SOVEREIGN SPECIALTY CHEMICALS INC
S-4, 2000-05-12
ADHESIVES & SEALANTS
Previous: FRIEDMAN BILLINGS RAMSEY GROUP INC, 10-Q, 2000-05-12
Next: ARTISAN COMPONENTS INC, 10-Q, 2000-05-12



<PAGE>   1

      AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 12, 2000

                                                     REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             ---------------------
                                    FORM S-4
            REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
                             ---------------------

                      SOVEREIGN SPECIALTY CHEMICALS, INC.
             (Exact name of registrant as specified in its charter)
                             ---------------------

<TABLE>
<S>                                <C>                                <C>
             DELAWARE                             2891                            36-4176637
 (State or other jurisdiction of      (Primary Standard Industrial     (I.R.S. Employer Identification
  incorporation or organization)      Classification Code Number)                    No.)
</TABLE>

                           225 WEST WASHINGTON STREET
                                   SUITE 2200
                            CHICAGO, ILLINOIS 60606
                                 (312) 419-7100
  (Address, including zip code, and telephone number, including area code, of
                   registrant's principal executive offices)
                             ---------------------
                      SEE TABLE OF ADDITIONAL REGISTRANTS
                             ---------------------

                                JOHN R. MELLETT
                   VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
                      SOVEREIGN SPECIALTY CHEMICALS, INC.
                     225 WEST WASHINGTON STREET, SUITE 2200
                            CHICAGO, ILLINOIS 60606
                                 (312) 419-7100
 (Name, address, including zip code, and telephone number, including area code,
                             of agent for service)
                             ---------------------

                                    Copy to:
                                 JOHN M. BIBONA
                    FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
                               ONE NEW YORK PLAZA
                         NEW YORK, NEW YORK 10004-1980
                                 (212) 859-8000
                             ---------------------
     APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED EXCHANGE OFFER: As soon as
practicable after the effective date of this Registration Statement.
     If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box.  [ ]
     If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.  [ ] ______________________
     If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.  [ ]
                             ---------------------
                        CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
                                                                  PROPOSED
                                                                  MAXIMUM         PROPOSED MAXIMUM          AMOUNT OF
          TITLE OF CLASS OF                AMOUNT TO BE       AGGREGATE PRICE         AGGREGATE           REGISTRATION
     SECURITIES TO BE REGISTERED            REGISTERED          PER UNIT(1)       OFFERING PRICE(1)            FEE
- --------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>                   <C>                <C>                   <C>
11 7/8% Senior Subordinated Notes Due
  2010................................     $150,000,000           $992.88           $148,932,000             $39,318
- --------------------------------------------------------------------------------------------------------------------------
Guarantees of 11 7/8% Senior
  Subordinated Notes Due 2010.........     $150,000,000             (2)                  (2)                   (2)
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Estimated solely for the purpose of computing the registration fee in
    accordance with Rule 457(f)(2) under the Securities Act of 1933.
(2) No further fee is payable pursuant to Rule 457(n).
                             ---------------------

     THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>   2

                        TABLE OF ADDITIONAL REGISTRANTS

<TABLE>
<CAPTION>
                                                                 STATE OF       I.R.S. EMPLOYER
NAME OF REGISTRANT              PRINCIPAL EXECUTIVE OFFICE     INCORPORATION   IDENTIFICATION NO.
- ------------------              --------------------------     -------------   ------------------
<S>                            <C>                             <C>             <C>
Pierce & Stevens Corp........  710 Ohio Street                 New York            16-0951610
                               Buffalo, NY 14203
                               (716) 856-4941

SIA Adhesives, Inc. .........  123 West Burtges Street         Delaware            31-1557383
                               Akron, OH 44311
                               (330) 374-2900

OSI Sealants, Inc. ..........  7405 Production Drive           Illinois            36-2361148
                               Mentor, OH 44060
                               (440) 255-8900

Tanner Chemicals, Inc. ......  9 Furman Hall Court             New Hampshire       02-0352196
                               Greenville, SC 29609
                               (864) 232-3893
</TABLE>

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

 *  The Standard Industrial Classification Code Number for each additional
    registrant is 2891.
<PAGE>   3

     The information in this preliminary prospectus is not complete and may be
     changed. We may not sell these securities until the registration statement
     filed with the Securities and Exchange commission is effective. This
     preliminary prospectus is not an offer to sell these securities and is not
     soliciting an offer to buy these securities in any jurisdiction where the
     offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED MAY 12, 2000

PROSPECTUS

                   [SOVERIGN SPECIALTY CHEMICALS, INC. LOGO]

                                   SOVEREIGN

                           SPECIALTY CHEMICALS, INC.

                               EXCHANGE OFFER FOR
                                  $150,000,000
                   11 7/8% SENIOR SUBORDINATED NOTES DUE 2010
                             ---------------------

     We are offering to exchange 11 7/8% Senior Subordinated Notes due 2010,
Series B, for our currently outstanding 11 7/8% Senior Subordinated Notes due
2010, Series A. The exchange notes are the same as the outstanding notes, except
that the exchange notes have been registered under the federal securities laws
and will not bear any legend restricting their transfer. The exchange notes will
represent the same debt as the outstanding notes, and we will issue the exchange
notes under the same indenture. The principal features of the exchange offer are
as follows:

     - Expires 5:00 p.m., New York City time on             , 2000, unless
       extended.

     - We will exchange all outstanding notes that are validly tendered and not
       validly withdrawn prior to the expiration date of the exchange offer.

     - You may withdraw tendered outstanding notes at any time prior to the
       expiration of the exchange offer.

     - The form and terms of the exchange notes are substantially identical to
       the form and terms of the outstanding notes, except for certain transfer
       restrictions and certain rights under the registration rights agreement.

     - The exchange of outstanding notes for exchange notes pursuant to the
       exchange offer will be a tax-free event for United States federal tax
       purposes.

     - We will not receive any proceeds from the exchange offer.

     - We do not intend to apply for listing of the exchange notes on any
       securities exchange or automated quotation system.

     Broker-dealers receiving exchange notes in exchange for outstanding notes
acquired for their own account through market-making or other trading activities
must deliver a prospectus in any resale of the exchange notes.
                             ---------------------

INVESTING IN THE EXCHANGE NOTES INVOLVES RISKS THAT ARE DESCRIBED IN THE "RISK
FACTORS" SECTION BEGINNING ON PAGE 8 OF THIS PROSPECTUS.
                             ---------------------

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
                             ---------------------

                The date of this prospectus is           , 2000.
<PAGE>   4

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                               PAGE
                                                               ----
<S>                                                            <C>
Summary.....................................................     1
Risk Factors................................................     8
Use of Proceeds.............................................    16
Capitalization..............................................    16
Selected Historical Financial Information...................    17
Management's Discussion and Analysis of Financial Condition
  and Results of Operations.................................    18
Business....................................................    24
Management..................................................    33
Security Ownership by Certain Beneficial Owners and
  Management................................................    41
Certain Relationships and Related Transactions..............    43
Description of Our Credit Facility..........................    44
Description of Exchange Notes...............................    47
The Exchange Offer..........................................    90
Certain United States Federal Income Tax Consequences.......   100
Plan of Distribution........................................   105
Legal Matters...............................................   106
Experts.....................................................   106
Where You Can Find More Information.........................   106
Index to Financial Statements...............................   F-1
</TABLE>

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

                INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

     The federal securities laws allow us to incorporate by reference the
information we file with the Securities and Exchange Commission. This means that
we can disclose important information to you by referring you to those
documents. We incorporate by reference into this prospectus our annual report on
Form 10-K for the fiscal year ended December 31, 1999. In addition, all reports
and documents we file with the Securities and Exchange Commission after the date
of this prospectus and until all of the outstanding notes are exchanged for
exchange notes are incorporated in this prospectus by reference and shall be a
part of this prospectus from the date of filing of those reports and documents.
These documents may contain important business and financial information about
us that is not included in or delivered with this prospectus. Any statement
contained in a report or document incorporated by reference in this prospectus
shall be deemed to be modified or superseded for purposes of this prospectus to
the extent that a statement contained in any subsequently filed report or
document that also is incorporated by reference in this prospectus modifies or
supersedes that statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
prospectus.

     We will provide, upon written or oral request, without charge, to each
person to whom a prospectus is delivered, a copy of any or all of the
information that has been incorporated by reference in this prospectus but not
delivered with this prospectus. If you would like to obtain this information
from us, please direct your request, either in writing or by telephone, to
Sovereign Specialty Chemicals, Inc., 225 West Washington Street, Suite 2200,
Chicago, Illinois 60606, Attention: John R. Mellett, (312) 419-7100. TO OBTAIN
TIMELY DELIVERY, YOU MUST REQUEST THE INFORMATION NO LATER THAN             ,
2000, WHICH IS FIVE BUSINESS DAYS BEFORE THE DATE BY WHICH YOU MUST MAKE YOUR
INVESTMENT DECISION.

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

     You should rely only on the information contained in, or incorporated by
reference into, this prospectus. We have not authorized any other person to
provide you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. You should assume that the
information appearing in this prospectus is accurate only as of the date on the
front cover of this

                                      (ii)
<PAGE>   5

prospectus or, with respect to information incorporated by reference from
reports or documents filed with the Securities and Exchange Commission, as of
the date such report or document was filed. Our business, financial condition,
results of operations and prospects may have changed since that date.

     This prospectus is based on information provided by us and other sources
that we believe are reliable. We cannot assure you that this information is
accurate or complete. This prospectus summarizes various documents and other
information and we refer you to them for a more complete understanding of what
we discuss in this prospectus. See "Where You Can Find More Information." In
making an investment decision, you must rely on your own examination of our
company and the terms of the offering and the exchange notes, including the
merits and risks involved.

     We are not making any representation to any purchaser of the exchange notes
regarding the legality of an investment in the exchange notes by that purchaser
under any legal investment or similar laws or regulations. You should not
consider any information in this prospectus to be legal, business or tax advice.
You should consult your own attorney, business advisor and tax advisor for
legal, business and tax advice regarding an investment in the exchange notes.

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

                           FORWARD-LOOKING STATEMENTS

     This prospectus includes forward-looking statements including statements
relating to our strategy, expectations for the industry, capital requirements
and hedging activities. We have based these forward-looking statements on our
current expectations and projections about future events. These forward-looking
statements are subject to risks, uncertainties and assumptions about us,
including, among other things

     - our anticipated growth and business strategies

     - our expected internal growth

     - our ability to integrate acquired businesses

     - anticipated trends and conditions in the specialty chemicals industry

     - our future capital needs

     - our ability to develop new technologies

     - our ability to control costs and maintain quality

     - our ability to compete

     We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this prospectus may not occur.

                                      (iii)
<PAGE>   6

                                    SUMMARY

     The following may not contain all of the information that is important to
you. You should read this entire document carefully, including the "Risk
Factors" and the financial statements and related notes, before making an
investment decision. Unless otherwise indicated, industry data contained in this
prospectus is as of December 31, 1998 and was derived from "The U.S. Adhesives
Industry 1996-2006," a report prepared by The ChemQuest Group, Inc., an
independent management consultancy specializing in the adhesives, sealants and
coatings and automotive industries, as well as publicly available sources, which
we have not independently verified but which we believe to be reliable.

                                  THE COMPANY

     We are a leading developer, producer and distributor of adhesives, sealants
and coatings for use in four primary markets: industrial; flexible packaging;
overprint coatings; and housing repair, remodeling and new construction. We
focus on select value-added market niches in which we have established
leadership positions and competitive advantages in product development,
manufacturing and distribution. We believe that approximately 45% of our 1999
net sales were from applications in which we have the number one or two position
in the United States. We frequently design our products in cooperation with our
customers to meet unique specifications and to provide critical performance
attributes to their products, resulting in a significant number of long-lived
primary supplier relationships. For the year ended December 31, 1999, we had net
sales of approximately $237.4 million.

     We were formed to acquire and consolidate specialty chemicals businesses in
the U.S. adhesives, sealants and coatings segment. We have successfully expanded
our business through six strategic acquisitions which we have integrated into
our three business units: SIA Tanner, Pierce & Stevens and OSI Sealants. SIA
Tanner manufactures high-performance specialty adhesives and coatings for
automotive, aerospace, recreational vehicle, manufactured housing, air handling
and transportation textile applications. Pierce & Stevens manufactures coating
and adhesive products for overprint coating, flexible packaging and industrial
applications. OSI Sealants manufactures branded caulks, sealants and adhesives
for professional contractors and do-it-yourself applications. We plan to
continue our growth through a combination of new product development, continued
market penetration, strategic acquisitions and international expansion.

     The U.S. adhesives, sealants and coatings segment of the specialty
chemicals industry is highly fragmented with over 500 companies, a significant
majority of which we believe are small and regional. Total sales for U.S.
adhesives, sealants and coatings grew from approximately $13.8 billion in 1986
to approximately $30.1 billion in 1998, representing a compound annual growth
rate of 6.7%. Adhesives are replacing mechanical fasteners in many manufacturing
processes, and adhesives and sealants can reduce weight and parts requirements
and provide superior performance characteristics such as protection against
corrosion and vibration. In addition, we expect international sales of
adhesives, sealants and coatings to grow due to increased use in developing
markets.

     On December 30, 1999, SSCI Investors LLC, an entity owned by an investor
group led by AEA Investors Inc., acquired approximately 75% of our capital
stock, with the balance owned by other investors, including our current
management team. The aggregate purchase price for the transaction was $360.0
million, including the retained equity interest, assuming a balance sheet free
of cash and indebtedness. AEA Investors Inc. is an international private equity
firm supported by industrial families and chief executives of major corporations
from around the world.

     Our principal place of business is located at 225 West Washington Street,
Suite 2200, Chicago, Illinois 60606, and our telephone number is (312) 419-7100.
For more information regarding our company, see "Business."

                                        1
<PAGE>   7

                                  THE OFFERING

     On March 29, 2000, we completed the offering of $150.0 million aggregate
principal amount of 11 7/8% Senior Subordinated Notes due 2010 exempt from
registration under the Securities Act of 1933, as amended. We used the net
proceeds of the offering to repay approximately $141.0 million of outstanding
indebtedness under our credit facility and for general corporate purposes.

Outstanding notes..........  We sold the outstanding notes to J.P. Morgan
                             Securities Inc., Merrill Lynch, Pierce, Fenner &
                             Smith Incorporated and Chase Securities Inc., the
                             initial purchasers, on March 29, 2000. The initial
                             purchasers subsequently resold the outstanding
                             notes to qualified institutional buyers pursuant to
                             Rule 144A under the Securities Act and to non-U.S.
                             persons outside the United States in reliance on
                             Regulation S under the Securities Act.

Registration rights
agreement..................  In connection with the sale of the outstanding
                             notes, we and the guarantor subsidiaries entered
                             into a registration rights agreement with the
                             initial purchasers. Under the terms of that
                             agreement we agreed to

                             - file a registration statement for the exchange
                               offer and the exchange notes by May 28, 2000

                             - use our reasonable best efforts to cause that
                               registration statement to become effective under
                               the Securities Act by September 25, 2000

                             - complete the exchange offer by October 25, 2000

                             If we do not meet one of these requirements, we
                             must pay additional interest on the outstanding
                             notes until we meet the requirement. We have also
                             agreed to keep the registration statement for the
                             exchange offer effective for at least 30 days (or
                             longer, if required by applicable law) after the
                             date for which notices of the exchange offer is
                             mailed to holders of notes. The exchange offer is
                             being made pursuant to the registration rights
                             agreement and is intended to satisfy the rights
                             granted under the registration rights agreement,
                             which rights terminate upon completion of the
                             exchange offer.

                               THE EXCHANGE OFFER

     The following is a brief summary of terms of the exchange offer. For a more
complete description of the exchange offer, see "The Exchange Offer" in this
prospectus.

Securities offered.........  $150,000,000 aggregate principal amount of 11 7/8%
                             Senior Subordinated Notes due 2010, Series B.

Exchange offer.............  We are offering to exchange $1,000 principal amount
                             of our 11 7/8% Senior Subordinated Notes due 2010,
                             Series B, which have been registered under the
                             Securities Act for each $1,000 principal amount of
                             our currently outstanding 11 7/8% Senior
                             Subordinated Notes due 2010, Series A. We will
                             accept any and all outstanding notes validly
                             tendered and not withdrawn prior to 5:00 p.m., New
                             York City time, on           , 2000. Holders may
                             tender some or all of their notes pursuant to the
                             exchange offer. However, notes may be tendered only
                             in integral multiples of $1,000. The form and terms
                             of the exchange notes are the same as the form and
                             terms of the outstanding notes except that

                             - the exchange notes have been registered under the
                               federal securities laws and will not bear any
                               legend restricting their transfer

                                        2
<PAGE>   8

                             - the exchange notes bear a Series B designation
                               and a different CUSIP number from the outstanding
                               notes

                             - the holders of the exchange notes will not be
                               entitled to certain rights under the registration
                               rights agreement, including the provisions for an
                               increase in the interest rate on the outstanding
                               notes in some circumstances relating to the
                               timing of the exchange offer

                             See "The Exchange Offer."

Transferability of exchange
    notes..................  We believe that you will be able to freely transfer
                             the exchange notes without registration or any
                             prospectus delivery requirement so long as you may
                             accurately make the representations listed under
                             "The Exchange Offer -- Transferability of Exchange
                             Notes." If you are a broker-dealer that acquired
                             outstanding notes as a result of market-making or
                             other trading activities, you must deliver a
                             prospectus in connection with any resale of the
                             exchange notes. See "Plan of Distribution."

Expiration date............  The exchange offer will expire at 5:00 p.m., New
                             York City time, on           , 2000, unless we
                             choose to extend the exchange offer.

Conditions to the
  exchange offer...........  Notwithstanding any other term of the exchange
                             offer, we shall not be required to accept for
                             exchange, or exchange any exchange notes for, any
                             outstanding notes, and may terminate or amend the
                             exchange offer as provided in this prospectus
                             before the acceptance of the outstanding notes, if

                             - any action or proceeding is instituted or
                               threatened in any court or by or before any
                               governmental agency with respect to the exchange
                               offer that, in our sole judgment, might
                               materially impair our ability to proceed with the
                               exchange offer or materially impair the
                               contemplated benefits of the exchange offer to us
                               or any material adverse development has occurred
                               in any existing action or proceeding with respect
                               to us or any of our subsidiaries

                             - any law, statute, rule, regulation or
                               interpretation by the staff of the Securities and
                               Exchange Commission is proposed, adopted or
                               enacted, that, in our sole judgment, might impair
                               our ability to proceed with the exchange offer or
                               impair the contemplated benefits of the exchange
                               offer to us, or

                             - any governmental approval has not been obtained,
                               that we believe, in our sole discretion, is
                               necessary for the consummation of the exchange
                               offer as outlined in this prospectus

                             See "The Exchange Offer -- Conditions to the
                             Exchange Offer."

Procedures for tendering
    outstanding notes......  If you wish to accept the exchange offer, you must
                             complete, sign and date the letter of transmittal,
                             or a facsimile of the letter of transmittal, in
                             accordance with the instructions contained in this
                             prospectus and in the letter of transmittal. You
                             should then mail or otherwise deliver the letter of
                             transmittal, or facsimile, together with the
                             outstanding notes to be exchanged and any other
                             required documentation, to the

                                        3
<PAGE>   9

                             exchange agent at the address set forth in this
                             prospectus and in the letter of transmittal.

                             By executing the letter of transmittal, you will
                             represent to us that, among other things

                             - you, or the person or entity receiving the
                               related exchange notes, are acquiring the
                               exchange notes in the ordinary course of business

                             - neither you nor any person or entity receiving
                               the related exchange notes is engaging in or
                               intends to engage in a distribution of the
                               exchange notes within the meaning of the federal
                               securities laws

                             - neither you nor any person or entity receiving
                               the related exchange notes has an arrangement or
                               understanding with any person or entity to
                               participate in any distribution of the exchange
                               notes

                             - neither you nor any person or entity receiving
                               the related exchange notes is an "affiliate" of
                               Sovereign or the guarantors, as that term is
                               defined under Rule 405 of the Securities Act, and

                             - you are not acting on behalf of any person or
                               entity who could not truthfully make these
                               statements

                             See "The Exchange Offer -- Procedures for Tendering
                             Outstanding Notes" and "Plan of Distribution."

Effect of not tendering....  Any outstanding notes that are not tendered or that
                             are tendered but not accepted will remain subject
                             to the restrictions on transfer. Since the
                             outstanding notes have not been registered under
                             the federal securities laws, they bear a legend
                             restricting their transfer absent registration or
                             the availability of a specific exemption from
                             registration. Upon the completion of the exchange
                             offer, we will have no further obligations, except
                             under limited circumstances, to provide for
                             registration of the outstanding notes under the
                             federal securities laws. See "The Exchange
                             Offer -- Effect of Not Tendering."

Interest on the exchange
notes and the outstanding
  notes....................  The exchange notes will bear interest from the most
                             recent interest payment date to which interest has
                             been paid on the notes or, if no interest has been
                             paid, from March 29, 2000. Interest on the
                             outstanding notes accepted for exchange will cease
                             to accrue upon the issuance of the exchange notes.

Withdrawal rights..........  Tenders of outstanding notes may be withdrawn at
                             any time prior to 5:00 p.m., New York City time, on
                             the expiration date.

Federal tax consequences...  There will be no federal income tax consequences to
                             you if you exchange your outstanding notes for
                             exchange notes in the exchange offer.

Exchange agent.............  The Bank of New York, the trustee under the
                             indenture, is serving as exchange agent in
                             connection with the exchange offer.

                                        4
<PAGE>   10

                          TERMS OF THE EXCHANGE NOTES

     The following is a brief summary of the terms of the exchange notes. The
financial terms and covenants of the exchange notes are the same as the terms of
the outstanding notes. We sometimes refer to the outstanding notes and the
exchange notes together as the "notes." For a more complete description of the
terms of the exchange notes, see "Description of Exchange Notes" in this
prospectus.

Issuer.....................  Sovereign Specialty Chemicals, Inc.

Securities offered.........  $150,000,000 aggregate principal amount of 11 7/8%
                             Senior Subordinated Notes due 2010, Series B.

Maturity date..............  March 15, 2010.

Interest payment dates.....  March 15 and September 15 of each year, commencing
                             September 15, 2000.

Subsidiary guarantees......  Each of our domestic subsidiaries will jointly and
                             severally guarantee the exchange notes on a senior
                             subordinated basis. Future direct and indirect
                             domestic subsidiaries, excluding specified
                             unrestricted subsidiaries, will also be required to
                             guarantee the exchange notes.

                             - the guarantees will be general unsecured
                               obligations of the guarantors and will be
                               subordinate in right of payment to all existing
                               and future guarantor senior debt, which includes
                               the guarantees of the credit facility

                             - the guarantees will be equal in right of payment
                               to all of the guarantors' future senior
                               subordinated debt

                             - the guarantees will be senior in right of payment
                               to all of the guarantors' existing and future
                               subordinated debt

                             See "Description of Exchange Notes -- Guaranties of
                             the Notes."

  Ranking..................  The exchange notes will be unsecured and

                             - subordinate in right of payment to all of our
                               existing and future senior debt

                             - equal in right of payment to all of our future
                               senior subordinated debt

                             - senior in right of payment to all our existing
                               and future subordinated debt

                             As of December 31, 1999, after giving effect to the
                             repurchase of $125.0 million principal amount of
                             our 9 1/2% notes and the offering of our
                             outstanding notes, our total combined outstanding
                             senior debt would have been approximately $19.0
                             million. As of December 31, 1999, after giving
                             effect to the transactions described above, our
                             available borrowing capacity under our credit
                             facility would have been $110.5 million. See
                             "Description of Exchange Notes -- Ranking" and
                             "Description of Our Credit Facility."

Optional redemption........  Except as described below, we may not redeem the
                             exchange notes prior to March 15, 2005. On or after
                             that date, we may redeem some or all of the
                             exchange notes, at any time at the redemption
                             prices set forth in this prospectus, plus accrued
                             and unpaid interest, if any, on the exchange notes,
                             to the date of redemption.

                                        5
<PAGE>   11

Equity offering optional
  redemption...............  Before March 15, 2003 we may, subject to specific
                             requirements, redeem up to 35% of the notes issued
                             under the indenture relating to the notes with the
                             net proceeds of specified equity offerings at the
                             redemption price described in this prospectus if at
                             least 65% of the notes issued under the indenture
                             relating to the notes remain outstanding after that
                             redemption. See "Description of Exchange
                             Notes -- Optional Redemption."

Change of control..........  Upon the occurrence of specified events, we will be
                             required to make an offer to repurchase each
                             holder's exchange notes at a price equal to 101% of
                             principal amount, plus accrued and unpaid interest,
                             if any, to the date of repurchase. See "Description
                             of Exchange Notes -- Offer to Purchase upon Change
                             of Control."

Covenants..................  The indenture relating to the notes contains
                             covenants that, among other things, limit our
                             ability and the ability of our subsidiaries to

                             - incur additional indebtedness

                             - incur liens on property or assets

                             - make acquisitions

                             - merge or consolidate with third parties

                             - make restricted payments and investments

                             - pay dividends and make distributions

                             - repurchase or redeem capital stock

                             - dispose of assets

                             - guarantee obligations

                             - engage in certain transactions with subsidiaries
                               and affiliates and otherwise restrict corporate
                               activities

                             These covenants are subject to a number of
                             important exceptions and qualifications. See
                             "Description of Exchange Notes -- Certain
                             Covenants."

Absence of a public market
  for the exchange notes...  The exchange notes are new securities, for which
                             there is currently no established trading market,
                             and none may develop. Accordingly, there can be no
                             assurance as to the development or liquidity of any
                             market for the exchange notes. The initial
                             purchasers of the outstanding notes have advised us
                             that they intend to make a market in the exchange
                             notes. However, they are not obligated to do so,
                             and may discontinue any market making with respect
                             to the exchange notes at any time without notice.
                             We do not intend to apply for listing of the
                             exchange notes on any securities exchange or to
                             arrange for any quotation system to quote them.

                                  RISK FACTORS

     You should consider carefully all of the information contained in or
incorporated into this prospectus and, in particular, should evaluate the
specific factors under "Risk Factors" beginning on page 9 before investing in
the exchange notes.

                                        6
<PAGE>   12

                       SUMMARY HISTORICAL FINANCIAL DATA

     The following table presents our summary historical financial data at the
dates and for the periods indicated. The historical data for the nine months
ended December 31, 1996 are derived from the audited statements of our former
parent, Sovereign Specialty Chemicals, L.P., and the data for the years ended
1997, 1998 and 1999 are derived from our audited financial statements. The
information set forth below should be read in conjunction with our consolidated
financial statements and related notes and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and other financial
information included elsewhere in this prospectus. The transactions resulting in
the acquisition by SSCI Investors LLC of its approximately 75% ownership stake
in our company were accounted for as a recapitalization.

<TABLE>
<CAPTION>
                                              NINE MONTHS ENDED    YEAR ENDED     YEAR ENDED     YEAR ENDED
                                                DECEMBER 31,      DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                                   1996(1)            1997           1998           1999
                                              -----------------   ------------   ------------   ------------
                                                                  (DOLLARS IN THOUSANDS)
<S>                                           <C>                 <C>            <C>            <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................................       $37,792          $134,771       $211,335       $237,408
Cost of goods sold..........................        26,637            92,889        144,039        162,550
                                                   -------          --------       --------       --------
Gross profit................................        11,155            41,882         67,296         74,858
Selling, general and administrative
  expenses..................................         9,613            30,272         46,010         47,486
Stock compensation expense..................            --                22            408            864
Special charges(2)..........................            --                --             --         14,153
                                                   -------          --------       --------       --------
Operating income............................         1,542            11,588         20,878         12,355
Interest expense, net.......................         1,666             9,080         14,712         15,076
Loss on sale of business....................            --                --          1,025             --
                                                   -------          --------       --------       --------
Income (loss) before income taxes and
  extraordinary item........................          (124)            2,508          5,141         (2,721)
Income taxes(3).............................           (99)            1,315          3,494          4,218
                                                   -------          --------       --------       --------
Income (loss) before extraordinary item.....           (25)            1,193          1,647         (6,939)
Extraordinary losses, net(4)................           281             1,409            176          1,055
                                                   -------          --------       --------       --------
Net income (loss)...........................       $  (306)         $   (216)      $  1,471       $ (7,994)
                                                   =======          ========       ========       ========
OTHER FINANCIAL DATA:
Depreciation and amortization...............       $ 1,600          $  6,049       $  9,477       $ 10,965
Capital expenditures........................           688             1,834          4,472          6,280
Ratio of earnings to fixed charges(5).......            --(6)            1.3x           1.3x            --(6)
</TABLE>

<TABLE>
<CAPTION>
                                                                            DECEMBER 31,
                                                              ----------------------------------------
                                                               1996       1997       1998       1999
                                                              -------   --------   --------   --------
                                                                       (DOLLARS IN THOUSANDS)
<S>                                                           <C>       <C>        <C>        <C>
BALANCE SHEET DATA:
Cash........................................................  $   104   $  6,413   $  5,863   $ 17,005
Working capital.............................................   11,936     29,618     29,739     17,311
Total assets................................................   69,960    242,759    225,804    257,839
Total indebtedness..........................................   41,652    159,277    132,264    158,582
Stockholders' equity........................................   17,444     52,053     54,194     56,616
</TABLE>

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

(1) Period from March 31, 1996, date of inception, through December 31, 1996.
(2) Special charges relating to the acquisition by SSCI Investors LLC on
    December 30, 1999 include $11.3 million in non-cash stock compensation
    expense related to accelerated vesting of incentive equity awards previously
    issued to certain members of management, $1.5 million in compensation
    expenses related to a disbursement made to employees under the Long-Term
    Incentive Plan of our former parent partnership, $0.8 million in cash
    bonuses related to the transaction and $0.6 million in transaction fees.
(3) Prior to our restructuring on July 31, 1997, we were composed of entities,
    including a limited partnership and a limited liability company, for which
    income taxes are "passed through" to their owners and, as a result, no
    income taxes are reflected prior to July 31, 1997. Effective July 31, 1997,
    our predecessor was merged with and into SIA Adhesives, Inc., a subchapter C
    corporation, and its business became subject to income taxes. As a result,
    income taxes have been reflected for the year ended December 31, 1997 for
    taxable earnings subsequent to the merger.
(4) Extraordinary loss relates to the write-off of deferred financing costs
    associated with the early extinguishment of debt.
(5) For purposes of computing the ratio of earnings to fixed charges, earnings
    consist of earnings before income taxes and fixed charges. Fixed charges
    consist of interest, amortization of deferred debt issuance costs and the
    portion of occupancy expense deemed representative of interest.
(6) Earnings were inadequate to cover fixed charges for the nine months ended
    December 31, 1996, and the year ended December 31, 1999 by $0.1 million and
    $2.7 million, respectively.

                                        7
<PAGE>   13

                                  RISK FACTORS

     You should consider carefully the following risks and all of the
information set forth in this prospectus before participating in the exchange
offer. Investment in the exchange notes, like an investment in the outstanding
notes, entails the risks described below.

OUR INDEBTEDNESS COULD RESTRICT OUR OPERATIONS, MAKE US MORE VULNERABLE TO
ADVERSE ECONOMIC CONDITIONS AND MAKE IT MORE DIFFICULT FOR US TO MAKE PAYMENTS
ON THE EXCHANGE NOTES AND OUR OTHER INDEBTEDNESS.

     We now have and will continue to have a significant amount of indebtedness.
As of December 31, 1999, after giving effect to the repurchase of $125.0 million
principal amount of our 9 1/2% notes with borrowings under our credit facility
and the offering of the outstanding notes and the application of the estimated
net proceeds from that offering, our total debt would have been $169.0 million.
As of December 31, 1999, after giving effect to the transactions described
above, our available borrowing capacity under our credit facility would have
been $110.5 million.

     Our current and future indebtedness could have important consequences to
you. For example, it could

     - impair our ability to obtain additional financing for working capital,
       capital expenditures, acquisitions or general corporate or other purposes

     - limit our ability to use operating cash flow in other areas of our
       business because we must dedicate a substantial portion of these funds to
       make principal and interest payments on our indebtedness

     - put us at a competitive disadvantage to less leveraged competitors

     - hinder our ability to adjust rapidly to changing market conditions

     - increase our vulnerability in the event of a business or general economic
       downturn

     - make it more difficult for us to satisfy our obligations with respect to
       the notes

     - increase our vulnerability to interest rate increases to the extent our
       variable-rate debt is not effectively hedged

     - limit, along with the financial and other restrictive covenants in our
       indebtedness, our ability to make investments or take other actions or
       borrow additional funds

     Our ability to repay or refinance our indebtedness will depend on our
financial and operating performance, which, in turn, is subject to prevailing
economic and competitive conditions and to financial, business and other
factors, many of which are beyond our control. These factors could include
operating difficulties, increased operating costs or raw material or product
prices, the response of competitors, regulatory developments and delays in
implementing strategic projects. Our ability to meet our debt service and other
obligations may depend in significant part on the extent to which we can
successfully implement our business strategy. We may not be able to implement
our business strategy or the anticipated results of our strategy may not be
realized.

     We may be able to incur substantial additional indebtedness in the future.
The terms of the indenture do not prohibit us or our subsidiaries from incurring
indebtedness, although the indenture does contain limitations on additional
indebtedness. Based on our current level of operations, we believe that our cash
flow from operations and our available financing will be adequate to meet our
anticipated requirements for operating our business and servicing our debt. If,
in the future, we cannot generate enough cash from operations to make scheduled
payments on our indebtedness, we may be required to reduce or delay capital
expenditures, refinance our indebtedness, obtain additional financing or sell
assets. Our business may not be able to generate cash flow, and we may not be
able to obtain funding sufficient or utilize other means to satisfy our debt
service requirements.

                                        8
<PAGE>   14

THE EXCHANGE NOTES WILL BE JUNIOR TO OUR SENIOR DEBT AND THE GUARANTEES WILL BE
JUNIOR TO GUARANTOR SENIOR DEBT, AND THESE OBLIGATIONS WILL BE EFFECTIVELY
JUNIOR TO THE LIABILITIES OF OUR NONGUARANTOR SUBSIDIARIES WHICH MAY BE
SIGNIFICANT.

     The exchange notes will be unsecured senior subordinated obligations and
will be junior to all our existing and future senior indebtedness, including our
credit facility. Each of our currently existing domestic subsidiaries will
guarantee the exchange notes. These guarantees will be unsecured senior
subordinated obligations and will be junior to all existing and future senior
debt of the guarantors. The exchange notes will be effectively junior to all
existing and future debt and other liabilities of our subsidiaries that are not
guarantors, which include our foreign subsidiaries. As of December 31, 1999,
after giving effect to the repurchase of $125.0 million principal amount of our
9 1/2% notes with borrowings under our credit facility and the offering of the
outstanding notes and the application of the net proceeds of that offering, in
addition to the outstanding notes, we would have had outstanding $19.0 million
of senior debt, the guarantors would have had outstanding $4.5 million of senior
debt (other than their guarantees of our debt) and the nonguarantor subsidiaries
would have had outstanding $3.3 million of total debt to third parties including
trade payables.

     We also may incur significant additional senior indebtedness under the
terms of our credit facility. For example, upon completion of the offering and
giving effect to the transactions described above, as of December 31, 1999, we
would have $110.5 million available under our credit facility which, if
borrowed, would be senior indebtedness. If we become bankrupt, liquidate or
dissolve, our assets would be available to pay obligations on the exchange notes
only after our senior indebtedness has been paid. Similarly, if one of our
guarantor subsidiaries becomes bankrupt, liquidates or dissolves, that
subsidiary's assets would be available to pay obligations on its guarantee only
after payments have been made on its senior indebtedness.

     In addition, our credit facility provides our existing and future foreign
nonguarantor subsidiaries with borrowing capacity of up to $60 million. The
credit facility and the indenture with respect to the exchange notes also permit
these subsidiaries to incur additional indebtedness outside of the credit
facility. See "Description of Our Credit Facility." Our credit facility and the
indenture also provide for our ability to make loans to and investments in these
subsidiaries. The exchange notes will effectively rank junior to all
liabilities, including trade indebtedness, of these foreign nonguarantor
subsidiaries. If one of our nonguarantor subsidiaries becomes bankrupt,
liquidates or dissolves, that nonguarantor subsidiary's assets would be
available to us, and ultimately the holders of the exchange notes, only after
payments have been made on all of its liabilities. As of and for the year ended
December 31, 1999, our foreign nonguarantor subsidiaries represented 2.8% of our
assets and 4.0% of our net sales.

     If we fail to pay any of our senior indebtedness, we may make payments on
the exchange notes only if either we first pay our senior debt or the holders of
our senior indebtedness waive the payment default. Moreover, if any non-payment
default exists under our senior indebtedness, we may not make any cash payments
on the exchange notes for a period of up to 179 days in any 360-day period,
unless we cure the non-payment default, the holders of the senior indebtedness
waive the default or rescind acceleration of the indebtedness or we repay the
indebtedness in full. In the event of a non-payment default we may not have
sufficient assets to pay amounts due on the exchange notes. In addition, various
events of default under our credit facility would prohibit us from making any
payments on the exchange notes.

THE EXCHANGE NOTES WILL NOT BE SECURED BY ANY OF OUR ASSETS. HOWEVER, OUR CREDIT
FACILITY IS SECURED BY SUBSTANTIALLY ALL OF OUR ASSETS.

     In addition to being subordinated to all our senior indebtedness, the
exchange notes will not be secured by any of our assets. However, the credit
facility is secured by substantially all of our assets and the assets of our
domestic subsidiaries. Additionally, the terms of the indenture and our credit
facility permit us to incur additional secured debt. If we become insolvent or
are liquidated, or if payment under any of the instruments governing our secured
debt is accelerated, the lenders under these instruments will be entitled to
exercise the remedies available to a secured lender under applicable law and
pursuant to

                                        9
<PAGE>   15

instruments governing such debt. Accordingly, the lenders will have a prior
claim on our assets. In that event, because the exchange notes will not be
secured by any of our assets, it is possible that there will be no assets
remaining from which claims of the holders of the exchange notes can be
satisfied or, if any assets remain, the remaining assets might be insufficient
to satisfy those claims in full.

THE OPERATING AND FINANCIAL RESTRICTIONS IMPOSED BY OUR DEBT AGREEMENTS,
INCLUDING OUR CREDIT FACILITY AND THE INDENTURE RELATING TO THE EXCHANGE NOTES,
COULD NEGATIVELY AFFECT OUR ABILITY TO FINANCE OPERATIONS AND CAPITAL NEEDS OR
TO ENGAGE IN OTHER BUSINESS ACTIVITIES.

     Our existing debt agreements contain covenants that restrict our ability
and our subsidiaries' ability to

     - incur additional indebtedness

     - incur liens on property or assets

     - make acquisitions

     - merge or consolidate with third parties

     - make restricted payments and investments

     - pay dividends and make distributions

     - repurchase or redeem capital stock

     - dispose of assets

     - guarantee obligations

     - enter into sale and leaseback transactions

     - engage in certain transactions with subsidiaries and affiliates and
       otherwise restrict corporate activities

     In addition, our credit facility contains financial covenants, including

     - a total debt to EBITDA ratio

     - a senior debt to EBITDA ratio

     - a fixed charge coverage ratio

     - an interest expense coverage ratio

     Our ability to meet these covenants and requirements in the future may be
affected by events beyond our control, including prevailing economic, financial
and industry conditions. Our breach or failure to comply with any of these
covenants could result in a default under our credit facility or the indenture.
If we default under our credit facility, the lenders could cease to make further
extensions of credit, cause all of our outstanding debt obligations under our
credit facility to become due and payable, require us to apply all of our
available cash to repay the indebtedness under our credit facility or prevent us
from making debt service payments on any other indebtedness we owe. If a default
under the indenture occurs, the holders of the notes could elect to declare the
notes due and payable. If the indebtedness under our credit facility or the
notes is accelerated, we may not have sufficient assets to repay amounts due
under these existing debt agreements or on other debt securities then
outstanding. We also may amend the provisions and limitations of our credit
facility from time to time without the consent of the holders of exchange notes.

                                       10
<PAGE>   16

THE SUCCESS OF OUR ACQUISITION STRATEGY COULD BE ADVERSELY AFFECTED BY THE
UNAVAILABILITY OF SUITABLE ACQUISITION CANDIDATES OR OUR INABILITY TO FINANCE
FUTURE ACQUISITIONS OR SUCCESSFULLY INTEGRATE ACQUIRED BUSINESSES.

     Our business strategy includes making acquisitions, but we can give you no
assurance that suitable acquisition candidates will continue to be available or
that we will be able to negotiate acceptable prices and terms. We expect to
finance acquisitions primarily through the issuance of additional debt. However,
we may not be able to obtain additional financing for future acquisitions. Also,
our credit facility limits our ability to make acquisitions and to incur
indebtedness. In addition, growth by acquisition involves risks such as

     - difficulties in integrating the operations and personnel of acquired
       companies

     - the potential loss of key employees and customers of acquired companies

     - diversion of our management's attention from ongoing business concerns

     If the execution of our acquisition strategy is unsuccessful, our ability
to compete successfully with larger companies, or companies that are able to
complete successful acquisitions in our industry, will be reduced.

WE MAY BE UNABLE TO IMPLEMENT SUCCESSFULLY OUR EXPANSION INTO FOREIGN MARKETS.

     Our business strategy includes increasing our international sales through
increased sales and marketing activities in targeted regions, by entering into
strategic alliances and through acquisitions of foreign businesses, joint
ventures and/or other business combinations or arrangements. Our efforts to
increase international sales may be adversely affected by, among other things

     - changes in foreign import restrictions and regulations

     - taxes

     - currency exchange rates

     - currency and monetary transfer restrictions and regulations

     - changes in U.S. law affecting foreign trade

     - economic and political changes in the foreign nations in which our
       products are sold

     One or more of these factors could have a material adverse effect on our
business, financial condition or results of operations in the future.

THE ADHESIVES, SEALANTS AND COATINGS SEGMENT OF THE SPECIALTY CHEMICALS INDUSTRY
IS HIGHLY COMPETITIVE.

     We compete with a wide variety of specialty chemical manufacturers. Some of
our competitors are larger, have greater financial resources and are less
leveraged than we are. As a result, these competitors may be better able to
withstand a change in market conditions within the specialty chemical industry
and throughout the economy as a whole. These competitors may also be able to
maintain significantly greater operating and financial flexibility than we can.
Additionally, a number of our niche product applications are customized or sold
for highly specialized uses. Competitors that have greater financial,
technological, manufacturing and marketing resources than we do and that do not
today market similar applications for these uses could choose to do so in the
future. Increased competition could have a material adverse effect on our
business, financial condition or results of operations.

                                       11
<PAGE>   17

WE DEPEND SIGNIFICANTLY ON OUR SENIOR MANAGEMENT TEAM.

     Our success depends in large part on the services of our senior management
team including our Chairman, President and Chief Executive Officer, Robert B.
Covalt. The loss of any of our key executives could materially adversely affect
our company and seriously impair our ability to implement our business strategy.
The employment agreements of most of our key executives expire on December 31,
2002 or December 31, 2003. With the exception of Robert B. Covalt, we do not
maintain key person life insurance policies on any of our executive officers.
Our ability to manage our anticipated growth will also depend on our ability to
identify, hire and retain qualified management personnel. If we are unsuccessful
in attracting and retaining qualified personnel, it could have a material
adverse affect on our business, financial condition or results of operations.

WE MAY BE UNABLE TO RESPOND EFFECTIVELY TO TECHNOLOGICAL CHANGES IN OUR
INDUSTRY.

