the Shareholder Bridge Agreement.

                  "Shareholder Rescission Letter" shall mean that certain letter
dated as of even date herewith from KSI to the holders of the Junior
Subordinated Notes that provides for the rescission of the contribution of the
Junior Subordinated Notes to KSI from the holders thereof.

                  "Shimmon" shall mean David J. Shimmon and Mary Beth Shimmon.

<PAGE>
                                     -113-

                  "Significant Contracts" shall have the meaning provided in
Section 7.32(a).

                  "Solvent" shall mean (a) with respect to the Company and its
Subsidiaries, considered as a whole that (i) the assets and the property of the
Company and its Subsidiaries, considered as a whole, exceed the aggregate
liabilities (including contingent and unliquidated liabilities) of the Company
and its Subsidiaries, considered as a whole, (ii) after giving effect to the
Transactions, the Company and its Subsidiaries, considered as a whole, will not
be left with unreasonably small capital, and (iii) after giving effect to the
Transactions, the Company and its Subsidiaries, considered as a whole, are able
to both service and pay their liabilities as they mature; and (b), with respect
to the Company or KSI, that (i) the assets and property of that entity exceed
the liabilities (including contingent and unliquidated liabilities) of such
entity, (ii) after giving effect to the transactions described in the
Restructuring Agreement, such entity will not be left with unreasonably small
capital, and (iii) after giving effect to the Transactions, such entity is able
to both service and pay its liabilities as they mature. In computing the amount
of contingent or unliquidated liabilities at any time, such liabilities will be
computed as the amount that, in light of all the facts and circumstances
existing at such time, represents the amount that is likely to become an actual
or matured liability.

                  "Special Power of Attorney Side Letter" shall mean that side
letter of even date herewith whereby KH LLC grants to the Company a special
power of attorney to perform certain acts on behalf of KH LLC to ensure
satisfaction of the Company's obligations hereunder.

                  "Subordinated Debt" shall mean Indebtedness of the Company or
any of its Subsidiaries that is contractually subordinated to any Indebtedness
of the Company or any of its Subsidiaries, as applicable.

                  "Subsidiary" shall mean, as to any Person, (i) any corporation
more than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person and/or one or
more Subsidiaries of such Person and (ii) any partnership, association, joint
venture or other entity in which such Person and/or one or more Subsidiaries of
such Person has more than a 50% equity interest at the time. For the avoidance
of doubt, for all purposes under this Agreement, no KSI Entity shall be
considered a "Subsidiary" of any Restricted Party.

                  "Subsidiary Guarantor" shall mean each Subsidiary of the
Company designated as a "Subsidiary Guarantor" on Schedule 7.15(b) hereto or
which executes a Joinder Agreement after the Closing Date pursuant to Section
9.12. No KSI Entity shall be considered a Subsidiary Guarantor hereunder.

<PAGE>
                                     -114-

                  "Support Agreement" has the meaning given to such term in the
Restructuring Agreement.

                  "Taxes" shall have the meaning provided in Section 4.03.

                  "Tax Sharing Agreement" shall mean that certain Tax Sharing
Agreement dated as of the date hereof between Holdings, KSI and KGI, which
agreement shall not be amended without the consent of the Agent.

                  "TCP Assignment and Assumption Agreement" shall mean the
Assignment and Assumption Agreement, dated as of the date hereof, by and among
Special Value Absolute Return Fund, LLC, Special Value Bond Fund, LLC, Special
Value Bond Fund II, LLC, Holdings, the Company, J.H. Whitney Mezzanine Fund,
L.P., The Northwestern Mutual Life Insurance Company, Albion Alliance Mezzanine
Fund, L.P., Albion Alliance Mezzanine Fund II, L.P., GoldenTree High Yield
Opportunities I L.P., GoldenTree High Yield Master Fund, Ltd. and DB Structured
Products, Inc.

                  "TCP Liquidation Certificates" shall have the meaning provided
in the preambles hereof.

                  "TCP Purchase Option Agreement" shall mean that certain TCP
Purchase Option Agreement dated as of the date hereof, executed by KSI and its
Subsidiaries in favor of the holders of the Notes hereunder.

                  "TCP Retained Warrants" shall mean one-half of those warrants
issued on August 30, 2000 exercisable at $0.01 held by Special Value Absolute
Return Fund, LLC, Special Value Bond Fund, LLC and Special Value Bond Fund II,
LLC pursuant to that certain Assignment and Assumption Agreement dated as of
February 4, 2004 by and among such parties and J.H. Whitney Market Value Fund,
L.P. The aggregate number of shares of Common Stock underlying the TCP Retained
Warrants is 118,747.

                   "Test Period" shall mean each period of four consecutive
fiscal quarters of the Company, in each case taken as one accounting period,
provided, that as it applies to the determination of Consolidated EBITDA,
Consolidated Cash Interest Expense and Consolidated Fixed Charges for Minimum
EBITDA, for the Consolidated Interest Coverage Ratio, the Consolidated Fixed
Charge Coverage Ratio, the Leverage Ratio and the Senior Leverage Ratio, (a) for
the fiscal quarter ended on or nearest to March 31, 2004, Test Period shall mean
the fiscal quarter of the Company ended on such date with results from such Test
Period annualized by multiplying any numbers calculated for such period by four,
(b) for the fiscal quarter ended on or nearest June 30, 2004, Test Period shall
mean the period of two consecutive fiscal quarters of the Company ended on such
date with results from such Test Period annualized by multiplying any numbers
calculated for such period by two, (c) for the fiscal quarter ended on or

<PAGE>
                                     -115-

nearest September 30, 2004, Test Period shall mean the period of three
consecutive fiscal quarters of the Company ended on such date with results from
such Test Period annualized by multiplying any numbers calculated for such
period by 1.333.

                  "Trademarks" shall have the meaning provided in Section
7.20(a).

                  "Trade Secrets" shall have the meaning provided in Section
7.20(a).

                  "Transaction Documents" shall mean this Agreement, as amended,
restated, supplemented or otherwise modified from time to time, and, after the
execution and delivery thereof pursuant to the terms of this Agreement, each
Note, the Series A Warrants, the Series B Warrants, the New Warrants, the
Intercreditor Agreement, each Security Document, the Parent Non-Recourse
Guaranty, the Parent Pledge Agreement, the Sale Letter, the Litigation Letter,
the Additional Units Letter, and after the execution and delivery thereof, each
additional guaranty or security document executed pursuant to Section 9.12.

                  "Transactions" shall mean, collectively, (i) the Transaction
under and as defined in the Restructuring Agreement, (ii) the transactions under
the Ares Assignment and Assumption Agreement, (iii) the transactions under the
TCP Assignment and Assumption Agreement, (iv) the transactions under the Senior
Subordinated Note Purchase Agreement, (v) the transactions and issuances of
securities described in this Agreement and (vi) the payment of the fees and
expenses owing in connection with the foregoing.

                  "2003 SAFECO Reimbursement Agreement" shall have the meaning
assigned to that term in Section 5.36.

                  "2004 SAFECO Reimbursement Agreement" shall mean the Amended
and Restated Reimbursement Agreement dated of even date herewith by and among
Holdings, the Company, Celerity Group, Inc. (CA), KSI, Deutsche Bank AG,
MidOcean Capital Investors L.P., Behrman Capital III LP, Strategic Entrepreneur
Fund III L.P., David J. Shimmon, Mary Beth Shimmon, Gryphon Partners II, L.P.,
Gryphon Partners II-A, L.P., and MidOcean Celerity Investment Partners, LP.

                  "UCC" shall mean the Uniform Commercial Code as from time to
time in effect in the relevant jurisdiction.

                  "Unfunded Current Liability" of any Plan shall mean the
amount, if any, by which the actuarial present value of the accumulated plan
benefits under the Plan as of the close of its most recent plan year, determined
in accordance with the actuarial assumptions at such time consistent with
Statement of Financial Accounting Standards No. 87, exceeds the market value of
the assets allocable thereto.

<PAGE>
                                     -116-

                  "United Filter Warrants" shall mean each of the Initial
Warrant, First Note Warrant and Second Note Warrant.

                  "United States" and "U.S." shall each mean the United States
of America.

                  "Unitholders Agreement" shall have the meaning assigned
thereto in Section 5.26.

                  "Unrestricted Cash" shall mean any cash not subject to any
Lien in favor of any Person other than the Collateral Agent in favor of the
lenders under the Senior Credit Agreement or the Purchasers.