     Our future business success will depend upon our ability to maintain and
enhance our technological capabilities, develop and market products and
applications that meet changing customer needs and successfully anticipate or
respond to technological changes on a cost-effective and timely basis. If we
cannot keep pace with the technological advances in the specialty chemicals
industry, it could have a material adverse effect on our business, financial
condition or results of operations.

WE RELY ON SUPPLIES OF A VARIETY OF SPECIALTY AND COMMODITY CHEMICALS IN OUR
MANUFACTURING PROCESS.

     We use a variety of specialty and commodity chemicals in our manufacturing
processes. These raw materials are generally available from numerous independent
suppliers. We typically purchase raw materials on a contract basis. Some of the
raw materials that we use are derived from propylene, crude oil derivatives and
ethylene. There have been historical periods of rapid and significant movements
in the prices of propylene, crude oil derivatives and ethylene both upward and
downward. We generally pass changes in the prices of raw materials to our
customers over a period of time. We cannot always do so, however, and any
limitation on our ability to pass through any such price increases could have a
material adverse effect on our business, financial condition or results of
operations.

RISKS ASSOCIATED WITH THE OPERATION OF OUR MANUFACTURING FACILITIES MAY HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS.

     Our revenues are dependent on the continued operation of our various
manufacturing facilities. The operation of chemical manufacturing plants
involves many risks including

     - the breakdown, failure or substandard performance of equipment

     - inclement weather and natural disasters

     - the need to comply with directives of, and maintain all necessary permits
       from, government agencies

     - raw material supply disruptions

     - labor force shortages, work stoppages or other labor difficulties

     - transportation interruptions

     The occurrences of material operational problems, including but not limited
to the above events, may have a material adverse effect on the productivity and
profitability of a particular manufacturing facility, or with respect to various
facilities of our company as a whole, during the period of the operational
difficulties.

     Our operations are also subject to various hazards incident to the
production of industrial chemicals including the use, handling, processing,
storage and transportation of hazardous materials. These hazards can cause
personal injury and loss of life, severe damage to and destruction of property
and equipment, environmental damage and suspension of operations. Claims arising
from any future catastrophic
                                       12
<PAGE>   18

occurrence at one of our locations may result in us being named as a defendant
in lawsuits asserting potentially large claims. In addition, individuals could
seek damages for alleged personal injury or property damage resulting from
exposure to chemicals at our facilities. Although we maintain insurance policies
that could provide some coverage for these claims, that coverage does not
include all of these risks and is subject to limitations and, accordingly, may
be inadequate.

POTENTIAL ENVIRONMENTAL LIABILITIES MAY ARISE IN THE FUTURE AND ADVERSELY IMPACT
OUR FINANCIAL POSITION.

     We are subject to extensive laws and regulations pertaining to air
emissions, wastewater discharges, the handling and disposal of solid and
hazardous wastes, the remediation of contamination, and otherwise relating to
health, safety and protection of the environment. Additionally, the operation of
chemical manufacturing plants involves the risk of chemical spills and other
discharges or releases of hazardous substances, including gases. Should this
risk materialize, it may cause personal injury and loss of life, severe damage
to or destruction of property and equipment, and environmental damage, which
could lead to claims under the environmental laws.

     There are conditions at our facilities that require environmental
remediation. While we believe that any costs relating to this remediation that
are not covered by indemnification or insurance will not be material, they could
be. Environmental laws are constantly evolving and it is impossible to predict
accurately the effect they may have upon our capital expenditures, earnings or
competitive position in the future. Should environmental laws become more
stringent, the cost of compliance would increase. If we cannot pass along future
costs to our customers, any increases may have a material adverse effect on our
business, financial condition or results of operations.

DEMAND FOR SOME OF OUR PRODUCTS IS CYCLICAL IN NATURE AND SUBJECT TO CHANGES IN
GENERAL ECONOMIC CONDITIONS.

     A significant portion of our products are used in industries that
experience cyclicality and are subject to changes in general economic
conditions. Sales to the building and construction market are driven by trends
in commercial and residential construction, housing starts and trends in
residential repair and remodeling. Sales to the transportation industry are also
cyclical in nature. Downturns in the building and construction market or the
transportation industry could have a material adverse effect on our business,
financial condition or results of operations.

PRODUCT LIABILITY CLAIMS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.

     Because many of our products provide critical performance attributes to our
customers' products, the sale of these products entails risk of product
liability claims. A successful product liability claim, or series of claims,
against us in excess of our insurance coverage could have a material adverse
effect on our business, financial condition or results of operations.

WE ARE CONTROLLED BY ONE PRINCIPAL SHAREHOLDER.

     The interests of our controlling shareholder may be in conflict with your
interests as a holder of notes. We are 75% owned by SSCI Investors LLC. As a
result, SSCI Investors LLC will be able to direct the election of the members of
our board of directors and therefore direct our management and policies.
Circumstances may occur in which the interests of SSCI Investors LLC, as an
equity holder, could be in conflict with the interests of the holders of notes.
For example, SSCI Investors LLC may have an interest in pursuing acquisitions,
divestitures or other transactions that, in their judgment, could enhance their
equity investment, even though those transactions might involve disproportionate
risks to the holders of the notes.

                                       13
<PAGE>   19

FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID
GUARANTEES OF THE EXCHANGE NOTES.

     Federal and state statutes allow courts, under specific circumstances, to
void guarantees, subordinate claims under the guarantees to the guarantor's
other debt or take other action detrimental to holders of the guarantees of
exchange notes. Under the federal bankruptcy law and comparable provisions of
state fraudulent transfer laws, the guarantees made by our subsidiaries could be
voided or subordinated to other debts if, among other things

     - any subsidiary guarantor issued the guarantee to delay, hinder or defraud
       present or future creditors

     - any subsidiary guarantor received less than reasonably equivalent value
       or fair consideration for issuing such subsidiary guarantee and, at the
       time it issued its subsidiary guarantee, any subsidiary guarantor

        - was insolvent or rendered insolvent by reason of such incurrence

        - was engaged in a business or transaction for which such guarantor's
          remaining unencumbered assets constituted unreasonably small capital

        - intended to incur, or believed that it would incur, debts beyond its
          ability to pay such debts as they mature

        - was a defendant in an action for money damages, or had a judgment for
          money damages docketed against it if, in either case, after final
          judgment, the judgment is unsatisfied

     The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, a subsidiary guarantor
would be considered insolvent if, at the time it incurred the indebtedness,

     - the sum of its debts is greater than the fair value of all of its assets

     - the present fair saleable value of its assets was less than the amount
       that would be required in order to pay its probable liability on its
       existing debts and liabilities, including contingent liabilities, as they
       become absolute and mature, or

     - it could not pay or is generally not paying its debts as they become due

WE MAY NOT BE ABLE TO REPURCHASE THE EXCHANGE NOTES UPON A CHANGE OF CONTROL.

     Upon a change of control event, each holder of the notes will have the
right to require us to repurchase their notes at 101% of their principal amount,
plus accrued and unpaid interest to the date of repurchase. Our ability to
repurchase the exchange notes upon a change of control event is limited by the
terms of our debt agreements, including our credit facility. Upon a change of
control event, we may be required to repay immediately the outstanding
principal, and any accrued interest or any other amounts, owed by us under our
credit facility. We may not be able to repay these amounts or obtain the
necessary consents under our credit facility to repurchase the exchange notes.
The source of funds for any purchase of exchange notes would be our available
cash or cash generated from other sources. However, we may not have enough
available funds or be able to generate the necessary funds upon a change of
control to make any required repurchases of tendered notes. This may result in
our having to refinance our outstanding indebtedness, which we may not be able
to do on favorable terms or at all.

YOU MAY BE UNABLE TO SELL YOUR EXCHANGE NOTES IF A TRADING MARKET FOR THE NOTES
DOES NOT DEVELOP.

     The exchange notes will be new securities for which there is currently no
established trading market, and none may develop. The initial purchasers of the
outstanding notes have indicated to us that they intend to make a market in the
exchange notes, as permitted by applicable laws and regulations. However, the
initial purchasers are under no obligation to do so. At their discretion, the
initial purchasers could discontinue their market-making efforts at any time
without notice. Accordingly, we cannot assure you that
                                       14
<PAGE>   20

an active trading market for the exchange notes will develop or, if a market
develops, as to the liquidity of the market. We do not intend to apply for
listing of the exchange notes on any securities exchange or for quotation on any
automated dealer quotation system.

     The liquidity of any market for the exchange notes will depend on the
number of holders of the exchange notes, the interest of securities dealers in
making a market in the exchange notes and other factors. Accordingly, we cannot
assure you as to the development or liquidity of any market for the exchange
notes. If an active trading market does not develop, the market price and
liquidity of the exchange notes may be adversely affected. If the exchange notes
are traded, they may trade at a discount from their initial offering price
depending upon prevailing interest rates, the market for similar securities,
general economic conditions, our performance and business prospects and certain
other factors.

CONSEQUENCES OF THE EXCHANGE OFFER ON NON-TENDERING HOLDERS OF THE OUTSTANDING
NOTES

     In the event the exchange offer is completed, we will not be required to
register any outstanding notes not tendered and accepted in the exchange offer.
In that event, holders of outstanding notes seeking liquidity in their
investment would have to rely on exemptions to the registration requirements
under the securities laws, including the Securities Act, since the outstanding
notes will continue to be subject to restrictions on transfer. Consequently,
holders of outstanding notes who do not participate in the exchange offer could
experience significant diminution in the value of their outstanding notes,
compared to the value of the exchange notes. Following the exchange offer, none
of the exchange notes will be entitled to the contingent increase in interest
rate provided for (in the event of a failure to complete the exchange offer in
accordance with the terms of the registration rights agreement) pursuant to the
registration rights agreement.

                                       15
<PAGE>   21

                                USE OF PROCEEDS

     We will not receive any proceeds from the issuance of the exchange notes in
the exchange offer. We will receive in exchange outstanding notes in like
principal amount. We will retire or cancel all of the outstanding notes tendered
in the exchange offer.

     We used the net cash proceeds from the issuance of the outstanding notes to
repay approximately $141.0 million of outstanding indebtedness under our credit
facility. Of the $156.1 million principal amount then outstanding under our
credit facility (which as of March 23, 2000, had a weighted average interest
rate of 8.7%) prior to that issuance, approximately $127.4 million was incurred
to finance the repurchase of $125.0 million principal amount of our 9 1/2% notes
on March 6, 2000 pursuant to a change of control offer.

                                 CAPITALIZATION

     The following table sets forth our capitalization as of December 31, 1999
on an actual basis and as adjusted to give effect to the repurchase pursuant to
a change of control offer of $125.0 million principal amount of our 9 1/2% notes
on March 6, 2000 for an aggregate purchase price of $127.4 million, the offering
of the outstanding notes and the application of the estimated proceeds from the
offer to repay approximately $141.0 million of outstanding indebtedness under
our credit facility, and the exchange offer, assuming all outstanding notes are
tendered.

<TABLE>
<CAPTION>
                                                              AS OF DECEMBER 31, 1999
                                                                     UNAUDITED
                                                              ------------------------
                                                               ACTUAL     AS ADJUSTED
                                                              ---------   ------------
                                                               (DOLLARS IN THOUSANDS)
<S>                                                           <C>         <C>
Cash and cash equivalents...................................  $ 17,005      $ 19,805
                                                              ========      ========
Total debt, including current maturities:
  New credit facility(1)....................................    28,103        14,496
  9 1/2% notes..............................................   125,000            --
  Notes offered by this prospectus(2).......................        --       149,039
  Other debt, including capital leases......................     5,479         5,479
                                                              --------      --------
     Total debt.............................................   158,582       169,014
                                                              --------      --------
          Total stockholders' equity(3).....................    56,616        56,616
                                                              --------      --------
          Total debt and stockholders' equity...............  $215,198      $225,630
                                                              ========      ========
</TABLE>

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

(1) The net proceeds from the issuance of the outstanding notes were used to
    repay all amounts outstanding under our Term A Loan Facility and our Term B
    Loan Facility and approximately $6.0 million outstanding under our Revolving
    Credit Facility. Upon these repayments, the Term B Loan Facility was
    terminated and we had $75.0 million of borrowing availability under the Term
    A Loan Facility and $35.5 million of borrowing availability under our $50.0
    million Revolving Credit Facility.

(2) Reflects unamortized offering discount of approximately $1.0 million.

(3) Includes Common Stock, $.01 par value, 2,700,000 shares authorized and
    1,436,239 shares issued and outstanding and Non-Voting Common Stock, $.01
    par value, 2,100,000 shares authorized and 730,182 shares issued and
    outstanding.

                                       16
<PAGE>   22

                   SELECTED HISTORICAL FINANCIAL INFORMATION

     The following table presents our selected historical financial data and
that of our predecessors at the dates and for the periods indicated. The data
for the years ended December 31, 1995 and the three months ended March 31, 1996
are derived from the audited financial statements of our predecessor, Sovereign
Engineered Adhesives L.L.C. The data for the nine months ended December 31, 1996
are derived from the financial statements of Sovereign Specialty Chemicals,
L.P., our former parent. The data for the years ended December 31, 1997, 1998
and 1999 are derived from our audited financial statements. The information set
forth below should be read in conjunction with our consolidated financial
statements and related notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and other financial information
included elsewhere in this prospectus. The transactions resulting in the
acquisition by SSCI Investors LLC of its 75% ownership stake were accounted for
as a recapitalization.

<TABLE>
<CAPTION>
                                                 PREDECESSOR                     SOVEREIGN SPECIALTY CHEMICALS, INC.
                                           ------------------------   ---------------------------------------------------------
                                                            THREE         NINE
                                               YEAR        MONTHS        MONTHS          YEAR           YEAR           YEAR
                                              ENDED         ENDED        ENDED          ENDED          ENDED          ENDED
                                           DECEMBER 31,   MARCH 31,   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                               1995         1996        1996(1)          1997           1998           1999
                                           ------------   ---------   ------------   ------------   ------------   ------------
                                                                          (DOLLARS IN THOUSANDS)
<S>                                        <C>            <C>         <C>            <C>            <C>            <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................    $21,129       $ 5,410      $37,792        $134,771       $211,335       $237,408
Cost of goods sold.......................     13,734         3,580       26,637          92,889        144,039        162,550
                                             -------       -------      -------        --------       --------       --------
Gross profit.............................      7,395         1,830       11,155          41,882         67,296         74,858
Selling, general and administrative
  expenses...............................      5,633         1,603        9,613          30,272         46,010         47,486
Stock compensation expense...............         --            --           --              22            408            864
Special charges(2).......................         --            --           --              --             --         14,153
                                             -------       -------      -------        --------       --------       --------
Operating income.........................      1,762           227        1,542          11,588         20,878         12,355
Interest expense, net....................         --            --        1,666           9,080         14,712         15,076
Loss on sale of business.................                       --           --              --          1,025             --
                                             -------       -------      -------        --------       --------       --------
Income (loss) before income taxes and
  extraordinary item.....................      1,762           227         (124)          2,508          5,141         (2,721)
Income taxes(3)..........................        705            91          (99)          1,315          3,494          4,218
                                             -------       -------      -------        --------       --------       --------
Income (loss) before extraordinary
  item...................................      1,057           136          (25)          1,193          1,647         (6,939)
Extraordinary losses, net(4).............         --            --          281           1,409            176          1,055
                                             -------       -------      -------        --------       --------       --------
Net income (loss)........................    $ 1,057       $   136      $  (306)       $   (216)      $  1,471       $ (7,994)
                                             =======       =======      =======        ========       ========       ========
OTHER FINANCIAL DATA:
Depreciation and amortization............    $   901       $   191      $ 1,600        $  6,049       $  9,477       $ 10,965
Capital expenditures.....................        106           131          688           1,834          4,472          6,280
Ratio of earnings to fixed charges(5)....     441.5x        114.5x           --(6)         1.3x           1.3x             --(6)
BALANCE SHEET DATA (END OF PERIOD):
Cash.....................................    $     1       $     1      $   104        $  6,413       $  5,863       $ 17,005
Working capital (deficit)................      1,786        (5,019)      11,936          29,618         29,739         17,311
Total assets.............................      9,394         9,612       69,960         242,759        225,804        257,839
Total indebtedness.......................         --            --       41,652         159,277        132,264        158,582
Stockholders' equity.....................      7,013         7,149       17,444          52,053         54,194         56,616
</TABLE>

- ---------------
(1) Period from March 31, 1996, date of inception, through December 31, 1996.
(2) Special charges relating to the acquisition by SSCI Investors LLC on
    December 30, 1999 include $11.3 million in non-cash stock compensation
    expense related to accelerated vesting of incentive equity awards previously
    issued to certain members of management, $1.5 million in compensation
    expenses related to a disbursement made to employees under the Long-Term
    Incentive Plan of our former parent partnership, $0.8 million in cash
    bonuses related to the transaction and $0.6 million in transaction fees.
(3) Prior to our restructuring on July 31, 1997, we were composed of entities
    including a limited partnership and a limited liability company for which
    income taxes are "passed through" to their owners and, as a result, no
    income taxes are reflected prior to July 31, 1997. Effective July 31, 1997,
    our predecessor was merged with and into SIA Adhesives, Inc., a subchapter C
    corporation, and its business became subject to income taxes. As a result,
    income taxes have been reflected for the year ended December 31, 1997 for
    taxable earnings subsequent to the merger.
(4) Extraordinary loss relates to the write-off of deferred financing costs
    associated with the early extinguishment of debt.
(5) For purposes of computing the ratio of earnings to fixed charges, earnings
    consist of earnings before income taxes and fixed charges. Fixed charges
    consist of interest expense, amortization of deferred debt issuance costs
    and the portion of occupancy expense deemed representative of interest.
(6) Earnings were inadequate to cover fixed charges for the nine months ended
    December 31, 1996, and for the year ended December 31, 1999 by $0.1 million
    and $2.7 million, respectively.

                                       17
<PAGE>   23

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The following discussion and analysis is provided to increase the
understanding of, and should be read in conjunction with, the consolidated
financial statements and accompanying notes included in this prospectus.

GENERAL

     We have grown through the acquisition and integration of businesses in the
highly fragmented U.S. adhesives, sealants and coatings segment of the specialty
chemicals industry. From 1996 to 1999, we increased our annual net sales through
acquisitions and internal growth from $43.2 million to $237.4 million.
Approximately $27.4 million of this net sales increase is attributable to
internal growth. We plan to continue our growth through a combination of new
product development, continued market penetration, strategic acquisitions and
international expansion.

     This table describes the acquisitions we made since our inception in March
1996.

<TABLE>
<CAPTION>
                                          DATE OF
ACQUISITION                             ACQUISITION                APPLICATION
- -----------                             -----------                -----------
<S>                                     <C>           <C>
Adhesives Systems Division of B.F.      March 1996    Specialty adhesives used primarily for
  Goodrich (renamed SIA Adhesives,                      automotive, aerospace and general
  Inc.)                                                 industrial applications
Pierce & Stevens Corp.                  August 1996   Specialty coatings and adhesives for
                                                        performance-oriented niche
                                                        applications
U.S. Adhesives, Sealants and Coatings   August 1997   Adhesives and sealants primarily
  Division of Laporte PLC(1)                            utilized for housing repair,
                                                        remodeling and construction and
                                                        industrial applications
Coatings and Adhesives Division of      June 1998     Specialty polyurethane formulations
  K.J. Quinn & Co., Inc.                                for adhesives and coatings
PL Adhesives & Sealants brand and       August 1998   Adhesives and sealants for consumer
  product line from ChemRex Inc.                        applications
Flexible packaging coating business of  April 1999    Radiation curable, water and solvent
  The Valspar Corporation Corporation                   products
</TABLE>

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

(1) The companies acquired from Laporte PLC comprised Laporte Construction
    Chemicals North America, Inc., which was renamed OSI Sealants, Inc.,
    Evode-Tanner Industries, Inc., which was renamed Tanner Chemicals, Inc., and
    Mercer Products Company, Inc., which was sold to Burke Industries, Inc. in
    April 1998. Mercer is a manufacturer of extruded vinyl flooring profiles and
    related products for the commercial and residential construction and
    renovation markets. We sold Mercer due to our strategy of focusing on
    adhesives, sealants and coatings.

     The results of acquired businesses have been included for all periods
subsequent to their respective dates of acquisition.

     On December 30, 1999, SSCI Investors LLC, an entity owned by an investor
group led by AEA Investors Inc., acquired approximately 75% of our outstanding
capital stock directly from the former majority stockholder with the balance
owned by other investors, including our current management team. Funding for the
purchased stock was provided by equity financing from the investor group owning
SSCI Investors LLC. Concurrently with the completion of the acquisition, we
entered into our new credit facility and repaid all outstanding amounts under
our former credit facility. Amounts drawn under our new credit facility were
used to repay existing debt and not to finance the acquisition. The transactions
resulting in the acquisition by SSCI Investors LLC of its approximately 75%
stake in our company will be accounted for as a recapitalization. The
transaction resulted in a change of controlling stockholder of the company;

                                       18
<PAGE>   24

however, generally accepted accounting principles do not require a change in
carrying value of assets and liabilities and, as such, we continue to carry
assets and liabilities at their historical carrying value.

     SSCI Investors LLC's acquisition of our stock constituted a change of
control under the terms of the indenture relating to our 9 1/2% Senior
Subordinated Notes due 2007 and, as a result, we were required to make an offer
to purchase for cash any and all of our outstanding $125.0 million principal
amount of 9 1/2% notes for 101% of their principal amount plus accrued and
unpaid interest to the date of repurchase. The repurchase was completed on March
6, 2000 with the repurchase of the entire $125.0 million principal amount of
9 1/2% notes for an aggregate purchase price of approximately $127.4 million
which was financed with borrowings under our credit facility. We used proceeds
from the issuance of the outstanding notes to repay amounts drawn under our
credit facility for the repurchase of the 9 1/2% notes.

RESULTS OF OPERATIONS

     The following table presents the major components of the statement of
operations on a historical basis and as a percentage of net sales.

<TABLE>
<CAPTION>
                                             YEAR ENDED DECEMBER 31,
                              ------------------------------------------------------
                                    1997               1998               1999
                              ----------------   ----------------   ----------------
                                              (DOLLARS IN THOUSANDS)
<S>                           <C>        <C>     <C>        <C>     <C>        <C>
STATEMENT OF OPERATIONS
  DATA:
Net sales...................  $134,771   100.0%  $211,335   100.0%  $237,408   100.0%
Cost of goods sold..........    92,889    68.9%   144,039    68.2%   162,550    68.5%
Selling, general and
  administrative expense....    30,294    22.5%    46,418    22.0%    62,503    26.3%
Operating income............    11,588     8.6%    20,878     9.9%    12,355     5.2%
</TABLE>

  YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

     Net Sales. Net sales were $237.4 million for 1999, an increase of $26.1
million, or 12.3%, over 1998 net sales. The 1998 results include four months of
sales from Mercer Products ($7.2 million), a business sold in April 1998.
Excluding Mercer sales from 1998, net sales increased by 16.3% in 1999 due to
organic growth (approximately 5.7%) and growth through acquisitions
(approximately 10.6%). Each of our business units achieved organic sales growth
in 1999. Strong contributors to this organic growth were increased sales of
insulation coatings by SIA Tanner, adhesives for housing and construction
applications sold through the do-it-yourself channel by OSI Sealants and
flexible packaging and overprint coatings by Pierce & Stevens.

     Cost of Goods Sold. Cost of goods sold was $162.6 million for 1999, an
increase of $18.5 million, or 12.9%, over 1998. As a percentage of net sales,
cost of goods sold increased slightly to 68.5% for 1999 from 68.2% in 1998
primarily as a result of the lower margins associated with the phase-in of
production of the PL(R) brand of adhesives and sealants and Valspar
applications, partially offset by improvements in raw material costs.

     Selling, General and Administrative Expenses. Selling, general and
administrative expenses, including stock compensation expense but net of special
charges, were $48.4 million for 1999, an increase of $1.9 million, or 4.2%, over
1998. As a percentage of net sales, selling, general and administrative expenses
decreased to 20.4% for 1999 from 22.0% in 1998. This decrease was due primarily
to maintaining corporate overhead costs relatively constant despite expanding
net sales. Special charges of $14.2 million, comprised principally of
equity-based incentive compensation, were incurred in 1999 in connection with
the December 30, 1999 sale of a controlling equity interest in our company.

     Interest Expense. Net interest expense was $0.4 million higher in 1999
primarily due to higher average borrowings in 1999 as compared to 1998.

                                       19
<PAGE>   25

     Income Taxes. Income tax expense increased by $0.7 million or 20.7% despite
the $2.7 million loss before income taxes and extraordinary item. This is due
primarily to the increase in nondeductible stock compensation expense recognized
in 1999.

     Income (loss) before extraordinary loss. Loss before extraordinary loss for
the year ended December 31, 1999 was $6.9 million. This was primarily the result
of special charges of $14.2 million.

     Extraordinary Loss (net of tax benefit). The extraordinary loss of $1.1
million, net of the income tax benefit of $0.7 million, relates to the write off
of unamortized deferred financing costs due to the refinancing of our credit
facility.

     Net Income (loss). As a result of the change in controlling shareholder of
the company and resultant special charges and the extraordinary loss associated
with writing off unamortized deferred financing costs due to the refinancing of
the former credit facility, a net loss of $8.0 million was incurred for 1999
compared to net income of $1.5 million in 1998.

  YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

     Net Sales. Our net sales in 1998 were $211.3 million, an increase of $76.6
million, or 56.8%, over the comparable period in 1997. The increase is
attributable primarily to the acquisition of OSI Sealants and Tanner Chemicals
in August 1997, the K.J. Quinn & Co. coatings and adhesives business in June
1998 and the PL(R) brand of adhesives and sealants in August 1998, offset
somewhat by the sale of Mercer in April 1998. Excluding acquisitions, net sales
increased by $5.6 million, or 6.4%. The sales increase was the result of
increased sales of industrial and flexible packaging applications partially
offset by declines in overprint coatings sales. Industrial sales increases were
driven by increased share in recreation vehicle adhesives applications and
continued strong levels of commercial aircraft production, offset by lower sales
to automotive original equipment manufacturers due to design-outs. Sales for
flexible packaging products increased due to the combined effects of market
share gains in the United States and increased international sales.

     Cost of Goods Sold. Cost of goods sold was $144.0 million for 1998, an
increase of $51.2 million, or 55.1%, over 1997. Gross margin improved to 31.8%
in 1998 from 31.1% in 1997. Net of acquisitions, gross margin improved to 29.3%
in 1998 from 28.7% in 1997. The improved margin in 1998 was primarily the result
of an improvement in the product mix due to increased sales of construction
adhesives and raw material savings from consolidation of purchasing.

     Selling, General and Administrative Expenses. Our selling, general and
administrative expenses, including stock compensation expense, for 1998 were
$46.4 million, representing a $16.2 million, or 53.6%, increase from 1997. As a
percentage of net sales, selling, general and administrative expenses decreased
slightly to 22.0% for 1998 from 22.4% in 1997. This decrease is due primarily to
lower corporate overhead costs as a percentage of rapidly expanding net sales
and other efficiencies offset partially by the full year impact of increased
goodwill amortization associated with the purchase of OSI Sealants and Tanner
Chemicals, non-recurring management severance expenses recorded in 1998 and the
non-cash compensation expense on management incentive plans.

     Interest Expense, net. Interest expense, net was $14.7 million in 1998
representing a $5.6 million, or 62.0%, increase over the comparable period in
1997. This increase was the result of the full year's impact of increased debt
incurred as a result of the purchase of OSI Sealants and Tanner Chemicals in
August 1997, partially offset by the impact of repayment of a $30.0 million term
loan in April 1998.

     Loss on Sale of Business. In April 1998, we sold our Mercer subsidiary to
Burke Industries, Inc. Net proceeds from the sale were approximately $35.3
million. We recognized a book loss on the sale of approximately $1.0 million.

     Income Taxes. Income tax expense increased by $2.2 million to $3.5 million
in 1998 over 1997 primarily due to the growth in pretax earnings resulting from
acquisitions and the fact that prior to its restructuring on July 31, 1997, the
consolidated entity was composed of various types of entities including

                                       20
<PAGE>   26

a limited partnership and a limited liability company. Income tax liabilities
for these entities generally "pass through" to their owners. Since the
restructuring, Sovereign and its subsidiaries have filed consolidated federal
income tax returns. The consolidated financial statements include pro forma
income taxes for 1997, as if the companies had been subject to income taxes for
all of 1997. See note 3 of the notes to the consolidated financial statements.

     Income before extraordinary loss. Income before extraordinary loss for 1998
was $1.6 million representing a $0.5 million increase from 1997. This increase
was primarily the result of the factors discussed above. Excluding the loss on
the sale of Mercer, net income before extraordinary loss for 1998 was
approximately $2.6 million.

     Extraordinary Loss (net of tax benefit). The extraordinary loss of $0.2
million, net of income tax benefit of $0.1 million, relates to the write-off of
deferred financing costs resulting from the early extinguishment of a $30.0
million term loan in April 1998.

     Net Income. Our net income was $1.5 million, representing a $1.7 million
increase over 1997. This increase was primarily the result of the factors
discussed above.

INFLATION

     We do not believe that inflation has had a material impact on net sales or
income during any of the periods presented above. Our business could be affected
by inflation in the future.

YEAR 2000 DISCLOSURE

     Many computer systems and other equipment with embedded technology use only
two digits to define the applicable year and may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in failures or
miscalculations causing disruptions of normal business activities and
operations. We have actively addressed the Year 2000 issue. Our total cost of
addressing all Year 2000 issues was less than $0.5 million, substantially all of
which was incurred as of December 31, 1999 and has been expensed or capitalized,
as appropriate. To date, as a result of these efforts, we have not experienced
any significant functional problems related to the Year 2000 issue. In addition,
to date, we have not experienced any significant Year 2000 issue with respect to
vendors and/or third parties with whom we conduct business. While we believe
that the identification of significant Year 2000 issues is unlikely at this
time, there is an ongoing risk that Year 2000 related problems could still occur
and we will continue to monitor the situation. In the event any Year 2000 issues
arise, we have developed contingency plans to address them.

LIQUIDITY AND CAPITAL RESOURCES

     Net cash provided by operating activities was $11.0 million in 1999. Net
loss adjusted for non-cash charges, such as depreciation and amortization, stock
compensation expense, amortization of deferred financing costs and extraordinary
loss was approximately $19.0 million of cash flow from operations. Accounts
payable and accrued expenses increased by $1.2 million in 1999. These increases
in cash flow from operations were offset by increases in accounts receivable of
$4.8 million, and a net buildup of inventory levels of $5.3 million. The
increases in accounts receivable are consistent with the percentage sales
increases year over year from 1998, excluding Mercer which was sold in April
1998.

     Net cash provided by operating activities in 1998 totaled $13.6 million,
which represented a $7.2 million increase over 1997. Net income adjusted for
non-cash charges, such as depreciation, amortization, deferred income taxes and
the loss on the sale of Mercer resulted in approximately $15.2 million of cash
flow from operations. Net of 1998 acquisitions and the disposition of Mercer,
accounts payable and other liabilities increased by $5.9 million in 1998. These
increases to net cash by operating activities were partially offset by increases
in accounts receivable and inventories of $7.4 million and $1.3 million. The
increase in accounts receivable was due primarily to increased sales volume
primarily due to 1998 acquisitions.

                                       21
<PAGE>   27

     Net cash used in investing activities was $22.0 million in 1999 and
resulted from capital additions to property, plant and equipment of $6.3 million
and the acquisition in April 1999 of the flexible packaging coatings business of
The Valspar Corporation.

     Net cash provided by investing activities in 1998 was $15.7 million.
Capital additions to property, plant and equipment totaled $4.5 million in 1998.
The sale of Mercer in April 1998 provided cash of $35.3 million and the
acquisitions of the K.J. Quinn & Co. coatings and adhesives business in June
1998 and the PL(R) adhesives and sealants product line in August 1998 required
cash of $15.1 million.

     We sold Mercer in April 1998 due to our strategy of focusing on adhesives,
sealants and coatings. Mercer, a manufacturer of extruded vinyl flooring
profiles and related products for the commercial and residential construction
and renovation markets, was acquired in August 1997 as part of our purchase of
OSI Sealants and Tanner Chemicals.

     In the June 1998 acquisition of the coatings and adhesives business of K.J.
Quinn & Co., we paid cash and issued $2.8 million in notes payable to the
previous owners.

     In August 1998, we acquired ChemRex Inc.'s PL(R) adhesives and sealants
product line. PL(R) consists of solvent-based and polyurethane adhesives and
sealants. We borrowed $6.2 million under a former credit facility to finance the
acquisition which was subsequently repaid in full prior to December 31, 1998.
Most of the production of the PL(R) applications was transferred to our Mentor,
Ohio production facility in the first quarter of 1999.

     Net cash provided by financing activities was $22.1 million in 1999. Net
cash used in financing activities was $29.9 million in 1998. We used proceeds
from the Mercer sale to repay our $30.0 million term loan in April 1998.

     Our debt at December 31, 1999 consisted of $125.0 million principal amount
of 9 1/2% notes, $21.0 million drawn under our Term B Loan Facility, $6.0
million drawn under our Revolving Credit Facility and $1.1 million drawn under a
$1.5 million sub-facility obtained by our Singapore-based sales office. In
addition, we had approximately $75.0 million available under our Term A Loan
Facility, $54.0 million available under our Term B Loan Facility and $42.9
million available under the Revolving Credit Facility. We also had approximately
$5.5 million outstanding of other indebtedness, including capital leases.

     On December 28, 1999, we redeemed a portion of outstanding shares of common
stock held by our former parent for an aggregate price of approximately $3.3
million.

     As of December 29, 1999, we entered into a management agreement with AEA
Investors Inc. pursuant to which AEA Investors Inc. will provide us with
advisory and consulting services. The management agreement provides for an
annual aggregate fee of $999,999 plus reasonable out-of-pocket costs and
expenses.

     On December 30, 1999, we repaid all outstanding amounts under our former
credit facility and entered into a new credit agreement which then provided for
aggregate borrowings of $200 million, including a (1) Revolving Credit Facility
of $50.0 million, (2) Term A Loan Facility of $75.0 million and (3) Term B Loan
Facility of $75.0 million. Borrowings under the Revolving Credit Facility are
available on a fully revolving basis and may be used for general corporate
purposes, including to a limited extent acquisitions. The Revolving Credit
Facility will mature on December 30, 2005. Borrowings under the Term A Loan
Facility may be used for general corporate purposes, including acquisitions, and
commitments to lend under this facility terminate June 30, 2001 to the extent
not then drawn. Borrowings under the Term B Loan Facility were available for
general corporate purposes and were fully drawn on March 6, 2000 as part of the
$127.4 million which we used to repurchase $125.0 million principal amount of
9 1/2% notes. On March 6, 2000 after making that repurchase, we had outstanding
$60.0 million principal amount under the Term A Loan Facility, $75.0 million
principal amount under the Term B Loan Facility and $20.0 million principal
amount under the Revolving Credit Facility. In addition to this amount, we had
approximately $6.6 million outstanding of other indebtedness. Net proceeds of
the issuance of the

                                       22
<PAGE>   28

outstanding notes on March 29, 2000 were approximately $144.8 million and were
used to repay all amounts outstanding under the Term A Loan Facility and Term B
Loan Facility and approximately $6.0 million outstanding under the Revolving
Credit Facility. As of March 31, 2000, we had $75.0 million of borrowing
availability under the Term A Loan Facility and $34.9 million of borrowing
availability under our $50.0 million Revolving Credit Facility. Upon its
repayment on March 29, 2000, the Term B Loan Facility was terminated. We may
incur additional indebtedness to the extent that we complete any acquisitions.

     Interest payments on the amounts drawn under our credit facility, as well
as our other indebtedness and obligations, represent significant obligations for
us. Our remaining liquidity demands relate to capital expenditures and working
capital needs. Our capital expenditures were approximately $6.3 million in 1999
and we currently anticipate our capital expenditures will be approximately $8.1
million in 2000 and approximately $8.6 million in 2001. While we are engaged in
ongoing evaluations of, and discussions with, third parties regarding possible
acquisitions, as of the date of this prospectus, we have no binding agreements
or commitments with respect to any acquisitions. Exclusive of the impact of any
future acquisitions, joint venture arrangements or similar transactions, we do
not expect our capital expenditure requirements to increase materially in the
foreseeable future.

     Our primary sources of liquidity are cash flows from operations and
borrowings under our credit facility. Based on current and anticipated financial
performance, we expect cash flow from operations and borrowings under our credit
facility will be adequate to meet anticipated requirements for capital
expenditures, working capital and scheduled interest payments, including
interest payments on the amounts outstanding under the notes, our credit
facility and our other indebtedness. However, our capital requirements may
change, particularly if we should complete any additional material acquisition.
Our ability to satisfy capital requirements will be dependent upon our future
financial performance and ability to repay or refinance our debt obligations
which in turn will be subject to economic conditions and to financial, business
and other factors, many of which are beyond our control.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We have not historically engaged in hedging or other derivative trading
activities since our debt obligations were primarily fixed rate in nature and,
as such, were not sensitive to changes in interest rates. While we repurchased
the 9 1/2% notes on March 6, 2000 with variable rate borrowings under our credit
facility that are sensitive to interest rates, that indebtedness was
subsequently refinanced through the issuance of the outstanding notes which are
fixed rate obligations. Our credit facility requires that, by June 30, 2000, at
least 45% of our funded indebtedness be fixed-rate or subject to interest rate
hedging agreements to reduce the risk associated with variable rate debt. We do
not currently anticipate that the events that would give rise to the requirement
that we enter into interest rate hedging agreements will occur. In addition, we
may enter into foreign exchange currency hedging agreements in connection with
foreign acquisitions, if any.

                                       23
<PAGE>   29

                                    BUSINESS

INTRODUCTION

     We are a leading developer, producer and distributor of adhesives, sealants
and coatings for use in four primary markets: industrial; flexible packaging;
overprint coatings; and housing repair, remodeling and new construction. We
focus on select value-added market niches in which we have established
leadership positions and competitive advantages in product development,
manufacturing and distribution. We believe that approximately 45% of our 1999
net sales were from applications in which we have the number one or two position
in the United States. We frequently design our products in cooperation with our
customers to meet unique specifications and to provide critical performance
attributes to their products, resulting in a significant number of long-lived
primary supplier relationships. For the year ended December 31, 1999, we had net
sales of approximately $237.4 million.

     We are headquartered in Chicago, Illinois, and were formed by Robert B.
Covalt and other investors to acquire and consolidate specialty chemicals
businesses in the adhesives, sealants and coatings segment. We have successfully
expanded our business through six strategic acquisitions which we have
integrated into our three business units: SIA Tanner, Pierce & Stevens and OSI
Sealants. SIA Tanner manufactures high-performance specialty adhesives and
coatings for automotive, aerospace, recreational vehicle, manufactured housing,
air handling and transportation textile applications. Pierce & Stevens
manufactures coating and adhesive products for overprint coating, flexible
packaging and industrial applications. OSI Sealants manufactures branded caulks,
sealants and adhesives for professional contractors and do-it-yourself
applications. We plan to continue our growth through a combination of new
product development, continued market penetration, strategic acquisitions and
international expansion.

     The chart below depicts our organizational structure and principal
applications of each business unit:

<TABLE>
<S>                            <C>                            <C>
                                         Sovereign
                                         Specialty
                                         Chemicals

         SIA Tanner                      Pierce &                     OSI Sealants
                                          Stevens

- - Structural transportation    - Overprint coatings           - Branded caulks, sealants
  adhesives                    - Flexible packaging             and adhesives for
- - Automotive friction            adhesives                      construction/
  adhesives                    - Dualite(R) microspheres        repair/remodeling
- - Industrial adhesives         - Hybond(R) contact adhesives
- - Flame-retardant coatings     - Custom products
- - Industrial polyurethane
  polymers
- - Cryogenic grinding
</TABLE>

                                       24
<PAGE>   30

     On December 30, 1999, SSCI Investors LLC, an entity owned by an investor
group led by AEA Investors Inc., acquired approximately 75% of our capital
stock, with the balance owned by other investors, including our current
management team. The aggregate purchase price for the transaction was $360.0
million, including the retained equity interest, assuming a balance sheet free
of cash and indebtedness. AEA Investors Inc. is an international private equity
firm supported by industrial families and chief executives of major corporations
from around the world.

INDUSTRY OVERVIEW

     We operate in one business segment: the production, manufacture and
distribution of adhesives, sealants and coatings. The adhesives, sealants and
coatings segment of the specialty chemicals industry is a large and growing
global segment, which has exhibited strong stable growth. Total sales for the
adhesives, sealants and coatings segment in the United States were approximately
$30.1 billion in 1998. Adhesives are replacing mechanical fasteners in many
manufacturing processes, and adhesives and sealants can reduce weight and parts
requirements and provide superior performance characteristics such as protection
against corrosion and vibration. In addition, we expect international sales of
adhesives, sealants and coatings to grow due to increased use in developing
markets.

     Adhesives, sealants and coatings are used in a wide range of products with
applications in numerous categories, including

     - Industrial. Typical industrial applications include corrosion resistant
       industrial coatings, general assembly adhesives, fire-retardant textile
       coatings, coatings for electronic components and industrial lamination
       adhesives.

     - Consumer. Consumer applications include various consumer-applied
       adhesives such as white glues, caulks and sealants, architectural
       coatings and miscellaneous do-it-yourself sealing applications for
       bathtub and kitchen fixtures.

     - Automotive. Automotive applications include primers and top coats, body
       sealants, structural adhesives and interior and exterior trim adhesives.

     - Construction. Typical construction applications include
       contractor-applied architectural coatings, joint sealants and flooring
       and roofing adhesives.

     - Packaging. Packaging applications include portion packaging and flexible
       consumer packaging films and foils, seam sealers and container coatings.

     - Aerospace. Aerospace applications include commercial, military and
       general aviation coatings, composite bonding adhesives and structural
       epoxies.

     The U.S. adhesives, sealants and coatings segment is highly fragmented with
over 500 companies, a significant majority of which we believe are small and
regional. While smaller companies have successfully competed in market niches,
the industry is expected to consolidate as companies seek to enhance operating
efficiencies in new product development, sales and marketing, distribution,
production and administrative overhead. Larger specialty chemicals companies
also benefit through a greater diversification of end-use applications,
customers, technologies and geography, reducing the impact of industry or
regional cyclicality.

     Total sales for the U.S. adhesives, sealants and coatings segment grew from
approximately $13.8 billion in 1986 to approximately $30.1 billion in 1998,
representing a compound annual growth rate of 6.7%. Continued future growth is
expected to result from the following factors:

     New Markets and More Stringent Demands of End-Users. Adhesives and sealants
are increasingly being used in new applications, particularly in the
transportation and construction sectors, as end-users desire simpler design and
manufacture, lower costs, improved bonding, lower weight, and reduced vibration
and corrosion. For example, in the bonding of automotive window glass to steel
body panels, high-performance adhesives provide structural reinforcement to the
adjacent steel panels, thus providing additional integrity to the car body. In
highway construction, new, long-lasting sealants are replacing
                                       25
<PAGE>   31

traditional bitumen, a traditional sealant used between adjacent slabs of
concrete and other materials that exhibit poor longevity.

     New Materials. The growing use of nonferrous parts including aluminum and
plastics in car bodies, appliances, buildings and other fabricated goods
requires the use of adhesives that are specially formulated to bond dissimilar
materials. On these substrates, traditional mechanical fasteners are frequently
not suitable.

     International Sales. International sales of adhesives, sealants and
coatings are also expected to grow due to increased use of these products
internationally. Total worldwide sales for adhesives, sealants and coatings were
approximately $83.7 billion in 1998. In 1998, the United States accounted for
approximately 36% of worldwide sales, while Europe accounted for approximately
40% of worldwide sales and Japan accounted for approximately 11% of worldwide
sales. Sales to the remainder of the world accounted for approximately 13% of
total segment sales. Strong growth is expected in developing markets,
particularly in the Far East, Eastern Europe and Latin America.

COMPETITIVE STRENGTHS

     We believe we have the following competitive strengths:

          Leadership Positions in Attractive Market Niches. We enjoy leadership
     positions in growing, value-added market niches as a result of our
     customer-driven product development, reputation for quality, high levels of
     customer service and brand name recognition. Our brand and trade names are
     particularly well recognized among our customers, and include Pierce &
     Stevens(TM), OSI(R), Pro-Series(R), PL(R), Polyseamseal(R), Miracure(R),
     Plastilock(R), Latiseal Dualite(R), Hybond(R), Proxseal(TM), Magic Seal(R)
     and Glaze'N Seal(R). We believe our leadership positions, technological
     expertise and strong customer relationships provide us with significant
     advantages in the development of new products and the penetration of new
     market niches.

          Technological Expertise. We are a technology leader within the markets
     we serve. Our current technology portfolio, comprising numerous customized
     and proprietary formulations with unique performance characteristics,
     provides us with a broad technological base to satisfy our customers'
     requirements. We continually leverage our technological expertise to
     develop new products and additional applications for existing product
     formulations. In addition, we have enhanced our technological expertise
     both through cooperative research and development efforts and joint
     technological alliances with world-class suppliers, customers and
     universities.

          Strong Customer Relationships. Our business teams work hand-in-hand
     with our customers to develop innovative, high-performance solutions to
     satisfy current and future needs. By directly involving customers in the
     product development process, we strengthen our relationships with them and
     are better able to develop products that will add value to their
     businesses. We sell our products to some of the world's largest companies,
     including Airbus Industrie, Baxter International Inc., The Boeing Company,
     General Motors Corporation, The Home Depot, Inc., Johns Manville
     Corporation, Lowe's Companies, Inc., Milliken & Company and The Stanley
     Works. Many of our industrial, overprint coatings and flexible packaging
     products have been certified through rigorous, customer-specific technical
     and regulatory approval processes. Once our products have been approved,
     our customers are often unwilling to switch to another supplier because of
     the significant costs involved. Our relationships with retailers and
     professional distributors of our housing repair, remodeling and
     construction products are strengthened by our broad product line, strong
     brands and reputation for quality. We have been doing business with 14 of
     our top 20 customers for over 10 years.

          Broad Product Offerings and Diverse Customer Base. We manufacture over
     5,000 products that are sold through multiple distribution channels to over
     5,000 customers for a wide variety of applications. In 1999, no single
     customer accounted for over 5% of our net sales, and our top 20 customers
     accounted for less than 30% of our net sales. This diversity of customers,
     products and distribution channels provides us with a broad base from which
     to increase sales and expand customer relationships, and reduces exposure
     to any particular customer, end market or geographic region.

                                       26
<PAGE>   32

          Proven Management Team. Our strong management team, led by Robert B.
     Covalt, averages over 22 years of experience in the specialty chemicals
     industry. Current members of management hold approximately 16% of our
     equity on a fully diluted basis. As part of our philosophy, management
     seeks to foster an entrepreneurial environment, which empowers employees
     and encourages and rewards individual initiative. This philosophy has been
     successful in generating top-line growth and improving profitability. Since
     inception, our management team has successfully executed and integrated six
     strategic acquisitions. From 1996 to 1999 we increased our annual net sales
     from $43.2 million to $237.4 million through acquisitions and internal
     growth.

BUSINESS STRATEGY

     Continued Focus on Niche Products in Attractive Markets. We will continue
to develop product offerings for value-added, end-use applications with
attractive growth prospects, including

     - structural adhesives

     - flame-retardant adhesives and coatings

     - food and medical packaging adhesives and coatings

     - environmentally friendly products

     Pursue Strategic Acquisitions. We have successfully grown through
acquisitions and intend to pursue additional strategic acquisitions that will
allow us to further increase sales in targeted markets. We believe that the high
degree of fragmentation in the U.S. adhesives, sealants and coatings segment
will continue to provide suitable acquisition candidates. Potential acquisition
candidates will be evaluated based upon our ability to

     - expand our product line and customer relationships

     - enhance our product development capabilities

     - market products through new or expanded distribution channels

     - increase utilization of our available manufacturing capacity

     - generate cost savings

     - add to our technology portfolio

     - open new market opportunities

     Achieve Significant Operating Efficiencies. We believe we can continue to
achieve operating efficiencies resulting in enhanced revenue opportunities, cost
savings and improved cash flow through

     - cross-selling our products across the broader distribution and customer
       network that we have developed through our acquisitions

     - consolidating raw material and freight purchases to increase purchasing
       economies of scale

     - improving manufacturing and distribution operations

     - lowering working capital levels by optimizing SKU counts and inventory
       management

     Increase International Presence. We believe we have significant
opportunities in international markets to increase sales to existing
multinational customers, enter developing markets and establish new customer
relationships. While sales of adhesives, sealants and coatings outside the
United States in 1999 represented approximately $57.1 billion or 64% of the
worldwide market, our sales outside the United States represented less than 11%
of our total revenues for 1999 with most of those sales consisting of export
shipments. In addition, international sales are expected to benefit from the
increased use of adhesives,

                                       27
<PAGE>   33

sealants and coatings in developing markets. We intend to expand our global
sales, particularly in Europe, Southeast Asia and Latin America, by

     - increasing sales and marketing activities in targeted regions

     - entering into strategic alliances

     - pursuing targeted acquisitions

We have sales and technical offices in Singapore and the United Kingdom. We
manage our sales and marketing activities in Latin America through our existing
operations in Mexico.

APPLICATIONS

     The table below sets forth selected applications in each of our four
primary categories.

<TABLE>
<CAPTION>
CATEGORY                                                    SELECTED APPLICATIONS
- --------                                                    ---------------------
<S>                                             <C>
Industrial...................................   Aerospace structural adhesives
                                                Automotive structural, friction and trim
                                                adhesives
                                                Commercial insulation adhesives and coatings
                                                Flame-retardant textile adhesives and
                                                coatings
                                                Panel lamination adhesives for recreational
                                                vehicles
                                                Power staple and nail gun cartridge adhesives
Flexible Packaging...........................   Blister packaging adhesives and coatings
                                                Food and product packaging adhesives and
                                                coatings
                                                Food packaging laminating adhesives
Overprint Coatings...........................   High gloss, scratch and abrasion resistant
                                                coatings
Housing Repair, Remodeling and                  Aluminum and vinyl siding sealants
  Construction...............................   Drywall and subflooring adhesives
                                                Tub and tile sealants
                                                Window and door sealants
</TABLE>

     Industrial. Our industrial products consist primarily of high-performance,
specialty adhesives and coatings for automotive, aerospace, manufactured housing
and textile applications. We often develop structural adhesives in conjunction
with the technical staff of our customers and these adhesives are used in many
demanding automotive applications that include brake bonding and body panel
assembly. Our aerospace bonding films are used to bond the composite tail
structures in commercial aircraft and meet rigid performance requirements. In
addition, we manufacture and market microspheres, including Dualite(R), a
lightweight inert filler that can both reduce the weight and enhance the
strength of products to which it is added. Our industrial customers include
Airbus Industrie, Baxter International Inc., The Boeing Company, General Motors
Corporation, Johns Manville Corporation, Milliken & Company and The Stanley
Works.

     Flexible Packaging. We produce flexible packaging adhesives including:
heat-activated lidding adhesives used to apply flexible paper or foil lids to
plastic tubs used in the food industry, including individually packaged
condiments, creamers and cream cheese tubs; film-to-film adhesives used to bond
different types of plastic film, such as metalized and moisture barrier films
used in snack food bags; foil or paper blister packaging for products such as
pharmaceuticals, batteries, toys and tool accessories; and medical packaging
adhesives.

     Overprint Coatings. We produce a variety of high quality, high gloss,
scratch and abrasion resistant coatings used on paperback book and magazine
covers, decorative packaging, annual reports, catalog covers, and playing and
trading cards. We are a leading manufacturer of coatings for paperback book
covers and trading cards. Overprint coatings customers include printers, custom
coaters and magazine manufacturers.

                                       28
<PAGE>   34

     Housing Repair, Remodeling and Construction. Our housing repair, remodeling
and construction products are primarily sealants and adhesives used in exterior
and interior applications. We are a leader in aluminum and vinyl siding sealants
as well as kitchen and bath sealants, offering ease of use, durability and color
match capabilities. These products are marketed for do-it-yourself retail and
professional applications. We offer a broad range of well-established branded
products including PL(R) and Polyseamseal(R) for retail do-it-yourself
applications and Pro-Series(R) and PL(R) for professional applications.

SALES AND MARKETING

     We operate an extensive sales and marketing network for our customers. This
network consists of a direct sales force of over 50 professionals, as well as
independent agents and distributors. This network works closely with customers
to satisfy existing product needs and to identify new applications and product
improvement opportunities. Our sales efforts are complemented by our product
development and technical support staff, who work together with the sales force
to develop new products based on customer needs. We augment our direct sales and
marketing coverage through a network of distributors and independent agents who
specialize in particular areas. This specialization allows our applications to
gain access to a broader range of distribution channels and end users and
further strengthens our brand names.

     Our sales and marketing efforts and customer relationships are enhanced by
the numerous customer-specific technical approvals we have secured. These
approvals typically involve significant customer time and effort and result in a
strong competitive position for qualified products. Once qualified, products are
often referenced in customer specifications or qualified product lists. These
qualification processes also reinforce the partnership between us and our
customers and can lead to additional sales and marketing opportunities.

RAW MATERIALS

     We use a variety of specialty and commodity chemicals in our manufacturing
processes. These raw materials are generally available from numerous independent
suppliers. We typically purchase strategic raw materials on a contract basis.
Some of our raw materials are derived from propylene, crude oil derivatives and
ethylene. There have been historical periods of rapid and significant movements
in the price of propylene, crude oil derivatives and ethylene both upward and
downward. We have historically been successful in passing on price increases to
our customers over a period of time, but may not be able to do so in the future.

TECHNOLOGY

     We maintain a strong commitment to technology, with over 75 chemists and
chemical engineers focused on the development of new products and processes. We
work hand-in-hand with our business teams and customers to develop innovative,
high-performance solutions to satisfy current and future needs. This methodology
of involving the customer throughout the product development process enhances
the creation of products that will add value to our customers' businesses.

     Over recent years we have focused our research and development efforts on
the development of high performance, environmentally safe products. This effort
has led to a broad range of technologies and applications, including

     - high temperature resistant, reactive hot melt used in industrial
       construction applications

     - reactive epoxy liquid used as structural bonding adhesive in truck bed
       assembly

     - acrylated epoxy ultraviolet/electron-beam curable systems used as
       coatings for multi-wall bags that allow bags to be stacked without
       slipping while greatly enhancing their appearance

     - pre-formulated dispersions that function as medical packaging adhesives,
       fiber locking binders, and food packaging lidding adhesives

                                       29
<PAGE>   35

     - advanced toughened epoxy systems used to bond composites and as surface
       films for composites in aircraft construction

     Our technical activities are further enhanced through alliances with key
industry suppliers and large multinational customers. These include BASF AG,
Baxter International Inc., The Boeing Company, The Dow Chemical Company, E.I. du
Pont de Nemours and Company, and Johns Manville Corporation, among others.

     Our patents and qualified formulations, in combination with our customer
integrated approach to product and application design, should enhance our
ability to create a sustainable, competitive advantage in the next several
years.

COMPETITION

     The adhesives, sealants and coatings segment of the specialty chemicals
industry is highly competitive. This segment is highly fragmented, with over 500
manufacturers ranging from small regional companies to large multinational
producers. No one company holds a dominant position on a national basis and very
few compete across all levels of our product line. Our competitors include Ciba
Specialty Chemicals, Cytec Industries Inc., GE Sealants and Adhesives (a unit of
General Electric Company), H.B. Fuller Company, Imperial Chemical Industries
PLC, Rohm & Haas Co. and RPM Incorporated. Competition is generally regional and
is based on product quality, technical service for specialized customer
requirements, breadth of product line, brand name recognition and price. Some of
our competitors are larger, have greater financial resources and are less
leveraged than we are. As a result, these competitors may be better able to
withstand a change in market conditions within the specialty chemical industry
and throughout the economy as a whole. These competitors may also be able to
maintain significantly greater operating and financial flexibility than we can.

EMPLOYEES

     As of December 31, 1999, we had 686 employees, of whom 100 were members of
unions under contracts which expire between 2001 and 2002. In April 1999,
employees at our Akron facility conducted a two-day strike. This dispute was
satisfactorily resolved. We believe that our relations with our employees are
good.

ENVIRONMENTAL MATTERS

     We are subject to extensive laws and regulations pertaining to air
emissions, waste water discharges, the handling and disposal of solid and
hazardous wastes, the remediation of contamination, and otherwise relating to
health, safety and protection of the environment. Our operations and the
environmental condition of our real property could give rise to liabilities
under these laws, which could result in material costs.

     In connection with our acquisitions, we have performed substantial due
diligence to assess the environmental liabilities associated with acquired
businesses and have negotiated contractual indemnifications, which, supplemented
by commercial environmental insurance coverage designed for each acquisition, is
currently expected to adequately address a substantial portion of known and
foreseeable environmental liabilities. We do not currently believe that
environmental liabilities will have a material adverse effect on our business,
financial condition or results of operations. We cannot be certain, however,
that indemnitors or insurers will in all cases meet their obligations or that
the discovery of presently unidentified environmental conditions, or other
unanticipated events, will not give rise to expenditures or liabilities that may
have a material adverse effect.

     In connection with soil and groundwater contamination resulting from
historic operations under prior ownership of our Greenville, South Carolina
facility, in November 1994, the former owner of the business entered into a
consent agreement with the South Carolina Department of Health and Environmental
Control that requires the facility to complete investigation and remediation of
soil and groundwater
                                       30
<PAGE>   36

contamination at the site. These activities are currently projected to cost
between approximately $3.0 million and $8.0 million. We are indemnified by the
former owner with respect to this matter, excluding groundwater monitoring costs
incurred after August 5, 2002, as well as certain other known and unknown
pre-closing environmental liabilities, subject to an overall limit well in
excess of the currently estimated cost of cleanup. The former owner has agreed
to conduct and finance the investigation and remediation of this matter.

     Our facility located in Akron, Ohio is part of a larger industrial complex
formerly operated by The B.F. Goodrich Company, the prior owner of SIA
Adhesives, Inc. The B.F. Goodrich Company, as part of a voluntary cleanup
agreement with the Ohio Environmental Protection Agency, is conducting an
assessment of soil and groundwater contamination throughout the entire complex.
In connection with our 1996 acquisition of SIA Adhesives, Inc., The B.F.
Goodrich Company agreed to indemnify us with respect to this matter (as well as
other known and unknown pre-closing environmental liabilities).

     In connection with the 1996 acquisition of Pierce & Stevens, our
environmental due diligence detected conditions of subsurface contamination
primarily associated with storage tank farms and at various other areas of the
Pierce & Stevens facilities. Our current estimate of the total cost of
investigation and remediation is approximately $1.5 million, but this amount
could be significantly higher, depending upon the extent of contamination. In
connection with the acquisition, The Sherwin-Williams Company agreed to
indemnify us with respect to this and other environmental and non-environmental
pre-closing liabilities, subject to a $9.0 million overall limit. In June 1998,
The Sherwin-Williams Company paid us $2.7 million as indemnification for the
tank farm replacement as well as a number of other environmental issues. Upon
receipt of the funds, we recorded an environmental reserve in other long term
liabilities and other current liabilities. To date, approximately $2.3 million
has been spent to address these issues, and we currently maintain an
environmental reserve of approximately $0.4 million. The June 1998 settlement
expressly acknowledged that the settlement does not affect our right to
indemnification for matters not addressed in the settlement.

     As is the case with manufacturers in general, if a release of hazardous
materials occurs at real property owned or operated by us or our predecessors or
at any off-site disposal location utilized by us or our predecessors, we may be
held strictly, jointly and severally liable for cleanup costs and natural
resource damages under the federal Comprehensive Environmental Response,
Compensation, and Liability Act and similar environmental laws. We have been
named potentially responsible parties under these laws for cleanup of
approximately fifteen multi-party waste disposal sites, the liability for
several of which has been resolved, subject to standard terms, including the
ability to reopen the matter, found in these kinds of settlements. Due to what
we currently believe is our relatively minor contribution of waste to these
sites, we do not believe that our liability with respect to these sites will
have a material adverse effect on our business, financial condition or results
of operations. In addition, the agreements with former owners of our business
include indemnification for these issues.

     The U.S. Environmental Protection Agency issued a notice of violation to
our Carol Stream, Illinois facility alleging that the facility stored hazardous
waste onsite for greater than 90 days during a 13-day period in 1997. Under a
consent agreement finalized in September 1999, the facility agreed to pay a
penalty of $50,000 and to install a cooling water tower, which is expected to
cost approximately $145,000. The penalty has been paid and construction of the
cooling tower began in December 1999. In addition, the consent agreement
requires the facility to close its main hazardous waste accumulation area at an
estimated cost between approximately $15,000 and $100,000.

     Some of our facilities may be subject to maximum achievable control
technology requirements that are anticipated to become effective in 2003 for
surface coating manufacturing processes under Title III of the Clean Air Act
Amendments of 1990. We do not currently believe that capital expenditures
relating to achieving compliance with these requirements or other environmental
regulations will have a material adverse effect on our business, financial
condition or results of operations. However, environmental laws are constantly
evolving and we cannot predict accurately the effect they may have upon our
capital expenditures, cash flow or competitive position in the future. Should
these laws become more stringent, the

                                       31
<PAGE>   37

cost of compliance would increase. If we cannot pass on future costs to our
customers, such increases may have an adverse effect on our business, financial
condition or results of operations.

BACKLOG

     Most orders for our products are received and shipped in the same month.
Total backlog orders at December 31, 1999 were approximately $11.3 million. All
1999 backlog orders are expected to be filled within the current year. Backlog
orders at December 31, 1998 were $2.2 million.

PRODUCTION

     The production of adhesives, sealants and coatings is a multi-stage process
which involves extensive formulation, mixing and, in some cases, chemical
synthesis. Following one or more of these processes, the product is packaged in
totes, drums, pails, cartridges or other delivery forms for sale based upon the
customer's requirements. Our principal manufacturing processes are blending,
polymerization, extrusion and film coating. Blending consists of dissolving or
dispersing various compounds in organic solvents or water. In polymerization,
vinyl, acrylic and urethane polymers are synthesized in closed reactor systems.
Extrusion consists of feeding formulated materials through an extruder to
compound pressure sensitive and hot melt products. Film coating consists of
transferring blended formulations onto release paper or polyethylene liners to
produce thin films of pressure sensitive, hot melt and epoxy products. Many of
our manufacturing processes can be performed at more than one of our facilities.

PROPERTIES

     We operate the manufacturing plants and facilities described in the table
below. Management believes that our plants and facilities are maintained in good
condition and are adequate for its present and estimated future needs.

     Listed below are the principal manufacturing facilities that we operate.

<TABLE>
<CAPTION>
                                                     SQUARE
LOCATION                           OWNED/LEASED(1)   FOOTAGE          APPLICATION SERVED
- --------                           ---------------   -------          ------------------
<S>                                <C>               <C>       <C>
Akron, Ohio......................  Owned             214,300   Industrial
Mentor, Ohio.....................  Owned             175,000   Home Repair, Remodeling and
                                                                 Construction
Buffalo, New York................  Owned             165,000   Industrial, Overprint Coatings,
                                                                 Flexible Packaging
Greenville, South Carolina.......  Leased(2)         104,500   Industrial
Carol Stream, Illinois...........  Owned              81,800   Industrial, Overprint Coatings,
                                                                 Flexible Packaging
LaGrange, Georgia................  Owned              80,500   Home Repair, Remodeling and
                                                                 Construction
Kimberton, Pennsylvania..........  Owned              55,900   Industrial, Overprint Coatings,
                                                                 Flexible Packaging
Mexico City, Mexico..............  Leased(3)          24,400   Industrial, Overprint Coatings,
                                                                 Flexible Packaging
Seabrook, New Hampshire/
Salisbury, Massachusetts.........  Owned              21,800   Industrial, Flexible Packaging
</TABLE>

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

  (1) All of our owned facilities are subject to mortgages pursuant to the
      credit facility. In addition, the Seabrook, New Hampshire/Salisbury,
      Massachusetts property is subject to mortgages relating to the financing
      of the acquisition of the property.

  (2) Lease expires December 31, 2008.

  (3) Lease expires December 31, 2004.

                                       32
<PAGE>   38

Our executive offices are located in Chicago, Illinois. We also have sales and
technical offices in Singapore and the United Kingdom.

LEGAL PROCEEDINGS

     We are a party to various litigation matters incidental to the conduct of
our business. We do not believe that the outcome of any of the matters in which
we are currently involved will have a material adverse effect on our financial
condition or results of operations.

                                   MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

     The following table sets forth certain information with respect to: (1)
each member of Sovereign's Board of Directors; (2) each executive officer of
Sovereign; and (3) certain key managers of Sovereign and its subsidiaries.

<TABLE>
<CAPTION>
NAME                                     AGE                         POSITION
- ----                                     ---                         --------
<S>                                      <C>   <C>
Robert B. Covalt.......................  68    Chairman, President, Chief Executive Officer and
                                               Director of Sovereign and Chairman and Director of
                                                 OSI Sealants, Pierce & Stevens, SIA Adhesives and
                                                 Tanner Chemicals
John R. Mellett........................  50    Vice President, Chief Financial Officer, Chief
                                               Accounting Officer and Treasurer of Sovereign, Pierce
                                                 & Stevens, SIA Adhesives, OSI Sealants and Tanner
                                                 Chemicals
Martyn Howell-Jones....................  62    Vice President -- International
Richard W. Johnston....................  53    Vice President -- Technology of Sovereign and
                                               Executive Vice President of Pierce & Stevens
Paul Gavlinski.........................  53    Vice President -- Manufacturing and Engineering of
                                                 Sovereign, Pierce & Stevens, SIA Adhesives, OSI
                                                 Sealants and Tanner Chemicals
Karen K. Seeberg.......................  47    Vice President -- Human Resources of Sovereign,
                                               Pierce & Stevens, SIA Adhesives, OSI Sealants and
                                                 Tanner Chemicals
Frederick A. Quinn.....................  54    President of Pierce & Stevens
Gerard A. Loftus.......................  45    President of SIA Adhesives and Tanner Chemicals
Peter Longo............................  40    President of OSI Sealants
Louis M. Pace..........................  28    Vice President -- Mergers & Acquisitions, Assistant
                                                 Secretary and Assistant Treasurer
Patrick W. Stanton.....................  32    Principal Accounting Officer
John L. Garcia.........................  43    Director
Karl D. Loos...........................  49    Director
John D. Macomber.......................  72    Director
Robert H. Malott.......................  73    Director
Thomas P. Salice.......................  40    Director
Norman E. Wells, Jr. ..................  51    Director
</TABLE>

     Robert B. Covalt has served as our Chairman, President and Chief Executive
Officer and as a director of our company since its inception in 1996. Mr. Covalt
is Chairman and a director of each of our domestic subsidiaries. From 1979 to
1990, Mr. Covalt served as President of the Specialty Chemicals Group of

                                       33
<PAGE>   39

Morton International, Inc. During this period, Mr. Covalt grew Morton's
specialty chemicals group from $175.0 million to $1.3 billion in sales and he
completed 13 acquisitions ranging in size from $3.0 million to $170.0 million.
From 1990 to 1993, Mr. Covalt was Morton's Corporate Executive Vice President.
Prior to that time, Mr. Covalt served in various capacities in Morton's Chemical
Division which he joined in 1956. Mr. Covalt serves on the board of directors of
CFC International, Inc., a specialty chemical coating manufacturer. Mr. Covalt
has a B.S. in Chemical Engineering, an honorary doctorate from Purdue
University, and an M.B.A. from the University of Chicago.

     John R. Mellett has served as Vice President since March 1, 1999. Prior to
joining our company, Mr. Mellett was Senior Vice President & Chief Financial
Officer of USI Bath and Plumbing Products and its Zurn Industries, Inc.
operations, a diversified supplier of bath, plumbing and HVAC products and
services from 1995 to 1999. From 1992 to 1995, Mr. Mellett served as Senior Vice
President & Chief Financial Officer of LeFebure Corporation, a supplier of
equipment and services to financial institutions. Mr. Mellett is a Certified
Public Accountant and holds a B.S. in Accounting from Miami University.

     Martyn Howell-Jones has served as our Vice President -- International since
October 1996 pursuant to a consulting arrangement. Mr. Howell-Jones is
responsible for our international sales and marketing efforts. Prior to joining
our company, Mr. Howell-Jones was engaged as a consultant to National Starch and
Chemical Company from June 1994 to September 1996, where he assisted in the
development of National Starch and Chemical Company's international adhesives
business. From 1966 to 1992, Mr. Howell-Jones was employed by Morton
International, Inc. in its European specialty chemicals business. Mr.
Howell-Jones holds a B.S. degree from London University.

     Richard W. Johnston has served as our Vice President -- Technology since
March 1997 and as Executive Vice President of Pierce & Stevens since 1995. From
1992 to 1995, Mr. Johnston served as Vice President -- Technology of Pierce &
Stevens. Prior to that time, Mr. Johnston served as Vice President of Pierce &
Stevens' Canadian operations from 1988 to 1992. Mr. Johnston joined Pierce &
Stevens in 1966 and has served in several technical capacities with expertise in
coatings and adhesives technology. Mr. Johnston holds a B.S., M.S. and M.E.S. in
Chemistry from the University of Waterloo, Canada.

     Paul Gavlinski has served as our Vice President -- Manufacturing and
Engineering since February 1998 and Vice President -- Operations of Pierce &
Stevens since September 1996. From 1995 to July 1996, Mr. Gavlinski served as
President of Catalyst Development, a management consulting firm. Prior to that
time, Mr. Gavlinski was Vice President--Manufacturing of Emulsion Systems Inc.,
a polymer manufacturing company. From 1969 to 1992, Mr. Gavlinski was employed
by Morton International, Inc. in various chemical manufacturing capacities. Mr.
Gavlinski holds a B.S. in Chemical Engineering from the University of Illinois.

     Karen K. Seeberg has been our Vice President -- Human Resources since
February 1998. From January 1997 to February 1998, Ms. Seeberg was Director of
Human Resources for Pierce & Stevens. From September 1992 to January 1997, Ms.
Seeberg was Human Resources Manager for the Information System Division of Avery
Dennison. From August 1982 to August 1992, Ms. Seeberg held human resource
management positions with Federated Department Stores, Iroquois Industries, Inc.
and British Petroleum. Ms. Seeberg holds a B.A. degree from State University of
New York.

     Frederick A. Quinn has been President of Pierce & Stevens since March 1999.
Mr. Quinn has been responsible for the identification and development of new
strategic business opportunities within our company's business units. From
September 1992 until June 1999, Mr. Quinn served first as Executive Vice
President and from 1993 as President, Chief Operating Officer of K.J. Quinn &
Co., Inc. From July 1988 until September 1992, Mr. Quinn was the North American
Business Manager for the Thermoplastic Polyurethane Division of Morton
International, Inc. From 1973 to July 1988, Mr. Quinn held various sales and
marketing positions within K.J. Quinn & Co., Inc. Mr. Quinn holds a B.S. degree
in International Relations and an M.B.A. from the University of Southern
California.

                                       34
<PAGE>   40

     Gerard A. Loftus has served as President of Tanner Chemicals since February
1998 and President of SIA Adhesives since April 1996. From January 1995 to March
1996, Mr. Loftus served as General Manager of the Adhesive Systems Division of
The B.F. Goodrich Company, the predecessor of SIA Adhesives. In 1994, Mr. Loftus
served as the division business manager of the Adhesives Systems Division with
responsibility for all sales, marketing and technical activities. From 1990 to
1994, Mr. Loftus was business manager of the aerospace products group of the
Adhesives Systems Division. Upon joining the Adhesives Systems Division in 1986,
Mr. Loftus served in a variety of capacities, including materials manager and
controller. Mr. Loftus, who is a Certified Public Accountant., and holds a
B.B.A. in Accounting from Ohio University and a Masters of Accountancy from
Cleveland State University.

     Peter Longo has been President of OSI Sealants since 1991. From 1989 to
1991, Mr. Longo was Vice President of Operations of OSI Sealants. Mr. Longo has
been employed by OSI Sealants for more than 20 years and has served in a variety
of capacities, including sales and marketing. Mr. Longo attended Lakeland
Community College.

     Louis M. Pace has been our Vice President -- Mergers & Acquisitions since
March 1999 and has served as our Director of Mergers & Acquisitions since
January 1998. From August 1996 to December 1997, he served as our Director of
Corporate Development and Assistant Secretary. From 1995 to August 1996, Mr.
Pace was an associate with First Chicago Equity Capital. Prior to that time, Mr.
Pace was a member of First Chicago Corporation's First Scholar management
training program where he was engaged in various financial capacities, including
emerging markets, interest rate derivatives and analysis of equity capital
investments. Mr. Pace holds a B.A. in Economics from Harvard University and an
M.B.A. from J.L. Kellogg Graduate School of Management at Northwestern
University.

     Patrick W. Stanton has served as our Principal Accounting Officer since
September, 1998. From April 1998 to August 1998, he served as our Manager of
Financial Planning and Control. From 1990 to March 1998, Mr. Stanton was with
Arthur Andersen LLP. Mr. Stanton is a Certified Public Accountant and holds a
B.S. in Accounting from Marquette University.

     John L. Garcia has been a Director since December 1999. For administrative
purposes, Mr. Garcia has also served as Vice President, Assistant Treasurer, and
Assistant Secretary since December 1999. Mr. Garcia is currently a Managing
Director of AEA Investors Inc. From 1994 to 1999, Mr. Garcia was associated with
Credit Suisse First Boston, where he served as Global Head of the Chemicals
Group, a member of the European Investment Banking Department Management
Committee and Head of the European Acquisition and Leveraged Finance and
Financial Sponsors Group. Mr. Garcia is a Director of Acetex Corporation and
Sterling Chemicals, Inc.

     Karl D. Loos has been a director since February 2000. Mr. Loos also served
as a director from August 1996 until December 1999. Mr. Loos founded Garnett
Consulting in 1996. From 1977 to 1996, Mr. Loos was employed at Arthur D. Little
& Co in Boston, Massachusetts, most recently as Vice President and Managing
Director of Process Industries Consulting and Director of the Strategic Planning
practice. Mr. Loos received his undergraduate degree from Dartmouth College and
an M.B.A. from Harvard Business School.

     John D. Macomber has been a Director since December 1999. Mr. Macomber has
been a principal of JDM Investment Group since 1992 and is a Director of IRI
International, Lehman Brothers Holdings Inc., Mettler-Toledo International Inc.,
Rand McNally & Company and Textron Inc. Mr. Macomber is the former Chairman and
President of the Export-Import Bank of the United States, Chairman and Chief
Executive Officer of Celanese Corporation and Senior Partner of McKinsey & Co.

     Robert H. Malott has been a director since December 1999. Prior to his
retirement in 1997, Mr. Malott was Chairman of the Executive Committee of FMC
Corporation from November 1991 through May 1997. Mr. Malott served as Chairman
of the Board and Chief Executive Officer of FMC Corporation from 1973 to 1991.
Mr. Malott is a former Director of FMC Corporation, Amoco Corporation and United
Technologies Corporation.

                                       35
<PAGE>   41

     Thomas P. Salice has been a Director since December 1999. For
administrative purposes, Mr. Salice has also served as Vice President, Assistant
Treasurer, and Assistant Secretary since December 1999. He is President, Chief
Executive Officer and a Director of AEA Investors Inc. and has been associated
with AEA Investors Inc. since June 1989. Mr. Salice is also a Director of Waters
Corporation and Mettler-Toledo International Inc.

     Norman E. Wells, Jr., has been a Director since December 1999. Prior to his
retirement in 1999, Mr. Wells served as President and Chief Executive Officer of
Easco Aluminum Inc. from November 1996 to December 1999. Mr. Wells was a
Director of CasTech Aluminum Group Inc. from June 1992 to September 1996 and
served as CasTech's President and Chief Executive Officer from March 1993 to
September 1996.

BOARD COMMITTEE MEMBERSHIP

     Our board of directors has two standing committees: a compensation
committee and an audit committee. The compensation committee of our board of
directors is comprised of Messrs. Macomber, Salice and Wells. The audit
committee is comprised of Messrs. Malott, Garcia and Wells.

DIRECTOR COMPENSATION

     Members of our board of directors are reimbursed for traveling costs and
other out-of-pocket expenses incurred in attending board of directors and
committee meetings. Members of the board of directors who are also our officers
or employees of AEA Investors Inc. do not receive additional compensation for
being on the board of directors or its committees. Mr. Loos will receive a fee
of $2,500 per meeting. Messrs. Macomber, Malott and Wells were given a one-time
opportunity to purchase units in a partnership which owns all of the equity in
SSCI Investors LLC upon their election to the board of directors but receive no
compensation for their services as directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     The following former directors served on the compensation committee of our
board of directors prior to SSCI Investors LLC's purchase of approximately 75%
of our capital stock: Charles A. Aldag, Karl D. Loos, Reeve B. Waud and Carol E.
Bramson. All of these persons resigned from the board of directors in December
1999. In connection with SSCI Investors LLC's purchase of our stock, our board
of directors was initially reconstituted to be comprised of Robert B. Covalt,
John L. Garcia and Thomas P. Salice. These directors approved various actions
with respect to the current compensation arrangements of our executive officers.
Mr. Covalt is one of our officers. Messrs. Garcia and Salice are officers of
Sovereign for administrative purposes only and are officers of AEA Investors
Inc. Approximately 75% of our capital stock is owned by SSCI Investors LLC,
which is owned by an investor group led by AEA Investors Inc. For a more
detailed discussion of relationships between AEA Investors Inc. and Sovereign
see "Certain Relationships and Related Transactions." As of February 2000, the
compensation committee of our board of directors is comprised of John D.
Macomber, Thomas P. Salice and Norman E. Wells.

                                       36
<PAGE>   42

EXECUTIVE COMPENSATION

     The table below summarizes compensation information for our Chief Executive
Officer and each of the four other most highly compensated executive officers of
our company and/or our domestic subsidiaries for services rendered during the
years ended December 31, 1999, 1998 and 1997.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                          ANNUAL COMPENSATION
                                     -----------------------------        OTHER        SECURITIES    ALL OTHER
                                     FISCAL                              ANNUAL        UNDERLYING     COMPEN-
                                      YEAR    SALARY($)   BONUS($)   COMPENSATION(1)   OPTIONS(#)   SATION($)(2)
                                     ------   ---------   --------   ---------------   ----------   ------------
<S>                                  <C>      <C>         <C>        <C>               <C>          <C>
Robert B. Covalt...................   1999    $291,644    $215,880            --         48,000     $16,756,469
  Chairman, President                 1998     259,500     154,470            --             --         335,022
  and Chief Executive Officer of      1997     250,000     140,158            --             --          17,512
  Sovereign, and Chairman of OSI
  Sealants, Pierce & Stevens, SIA
  Adhesives and Tanner Chemicals
John R. Mellett(3).................   1999    $166,677    $ 59,997       $30,000(4)      15,000     $ 2,250,862
  Vice President and Chief
    Financial                         1998          --          --            --             --              --
  Officer of Sovereign,               1997          --          --            --             --              --
  OSI Sealants, Pierce &
  Stevens, SIA Adhesives and
  Tanner Chemicals
Peter Longo(5).....................   1999    $193,428    $ 69,080            --          9,200     $   359,599
  President of OSI Sealants           1998     185,658      68,028            --             --           3,333
                                      1997      77,358      64,980            --             --           2,577
Frederick A. Quinn(6)..............   1999    $148,936    $ 56,908            --          9,500     $   443,958
  President of Pierce & Stevens       1998      67,209      12,918            --             --     $     5,342
                                      1997          --          --            --             --              --
Gerard A. Loftus...................   1999    $147,843    $ 56,175            --             --           3,763
  President of SIA Adhesives
  and Tanner Chemicals
</TABLE>

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

(1) Except as set forth below, the aggregate amount of perquisites and other
    personal benefits for any of the executives named in the above table was
    less than the lesser of $50,000 or 10% of the total annual salary and bonus
    reported for the named executive officer.

(2) For fiscal year 1999, represents matching and profit sharing contributions
    under our 401(k) plans in the amount of $3,200, $7,486, $8,200, $6,970 and
    $6,338 for Messrs. Covalt, Mellett, Longo, Quinn and Loftus, respectively,
    and payments made by our former parent partnership, Sovereign Specialty
    Chemicals, L.P., under its 1997 Stock Incentive Pool upon the sale of
    approximately 75% of Sovereign's equity to SSCI Investors LLC in the amount
    of $16,753,269, $2,243,376, $351,399, $436,988 and $258,390 to Messrs.
    Covalt, Mellett, Longo, Quinn and Loftus, respectively.

(3) Mr. Mellett became an employee of Sovereign in March 1999.

(4) Reflects payments made to Mr. Mellett in fiscal 1999 for temporary living
    accommodations and travel expenses.

(5) Mr. Longo became an employee of Sovereign in August 1997 upon Sovereign's
    acquisition of OSI Sealants.

(6) Mr. Quinn became an employee of Sovereign in June 1998 upon Sovereign's
    acquisition of Pierce & Stevens.

                                       37
<PAGE>   43

STOCK OPTIONS

     The table below sets forth information with respect to grants of options to
purchase shares of our common stock during the year ended December 31, 1999 to
the executives listed in the Summary Compensation Table.

                       OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                            INDIVIDUAL GRANTS                    POTENTIAL REALIZABLE VALUE
                            --------------------------------------------------     AT ASSUMED ANNUAL RATES
                            NUMBER OF     % OF TOTAL                                   OF STOCK PRICE
                            SECURITIES     OPTIONS                                      APPRECIATION
                            UNDERLYING    GRANTED TO    EXERCISE                     FOR OPTION TERM(1)
                             OPTIONS     EMPLOYEES IN     PRICE     EXPIRATION   ---------------------------
NAME                        GRANTED(#)   FISCAL YEAR    ($/SHARE)      DATE         5%($)          10%($)
- ----                        ----------   ------------   ---------   ----------   ------------   ------------
<S>                         <C>          <C>            <C>         <C>          <C>            <C>
Robert B. Covalt..........   48,000(2)      31.20%       129.50      12/29/09     1,608,000      6,216,000
John R. Mellett...........   15,000(3)       9.75%       129.50      12/29/09       502,500      1,942,500
Peter Longo...............    9,200(3)       5.98%       129.50      12/29/09       308,200      1,191,400
Frederick A. Quinn........    9,500(3)       6.18%       129.50      12/29/09       318,250      1,230,250
Gerard A. Loftus..........    9,500(3)       6.18%       129.50      12/29/09       318,250      1,230,250
</TABLE>

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

(1) Values are based on assumed rates of annual compounded appreciation of 5%
    and 10% from the date the option was granted over the full option term.
    These assumed rates of appreciation are established by the Securities and
    Exchange Commission and do not represent our estimate or projection of
    future stock price.

(2) Mr. Covalt's options become exercisable with respect to 1/16th of the shares
    covered by these options on each March 31, June 30, September 30 and
    December 31, beginning March 31, 2000 and ending December 31, 2003. The
    options will become immediately exercisable in full in the event of a change
    in control of our company.

(3) The options become exercisable with respect to the shares covered by these
    options on December 30th in each of 2000, 2001, 2002, 2003 and 2004. The
    options will become immediately exercisable in full in the event of a change
    in control of our company.

     The following table sets forth information concerning the value of
unexercised in-the-money options held for each of the executives listed in the
Summary Compensation Table as of December 31, 1999.

                   AGGREGATE OPTION EXERCISES IN FISCAL 1999
                       AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
                                                          NUMBER OF SECURITIES
                                                         UNDERLYING UNEXERCISED         VALUE OF UNEXERCISED
                              SHARES                        OPTIONS AT FISCAL         IN-THE-MONEY OPTIONS AT
                            ACQUIRED ON      VALUE             YEAR-END(#)               FISCAL YEAR-END($)
NAME                        EXERCISE(#)   REALIZED($)   EXERCISABLE/UNEXERCISABLE   EXERCISABLE/UNEXERCISABLE(1)
- ----                        -----------   -----------   -------------------------   ----------------------------
<S>                         <C>           <C>           <C>                         <C>
Robert B. Covalt.........        0             0                0/48,000                         0/0
John R. Mellett..........        0             0                0/15,000                         0/0
Peter Longo..............        0             0                0/ 9,200                         0/0
Frederick A. Quinn.......        0             0                0/ 9,500                         0/0
Gerard A. Loftus.........        0             0                0/ 9,500                         0/0
</TABLE>

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

(1) There was no public trading market for our common stock at December 31,
    1999. Accordingly, these values of exercisable and unexercisable
    in-the-money options are based on the fair market value of our common stock
    at December 31, 1999, $100 per share, as determined by our board of
    directors, and the applicable exercise price per share.

                                       38
<PAGE>   44

MANAGEMENT INCENTIVE COMPENSATION PLAN AND EMPLOYMENT AGREEMENTS

     We believe that equity and performance-based plans and programs should
constitute a major portion of management's compensation so as to provide
significant incentives to achieve corporate goals. We have instituted the
following plans and programs for this purpose.

  Management Incentive Compensation Plan

     We adopted our management incentive compensation plan effective January 1,
2000. Selected members of our management and corporate staff judged to have the
greatest impact on our economic results are eligible to participate in this
plan. Participants are eligible for cash bonus awards based on our financial
performance, measured in terms of revenues and EBITDA, and on individual
role-specific goals. Participants in this program are assigned a percentage of
their base salary as their bonus target for the then current fiscal year. Awards
may be higher or lower than the target bonus as our financial performance and/or
the individual's performance is above or below the level expected to achieve the
target bonus. Target bonuses range from 25% to 75% of base salary dependent upon
position. However, no participant may earn a bonus for a specific year unless at
least 90% of both the target EBITDA and revenue thresholds for that year have
been attained. In addition, our chief executive officer may award participants
bonuses supplemental to those earned under the plan for producing extraordinary
results. The management incentive compensation plan is administered by our chief
executive officer and vice president-human resources, under the general
direction of the compensation committee of our board of directors.

  Employment Agreements

     We have entered into employment agreements with Messrs. Covalt, Mellett,
Longo, Quinn and Loftus, effective December 29, 1999, providing for their
employment in their current capacities. Pursuant to the agreements, Messrs.
Covalt, Mellett, Longo, Quinn and Loftus are entitled to annual base salaries of
$300,000, $200,000, $196,000, $155,000 and $150,000, respectively, and are
eligible to receive an annual performance-based bonus of up to 75% in the case
of Mr. Covalt, and 40% for the four other named executives, of the applicable
executive's base salary determined in accordance with the terms of the bonus
plan adopted by our board of directors for the calendar year. Additionally, each
executive is eligible for a discretionary bonus as determined by the board of
directors. Under their respective employment agreements, the executives received
non-qualified stock options as described in the Option Grants in Last Fiscal
Year Table above, and are entitled to participate in all health, welfare and
other benefit plans we provide to our executives.