                  "Warrant Shares" shall have the meaning provided in Section
1(b).

                  "Wholly-Owned Subsidiary" shall mean, as to any Person, (i)
any corporation 100% of whose capital stock (other than director's qualifying
shares) is at the time owned by such Person and/or one or more Wholly-Owned
Subsidiaries of such Person and (ii) any partnership, association, joint venture
or other entity in which such Person and/or one or more Wholly-Owned
Subsidiaries of such Person has a 100% equity interest at such time.

                  12.02 Accounting Terms: Financial Statements. The financial
statements to be furnished to the Purchasers pursuant hereto shall be made and
prepared in accordance with GAAP (except as set forth in the notes thereto or as
otherwise disclosed in writing by the Borrower to the Purchasers); provided
that, except as otherwise specifically provided herein, all computations
determining compliance with Sections 10.08 through 10.11, inclusive, shall
utilize accounting principles and policies in conformity with those used to
prepare the historical financial statements delivered to the Purchasers pursuant
to Section 5.20 unless otherwise requested by the Purchasers from time to time.
In addition, except as otherwise specifically provided herein, all computations
made with respect to Sections 10.08 through 10.11, inclusive, shall be
calculated without giving effect to any impact of FIN 45 (relating to accounting
for interests in variable interest entities) or FIN 46 (regarding accounting for
guaranteed debt of a guarantor), as issued by the Financial Accounting Standards
Board. At the request of the Agent, the Company shall promptly provide a
reconciliation of the effects of the foregoing financial pronouncements on the
computations required under Section 10.08 through 10.11, inclusive.

                  12.03 Knowledge of Holdings and the Company. All references to
the knowledge of Holdings or the Company or to facts known by Holdings or the
Company shall mean actual knowledge or notice of the Chairman, Chief Executive
Officer, President, Chief Financial Officer, Treasurer, General Counsel or other
executive officer of Holdings or the Company, as the case may be, or any of its
Subsidiaries or any division of Holdings, the Com-

<PAGE>
                                     -117-

pany or any of its Subsidiaries or knowledge which such Person could reasonably
have acquired through the exercise of due inquiry.

                  SECTION 13. Guarantees.

                  13.01 The Guaranty. The Guarantors hereby jointly and
severally guarantee as a primary obligor and not as a surety to each Secured
Party the prompt payment in full when due (whether at stated maturity, by
acceleration or otherwise) of the principal of and interest (including any
interest, fees, costs or charges that would accrue but for the provisions of the
Bankruptcy Code after any bankruptcy or insolvency petition under the Bankruptcy
Code) on the Notes held by the Holders of, the Company and all other Obligations
from time to time owing to the Holders by the Company, under this Agreement and
under the Notes and by any Restricted Party under any of the other Transaction
Documents, and all Obligations of the Restricted Parties to any Secured Parties,
in each case strictly in accordance with the terms thereof (such obligations
being herein collectively called the "Guaranteed Obligations"). The Guarantors
hereby jointly and severally agree that if the Company shall fail to pay in full
when due (whether at stated maturity, by acceleration or otherwise) any of the
Guaranteed Obligations, the Guarantors will promptly pay the same, without any
demand or notice whatsoever, and that in the case of any extension of time of
payment or renewal of any of the Guaranteed Obligations, the same will be
promptly paid in full when due (whether at extended maturity, by acceleration or
otherwise) in accordance with the terms of such extension or renewal.

                  13.02 Obligations Unconditional. The obligations of the
Guarantors under Section 13.01 are absolute, irrevocable and unconditional,
joint and several, irrespective of the value, genuineness, validity, regularity
or enforceability of the obligations of the Company under this Agreement, the
Notes or any other agreement or instrument referred to herein or therein, or any
substitution, release or exchange of any other guarantee of or security for any
of the Guaranteed Obligations, and, to the fullest extent permitted by
applicable law, irrespective of any other circumstance whatsoever that might
otherwise constitute a legal or equitable discharge or defense of a surety or
Guarantor (except for payment in full). Without limiting the generality of the
foregoing, it is agreed that the occurrence of any one or more of the following
shall not alter or impair the liability of the Guarantors hereunder which shall
remain absolute, irrevocable and unconditional under any and all circumstances
as described above:

                  (i)      at any time or from time to time, without notice to
         the Guarantors, the time for any performance of or compliance with any
         of the Guaranteed Obligations shall be extended, or such performance or
         compliance shall be waived;

                  (ii)     any of the acts mentioned in any of the provisions of
         this Agreement or the Notes or any other agreement or instrument
         referred to herein or therein shall be done or omitted;

<PAGE>
                                     -118-

                  (iii)    the maturity of any of the Guaranteed Obligations
         shall be accelerated, or any of the Guaranteed Obligations shall be
         amended in any respect, or any right under this Agreement, the Notes or
         any other Transaction Document or any other agreement or instrument
         referred to herein or therein shall be amended or waived in any respect
         or any other guarantee of any of the Guaranteed Obligations or any
         security therefor shall be released or exchanged in whole or in part or
         otherwise dealt with;

                  (iv)     any Lien or security interest granted to, or in favor
         of, any Secured Party or the Collateral Agent as security for any of
         the Guaranteed Obligations shall fail to be perfected or shall fail to
         have the priority contemplated by the Security Documents; or

                  (v)      the release of any other Guarantor.

                  The Guarantors hereby expressly waive diligence, presentment,
demand of payment, protest and all notices whatsoever, and any requirement that
the Holders or Affiliate thereof exhaust any right, power or remedy or proceed
against the Company under this Agreement or the Notes or any other agreement or
instrument referred to herein or therein, or against any other Person under any
other guarantee of, or security for, any of the Guaranteed Obligations. The
Guarantors waive any and all notice of the creation, renewal, extension, waiver,
termination or accrual of any of the Guaranteed Obligations and notice of or
proof of reliance by any Secured Party or Affiliate thereof or the Holders upon
this guarantee or acceptance of this guarantee, and the Guaranteed Obligations,
and any of them, shall conclusively be deemed to have been created, contracted
or incurred in reliance upon this guarantee, and all dealings between the
Company and the Holders or Affiliate thereof shall likewise be conclusively
presumed to have been had or consummated in reliance upon this guarantee. This
guarantee shall be construed as a continuing, absolute, irrevocable and
unconditional guarantee of payment without regard to any right of offset with
respect to the Guaranteed Obligations at any time or from time to time held by
the Holders or Affiliate thereof, and the obligations and liabilities of the
Guarantors hereunder shall not be conditioned or contingent upon the pursuit by
the Holders or Affiliate thereof or any other Person at any time of any right or
remedy against the Company or against any other Person which may be or become
liable in respect of all or any part of the Guaranteed Obligations or against
any collateral security or guarantee therefor or right of offset with respect
thereto. This guarantee shall remain in full force and effect and be binding in
accordance with and to the extent of its terms upon the Guarantors and the
successors and assigns thereof, and shall inure to the benefit of the Secured
Parties, and its successors and assigns, notwithstanding that from time to time
during the term of this Agreement there may be no Guaranteed Obligations
outstanding.

                  13.03 Reinstatement. The obligations of the Guarantors under
this Section 13 shall be automatically reinstated if and to the extent that for
any reason any payment by or on behalf of the Company in respect of the
Guaranteed Obligations is rescinded or must be oth-

<PAGE>
                                     -119-

erwise restored by any holder of any of the Guaranteed Obligations, whether as a
result of any proceedings in bankruptcy or reorganization or otherwise. The
Guarantors jointly and severally agree that they will indemnify the Holders or
Affiliate thereof on demand for all reasonable costs and expenses (including
reasonable fees of counsel) incurred by the Holders or Affiliate thereof in
connection with such rescission or restoration, including any such costs and
expenses incurred in defending against any claim alleging that such payment
constituted a preference, fraudulent transfer or similar payment under any
bankruptcy, insolvency or similar law, other than any costs or expenses
resulting from the gross negligence or bad faith of such Person.