     The employment agreements for Messrs. Covalt and Mellett each provide for a
term expiring on December 31, 2003 and for Messrs. Longo, Quinn and Loftus each
provide for a term expiring December 31, 2002, in each case subject to automatic
one-year renewal terms. If we terminate an executive's employment without cause
(as defined in the employment agreements), or an executive resigns with good
grounds (as defined in the employment agreements), we are required to

          (1) pay the executive any unpaid portion of his base salary earned
     through the date of termination or resignation,

          (2) continue to pay the executive his then current annual base salary
     during the one-year period following termination or resignation,

          (3) continue the executive's participation in employee benefit plans
     during the one-year period following termination or resignation, and

          (4) pay the executive a pro rata portion of his potential target
     annual bonus for the calendar year of termination if the executive resigns
     for good grounds. However, if we terminate the executive's employment
     without cause, the pro rata potential target annual bonus will be paid,

        - in the case of Mr. Covalt, at the discretion of the compensation
          committee of the board of directors, or

        - in the case of all other executives, at the discretion of the chief
          executive officer.
                                       39
<PAGE>   45

     All severance benefits and payments are conditioned on the executive's
execution of a general release and his compliance with certain non-competition,
non-solicitation and non-disclosure covenants.

  1999 Stock Option Plan

     In 1999, we adopted the Sovereign Specialty Chemicals, Inc. Stock Option
Plan to provide for the grant of nonqualified stock options to our, and our
affiliates', key employees and directors. The maximum number of shares of common
stock underlying the options available for award under the stock option plan is
240,713 shares. Of these shares, 48,000, 15,000, 9,200, 9,500 and 9,500 were
granted to Messrs. Covalt, Mellett, Longo, Quinn and Loftus, respectively. If
any options terminate, or expire unexercised, the shares subject to such
unexercised options are again available for grant under the stock option plan.

     The stock option plan will be administered by the compensation committee of
the board of directors. Generally, the committee interprets and implements the
stock option plan, grants options, exercises all powers, authority, and
discretion of the board under the stock option plan, and determines the terms
and conditions of option agreements, including the vesting provisions, exercise
price, and termination date of options.

     Each option is evidenced by an agreement between us and an optionee. Unless
determined otherwise by the committee, 20% of the shares subject to the option
vest on each of the first five anniversaries of the grant date. Additionally,
the committee may accelerate the vesting of any option grant. The option price
is specified in each option agreement at an amount not less than the fair market
value on the grant date, unless determined otherwise by the committee. All
optionees are required to become parties to the management shareholders
agreement, which are described under "Certain Relationships and Related
Transactions," upon the grant of all options.

     In the event of a transaction that constitutes a change in control of
Sovereign, as described in the stock option plan, unless determined otherwise by
the compensation committee, all options become fully exercisable immediately
prior to the date of the transaction, and we may cancel any options unexercised
as of the change in control upon our payment to the holders of options the
difference between the fair market value of the underlying stock and the option
exercise price. In the event of specified transactions that result in holders of
common stock receiving payments or securities in respect of, or in exchange for,
their common stock that do not result in a change in control of our company, as
described in the stock option plan, unless determined otherwise by the
compensation committee, options remain subject to the terms of the stock option
plan and the applicable option agreement, and thereafter upon exercise,
optionees will be entitled to receive in respect of any option the same per
share consideration received by holders of common stock at the time of the
transaction. Options will in no event entitle the holder of the option to
ordinary cash dividends payable upon the common stock issuable upon exercise of
the options.

     In order to prevent dilution or enlargement of the rights of participants,
the stock option plan provides that the aggregate number of shares subject to
the stock option plan, any option, the purchase price to be paid upon exercise
of an option and the amount to be received in connection with the exercise of
any option will be automatically adjusted to reflect any stock splits, reverse
stock splits or dividends paid in the form of common stock, and equitably
adjusted as determined by the committee for any other increase or decrease in
the number of issued shares of common stock resulting from the subdivision or
combination of shares or other capital adjustments.

     Our board of directors may amend, alter, or terminate the stock option
plan. Any board action may not adversely alter outstanding options without the
consent of the optionee. The stock option plan will terminate ten years from its
effective date, but all outstanding options will remain effective until
satisfied or terminated under the terms of the stock option plan.

                                       40
<PAGE>   46

  Employee Stock Purchase Plan

     On January 26, 2000, we adopted the Sovereign Specialty Chemicals, Inc.
Employee Stock Purchase Plan. Under the stock purchase plan eligible employees
purchased 7,045 shares of our voting common stock at $100.00 per share.

     The compensation committee will administer the stock purchase plan.
Generally, the compensation committee will determine which employees are
eligible to participate in the stock purchase plan, interpret the plan,
determine the number of shares and purchase price for common stock sold under
the plan and make all other determinations under the plan.

     If the number of outstanding shares of common stock has increased,
decreased, changed into, or been exchanged for a different number or kind of
shares or securities of our company through any reorganization, merger,
recapitalization, reclassification, stock split, stock consolidation or similar
transaction, appropriate and proportionate adjustments will be made in the
number and/or kind of shares which are subject to stock purchase rights awarded
under the stock purchase plan and in the purchase price applicable to such
outstanding rights and in the number and kind of shares which may be sold under
the stock purchase plan.

     We may, at any time, suspend, amend or terminate the stock purchase plan.
No amendment or termination may, however, amend, alter or impair the rights of
any participant with respect to shares of common stock previously purchased
under the stock purchase plan. Unless terminated earlier, the stock purchase
plan will terminate on April 30, 2000.

     Common stock acquired under the stock purchase plan will be purchased
pursuant to subscription agreements which define the rights and limitations of
holders of the shares. A management subscription agreement will be used for
grants to employees who have entered into the management shareholders agreement,
which are described in "Certain Relationships and Related Transactions," and are
governed by the terms of the management shareholders agreement. An employee
subscription agreement will be used for grants to other employees. A summary of
the employee subscription agreement is provided below.

     The employee subscription agreement provides for (1) restrictions on
transfer, (2) the right of SSCI Investors LLC, in a sale of 50% or more of its
ownership interest in the company to compel holders of shares of common stock
acquired under the stock purchase plan to sell a proportionate number of shares
and (3) rights for holders of shares of common stock acquired under the stock
purchase plan to participate in certain sales by SSCI Investors LLC.

     The agreement provides further that, if we terminate for cause the
employment of a holder of shares purchased under the stock purchase plan, then
we will have the opportunity to purchase all of the holder's shares of common
stock purchased under the stock purchase plan at the lower of (1) the price paid
for the shares and (2) the then current fair market value of the shares. If the
holder's employment is terminated other than by us for cause, then we will have
the opportunity to purchase all of his or her shares at 100% of their then
current fair market value.

         SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table presents information regarding the beneficial ownership
of our voting common stock by each person known by us to beneficially own more
than five percent of our voting common stock and by our directors, certain
executive officers and key managers, individually, and as a group.

     As used in this table, beneficial ownership means the sole or shared power
to vote or direct the voting or to dispose or direct the disposition of any
security. A person is deemed to be the beneficial owner of securities that can
be acquired within 60 days from the date of this prospectus through the exercise
of any option, warrant or right. Shares of common stock subject to options,
warrants or rights that are currently exercisable or exercisable within 60 days
are deemed outstanding for the computation of the ownership percentage of the
person holding such options, warrants or rights, but are not deemed outstanding
for the computation of the ownership percentage of any other person. Our
non-voting common stock is convertible
                                       41
<PAGE>   47

into voting common stock, unless the holder or its affiliate is prohibited by
law or regulation from holding our voting common stock. As a result, certain
holders of our non-voting common stock are deemed to hold the voting common
stock into which their non-voting common stock may be converted.

     In the table below, unless otherwise noted, the address of the person is
care of our company.

<TABLE>
<CAPTION>
                                                                                 PERCENTAGE
                                                              NUMBER OF SHARES   OF SHARES
                                                              ----------------   ----------
<S>                                                           <C>                <C>
FIVE PERCENT SECURITY HOLDERS
SSCI Investors LLC(1).......................................    1,624,815.75        81.9%
Robert B. Covalt(2).........................................      133,837.25         9.3%
OFFICERS AND DIRECTORS
Robert B. Covalt(2).........................................      133,837.25         9.3%
John R. Mellett.............................................       13,322.04           *
Martyn Howell-Jones.........................................        8,495.02           *
Richard W. Johnston.........................................        5,200.23           *
Paul Gavlinski..............................................        4,126.46           *
Karen K. Seeberg............................................        2,347.57           *
Frederick A. Quinn..........................................        5,000.00           *
Gerard A. Loftus............................................        5,136.23           *
Peter Longo.................................................       10,651.63           *
Louis M. Pace...............................................        2,169.65           *
Patrick W. Stanton..........................................          349.61           *
John L. Garcia(3)...........................................              --           *
Karl D. Loos................................................        1,801.16           *
John D. Macomber............................................              --           *
Robert H. Malott............................................              --           *
Thomas P. Salice(3).........................................              --           *
Norman E. Wells, Jr. .......................................              --           *
All executive officers, key managers and directors as a
  group (18 persons)........................................      192,436.85        13.4%
</TABLE>

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

 *  Represents beneficial ownership of less than one percent.

(1) Includes 547,636.50 shares of non-voting common stock. The address for SSCI
    Investors LLC is c/o AEA Investors Inc., Park Avenue Tower, 65 East 55th
    Street, New York, New York 10022. The general partner of a partnership that
    wholly owns SSCI Investors LLC is a wholly owned subsidiary of AEA Investors
    Inc. AEA Investors Inc. disclaims beneficial ownership of the shares owned
    by SSCI Investors LLC, except to the extent of its pecuniary interest
    therein.

(2) Includes 47,544.61, 642.76, and 642.76 shares of common stock held by
    Tregooden Partners, L.P., Nautical Partners, L.P. and Serendipity Partners,
    L.P., respectively, which may be deemed to be beneficially owned by Mr.
    Covalt. Includes 3,000 shares of common stock issuable upon exercise of
    options granted to Mr. Covalt that are exercisable as of March 31, 2000.

(3) Does not include shares beneficially owned by SSCI Investors LLC. Messrs.
    Garcia and Salice are each limited partners in SSCI Investors L.P., the
    partnership which owns SSCI Investors LLC and are officers and directors of
    AEA SSC Investors Inc., the general partner of SSCI Investors LP. Mr. Salice
    is also president, chief executive officer and a director of AEA Investors
    Inc. Mr. Garcia is also a managing director of AEA Investors Inc.

                                       42
<PAGE>   48

                 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     In 1998, Sovereign Specialty Chemicals, L.P., our former parent, accrued
approximately $2.8 million notes receivable from management. The notes
receivable represented a portion of management's purchase price of its equity in
our former parent. These loans were repaid in 1999.

     On December 28, 1999, we redeemed shares of outstanding common stock held
by our former parent for an aggregate price of approximately $3.3 million.

     In connection with the acquisition of approximately 75% of our common stock
by SSCI Investors LLC, we entered into an arrangement with our former parent
pursuant to which it agreed to indemnify us for any liability in excess of $2.5
million in the aggregate that is determined to be payable under an outstanding
note we issued in connection with an acquisition. Our obligations under this
note have been settled, subject to execution of definitive settlement
documentation, for an amount less than this indemnification threshold. In
addition, our former parent has agreed to provide indemnification to us in
respect of various tax matters pursuant to an agreement with SSCI Investors LLC.

     In connection with the acquisition of approximately 75% of our common stock
by SSCI Investors LLC, our former parent repaid to us approximately $970,000 in
intercompany receivables.

     Affiliates of J.P. Morgan Securities Inc. currently own 63,330.71 shares of
our voting common stock and 182,545.5 shares of our non-voting common stock.
J.P. Morgan Securities Inc. acted as our financial advisor in connection with
SSCI Investors LLC's acquisition of our capital stock. J.P. Morgan Securities
Inc. is also the joint lead arranger, a joint book-running manager and
documentation agent for our credit facility.

     See also "Management -- Management Incentive Compensation Plan and
Employment Agreements" for a description of the arrangements between us and our
stockholders who are employees.

     In connection with SSCI Investors LLC's acquisition of approximately 75% of
our common stock, we, SSCI Investors LLC and several members of our management
entered into a shareholders agreement under which SSCI Investors LLC has agreed
that, prior to the completion of an underwritten public offering of our common
stock, SSCI Investors LLC will vote all shares of common stock owned or
controlled by it, and will take all necessary or desirable actions within its
control to (1) elect Robert B. Covalt, a director of our company and to cause
Mr. Covalt to hold the position of Chairman of the Board and Chief Executive
Officer of our company and Chairman of the Board of each domestic subsidiary for
so long as the Covalt Family Group, as defined in the shareholders agreement,
owns at least 5% of the outstanding shares of our common stock and (2) cause at
least two members of the board of directors to be members of the investor group
led by AEA Investors Inc. who are not also officers or employees of AEA
Investors Inc. The obligation to elect Mr. Covalt to be a director and have the
titles described above will terminate in specified instances when Mr. Covalt is
no longer employed by our company. The management shareholders agreement also
(1) imposes certain transfer restrictions on the management parties, (2)
subjects employee parties to the right of SSCI Investors LLC, in a sale of 50%
or more of its ownership interest in our company, to compel other shareholders
to sell a proportionate number of shares, (3) provides rights to management to
participate in sales by SSCI Investors LLC, (4) provides for a call option on
employees' option and subsequently acquired shares in specified termination
events, (5) provides that employee parties may request that the Company purchase
some of their stock in specified events, and (6) provides employee parties with
piggyback registration rights under specified circumstances.

     We have also entered into a shareholders agreement with SSCI Investors LLC
and our remaining (non-employee) shareholders. This shareholders agreement
provides for (1) board observer rights for 10% shareholders, (2) restrictions on
transfer, (3) the right of SSCI Investors LLC, in a sale of 50% or more of its
ownership interest in our company to compel other shareholders to sell a
proportionate number of shares, (4) rights for other shareholders to participate
in sales by SSCI Investors LLC, (5) preemptive rights to 5% shareholders to
purchase new issuances, (6) information rights, and (7) piggyback registration
rights.

                                       43
<PAGE>   49

     We entered into a management agreement with AEA Investors Inc. pursuant to
which AEA Investors Inc. will provide us with advisory and consulting services.
The management agreement provides for an annual aggregate fee of $999,999 plus
reasonable out-of-pocket costs and expenses.

     In connection with our employee stock purchase plan, we repurchased 7,045
shares of voting common stock from AEA Investors Inc. at $100.00 per share. All
shares repurchased were sold to our employees pursuant to the stock purchase
plan at the same price per share.

                       DESCRIPTION OF OUR CREDIT FACILITY

NEW CREDIT FACILITY

     The following is a summary of the material terms of our new credit facility
entered into as of December 29, 1999, and as amended and restated on April 6,
2000, with the lenders party thereto, Merrill Lynch, Pierce, Fenner & Smith
Incorporated and J.P. Morgan Securities Inc., each as a joint lead arranger and
a joint book-running manager, and The Chase Manhattan Bank, as administrative
agent. The following summary is qualified in its entirety by reference to our
credit facility. A copy of the credit agreement has been filed as an exhibit to
the registration statement of which this prospectus is a part.

  Structure

     Prior to the completion of the offering of our outstanding notes, the
credit facility provided for aggregate borrowings of $200.0 million, and
consisted of (1) a Revolving Credit Facility of $50.0 million, (2) a Term A Loan
Facility of $75.0 million and (3) a Term B Loan Facility of $75.0 million. Upon
completion of the offering of the outstanding notes, we repaid all amounts
outstanding under the Term B Loan Facility and it was terminated. As a result,
our credit facility currently provides for aggregate borrowings of up to $125.0
million. The Revolving Credit Facility provides for a $20.0 million letter of
credit subfacility and a $20.0 million swing line subfacility, drawings under
which reduce the amount available under the Revolving Credit Facility. A portion
of the swing line subfacility is multicurrency and permits us and our
subsidiaries to borrow U.S. dollars, Canadian dollars, Singapore dollars, Pounds
Sterling or Euros.

  Availability

     Availability under the credit facility is subject to various conditions
precedent typical of syndicated loans. Borrowings under the Revolving Credit
Facility are available on a fully revolving basis and may be used for general
corporate purposes, including to a limited extent acquisitions. The Revolving
Credit Facility will mature on December 30, 2005. Borrowings under the Term A
Loan Facility may be used for general corporate purposes, including
acquisitions, and commitments to lend under this facility terminate on June 30,
2001, to the extent not then drawn. Both we and our foreign subsidiaries may use
availability under the Term A Loan Facility and Revolving Credit Facility.

     As of March 31, 2000, after giving effect to the issuance of the
outstanding notes and the application of the net proceeds to repay all amounts
outstanding under the Term A Loan Facility and Term B Loan Facility and
approximately $6.0 million outstanding under the Revolving Credit Facility, the
Term B Loan Facility was terminated, and we had $75.0 million of borrowing
availability under the Term A Loan Facility and $34.9 million of borrowing
availability under our $50.0 million Revolving Credit Facility.

  Interest

     Borrowings under the credit facility bear interest payable quarterly, at a
rate per annum equal, at our option, to either (1) the higher of (a) the current
base rate as offered by The Chase Manhattan Bank or (b) 1/2 of 1% per annum
above the federal funds rate plus, in either case, an applicable margin or (2) a
eurodollar rate plus an applicable margin. The applicable margin will be based
on our ratios of total debt to EBITDA and senior debt to EBITDA determined as of
June 30, 2000 and periodically thereafter and

                                       44
<PAGE>   50

varies for Revolving Credit Facility borrowings and for loans under the Term A
Loan Facility, from 1.75% to 2.50% for eurodollar rate loans and from 0.75% to
1.5% for base rate loans.

  Maturity and Amortization

     Loans under the Term A Loan Facility and the Revolving Credit Facility
mature on December 30, 2005. Scheduled repayments of amounts outstanding under
the Term A Loan Facility, including portions used for acquisitions by foreign
subsidiaries, begin on September 30, 2001 and through December 31, 2003 amount
to 50% of the amount outstanding under the Term A Loan Facility on June 30,
2001, with the remaining 50% to be paid in equal quarterly payments through
December 30, 2005.

  Commitment Reductions and Repayments

     Subject to some exceptions, we are required to make mandatory prepayments
upon receipt of proceeds of certain insurance awards, assets sales or equity
sale proceeds, debt issuance proceeds, and a specified percentage of annual
excess cash flow. Mandatory prepayments under the Term A Loan Facility will be
applied first to amortization payments scheduled for the 12 month period after
the prepayment event and second to the remaining scheduled amortization
payments. Additionally, we may prepay the loans at any time without premium or
penalty (except for prepayments of eurodollar loans, as to which breakage costs
may be payable).

  Fees

     The credit facility requires us to pay customary commitment, letter of
credit and other fees.

  Security and Guarantees

     Our obligations under the credit facility are

     - secured by a first priority security interest in substantially all of our
       assets, including 100% of the capital stock of our currently owned, or
       later created or acquired, direct and indirect domestic subsidiaries, but
       limited to 66% of the capital stock of our currently owned or later
       created or acquired first tier foreign subsidiaries

     - guaranteed by each of our direct and indirect domestic subsidiaries, and
       each such guarantee will be secured by a first priority security interest
       in substantially all of such guarantor's assets, including 100% of the
       capital stock of its currently owned, or later created or acquired,
       direct and indirect domestic subsidiaries, but limited to 66% of the
       capital stock of its currently owned or later created or acquired first
       tier foreign subsidiaries

     The obligations of our foreign subsidiaries under the credit facility will
be

     - secured, to the extent it would not cause adverse consequences under
       local law or applicable tax rules, by a first priority security interest
       in substantially all of the assets of the subsidiary borrower including
       100% of the capital stock of its currently owned, or later created or
       acquired, direct and indirect subsidiaries

     - guaranteed, to the extent it would not cause adverse consequences under
       local law or applicable tax rules, by each of the foreign borrower's
       direct and indirect subsidiaries, and each guarantee will be secured,
       subject to similar exceptions for adverse consequences, by a first
       priority security interest in substantially all of the assets of each
       guarantor

     - guaranteed by us and each of our direct and indirect domestic
       subsidiaries, and each guarantee will be secured by a first priority
       security interest in substantially all of each guarantor's assets
       including 100% of the capital stock of our currently owned, or later
       created or acquired, direct and indirect domestic subsidiaries, but
       limited to 66% of the capital stock of our currently owned or later
       acquired first tier foreign subsidiaries

                                       45
<PAGE>   51

  Covenants and Conditions

     The credit facility includes covenants that restrict our ability to

     - incur additional indebtedness

     - incur liens on property or assets

     - make acquisitions

     - merge or consolidate with third parties

     - make restricted payments and investments

     - pay dividends and make distributions

     - repurchase or redeem capital stock

     - dispose of assets

     - guarantee obligations

     - enter into sale and leaseback transactions

     - prepay debt

     - amend certain agreements, including the Indenture

     - make capital expenditures

     - organize non-wholly owned subsidiaries

     - engage in certain transactions with subsidiaries and affiliates and
       otherwise restrict corporate activities

     In addition, the credit facility requires us to comply with specified
financial ratios and tests including maintenance of specified total debt to
EBITDA ratios, senior debt to EBITDA ratios, fixed charge coverage ratios and
interest expense coverage ratios.

  Events of Default

     The credit facility includes customary events of default, including

     - non-payment of principal, interest or fees

     - violation of covenants after customary cure periods

     - inaccuracy of representations and warranties

     - cross-default to other material agreements and indebtedness

     - bankruptcy

     - material judgments

     - ERISA matters

     - invalidity of loan documentation or security interest

     - change of control

                                       46
<PAGE>   52

                         DESCRIPTION OF EXCHANGE NOTES

     The exchange notes will be issued under the indenture dated as of March 29,
2000 among Sovereign, the Guarantors and The Bank of New York, as trustee (the
"Trustee"). The terms of the exchange notes include those stated in the
indenture and those made a part of the indenture by reference to the Trust
Indenture Act of 1939.

     The following is a summary of the material provisions of the indenture and
does not purport to be complete. We urge you to read the indenture because it
defines your rights as a Holder of the exchange notes. A copy of the indenture
has been filed as an exhibit to the registration statement of which this
prospectus is a part. See "Where You Can Find More Information." For definitions
of capitalized terms used in the following summary, see "-- Certain
Definitions." For purposes of this section, the term "Company" means Sovereign
Specialty Chemicals, Inc. without any of its Subsidiaries and the term notes
means the outstanding notes and the exchange notes.

GENERAL

     The exchange notes will be issued only in registered form, without coupons,
in denominations of $1,000 and integral multiples of $1,000. The Company has
appointed the Trustee to serve as registrar and paying agent under the indenture
at its offices at 101 Barclay Street, New York, NY 10286. No service charge will
be made for any registration of transfer or exchange of the exchange notes,
except for any tax or other governmental charge that may be imposed in
connection therewith.

RANKING

     The exchange notes will rank junior to, and be subordinated in right of
payment to, all existing and future Senior Indebtedness of the Company, equal in
right of payment with all senior subordinated Indebtedness of the Company and
senior in right of payment to all Subordinated Indebtedness of the Company. At
December 31, 1999, on a pro forma basis after giving effect to the issuance of
the outstanding notes and the application of the net proceeds therefrom and the
repurchase of our 9 1/2% notes due 2007, the Company would have had $16.2
million of Senior Indebtedness and/or Guarantor Senior Indebtedness outstanding.
All debt incurred under the Senior Credit Facility is and will be Senior
Indebtedness of the Company, is and will be guarantied by each of the Guarantors
on a senior basis and is and will be secured by substantially all of the assets
of the Company and the Guarantors.

MATURITY, INTEREST AND PRINCIPAL OF THE NOTES

     The notes will be limited to $200.0 million aggregate principal amount, of
which $150.0 million were issued in the offering of the outstanding notes. Up to
$150.0 million of exchange notes may be issued in the exchange offer. To the
extent exchange notes are issued in the exchange offer, the amount of
outstanding notes will be reduced by a like amount. The notes will mature on
March 15, 2010. Additional amounts may be issued in one or more series from time
to time (the "Additional Notes"), subject to certain limitations described under
"Certain Covenants -- Limitation on Indebtedness." Cash interest on the notes
will accrue at a rate of 11 7/8% per annum and will be payable semi-annually in
arrears on each March 15 and September 15, commencing September 15, 2000, to the
holders of record of notes at the close of business on March 1 and September 1,
respectively, immediately preceding such interest payment date. Cash interest
will accrue from the most recent interest payment date to which interest has
been paid or, if no interest has been paid, from March 29, 2000. Interest will
be computed on the basis of a 360-day year of twelve 30-day months.

OPTIONAL REDEMPTION

     The notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after March 15, 2005, at the redemption prices
(expressed as a percentage of principal amount) set forth below, plus accrued
and unpaid interest thereon, if any, to the redemption date (subject to the
right of

                                       47
<PAGE>   53

holders of record on the relevant record date to receive interest due on the
relevant interest payment date), if redeemed during the twelve-month period
beginning on March 15 of the years indicated below:

<TABLE>
<CAPTION>
                                                               REDEMPTION
YEAR                                                             PRICE
- ----                                                           ----------
<S>                                                            <C>
2005........................................................    105.938%
2006........................................................    103.958%
2007........................................................    101.979%
2008 and thereafter.........................................    100.000%
</TABLE>

     In addition, at any time and from time to time on or prior to March 15,
2003, the Company may redeem in the aggregate up to 35% of the original
aggregate principal amount of the notes issued under the indenture (calculated
after giving effect to the original issuance of Additional Notes, if any) with
the net cash proceeds of one or more Equity Offerings by the Company, at a
redemption price in cash equal to 111.875% of the principal amount thereof, plus
accrued and unpaid interest thereon, if any, to the date of redemption (subject
to the right of Holders of record on the relevant record date to receive
interest due on the relevant interest payment date); provided, however, that at
least 65% original aggregate principal amount of the notes issued under the
indenture (calculated after giving effect to the original issuance of Additional
Notes, if any) must remain outstanding immediately after giving effect to each
such redemption (excluding any notes issued under the indenture and held by the
Company or any of its Affiliates). Notice of any such redemption must be given
within 60 days after the date of the closing of the relevant Equity Offering of
the Company.

SELECTION AND NOTICE OF REDEMPTION

     In the event that less than all of the notes are to be redeemed at any time
pursuant to an optional redemption, selection of such notes for redemption will
be made by the Trustee in compliance with the requirements of the principal
national securities exchange, if any, on which the notes are listed or, if the
notes are not then listed on a national securities exchange, on a pro rata
basis, by lot or by such method as the Trustee shall deem fair and appropriate;
provided, however, that no notes of a principal amount of $1,000 or less shall
be redeemed in part; provided, further, however, that if a partial redemption is
made with the net cash proceeds of an Equity Offering by the Company, selection
of the notes or portions thereof for redemption shall be made by the Trustee
only on a pro rata basis or on as nearly a pro rata basis as is practicable
(subject to the procedures of The Depository Trust Company), unless such method
is otherwise prohibited. Notice of redemption shall be mailed by first-class
mail at least 30 but not more than 60 days before the redemption date to each
Holder of notes to be redeemed at its registered address. If any note is to be
redeemed in part only, the notice of redemption that relates to such note shall
state the portion of the principal amount thereof to be redeemed. A note in a
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original note. On and after
the redemption date, interest will cease to accrue on notes or portions thereof
called for redemption as long as the Company has deposited with the paying agent
for the notes funds in satisfaction of the applicable redemption price pursuant
to the indenture.

SUBORDINATION OF THE NOTES

     The payment of the principal of, premium, if any, and interest on the notes
is subordinated in right of payment, to the extent and in the manner provided in
the indenture, to the prior payment in full in cash of all Senior Indebtedness.

     Upon any payment or distribution of assets or securities of the Company of
any kind or character, whether in cash, property or securities (excluding any
payment or distribution of Permitted Junior Securities and excluding any payment
from the trust described under "Satisfaction and Discharge of Indenture;
Defeasance" (a "Defeasance Trust Payment")), upon any dissolution or winding-up
or total liquidation or reorganization of the Company, whether voluntary or
involuntary or in bankruptcy, insolvency, receivership or other proceedings, all
Senior Indebtedness shall first be paid in full in cash

                                       48
<PAGE>   54

before the Holders of the notes or the Trustee on behalf of such Holders shall
be entitled to receive any payment by the Company of the principal of, premium,
if any, or interest on the notes, or any payment by the Company to acquire any
of the notes for cash, property or securities, or any distribution by the
Company with respect to the notes of any cash, property or securities (excluding
any payment or distribution of Permitted Junior Securities and excluding any
Defeasance Trust Payment). Before any payment may be made by, or on behalf of,
the Company of the principal of, premium, if any, or interest on the notes upon
any such dissolution or winding-up or total liquidation or reorganization, any
payment or distribution of assets or securities of the Company of any kind or
character, whether in cash, property or securities (excluding any payment or
distribution of Permitted Junior Securities and excluding any Defeasance Trust
Payment), to which the Holders of the notes or the Trustee on their behalf would
be entitled, but for the subordination provisions of the indenture, shall be
made by the Company or by any receiver, trustee in bankruptcy, liquidation
trustee, agent or other Person making such payment or distribution, directly to
the holders of the Senior Indebtedness (pro rata to such holders on the basis of
the respective amounts of Senior Indebtedness held by such holders) or their
representatives or to the trustee or trustees or agent or agents under any
agreement or indenture pursuant to which any of such Senior Indebtedness may
have been issued, as their respective interests may appear, to the extent
necessary to pay all such Senior Indebtedness in full in cash after giving
effect to any prior or concurrent payment, distribution or provision therefor to
or for the holders of such Senior Indebtedness.

     No direct or indirect payment (excluding any payment or distribution of
Permitted Junior Securities and excluding any Defeasance Trust Payment) by or on
behalf of the Company of principal of, premium, if any, or interest on the
notes, whether pursuant to the terms of the notes, upon acceleration, pursuant
to an Offer to Purchase or otherwise, will be made if, at the time of such
payment, there exists a default in the payment of all or any portion of the
obligations on any Designated Senior Indebtedness, whether at maturity, on
account of mandatory redemption or prepayment, acceleration or otherwise, and
such default shall not have been cured or waived or the benefits of this
sentence waived by or on behalf of the holders of such Designated Senior
Indebtedness. In addition, during the continuance of any non-payment event of
default with respect to any Designated Senior Indebtedness pursuant to which the
maturity thereof may be immediately accelerated, and upon receipt by the Trustee
of written notice (a "Payment Blockage Notice") from the holder or holders of
such Designated Senior Indebtedness or the trustee or agent acting on behalf of
the holders of such Designated Senior Indebtedness, then, unless and until such
event of default has been cured or waived or has ceased to exist or such
Designated Senior Indebtedness has been discharged or repaid in full in cash or
the benefits of these provisions have been waived by the holders of such
Designated Senior Indebtedness, no direct or indirect payment (excluding any
payment or distribution of Permitted Junior Securities and excluding any
Defeasance Trust Payment) will be made by or on behalf of the Company of
principal of, premium, if any, or interest on the notes, to such Holders, during
a period (a "Payment Blockage Period") commencing on the date of receipt of such
notice by the Trustee and ending 179 days thereafter.

     Notwithstanding anything in the subordination provisions of the indenture
or the notes to the contrary:

          (1) in no event will a Payment Blockage Period extend beyond 179 days
     from the date the Payment Blockage Notice in respect thereof was given;

          (2) there shall be a period of at least 181 consecutive days in each
     360-day period when no Payment Blockage Period is in effect; and

          (3) not more than one Payment Blockage Period may be commenced with
     respect to the notes during any period of 360 consecutive days.

     No event of default that existed or was continuing on the date of
commencement of any Payment Blockage Period with respect to the Designated
Senior Indebtedness initiating such Payment Blockage Period (to the extent the
holder of Designated Senior Indebtedness, or trustee or agent, giving notice
commencing such Payment Blockage Period had knowledge of such existing or
continuing event of default) may be, or be made, the basis for the commencement
of any other Payment Blockage Period by

                                       49
<PAGE>   55

the holder or holders of such Designated Senior Indebtedness or the trustee or
agent acting on behalf of such Designated Senior Indebtedness, whether or not
within a period of 360 consecutive days, unless such event of default has been
cured or waived for a period of not less than 90 consecutive days.

     The failure to make any payment or distribution for or on account of the
notes by reason of the provisions of the indenture described under this
"Subordination of the Notes" heading will not be construed as preventing the
occurrence of any Event of Default in respect of the notes. See "Events of
Default" below.

     By reason of the subordination provisions described above, in the event of
insolvency of the Company, funds which would otherwise be payable to Holders of
the notes will be paid to the holders of Senior Indebtedness to the extent
necessary to pay the Senior Indebtedness in full in cash, and the Company may be
unable to meet fully its obligations with respect to the notes.

     At the time of the issuance of the notes, borrowings under the Senior
Credit Facility and approximately $4.5 million of capital lease obligations and
other debt are expected to be the only outstanding Senior Indebtedness or
Guarantor Senior Indebtedness. Subject to the restrictions set forth in the
indenture, in the future the Company may issue additional Senior Indebtedness to
refinance existing Indebtedness or for other corporate purposes.

GUARANTIES OF THE NOTES

     The indenture provides that each of the Guarantors will unconditionally
guaranty on a joint and several basis (the "Guaranties") all of the Company's
obligations under the notes, including its obligations to pay principal,
premium, if any, and interest with respect to the notes. The Guarantors are also
guarantying all obligations of the Company under the Senior Credit Facility, and
each Guarantor has granted a security interest in all or substantially all of
its assets to secure the obligations under the Senior Credit Facility (except
for certain stock in Foreign Subsidiaries). The obligations of each Guarantor
are limited to the maximum amount which, after giving effect to all other
contingent and fixed liabilities of such Guarantor and after giving effect to
any collections from or payments made by or on behalf of any other Guarantor in
respect of the obligations of such other Guarantor under its Guaranty or
pursuant to its contribution obligations under the indenture, will result in the
obligations of such Guarantor under its Guaranty not constituting a fraudulent
conveyance or fraudulent transfer under federal or state law. Each Guarantor
that makes a payment or distribution under a Guaranty shall be entitled to a
contribution from each other Guarantor in a pro rata amount based on the net
assets of each Guarantor determined in accordance with GAAP. Except as provided
in the Senior Credit Facility and in "Certain Covenants" below, the Company is
not restricted from selling or otherwise disposing of any of the Equity
Interests of the Guarantors.

     The indenture provides that each of the Company's Subsidiaries (other than
Foreign Subsidiaries) on the Issue Date and each of the Company's Subsidiaries
(excluding Unrestricted Subsidiaries and Foreign Subsidiaries) formed or
acquired thereafter are required to be Guarantors, provided that Foreign
Subsidiaries shall also be required to be Guarantors to the extent such Foreign
Subsidiaries guarantee Indebtedness of the Company or of any Subsidiary which is
not a Foreign Subsidiary in a principal amount equal to or greater than $25.0
million in the aggregate for all Foreign Subsidiaries. The Company shall cause
each Restricted Subsidiary issuing a Guaranty after the Issue Date to:

          (1) execute and deliver to the Trustee a supplemental indenture in
     form reasonably satisfactory to the Trustee pursuant to which such
     Restricted Subsidiary shall become a party to the indenture and thereby
     unconditionally guaranty all of the Company's Obligations under the notes
     and the indenture on the terms set forth therein; and

          (2) deliver to the Trustee an opinion of counsel that such
     supplemental indenture has been duly authorized, executed and delivered by
     such Restricted Subsidiary and constitutes a legal, valid, binding and
     enforceable obligation of such Restricted Subsidiary (which opinion may be
     subject to customary assumptions and qualifications).

                                       50
<PAGE>   56

Thereafter, such Restricted Subsidiary shall (unless released in accordance with
the terms of this indenture) be a Guarantor for all purposes of the indenture.

     The indenture provides that if:

          (1) the notes issued under the indenture are defeased in accordance
     with the terms of the indenture; or

          (2) subject to the requirements of the first paragraph under "Certain
     Covenants -- Merger, Sale of Assets, Etc.," all or substantially all of the
     assets of any Guarantor or all of the Equity Interests of any Guarantor are
     sold (including by issuance or otherwise) by the Company in a transaction
     constituting an Asset Sale, and (A) the Net Cash Proceeds from such Asset
     Sale are used in accordance with the covenant described under "Certain
     Covenants -- Disposition of Proceeds of Asset Sales" or (B) the Company
     delivers to the Trustee an Officers' Certificate representing that the Net
     Cash Proceeds from such Asset Sale shall be used in accordance with the
     covenant described under "Certain Covenants -- Disposition of Proceeds of
     Asset Sales" and within the time limits specified by such covenant,

then such Guarantor (in the event of a sale or other disposition of all of the
Equity Interests of such Guarantor) or the corporation acquiring such assets (in
the event of a sale or other disposition of all or substantially all of the
assets of such Guarantor) shall be released and discharged of its Guaranty
obligations in respect of the indenture and the notes.

     The Guaranties will be general unsecured obligations of the Guarantors. The
obligations of each Guarantor under its Guaranty will be subordinated and junior
in right of payment to the prior payment in full of all existing and future
Guarantor Senior Indebtedness of such Guarantor to substantially the same extent
as the notes are subordinated to all existing and future Senior Indebtedness of
the Company.

     Any Guarantor that is designated an Unrestricted Subsidiary pursuant to and
in accordance with "Certain Covenants -- Designation of Unrestricted
Subsidiaries" below shall upon such Designation be released and discharged of
its Guaranty obligations in respect of the indenture and the notes and any
Unrestricted Subsidiary (other than a Foreign Subsidiary) whose Designation is
revoked pursuant to "Certain Covenants -- Designation of Unrestricted
Subsidiaries" below will be required to become a Guarantor in accordance with
the procedure described in the second paragraph under this "Guaranties of the
Notes" section.

OFFER TO PURCHASE UPON CHANGE OF CONTROL

     In the event of the occurrence of a Change of Control (the date of such
occurrence being the "Change of Control Date"), the Company shall notify the
Holders of the notes of such occurrence in the manner prescribed by the
indenture and shall, within 20 days after the Change of Control Date (or, at the
Company's option, prior to such Change of Control Date), make an Offer to
Purchase all notes then outstanding, and shall purchase all notes validly
tendered, at a purchase price in cash equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest thereon, if any, to the
Purchase Date (subject to the right of Holders of record on the relevant record
date to receive interest due on the relevant interest payment date); provided,
that any Offer to Purchase made prior to any Change of Control Date shall be
made only in the reasonable anticipation of such Change of Control, and
provided, further, that the Company shall not purchase any notes tendered
pursuant to such Offer to Purchase if such Change of Control does not occur.

     If a Change of Control occurs which also constitutes an event of default
under the Senior Credit Facility, the lenders under the Senior Credit Facility
would be entitled to exercise the remedies available to a secured lender under
applicable law and pursuant to the terms of the Senior Credit Facility.
Accordingly, any claims of such lenders with respect to the assets of the
Company will be prior to any claim of the Holders of the notes with respect to
such assets.

                                       51
<PAGE>   57

     If an Offer to Purchase is made, the Company may not have available funds
sufficient to pay for all of the notes that might be tendered by Holders of
notes seeking to accept the Offer to Purchase. If the Company fails to
repurchase all of the notes tendered for purchase, such failure will constitute
an Event of Default under the indenture. See "Events of Default" below.

     If the Company makes an Offer to Purchase, the Company will comply with all
applicable tender offer laws and regulations, including, to the extent
applicable, Section 14(e) and Rule 14e-1 under the Exchange Act, and any other
applicable federal or state securities laws and regulations and any applicable
requirements of any securities exchange on which the notes are listed, and any
violation of the provisions of the indenture relating to such Offer to Purchase
occurring as a result of such compliance shall not be deemed an Event of Default
or an event that, with the passing of time or giving of notice, or both, would
constitute an Event of Default.

     Except as described above with respect to a Change of Control, the
indenture does not contain provisions that permit the Holders of the notes to
require that the Company repurchase or redeem the notes in the event of a
takeover, recapitalization or similar transaction.

CERTAIN COVENANTS

     Limitation on Restricted Payments. The Company shall not, and shall not
cause or permit any Restricted Subsidiary to, directly or indirectly:

          (1) declare or pay any dividend or any other distribution on any
     Equity Interests of the Company or any Restricted Subsidiary or make any
     payment or distribution to the direct or indirect holders (in their
     capacities as such) of Equity Interests of the Company or any Restricted
     Subsidiary (other than any dividends, distributions and payments made to
     the Company or any Restricted Subsidiary and dividends or distributions
     payable to any Person solely in Qualified Equity Interests of the Company
     or in options, warrants or other rights to purchase Qualified Equity
     Interests of the Company);

          (2) purchase, redeem or otherwise acquire or retire for value any
     Equity Interests of the Company or any Restricted Subsidiary (other than
     any such Equity Interests owned by the Company or any Restricted
     Subsidiary);

          (3) purchase, redeem, defease or retire for value, or make any
     principal payment on, prior to any scheduled maturity, scheduled repayment
     or scheduled sinking fund payment, any Subordinated Indebtedness (other
     than any Subordinated Indebtedness held by the Company or any Restricted
     Subsidiary); or

          (4) make any Investment (other than Permitted Investments) in any
     Person (other than in the Company, any Restricted Subsidiary or a Person
     that becomes a Restricted Subsidiary, or is merged with or into or
     consolidated with the Company or a Restricted Subsidiary (provided the
     Company or a Restricted Subsidiary is the survivor), as a result of or in
     connection with such Investment)

(any such payment or any other action (other than any exception thereto)
described in (1), (2), (3) or (4) above is each a "Restricted Payment"), unless:

          (I) no Default shall have occurred and be continuing at the time or
     immediately after giving effect to such Restricted Payment;

          (II) immediately after giving effect to such Restricted Payment, the
     Company would be able to Incur $1.00 of additional Indebtedness (other than
     Permitted Indebtedness) under the Consolidated Coverage Ratio of the first
     paragraph of "-- Limitation on Indebtedness" below; and

                                       52
<PAGE>   58

          (III) immediately after giving effect to such Restricted Payment, the
     aggregate amount of all Restricted Payments declared or made on or after
     the Issue Date does not exceed an amount equal to the sum of:

             (A) 50% of cumulative Consolidated Net Income determined for the
        period (taken as one period) from the beginning of the first fiscal
        quarter commencing after the Issue Date and ending on the last day of
        the most recent fiscal quarter immediately preceding the date of such
        Restricted Payment for which consolidated financial information of the
        Company is available (or if such cumulative Consolidated Net Income
        shall be a loss, minus 100% of such loss), plus

             (B) the aggregate net cash proceeds received by the Company either
        (i) as capital contributions to the Company after the Issue Date or (ii)
        from the issue and sale (other than to a Restricted Subsidiary) of its
        Qualified Equity Interests after the Issue Date (excluding the net
        proceeds from any issuance and sale of Qualified Equity Interests
        financed, directly or indirectly, using funds borrowed from the Company
        or any Restricted Subsidiary until and to the extent such borrowing is
        repaid), plus

             (C) the principal amount (or accreted amount (determined in
        accordance with GAAP), if less) of any Indebtedness of the Company or
        any Restricted Subsidiary Incurred after the Issue Date which has been
        converted into or exchanged for Qualified Equity Interests of the
        Company, plus

             (D) in the case of the disposition or repayment of any Investment
        constituting a Restricted Payment made after the Issue Date, an amount
        (to the extent not included in the computation of Consolidated Net
        Income) equal to the lesser of (i) the return of capital with respect to
        such Investment and (ii) the amount of such Investment which was treated
        as a Restricted Payment, in either case, less the cost of the
        disposition of such Investment and net of taxes, plus

             (E) so long as the Designation thereof was treated as a Restricted
        Payment made after the Issue Date, with respect to any Unrestricted
        Subsidiary that has been redesignated as a Restricted Subsidiary after
        the Issue Date in accordance with "Designation of Unrestricted
        Subsidiaries" below, the Company's proportionate interest in an amount
        equal to the excess of (i) the total assets of such Subsidiary, valued
        on an aggregate basis at Fair Market Value, over (ii) the total
        liabilities of such Subsidiary, determined in accordance with GAAP (and
        provided that such amount shall not in any case exceed the Designation
        Amount with respect to such Restricted Subsidiary upon its Designation),
        plus

             (F) to the extent not included in the computation of Consolidated
        Net Income, the amount of cash dividends or cash distributions (other
        than to pay taxes) received from any Unrestricted Subsidiary since the
        Issue Date, minus

             (G) the greater of (i) $0 and (ii) the Designation Amount (measured
        as of the date of Designation) with respect to any Subsidiary of the
        Company which has been designated as an Unrestricted Subsidiary after
        the Issue Date in accordance with "Designation of Unrestricted
        Subsidiaries" below.

     The foregoing provisions will not prevent:

          (1) (A) the payment of any dividend or distribution on, or redemption
     of, Equity Interests within 60 days after the date of declaration of such
     dividend or distribution or the giving of formal notice of such redemption,
     if at the date of such declaration or giving of such formal notice such
     payment or redemption would comply with the provisions of the indenture or
     (B) the payment of any dividend or distribution on a pro rata basis to
     holders of minority Equity Interests in a Restricted Subsidiary out of the
     net income from the Issue Date of such Restricted Subsidiary;

          (2) the purchase, redemption, retirement or other acquisition of any
     Equity Interests of the Company in exchange for, or out of the net cash
     proceeds of (or the payment of a dividend or distribution to Holdings out
     of the net cash proceeds of) the substantially concurrent issue and sale
                                       53
<PAGE>   59

     (other than to a Restricted Subsidiary) of, other Equity Interests of the
     Company (other than Disqualified Equity Interests, in the case of any such
     purchase, redemption, retirement or other acquisition of Qualified Equity
     Interests); provided, however, that any such net cash proceeds and the
     value of any Qualified Equity Interests issued in exchange for such retired
     Equity Interests are excluded from clause (III)(B) of the preceding
     paragraph (and were not included therein at any time);

          (3) the purchase, redemption, retirement, defeasance or other
     acquisition of Subordinated Indebtedness, or any other payment thereon,
     made in exchange for, or out of the net cash proceeds of, a substantially
     concurrent issue and sale (other than to a Restricted Subsidiary) of:

             (A) Qualified Equity Interests of the Company; provided, however,
        that any such net cash proceeds and the value of any Qualified Equity
        Interests issued in exchange for Subordinated Indebtedness are excluded
        from clauses (III)(B) and (III)(C) of the preceding paragraph (and were
        not included therein at any time) or

             (B) other Subordinated Indebtedness having no stated maturity for
        the payment of principal thereof prior to the final stated maturity of
        the notes;

          (4) any Investment to the extent that it is funded with the net cash
     proceeds of the substantially concurrent issue and sale (other than to a
     Restricted Subsidiary) of Qualified Equity Interests of the Company;
     provided, however, that any such net cash proceeds are excluded from clause
     (III)(B) of the preceding paragraph (and were not included therein at any
     time);

          (5) the purchase, redemption or other acquisition, cancellation or
     retirement for value of Equity Interests, or options, warrants, equity
     appreciation rights or other rights to purchase or acquire Equity
     Interests, of the Company or any Restricted Subsidiary, or similar
     securities, held by officers or employees or former officers or employees
     of the Company or any Restricted Subsidiary (or their estates or
     beneficiaries under their estates), upon death, disability, retirement or
     termination of employment, or otherwise held pursuant to any employee
     equity subscription agreement, stock option agreement or stock ownership
     arrangement or dividends by the Company to Holdings to effect the same in
     respect of its Equity Interests held by officers or employees or former
     officers or employees of the Company or any Restricted Subsidiary (or their
     estates or beneficiaries under their estates), upon death, disability,
     retirement or termination of employment, or otherwise held pursuant to any
     employee equity subscription agreement, stock option agreement or stock
     ownership arrangement not to exceed $2.0 million per fiscal year; provided
     that if the full $2.0 million is not utilized in any fiscal year, such
     unutilized portion may be so utilized in any subsequent fiscal year; and
     provided, further, that in no fiscal year shall such payments exceed $6.0
     million;

          (6) Restricted Payments not to exceed $4.0 million in the aggregate
     since the Issue Date;

          (7) payments to Holdings and/or AEA to pay general and administrative
     expenses of Holdings and/or AEA not to exceed $375,000 in any fiscal year
     plus actual fees, expenses and indemnity payments incurred by its officers
     and directors;

          (8) any purchase or repayment of Subordinated Indebtedness upon a
     Change of Control or an Asset Sale to the extent required by the agreement
     governing such Subordinated Indebtedness but only if:

             (A) in the case of a Change of Control, the Company shall have
        complied with all of its obligations under the covenant described under
        "Offer to Purchase upon Change of Control" and purchased all the notes
        tendered pursuant to the Offer to Purchase required thereby prior to
        purchasing or repaying such Subordinated Indebtedness or

             (B) in the case of an Asset Sale, the Company shall have applied
        the Net Cash Proceeds from such Asset Sale in accordance with the
        covenant described under "-- Disposition of Proceeds of Asset Sales,";
        provided that (a) in either case the purchase price (stated as a
        percentage of principal amount or issue price plus accrued original
        discount, if less) of such
                                       54
<PAGE>   60

        Subordinated Indebtedness shall not be greater than the price (stated as
        a percentage of principal amount) of the notes pursuant to any Offer to
        Purchase and (b) in the case of an Asset Sale, the aggregate amount of
        such Subordinated Indebtedness that the Company may purchase or repay
        shall not exceed the amount of Unutilized Net Cash Proceeds, if any,
        remaining after the Company has purchased all notes tendered pursuant to
        such Offer to Purchase;

          (9) the payment of principal and interest on the Junior Subordinated
     Seller Notes in accordance with the terms thereof; and

          (10) payments to Holdings in an amount necessary to permit the payment
     by Holdings of principal on the Contingent Note in accordance with the
     terms thereof; provided that (i) the contingency that would give rise to
     any obligations in respect of the Contingent Note shall have been satisfied
     in accordance with its terms on or prior to December 31, 2000 and (ii)
     Holdings immediately uses such amount for such purpose;

provided, however, that in the case of each of clauses (2), (3), (5), (7), (8)
and (10) no Default shall have occurred and be continuing or would arise
therefrom.

     In determining the amount of Restricted Payments permissible under this
covenant, amounts expended pursuant to clauses (1), (5), (6), (8) and (10) of
the immediately preceding paragraph shall be included as Restricted Payments and
amounts expended pursuant to clauses (2), (3), (4), (7) and (9) shall be
excluded. The amount of any non-cash Restricted Payment shall be deemed to be
equal to the Fair Market Value thereof at the date of the making of such
Restricted Payment.

     Limitation on Indebtedness. The Company shall not, and shall not cause or
permit any Restricted Subsidiary to, directly or indirectly, Incur any
Indebtedness (including Acquired Indebtedness) or issue any Disqualified Equity
Interests, except for Permitted Indebtedness; provided, however, that (1) the
Company and any Restricted Subsidiary may Incur Indebtedness (other than
Disqualified Equity Interests) and (2) the Company may issue Disqualified Equity
Interests if, in any such case, at the time of and immediately after giving pro
forma effect to such Incurrence of Indebtedness or issuance of Disqualified
Equity Interests and the application of the proceeds therefrom, the Consolidated
Coverage Ratio of the Company would be greater than 2.0 to 1.0.

     The foregoing limitations will not apply to the Incurrence of any of the
following (collectively, "Permitted Indebtedness"), each of which shall be given
independent effect:

          (1) Indebtedness of $150.0 million principal amount under the notes,
     the Guarantees and the indenture;

          (2) Existing Indebtedness;

          (3) Indebtedness of the Company and any Guarantor pursuant to the
     Senior Credit Facility in an aggregate principal amount at any one time
     outstanding not to exceed (A) the sum of (i) the greater of (a) $50.0
     million and (b) the sum of 85% of the net book value of the accounts
     receivable of the Company and the Restricted Subsidiaries on a consolidated
     basis in accordance with GAAP plus 50% of the net book value of the
     inventory of the Company and the Restricted Subsidiaries on a consolidated
     basis in accordance with GAAP with respect to revolving loans thereunder
     plus (ii) $75.0 million with respect to term loans, additional revolving
     loans or other loans Incurred on or prior to March 31, 2002, provided that,
     in the case of this subclause (A)(ii), at the time of and after giving pro
     forma effect to any Incurrence of such Indebtedness and the application of
     the proceeds therefrom, the Consolidated Leverage Ratio of the Company
     would be less than or equal to 5.15:1.00 less (B) amounts Incurred and
     outstanding pursuant to clause (4) below; provided that the calculation
     under subclause (A)(i)(b) shall exclude the net book value of accounts
     receivable sold to or financed through any Accounts Receivable Subsidiary
     and the net book value of the accounts receivable and inventory of Foreign
     Subsidiaries to the extent of Indebtedness Incurred by any Foreign
     Subsidiary pursuant to clause (11)(A) below;

                                       55
<PAGE>   61

          (4) Indebtedness Incurred on or prior to March 31, 2002 by Foreign
     Subsidiaries in an aggregate principal amount at any one time outstanding
     not to exceed $60.0 million, provided that, at the time of and after giving
     pro forma effect to any Incurrence of such Indebtedness and the application
     of the proceeds therefrom, the Consolidated Leverage Ratio of the Company
     would be less than or equal to 5.15:1.00 less amounts Incurred and
     outstanding pursuant to clause (3)(A)(ii) above in excess of $15.0 million;

          (5) Indebtedness of any Restricted Subsidiary owed to and held by the
     Company or any Restricted Subsidiary and Indebtedness of the Company owed
     to and held by any Restricted Subsidiary, which Indebtedness is unsecured
     and subordinated in right of payment to the payment and performance of the
     Company's obligations under any Senior Indebtedness, the indenture and the
     notes; provided, however, that an Incurrence of Indebtedness that is not
     permitted by this clause (5) shall be deemed to have occurred upon (i) any
     sale or other disposition of any Indebtedness of the Company or any
     Restricted Subsidiary referred to in this clause (5) to a Person (other
     than the Company or any Restricted Subsidiary), and (ii) the designation of
     a Restricted Subsidiary which holds Indebtedness of the Company or any
     other Restricted Subsidiary as an Unrestricted Subsidiary;

          (6) the Guaranties and guaranties by the Company or any Restricted
     Subsidiary of Indebtedness permitted to be Incurred under this covenant to
     the extent such Indebtedness could have itself been Incurred by such
     Person;

          (7) Hedging Obligations of the Company and the Restricted
     Subsidiaries;

          (8) Indebtedness of the Company or any Restricted Subsidiary
     consisting of Purchase Money Indebtedness, Capital Expenditures
     Indebtedness and Capitalized Lease Obligations (and refinancings thereof)
     in an aggregate principal amount which, when aggregated with the principal
     amount of all other Indebtedness then outstanding and Incurred pursuant to
     this clause (8), does not exceed the greater of (A) 10.0% of Consolidated
     Net Tangible Assets at the time of Incurrence and (B) $25.0 million;

          (9) Indebtedness of the Company or a Restricted Subsidiary to the
     extent representing a replacement, renewal, refinancing or extension
     (collectively, a "refinancing") of outstanding Indebtedness Incurred in
     compliance with the Consolidated Coverage Ratio of the first paragraph of
     this covenant or clause (1) or clause (2) or, after March 31, 2002,
     subclause (A)(ii) of clause (3) and clause (4) of this paragraph of this
     covenant; provided, however, that:

             (A) any such refinancing shall not exceed the sum of the principal
        amount (or accreted amount (determined in accordance with GAAP), if
        less) of the Indebtedness or Disqualified Equity Interests being
        refinanced, plus the amount of accrued interest or dividends thereon,
        plus the amount of any reasonably determined prepayment premium
        necessary to accomplish such refinancing and such reasonable fees and
        expenses incurred in connection therewith,

             (B) Indebtedness representing a refinancing of Indebtedness other
        than Senior Indebtedness shall have a Weighted Average Life to Maturity
        equal to or greater than the Weighted Average Life to Maturity of the
        Indebtedness being refinanced;

             (C) Indebtedness that is pari passu with the notes may only be
        refinanced with Indebtedness that is made pari passu with or subordinate
        in right of payment to the notes and Subordinated Indebtedness may only
        be refinanced with Subordinated Indebtedness or Disqualified Equity
        Interests and Disqualified Equity Interests may only be refinanced with
        other Disqualified Equity Interests; and

             (D) refinancing Indebtedness incurred by a Restricted Subsidiary
        which is not a Guarantor may only be used to refinance Indebtedness of a
        Restricted Subsidiary which is not a Guarantor;

          (10) in addition to the items referred to in clauses (1) through (9)
     above and clauses (11) through (12) below, Indebtedness of the Company or
     any Restricted Subsidiary
                                       56
<PAGE>   62

     (including any Indebtedness under the Senior Credit Facility that utilizes
     this subparagraph (10)) having an aggregate principal amount not to exceed
     $15.0 million at any time outstanding;

          (11) Indebtedness of Foreign Subsidiaries (which may be Incurred under
     the Senior Credit Facility or otherwise) (A) in an aggregate principal
     amount at any one time outstanding not to exceed the sum of (a) 85% of the
     net book value of the accounts receivable of such Foreign Subsidiaries in
     accordance with GAAP and (b) 50% of the net book value of the inventory of
     such Foreign Subsidiaries in accordance with GAAP (provided that the
     calculation under this clause (A) shall exclude the net book value of
     accounts receivable and inventory sold to or financed through any Accounts
     Receivable Subsidiary) or (B) representing guaranties of Indebtedness of
     another Foreign Subsidiary incurred pursuant to subclause (A) of this
     clause (11); and

          (12) unsecured Indebtedness Incurred by the Company to former
     employees in connection with the purchase or redemption of Equity Interests
     of the Company not to exceed in the aggregate $2.0 million.

     For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Indebtedness described in clauses (1) through (12) above
(other than Indebtedness under the Senior Credit Agreement outstanding on the
Issue Date, which will be deemed to have been Incurred under clause (3)) or is
entitled to be Incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify or reclassify such item of
Indebtedness in any manner that complies with this covenant and such item of
Indebtedness will be treated as having been Incurred pursuant to only one of
such clauses or pursuant to the first paragraph hereof.

     Limitation on Layering. The Company shall not, directly or indirectly,
Incur any Indebtedness that by its terms would expressly rank senior in right of
payment to the notes and expressly rank subordinate in right of payment to any
other Indebtedness of the Company; provided, that the foregoing restriction
shall not apply to distinctions between categories of Indebtedness that exist
solely by reason or Liens of Guaranties arising or created in respect of some
but not all such Indebtedness.

     The Company shall not permit any Guarantor to, and no Guarantor shall,
directly or indirectly, Incur any Indebtedness that by its terms would expressly
rank senior in right of payment to the Guaranty of such Guarantor and expressly
rank subordinate in right of payment to any Guarantor Senior Indebtedness of
such Guarantor; provided, that the foregoing restriction shall not apply to
distinctions between categories of Indebtedness that exist solely by reason or
Liens of Guaranties arising or created in respect of some but not all such
Indebtedness.

     Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Company shall not, and shall not cause or permit any
Restricted Subsidiary to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to: (A) pay dividends or make any other
distributions to the Company or any other Restricted Subsidiary on its Equity
Interests or with respect to any other interest or participation in, or measured
by, its profits, or pay any Indebtedness owed to the Company or any other
Restricted Subsidiary, (B) make loans or advances to, or guaranty any
Indebtedness or other obligations of, the Company or any other Restricted
Subsidiary or (C) transfer any of its properties or assets to the Company or any
other Restricted Subsidiary, except for such encumbrances or restrictions
existing under or by reason of:

          (1) the Senior Credit Facility, or any other agreement of the Company
     or the Restricted Subsidiaries outstanding on the Issue Date, in each case
     as in effect on the Issue Date, and any amendments, restatements, renewals,
     replacements or refinancings thereof; provided, however, that any such
     amendment, restatement, renewal, replacement or refinancing is no more
     restrictive in the aggregate with respect to such encumbrances or
     restrictions than those contained in the agreement being amended, restated,
     renewed, replaced or refinanced;

                                       57
<PAGE>   63

          (2) applicable law;

          (3) any instrument of an Acquired Person acquired by the Company or
     any Restricted Subsidiary as in effect at the time of such acquisition
     (except to the extent such instrument was entered into by such Acquired
     Person in connection with, as a result of or in contemplation of such
     acquisition); provided, however, that such encumbrances and restrictions
     are not applicable to any Restricted Subsidiary, or the properties or
     assets of any Restricted Subsidiary, other than the Acquired Person;

          (4) customary non-assignment provisions in leases, licenses or
     contracts;

          (5) Purchase Money Indebtedness and Capitalized Lease Obligations for
     property acquired in the ordinary course of business that only imposes
     encumbrances and restrictions on the property so acquired;

          (6) any agreement for the sale or disposition of the Equity Interests
     or assets of any Restricted Subsidiary; provided, however, that such
     encumbrances and restrictions described in this clause (6) are only
     applicable to such Restricted Subsidiary or assets, as applicable, and any
     such sale or disposition is made in compliance with "Disposition of
     Proceeds of Asset Sales" below to the extent applicable thereto;

          (7) refinancing Indebtedness permitted under clause (9) of the second
     paragraph of "Limitation on Indebtedness" above; provided, however, that
     such encumbrances and restrictions contained in the agreements governing
     such Indebtedness are no more restrictive in the aggregate than those
     contained in the agreements governing the Indebtedness being refinanced
     immediately prior to such refinancing;

          (8) the indenture;

          (9) contained in any other indenture governing debt securities that
     are no more restrictive than those contained in the indenture;

          (10) customary restrictions in any instrument governing Indebtedness
     of a Foreign Subsidiary permitted to be Incurred pursuant to the covenant
     described above under "Limitation on Indebtedness"; provided that the
     aggregate Consolidated EBITDA for the four quarter period of the most
     recent four consecutive fiscal quarters ending prior to the date such
     Indebtedness is Incurred of all Foreign Subsidiaries subject to such
     restrictions shall not exceed 30% of the Consolidated EBITDA for such four
     quarter period of the Company; provided, further that Consolidated EBITDA
     shall be calculated after giving effect on a pro forma basis to any
     transactions which would require adjustment pursuant to the calculation
     described under the definition of "Consolidated Coverage Ratio" as if such
     transaction had occurred on the first day of such four quarter period; or

          (11) any restriction contained in any security agreement or mortgage
     securing Indebtedness of any Restricted Subsidiary to the extent such
     restriction restricts the transfer of the property subject to such security
     agreement or mortgage.

     Designation of Unrestricted Subsidiaries. The Company may designate after
the Issue Date any Subsidiary of the Company as an "Unrestricted Subsidiary"
under the indenture (a "Designation") only if:

          (1) no Default or Event of Default shall have occurred and be
     continuing at the time of or after giving effect to such Designation;

          (2) at the time of and after giving effect to such Designation, the
     Company could Incur $1.00 of additional Indebtedness (other than Permitted
     Indebtedness) under the Consolidated Coverage Ratio of the first paragraph
     of "Limitation on Indebtedness" above; and

          (3) assuming the effectiveness of such Designation, the Designation
     and an Investment (other than a Permitted Investment (except for
     Investments described in clauses (10) and (11) of the definition of
     "Permitted Investments")) in an amount (the "Designation Amount") equal to
     the Fair

                                       58
<PAGE>   64

     Market Value of the Company's aggregate Investment in such Subsidiary on
     such date could be made in compliance with the first paragraph of
     "Limitation on Restricted Payments" above.

     Neither the Company nor any Restricted Subsidiary shall at any time (A)
provide credit support for, subject any of its property or assets (other than
the Equity Interests of any Unrestricted Subsidiary) to the satisfaction of, or
guaranty, any Indebtedness of any Unrestricted Subsidiary (including any
undertaking, agreement or instrument evidencing such Indebtedness), (B) be
directly or indirectly liable for any Indebtedness of any Unrestricted
Subsidiary or (C) be directly or indirectly liable for any Indebtedness which
provides that the holder thereof may (upon notice, lapse of time or both)
declare a default thereon or cause the payment thereof to be accelerated or
payable prior to its final scheduled maturity upon the occurrence of a default
with respect to any Indebtedness of any Unrestricted Subsidiary, except for any
non-recourse guaranty given solely to support the pledge by the Company or any
Restricted Subsidiary of the capital stock of any Unrestricted Subsidiary. All
Subsidiaries of Unrestricted Subsidiaries shall be automatically deemed to be
Unrestricted Subsidiaries.

     The Company may revoke any Designation of a Subsidiary as an Unrestricted
Subsidiary (a "Revocation") if:

          (1) no Default or Event of Default shall have occurred and be
     continuing at the time of and after giving effect to such Revocation; and

          (2) all Liens and Indebtedness of such Unrestricted Subsidiary
     outstanding immediately following such Revocation would, if Incurred at
     such time, have been permitted to be Incurred for all purposes of the
     indenture.

     All Designations and Revocations must be evidenced by resolutions of the
Board of Directors of the Company, delivered to the Trustee certifying
compliance with the foregoing provisions.

     Limitation on Liens. The Company shall not, and shall not cause or permit
any Restricted Subsidiary to, directly or indirectly, Incur or suffer to exist
any Liens (other than Permitted Liens) against or upon any of their respective
properties or assets now owned or hereafter acquired, or any proceeds therefrom
or any income or profits therefrom, to secure any Specified Indebtedness unless
contemporaneously therewith effective provision is made, in the case of the
Company, to secure the notes and all other amounts due under the indenture, and
in the case of a Restricted Subsidiary which is a Guarantor, to secure such
Restricted Subsidiary's Guaranty of the notes and all other amounts due under
the indenture, equally and ratably with such Indebtedness (or, in the event that
such Indebtedness is subordinated in right of payment to the notes or such
Guarantor's Guaranty, prior to such Indebtedness) with a Lien on the same
properties and assets securing such Indebtedness for so long as such
Indebtedness is secured by such Lien.

     Disposition of Proceeds of Asset Sales. The Company shall not, and shall
not cause or permit any Restricted Subsidiary to, directly or indirectly, make
any Asset Sale, unless:

          (1) the Company or such Restricted Subsidiary, as the case may be,
     receives consideration at the time of such Asset Sale at least equal to the
     Fair Market Value of the assets sold or otherwise disposed of, and

          (2) at least 75% of such consideration consists of (A) cash or Cash
     Equivalents, (B) properties and capital assets to be used in a Related
     Business, (C) Equity Interests in any Person which thereby becomes a Wholly
     Owned Restricted Subsidiary whose assets consist primarily of properties
     and capital assets used in a Related Business or (D) "earn out" or similar
     rights providing for a cash payment contingent upon operating results or
     the financial condition of the business and/or Person subject to such Asset
     Sale.

     The amount of any (A) Indebtedness (other than any Subordinated
Indebtedness) of the Company or any Restricted Subsidiary that is actually
assumed by the transferee in such Asset Sale and from which the Company and the
Restricted Subsidiaries are fully released shall be deemed to be cash for
purposes of

                                       59
<PAGE>   65

determining the percentage of cash consideration received by the Company or the
Restricted Subsidiaries and (B) notes, securities or other similar obligations
received by the Company or the Restricted Subsidiaries from such transferee that
are immediately converted, sold or exchanged (or are converted, sold or
exchanged within thirty days of the related Asset Sale) by the Company or the
Restricted Subsidiaries into cash shall be deemed to be cash, in an amount equal
to the net cash proceeds realized upon such conversion, sale or exchange for
purposes of determining the percentage of cash consideration received by the
Company or the Restricted Subsidiaries.

     The Company or such Restricted Subsidiary, as the case may be, may:

          (1) apply the Net Cash Proceeds of any Asset Sale within 365 days of
     receipt thereof to repay Senior Indebtedness;

          (2) commit in writing to acquire, construct or improve properties and
     capital assets to be used in a Related Business and so apply such Net Cash
     Proceeds within 365 days after the receipt thereof; or

          (3) apply the Net Cash Proceeds of any Asset Sale within 365 days of
     receipt thereof or commence an offer or otherwise become obligated to repay
     Pari Passu Debt not exceeding the Pari Passu Debt Pro Rata Share;

provided that the Company or such Restricted Subsidiary may use up to $15.0
million of aggregate Net Cash Proceeds from Asset Sales for any purpose not
prohibited by the indenture.

     To the extent all or part of the Net Cash Proceeds of any Asset Sale are
not applied or committed within 365 days of such Asset Sale as described in
clause (1), (2) or (3) or the proviso of the immediately preceding paragraph
(such Net Cash Proceeds, the "Unutilized Net Cash Proceeds"), the Company shall,
within 20 days after such 365th day, make an Offer to Purchase all outstanding
notes up to a maximum principal amount (expressed as a multiple of $1,000) of
notes equal to such Unutilized Net Cash Proceeds, at a purchase price in cash
equal to 100% of the principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the Purchase Date; provided, however, that the Offer to
Purchase may be deferred until there are aggregate Unutilized Net Cash Proceeds
equal to or in excess of $15.0 million, at which time the entire amount of such
Unutilized Net Cash Proceeds, and not just the amount in excess of $15.0
million, shall be applied as required pursuant to this paragraph.

     With respect to any Offer to Purchase effected pursuant to this covenant,
among the notes, to the extent the aggregate principal amount of notes tendered
pursuant to such Offer to Purchase exceeds the Unutilized Net Cash Proceeds to
be applied to the repurchase thereof, such notes shall be purchased pro rata
based on the aggregate principal amount of such notes tendered by each Holder.
To the extent the Unutilized Net Cash Proceeds exceed the aggregate amount of
notes tendered by the Holders of the notes pursuant to such Offer to Purchase,
the Company may retain and utilize any portion of the Unutilized Net Cash
Proceeds not applied to repurchase the notes for any general corporate purposes.
Upon the completion of an Offer to Purchase pursuant to this covenant, the
amount of unutilized Net Cash Proceeds shall be reset to zero.

     In the event that the Company makes an Offer to Purchase the Exchange
Notes, the Company shall comply with any applicable securities laws and
regulations, including any applicable requirements of Section 14(e) of, and Rule
14e-1 under, the Exchange Act, and any violation of the provisions of the
indenture relating to such Offer to Purchase occurring as a result of such
compliance shall not be deemed a Default or an event that with the passing of
time or giving of notice, or both, would constitute an Event of Default.

     Each Holder shall be entitled to tender all or any portion of the notes
owned by such Holder pursuant to the Offer to Purchase, subject to the
requirement that any portion of a note tendered must be tendered in an integral
multiple of $1,000 principal amount and subject to any proration among tendering
Holders as described above.

                                       60
<PAGE>   66

     Merger, Sale of Assets, etc. The Company shall not consolidate with or
merge with or into (whether or not the Company is the Surviving Person) any
other entity and the Company shall not and shall not cause or permit any
Restricted Subsidiary to, sell, convey, assign, transfer, lease or otherwise
dispose of all or substantially all of the Company's and the Restricted
Subsidiaries' properties and assets (determined on a consolidated basis for the
Company and the Restricted Subsidiaries) to any entity in a single transaction
or series of related transactions, unless:

          (1) either (A) the Company shall be the Surviving Person or (B) the
     Surviving Person (if other than the Company) shall be a corporation
     organized and validly existing under the laws of the United States of
     America or any State thereof or the District of Columbia, and shall, in any
     such case, expressly assume by a supplemental indenture, the due and
     punctual payment of the principal of, premium, if any, and interest on all
     the notes and the performance and observance of every covenant of the
     indenture and the Registration Rights Agreement to be performed or observed
     on the part of the Company;

          (2) immediately thereafter, on a pro forma basis after giving effect
     to such transaction as if it had occurred at the beginning of the four
     quarter period immediately preceding such transaction for which
     consolidated financial statements of the Company are available, no Default
     or Event of Default shall have occurred and be continuing;

          (3) immediately after giving effect to any such transaction including
     the Incurrence by the Company or any Restricted Subsidiary, directly or
     indirectly, of additional Indebtedness (and treating any Indebtedness not
     previously an obligation of the Company or any Restricted Subsidiary in
     connection with or as a result of such transaction as having been Incurred
     at the time of such transaction), the Surviving Person could Incur, on a
     pro forma basis after giving effect to such transaction as if it had
     occurred at the beginning of the four quarter period immediately preceding
     such transaction for which consolidated financial statements of the Company
     are available, at least $1.00 of additional Indebtedness (other than
     Permitted Indebtedness) under the Consolidated Coverage Ratio of the first
     paragraph of "Limitation on Indebtedness" above; and

          (4) the Company will have delivered to the Trustee an Officers'
     Certificate and an Opinion of Counsel, each stating that such
     consolidation, merger or transfer and such supplemental indenture (if any)
     comply with the indenture.

     Notwithstanding the foregoing clause (3) of the immediately preceding
paragraph, any Restricted Subsidiary may consolidate with, merge into or
transfer all or part of its properties and assets to the Company.

     For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all the properties and assets of one or more Restricted
Subsidiaries the Equity Interests of which constitute all or substantially all
the properties and assets of the Company shall be deemed to be the transfer of
all or substantially all the properties and assets of the Company.

     No Guarantor (other than a Guarantor whose Guaranty is to be released in
accordance with the terms of its Guaranty and the indenture as provided in the
third paragraph under "Guaranties of the Notes" above) shall consolidate with or
merge with or into another Person, whether or not such Person is affiliated with
such Guarantor and whether or not such Guarantor is the Surviving Person, unless
(A) the Surviving Person (if other than such Guarantor) is a corporation
organized and validly existing under the laws of the United States, any State
thereof or the District of Columbia; (B) the Surviving Person (if other than
such Guarantor) expressly assumes by a supplemental indenture all the
obligations of such Guarantor under its Guaranty of the notes and the
performance and observance of every covenant of the indenture and the
Registration Rights Agreement to be performed or observed by such Guarantor; (C)
at the time of and immediately after such Disposition, on a pro forma basis
after giving effect to such transaction as if it had occurred at the beginning
of the four quarter period immediately preceding such transaction for which
consolidated financial statements of the Company are available, no Default or
Event
                                       61
<PAGE>   67

of Default shall have occurred and be continuing; and (D) the Company will have
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that such consolidation, merger or transfer and such supplemental
indenture (if any) comply with the indenture.

     In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the immediately preceding paragraphs in
which the Company or a Guarantor, as the case may be, is not the Surviving
Person and the Surviving Person is to assume all the Obligations of the Company
under the notes, the indenture and the Registration Rights Agreement or of such
Guarantor under its Guaranty, the indenture and the Registration Rights
Agreement, as the case may be, pursuant to a supplemental indenture, such
Surviving Person shall succeed to, and be substituted for, and may exercise
every right and power of, the Company or such Guarantor, as the case may be, and
the Company shall be discharged from its Obligations under the indenture and the
notes or such Guarantor shall be discharged from its Obligations under the
indenture and its Guaranty.

     Transactions with Affiliates. The Company shall not, and shall not cause or
permit any Restricted Subsidiary to, directly or indirectly, conduct any
business or enter into any transaction (or series of related transactions) with
or for the benefit of any of their respective Affiliates (each an "Affiliate
Transaction"), unless:

          (1) such Affiliate Transaction, taken as a whole, is on terms which
     are no less favorable to the Company or such Restricted Subsidiary, as the
     case may be, than would be available in a comparable transaction with an
     unaffiliated third party; and

          (2) if such Affiliate Transaction or series of related Affiliate
     Transactions (other than any such Affiliate Transactions between the
     Company or a Restricted Subsidiary and an Unrestricted Subsidiary or an
     Accounts Receivable Subsidiary in the ordinary course of business) involves
     aggregate payments or other consideration having a Fair Market Value in
     excess of $5.0 million, such Affiliate Transaction is in writing and a
     majority of the disinterested members of the Board of Directors of the
     Company shall have approved such Affiliate Transaction and determined that
     such Affiliate Transaction complies with the foregoing provisions, or, in
     the event that there are no independent directors, the Trustee has received
     a written opinion from an Independent Financial Advisor stating that the
     terms of such Affiliate Transaction are fair, from a financial point of
     view, to the Company or the Restricted Subsidiary involved in such
     Affiliate Transaction, as the case may be.

     In addition, any Affiliate Transaction (other than an Affiliate Transaction
between the Company or a Restricted Subsidiary and an Unrestricted Subsidiary or
an Accounts Receivable Subsidiary in the ordinary course of business) involving
aggregate payments or other consideration having a Fair Market Value in excess
of $10.0 million will also require a written opinion from an Independent
Financial Advisor (filed with the Trustee) stating that the terms of such
Affiliate Transaction are fair, from a financial point of view, to the Company
or the Restricted Subsidiary involved in such Affiliate Transaction, as the case
may be.

     Notwithstanding the foregoing, the restrictions set forth in this covenant
shall not apply to:

          (1) transactions with or among the Company and any Restricted
     Subsidiary or between or among Restricted Subsidiaries;

          (2) customary directors' fees, indemnification and similar
     arrangements, consulting fees, employee salaries, bonuses or employment
     agreements, compensation or employee benefit arrangements and incentive
     arrangements with any officer, director or employee of the Company or any
     Restricted Subsidiary entered into in the ordinary course of business
     (including customary benefits thereunder) and payments under any
     indemnification arrangements permitted by applicable law;

          (3) any transactions undertaken pursuant to any contractual
     obligations in existence on the Issue Date (as renewed or amended from time
     to time in a manner not adverse to the Holders of notes);

          (4) the issue and sale by the Company to its stockholders of Qualified
     Equity Interests;

                                       62
<PAGE>   68

          (5) any Restricted Payments made in compliance with "Limitation on
     Restricted Payments" above;

          (6) loans and advances to officers, directors and employees of the
     Company or any Restricted Subsidiary for travel, entertainment, moving and
     other relocation expenses, in each case made in the ordinary course of
     business;

          (7) the Incurrence of intercompany Indebtedness permitted pursuant to
     clause (5) of the second paragraph of "Limitation on Indebtedness" above;

          (8) the pledge of Equity Interests of Unrestricted Subsidiaries to
     support the Indebtedness thereof;

          (9) the payment to AEA of fees in an aggregate amount not to exceed
     $1.6 million in any fiscal year, the reimbursement of reasonable
     out-of-pocket expenses incurred by AEA and payments to AEA in respect of
     indemnification obligations under existing agreements or agreements
     permitted to be entered into in accordance with the indenture, in each case
     in connection with its performance of services pursuant to the Management
     Agreement;

          (10) shareholders and registration rights agreements among the Company
     and its shareholders; and

          (11) any transaction in the ordinary course of business or approved by
     a majority of the disinterested directors, between the Company or any
     Restricted Subsidiary and any Affiliate of the Company controlled by the
     Company that is a joint venture or similar entity primarily engaged in a
     Related Business.

     Limitation on the Sale or Issuance of Preferred Equity Interests of
Restricted Subsidiaries. The Company shall not sell any Preferred Equity
Interest of a Restricted Subsidiary, and shall not cause or permit any
Restricted Subsidiary to issue any of its Preferred Equity Interests or sell any
Preferred Equity Interests of another Restricted Subsidiary (other than to the
Company or a Wholly Owned Restricted Subsidiary or to the directors as
director's qualifying shares to the extent required by applicable law, or if,
immediately after giving effect to such issuance or sale, such Restricted
Subsidiary would no longer constitute a Restricted Subsidiary).

     Provision of Financial Information. Whether or not the Company is subject
to Section 13(a) or 15(d) of the Exchange Act, or any successor provision
thereto, the Company shall file with the SEC (if permitted by SEC practice and
applicable law and regulations) the annual reports, quarterly reports and other
documents which the Company would have been required to file with the SEC
pursuant to such Section 13(a) or 15(d) (each, an "Exchange Act Report") or any
successor provision thereto if the Company were so subject, such documents to be
filed with the SEC on or prior to the respective dates (the "Required Filing
Dates") by which the Company would have been required so to file such documents
if the Company were so subject. If, at any time prior to the consummation of the
exchange offer required pursuant to the Registration Rights Agreement when the
Company is not subject to such Section 13(a) or 15(d), the information which
would be required in an Exchange Act Document is included in a public filing of
the Company under the Securities Act at the applicable Required Filing Date,
such public filing shall fulfill the filing requirement with the SEC with
respect to the applicable Exchange Act Document.

     The Company shall also in any event:

          (1) within 15 days of each Required Filing Date (whether or not
     permitted or required to be filed with the SEC) file with the Trustee,
     copies of the annual reports, quarterly reports and other documents which
     the Company is required to file with the SEC pursuant to the preceding
     sentence, or, if such filing is not so permitted (or, prior to the
     consummation of the exchange offer required pursuant to the Registration
     Rights Agreement, when the Company is not subject to Section 13(a) or 15(d)
     of the Exchange Act), information and data of a similar nature, and

                                       63
<PAGE>   69

          (2) if, notwithstanding the preceding clause (1), filing such
     documents by the Company with the SEC is not permitted by SEC practice or
     applicable law or regulations, promptly upon written request supply copies
     of such documents to any Holder.

     In addition, for so long as any notes remain outstanding, the Company will
furnish to the Holders and to securities analysts and prospective investors,
upon their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act, and, to any beneficial holder of notes, if
not obtainable from the SEC, information of the type that would be filed with
the SEC pursuant to the foregoing provisions, upon the request of any such
holder.

EVENTS OF DEFAULT

     The occurrence of any of the following will be defined as an "Event of
Default" under the indenture:

          (1) failure to pay principal of (or premium, if any, on) any note when
     due (whether or not prohibited by the provisions of the indenture described
     under "Subordination of the Notes" above);

          (2) failure to pay any interest on any note when due, continued for 30
     days or more (whether or not prohibited by the provisions of the indenture
     described under "Subordination of the Notes" above);

          (3) default in the payment of principal of or interest on any note
     required to be purchased pursuant to any Offer to Purchase required by the
     indenture when due and payable or failure to pay on the Purchase Date the
     Purchase Price for any note validly tendered pursuant to any Offer to
     Purchase (whether or not prohibited by the provisions of the indenture
     described under "Subordination of the Notes" above);

          (4) failure to perform or comply with any of the provisions described
     under "Certain Covenants -- Merger, Sale of Assets, etc." above;

          (5) failure to perform any other covenant, warranty or agreement of
     the Company under the indenture or in the notes or of the Guarantors under
     the indenture or in the Guaranties continued for 30 days or more after
     written notice to the Company by the Trustee or to the Trustee and the
     Company by Holders of at least 25% in aggregate principal amount of the
     outstanding notes;

          (6) default or defaults under the terms of one or more instruments
     evidencing or securing Indebtedness of the Company or any of its
     Significant Restricted Subsidiaries having an outstanding principal amount
     of greater than $10.0 million individually or in the aggregate that have
     resulted in the acceleration of the payment of such Indebtedness or failure
     by the Company or any of its Significant Restricted Subsidiaries to pay
     principal when due at the stated maturity of any such Indebtedness;

          (7) the rendering of a final judgment or judgments (not subject to
     appeal) against the Company or any of its Significant Restricted
     Subsidiaries in an amount of greater than $10.0 million (net of any amounts
     covered by reputable and creditworthy insurance or bonding companies) which
     remain undischarged or unstayed for a period of 60 days after the date on
     which the right to appeal has expired;

          (8) certain events of bankruptcy, insolvency or reorganization
     affecting the Company or any of its Significant Restricted Subsidiaries; or

          (9) other than as provided in or pursuant to any Guaranty or the
     indenture, any Guaranty ceases to be in full force and effect or is
     declared null and void and unenforceable or found to be invalid or any
     Guarantor denies its liability under its Guaranty (other than by reason of
     a release of such Guarantor from its Guaranty in accordance with the terms
     of the indenture and such Guaranty).

     Subject to the provisions of the indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the Trustee
will be under no obligation to exercise any of its rights
                                       64
<PAGE>   70

or powers under the indenture at the request or direction of any of the Holders
of notes, unless such Holders shall have offered to the Trustee reasonable
indemnity. Subject to such provisions for the indemnification of the Trustee,
the Holders of a majority in aggregate principal amount of the outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust or
power conferred on such Trustee.

     If an Event of Default with respect to the notes (other than an Event of
Default with respect to the Company described in clause (8) of the first
paragraph of this section) occurs and is continuing, the Trustee or the Holders
of at least 25% in aggregate principal amount of the outstanding notes, by
notice in writing to the Trustee and the Company, may declare the unpaid
principal of (and premium, if any) and accrued interest to the date of
acceleration on all the outstanding notes to be due and payable immediately and,
upon any such declaration, such principal amount (and premium, if any) and
accrued interest, notwithstanding anything contained in the indenture or the
notes to the contrary will become immediately due and payable; provided,
however, that so long as the Senior Credit Facility shall be in full force and
effect, if an Event of Default shall have occurred and be continuing (other than
an Event of Default with respect to the Company described in clause (8) of the
first paragraph of this section), the notes shall not become due and payable
until the earlier to occur of (A) five Business Days following delivery of
written notice of such acceleration of the notes to the agent under the Senior
Credit Facility and (B) the acceleration (ipso facto or otherwise) of any
Indebtedness under the Senior Credit Facility. If an Event or Default specified
in clause (8) of the first paragraph of this section with respect to the Company
occurs under the indenture, the notes will ipso facto become immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holder of the notes.

     Notwithstanding the foregoing, in the event of a declaration of
acceleration in respect of the notes because an Event of Default specified in
clause (6) above shall have occurred and be continuing, such declaration of
acceleration of the notes and such Event of Default shall be automatically
annulled and rescinded and be of no further effect if the Indebtedness that is
the subject of such Event of Default has been discharged or paid in full or such
Event of Default shall have been cured or waived by holders of such Indebtedness
and if such Indebtedness or such Event or Default shall have been accelerated,
then the holders thereof have rescinded their declaration of acceleration in
respect of such Indebtedness and written notice of such discharge, cure or
waiver and rescission, as the case may be, shall have been given to the Trustee
within 60 days after such declaration of acceleration in respect of the notes by
the Company or by the requisite holders of such Indebtedness or a trustee,
fiduciary or agent for such holders or other evidence satisfactory to the
Company of such events is provided to the Trustee and no other Event of Default
shall be occurred which has not been cured or waived during such 60-day period.

     Any such declaration with respect to the notes may be annulled by the
Holders of a majority in aggregate principal amount of the outstanding notes
upon the conditions provided in the indenture. For information as to waiver of
defaults, see "Modification and Waiver" below.

     The indenture provides that the Trustee shall, within 30 days after the
occurrence of any Default or Event of Default with respect to the notes
outstanding, give the Holders of the notes thereof notice of all uncured
Defaults or Events of Default thereunder known to it. Except in the case of a
Default or an Event of Default in payment with respect to the notes or a Default
or Event of Default in complying with "Certain Covenants -- Merger, Sale of
Assets, etc." above, the Trustee may withhold such notice if and so long as a
committee of its trust officers in good faith determines that the withholding of
such notice is in the interest of the Holders of the notes.

     No Holder of any note will have any right to institute any proceeding with
respect to the indenture or for any remedy thereunder, unless such Holder shall
have previously given to the Trustee written notice of a continuing Event of
Default thereunder and unless the Holders of at least 25% of the aggregate
principal amount of the outstanding notes shall have made written request, and
offered reasonable indemnity, to the Trustee to institute such proceeding as the
Trustee, and the Trustee shall have not have received from the Holders of a
majority in aggregate principal amount of such outstanding notes a direction
inconsistent with such request and shall have failed to institute such
proceeding within 60 days. However, such limitations

                                       65
<PAGE>   71

do not apply to a suit instituted by a Holder of such a note for enforcement of
payment of the principal of and premium, if any, or interest on such note on or
after the respective due dates expressed in such note.