                  13.04 Subrogation; Subordination. Each Guarantor hereby agrees
that until the indefeasible payment and satisfaction in full in cash of all
Guaranteed Obligations it shall not exercise any right or remedy arising by
reason of any performance by it of its guarantee in Section 13.01, whether by
subrogation or otherwise, against the Company or any other Guarantor of any of
the Guaranteed Obligations or any security for any of the Guaranteed
Obligations. The payment of any amounts due with respect to any indebtedness of
the Company or any other Guarantor now or hereafter owing to any Guarantor by
reason of any payment by such Guarantor under the Guaranty in this Section 13 is
hereby subordinated to the prior indefeasible payment in full in cash of the
Guaranteed Obligations. Each Guarantor agrees that it will not demand, sue for
or otherwise attempt to collect any such indebtedness of the Company to such
Guarantor until the Obligations shall have been indefeasibly paid in full in
cash. If, notwithstanding the foregoing sentence, any Guarantor shall prior to
the indefeasible payment in full in cash of the Guaranteed Obligations collect,
enforce or receive any amounts in respect of such indebtedness, such amounts
shall be collected, enforced and received by such Guarantor as trustee for the
Holders and be paid over to Holders on account of the Guaranteed Obligations
without affecting in any manner the liability of such Guarantor under the other
provisions of the guarantee contained herein.

                  13.05 Remedies. The Guarantors jointly and severally agree
that, as between the Guarantors and the Holders, the obligations of the Company
under this Agreement and the Notes may be declared to be forthwith due and
payable as provided in Section 11 (and shall be deemed to have become
automatically due and payable in the circumstances provided in Section 11.05)
for purposes of Section 13.01, notwithstanding any stay, injunction or other
prohibition preventing such declaration (or such obligations from becoming
automatically due and payable) as against the Company and that, in the event of
such declaration (or such obligations being deemed to have become automatically
due and payable), such obligations (whether or not due and payable by the
Company) shall forthwith become due and payable by the Guarantors for purposes
of Section 13.01.

                  13.06 Instrument for the Payment of Money. Each Guarantor
hereby acknowledges that the guarantee in this Section 13 constitutes an
instrument for the payment of

<PAGE>
                                     -120-

money, and consents and agrees that the Holders, at their sole option, in the
event of a dispute by such Guarantor in the payment of any moneys due hereunder,
shall have the right to bring a motion-action under New York CPLR Section 3213.

                  13.07 Continuing Guaranty. The guarantee in this Section 13 is
a continuing guarantee, and shall apply to all Guaranteed Obligations whenever
arising.

                  13.08 General Limitation on Guaranty Obligations. In any
action or proceeding involving any state corporate law, or any state, Federal or
foreign bankruptcy, insolvency, reorganization or other law affecting the rights
of creditors generally, if the obligations of any Guarantor under Section 13.01
would otherwise be held or determined to be void, voidable, invalid or
unenforceable, or subordinated to the claims of any other creditors, on account
of the amount of its liability under Section 13.01, then, notwithstanding any
other provision to the contrary, the amount of such liability shall, without any
further action by such Guarantor, the Holders or any other Person, be
automatically limited and reduced to the highest amount that is valid and
enforceable and not subordinated to the claims of other creditors as determined
in such action or proceeding.

                  13.09 Release of KTS; Release of KSI. (a) Each of the
Purchasers and the Agent agrees that upon the receipt by the Company of not less
than $5 million in proceeds from the KTS Sale, KTS shall be released from its
obligations as a Guarantor hereunder, and any Liens held by the Collateral Agent
or the Holders in any Collateral of KTS shall be automatically released and the
Company shall be authorized to take whatever steps are reasonably necessary to
effect the termination of such Liens, including without limitation, filing UCC-3
lien modifications or terminations in the relevant jurisdictions; provided that
any such release of Liens shall be accomplished at the Company's expense.

                  (b)      Each of the Purchasers and the Agent agrees that upon
the receipt by the Company of proceeds from the sale of KSI in accordance with
the Sale Letter, KSI shall be released from its obligations as a Guarantor
hereunder, and any Liens held by the Collateral Agent or the Holders in any
Collateral of KSI shall be automatically released and the Company shall be
authorized to take whatever steps are reasonably necessary to effect the
termination of such Liens, including without limitation, filing UCC-3 lien
modifications or terminations in the relevant jurisdictions; provided that any
such release of Liens shall be accomplished at the Company's expense.

                  SECTION 14. Miscellaneous.

                  14.01 Payment of Expenses, Etc. The Company shall: (i) whether
or not the transactions herein contemplated are consummated, pay all reasonable
out-of-pocket costs and expenses of the Purchasers and the Agent (including,
without limitation, the reasonable fees and disbursements of Milbank, Tweed,
Hadley & McCloy LLP and local counsel) in connec-

<PAGE>
                                     -121-

tion with the preparation, execution and delivery of this Agreement and the
other Transaction Documents and the documents and instruments referred to herein
and therein, (ii) pay for all reasonable out-of-pocket expenses incurred by the
Holders and the Agent in connection with any amendment, waiver or consent
relating hereto or thereto (whether or not such amendment, waiver or consent
shall become effective), and, after an Event of Default, reimburse the Holders
and the Agent for all costs and expenses, including reasonable attorneys' fees
(including allocated costs of internal counsel) and costs of settlement incurred
in connection with the enforcement of this Agreement, the LLC Agreement, the
Unitholders Agreement, the other Transaction Documents and the documents and
instruments referred to herein and therein or the collection of any amounts due
under any Transaction Documents including pursuant to any insolvency or
bankruptcy proceedings (including, without limitation, the reasonable fees and
disbursements of counsel (including in-house counsel) for the Holders and the
Agent); (iii) pay and hold the Holders and the Agent harmless from and against
any and all present and future stamp, excise and other similar taxes with
respect to the foregoing matters and save the Holders and the Agent harmless
from and against any and all liabilities with respect to or resulting from any
delay or omission (other than to the extent attributable to the Holders and the
Agent) to pay such taxes; and (iv) indemnify the Holders and the Agent, and
their respective officers, directors, trustees, employees, representatives and
agents from and hold each of them harmless against any and all liabilities,
obligations (including removal or remedial actions), losses, damages, penalties,
claims, actions, judgments, suits, costs, expenses and disbursements (including
reasonable attorneys' and consultants' fees and disbursements) incurred by,
imposed on or assessed against any of them as a result of, or arising out of, or
in any way related to, or by reason of, (a) any investigation, litigation or
other proceeding (whether or not any Holder or the Agent is a party thereto)
related to the entering into and/or performance of this Agreement or any other
Transaction Document or the LLC Agreement, the Unitholders Agreement or the
Restructuring Agreement or the use of any proceeds of any Notes hereunder or the
consummation of any transactions contemplated herein (including, without
limitation, the Transactions), or in any other Transaction Document, or (b) the
exercise of any of their rights or remedies provided herein or in the other
Transaction Documents, or (c) the actual or alleged presence or Release of
Hazardous Materials in the air, surface water or groundwater or on the surface
or subsurface of any Real Property or at or emanating from any facility or
equipment owned or at any time operated by the Company or any of its
Subsidiaries, the generation, storage, transportation, handling, disposal or
Release of Hazardous Materials by any Restricted Party at any location, whether
or not owned or operated by the Company or any of its Subsidiaries, the
noncompliance by any Restricted Party or of any Real Property owned or operated
by any Restricted Party with Environmental Laws, or any Environmental Claim
asserted against the Company, any of its Subsidiaries or any Real Property owned
or at any time operated by the Company or any of its Subsidiaries, including, in
each case, without limitation, the reasonable fees and disbursements of counsel
and other consultants incurred in connection with any such investigation,
litigation or other proceeding (but excluding any losses, liabilities, claims,
damages or expenses to the extent incurred by reason of the gross negli-

<PAGE>
                                     -122-

gence or willful misconduct of the Person to be indemnified). To the extent that
the undertaking to indemnify, pay or hold harmless the Holders set forth in the
preceding sentence may be unenforceable because it is violative of any law or
public policy, the Company shall make the maximum contribution to the payment
and satisfaction of each of the indemnified liabilities which is permissible
under applicable law. Notwithstanding anything to the contrary in this Section
14.01, the indemnification and contribution provisions of the Restated
Shareholders Agreement and/or the Unitholders Agreement shall govern any claim
made with respect to registration statements filed pursuant thereto or sale made
thereunder.

                  14.02 Right of Setoff. In addition to any rights now or
hereafter granted under applicable law or otherwise, and not by way of
limitation of any such rights, upon the occurrence of an Event of Default, each
Holder is hereby authorized at any time or from time to time, without
presentment, demand, protest or other notice of any kind to any Guarantor or the
Company or to any other Person, any such notice being hereby expressly waived,
to set off and to appropriate and apply any and all deposits (general or
special) and any other Indebtedness at any time held or owing by the Holders
(including, without limitation, by branches and agencies of such Lender wherever
located) to or for the credit or the account of the Company or any Guarantor but
in any event excluding assets held in trust for any such Person against and on
account of the Obligations and liabilities of the Company or such Guarantor, as
applicable, to the Holders under this Agreement or under any of the other
Transaction Documents and all other claims of any nature or description arising
out of or connected with this Agreement or any other Transaction Document,
irrespective of whether or not the Holders shall have made any demand hereunder
and although said Obligations, liabilities or claims, or any of them, shall be
contingent or unmatured.

                  14.03 Notices. Except as otherwise expressly provided herein,
all notices and other communications provided for hereunder shall be in writing
(including telexed, telegraphic, telex, telecopier or cable communication) and
mailed, telexed, telecopied, cabled or delivered: if to Holdings, at Holdings
address specified below its signature below; if to the Company, at the Company's
address specified below its signature below; if to a Purchaser, at its address
specified below its signature below; if to the Agent, at its address specified
below its signature below; or, as to any Restricted Party or any Holder, at such
other address as shall be designated by such party in a written notice to the
other parties hereto. All such notices and communications shall, when mailed,
telexed, telecopied or sent by overnight courier, be effective when deposited in
the mails or delivered to the overnight courier, prepaid and properly addressed
for delivery on such or the next Business Day, or sent by telex or telecopier,
except that notices and communications to a Purchaser, the Agent or any
Restricted Party shall not be effective until received by such Purchaser, the
Agent, or such Restricted Party, as the case may be.

<PAGE>
                                     -123-

                  14.04 Benefit of Agreement. (a) This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
successors and assigns of the parties hereto; provided, however, that no
Restricted Party may assign or transfer any of its rights, obligations or
interest hereunder or under any other Transaction Document without the prior
written consent of the Required Holders.

                           (b) Any Holder may (x) assign all or a portion of its
Notes to (i) its parent company and/or any affiliate of such Holder which is at
least 50% owned by such Holder or its parent company, (ii) in the case of any
Holder that is a fund that invests in loans and notes, any other fund that
invests in loans and notes and is managed or advised by the same investment
advisor of such Holder or by an Affiliate of such investment advisor, (iii) one
or more Holders, or (iv) one or more Eligible Transferees (treating any fund
that invests in loans and notes and any other fund that invests in loans and
notes and is managed or advised by the same investment advisor of such fund or
by an Affiliate of such investment advisor as a single Eligible Transferee),
each of which assignees shall become a party to this Agreement as a Holder by
execution of an assignment and assumption agreement; provided that, (i) new
Notes will be issued, at the Company's expense, to such new Holder and to the
assigning Holder upon the request of such new Holder or assigning Holder and
(ii) if, after giving effect to any such assignment, the Holders holding the
Notes on the Closing Date (together with entities listed under subsection
(x)(i), (x)(ii) and (x)(iii) above) end up holding less than 50% of the total
aggregate amount of Notes outstanding on such date of assignment and if no Event
of Default has occurred or is occurring hereunder, the consent of the Company
shall be required, such consent not to be unreasonably withheld.

                  14.05 No Waiver; Remedies Cumulative. No failure or delay on
the part of the holder of any Note in exercising any right, power or privilege
hereunder or under any other Transaction Document and no course of dealing
between the Company or any other Restricted Party and the holder of any Note
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, power or privilege hereunder or under any other Transaction Document
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege hereunder or thereunder. The rights, powers and
remedies herein or in any other Transaction Document expressly provided are
cumulative and not exclusive of any rights, powers or remedies which the holder
of any Note would otherwise have. No notice to or demand on any Restricted Party
in any case shall entitle any Restricted Party to any other or further notice or
demand in similar or other circumstances or constitute a waiver of the rights of
the holder of any Note to any other or further action in any circumstances
without notice or demand.

                  14.06 Calculations; Computations. (a) The financial statements
to be furnished to the Holders pursuant hereto shall be made and prepared in
accordance with generally accepted accounting principles in the United States
consistently applied throughout the

<PAGE>
                                     -124-

periods involved (except as set forth in the notes thereto or as otherwise
disclosed in writing by the Company to such Holders); provided that, except as
otherwise specifically provided herein, all computations determining compliance
with Sections 10.08 through 10.11, inclusive, shall utilize accounting
principles and policies in conformity with those used to prepare the historical
financial statements delivered to the Purchasers pursuant to Section 5.13 (with
the foregoing generally accepted accounting principles, subject to the preceding
proviso, herein called "GAAP").

                  (b) All computations of interest on Notes and Fees hereunder
shall be made on the basis of a year of 360 days for the actual number of days
(including the first day but excluding the last day) occurring in the period for
which such interest, Notes or Fees are payable.

                  14.07 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER
OF JURY TRIAL. (a) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL, EXCEPT AS
OTHERWISE PROVIDED IN CERTAIN OF THE MORTGAGES, BE CONSTRUED IN ACCORDANCE WITH
AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. ANY LEGAL ACTION OR
PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT MAY BE
BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE
SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT,
EACH RESTRICTED PARTY HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF
ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID
COURTS. EACH RESTRICTED PARTY HEREBY IRREVOCABLY DESIGNATES, APPOINTS AND
EMPOWERS CT CORPORATION SYSTEM, WITH OFFICES ON THE DATE HEREOF AT 111 EIGHTH
AVENUE, NEW YORK, NEW YORK 10011, AS ITS DESIGNEE, APPOINTEE AND AGENT TO
RECEIVE, ACCEPT AND ACKNOWLEDGE FOR AND ON ITS BEHALF, AND IN RESPECT OF ITS
PROPERTY, SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS
WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING. IF FOR ANY REASON SUCH
DESIGNEE, APPOINTEE AND AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, EACH
RESTRICTED PARTY AGREES TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT IN THE
STATE OF NEW YORK ON THE TERMS AND FOR THE PURPOSES OF THIS PROVISION
SATISFACTORY TO THE AGENT UNDER THIS AGREEMENT. EACH RESTRICTED PARTY FURTHER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO ANY RESTRICTED PARTY AT ITS
ADDRESS SET FORTH OPPO-

<PAGE>
                                     -125-

SITE ITS SIGNATURE BELOW, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH
MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENTS UNDER THIS
AGREEMENT, THE HOLDER OF ANY NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED
BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY
RESTRICTED PARTY IN ANY OTHER JURISDICTION.

                  (b) EACH RESTRICTED PARTY HEREBY IRREVOCABLY WAIVES ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF
THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN
CLAUSE (a) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD
OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY
SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

                  (c) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

                  14.08 Counterparts. This Agreement may be executed in any
number of counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the same instrument. A set of
counterparts executed by all the parties hereto shall be lodged with the Company
and the Agent.

                  14.09 Headings Descriptive. The headings of the several
sections and subsections of this Agreement are inserted for convenience only and
shall not in any way affect the meaning or construction of any provision of this
Agreement.

                  14.10 Amendment or Waiver; Etc. Neither this Agreement nor any
other Transaction Document nor any terms hereof or thereof may be changed,
waived, discharged or terminated unless such change, waiver, discharge or
termination is in writing signed by the respective Restricted Parties party
thereto and the Required Holders.

                  14.11 Survival. All indemnities set forth herein including,
without limitation, in Sections 4.04, and 14.01 shall survive the execution,
delivery and termination of this Agreement and the Notes.