     The Company will be required to furnish to the Trustee annually a statement
as to the performance by it of certain of its obligations under the indenture
and as to any default in such performance. The Company is also required to
notify the Trustee within 30 days of becoming aware of a Default.

NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATOR AND
STOCKHOLDERS

     No director, officer, employee, incorporator or stockholder of the Company
or any of its Affiliates, as such, shall have any liability for any obligations
of the Company or any of its Affiliates under the notes or the indenture or for
any claim based on, in respect of, or by reason of, such obligations or their
creation. Each holder of notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the notes.

SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE

     The indenture will be discharged and the Company's and the Guarantors'
substantive obligations in respect of the notes will cease when either:

          (1) (A) all notes theretofore authenticated and delivered have been
     delivered to the Trustee for cancellation or (B) all notes not theretofore
     delivered to the Trustee for cancellation (i) have become due and payable,
     (ii) will become due and payable at their Stated Maturity within one year
     or (iii) are to be called for redemption within one year under arrangements
     satisfactory to the Trustee for the giving of notice of redemption by the
     Trustee in the name, and at the expense of, the Company;

          (2) the Company has deposited or caused to be deposited with the
     Trustee, in trust for the benefit of the holders of the notes, all sums
     payable by it on account of principal of, premium, if any, and interest on
     all notes (except lost, stolen or destroyed notes which have been replaced
     or paid) or otherwise, together with irrevocable instructions from the
     Company directing the Trustee to apply such funds to the payment thereof at
     the Stated Maturity or redemption date, as the case may be; and

          (3) complying with certain other requirements set forth in the
     indenture.

     In addition to the foregoing, the Company may, provided that no Default or
Event of Default has occurred and is continuing or would arise therefrom (or,
with respect to a Default or Event of Default specified in clause (8) of "Events
of Default" above, occurs at any time on or prior to the 91st calendar day after
the date of the Company deposits with the Trustee all sums payable by it on
account of principal of, premium, if any, and interest on all notes or otherwise
(it being understood that this condition shall not be deemed satisfied until
after such 91st day)) under the indenture and provided that no default under any
Senior Indebtedness would result therefrom, terminate its and the Guarantors'
substantive obligations in respect of the notes (except for its obligations to
pay the principal of (and premium, if any, on) and the interest on the notes and
the Guarantors' Guaranty thereof) by:

          (1) depositing with the Trustee, under the terms of an irrevocable
     trust agreement, money or United States Government Obligations sufficient
     to pay all remaining Indebtedness on such notes;

          (2) delivering to the Trustee either an Opinion of Counsel or a ruling
     directed to the Trustee from the Internal Revenue Service to the effect
     that the Holders of the notes will not recognize income, gain or loss for
     federal income tax purposes as a result of such deposit and termination of
     obligations; and

          (3) complying with certain other requirements set forth in the
     indenture.

                                       66
<PAGE>   72

     In addition, the Company may, provided that no Default or Event of Default
has occurred and is continuing or would arise therefrom (or, with respect to a
Default or Event of Default specified in clause (8) of "Events of Default"
above, occurs at any time on or prior to the 91st calendar day after the date of
such deposit (it being understood that this condition shall not be deemed
satisfied until after such 91st day)) under the indenture and provided that no
default under any Senior Indebtedness would result therefrom, terminate all of
its and the Guarantors' substantive obligations in respect of the notes
(including its obligations to pay the principal of (and premium, if any, on) and
interest on the notes and the Guarantors' Guaranty thereof) by:

          (1) depositing with the Trustee, under the terms of an irrevocable
     trust agreement, money or United States Government Obligations sufficient
     to pay all remaining Indebtedness on the notes;

          (2) delivering to the Trustee either a ruling directed to the Trustee
     from the Internal Revenue Service to the effect that the Holders of the
     notes will not recognize income, gain or loss for federal income tax
     purposes as a result of such deposit and termination of obligations or an
     Opinion of Counsel addressed to the Trustee based upon such a ruling or
     based on a change in the applicable federal tax law since the date of the
     indenture, to such effect; and

          (3) complying with certain other requirements set forth in the
     indenture.

     The Company may make an irrevocable deposit pursuant to these provisions
only if at such time it is not prohibited from doing so under the subordination
provisions of the indenture or certain covenants in the Senior Indebtedness and
the Company has delivered to the Trustee and any Paying Agent an Officers'
Certificate to that effect.

GOVERNING LAW

     The indenture, the notes and the Guaranties will be governed by the laws of
the State of New York without regard to principles of conflicts of laws.

MODIFICATION AND WAIVER

     Modifications and amendments of the indenture may be made by the Company,
the Guarantors, and the Trustee with the consent of the Holders of a majority in
aggregate principal amount of the outstanding notes (including consents obtained
in connection with a tender offer or exchange offer for the notes); provided,
however, that no such modification or amendment to the indenture may, without
the consent of the Holder of each note affected thereby:

          (1) change the maturity of the principal of or any installment of
     interest on any such Note or alter the optional redemption or repurchase
     provisions of any such note or the indenture in a manner materially adverse
     to the Holders of the notes;

          (2) reduce the principal amount (or the premium) of any such note;

          (3) reduce the rate of or extend the time for payment of interest on
     any such note;

          (4) change the currency of payment of principal of (or premium) or
     interest on any such note;

          (5) impair the right of the Holders of notes to institute suit for the
     enforcement of any payment on or with respect to any such note or any
     Guaranty in respect thereof;

          (6) reduce the percentage of the principal amount of outstanding notes
     necessary for amendment to or waiver of compliance with any provision of
     the indenture or the notes or for waiver of any Default in respect thereof;

          (7) waive a Default in the payment of principal of, interest on, or
     redemption payment with respect to, the notes (except a rescission of
     acceleration of the notes by the Holders thereof as provided in the
     indenture and a waiver of the payment default that resulted from such
     acceleration);

                                       67
<PAGE>   73

          (8) modify the ranking or priority of any note or the Guaranty in
     respect thereof of any Guarantor or modify the definition of Senior
     Indebtedness or Guarantor Senior Indebtedness or amend or modify the
     subordination provisions of the indenture, in any case in any manner
     adverse to the Holders of the notes;

          (9) modify the provisions of any covenant (or the related definitions)
     in the indenture requiring the Company to make an Offer to Purchase
     following an event or circumstance which may give rise to the requirement
     to make an Offer to Purchase in a manner materially adverse to the Holders
     of notes affected thereby otherwise than in accordance with the indenture;
     or

          (10) release any Guarantor from any of its obligations under its
     Guaranty or the indenture otherwise than in accordance with the indenture.

     The Holders of a majority in aggregate principal amount of the outstanding
notes, on behalf of all Holders of notes, may waive compliance by the Company
and the Guarantors with certain restrictive provisions of the indenture. Subject
to certain rights of the Trustee, as provided in the indenture, the Holders of a
majority in aggregate principal amount of the notes, on behalf of all Holders,
may waive any past default under the indenture (including any such waiver
obtained in connection with a tender offer or exchange offer for the notes),
except a default in the payment of principal, premium or interest or a default
arising from failure to purchase any notes tendered pursuant to an Offer to
Purchase, or a default in respect of a provision that under the indenture cannot
be modified or amended without the consent of the Holder of each note that is
affected.

THE TRUSTEE

     Except during the continuance of a Default, the Trustee will perform only
such duties as are specifically set forth in the indenture. During the existence
of a Default, the Trustee will exercise such rights and powers vested in it
under the indenture and use the same degree of care and skill in its exercise as
a prudent person would exercise under the circumstances in the conduct of such
person's own affairs.

     The indenture contains limitations on the rights of the Trustee, should it
become a creditor of the Company, any Guarantor or any other obligor upon the
notes, to obtain payment of claims in certain cases or to realize on certain
property received by it in respect of any such claim as security or otherwise.
The Trustee is permitted to engage in other transactions with the Company or an
Affiliate of the Company; provided, however, that if it acquires any conflicting
interest, it must eliminate such conflict or resign.

CERTAIN DEFINITIONS

     Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full definition of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.

     "Accounts Receivable Subsidiary" means any Subsidiary of the Company that
is, directly or indirectly, wholly owned by the Company (other than director
qualifying shares) and engaged solely in (1) purchasing, financing and
collecting accounts receivable obligations of customers of the Company or its
Subsidiaries, (2) the sale or financing of such accounts receivable or interest
therein and (3) other activities incident thereto.

     "Acquired Indebtedness" means Indebtedness of a Person (1) assumed in
connection with an Acquisition from such Person or (2) existing at the time such
Person becomes a Restricted Subsidiary or is merged or consolidated with or into
the Company or any Restricted Subsidiary.

     "Acquired Person" means, with respect to any specified Person, any other
Person which merges with or into or becomes a Subsidiary of such specified
Person.

     "Acquisition" means (1) any capital contribution (by means of transfers of
cash or other property to others or payments for property or services for the
account or use of others, or otherwise) by the Company

                                       68
<PAGE>   74

or any Restricted Subsidiary to any other Person, or any acquisition or purchase
of Equity Interests of any other Person by the Company or any Restricted
Subsidiary, in either case pursuant to which such Person shall become a
Restricted Subsidiary or shall be consolidated with or merged into the Company
or any Restricted Subsidiary or (2) any acquisition by the Company or any
Restricted Subsidiary of the assets of any Person which constitute substantially
all of an operating unit or line of business of such Person or which is
otherwise outside of the ordinary course of business.

     "Additional Interest" has the meaning provided in the Registration Rights
Agreement.

     "AEA" means AEA Investors Inc., a Delaware corporation, or any legal
successor thereto as a result of a reorganization thereof that does not involve
any change in control thereof.

     "Affiliate" of any specified person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided, however,
that (i) only for purposes of compliance with the covenant described under
"Certain Covenants -- Transactions with Affiliates", beneficial ownership of
15.0% or more of the then outstanding Equity Interests of a Person shall be
deemed to be control; and (ii) no individual, other than a director of the
Company or an officer of the Company with a policy making function, shall be
deemed an Affiliate of the Company or any of its Subsidiaries, solely by reason
of such individual's employment, position or responsibilities by or with respect
to the Company or any of its Subsidiaries.

     "Asset Sale" means any direct or indirect sale, conveyance, transfer, lease
(that has the effect of a disposition) or other disposition (including, without
limitation, any merger, consolidation or sale-leaseback transaction) to any
Person other than the Company or a Wholly Owned Restricted Subsidiary, in one
transaction or a series of related transactions, of:

          (1) any Equity Interest of any Restricted Subsidiary;

          (2) any material license, franchise or other authorization of the
     Company or any Restricted Subsidiary;

          (3) any assets of the Company or any Restricted Subsidiary which
     constitute substantially all of an operating unit or line of business of
     the Company or any Restricted Subsidiary; or

          (4) any other property or asset of the Company or any Restricted
     Subsidiary outside of the ordinary course of business (including the
     receipt of proceeds paid on account of the loss of or damage to any
     property or asset and awards of compensation for any asset taken by
     condemnation, eminent domain or similar proceedings).

     For the purposes of this definition, the term "Asset Sale" shall not
include:

          (A) any transaction consummated in compliance with "Certain
     Covenants -- Merger, Sale of Assets, etc." above and the creation of any
     Lien not prohibited by "Certain Covenants -- Limitation on Liens" above;
     provided, however, that any transaction consummated in compliance with
     "Certain Covenants -- Merger, Sale of Assets, etc." above involving a sale,
     conveyance, assignment, transfer, lease or other disposal of less than all
     of the properties or assets of the Company shall be deemed to be an Asset
     Sale with respect to the properties or assets of the Company and the
     Restricted Subsidiaries that are not so sold, conveyed, assigned,
     transferred, leased or otherwise disposed of in such transaction;

          (B) sales of property or equipment that has become worn out, obsolete
     or damaged or otherwise unsuitable for use in connection with the business
     of the Company or any Restricted Subsidiary;

                                       69
<PAGE>   75

          (C) any transaction consummated in compliance with "Certain
     Covenants -- Limitation on Restricted Payments" above;

          (D) sales of accounts receivable for cash at fair market value;

          (E) any sale, conveyance or transfer of accounts receivable in the
     ordinary course of business to an Accounts Receivable Subsidiary or to
     third parties that are not Affiliates of the Company or any Subsidiary of
     the Company;

          (F) any transaction or series of related transactions involving assets
     with a Fair Market Value not in excess of $500,000;

          (G) the sale of equipment to the extent that such equipment is
     exchanged for credit against the purchase price of similar replacement
     equipment, or the proceeds of such sale are reasonably promptly applied to
     the purchase price of similar replacement equipment;

          (H) in the ordinary course of business, the license of patents,
     trademarks, copyrights and know-how to third Persons;

          (I) a Restricted Payment that is permitted by the "Limitation on
     Restricted Payments" covenant; and

          (J) the sale, conveyance, transfer or disposition by the Company or a
     Restricted Subsidiary (1) constituting or pursuant to a Permitted Lien or
     (2) of Equity Interests in an Unrestricted Subsidiary.

     "Board Resolution" means, with respect to any Person, a duly adopted
resolution of the Board of Directors of such Person.

     "Business Day" means a day that is not a Saturday, a Sunday or a day on
which banking institutions in New York, New York or the State of Illinois are
not required to be open.

     "Capital Expenditure Indebtedness" means any Indebtedness of the Company or
any Restricted Subsidiary (whether consisting of Capital Lease Obligations,
Purchase Money Indebtedness or otherwise) incurred (x) for the purpose of
refinancing all or any part of the purchase price, cost of construction or
improvement of any fixed or capital assets used in a Related Business and (y) no
later than 180 days after the date of such acquisition or the date of completion
of such construction or improvement.

     "Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be so required to be capitalized on the balance sheet in accordance
with GAAP.

     "Cash Equivalents" means:

          (1) U.S. dollars and any other currency that is convertible into U.S.
     dollars without legal restrictions and which is utilized by the Company or
     any of the Restricted Subsidiaries in the ordinary course of its business;

          (2) securities issued or directly and fully guarantied or insured by
     the U.S. government or any agency or instrumentality thereof having
     maturities of not more than one year from the date of acquisition;

          (3) certificates of deposit and time deposits with maturities of one
     year or less from the date of acquisition, bankers' acceptances with
     maturities not exceeding one year and overnight bank deposits, in each case
     with any commercial bank having capital and surplus in excess of $500.0
     million (or the foreign currency equivalent thereof);

          (4) repurchase obligations with a term of not more than seven days for
     underlying securities of the types described in clauses (2) and (3) above
     entered into with any financial institution meeting the qualifications
     specified in clause (3) above;

                                       70
<PAGE>   76

          (5) commercial paper rated P-1, A-1 or the equivalent thereof by
     Moody's Investors Service, Inc. or Standard & Poor's Ratings Group,
     respectively, and in each case maturing within one year after the date of
     acquisition;

          (6) any money market deposit accounts issued or offered by a financial
     institution meeting the qualifications specified in clause (3) above;

          (7) investments in funds investing primarily in investments of the
     type (1) through (6); and

          (8) other short-term investments utilized by Foreign Subsidiaries in
     accordance with normal investment practices for cash management not
     exceeding a dollar equivalent amount of $1,000,000 in the aggregate
     principal amount outstanding at any time.

     "Change of Control" means the occurrence of any of the following events
(whether or not approved by the Board of Directors of the Company):

          (1) any Person (as such term is used in Sections 13(d) and 14(d) of
     the Exchange Act, including any group acting for the purpose of acquiring,
     holding or disposing of securities within the meaning of Rule 13d-5(b)(1)
     under the Exchange Act), other than one or more Permitted Holders, is or
     becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
     the Exchange Act, except that a Person shall be deemed to have "beneficial
     ownership" of all shares that any such Person has the right to acquire,
     whether such right is exercisable immediately or only after the passage of
     time), directly or indirectly, of more than 50% of the total voting power
     of the then outstanding Voting Equity Interests of the Company or, so long
     as Holdings owns a majority of the Voting Equity Interests of the Company,
     Holdings (or, for so long as Holdings is a limited liability company, its
     managing member);

          (2) the Company consolidates with, or merges with or into, another
     Person (other than a Guarantor which is a Wholly Owned Restricted
     Subsidiary) or the Company or the Restricted Subsidiaries sell, assign,
     convey, transfer, lease or otherwise dispose of all or substantially all of
     the assets of the Company and the Restricted Subsidiaries (determined on a
     consolidated basis) to any Person (other than the Company or a Guarantor
     which is a Wholly Owned Restricted Subsidiary), other than any such
     transaction where immediately after such transaction the Person or Persons
     that "beneficially owned" (as defined in Rules 13d-3 and 13d-5 under the
     Exchange Act, except that a Person shall be deemed to have "beneficial
     ownership" of all securities that such Person has the right to acquire,
     whether such right is exercisable immediately or only after the passage of
     time) immediately prior to such transaction, directly or indirectly, the
     then outstanding Voting Equity Interests of the Company "beneficially own"
     (as so determined), directly or indirectly, a majority of the total voting
     power of the then outstanding Voting Equity Interests of the surviving or
     transferee Person; or

          (3) following the first public offering of Voting Equity Interests of
     the Company, during any period of two consecutive years, individuals who at
     the beginning of such period constituted the Board of Directors of the
     Company (together with any new directors whose election by such Board of
     Directors or whose nomination for election by the shareholders of the
     Company was approved by a vote of a majority of the directors of the
     Company then still in office who were either directors at the beginning of
     such period or whose election or nomination for election was previously so
     approved) cease for any reason to constitute a majority of the Board of
     Directors of the Company then in office.

     "Change of Control Date" has the meaning set forth under "Offer to Purchase
upon Change of Control" above.

     "Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of Consolidated EBITDA for the four quarter
period of the most recent four consecutive fiscal

                                       71
<PAGE>   77

quarters ending prior to the date of such determination (the "Four Quarter
Period") to (ii) Consolidated Interest Expense for such Four Quarter Period;
provided, however, that:

          (1) if the Company or any Restricted Subsidiary has incurred any
     Indebtedness since the beginning of such Four Quarter Period that remains
     outstanding on such date of determination or if the transaction giving rise
     to the need to calculate the Consolidated Coverage Ratio is an Incurrence
     of Indebtedness, Consolidated EBITDA and Consolidated Interest Expense for
     such Four Quarter Period shall be calculated after giving effect on a pro
     forma basis to such Indebtedness as if such Indebtedness had been Incurred
     on the first day of such Four Quarter Period and the discharge of any other
     Indebtedness repaid, repurchased or otherwise discharged with the proceeds
     of such new Indebtedness as if such discharge had occurred on the first day
     of such Four Quarter Period,

          (2) if the Company or any Restricted Subsidiary has repaid,
     repurchased, defeased, retired or otherwise discharged (a "Discharge") any
     Indebtedness since the beginning of such Four Quarter Period that no longer
     remains outstanding on such date of determination or if the transaction
     giving rise to the need to calculate the Consolidated Coverage Ratio
     involves a Discharge of Indebtedness, Consolidated EBITDA and Consolidated
     Interest Expense for such Four Quarter Period shall be calculated after
     giving effect on a pro forma basis to such Discharge of Indebtedness,
     including with the proceeds of any new Indebtedness, as if such Discharge
     (and Incurrence of new Indebtedness, if any) had occurred on the first day
     of such Four Quarter Period,

          (3) if since the beginning of such Four Quarter Period the Company or
     any Restricted Subsidiary shall have disposed of any business or group of
     assets in any Asset Sale, the Consolidated EBITDA for such Four Quarter
     Period shall be reduced by an amount equal to the Consolidated EBITDA (if
     positive) directly attributable to the assets that are the subject of such
     Asset Sale for such Four Quarter Period or increased by an amount equal to
     the Consolidated EBITDA (if negative) directly attributable thereto for
     such Four Quarter Period and Consolidated Interest Expense for such Four
     Quarter Period shall be reduced by an amount equal to the Consolidated
     Interest Expense directly attributable to any Indebtedness of the Company
     or any Restricted Subsidiary repaid, repurchased or otherwise discharged
     with respect to the Company and its continuing Restricted Subsidiaries in
     connection with such Asset Sale for such Four Quarter Period (or, if the
     Equity Interests of any Restricted Subsidiary are sold, the Consolidated
     Interest Expense for such Four Quarter Period directly attributable to the
     Indebtedness of such Restricted Subsidiary to the extent the Company and
     its continuing Restricted Subsidiaries are no longer liable for such
     Indebtedness after such sale),

          (4) if since the beginning of such Four Quarter Period the Company or
     any Restricted Subsidiary (by merger or otherwise) shall have made an
     Investment in any Restricted Subsidiary (or any Person that becomes a
     Restricted Subsidiary) or an acquisition of assets, including any
     acquisition of assets occurring in connection with a transaction causing a
     calculation to be made hereunder, which constitutes all or substantially
     all of an operating unit of a business, Consolidated EBITDA and
     Consolidated Interest Expense for such Four Quarter Period shall be
     calculated after giving pro forma effect thereto (including the Incurrence
     of any Indebtedness) as if such Investment or acquisition occurred on the
     first day of such Four Quarter Period and

          (5) if since the beginning of such Four Quarter Period any Person
     (that subsequently became a Restricted Subsidiary or was merged with or
     into the Company or any Restricted Subsidiary since the beginning of such
     Four Quarter Period) shall have made any Asset Sale or any Investment or
     acquisition of assets that would have required an adjustment pursuant to
     clause (3) or (4) above if made by the Company or a Restricted Subsidiary
     during such Four Quarter Period, Consolidated EBITDA and Consolidated
     Interest Expense for such Four Quarter Period shall be calculated after
     giving pro forma effect thereto as if such Asset Sale, Investment or
     acquisition of assets occurred on, with respect to any Investment or
     acquisition, the first day of such Four Quarter Period and, with respect to
     any Asset Sale, the day prior to the first day of such Four Quarter Period.

                                       72
<PAGE>   78

     For purposes of this definition, whenever pro forma effect is to be given
to an acquisition of assets, the amount of income or earnings and any cost
savings relating thereto and the amount of Consolidated Interest Expense
associated with any Indebtedness Incurred in connection therewith, the pro forma
calculations shall be determined in good faith by a responsible financial or
accounting officer of the Company. If any Indebtedness bears a floating rate of
interest and is being given pro forma effect, the interest expense on such
Indebtedness shall be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period (taking into
account any agreement under which Hedging Obligations relating to interest are
outstanding applicable to such Indebtedness if such agreement under which such
Hedging Obligations are outstanding has a remaining term as at the date of
determination in excess of 12 months).

     "Consolidated EBITDA" means, for any period, the Consolidated Net Income
for such period, minus any non-cash item increasing Consolidated Net Income
during such period, plus the following to the extent deducted in calculating
such Consolidated Net Income:

          (1) Consolidated Income Tax Expense for such period;

          (2) Consolidated Interest Expense for such period;

          (3) depreciation expense for such period;

          (4) amortization expense for such period; and

          (5) all other non-cash items reducing Consolidated Net Income for such
     period (other than any non-cash item requiring an accrual or a reserve for
     cash disbursements in any future period (other than non-cash, non-recurring
     items related to restructuring operations (including severance payments) of
     the Company or any Restricted Subsidiary ("restructuring charges");
     provided that any cash disbursements relating to any such restructuring
     charges shall (notwithstanding GAAP or any other provision of the
     indenture) without duplication, reduce Consolidated EBITDA when made)).

     "Consolidated Income Tax Expense" means, with respect to the Company for
any period, the provision for Federal, state, local and foreign income taxes
payable by the Company and the Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP.

     "Consolidated Interest Expense" means, with respect to the Company for any
period, without duplication, the sum of:

          (1) the interest expense of the Company and the Restricted
     Subsidiaries for such period as determined on a consolidated basis in
     accordance with GAAP, including, without limitation, (a) the net cost under
     Hedging Obligations relating to interest, (b) the interest portion of any
     deferred payment obligation, (c) all commissions, discounts and other fees
     and charges owed with respect to letters of credit and bankers' acceptance
     financing and (d) all capitalized interest and all accrued interest, but
     excluding (I) amortization of fees and expenses incurred in connection with
     Company entering into a new credit agreement at the time of the acquisition
     by Holdings of approximately 75% of the Company's capital stock or the
     offering of the notes, (II) interest expense on deferred compensation or
     customer deposits and (III) amortization of deferred financing costs,
     discounts and other non-cash interest expense;

          (2) the interest component of Capital Lease Obligations paid, accrued
     and/or scheduled to be paid or accrued by the Company and the Restricted
     Subsidiaries during such period as determined on a consolidated basis in
     accordance with GAAP; and

          (3) dividends and distributions in respect of Disqualified Equity
     Interests of the Company (other than dividends or distributions consisting
     solely of Qualified Equity Interests) during such period as determined on a
     consolidated basis in accordance with GAAP.

     "Consolidated Leverage Ratio" means, on any date of determination, the
ratio of (i) the aggregate amount of Indebtedness of the Company and the
Restricted Subsidiaries on a consolidated basis
                                       73
<PAGE>   79

outstanding on such date to (ii) the aggregate amount of Consolidated EBITDA for
the then most recent Four Quarter Period; provided, however, that

          (1) if since the beginning of such Four Quarter Period the Company or
     any Restricted Subsidiary shall have disposed of any business or group of
     assets in any Asset Sale, the Consolidated EBITDA for such Four Quarter
     Period shall be reduced by an amount equal to the Consolidated EBITDA (if
     positive) directly attributable to the assets that are the subject of such
     Asset Sale for such Four Quarter Period or increased by an amount equal to
     the Consolidated EBITDA (if negative) directly attributable thereto for
     such Four Quarter Period,

          (2) if since the beginning of such Four Quarter Period the Company or
     any Restricted Subsidiary (by merger or otherwise) shall have made an
     Investment in any Restricted Subsidiary (or any Person that becomes a
     Restricted Subsidiary) or an acquisition of assets, including any
     acquisition of assets occurring in connection with a transaction causing a
     calculation to be made hereunder, which constitutes all or substantially
     all of an operating unit of a business, Consolidated EBITDA for such Four
     Quarter Period shall be calculated after giving pro forma effect thereto as
     if such Investment or acquisition occurred on the first day of such Four
     Quarter Period and

          (3) if since the beginning of such Four Quarter Period any Person
     (that subsequently became a Restricted Subsidiary or was merged with or
     into the Company or any Restricted Subsidiary since the beginning of such
     Four Quarter Period) shall have made any Asset Sale or any Investment or
     acquisition of assets that would have required an adjustment pursuant to
     clause (1) or (2) above if made by the Company or a Restricted Subsidiary
     during such Four Quarter Period, Consolidated EBITDA for such Four Quarter
     Period shall be calculated after giving pro forma effect thereto as if such
     Asset Sale, Investment or acquisition of assets occurred on, with respect
     to any Investment or acquisition, the first day of such Four Quarter Period
     and, with respect to any Asset Sale, the day prior to the first day of such
     Four Quarter period.

For purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets, the amount of income or earnings and any cost savings
relating thereto the pro forma calculations shall be determined in good faith by
a responsible financial or accounting officer of the Company.

     "Consolidated Net Income" means, for any period, the consolidated net
income (loss) of the Company and the Restricted Subsidiaries; provided, however,
that there shall not be included in such Consolidated Net Income:

          (1) any net income (loss) of any Person if such Person is not the
     Company or a Restricted Subsidiary, except that subject to the limitations
     contained in clause (4) below, the Company's equity in the net income of
     any such Person for such period shall be included in such Consolidated Net
     Income up to the aggregate amount of cash actually distributed by such
     Person during such period to the Company or a Restricted Subsidiary as a
     dividend or other distribution (subject, in the case of a dividend or other
     distribution to a Restricted Subsidiary, to the limitations contained in
     clause (3) below);

          (2) any net income (loss) of any person acquired by the Company or a
     Restricted Subsidiary in a pooling of interests transaction for any period
     prior to the date of such acquisition;

          (3) any net income (loss) of any Restricted Subsidiary if such
     Restricted Subsidiary is subject to restrictions, directly or indirectly,
     on the payment of dividends or the making of distributions by such
     Restricted Subsidiary, directly or indirectly, to the Company except that
     subject to the limitations contained in (4) below, the Company's equity in
     the net income of any such Restricted Subsidiary for such period shall be
     included in such Consolidated Net Income up to the aggregate amount of cash
     that could have been distributed by such Restricted Subsidiary during such
     period to the Company or another Restricted Subsidiary as a dividend
     (subject, in the case of a dividend that could have been made to another
     Restricted Subsidiary, to the limitation contained in this clause);

                                       74
<PAGE>   80

          (4) any gain or loss realized upon the sale or other disposition of
     any asset of the Company or the Restricted Subsidiaries (including pursuant
     to any sale/leaseback transaction) that is not sold or otherwise disposed
     of in the ordinary course of business and any gain or loss realized upon
     the sale or other disposition of any Equity Interests of any Person;

          (5) any extraordinary gain or loss;

          (6) the cumulative effect of a change in accounting principles;

          (7) all deferred financing costs written off in connection with the
     early extinguishment of Indebtedness under the Company's former credit
     agreement that was repaid and terminated on December 30, 1999, the
     Company's 9 1/2% notes due 2007, the Senior Credit Facility or the notes as
     recorded on the statement of operations in accordance with GAAP;

          (8) non-recurring charges related to any Acquisition by the Company or
     any Restricted Subsidiary occurring after the Issue Date as recorded on the
     statement of operations in accordance with GAAP;

          (9) non-cash, non-recurring charges as recorded on the statement of
     operations in accordance with GAAP;

          (10) unrealized gains or losses in respect of Hedge Agreements
     permitted by clause (6) of the "Limitation on Indebtedness" covenant as
     recorded on the statement of operations in accordance with GAAP; and

          (11) unrealized foreign currency transaction gains or losses in
     respect of Indebtedness of any Person denominated in a currency other than
     the functional currency of such Person and permitted to be Incurred under
     the "Limitation on Indebtedness covenant as recorded on the statement of
     operations in accordance with GAAP;

provided that in the case of clauses (7), (8), (9), (10) and (11) such amount or
charge shall be net of any tax or tax benefit to the Company or any of its
consolidated Subsidiaries resulting therefrom.

     "Consolidated Net Tangible Assets" means, with respect to any Person, the
total assets minus unamortized deferred tax assets, goodwill, patents,
trademarks, service marks, trade names, copyrights and all other items which
would be treated as intangibles, in each case on the most recent consolidated
balance sheet of such Person and its Restricted Subsidiaries prepared in
accordance with GAAP.

     "Contingent Note" means the $7.5 million subordinated note issued by the
Holdings to Sovereign Specialty Chemicals, L.P., payable upon the acquisition of
all or substantially all of the assets described therein and upon the conditions
described therein as in effect on the Issue Date.

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

     "Designated Senior Indebtedness" means (1) any Indebtedness outstanding
under the Senior Credit Facility and (2) any other Senior Indebtedness which, at
the time of determination, has an aggregate principal amount outstanding,
together with any commitments to lend additional amounts, of at least $15.0
million, if the instrument governing such Senior Indebtedness expressly states
that such Indebtedness is "Designated Senior Indebtedness" for purposes of the
indenture and a Board Resolution setting forth such designation by the Company
has been filed with the Trustee.

     "Designation" has the meaning set forth under "Certain
Covenants -- Designation of Unrestricted Subsidiaries" above.

     "Designation Amount" has the meaning set forth under "Certain
Covenants -- Designation of Unrestricted Subsidiaries" above.

     "Disposition" means, with respect to any Person, any merger, consolidation
or other business combination involving such Person (whether or not such Person
is the Surviving Person) or the sale,
                                       75
<PAGE>   81

assignment, transfer, lease, conveyance or other disposition of all or
substantially all of such Person's assets.

     "Disqualified Equity Interest" means any Equity Interest which, by its
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable at the option of the holder thereof), or upon the happening
of any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable, at the option of the holder thereof, in
whole or in part, or exchangeable into Indebtedness on or prior to the maturity
date of the notes; provided that any Equity Interest that would not constitute
Disqualified Equity Interests but for provisions thereof giving holders thereof
the right to require the issuer to purchase or redeem such Equity Interests upon
the occurrence of an "asset sale" or "change of control" occurring prior to the
maturity date of the notes shall not constitute Disqualified Equity Interests if
(1) the "asset sale" or "change of control" provisions applicable to such Equity
Interest are not more favorable in any respect to the holders of such Equity
Interests than the terms applicable to the notes and described under the
captions "Offer to Purchase upon Change of Control" and "Certain
Covenants -- Disposition of Proceeds of Asset Sales" and (2) any such
requirement only becomes operative after compliance with such terms applicable
to the notes, including the purchase of any notes tendered in respect of any
Offer.

     "Equity Interest" in any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited, in
such Person, including any Preferred Equity Interests.

     "Equity Offering" means, with respect to the Company, (1) an underwritten
primary public or private offering of Qualified Equity Interests of the Company
or (2) a purchase of Qualified Equity Interests of the Company which results in
net cash proceeds to the Company of at least $25.0 million by any Person which
(A) has a common equity market capitalization in excess of $500 million and (B)
is engaged in a Related Business.

     "Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the SEC thereunder.

     "Existing Indebtedness" means any Indebtedness of the Company and its
Restricted Subsidiaries in existence on the Issue Date until such amounts are
repaid; provided that Existing Indebtedness shall not include Indebtedness
repurchased or repaid with the proceeds of the offering of the notes.

     "Expiration Date" has the meaning set forth in the definition of "Offer to
Purchase" below.

     "Fair Market Value" means, with respect to any asset, the price (after
taking into account any liabilities relating to such assets) which could be
negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing and able buyer, neither of which is under any
compulsion to complete the transaction; provided, however, that the Fair Market
Value of any such asset or assets shall be determined conclusively by the Board
of Directors of the Company acting in good faith, and shall be evidenced by
resolutions of the Board of Directors of the Company delivered to the Trustee.

     "Foreign Subsidiary" means any Restricted Subsidiary of the Company that is
not organized under the laws of the United States of America or any state
thereof or the District of Columbia.

     "Four Quarter Period" has the meaning set forth in the definition of
"Consolidated Coverage Ratio" above.

     "GAAP" means, at any date of determination, generally accepted accounting
principles in effect in the United States which are applicable at the date of
determination and which are consistently applied for all applicable periods.

     "Guarantor" means (1) each of the Subsidiaries of the Company (other than
Foreign Subsidiaries) as of the Issue Date and their respective successors, and
(2) each other Restricted Subsidiary, formed,

                                       76
<PAGE>   82

created or acquired before or after the Issue Date, required to become a
Guarantor after the Issue Date pursuant to "Guaranties of the Notes" above.

     "Guarantor Senior Indebtedness" means, with respect to any Guarantor, at
any date:

          (1) all Obligations of such Guarantor under the Senior Credit
     Facility;

          (2) all Hedging Obligations of such Guarantor;

          (3) to the extent that it may constitute Indebtedness, Obligations of
     such Guarantor under stand-by letters of credit; and

          (4) all other Indebtedness of such Guarantor for borrowed money,
     including principal, premium, if any, and interest (including Post-Petition
     Interest) on such Indebtedness unless the instrument under which such
     Indebtedness of such Guarantor for money borrowed is Incurred expressly
     provides that such Indebtedness for money borrowed is not senior or
     superior in right of payment to such Guarantor's Guaranty of the notes, and
     all renewals, extensions, modifications, amendments or refinancings
     thereof.

     Notwithstanding the foregoing, Guarantor Senior Indebtedness shall not
include:

          (A) to the extent that it may constitute Indebtedness, any Obligation
     for federal, state, local or other taxes;

          (B) any Indebtedness among or between such Guarantor and any
     Subsidiary of such Guarantor;

          (C) to the extent that it may constitute Indebtedness, any Obligation
     in respect of any trade payable Incurred for the purchase of goods or
     materials, or for services obtained, in the ordinary course of business;

          (D) Indebtedness evidenced by such Guarantor's Guaranty of the notes;

          (E) Indebtedness of such Guarantor that is expressly subordinate or
     junior in right of payment to any other Indebtedness of such Guarantor;

          (F) to the extent that it may constitute Indebtedness, any obligation
     owing under leases (other than Capitalized Lease Obligations) or management
     agreements; and

          (G) any obligation that by operation of law is subordinate to any
     general unsecured obligations of such Guarantor.

     "guaranty" means, as applied to any obligation, (1) a guaranty (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), direct or indirect, in any manner, of any part or all of such
obligation and (2) an agreement, direct or indirect, contingent or otherwise,
the practical effect of which is to assure in any way the payment or performance
(or payment of damages in the event of non-performance) of all or any part of
such obligation, including, without limiting the foregoing, the payment of
amounts drawn down by letters of credit. A guaranty shall include, without
limitation, any agreement to maintain or preserve any other Person's financial
condition or to cause any other Person to achieve certain levels of operating
results.

     "Guaranty" means the guaranty of the notes by each Guarantor under the
indenture.

     "Hedging Obligations" means, with respect to any Person, the Obligations of
such Person under (1) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements, (2) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates and (3) foreign currency or commodity hedge, exchange or similar
protection agreements (agreements referred to in this definition being referred
to herein as "Hedging Agreements").

     "Holder" means the registered holder of any note.

     "Holdings" means SSCI Investors LLC, a Delaware limited liability company,
and its successors.

                                       77
<PAGE>   83

     "Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guaranty or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "Incurrence," "Incurred" and "Incurring" shall have meanings
correlative to the foregoing). Indebtedness of any Acquired Person or any of its
Subsidiaries existing at the time such Acquired Person becomes a Restricted
Subsidiary (or is merged into or consolidated with the Company or any Restricted
Subsidiary), whether or not such Indebtedness was Incurred in connection with,
as a result of, or in contemplation of, such Acquired Person becoming a
Restricted Subsidiary (or being merged into or consolidated with the Company or
any Restricted Subsidiary), shall be deemed Incurred at the time any such
Acquired Person becomes a Restricted Subsidiary or merges into or consolidates
with the Company or any Restricted Subsidiary.

     "Indebtedness" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and whether
or not contingent:

          (1) every obligation of such Person for money borrowed;

          (2) every obligation of such Person evidenced by bonds, debentures,
     notes or other similar instruments, including obligations incurred in
     connection with the acquisition of property, assets or businesses;

          (3) every reimbursement obligation of such Person with respect to
     letters of credit, bankers' acceptances or similar facilities issued for
     the account of such Person;

          (4) every obligation of such Person issued or assumed as the deferred
     purchase price of property or services (but excluding (A) earnout or other
     similar obligations until such time as the amount of such obligation is
     capable of being determined and its payment is probable, (B) trade accounts
     payable incurred in the ordinary course of business and payable in
     accordance with industry practices, or (C) other accrued liabilities
     arising in the ordinary course of business which are not overdue or which
     are being contested in good faith);

          (5) every Capital Lease Obligation of such Person;

          (6) every net obligation under Hedging Agreements of such Person;

          (7) every obligation of the type referred to in clauses (1) through
     (6) of another Person and all dividends of another Person the payment of
     which, in either case, such Person has guarantied or is responsible or
     liable for, directly or indirectly, as obligor, guarantor or otherwise; and

          (8) any and all deferrals, renewals, extensions and refundings of, or
     amendments, modifications or supplements to, any liability of the kind
     described in any of the preceding clauses (1) through (7) above.

     Indebtedness:

          (A) shall never be calculated taking into account any cash and cash
     equivalents held by such Person;

          (B) shall not include obligations of any Person (1) arising from the
     honoring by a bank or other financial institution of a check, draft or
     similar instrument inadvertently drawn against insufficient funds in the
     ordinary course of business, provided that such obligations are
     extinguished within two Business Days of their incurrence, (2) resulting
     from the endorsement of negotiable instruments for collection in the
     ordinary course of business and consistent with past business practices and
     (3) under stand-by letters of credit to the extent collateralized by cash
     or Cash Equivalents;

          (C) which provides that an amount less than the principal amount
     thereof shall be due upon any declaration of acceleration thereof shall be
     deemed to be incurred or outstanding in an amount equal to the accreted
     value thereof at the date of determination;
                                       78
<PAGE>   84

          (D) shall include the liquidation preference and any mandatory
     redemption payment obligations in respect of any Disqualified Equity
     Interests of the Company or any Preferred Equity Interest of any Restricted
     Subsidiary; and

          (E) shall not include obligations under performance bonds, performance
     guaranties, surety bonds and appeal bonds, letters of credit or similar
     obligations, incurred in the ordinary course of business.

     For purposes of determining compliance with any U.S. dollar-denominated
restriction on the Incurrence of Indebtedness denominated in a foreign currency,
the U.S. dollar-equivalent principal amount of such Indebtedness Incurred
pursuant thereto shall be calculated based on the relevant currency exchange
rate in effect on the date that such Indebtedness was Incurred if such
Indebtedness is Incurred to refinance other Indebtedness denominated in a
foreign currency, and such refinancing would cause the applicable U.S.
dollar-denominated restriction to be exceeded if calculated at the relevant
currency exchange rate in effect on the date of such refinancing, such U.S.
dollar-denominated restriction shall be deemed not to have been exceeded so long
as the principal amount of such refinancing Indebtedness does not exceed the
principal amount of such Indebtedness being refinanced. The principal amount of
any Indebtedness Incurred to refinance other Indebtedness, if Incurred in a
different currency from the Indebtedness being refinanced, shall be calculated
based on the currency exchange rate applicable to the currencies in which such
respective Indebtedness is denominated that is in effect on the date of such
refinancing.

     In addition, for the purpose of avoiding duplication in calculating the
outstanding principal amount of Indebtedness for purposes of the "Limitation on
Indebtedness" covenant of the indenture, Indebtedness arising solely by reason
of the existence of a Lien permitted under the "Limitation on Liens" covenant of
the indenture to secure other Indebtedness permitted to be Incurred under the
"Limitation on Indebtedness" covenant of the indenture will not be considered to
be incremental Indebtedness.

     "Independent Financial Advisor" means a nationally recognized accounting,
appraisal, investment banking firm or consultant that is, in the judgment of the
Company's Board of Directors, qualified to perform the task for which it has
been engaged (1) which does not, and whose directors, officers and employees or
Affiliates do not, have a direct or indirect financial interest in the Company
and (2) which, in the judgment of the Board of Directors of the Company, is
otherwise independent and qualified to perform the task for which it is to be
engaged.

     "Insolvency or Liquidation Proceeding" means, with respect to any Person,
any liquidation, dissolution or winding up of such Person, or any bankruptcy,
reorganization, insolvency, receivership or similar proceeding with respect to
such Person, whether voluntary or involuntary.

     "interest" means, with respect to the notes, the sum of any cash interest
and any Additional Interest on the notes.

     "Investment" means, with respect to any Person, any direct or indirect
loan, advance, guaranty or other extension of credit or capital contribution to
(by means of transfers of cash or other property or assets to others or payments
for property or services for the account or use of others, or otherwise), or
purchase or acquisition of capital stock, bonds, notes, debentures or other
securities or evidences of Indebtedness issued by, any other Person. The amount
of any Investment shall be the original cost of such Investment, plus the cost
of all additions thereto, and minus the amount of any portion of such Investment
repaid to such Person in cash as a repayment of principal or a return of
capital, as the case may be, but without any other adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to such
Investment. In determining the amount of any Investment involving a transfer of
any property or asset other than cash, such property shall be valued at its fair
market value at the time of such transfer, as determined in good faith by the
Board of Directors (or comparable body) of the Person making such transfer.
Investments shall not include loans and advances made to employees to the extent
such loan or advance is used to purchase Qualified Equity Interests from the
Company (provided that any such purchase shall be excluded from clause (III)(B)
of the first paragraph of "-- Certain Covenants --

                                       79
<PAGE>   85

Limitation on Restricted Payments" until such loan or advance has been repaid in
cash by such employee).

     "Issue Date" means the original issue date of the notes.

     "Junior Subordinated Seller Notes" means the $3.0 million aggregate
principal amount 8% Note due 2002 issued by the Company held by Laporte plc, the
$900,000 aggregate principal amount Note due 2000 issued by Pierce & Stevens
held by K.J. Quinn & Co., Inc., and the related obligation to pay $100,000 to
K.J. Quinn & Co. Inc. under the noncompetition agreement entered into by K.J.
Quinn & Co., Inc.

     "Lien" means any lien, mortgage, charge, security interest, hypothecation,
assignment for security or encumbrance of any kind (including any conditional
sale or capital lease or other title retention agreement, any lease in the
nature thereof, and any agreement to give any security interest).

     "Management Agreement" means the Management Agreement dated as of March 9,
2000, between AEA and the Company, as amended or renewed to the extent permitted
under the indenture.

     "Maturity Date" means March 15, 2010.

     "Net Cash Proceeds" means the aggregate proceeds in the form of cash or
Cash Equivalents received by the Company or any Restricted Subsidiary in respect
of any Asset Sale, including all cash or Cash Equivalents received upon any
sale, liquidation or other exchange of proceeds of Asset Sales received in a
form other than cash or Cash Equivalents, net of:

          (1) the direct costs relating to such Asset Sale (including, without
     limitation, legal, accounting and investment banking fees, and sales
     commissions) and any relocation expenses incurred as a result thereof;

          (2) taxes paid or payable as a result thereof;

          (3) amounts required to be applied to the repayment of Indebtedness
     secured by a Lien on the asset or assets that were the subject of such
     Asset Sale;

          (4) amounts deemed, in good faith, appropriate by the Board of
     Directors of the Company to be provided as a reserve, in accordance with
     GAAP, against any liabilities associated with such assets which are the
     subject of such Asset Sale (provided that the amount of any such reserves
     shall be deemed to constitute Net Cash Proceeds at the time such reserves
     shall have been released or are not otherwise required to be retained as a
     reserve); and

          (5) cash payments attributable to Persons owning an interest in the
     assets subject to the Asset Sale.

     "Obligations" means any principal, interest (including, without limitation,
Post-Petition Interest), penalties, fees, indemnifications, reimbursement
obligations, damages and other liabilities payable under the documentation
governing any Indebtedness.

     "Offer" has the meaning set forth in the definition of "Offer to Purchase"
below.

     "Offer to Purchase" means a written offer (the "Offer") sent by or on
behalf of the Company by first-class mail, postage prepaid, to each Holder at
his address appearing in the register for the notes on the date of the Offer
offering to purchase up to the principal amount of notes specified in such Offer
at the purchase price specified in such Offer (as determined pursuant to the
indenture). Unless otherwise required by applicable law, the Offer shall specify
an expiration date (the "Expiration Date") of the Offer to Purchase, which shall
be not less than 20 Business Days nor more than 60 days after the date of such
Offer, and a settlement date (the "Purchase Date") for purchase of notes to
occur no later than five Business Days after the Expiration Date. The Company
shall notify the Trustee at least 5 Business Days (or such shorter period as is
acceptable to the Trustee) prior to the mailing of the Offer of the Company's
obligation to make an Offer to Purchase, and the Offer shall be mailed by the
Company or, at the Company's request, by the Trustee in the name and at the
expense of the Company. The Offer shall

                                       80
<PAGE>   86

contain all the information required by applicable law to be included therein.
The Offer shall also contain information concerning the business of the Company
and its Subsidiaries which the Company in good faith believes will enable such
Holders to make an informed decision with respect to the Offer to Purchase,
which at a minimum will include:

          (1) the most recent annual and quarterly financial statements and
     "Management's Discussion and Analysis of Financial Condition and Results of
     Operations" contained in the documents required to be filed with the
     Trustee pursuant to the indenture (which requirements may be satisfied by
     delivery of such documents together with the Offer);

          (2) a description of material developments in the Company's business
     subsequent to the date of the latest of such financial statements referred
     to in clause (1) (including a description of the events requiring the
     Company to make the Offer to Purchase);

          (3) if applicable, appropriate pro forma financial information
     concerning the Offer to Purchase and the events requiring the Company to
     make the Offer to Purchase; and

          (4) any other information required by applicable law to be included
     therein.

     The Offer shall contain all instructions and materials necessary to enable
such Holders to tender notes pursuant to the Offer to Purchase. The Offer shall
also state:

          (1) the Section of the indenture pursuant to which the Offer to
     Purchase is being made;

          (2) the Expiration Date and the Purchase Date;

          (3) the aggregate principal amount of the outstanding notes offered to
     be purchased by the Company pursuant to the Offer to Purchase (including,
     if less than 100%, the manner by which such amount has been determined
     pursuant to the Section of the indenture requiring the Offer to Purchase)
     (the "Purchase Amount");

          (4) the purchase price to be paid by the Company for each $1,000
     aggregate principal amount of notes accepted for payment (as specified
     pursuant to the indenture) (the "Purchase Price");

          (5) that the Holder may tender all or any portion of the notes
     registered in the name of such Holder and that any portion of a note
     tendered must be tendered in an integral multiple of $1,000 principal
     amount;

          (6) the place or places where notes are to be surrendered for tender
     pursuant to the Offer to Purchase;

          (7) that interest on any note not tendered or tendered but not
     purchased by the Company pursuant to the Offer to Purchase will continue to
     accrue;

          (8) that on the Purchase Date the Purchase Price will become due and
     payable upon each note being accepted for payment pursuant to the Offer to
     Purchase and that interest thereon shall cease to accrue on and after the
     Purchase Date;

          (9) that each Holder electing to tender all or any portion of a note
     pursuant to the Offer to Purchase will be required to surrender such note
     at the place or places specified in the Offer prior to the close of
     business on the Expiration Date (such note being, if the Company or the
     Trustee so requires, duly endorsed by, or accompanied by a written
     instrument of transfer in form satisfactory to the Company and the Trustee
     duly executed by, the Holder thereof or his attorney duly authorized in
     writing);

          (10) that Holders will be entitled to withdraw all or any portion of
     notes tendered if the Company (or its Paying Agent) receives, not later
     than the close of business on the Expiration Date, a telegram, telex,
     facsimile transmission or letter setting forth the name of the Holder, the
     principal amount of the note the Holder tendered, the certificate number of
     the note the Holder tendered and a statement that such Holder is
     withdrawing all or a portion of his tender;
                                       81
<PAGE>   87

          (11) that (a) if notes in an aggregate principal amount less than or
     equal to the Purchase Amount are duly tendered and not withdrawn pursuant
     to the Offer to Purchase, the Company shall purchase all such notes and (b)
     if notes in an aggregate principal amount in excess of the Purchase Amount
     are tendered and not withdrawn pursuant to the Offer to Purchase, the
     Company shall purchase notes having an aggregate principal amount equal to
     the Purchase Amount on a pro rata basis (with such adjustments as may be
     deemed appropriate so that only notes in denominations of $1,000 principal
     amount or integral multiples thereof shall be purchased); and

          (12) that in the case of any Holder whose note is purchased only in
     part, the Company shall execute and the Trustee shall authenticate and
     deliver to the Holder of such note without service charge, an exchange note
     or notes, of any authorized denomination as requested by such Holder, in an
     aggregate principal amount equal to and in exchange for the unpurchased
     portion of the note so tendered.

     An Offer to Purchase shall be governed by and effected in accordance with
the provisions above pertaining to any Offer.

     "Officer" means the Chairman, any Vice Chairman, the President, any Vice
President, the Chief Financial Officer, the Treasurer or the Secretary of the
Company.

     "Officers' Certificate" means a certificate signed by two Officers or by
one Officer and any Assistant Treasurer or the Assistant Secretary of the
Company and which complies with the provisions of the indenture.

     "Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee.

     "Pari Passu Debt" means Indebtedness of the Company or any Guarantor that
neither constitutes Senior Indebtedness or Guarantor Senior Indebtedness, as
applicable, or Subordinated Indebtedness.

     "Pari Passu Debt Pro Rata Share" means the amount of the applicable Net
Cash Proceeds obtained by multiplying the amount of such Net Cash Proceeds by a
fraction, (1) the numerator of which is the aggregate accreted value and/or
principal amount, as the case may be, of all Pari Passu Debt outstanding at the
time of the applicable Asset Sale with respect to which the Company is required
to use Net Cash Proceeds to repay or make an offer to purchase or repay and (2)
the denominator of which is the sum of (a) the aggregate principal amount of all
notes outstanding at the time of the applicable Asset Sale and (b) the aggregate
principal amount or the aggregate accreted value, as the case may be, of all
Pari Passu Debt outstanding at the time of the applicable Offer to Purchase with
respect to which the Company is required to use the applicable Net Cash Proceeds
to offer to repay or make an offer to purchase or repay.

     "Permitted Holder" means AEA and its current and future employees,
stockholders, directors and officers, Robert B. Covalt and the officers of the
Company, (i) trusts for the benefit of such Persons or the spouses, issue,
parents or other relatives of such Persons, (ii) entities controlling or
controlled by such Persons and (iii) in the event of the death of any such
individual Person, heirs or testamentary legatees of such Person.

     "Permitted Indebtedness" has the meaning set forth in the second paragraph
of "Certain Covenants -- Limitation on Indebtedness" above.

     "Permitted Investments" means:

          (1) Cash Equivalents;

          (2) Investments in prepaid expenses, negotiable instruments held for
     collection and lease, utility and workers' compensation, performance and
     other similar deposits;

          (3) loans and advances to employees made in the ordinary course of
     business not to exceed $2.0 million in the aggregate at any one time
     outstanding;

                                       82
<PAGE>   88

          (4) Hedging Obligations;

          (5) bonds, notes, debentures or other securities received as a result
     of Asset Sales in compliance with "Certain Covenants -- Disposition of
     Proceeds of Asset Sales" above and any "earn out" or similar right
     permitted under "Certain Covenants -- Disposition of Proceeds of Asset
     Sales";

          (6) transactions with officers, directors and employees of the Company
     or any Restricted Subsidiary entered into in the ordinary course of
     business (including compensation, employee benefit or indemnity
     arrangements with any such officer, director or employee) and consistent
     with past business practices;

          (7) Investments in existence or made pursuant to written commitments
     existing as of the Issue Date and any amendment, extension, renewal or
     modification thereof to the extent that any such amendment, extension,
     renewal or modification complies with the terms of the indenture;

          (8) any Investment to the extent that the consideration therefor
     consists of Qualified Equity Interests of the Company;

          (9) any Investment consisting of a guaranty by a Guarantor of Senior
     Indebtedness or any guaranty permitted under clause (6) of the second
     paragraph of "Limitation on Indebtedness" above;

          (10) Investments in Persons primarily engaged in a Related Business in
     an aggregate amount not to exceed $15.0 million;

          (11) Investments in the form of the sale (on a "true sale"
     non-recourse basis) or the servicing of receivables transferred from the
     Company or any Restricted Subsidiary, or transfers of cash, to an Accounts
     Receivable Subsidiary as a capital contribution or in exchange for
     Indebtedness of such Accounts Receivable Subsidiary or cash, in each case
     in the ordinary course of business;

          (12) Investments consisting of non-cash consideration received in the
     form of securities, notes or similar obligations in connection with
     dispositions of obsolete or worn out assets permitted pursuant to the
     indenture not at any time exceeding, in the case of all such notes and
     similar obligations, the amount of $5 million;

          (13) advances, loans or extensions of credit to suppliers in the
     ordinary course of business by the Company or any Restricted Subsidiary
     consistent with past practice as of the Issue Date; and

          (14) Investments (including debt obligations) received in connection
     with the bankruptcy or reorganization of suppliers and customers and in
     settlement of delinquent obligations of, and other disputes with, customers
     and suppliers arising in the ordinary course of business.

     "Permitted Junior Securities" means any securities of the Company or any
other Person that are:

          (1) equity securities without special covenants; or

          (2) subordinated in right of payment to all Senior Indebtedness that
     may at the time be outstanding, to substantially the same extent as, or to
     a greater extent than, the notes are subordinated as provided in the
     indenture, in any event pursuant to a court order so providing and as to
     which (a) the rate of interest on such securities shall not exceed the
     effective rate of interest on the notes on the date of the indenture, (b)
     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 of the indenture and
     (c) such securities shall not provide for amortization (including sinking
     fund and mandatory prepayment provisions) commencing prior to the date six
     months following the final scheduled maturity date of the Senior
     Indebtedness (as modified by the plan of reorganization of readjustment
     pursuant to which such securities are issued).

                                       83
<PAGE>   89

     "Permitted Liens" means:

          (1) Liens on property of a Person existing at the time such Person is
     merged into or consolidated with the Company or any Restricted Subsidiary;
     provided, however, that such Liens were in existence prior to the
     contemplation of such merger or consolidation and do not secure any
     property or assets of the Company or any Restricted Subsidiary other than
     the property or assets subject to the Liens prior to such merger or
     consolidation;

          (2) Liens imposed by law such as carriers', warehousemen's and
     mechanics' Liens and other similar Liens arising in the ordinary course of
     business which secure payment of obligations not more than 60 days past due
     or which are being contested in good faith and by appropriate proceedings;

          (3) Liens existing on the Issue Date;

          (4) Liens securing only the notes;

          (5) Liens in favor of the Company or any Restricted Subsidiary;

          (6) Liens for taxes, assessments or governmental charges or claims
     that are not yet delinquent or that are being contested in good faith by
     appropriate proceedings promptly instituted and diligently concluded;
     provided, however, that any reserve or other appropriate provision as shall
     be required in conformity with GAAP shall have been made therefor;

          (7) easements, reservation of rights of way, restrictions and other
     similar easements, licenses, restrictions on the use of properties, or
     minor imperfections of title that in the aggregate are not material in
     amount and do not in any case materially detract from the properties
     subject thereto or interfere with the ordinary conduct of the business of
     the Company and the Restricted Subsidiaries;

          (8) Liens resulting from the deposit of cash or notes in connection
     with contracts, tenders or expropriation proceedings, or to secure workers'
     compensation, surety or appeal bonds, costs of litigation when required by
     law and public and statutory obligations or obligations under franchise
     arrangements entered into in the ordinary course of business;

          (9) Liens securing Indebtedness consisting of Capitalized Lease
     Obligations, Purchase Money Indebtedness, mortgage financings, industrial
     revenue bonds or other monetary obligations, in each case incurred solely
     for the purpose of financing all or any part of the purchase price or cost
     of construction or installation of assets used in the business of the
     Company or the Restricted Subsidiaries, or repairs, additions or
     improvements to such assets, provided, however, that (I) such Liens secure
     Indebtedness in an amount not in excess of the original purchase price or
     the original cost of any such assets or repair, addition or improvement
     thereto (plus an amount equal to the reasonable fees and expenses in
     connection with the incurrence of such Indebtedness), (II) such Liens do
     not extend to any other assets of the Company or the Restricted
     Subsidiaries (and, in the case of repair, addition or improvements to any
     such assets, such Lien extends only to the assets (and improvements thereto
     or thereon) repaired, added to or improved), (III) the Incurrence of such
     Indebtedness is permitted by "Certain Covenants -- Limitation on
     Indebtedness" above and (IV) such Liens attach within 180 days of such
     purchase, construction, installation, repair, addition or improvement;

          (10) Liens to secure any refinancings, renewals, extensions,
     modifications or replacements (collectively, "refinancing") (or successive
     refinancings), in whole or in part, of any Indebtedness secured by Liens
     referred to in the clauses above so long as such Lien does not extend to
     any other property (other than improvements thereto);

          (11) Liens securing letters of credit entered into in the ordinary
     course of business and consistent with past business practice;

          (12) Liens on and pledges of the Equity Interests of any Unrestricted
     Subsidiary securing any Indebtedness of such Unrestricted Subsidiary;

                                       84
<PAGE>   90

          (13) Liens securing money borrowed (or any securities purchased
     therewith) which is (or are, in the case of securities) set aside at the
     time of the Incurrence of any Indebtedness permitted to be Incurred by
     "Certain Covenants -- Limitation on Indebtedness" above in order to prefund
     the payment of interest on such Indebtedness;

          (14) Liens arising solely by virtue of any statutory or common law
     provision relating to bankers' liens, rights of set-off or similar rights
     and remedies as to deposit accounts or other funds maintained with a credit
     or depository institution; provided that (A) such deposit account is not a
     dedicated cash collateral account and is not subject to restrictions
     against access by the Company or any Subsidiary in excess of those set
     forth by regulations promulgated by the Federal Reserve Board, and (B) such
     deposit account is not intended by the Company or any Subsidiary to provide
     collateral to the depository institution;

          (15) Liens evidenced by UCC financing statements regarding operating
     leases permitted by the indenture or in respect of consigned goods;

          (16) Liens consisting of judgment or judicial attachments liens
     (including prejudgment attachment); provided that the enforcement of such
     Liens is effectively stayed or payment of which is covered in full (subject
     to customary deductibles) by insurance or which do not otherwise result in
     an Event of Default;

          (17) Liens securing debt of Foreign Subsidiaries to the extent such
     Indebtedness is permitted by "Certain Covenants -- Limitation on
     Indebtedness" above;

          (18) any encumbrances or restriction (including any put and call
     arrangements) with respect to the Equity Interests of any joint venture
     agreement to which the Company or any of its Restricted Subsidiaries is a
     party;

          (19) Liens securing Hedging Agreements permitted under the indenture;
     and

          (20) Liens to secure Indebtedness or other obligations of any
     Receivables Subsidiary.

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

     "Post-Petition Interest" means, with respect to any Indebtedness of any
Person, all interest accrued or accruing on such Indebtedness after the
commencement of any Insolvency or Liquidation Proceeding against such Person in
accordance with and at the contract rate (including, without limitation, any
rate applicable upon default) specified in the agreement or instrument creating,
evidencing or governing such Indebtedness, whether or not, pursuant to
applicable law or otherwise, the claim for such interest is allowed as a claim
in such Insolvency or Liquidation Proceeding.

     "Preferred Equity Interest," in any Person, means an Equity Interest of any
class or classes (however designated) which is preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over Equity
Interests of any other class in such Person.

     "Purchase Amount" has the meaning set forth in the definition of "Offer to
Purchase" above.

     "Purchase Date" has the meaning set forth in the definition of "Offer to
Purchase" above.

     "Purchase Money Indebtedness" means Indebtedness of the Company or any
Restricted Subsidiary Incurred for the purpose of financing all or any part of
the purchase price or the cost of construction or improvement of any property,
provided that the aggregate principal amount of such Indebtedness does not
exceed the lesser of the Fair Market Value of such property or such purchase
price or cost, including any refinancing of such Indebtedness that does not
increase the aggregate principal amount (or accreted amount, if less) thereof as
of the date of refinancing.

                                       85
<PAGE>   91

     "Purchase Price" has the meaning set forth in the definition of "Offer to
Purchase" above.

     "Qualified Equity Interest" in any Person means any Equity Interest in such
Person other than any Disqualified Equity Interest.

     "Registration Rights Agreement" means the Registration Rights Agreement to
be dated as of March 29, 2000.

     "Related Business" means (1) those businesses in which the Company or any
of the Restricted Subsidiaries is engaged on the date of the indenture, or that
are reasonably related, ancillary, incidental or complementary thereto and (2)
any business (the "Other Business") which forms a part of a business (the
"Acquired Business") which is acquired by the Company or any of the Restricted
Subsidiaries if the primary intent of the Company or such Restricted Subsidiary
was to acquire that portion of the Acquired Business which meets the
requirements of clause (1) of this definition.

     "Restricted Subsidiary" means any Subsidiary of the Company that has not
been designated by the Board of Directors of the Company, by a resolution of the
Board of Directors of the Company delivered to the Trustee, as an Unrestricted
Subsidiary pursuant to "Certain Covenants -- Designation of Unrestricted
Subsidiaries" above. Any such designation may be revoked by a resolution of the
Board of Directors of the Company delivered to the Trustee, subject to the
provisions of such covenant.

     "SEC" means the Securities and Exchange Commission.

     "Senior Credit Facility" means the Credit Agreement, dated as of December
29, 1999, between the Company, the lenders named therein, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, as Joint Lead Arranger, Joint Book Manager and
Syndication Agent, J.P. Morgan Securities Inc., as Joint Lead Arranger, Joint
Book Manager and Documentation Agent and The Chase Manhattan Bank, as
Administrative Agent, including any deferrals, renewals, extensions,
replacements (which need not be in lieu of a corresponding reduction in
commitments under the aforementioned Credit Agreement), refinancings or
refundings thereof, or amendments, modifications or supplements thereto and any
agreement providing therefor (including any restatements thereof and any
increases in the amount of commitments thereunder), whether by or with the same
or any other lender, creditor, or any one or more group of lenders or group of
creditors (whether or not including any or all of the financial institutions
party to the aforementioned Credit Agreement), and including related notes,
guaranty and note agreements and other instruments and agreements executed in
connection therewith.

     "Senior Indebtedness" means, at any date,

          (1) all Obligations of the Company under the Senior Credit Facility;

          (2) all Hedging Obligations of the Company;

          (3) all Obligations of the Company under stand-by letters of credit;
     and

          (4) all other Indebtedness of the Company for borrowed money,
     including principal, premium, if any, and interest (including Post-Petition
     Interest) on such Indebtedness, unless the instrument under which such
     Indebtedness of the Company for money borrowed is Incurred expressly
     provides that such Indebtedness for money borrowed is not senior or
     superior in right of payment to the notes, and all renewals, extensions,
     modifications, amendments or refinancings thereof. Notwithstanding the
     foregoing, Senior Indebtedness shall not include (a) to the extent that it
     may constitute Indebtedness, any Obligation for federal, state, local or
     other taxes; (b) any Indebtedness among or between the Company and any
     Subsidiary of the Company, unless and for so long as such Indebtedness has
     been pledged to secure Obligations under the Senior Credit Facility; (c) to
     the extent that it may constitute Indebtedness, any Obligation in respect
     of any trade payable Incurred for the purchase of goods or materials, or
     for services obtained, in the ordinary course of business; (d) Indebtedness
     evidenced by the notes; (e) Indebtedness of the Company that is expressly
     pari passu with or subordinate or junior in right of payment to any other
     Indebtedness of the Company; (f) to the extent that it may constitute
     Indebtedness, any obligation owing under leases (other than Capital Lease

                                       86
<PAGE>   92

     Obligations) or management agreements; and (g) any obligation that by
     operation of law is subordinate to any general unsecured obligations of the
     Company.

     "Significant Restricted Subsidiary" means, at any date of determination:

          (1) any Restricted Subsidiary that, together with its Subsidiaries
     that constitute Restricted Subsidiaries (A) for the most recent fiscal year
     of the Company accounted for more than 5.0% of the consolidated revenues of
     the Company and the Restricted Subsidiaries or (B) as of the end of such
     fiscal year, owned more than 5.0% of the consolidated assets of the Company
     and the Restricted Subsidiaries, all as set forth on the consolidated
     financial statements of the Company and the Restricted Subsidiaries for
     such year prepared in conformity with GAAP, and

          (2) any Restricted Subsidiary which, when aggregated with all other
     Restricted Subsidiaries that are not otherwise Significant Restricted
     Subsidiaries and as to which any event described in clause (6), (7) or (8)
     of "Events of Default" above has occurred, would constitute a Significant
     Restricted Subsidiary under clause (1) of this definition.

     "Specified Indebtedness" means (1) any Indebtedness of the Company or any
Guarantor that is Pari Passu Debt or Subordinated Indebtedness or (2) any
Indebtedness of any Restricted Subsidiary that is subordinated to any other
Indebtedness of such Restricted Subsidiary, provided, however, that Specified
Indebtedness shall never include any Obligation arising under the Senior Credit
Facility or otherwise constituting Guarantor Senior Indebtedness or Senior
Indebtedness.

     "Stated Maturity," when used with respect to any note or any installment of
interest thereon, means the date specified in such note as the fixed date on
which the principal of such note or such installment of interest is due and
payable.

     "Subordinated Indebtedness" means, with respect to the Company or any
Guarantor, the Junior Subordinated Seller notes and any Indebtedness of the
Company or such Guarantor, as the case may be, which is expressly subordinated
in right of payment to the notes or such Guarantor's Guaranty, as the case may
be.

     "Subsidiary" means, with respect to any Person, (a) any corporation of
which the outstanding Voting Equity Interests having at least a majority of the
votes entitled to be cast in the election of directors shall at the time be
owned, directly or indirectly, by such Person, or (b) any other Person of which
at least a majority of Voting Equity Interests are at the time, directly or
indirectly, owned by such first named Person.

     "Surviving Person" means, with respect to any Person involved in or that
makes any Disposition, the Person formed by or surviving such Disposition or the
Person to which such Disposition is made.

     "United States Government Obligations" means direct non-callable
obligations of the United States of America for the payment of which the full
faith and credit of the United States is pledged.

     "Unrestricted Subsidiary" means any Subsidiary of the Company designated as
such pursuant to "Certain Covenants -- Designation of Unrestricted Subsidiaries"
above. Any such designation may be revoked by a resolution of the Board of
Directors of the Company delivered to the Trustee, subject to the provisions of
such covenant.

     "Unutilized Net Cash Proceeds" has the meaning set forth in the third
paragraph under "Certain Covenants -- Disposition of Proceeds of Asset Sales"
above.

     "Voting Equity Interests" means Equity Interests in a corporation or other
Person with voting power under ordinary circumstances entitling the holders
thereof to elect the Board of Directors or other governing body of such
corporation or Person.

     "Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (1) the sum of the
products obtained by multiplying (A) the

                                       87
<PAGE>   93

amount of each then remaining installment, sinking fund, serial maturity or
other required scheduled payment of principal, including payment of final
maturity, in respect thereof, by (B) the number of years (calculated to the
nearest one-twelfth) that will elapse between such date and the making of such
payment, by (2) the then outstanding aggregate principal amount of such
Indebtedness.

     "Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary all of
the outstanding Voting Equity Interests (other than directors' qualifying
shares) of which are owned, directly or indirectly, by the Company.

BOOK-ENTRY; DELIVERY AND FORM

     Exchange notes will be represented by a single, permanent global note in
definitive, fully registered book-entry form (the "Global Securities") which
will be registered in the name of a nominee of The Depository Trust Company
("DTC") and deposited on behalf of purchasers of the notes represented thereby
with a custodian for DTC for credit to the respective accounts of the purchasers
(or to such other accounts as they may direct) at DTC or will remain in the
custody of the trustee pursuant to the FAST Balance Certificate Agreement
between DTC and the trustee.

     The Global Securities. We expect that pursuant to procedures established by
DTC

          (1) upon deposit of the Global Securities, DTC or its custodian will
     credit on its internal system portions of the Global Securities which shall
     be comprised of the corresponding respective amount of the Global
     Securities to the respective accounts of persons who have accounts with
     such depositary and

          (2) ownership of the notes will be shown on, and the transfer of
     ownership of the notes will be effected only through, records maintained by
     DTC or its nominee (with respect to interests of participants (as defined
     below)) and the records of participants (with respect to interests of
     persons other than participants).

     Such accounts initially will be designated by or on behalf of the initial
purchaser and ownership of beneficial interests in the Global Securities will be
limited to persons who have accounts with DTC ("participants") or persons who
hold interests through participants. Noteholders may hold their interests in a
Global Security directly through DTC if they are participants in such system, or
indirectly through organizations which are participants in such system.

     So long as DTC or its nominee is the registered owner or holder of any of
the notes, DTC or such nominee will be considered the sole owner or holder of
such notes represented by such Global Securities for all purposes under the
indenture and under the notes represented thereby. No beneficial owner of an
interest in the Global Securities will be able to transfer such interest except
in accordance with the applicable procedures of DTC in addition to those
provided for under the indenture.

     Payments of the principal, premium, interest and other amounts on the notes
represented by the Global Securities will be made to DTC or its nominee, as the
case may be, as the registered owner of the notes represented by the Global
Securities. None of we, the trustee or any paying agent under the indenture will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of beneficial ownership interests in the Global
Securities or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interest.

     We expect that DTC or its nominee, upon receipt of any payment of the
principal, premium, interest or other amounts on the notes represented by the
Global Securities, will credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the Global Securities
as shown on the records of DTC or its nominee. We also expect that payments by
participants to owners of beneficial interests in the Global Securities held
through such participants will be governed by standing instructions and
customary practice as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Such payment
will be the responsibility of such

                                       88
<PAGE>   94

participants. Transfers between participants in DTC will be effected in
accordance with DTC rules and procedures and will be settled in immediately
available funds.

     DTC has advised us that it will take any action permitted to be taken by a
holder of notes (including the presentation of notes for exchange as described
below) only at the direction of one or more participants to whose account the
DTC interests in the Global Securities are credited and only in respect of the
aggregate principal amount of as to which such participant or participants has
or have given such direction.

     DTC has advised us that it is:

     - a limited purpose trust company organized under the laws of the State of
       New York,

     - a member of the Federal Reserve System,

     - a "clearing corporation" within the meaning of the New York Uniform
       Commercial Code and

     - a "clearing agency" registered pursuant to the provisions of Section 17A
       of the U.S. Securities Exchange Act of 1934, as amended.

     DTC was created to hold securities for its participants and facilitate the
clearance and settlement of securities transactions between participants through
electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks, trust companies and clearing corporations
and certain other organizations. Indirect access to the DTC system is available
to others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly ("indirect participants").

     Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interests in the Global Securities among participants of
DTC, DTC is under no obligation to perform such procedures, and such procedures
may be discontinued at any time. None of we, the trustee or the paying agent
will have any responsibility for the performance by DTC or its direct or
indirect participants of their respective obligations under the rules and
procedures governing their operations.

     Certificated Securities. Interests in the Global Securities will be
exchanged for physical delivery of certificates ("certificated securities") only
if

          (1) DTC is at any time unwilling or unable to continue as depositary
     for the Global Securities, or DTC ceases to be a "Clearing Agency"
     registered under the U.S. Securities Exchange Act of 1934, as amended, and
     a successor depositary is not appointed by us within 90 days or

          (2) an event of default under the indenture has occurred and is
     continuing with respect to the notes. Upon the occurrence of either of the
     events described in the preceding sentence, we will cause the appropriate
     certificated securities to be delivered, which certificated securities
     will, if applicable, bear legends restricting the transfer of the
     securities.

                                       89
<PAGE>   95

                               THE EXCHANGE OFFER

PURPOSE OF THE EXCHANGE OFFER

     We sold the outstanding notes to J.P. Morgan Securities Inc., Merrill
Lynch, Pierce, Fenner & Smith Incorporated and Chase Securities Inc., the
initial purchasers, on March 29, 2000. The initial purchasers subsequently
resold the outstanding notes to qualified institutional buyers pursuant to Rule
144A under the Securities Act and to non-U.S. persons outside the United States
in reliance on Regulation S under the Securities Act. In connection with the
issuance of the outstanding notes, we and the guarantor subsidiaries entered
into a registration rights agreement with the initial purchasers of the
outstanding notes. The registration rights agreement requires us to register the
exchange notes under the federal securities laws and offer to exchange the
exchange notes for the outstanding notes. The exchange notes will be issued
without a restrictive legend and generally may be resold without registration
under the federal securities laws. We are effecting the exchange offer to comply
with the registration rights agreement.

     The registration rights agreement requires us to

     - file with the Securities and Exchange Commission a registration statement
       for the exchange offer and the exchange notes on or before May 28, 2000

     - use our reasonable best efforts to cause the registration statement filed
       for the exchange offer and the exchange notes to be declared effective by
       the Securities and Exchange Commission on or before September 25, 2000

     - complete the exchange offer on or before October 25, 2000

     These requirements under the registration rights agreement will be
satisfied when we complete the exchange offer. However, if we fail to meet any
of these requirements, we must pay additional interest on the outstanding notes
at the rate of 0.25% per year until the applicable requirement has been met. We
must pay an additional 0.25% per year for each 90 days that a requirement has
not been met. However, we will not be required to pay more than 1.0% per year in
additional interest on the outstanding notes. Immediately following the
completion of a requirement, any additional interest with respect to that
particular requirement will cease to accrue. We have also agreed to keep the
registration statement for the exchange offer effective for at least 30 days (or
longer, if required by applicable law) after the date on which notice of the
exchange offer is mailed to holders.

     Under the registration rights agreement, our obligations to register the
exchange notes will terminate upon the completion of the exchange offer.
However, we will be required to file a "shelf" registration statement for a
continuous offering by the holders of the outstanding notes if

     - because of any change in law or applicable interpretations thereof by the
       staff of the Securities and Exchange Commission, we are not permitted to
       effect the exchange offer as contemplated by the registration rights
       agreement

     - any outstanding notes validly tendered pursuant to the exchange offer are
       not exchanged for exchange notes by January 23, 2001

     - any of the initial purchasers of the outstanding notes so requests with
       respect to outstanding notes not eligible to be exchanged for exchange
       notes in the exchange offer

     - any applicable law or interpretation thereof by the staff of the
       Securities and Exchange Commission does not permit any holder of
       outstanding notes to participate in the exchange offer

     - any holder of outstanding notes that participates in the exchange offer
       does not receive freely transferable exchange notes in exchange for
       tendered notes (other than due solely to the status of a holder (other
       than an initial purchaser) as an affiliate of Sovereign or the guarantors
       within the meaning of the federal securities laws, and other than any
       state securities law restrictions which,

                                       90
<PAGE>   96

       individually or in the aggregate, do not materially adversely affect the
       ability of any such holder to resell the securities held by such holder),
       or

     - we so elect

     If we are required to file a shelf registration statement, we will be
required to use our reasonable best efforts to keep the registration statement
effective for two years, subject to some exceptions. Additionally, under
specific circumstances we will have the ability to suspend the availability of
the shelf registration statement for up to two periods of 45 consecutive days
(except for the consecutive 45-day period immediately prior to maturity of the
notes). Other than as described above, no holder will have the right to require
us to file a shelf registration statement or otherwise register such holder's
notes under the federal securities laws.

     The registration rights agreement also provides that we

     - shall make available for a period of 180 days after the consummation of
       the exchange offer a prospectus meeting the requirements of the
       Securities Act to any broker-dealer for use in connection with any resale
       of any exchange notes, and

     - shall pay all expenses incident to the exchange offer and will indemnify
       holders of the notes (including any broker-dealer) against specified
       liabilities, including liabilities under the Securities Act. A
       broker-dealer that delivers a prospectus to purchasers in connection with
       such resales will be subject to some of the civil liability provisions
       under the Securities Act, and will be bound by the provisions of the
       registration rights agreement (including certain indemnification rights)

     A holder who sells notes pursuant to a shelf registration statement
generally will be required to provide us with specific information, be named as
a selling security holder in the related prospectus and deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the registration rights agreement which are applicable to such a
holder (including certain indemnification obligations).

     This summary includes only the material terms of the registration rights
agreement. For a full description, you should refer to the complete copy of the
registration rights agreement, which has been filed as an exhibit to the
registration statement for the exchange offer and the exchange notes. See "Where
You Can Find More Information."

TRANSFERABILITY OF THE EXCHANGE NOTES

     Based on an interpretation of the Securities Act by the staff of the
Securities and Exchange Commission in several no-action letters issued to third
parties, we believe that you, or any other person receiving such notes, may
offer for resale, resell or otherwise transfer the exchange notes without
complying with the registration and prospectus delivery requirements of the
federal securities laws, if

     - you, or the person or entity receiving such notes, are acquiring the
       exchange notes in the ordinary course of business

     - neither you nor any such person or entity is engaging in or intends to
       engage in a distribution of the exchange notes within the meaning of the
       federal securities laws

     - neither you nor any such person or entity has an arrangement or
       understanding with any person or entity to participate in any
       distribution of the exchange notes

     - neither you nor any such person or entity is an "affiliate" of Sovereign
       or the guarantors, as such term is defined under Rule 405 under the
       Securities Act, and

     - you are not acting on behalf of any person or entity who could not
       truthfully make these statements

                                       91
<PAGE>   97

     To participate in the exchange offer, you must represent as the holder of
outstanding notes that each of these statements is true.

     Any holder of the outstanding notes who is our affiliate or who intends to
participate in the exchange offer for the purpose of distributing the exchange
notes

     - will not be able to rely on the interpretation of the staff of the
       Securities and Exchange Commission set forth in the no-action letters
       described above

     - will not be able to tender notes in the exchange offer, and

     - must comply with the registration and prospectus delivery requirements of
       the Securities Act in connection with any sale or transfer of the notes,
       unless the sale or transfer is made pursuant to an exemption from those
       requirements

     Broker-dealers receiving exchange notes in exchange for outstanding notes
acquired for their own account through market-making or other trading activities
may not rely on this interpretation by the Securities and Exchange Commission.
Such broker-dealers may be deemed to be "underwriters" within the meaning of the
Securities Act and must therefore acknowledge, by signing the letter of
transmittal, that they will deliver a prospectus meeting the requirements of the
Securities Act in connection with resale of the exchange notes. The letter of
transmittal states that by acknowledging that it will deliver, and by
delivering, a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. The Securities and
Exchange Commission has taken the position that participating broker-dealers may
fulfill their prospectus delivery requirements with respect to the exchange
notes, other than a resale of an unsold allotment from the original sale of the
outstanding notes, with the prospectus contained in the exchange offer
registration statement. As described above, under the registration rights
agreement, we have agreed to allow participating broker-dealers and other
persons, if any, subject to similar prospectus delivery requirements to use the
prospectus contained in the exchange offer registration statement in connection
with the resale of the exchange notes. See "Plan of Distribution."

TERMS OF THE EXCHANGE OFFER; ACCEPTANCE OF TENDERED NOTES

     Upon the terms and subject to the conditions in this prospectus and in the
letter of transmittal, we will accept any and all outstanding notes validly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on
            , 2000. We will issue $1,000 principal amount of exchange notes in
exchange for each $1,000 principal amount of outstanding notes accepted in the
exchange offer. Holders may tender some or all of their notes pursuant to the
exchange offer. However, notes may be tendered only in integral multiples of
$1,000.

     The form and terms of the exchange notes are the same as the form and terms
of the outstanding notes except that

     - the exchange notes have been registered under the federal securities laws
       and will not bear any legend restricting their transfer

     - the exchange notes bear a Series B designation and a different CUSIP
       number from the outstanding notes, and

     - the holders of the exchange notes will not be entitled to certain rights
       under the registration rights agreement, including the provisions for an
       increase in the interest rate on the outstanding notes in some
       circumstances relating to the timing of the exchange offer

     The exchange notes will evidence the same debt as the outstanding notes.
Holders of exchange notes will be entitled to the benefits of the indenture.

     As of the date of this prospectus, $150.0 million aggregate principal
amount of notes was outstanding. We have fixed the close of business on
            , 2000 as the record date for the exchange offer for
                                       92
<PAGE>   98

purposes of determining the persons to whom this prospectus and the letter of
transmittal will be mailed initially. We intend to conduct the exchange offer in
accordance with the applicable requirements of the Securities Exchange Act of
1934 and the rules and regulations of the Securities and Exchange Commission
under the Securities Exchange Act of 1934.

     We shall be deemed to have accepted validly tendered notes when, and if we
have given oral or written notice to the exchange agent of our acceptance. The
exchange agent will act as agent for the tendering holders for the purpose of
receiving the exchange notes from us. If any tendered notes are not accepted for
exchange because of an invalid tender, the occurrence of other events in this
prospectus or otherwise, we will return the certificates for any unaccepted
notes, at our expense, to the tendering holder as promptly as practicable after
the expiration of the exchange offer.

     Holders who tender exchange notes in the exchange offer will not be
required to pay brokerage commissions or fees with respect to the exchange of
notes. Tendering holders will also not be required to pay transfer taxes in the
exchange offer. We will pay all charges and expenses in connection with the
exchange offer as described under the subheading "-- Solicitation of Tenders;
Fees and Expenses." However, we will not pay any taxes incurred in connection
with a holder's request to have exchange notes or non-exchanged notes issued in
the name of a person other than the registered holder. See "-- Transfer Taxes"
in this section below.

EXPIRATION DATE; EXTENSIONS; AMENDMENT

     The exchange offer will expire at 5:00 p.m., New York City time, on
          , 2000, unless we extend the exchange offer. To extend the exchange
offer, we will notify the exchange agent and each registered holder of any
extension before 9:00 a.m., New York City time, on the next business day after
the previously scheduled expiration date. We reserve the right to extend the
exchange offer, delay accepting any tendered notes or, if any of the conditions
described below under the heading "-- Conditions to the Exchange Offer" have not
been satisfied, to terminate the exchange offer. We also reserve the right to
amend the terms of the exchange offer in any manner. We will give oral or
written notice of such delay, extension, termination or amendment to the
exchange agent.

INTEREST ON THE EXCHANGE NOTES

     The exchange notes will bear interest from the most recent interest payment
date to which interest has been paid on the notes or, if no interest has been
paid, from March 29, 2000. Interest on the outstanding notes accepted for
exchange will cease to accrue upon the issuance of the exchange notes.

     Interest on the notes is payable semi-annually on each September 15 and
March 15, commencing on September 15, 2000.

PROCEDURES FOR TENDERING OUTSTANDING NOTES

     Only a holder of outstanding notes may tender notes in the exchange offer.
To tender in the exchange offer, you must

     - complete, sign and date the letter of transmittal, or a facsimile of the
       letter of transmittal

     - have the signatures guaranteed if required by the letter of transmittal,
       and

     - mail or otherwise deliver the letter of transmittal or such facsimile,
       together with the outstanding notes and any other required documents, to
       the exchange agent prior to 5:00 p.m., New York City time, on the
       expiration date

To tender outstanding notes effectively, you must complete the letter of
transmittal and other required documents and the exchange agent must receive all
the documents prior to 5:00 p.m., New York City time, on the expiration date.
Delivery of the outstanding notes may be made by book-entry transfer in

                                       93
<PAGE>   99

accordance with the procedures described below. The exchange agent must receive
confirmation of book-entry transfer prior to the expiration date.

     By executing the letter of transmittal you will make to us the
representations set forth in the first paragraph under the heading
"-- Transferability of the Exchange Notes."

     All tenders not withdrawn before the expiration date and the acceptance of
the tender by us will constitute agreement between you and us under the terms
and subject to the conditions in this prospectus and in the letter of
transmittal including an agreement to deliver good and marketable title to all
tendered notes prior to the expiration date free and clear of all liens,
charges, claims, encumbrances, adverse claims and rights and restrictions of any
kind.

     THE METHOD OF DELIVERY OF OUTSTANDING NOTES AND THE LETTER OF TRANSMITTAL
     AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION
     AND SOLE RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, YOU SHOULD USE AN
     OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, YOU SHOULD ALLOW FOR
     SUFFICIENT TIME TO ENSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE
     EXPIRATION OF THE EXCHANGE OFFER. YOU MAY REQUEST YOUR BROKER, DEALER,
     COMMERCIAL BANK, TRUST COMPANY OR NOMINEE TO EFFECT THESE TRANSACTIONS FOR
     YOU. YOU SHOULD NOT SEND ANY NOTE, LETTER OF TRANSMITTAL OR OTHER REQUIRED
     DOCUMENT TO US.

     If your notes are registered in the name of a broker, dealer, commercial
bank, trust company or other nominee and you desire to tender, you should
contact the registered holder promptly and instruct the registered holder to
tender on your behalf. See "Instruction to Registered Holder and/or Book-Entry
Transfer Facility Participant from Beneficial Owner" included with the letter of
transmittal.