<PAGE>
                                     -126-

                  14.12 Confidentiality. (a) Subject to the provisions of clause
(b) of this Section 14.12, each Holder agrees that it will use its best efforts
not to disclose without the prior consent of the Company (other than to its
employees, auditors, advisors or counsel) any information with respect to the
Company or any of its Subsidiaries which is now or in the future furnished
pursuant to this Agreement or any other Transaction Document, provided that each
Holder may disclose any such information (a) as has become generally available
to the public other than by virtue of a breach of this Section 14.12(a) by such
Holder, (b) as may be required or appropriate in any report, statement or
testimony submitted to any municipal, state or Federal regulatory body having or
claiming to have jurisdiction over such Holder or to the Federal Reserve Board
or the Federal Deposit Insurance Corporation or similar organizations (whether
in the United States or elsewhere) or their successors, (c) as may be required
or appropriate in respect to any summons or subpoena or in connection with any
litigation, (d) in order to comply with any law, order, regulation or ruling
applicable to such Holder, (e) to the national association of insurance
commissioners or any similar organization or any nationally recognized rating
agency that requires access to information about the Holder's investment
portfolio in connection with the ratings issued with respect to such Holder, (f)
to any prospective or actual transferee or participant in connection with any
contemplated transfer or participation of any of the Notes or any interest
therein by any Holder or any other direct or indirect contractual counterparty
in swap agreements or such contractual counterparty's professional advisors;
provided that such prospective transferee or contractual counterparty agrees to
be bound by the confidentiality provisions contained in this Section 14.12 and
(g) as may be used in good faith by the Agent for its marketing purposes in a
manner consistent with customary industry practice (provided that whenever the
Agent has received notice that the Company or Holdings is engaged in or
reasonably intends to engage in a registered or unregistered offering of its
securities, then the Agent agrees, until completion of such offering, not to
disclose any terms relating to such offering (except for such terms as already
disclosed publicly by the Company or Holdings) and not to engage in any general
solicitation or advertising (as used in Rule 502 under the Securities Act) in
respect of any securities of the Company or Holdings; and, provided further,
that once the Company or Holdings becomes subject to the reporting requirements
of Section 13 or 15 of the Securities Exchange Act of 1934, as amended, the
Agent agrees not to disclose any material nonpublic information except to
persons who agree to maintain such nonpublic information in confidence).

                  Notwithstanding the foregoing, the Agent, the Purchasers and
the Restricted Parties (and each of their respective officers, directors,
employees, accountants, attorneys and other advisors, agents and
representatives) may disclose to any and all persons, without limitation of any
kind, the U.S. tax treatment and U.S. tax structure of the transactions
contemplated by this Agreement and all materials of any kind (including opinions
or other tax analyses) that are provided to such person relating to such tax
treatment or tax structure, other than any information for which nondisclosure
is reasonably necessary in order to comply with applicable securities laws, and
except that, with respect to any document or similar item that in either

<PAGE>
                                     -127-

case contains information concerning the U.S. tax treatment or U.S. tax
structure of such transactions as well as other information, this paragraph
shall only apply to such portions of the document or similar item that relate to
such tax treatment or tax structure. The Agent and the Purchasers agree to make
commercially reasonable efforts, if to do so would not, in the opinion of
counsel to the Agent or Purchasers, violate any law or regulation applicable to
the Agent or the Purchasers, to provide notice to the Restricted Parties at
least five days prior to disclosing financial statements of the Restricted
Parties and other financial information of the Restricted Parties pursuant to
this paragraph in order that the Restricted Parties may take such action as they
deem appropriate to prevent such disclosure.

                  (b) The Company hereby acknowledges and agrees that any Holder
may share with any of its affiliates any information related to the Company or
any of its Subsidiaries (including, without limitation, any nonpublic customer
information regarding the creditworthiness of the Company and its Subsidiaries,
provided such Persons shall be subject to the provisions of this Section 14.12
to the same extent as the Agent).

                  14.13 Special Provisions Regarding Pledges of Equity Interests
in, and Promissory Notes Owed by, Persons Not Organized in the United States.
The parties hereto acknowledge and agree that the provisions of the Security
Agreement executed and delivered by the Restricted Parties require that, among
other things, all promissory notes executed by, and all (or 65%, as the case may
be) of the capital stock and other equity interests in, various Persons owned by
the respective Restricted Party be pledged, and delivered for pledge, pursuant
to the Security Agreement. To the extent the Security Agreement requires or
provides for the pledge of promissory notes issued by, or capital stock or other
equity interests in, any Person organized under the laws of a jurisdiction other
than the United States, it is acknowledged that, as of the Closing Date, no
actions have been required to be taken to perfect under any local law of the
jurisdiction of the Person who issued the respective promissory notes or whose
capital stock or other equity interests are pledged, under the Security
Documents. The Restricted Parties hereby agree that, following any request by
the Required Holders to do so in respect to any such asset that is material,
each Restricted Party shall, and shall cause its Subsidiaries to, take such
actions under U.S. law or the local law of any jurisdiction with respect to
which such actions have not already been taken as are reasonably determined by
the Required Holders to be necessary or desirable in order to fully perfect,
preserve or protect the security interests in such assets granted pursuant to
the Security Agreement under the laws of such jurisdictions. If requested to do
so pursuant to this Section 14.13, all such actions shall be taken in accordance
with the provisions of this Section 14.13 as promptly as practicable. All
conditions and representations contained in this Agreement and the other
Transaction Documents shall be deemed modified to the extent necessary to effect
the foregoing and so that same are not violated by reason of the failure to take
actions under U.S. Federal or local law (but only with respect to capital stock
of, other equity interests in, and promissory notes issued by, Persons organized
under laws of jurisdictions other than the United States) not re-

<PAGE>
                                     -128-

quired to be taken in accordance with the provisions of this Section 14.13,
provided, that to the extent any representation or warranty would not be true
because the foregoing actions were not taken, the respective representation or
warranty shall be required to be true and correct in all material respects at
such time as the respective action is required to be taken in accordance with
the foregoing provisions of this Section 14.13.

                  14.14 Registration of Notes. The Company shall keep at its
principal executive office a register for the registration and registration of
transfers or partial transfers of Notes. The name and address of each holder of
one or more Notes, each transfer thereof and the name and address of each
transferee of one or more Notes shall be registered in such register. Upon
surrender for registration of transfer or exchange of a Note at the principal
offices of the Company, the Company shall, at its expense, execute and deliver
one or more new Notes of like tenor and of denominations of at least $1.0
million (except as may be necessary to reflect any principal amount not evenly
divisible by $1.0 million) of a like aggregate principal amount, registered in
the name of the Holder or a transferee or transferees. Prior to due presentment
for registration of transfer, the Person in whose name any Note shall be
registered shall be deemed and treated as the owner and holder thereof for all
purposes hereof, and the Company shall not be affected by any notice or
knowledge to the contrary.

                  14.15 Restructuring Agreement. . Each Holder shall be bound by
the Restructuring Agreement, and any transferee of any Note hereunder shall
automatically become subject to the Restructuring Agreement.

                  SECTION 15. Appointment of Agent.

                  15.01 Each of the Holders hereby irrevocably appoints the
Agent as its agent hereunder and under the other Transaction Documents, and to
act as the Collateral Agent on behalf of the Holders hereunder and under the
other Transaction Documents, and in each case authorizes the Agent to take such
actions on its behalf and to exercise such powers as are delegated to the Agent
by the terms hereof or thereof, together with such actions and powers as are
reasonably incidental thereto.

                  15.02 The Person serving as the Agent hereunder shall have the
same rights and powers in its capacity as a Holder as any other Holder and may
exercise the same as though it were not the Agent, and such Person and its
Affiliates may accept deposits from, lend money to and generally engage in any
kind of business with the Company or any Subsidiary or other Affiliate thereof
as if it were not the Agent hereunder.

                  15.03 The Agent shall not have any duties or obligations
except those expressly set forth herein and in the other Transaction Documents.
Without limiting the generality of the foregoing, (a) the Agent shall not be
subject to any fiduciary or other implied duties, regardless of whether a
Default has occurred and is continuing, (b) the Agent shall not have

<PAGE>
                                     -129-

any duty to take any discretionary action or exercise any discretionary powers,
except discretionary rights and powers expressly contemplated hereby or by the
other Transaction Documents that the Agent is required to exercise in writing by
the Required Holders, and (c) except as expressly set forth herein and in the
other Transaction Documents, the Agent shall not have any duty to disclose, and
shall not be liable for the failure to disclose, any information relating to the
Company or any of its Subsidiaries that is communicated to or obtained by the
bank serving as Agent or any of its Affiliates in any capacity. The Agent shall
not be liable for any action taken or not taken by it with the consent or at the
request of the Required Holders or in the absence of its own gross negligence or
willful misconduct. The Agent shall be deemed not to have knowledge of any
Default unless and until notice thereof is given to the Agent by the Company or
a Holder, and the Agent shall not be responsible for or have any duty to
ascertain or inquire into (v) any statement, warranty or representation made in
or in connection with this Agreement or any other Transaction Document, (w) the
contents of any certificate, report or other document delivered hereunder or
thereunder or in connection herewith or therewith, (x) the performance or
observance of any of the covenants, agreements or other terms or conditions set
forth herein or therein, (y) the validity, enforceability, effectiveness or
genuineness of this Agreement, any other Transaction Document or any other
agreement, instrument or document, or (z) the satisfaction of any condition set
forth herein or therein, other than to confirm receipt of items expressly
required to be delivered to the Agent.

                  15.04 The Agent shall be entitled to rely upon, and shall not
incur any liability for relying upon, any notice, request, certificate, consent,
statement, instrument, document or other writing believed by it to be genuine
and to have been signed or sent by the proper Person. The Agent also may rely
upon any statement made to it orally or by telephone and believed by it to be
made by the proper Person, and shall not incur any liability for relying
thereon. The Agent may consult with legal counsel (who may be counsel for a
Restricted Party), independent accountants and other experts selected by it, and
shall not be liable for any action taken or not taken by it in accordance with
the advice of any such counsel, accountants or experts.

                  15.05 The Agent may perform any and all its duties and
exercise its rights and powers by or through any one or more sub-agents
appointed by the Agent. The Agent and any such sub-agent may perform any and all
its duties and exercise its rights and powers through their respective
Affiliates. The exculpatory provisions of the preceding paragraphs shall apply
to any such sub-agent and to the Affiliates of the Agent and any such sub-agent,
and shall apply to their respective activities in connection with the
syndication of the credit facilities provided for herein as well as activities
as Agent.

                  15.06 Subject to the appointment and acceptance of a successor
Agent as provided below, the Agent may resign at any time by notifying the
Holders and the Company. Upon any such resignation, the Required Holders shall
have the right, in consultation with the

<PAGE>
                                     -130-

Company, to appoint a successor. If no successor shall have been so appointed by
the Required Holders and shall have accepted such appointment within 30 days
after the retiring Agent gives notice of its resignation, then the retiring
Agent may, upon not less than ten days' notice, on behalf of the Holders,
appoint a successor Agent, which institution shall be a bank with an office in
Los Angeles, California or New York, New York, with a combined capital and
surplus of at least $500,000,000. Upon the acceptance of its appointment as
Agent hereunder by a successor, such successor shall succeed to and become
vested with all the rights, powers, privileges and duties of the retiring (or
retired) Agent and the retiring Agent shall be discharged from its duties and
obligations hereunder. The fees payable by the Company to a successor Agent
shall be the same as those payable to its predecessor unless otherwise agreed
between the Company and such successor. After the Agent's resignation hereunder,
the provisions of this Article shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was acting as
Agent.

                  15.07 Each Holder acknowledges that it has, independently and
without reliance upon the Agent or any other Holder and based on such documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Holder also acknowledges that it
will, independently and without reliance upon the Agent or any other Holder and
based on such documents and information as it shall from time to time deem
appropriate, continue to make its own decisions in taking or not taking action
under or based upon this Agreement, any other Transaction Document or any
related agreement or any document furnished hereunder or thereunder.

                  15.08 Each Holder agrees to indemnify the Agent for, and hold
it harmless against, any loss, liability or expense including taxes incurred
without willful misconduct or gross negligence on its part, arising out of or in
connection with the acceptance or administration of this Agreement or its duties
hereunder, including the reasonable costs and expenses of defending itself
against any claim or liability (whether assessed by a Restricted Party, any
Holder or any other Person) in connection with the exercise or performance of
any of its powers or duties hereunder.

                  15.09 The Agent may take any action on behalf of the Required
Holders that has been approved by the Required Holders. For the avoidance of
doubt, the Agent may, with the prior consent of the Required Holders (but not
otherwise), consent to any amendment, restatement, supplement, waiver or other
modification under any of the Transaction Documents.

                  [SIGNATURES APPEAR ON THE FOLLOWING PAGE]
<PAGE>

                  IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Agreement as of the date first
above written.

                                    KINETICS GROUP, INC.,
                                     as Company

                                    By: /s/ John Goodman
                                        ---------------------------------------
                                        Name:
                                        Title:

                                    Address for Notices:
                                    2805 Mission College Blvd.
                                    Santa Clara, CA 95054
                                    Attention: CFO and Treasurer

                                    CELERITY GROUP, INC., as Guarantor

                                    By: /s/ John Goodman
                                        ---------------------------------------
                                        Name:
                                        Title:

                                    Address for Notices:
                                    2805 Mission College Blvd.
                                    Santa Clara, CA 95054
                                    Attention: CFO and Treasurer

                 [Signature Page - 2nd Lien Purchase Agreement]

<PAGE>

                                    KINETIC SYSTEMS, INC.,
                                     as Guarantor

                                    By: /s/ John Goodman
                                        ---------------------------------------
                                        Name:
                                        Title:

                                    Address for Notices:
                                    2805 Mission College Blvd.
                                    Santa Clara, CA 95054
                                    Attention: CFO and Treasurer

                                    KINETIC SYSTEMS CARIBE, INC.,
                                     as Guarantor

                                    By: /s/ John Goodman
                                        ---------------------------------------
                                        Name:
                                        Title:

                                    Address for Notices:
                                    2805 Mission College Blvd.
                                    Santa Clara, CA 95054
                                    Attention: CFO and Treasurer

                                    KINETIC SYSTEMS INTERNATIONAL, INC.,
                                      as Guarantor

                                    By: /s/ John Goodman
                                        ---------------------------------------
                                        Name:
                                        Title:

                                    Address for Notices:
                                    2805 Mission College Blvd.
                                    Santa Clara, CA 95054
                                    Attention: CFO and Treasurer

                 [Signature Page - 2nd Lien Purchase Agreement]

<PAGE>

                                    KINETICS CHEMPURE SYSTEMS, INC.,
                                     as a Subsidiary Guarantor

                                    By: /s/ John Goodman
                                        ---------------------------------------
                                        Name:
                                        Title:

                                    Address for Notices:
                                    2805 Mission College Blvd.
                                    Santa Clara, CA 95054
                                    Attention: CFO and Treasurer

                 [Signature Page - 2nd Lien Purchase Agreement]

<PAGE>

                                    CELERITY GROUP, INC. (formerly known as
                                      Kinetics Fluid Systems, Inc.), as a
                                      Subsidiary Guarantor

                                    By: /s/ John Goodman
                                        ---------------------------------
                                        Name:
                                        Title:

                                    Address for Notices:
                                    2805 Mission College Blvd.
                                    Santa Clara, CA 95054
                                    Attention: CFO and Treasurer

                                    FTS SYSTEMS, INC. (formerly known as
                                      Kinetics Thermal Systems, Inc.),
                                      as a Subsidiary Guarantor

                                    By: /s/ John Goodman
                                        ---------------------------------
                                        Name:
                                        Title:

                                    Address for Notices:
                                    2805 Mission College Blvd.
                                    Santa Clara, CA 95054
                                    Attention: CFO and Treasurer

                 [Signature Page - 2nd Lien Purchase Agreement]

<PAGE>

                                    TENNENBAUM CAPITAL PARTNERS, LLC,
                                      as Collateral Agent and as Agent

                                      By:______________________________________
                                         Name:
                                         Title:

                                    Address for Notices:
                                    11100 Santa Monica Blvd.
                                    Suite 210
                                    Los Angeles, CA 90025
                                    Attention: David A. Hollander

                 [Signature Page - 2nd Lien Purchase Agreement]

<PAGE>

                                    SPECIAL VALUE ABSOLUTE RETURN
                                    FUND, LLC, as Purchaser
                                    By:   SVAR/MM, LLC
                                    Its:  Managing Member
                                    By:   Tennenbaum Capital Partners, LLC
                                    Its:  Managing Member
                                    By:   Tennenbaum & Co., LLC
                                    Its:  Managing Member

                                    SPECIAL VALUE BOND FUND, LLC, as Purchaser
                                    By:   SVIM/MSM, LLC
                                    Its:  Manager
                                    By:   Tennenbaum & Co., LLC
                                    Its:  Managing Member

                                    SPECIAL VALUE BOND FUND II, LLC, as
                                    Purchaser
                                    By:   SVIM/MSM II, LLC
                                    Its:  Managing Member
                                    By:   Tennenbaum & Co., LLC
                                    Its:  Managing Member

                                    J.B. FUQUA FAMILY CHARITABLE LEAD
                                    ANNUITY TRUST - 2000, as Holder
                                    By:  Tennenbaum Capital Partners, LLC
                                    Its: Investment Advisor
                                    By:  Tennenbaum & Co., LLC
                                    Its: Managing Member

                                    Each of the above by:

                                    _______________________________________
                                    Name:
                                    Title:

                                    Address for Notices:
                                    11100 Santa Monica Blvd.
                                    Suite 210
                                    Los Angeles, CA 90025

                 [Signature Page - 2nd Lien Purchase Agreement]

<PAGE>

                                    Attention: David A. Hollander
                                    ARES LEVERAGED INVESTMENT FUND II, L.P.,
                                    as Holder
                                    By:   Ares Management II, L.P.
                                    Its:  General Partner

                                    By: _______________________________________
                                    Name:
                                    Title:

                                    Address for Notices:
                                    1999 Avenue of the Stars
                                    Suite 1900
                                    Los Angeles, CA 90067
                                    Attention: Masa Takenaga
                                               Kevin Frankel
                                    Fax: 310-201-4157

                                    ARES TOTAL VALUE FUND, L.P., as Purchaser
                                    By:   Ares Total Value Management LLC
                                    Its:  General Partner

                                    By: _______________________________________
                                    Name:
                                    Title:

                                    Address for Notices:
                                    1999 Avenue of the Stars
                                    Suite 1900
                                    Los Angeles, CA 90067
                                    Attention: Masa Takenaga
                                               Kevin Frankel
                                    Fax: 310-201-4157

                 [Signature Page - 2nd Lien Purchase Agreement]

<PAGE>

                                    ARES III CLO LTD., as Purchaser
                                    By:  ARES CLO Management LLC
                                    Its: Investment Manager

                                    By: _______________________________________
                                    Name:
                                    Title:

                                    Address for Notices:
                                    1999 Avenue of the Stars
                                    Suite 1900
                                    Los Angeles, CA 90067
                                    Attention: Masa Takenaga
                                               Kevin Frankel
                                    Fax: 310-201-4157

                                    ARES IV CLO LTD., as Purchaser
                                    By:  Ares CLO Management IV, L.P.
                                    Its: Investment Manager
                                    By:  Ares CLO GP IV, LLC
                                    Its: Managing Member

                                    By: _______________________________________
                                    Name:
                                    Title:

                                    Address for Notices:
                                    1999 Avenue of the Stars
                                    Suite 1900
                                    Los Angeles, CA 90067
                                    Attention: Masa Takenaga
                                               Kevin Frankel
                                    Fax: 310-201-4157

                 [Signature Page - 2nd Lien Purchase Agreement]

<PAGE>

                                    ARES VII CLO LTD., as Holder
                                    By:  Ares CLO Management VII, L.P.
                                    Its: Investment Manager
                                    By:  Ares CLO GP VII, LLC
                                    Its: General Partner

                                    By: _______________________________________
                                    Name:
                                    Title:

                                    Address for Notices:
                                    1999 Avenue of the Stars
                                    Suite 1900
                                    Los Angeles, CA 90067
                                    Attention: Masa Takenaga
                                               Kevin Frankel
                                    Fax: 310-201-4157

                                    ARES VIII CLO LTD., as Holder
                                    By:  Ares CLO Management VIII, L.P.
                                    Its: Investment Manager
                                    By:  Ares CLO GP VIII, LLC
                                    Its: General Partner

                                    By: _______________________________________
                                    Name:
                                    Title:

                                    Address for Notices:
                                    1999 Avenue of the Stars
                                    Suite 1900
                                    Los Angeles, CA 90067
                                    Attention: Masa Takenaga
                                               Kevin Frankel
                                    Fax: 310-201-4157

                 [Signature Page - 2nd Lien Purchase Agreement]

<PAGE>

                                    MASSACHUSETTS MUTUAL
                                    LIFE INSURANCE COMPANY, as Purchaser
                                    By:  David L. Babson & Company Inc.
                                    Its: Investment Adviser

                                    By: /s/ Richard E. Spencer II
                                        ----------------------------------
                                    Name:  Richard E. Spencer II
                                    Title: Managing Director

                                    Address for Notices:
                                    Massachusetts Mutual Life Insurance Company
                                    c/o DL Babson
                                    1500 Main Street
                                    Suite 2200
                                    Springfield, MA 01115
                                    Attention:

                 [Signature Page - 2nd Lien Purchase Agreement]

<PAGE>

                                                                         ANNEX 1

                           EXISTING SECURITIES HOLDERS

HOLDERS

<TABLE>
<CAPTION>
                                       PRINCIPAL                   COMMON STOCK                  PREFERRED   PREFERRED
                         PRINCIPAL     AMOUNT OF    COMMON STOCK     WARRANTS     COMMON STOCK     STOCK       STOCK
                         AMOUNT OF     EXISTING     WARRANTS WITH   WITH $0.75   WARRANTS WITH   WARRANTS -  WARRANTS -
                          SERIES A     SERIES B    $0.01 EXERCISE    EXERCISE    $3.00 EXERCISE  SERIES A-1  SERIES B-1
       HOLDER            NOTES HELD   NOTES HELD     PRICE HELD     PRICE HELD     PRICE HELD       HELD        HELD
----------------------  ------------  -----------  --------------  ------------  --------------  ----------  ----------
<S>                     <C>           <C>          <C>             <C>           <C>             <C>         <C>
Special Value Absolute
Return Fund, LLC        $ 37,700,000  $ 4,640,000    7,135,583      3,633,645      1,646,395     1,704,400    1,107,278

Special Value Bond
Fund, LLC               $  7,800,000  $   960,000    1,476,326        751,789        340,633       352,634      229,092

Special Value Bond
Fund II, LLC            $ 19,066,667  $ 2,346,667    3,608,799      1,837,706        832,661       861,994      560,004

J.B. Fuqua Family
Charitable Lead
Annuity Trust - 2000    $    433,333  $    53,333       82,017         41,765         18,924        19,590       12,727

Massachusetts Mutual
Life Insurance Company             -  $ 8,000,000    1,348,244        686,565        311,081       322,041      209,216

Ares Leveraged
Investment Fund II,
L.P.                    $  6,000,000            -    1,109,425        546,959        256,012       257,757      167,454

Ares VII CLO Ltd.       $  2,500,000                   323,084        182,516         74,511        84,411       54,838

Ares VIII CLO Ltd.      $  1,500,000                   252,796        128,731         58,328        60,383       39,228
</TABLE>

                                     Annex 1

<PAGE>

                                                                         ANNEX 2

                             SCHEDULE OF PURCHASERS

SERIES B PURCHASERS

<TABLE>
<CAPTION>
                           PRINCIPAL       COMMON STOCK      COMMON STOCK      COMMON STOCK     PREFERRED STOCK   PREFERRED STOCK
                           AMOUNT OF       WARRANTS WITH     WARRANTS WITH     WARRANTS WITH        SERIES            SERIES
                          NEW SERIES B     $0.01 EXERCISE    $0.75 EXERCISE   $3.00 EXERCISE      A-1 WARRANTS      B-1 WARRANTS
     PURCHASER          NOTES PURCHASED   PRICE PURCHASED   PRICE PURCHASED   PRICE PURCHASED      PURCHASED         PURCHASED
---------------------   ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
<S>                     <C>               <C>               <C>               <C>               <C>               <C>
Special Value
Absolute Return Fund,
LLC (TCP PURCHASER)     $       800,000       137,849            77,873            31,791            36,015            23,398

Special Value Bond
Fund, LLC (TCP
PURCHASER)              $       400,000        68,924            38,937            15,896            18,008            11,698

Special Value Bond
Fund II, LLC (TCP
PURCHASER)              $       800,000       137,849            77,873            31,791            36,015            23,398

Massachusetts Mutual
Life Insurance
Company (TCP
PURCHASER)              $     2,000,000       344,622           194,683            79,478            90,038            58,494
</TABLE>

                                     Annex 2

<PAGE>

                                      -2-

SERIES C PURCHASERS

<TABLE>
<CAPTION>
                          PRINCIPAL       COMMON STOCK      COMMON STOCK      COMMON STOCK     PREFERRED STOCK   PREFERRED STOCK
                          AMOUNT OF       WARRANTS WITH     WARRANTS WITH     WARRANTS WITH        SERIES            SERIES
                        SERIES C NOTES   $0.01 EXERCISE    $0.75 EXERCISE    $3.00 EXERCISE     A-1 WARRANTS      B-1 WARRANTS
      PURCHASER           PURCHASED      PRICE PURCHASED   PRICE PURCHASED   PRICE PURCHASED      PURCHASED         PURCHASED
---------------------   --------------   ---------------   ---------------   ---------------   ---------------   ---------------
<S>                     <C>              <C>               <C>               <C>               <C>               <C>
Special Value
Absolute Return Fund,
LLC (TCP PURCHASER)     $   6,000,000         775,400          438,037           178,825           202,586           131,612

Special Value Bond
Fund, LLC (TCP
PURCHASER)              $   3,000,000         387,700          219,018            89,413           101,293            65,806

Special Value Bond
Fund II, LLC (TCP
PURCHASER)              $   6,000,000         775,400          438,037           178,825           202,586           131,612

Massachusetts Mutual
Life Insurance
Company (TCP
PURCHASER)              $  10,000,000       1,292,334          730,061           298,042           337,644           219,353

Ares III CLO Ltd.
(ARES PURCHASER)        $   2,000,000         258,467          146,013            59,609            67,528            43,870

Ares IV CLO Ltd.
(ARES PURCHASER)        $   1,500,000         193,850          109,509            44,706            50,647            32,903

Ares Total Value
Fund, L.P. (ARES
PURCHASER)              $   1,500,000         193,850          109,509            44,706            50,647            32,903
</TABLE>

                                     Annex 2

<PAGE>

                                                                         ANNEX 3

TCP MEZZANINE LIQUIDATION CERTIFICATE PURCHASERS

<TABLE>
<CAPTION>
                         COMMON STOCK      COMMON STOCK      COMMON STOCK     PREFERRED STOCK   PREFERRED STOCK       TCP
                         WARRANTS WITH     WARRANTS WITH     WARRANTS WITH        SERIES            SERIES        LIQUIDATION
                        $0.01 EXERCISE    $0.75 EXERCISE    $3.00 EXERCISE      A-1 WARRANTS      B-1 WARRANTS    CERTIFICATES
      PURCHASER         PRICE PURCHASED   PRICE PURCHASED   PRICE PURCHASED      PURCHASED         PURCHASED        PURCHASED
---------------------   ---------------   ---------------   ---------------   ---------------   ---------------   ------------
<S>                     <C>               <C>               <C>               <C>               <C>               <C>
Special Value
Absolute Return Fund,
LLC                         179,964           101,664           41,503             47,019            30,546       $ 333,333.33

Special Value Bond
Fund, LLC                    89,982            50,832           20,753             23,509            15,273       $ 166,666.67

Special Value Bond
Fund II, LLC                179,964           101,664           41,503             47,019            30,546       $ 333,333.33
</TABLE>

                                     Annex 3

<PAGE>

                                                                         ANNEX 4

                              GROSS-UP ALLOCATIONS

HOLDERS

<TABLE>
<CAPTION>
                              COMMON STOCK          COMMON STOCK          COMMON STOCK      PREFERRED STOCK   PREFERRED STOCK
                           WARRANTS WITH $0.01   WARRANTS WITH $0.75   WARRANTS WITH $3.00     WARRANTS -        WARRANTS -
        HOLDER            EXERCISE PRICE ADDED  EXERCISE PRICE ADDED  EXERCISE PRICE ADDED  SERIES A-1 ADDED  SERIES B-1 ADDED
------------------------  --------------------  --------------------  --------------------  ----------------  ----------------
<S>                       <C>                   <C>                   <C>                   <C>               <C>
Special Value Absolute
Return Fund, LLC                18,756                407,964                3,562              164,789           107,057

Special Value Bond
Fund, LLC                        3,880                 84,407                  737               34,094            22,149

Special Value Bond
Fund II, LLC                     9,487                206,327                1,801               83,341            54,144

J.B. Fuqua Family
Charitable Lead
Annuity Trust - 2000               216                  4,689                   40                1,895             1,231

Massachusetts Mutual
Life Insurance Company           3,544                 77,084                  673               31,137            20,228

Ares Leveraged
Investment Fund II, L.P.         3,765                 81,902                  715               33,083            21,492

Ares VII CLO Ltd.                    -                      -                    -                    -                 -

Ares VIII CLO Ltd.                 665                 14,453                  126                5,838             3,793
</TABLE>

                                     Annex 4

<PAGE>

                                                                         ANNEX 5

                          POST-TRANSACTION ALLOCATIONS

TCP NOTES AND WARRANTS

<TABLE>
<CAPTION>
                                                                COMMON STOCK  COMMON STOCK  COMMON STOCK
                       PRINCIPAL     PRINCIPAL     PRINCIPAL      WARRANTS      WARRANTS      WARRANTS     PREFERRED     PREFERRED
                       AMOUNT OF     AMOUNT OF     AMOUNT OF     WITH $0.01    WITH $0.75    WITH $3.00   STOCK SERIES  STOCK SERIES
                        SERIES A      SERIES B      SERIES C      EXERCISE      EXERCISE      EXERCISE    A-1 WARRANTS  B-1 WARRANTS
     HOLDER            NOTES HELD    NOTES HELD    NOTES HELD    PRICE HELD    PRICE HELD    PRICE HELD       HELD          HELD
--------------------  ------------  ------------  ------------  ------------  ------------  ------------  ------------  ------------
<S>                   <C>           <C>           <C>           <C>           <C>           <C>           <C>           <C>
Special Value
Absolute Return
Fund, LLC             $ 37,700,000  $  5,440,000  $  6,000,000   8,067,588     4,557,519     1,860,573     2,107,790     1,369,345

Special Value Bond
Fund, LLC             $  7,800,000  $  1,360,000  $  3,000,000   1,936,830     1,094,151       446,679       506,029       328,745

Special Value Bond
Fund II, LLC          $ 19,066,667  $  3,146,667  $  6,000,000   4,531,535     2,559,943     1,045,078     1,183,936       769,158

J.B. Fuqua Family
Charitable Lead
Annuity Trust - 2000  $    433,333  $     53,333                    82,233        46,454        18,964        21,485        13,958

Massachusetts Mutual
Life Insurance
Company                          -  $ 10,000,000  $ 10,000,000   2,988,744     1,688,393       689,274       780,860       507,291

Ares Leveraged
Investment Fund II,
L.P.                  $  6,000,000             -             -   1,113,190       628,861       256,727       290,840       188,946

Ares III CLO Ltd.                -             -  $  2,000,000     258,467       146,013        59,609        67,528        43,870

Ares IV CLO Ltd.                 -             -  $  1,500,000     193,850       109,509        44,706        50,647        32,903

Ares VII CLO Ltd.     $  2,500,000             -             -     323,084       182,516        74,511        84,411        54,838
</TABLE>

                                     Annex 5

<PAGE>

                                      -2-

<TABLE>
<S>                   <C>               <C>       <C>              <C>           <C>            <C>           <C>           <C>
Ares VIII CLO Ltd.    $  1,500,000      -                    -     253,461       143,184        58,454        66,221        43,021

Ares Total Value
Fund, L.P.                       -      -         $  1,500,000     193,850       109,509        44,706        50,647        32,903
</TABLE>

                                     Annex 5
<PAGE>

                                      -3-

TCP MEZZANINE NOTES AND WARRANTS (EXCLUDING THE TCP RETAINED WARRANTS)

<TABLE>
<CAPTION>
                                                                                        PREFERRED      PREFERRED
                         PRINCIPAL      COMMON STOCK    COMMON STOCK    COMMON STOCK       STOCK         STOCK          TCP
                         AMOUNT OF     WARRANTS WITH   WARRANTS WITH   WARRANTS WITH      SERIES         SERIES     LIQUIDATION
                         MEZZANINE     $0.01 EXERCISE  $0.75 EXERCISE  $3.00 EXERCISE  A-1 WARRANTS   B-1 WARRANTS  CERTIFICATES
      HOLDER             NOTES HELD      PRICE HELD      PRICE HELD      PRICE HELD        HELD           HELD          HELD
---------------------  --------------  --------------  --------------  --------------  ------------  -------------  ------------
<S>                    <C>             <C>             <C>             <C>             <C>           <C>            <C>
Special Value
Absolute Return Fund,
LLC                    $ 2,000,000.00     258,467         146,012          59,608         67,529         43,871     $ 333,333.33

Special Value Bond
Fund, LLC              $ 1,000,000.00     129,233          73,006          29,805         33,764         21,935     $ 166,666.67

Special Value Bond
Fund II, LLC           $ 2,000,000.00     258,467         146,012          59,608         67,529         43,871     $ 333,333.33
</TABLE>

                                     Annex 5

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00065-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00065-of-00352.parquet"}]]