     The exchange of notes will be made only after timely receipt by the
exchange agent of certificates for outstanding notes, a letter of transmittal
and all other required documents, or timely completion of a book-entry transfer.
If any tendered notes are not accepted for any reason or if outstanding notes
are submitted for a greater principal amount than the holder desires to
exchange, the exchange agent will return such unaccepted or non-exchanged notes
to the tendering holder promptly after the expiration or termination of the
exchange offer. In the case of outstanding notes tendered by book-entry
transfer, the exchange agent will credit the non-exchanged notes to an account
maintained with The Depository Trust Company.

GUARANTEE OF SIGNATURES

     Holders must obtain a guarantee of all signatures on a letter of
transmittal or a notice of withdrawal unless the outstanding notes are tendered

     - by a registered holder who has not completed the box entitled "Special
       Issuance Instructions" or "Special Delivery Instructions" on the letter
       of transmittal, or

     - for the account of an "eligible guarantor institution"

Signature guarantees must be made by a member of or participant in the
Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Program, the Stock Exchange Medallion Program, or by an
"eligible guarantor institution" within the meaning of Rule 17Ad-15 promulgated
under the Securities Exchange Act (namely, banks; brokers and dealers; credit
unions; national securities exchanges; registered securities associations;
learning agencies; and savings associations).

SIGNATURE ON THE LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS

     If the letter of transmittal is signed by a person other than the
registered holder of the outstanding notes listed in the letter of transmittal,
the registered holder must endorse the outstanding notes or provide a properly
completed bond power. Any such endorsement or bond power must be signed by the
registered holder as that registered holder's name appears on the outstanding
notes. Signatures on such outstanding notes and bond powers must be guaranteed
by an "eligible guarantor institution."

                                       94
<PAGE>   100

     If you sign the letter of transmittal or any outstanding notes or bond
power as a trustee, executor, administrator, guardian, attorney-in-fact, officer
of a corporation, fiduciary or in any other representative capacity, you must so
indicate when signing. You must submit satisfactory evidence to the exchange
agent of your authority to act in such capacity.

BOOK-ENTRY TRANSFER

     We understand that the exchange agent will make a request promptly after
the date of this prospectus to establish accounts with respect to the
outstanding notes at the book-entry transfer facility, The Depository Trust
Company, for the purpose of facilitating the exchange offer. Subject to the
establishment of the accounts, any financial institution that is a participant
in DTC's system may make book-entry delivery of outstanding notes by causing DTC
to transfer the notes into the exchange agent's account in accordance with DTC's
procedures for such transfer. However, although delivery of outstanding notes
may be effected through book-entry transfer into the exchange agent's account at
DTC, the letter of transmittal (or a manually signed facsimile of the letter of
transmittal) with any required signature guarantees, or an "agent's message" in
connection with a book-entry transfer, and any other required documents, must,
in any case, be transmitted to and received by the exchange agent, or the
guaranteed delivery procedures set forth below must be complied with, in each
case, prior to the expiration date. Delivery of documents to DTC does not
constitute delivery to the exchange agent.

     The exchange agent and DTC have confirmed that the exchange offer is
eligible for the DTC Automated Tender Offer Program. Accordingly, the DTC
participants may electronically transmit their acceptance of the exchange offer
by causing the DTC to transfer outstanding notes to the exchange agent in
accordance with DTC's Automated Tender Offer Program procedures for transfer.
Upon receipt of such holder's acceptance through the Automated Tender Offer
Program, DTC will edit and verify the acceptance and send an "agent's message"
to the exchange agent for its acceptance. Delivery of tendered notes must be
made to the exchange agent pursuant to the book-entry delivery procedures set
forth above, or the tendering DTC participant must comply with the guaranteed
delivery procedures set forth below.

     The term "agent's message" means a message transmitted by DTC, and received
by the exchange agent and forming part of the confirmation of a book-entry
transfer, which states that

     - DTC has received an express acknowledgment from the participant in DTC
       tendering notes subject to the book-entry confirmation

     - the participant has received and agrees to be bound by the terms of the
       letter of transmittal, and

     - we may enforce such agreement against such participant.

     In the case of an agent's message relating to guaranteed delivery, the term
means a message transmitted by DTC and received by the exchange agent, which
states that DTC has received an express acknowledgment from the participant in
DTC tendering notes that such participant has received and agrees to be bound by
the notice of guaranteed delivery.

DETERMINATION OF VALID TENDERS; SOVEREIGN'S RIGHTS UNDER THE EXCHANGE OFFER

     All questions as to the validity, form, eligibility, time of receipt,
acceptance and withdrawal of tendered notes will be determined by the us in our
sole discretion, which determination will be final and binding on all parties.
We expressly reserve the absolute right, in our sole discretion, to reject any
or all outstanding notes not properly tendered or any outstanding notes the
acceptance of which would, in the opinion of our counsel, be unlawful. We also
reserve the absolute right in our sole discretion to waive or amend any
conditions of the exchange offer or to waive any defects or irregularities of
tender for any particular note, whether or not similar defects or irregularities
are waived in the case of other notes. Our interpretation of the terms and
conditions of the exchange offer will be final and binding on all parties. No
alternative, conditional or contingent tenders will be accepted. Unless waived,
any defects or irregularities

                                       95
<PAGE>   101

in connection with tenders of outstanding notes must be cured by the tendering
holder within such time as we determine.

     Although we intend to notify holders of defects or irregularities in
tenders of outstanding notes, neither we, the exchange agent or any other person
shall be under any duty to give notification of defects or irregularities in
such tenders or will incur any liability to holders for failure to give such
notification. Holders will be deemed to have tendered outstanding notes only
when such defects or irregularities have been cured or waived. The exchange
agent will return to the tendering holder, after the expiration of the exchange
offer, any outstanding notes that are not properly tendered and as to which the
defects have not been cured or waived.

GUARANTEED DELIVERY PROCEDURES

     If you desire to tender outstanding notes pursuant to the exchange offer
and (1) certificates representing such outstanding notes are not immediately
available, (2) time will not permit your letter of transmittal, certificates
representing such outstanding notes and all other required documents to reach
the exchange agent on or prior to the expiration date, or (3) the procedures for
book-entry transfer (including delivery of an agent's message) cannot be
completed on or prior to the expiration date, you may nevertheless tender such
notes with the effect that such tender will be deemed to have been received on
or prior to the expiration date if all the following conditions are satisfied

     - you must effect your tender through an "eligible guarantor institution,"
       which is defined above under the heading "-- Guarantee of Signatures"

     - a properly completed and duly executed notice of guaranteed delivery,
       substantially in the form provided by us herewith, or an agent's message
       with respect to guaranteed delivery that is accepted by us, is received
       by the exchange agent on or prior to the expiration date as provided
       below, and

     - the certificates for the tendered notes, in proper form for transfer (or
       a book-entry confirmation of the transfer of such notes into the exchange
       agent account at DTC as described above), together with a letter of
       transmittal (or manually signed facsimile of the letter of transmittal)
       properly completed and duly executed, with any signature guarantees and
       any other documents required by the letter of transmittal or a properly
       transmitted agent's message, are received by the exchange agent within
       three New York Stock Exchange, Inc. trading days after the date of
       execution of the notice of guaranteed delivery

     The notice of guaranteed delivery may be sent by hand delivery, facsimile
transmission or mail to the exchange agent and must include a guarantee by an
eligible guarantor institution in the form set forth in the notice of guaranteed
delivery.

WITHDRAWAL RIGHTS

     Except as otherwise provided in this prospectus, you may withdraw tendered
notes at any time before 5:00 p.m., New York City time, on           , 2000. For
a withdrawal of tendered notes to be effective, a written or facsimile
transmission notice of withdrawal must be received by the exchange agent on or
prior to the expiration of the exchange offer. For DTC participants, a written
notice of withdrawal may be made by electronic transmission through DTC's
Automated Tender Offer Program. Any notice of withdrawal must

     - specify the name of the person having tendered the notes to be withdrawn

     - identify the notes to be withdrawn, including the certificate number(s)
       and principal amount of such notes, or, in the case of notes transferred
       by book-entry transfer, the name and number of the account at DTC

     - be signed by the holder in the same manner as the original signature on
       the letter of transmittal by which such notes were tendered, with any
       required signature guarantees, or be accompanied by

                                       96
<PAGE>   102

       documents of transfer sufficient to have the trustee with respect to the
       notes register the transfer such notes into the name of the person
       withdrawing the tender and a properly completed irrevocable proxy
       authorizing such person to effect such withdrawal on behalf of such
       holder, and

     - specify the name in which any such notes are to be registered, if
       different from that of the registered holder

     Any permitted withdrawal of notes may not be rescinded. Any notes properly
withdrawn will thereafter be deemed not to have been validly tendered for
purposes of the exchange offer. The exchange agent will return any withdrawn
notes without cost to the holder promptly after withdrawal of the notes. Holders
may retender properly withdrawn notes at any time before the expiration of the
exchange offer by following one of the procedures described above under the
heading "-- Procedures for Tendering Outstanding Notes."

CONDITIONS TO THE EXCHANGE OFFER

     Notwithstanding any other term of the exchange offer, we shall not be
required to accept for exchange, or exchange any exchange notes for, any
outstanding notes, and may terminate or amend the exchange offer as provided in
this prospectus before the acceptance of the outstanding notes, if

     - any action or proceeding is instituted or threatened in any court or by
       or before any governmental agency with respect to the exchange offer
       which, in our sole judgment, might materially impair our ability to
       proceed with the exchange offer or materially impair the contemplated
       benefits of the exchange offer to us, or any material adverse development
       has occurred in any existing action or proceeding with respect to us or
       any of our subsidiaries,

     - any law, statute, rule, regulation or interpretation by the staff of the
       Securities and Exchange Commission is proposed, adopted or enacted,
       which, in our sole judgment, might impair our ability to proceed with the
       exchange offer or impair the contemplated benefits of the exchange offer
       to us, or

     - any governmental approval has not been obtained, which we believe, in our
       sole discretion, is necessary for the consummation of the exchange offer
       as outlined in this prospectus

     If we determine in our sole discretion that any of the conditions are not
satisfied, we may

     - refuse to accept any notes and return all tendered notes to the tendering
       holders

     - extend the exchange offer and retain all notes tendered prior to the
       expiration of the exchange offer, subject, however, to the rights of
       holders to withdraw their notes, or

     - waive such unsatisfied conditions of the exchange offer and accept all
       properly tendered notes which have not been withdrawn

     These conditions are for the sole benefit of us and the guarantors and may
be asserted or waived by us at any time in our sole discretion. Our failure to
exercise any of these rights at any time will not be deemed a waiver of such
rights. These rights will be ongoing and may be asserted by us at any time.

     In addition, we will not complete the exchange offer if any stop order is
threatened or issued with respect to the registration statement for the exchange
offer and the exchange notes. In any such event, we must make every reasonable
effort to obtain the withdrawal of any stop order at the earliest possible
moment.

EFFECT OF NOT TENDERING

     To the extent outstanding notes are tendered and accepted in the exchange
offer, the principal amount of outstanding notes will be reduced by the amount
so tendered and a holder's ability to sell untendered outstanding notes could be
adversely affected. In addition, after the completion of the exchange offer, the
                                       97
<PAGE>   103

outstanding notes will remain subject to restrictions on transfer. Since the
outstanding notes have not been registered under the federal securities laws,
they bear a legend restricting their transfer absent registration or the
availability of a specific exemption from registration. The holders of
outstanding notes not tendered will have no further registration rights, except
for the limited registration rights described above under the heading
"-- Purpose of the Exchange Offer."

     Accordingly, the notes not tendered may be resold only

     - to our company or our subsidiaries

     - pursuant to a registration statement which has been declared effective
       under the Securities Act

     - for so long as the notes are eligible for resale pursuant to Rule 144A
       under the Securities Act to a person the seller reasonably believes is a
       qualified institutional buyer that purchases for its own account or for
       the account of a qualified institutional buyer to whom notice is given
       that the transfer is being made in reliance on Rule 144A, or

     - pursuant to any other available exemption from the registration
       requirements of the Securities Act (in which case Sovereign and the
       trustee shall have the right to require the delivery of an opinion of
       counsel, certifications and/or other information satisfactory to
       Sovereign and the trustee), subject in each of the foregoing cases to any
       requirements of law that the disposition of the seller's property or the
       property of such investor account or accounts be at all times within its
       or their control and to compliance with any applicable state securities
       laws

     Upon completion of the exchange offer, due to the restrictions on transfer
of the outstanding notes and the absence of such restrictions applicable to the
exchange notes, it is likely that the market, if any, for outstanding notes will
be relatively less liquid than the market for exchange notes. Consequently,
holders of outstanding notes who do not participate in the exchange offer could
experience significant diminution in the value of their outstanding notes,
compared to the value of the exchange notes.

REGULATORY APPROVALS

     Other than the federal securities laws, there are no federal or state
regulatory requirements that we must comply with and there are no approvals that
we must obtain in connection with the exchange offer.

SOLICITATION OF TENDERS; FEES AND EXPENSES

     We will bear the expenses of soliciting tenders. We are mailing the
principal solicitation. However, our officers and regular employees and those of
our affiliates may make additional solicitation by telegraph, telecopy,
telephone or in person.

     We have not retained any dealer-manager in connection with the exchange
offer. We will not make any payments to brokers, dealers, or others soliciting
acceptances of the exchange offer. However, we will pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses.

     We will pay the cash expenses incurred in connection with the exchange
offer. These expenses include fees and expenses of the exchange agent and
trustee, accounting and legal fees and printing costs, among others.

ACCOUNTING TREATMENT

     The exchange notes will be recorded at the same carrying value as the
outstanding notes. The carrying value is face value, less the original issue
discount (net of amortization) as reflected in our accounting records on the
date of exchange. Accordingly, we will recognize no gain or loss for accounting
purposes. The expenses of the exchange offer will be expensed over the term of
the exchange notes.

                                       98
<PAGE>   104

TRANSFER TAXES

     We will pay all transfer taxes, if any, required to be paid by Sovereign in
connection with the exchange of the outstanding notes for the exchange notes.
However, holders who instruct us to register exchange notes in the name of, or
request that outstanding notes not tendered or not accepted for exchange be
returned to, a person other than the registered holder will be responsible for
the payment of any transfer tax arising from such transfer.

THE EXCHANGE AGENT

     The Bank of New York is serving as the exchange agent for the exchange
offer. ALL EXECUTED LETTERS OF TRANSMITTAL SHOULD BE SENT TO THE EXCHANGE AGENT
AT THE ADDRESS LISTED BELOW. Questions, requests for assistance and requests for
additional copies of this prospectus or the letter of transmittal should be
directed to the exchange agent at the address or telephone number listed below.

                              The Bank of New York
                               101 Barclay Street
                            New York, New York 10286
                                Attn:
                    Reorganization Section 7th Floor, 7 East

                          By Facsimile: (212) 815-6339
                                Attn:
                      Confirm by Telephone: (212) 815-5920

     Originals of all documents sent by facsimile should be promptly sent to the
exchange agent by registered or certified mail, by hand, or by overnight
delivery service.

     DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.

                                       99
<PAGE>   105

             CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

     The following summary describes, in the case of U.S. holders, the material
U.S. federal income tax consequences and, in the case of non-U.S. holders, the
material U.S. income and federal estate tax consequences, of the acquisition,
ownership and disposition of the exchange notes. This summary does not discuss
all of the aspects of U.S. federal income and estate taxation which may be
relevant to investors in light of their particular investment or other
circumstances. In addition, this summary does not discuss any U.S. state or
local income or foreign income or other tax consequences. This summary is based
upon the provisions of the Internal Revenue Code of 1986, as amended, U.S.
Treasury Department regulations, rulings and judicial decisions, all as in
effect as of the date of this prospectus and all of which are subject to change
or differing interpretation, possibly with retroactive effect. The discussion
below deals only with exchange notes held as capital assets within the meaning
of the Internal Revenue Code, and does not address holders of the exchange notes
that may be subject to special rules. Holders that may be subject to special
rules include

     - certain U.S. expatriates

     - financial institutions

     - insurance companies

     - tax-exempt entities

     - dealers in securities or currencies

     - traders in securities

     - holders whose functional currency is not the U.S. dollar

     - persons that hold the exchange notes as part of a straddle, hedge,
       conversion or other integrated transaction

     You should consult your own tax advisor regarding the particular U.S.
federal, state and local and foreign income and other tax consequences of
acquiring, owning and disposing of the exchange notes that may be applicable to
you.

U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER

     The exchange of the outstanding notes for the exchange notes in the
exchange offer will not be a taxable exchange for U.S. federal income tax
purposes and, accordingly, for such purposes a holder will not recognize any
taxable gain or loss as a result of such exchange and will have the same tax
basis and holding period in the exchange notes as it had in the outstanding
notes immediately before the exchange.

U.S. FEDERAL INCOME TAX CONSEQUENCES TO U.S. HOLDERS

     For purposes of the following discussion, a U.S. holder is a beneficial
owner of an exchange note that is, for U.S. federal income tax purposes

     - a citizen or individual resident of the United States

     - a corporation or partnership created or organized in or under the laws of
       the United States or any of its political subdivisions

     - an estate, the income of which is subject to U.S. federal income taxation
       regardless of its source

     - a trust if, in general, the trust is subject to the supervision of a
       court within the United States and the control of one or more United
       States persons as described in Section 7701(a)(30) of the Internal
       Revenue Code.

                                       100
<PAGE>   106

     Taxation of Stated Interest. In general, stated interest paid on an
exchange note will be included in the gross income of a U.S. holder as ordinary
interest income at the time it is received or accrued in accordance with the
U.S. holder's regular method of accounting for U.S. federal income tax purposes.

     Market Discount and Bond Premium. If a U.S. holder purchases an exchange
note (or purchased the outstanding note for which the exchange note was
exchanged, as the case may be) at a price that is less than its principal
amount, the excess of the principal amount over the U.S. holder's purchase price
will be treated as "market discount." However, the market discount will be
considered to be zero if it is less than 1/4 of 1% of the principal amount
multiplied by the number of complete years to maturity from the date the U.S.
holder purchased the exchange note or outstanding note, as the case may be.

     Under the market discount rules of the Internal Revenue Code, a U.S. holder
generally will be required to treat any principal payment on, or any gain
realized on the sale, exchange, retirement or other disposition of, an exchange
note as ordinary income (generally treated as interest income) to the extent of
the market discount which accrued but was not previously included in income. In
addition, the U.S. holder may be required to defer, until the maturity of the
exchange note or its earlier disposition in a taxable transaction, the deduction
of all or a portion of the interest expense on any indebtedness incurred or
continued to purchase or carry the exchange note (or the outstanding note for
which the exchange note was exchanged, as the case may be). In general, market
discount will be considered to accrue ratably during the period from the date of
the purchase of the exchange note (or outstanding note for which the exchange
note was exchanged, as the case may be) to the maturity date of the exchange
note, unless the U.S. holder makes an irrevocable election (on an
instrument-by-instrument basis) to accrue market discount under a constant yield
method. A U.S. holder may elect to include market discount in income currently
as it accrues (under either a ratable or constant yield method), in which case
the rules described above regarding the treatment as ordinary income of gain
upon the disposition of the exchange note and upon the receipt of certain
payments and the deferral of interest deductions will not apply. The election to
include market discount in income currently, once made, applies to all market
discount obligations acquired on or after the first day of the first taxable
year to which the election applies, and may not be revoked without the consent
of the Internal Revenue Service.

     If a U.S. holder purchases an exchange note (or purchased the outstanding
note for which the exchange note was exchanged, as the case may be) for an
amount in excess of the amount payable at maturity of the exchange note, the
U.S. holder will be considered to have purchased the exchange note (or
outstanding note) with "bond premium" equal to the excess of the U.S. holder's
purchase price over the amount payable at maturity (or on an earlier call date
if it results in a smaller amortizable bond premium). A U.S. holder may elect to
amortize the premium using a constant yield method over the remaining term of
the exchange note (or until an earlier call date, as applicable). The amortized
amount of the premium for a taxable year generally will be treated first as a
reduction of interest on the exchange note included in such taxable year to the
extent thereof, then as a deduction allowed in that taxable year to the extent
of the U.S. holder's prior interest inclusions on the exchange note, and finally
as a carryforward allowable against the U.S. holder's future interest inclusions
on the exchange note. The election, once made, is irrevocable without the
consent of the Internal Revenue Service and applies to all taxable bonds held
during the taxable year for which the election is made or subsequently acquired.

     Dispositions. Upon the sale, exchange, retirement, redemption or other
taxable disposition of an exchange note, a U.S. holder generally will recognize
taxable gain or loss in an amount equal to the difference, if any, between the
amount realized on the disposition and the U.S. holder's adjusted tax basis in
the exchange note. A U.S. holder's adjusted tax basis in an exchange note will
generally equal the cost of the exchange note (or, in the case of an exchange
note acquired in exchange for an outstanding note in the exchange offer, the tax
basis of the outstanding note, as discussed above under "U.S. Federal Income Tax
Consequences of the Exchange Offer"), increased by the amount of any market
discount previously included in the U.S. holder's gross income, and reduced by
the amount of any amortizable bond premium applied to reduce, or allowed as a
deduction against, interest with respect to the exchange note.

                                       101
<PAGE>   107

     Gain or loss recognized by a U.S. holder on the taxable disposition of an
exchange note generally will be capital gain or loss (except with respect any
amount received that is attributable to accrued but unpaid interest, which will
be taxable in the manner described above under "Taxation of Stated Interest").
Such capital gain or loss will be long-term capital gain or loss if the exchange
note has been held for more than one year at the time of the disposition (taking
into account for this purpose, in the case of an exchange note received in
exchange for an outstanding note in the exchange offer, the period of time that
the outstanding note was held). Long-term capital gain recognized by a
non-corporate U.S. holder generally will be subject to a maximum tax rate of
20%. Subject to limited exceptions, capital losses cannot be used to offset
ordinary income.

     Backup Withholding. In general, "backup withholding" at a rate of 31% may
apply

     - to payments of principal and interest made on an exchange note

     - to payment of the proceeds of a sale or exchange of an exchange note
       before maturity

that are made to a non-corporate U.S. holder if the holder fails to provide a
correct taxpayer identification number or otherwise comply with applicable
requirements of the backup withholding rules. The backup withholding tax is not
an additional tax and may be credited against a U.S. holder's U.S. federal
income tax liability, provided that correct information is provided to the
Internal Revenue Service. Corporate U.S. holders are not subject to backup
withholding. To avoid backup withholding, corporate holders may also be required
to provide a correct taxpayer identification number.

U.S. FEDERAL INCOME AND ESTATE TAX CONSEQUENCES TO NON-U.S. HOLDERS

     For the purposes of the following discussion, a non-U.S. holder is a
beneficial owner of an exchange note that is not, for U.S. federal income tax
purposes, a U.S. holder. An individual may, subject to exceptions, be deemed to
be a resident alien, as opposed to a non-resident alien, by virtue of being
present in the United States:

     - on at least 31 days in the calendar year

     - for an aggregate of at least 183 days during a three-year period ending
       in the current calendar year, counting for such purposes all of the days
       present in the current year, one-third of the days present in the
       immediately preceding year, and one-sixth of the days present in the
       second preceding year

     See "U.S. Federal Income Tax Consequences to U.S. holders" for a discussion
of the U.S. federal income tax consequences applicable to a resident alien.

     Under present U.S. federal income and estate tax law and subject to the
discussion of backup withholding below:

        (a) payments of principal, premium, if any, and interest on an exchange
note by us or any of our paying agents to a non-U.S. holder will not be subject
to withholding of U.S. federal income tax, provided that in the case of interest

        - the non-U.S. holder does not directly or indirectly, actually or
          constructively, own ten percent or more of the total combined voting
          power of all classes of our voting stock within the meaning of Section
          871(h)(3) of the Internal Revenue Code and the Treasury regulations
          thereunder

        - the non-U.S. holder is not (x) a controlled foreign corporation that
          is related, directly or indirectly, to us through sufficient stock
          ownership, or (y) a bank receiving interest described in Section
          881(c)(3)(A) of the Internal Revenue Code

        - such interest is not effectively connected with the conduct of a U.S.
          trade or business by the non-U.S. holder

                                       102
<PAGE>   108

        - either (A) the beneficial owner of the exchange note certifies to us
          or our paying agent, under penalties of perjury, that it is not a
          "United States person" within the meaning of the Internal Revenue Code
          and provides its name and address, or (B) a securities clearing
          organization, bank or other financial institution that holds
          customers' securities in the ordinary course of its trade or business
          and holds the exchange note on behalf of the beneficial owner
          certifies to us or our paying agent under penalties of perjury that
          it, or the financial institution between it and the beneficial owner,
          has received from the beneficial owner a statement, under penalties of
          perjury, that it is not a "United States person" and provides the
          payor with a copy of this statement

     Non-U.S. holders may also be eligible for exemption or reduction from
applicable U.S. withholding taxes if the non-U.S. holder is eligible for the
benefits of an income tax treaty with the U.S. and satisfy applicable
documentation requirements.

     (b) a non-U.S. holder will not be subject to U.S. federal income tax on any
gain or income realized on the sale, exchange, redemption, retirement at
maturity or other disposition of an exchange note (provided that, in the case of
proceeds representing accrued interest, the conditions described in paragraph
(a) above are met) unless

     - in the case of gain, the non-U.S. holder is an individual who is present
       in the United States for 183 days or more during the taxable year and
       specific other conditions are met

     - the gain is effectively connected with the conduct of a U.S. trade or
       business by the non-U.S. holder, or if an income tax treaty applies, is
       generally attributable to a U.S. "permanent establishment" maintained by
       the non-U.S. holder

     (c) an exchange note held by an individual who at the time of death is not
a citizen or resident of the United States will not be subject to U.S. federal
estate tax as a result of death if, at the time of death

     - the individual did not directly or indirectly, actually or
       constructively, own ten percent or more of the total combined voting
       power of all classes of our stock entitled to vote within the meaning of
       Section 871(h)(3) of the Internal Revenue Code and the Treasury
       regulations thereunder

     - the income on the exchange note would not have been effectively connected
       with the conduct of a trade or business by the individual in the United
       States

     If a non-U.S. holder is engaged in a trade or business in the United States
and interest on the exchange note is effectively connected with the conduct of
that trade or business or, if an income tax treaty applies, and the non-U.S.
holder maintains a U.S. "permanent establishment" to which the interest is
generally attributable, interest on the exchange note will be exempt from the
withholding tax discussed in the preceding paragraph (a), provided that the
holder furnishes a properly executed IRS form on or before any payment date to
claim the exemption, but will be taxable income for U.S. federal income tax
purposes, and, accordingly, will be taxable in the manner described above under
"U.S. Federal Income Tax Consequences to U.S. holders-Taxation of Stated
Interest."

     A foreign corporation that is a holder of an exchange note may be subject
to a branch profits tax equal to 30% of its effectively connected earnings and
profits for the taxable year, subject to certain adjustments, unless it
qualifies for a lower rate under an applicable income tax treaty. For this
purpose, interest on an exchange note or gain recognized on the disposition of
an exchange note will be included in earnings and profits if the interest or
gain is effectively connected with the conduct by the foreign corporation of a
trade or business in the United States.

     Treasury regulations scheduled to be generally applicable to payments made
after December 31, 2000 will provide alternative methods for satisfying the
certification requirement described in paragraph (a) above. These regulations
may require a non-U.S. holder that provides an IRS form (as discussed above), or
that claims the benefit of an income tax treaty, to also provide its U.S.
taxpayer identification

                                       103
<PAGE>   109

number. These regulations generally also will require, in the case of an
exchange note held by a foreign partnership, that

     - the certification described in paragraph (a) above be provided by the
       partners

     - the partnership provide certain information, including a U.S. taxpayer
       identification number

     Further, a look-through rule will apply in the case of tiered partnerships.

     Backup Withholding. Under current Treasury regulations, backup withholding
and information reporting will not apply to payments made by us or our paying
agents, in their capacities as such, to a non-U.S. holder of an exchange note if
the holder has provided the required certification that it is not a United
States person as set forth in paragraph (a) above, provided that neither we nor
our paying agent has actual knowledge that the holder is a United States person.
We or our paying agents may, however, report payments of interest on the
exchange notes. Payments of the proceeds from a disposition by a non-U.S. holder
of an exchange note made to or through a foreign office of a broker will not be
subject to information reporting or backup withholding, except that information
reporting and, under Treasury regulations scheduled to be generally applicable
to payments made after December 31, 2000, backup withholding may apply to those
payments if the broker is:

     - a United States person

     - a controlled foreign corporation for U.S. federal income tax purposes

     - a foreign person 50% or more of whose gross income is effectively
       connected with a U.S. trade or business for a specified three-year period

     - with respect to payments made after December 31, 2000, a foreign
       partnership, if at any time during its tax year, one or more of its
       partners are U.S. persons, as defined in Treasury regulations, who in the
       aggregate hold more than 50% of the income or capital interest in the
       partnership or if, at any time during its tax year, the foreign
       partnership is engaged in a U.S. trade or business

     Payments of the proceeds from a disposition by a non-U.S. holder of an
exchange note made to or through the U.S. office of a broker is subject to
information reporting and backup withholding unless the holder or beneficial
owner certifies as to its taxpayer identification number or otherwise
establishes an exemption from information reporting and backup withholding.

     You should consult your own tax advisor regarding application of backup
withholding in your particular circumstance and the availability of and
procedure for obtaining an exemption from backup withholding under current
Treasury regulations and the Treasury regulations that are scheduled to become
generally effective after December 31, 2000. Any amounts withheld under the
backup withholding rules from a payment to a non-U.S. holder will be allowed as
a refund or a credit against the holder's U.S. federal income tax liability,
provided the required information is furnished to the U.S. Internal Revenue
Service.

                                       104
<PAGE>   110

                              PLAN OF DISTRIBUTION

     Any broker-dealer who holds outstanding notes that are restricted
securities and notes that were acquired for its own account as a result of
market-marking activities or other trading activities other than restricted
securities acquired directly from us may exchange such outstanding notes
pursuant to the exchange offer. Such broker-dealer may be deemed to be an
"underwriter" within the meaning of the Securities Act, and, consequently, must
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resales of the exchange notes received by such broker-dealer
in the exchange offer.

     Each broker-dealer participating in the exchange offer is required to
acknowledge in the letter of transmittal that, if the broker-dealer acquired the
outstanding notes as a result of market-making activities or other trading
activities, it will deliver a prospectus in connection with the resale of the
exchange notes.

     Any profit on any resale of exchange notes and any commissions or
concessions received by any persons may be deemed to be underwriting
compensation under the Securities Act. The letter of transmittal states that, by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.

     This prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of exchange notes
received in exchange for outstanding notes if the outstanding notes were
acquired as a result of market-making activities or other trading activities.

     We and our guarantor subsidiaries have agreed to make this prospectus, as
amended or supplemented, available to any broker-dealer to use in connection
with any such resale for a period of at least 180 days after the expiration
date.

     Neither we nor our guarantor subsidiaries will receive any proceeds from
any sale of exchange notes by broker-dealers. Exchange notes received by
broker-dealers for their own accounts under the exchange offer may be sold from
time to time in one or more transactions

     - in the over-the-counter market

     - in negotiated transactions

     - through the writing of options on the exchange notes or a combination of
       such methods of resale

     - at market prices prevailing at the time of resale

     - at prices related to such prevailing market prices or

     - at negotiated prices.

Any resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any broker-dealer or the purchasers of any such exchange notes.

     We and each of our guarantor subsidiaries have jointly and severally agreed
to pay all expenses incident to the exchange offer, other than commissions or
concessions of any brokers or dealers. We will indemnify the holders of the
outstanding notes (including any broker-dealers) against liabilities under the
Securities Act.

                                       105
<PAGE>   111

                                 LEGAL MATTERS

     The validity of the exchange notes as well as the validity of the
guarantees of the notes by SIA Adhesives, Inc. and Pierce & Stevens Corp. has
been passed upon for us by our counsel, Fried, Frank, Harris, Shriver & Jacobson
(a partnership including professional corporations), New York, New York. Fried,
Frank, Harris, Shriver & Jacobson, on behalf of its partners, is a limited
partner in a partnership which owns all of the equity in SSCI Investors LLC
which, in turn, owns approximately 75% of our capital stock. The validity of the
guarantees of the notes by OSI Sealants, Inc. and Tanner Chemicals, Inc. has
been passed upon by McBride Baker & Coles, and Wiggin & Nourie, P.A.,
respectively.

                                    EXPERTS

     The consolidated financial statements of Sovereign Specialty Chemicals,
Inc. and Subsidiaries, as of December 31, 1998 and 1999 and for the years ended
December 31, 1997, 1998 and 1999, included in this prospectus have been audited
by Ernst & Young LLP, independent auditors, as stated in their report appearing
in this prospectus and are included in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.

                      WHERE YOU CAN FIND MORE INFORMATION

     We and our guarantor subsidiaries have filed with the Securities and
Exchange Commission a Registration Statement on Form S-4, the "exchange offer
registration statement," which term shall encompass all amendments, exhibits,
annexes and schedules thereto, pursuant to the Securities Act of 1933, and the
rules and regulations promulgated thereunder, covering the exchange notes being
offered. This prospectus does not contain all the information in the exchange
offer registration statement. For further information with respect to Sovereign,
the guarantor subsidiaries and the exchange offer, reference is made to the
exchange offer registration statement. Statements made in this prospectus as to
the contents of any contract, agreement or other documents referred to are not
necessarily complete. For a more complete understanding and description of each
contract, agreement or other document filed as an exhibit to the exchange offer
registration statement, we encourage you to read the documents contained in the
exhibits.

     Pursuant to the indenture we have agreed, whether or not we are required to
do so by the rules and regulations of the Securities and Exchange Commission, to
furnish to the holders of the exchange notes and, to the extent permitted by
applicable law or regulation, file with the Securities and Exchange Commission
all reports and information that would be required to be filed with the
Securities and Exchange Commission pursuant to section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended, or any successor provision by a
person subject to those provisions. In addition, for so long as any of the
exchange notes remain outstanding we have agreed under the indenture to make
available to any record holder, securities analysts and prospective investors,
upon their request, the information required by Rule 144A(d)(4) under the
Securities Act of 1933, as amended, during any period in which we are not
subject to Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended.

     You may read and copy any reports or other information filed by us at the
Securities and Exchange Commission public reference room at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You may call the
Securities and Exchange Commission at 1-800-SEC-0330 for further information
contained in the public reference room. Our filings with the Securities and
Exchange Commission are also available to the public from commercial document
retrieval services and at the Securities and Exchange Commission's Web site at
http://www.sec.gov.

                                       106
<PAGE>   112

              SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES

                         INDEX TO FINANCIAL STATEMENTS

                      SOVEREIGN SPECIALTY CHEMICALS, INC.

<TABLE>
<CAPTION>
                                                               PAGE
                                                               ----
<S>                                                            <C>
Report of Independent Auditors..............................   F-2
Consolidated Balance Sheets.................................   F-3
Consolidated Statements of Operations.......................   F-4
Consolidated Statements of Stockholders' Equity.............   F-5
Consolidated Statements of Cash Flows.......................   F-6
Notes to the Consolidated Financial Statements..............   F-7
</TABLE>

                                       F-1
<PAGE>   113

                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Sovereign Specialty Chemicals, Inc.

     We have audited the accompanying consolidated balance sheets of Sovereign
Specialty Chemicals, Inc. and Subsidiaries (the Company) as of December 31, 1999
and 1998, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Sovereign
Specialty Chemicals, Inc. and Subsidiaries at December 31, 1999 and 1998, and
the consolidated results of their operations and their consolidated cash flows
for each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States.

                                            ERNST & YOUNG LLP

Chicago, Illinois
February 25, 2000,
(Except for Note 18, as to which the date is March 23, 2000)

                                       F-2
<PAGE>   114

              SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                1999       1998
                                                              --------   --------
<S>                                                           <C>        <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................  $ 17,005   $  5,863
  Accounts receivable, less allowance of $730 and $528......    38,756     32,710
  Inventories...............................................    26,028     19,822
  Deferred income taxes.....................................     1,177      1,560
  Other current assets......................................     3,206      3,799
                                                              --------   --------
Total current assets........................................    86,172     63,754
Property, plant, and equipment, net.........................    51,525     49,497
Goodwill, net...............................................   106,157    101,205
Deferred financing costs, net...............................    11,011      9,913
Other assets................................................     2,974      1,198
                                                              --------   --------
Total assets................................................  $257,839   $225,567
                                                              ========   ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................  $ 18,591   $ 16,400
  Accrued expenses..........................................    19,814     13,452
  Other current liabilities.................................       924      2,200
  Current portion of long-term debt.........................    29,303      1,802
  Current portion of capital lease obligations..............       229        161
                                                              --------   --------
Total current liabilities...................................    68,861     34,015
Long-term debt, less current portion........................   125,700    126,900
Capital lease obligations, less current portion.............     3,350      3,401
Deferred income taxes.......................................     2,676      2,849
Other long-term liabilities.................................       636      4,208
Stockholders' equity:
Common stock, $0.01 par value, 2,700,000 shares authorized,
  1,436,239 issued and outstanding..........................        15         --
Common stock, non-voting, $0.01 par value, 2,100,000 shares
  authorized, 730,182 issued and outstanding................         7         --
Additional paid-in capital..................................    63,578     55,652
Retained earnings (accumulated deficit).....................    (7,045)       949
Management notes receivable.................................        --     (2,535)
Cumulative translation adjustment...........................        61        128
                                                              --------   --------
Total stockholders' equity..................................    56,616     54,194
                                                              --------   --------
Total liabilities and stockholders' equity..................  $257,839   $225,567
                                                              ========   ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-3
<PAGE>   115

              SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                       DECEMBER 31,
                                                              ------------------------------
                                                                1999       1998       1997
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Net sales...................................................  $237,408   $211,335   $134,771
Cost of goods sold..........................................   162,550    144,039     92,889
                                                              --------   --------   --------
Gross profit................................................    74,858     67,296     41,882
Selling, general, and administrative expenses...............    48,350     46,418     30,294
Special charges.............................................    14,153         --         --
                                                              --------   --------   --------
Operating income............................................    12,355     20,878     11,588
Interest expense............................................   (15,276)   (14,979)    (9,080)
Interest income.............................................       200        267         --
Loss on sale of business....................................        --     (1,025)        --
                                                              --------   --------   --------
Income (loss) before income taxes and extraordinary loss....    (2,721)     5,141      2,508
Income taxes................................................     4,218      3,494      1,315
                                                              --------   --------   --------
Income (loss) before extraordinary loss.....................    (6,939)     1,647      1,193
Extraordinary losses, net of income tax benefits............     1,055        176      1,409
                                                              --------   --------   --------
Net income (loss)...........................................  $ (7,994)  $  1,471   $   (216)
                                                              ========   ========   ========
Pro forma (See Note 3, "Income Taxes"):
Net income before income taxes and extraordinary loss, as
  stated....................................................                        $  2,508
Income taxes:
  As stated.................................................                           1,315
  Additional pro forma income taxes.........................                             657
                                                                                    --------
                         ...................................                           1,972
                                                                                    --------
Net income before extraordinary loss........................                             536
Extraordinary loss..........................................                           1,409
                                                                                    --------
Net loss....................................................                        $   (873)
                                                                                    ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-4
<PAGE>   116

              SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                               RETAINED                   ACCUMULATED
                                                COMMON                         EARNINGS     MANAGEMENT       OTHER
                                     COMMON     STOCK,       ADDITIONAL      (ACCUMULATED     NOTES      COMPREHENSIVE
                                     STOCK    NON-VOTING   PAID-IN CAPITAL     DEFICIT)     RECEIVABLE      INCOME        TOTAL
                                     ------   ----------   ---------------   ------------   ----------   -------------   -------
<S>                                  <C>      <C>          <C>               <C>            <C>          <C>             <C>
Balance at January 1, 1997.........   $ --       $ --          $17,689         $  (306)      $    --          $61        $17,444
Comprehensive loss:
  Net loss.........................     --         --               --            (216)           --           --           (216)
  Translation adjustment...........     --         --               --              --            --           35             35
                                                                                                                         -------
          Total
            comprehensive/loss.....                                                                                         (181)
Capital contributions..............     --         --           33,800              --            --           --         33,800
Issuance of equity to purchase
  minority interests...............     --         --              900              --            --           --            900
                                      ----       ----          -------         -------       -------          ---        -------
Balance at December 31, 1999.......     --         --           52,479            (522)           --           96         52,053
Comprehensive income:
  Net income.......................     --         --               --           1,471            --           --          1,471
  Translation adjustment...........     --         --               --              --            --           32             32
                                                                                                                         -------
          Total
            comprehensive/income...                                                                                        1,503
Contribution of management notes/
  receivable.......................     --         --            2,765              --        (2,765)          --             --
Payments received on management/
  notes receivable.................     --         --               --              --           230           --            230
Compensation expense under/
  management incentive plans.......     --         --              408              --            --           --            408
                                      ----       ----          -------         -------       -------          ---        -------
Balance at December 31, 1999.......     --         --           55,652             949        (2,535)         128         54,194
Comprehensive loss:
  Net loss.........................     --         --               --          (7,994)           --           --         (7,994)
  Translation adjustment...........     --         --               --              --            --          (67)           (67)
                                                                                                                         -------
          Total comprehensive
            loss...................                                                                                       (8,061)
Recapitalization of capital
  stock............................     15          7              (22)             --            --           --             --
Payments received on management/
  notes receivable.................     --         --           (2,480)             --         2,535           --             55
Repurchase of common stock.........     --         --           (3,328)             --            --           --         (3,318)
Compensation expense under/
  management incentive plans.......     --         --           13,746              --            --           --         13,746
                                      ----       ----          -------         -------       -------          ---        -------
Balance at December 31, 1999.......   $ 15       $  7          $63,578         $(7,045)      $    --          $61        $56,616
                                      ====       ====          =======         =======       =======          ===        =======
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-5
<PAGE>   117

              SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                       DECEMBER 31,
                                                              -------------------------------
                                                                1999       1998       1997
                                                              --------   --------   ---------
<S>                                                           <C>        <C>        <C>
OPERATING ACTIVITIES
  Net income (loss).........................................  $ (7,994)  $  1,471   $    (216)
  Adjustments to reconcile net income (loss)to net cash
     provided by operating activities:
     Depreciation and amortization..........................    10,965      9,477       6,049
     Loss on sale of business...............................        --      1,025          --
     Compensation expense under management incentive
       plans................................................    13,746        408          --
     Deferred income taxes..................................       200      2,025         238
     Amortization of deferred financing costs...............     1,185      1,213         651
     Extraordinary losses...................................     1,055        176       1,409
     Changes in operating assets and liabilities (net of
       acquisitions and disposition):
       Accounts receivable..................................    (4,751)    (7,371)        642
       Inventories..........................................    (5,350)    (1,293)       (114)
       Prepaid expenses and other assets....................       747        567      (1,889)
       Accounts payable and other liabilities...............     1,148      5,920        (384)
                                                              --------   --------   ---------
Net cash provided by operating activities...................    10,951     13,618       6,386

INVESTING ACTIVITIES
Proceeds from sale of business..............................        --     35,308          --
Acquisition of businesses, net of acquired cash.............   (15,769)   (15,089)   (133,338)
Purchase of property, plant, and equipment..................    (6,280)    (4,472)     (1,834)
                                                              --------   --------   ---------
Net cash provided by (used in) investing activities.........   (22,049)    15,747    (135,172)

FINANCING ACTIVITIES
Capital contributions.......................................        --         --      33,800
Payments on management notes receivable.....................        55        230          --
Proceeds from credit facilities.............................    69,861      6,524         593
Payments on credit facilities...............................   (42,660)    (6,215)         --
Proceeds from issuance of long term debt....................        --         --     155,000
Deferred financing costs....................................    (4,041)      (282)    (12,672)
Payments on acquisition notes payable.......................      (900)        --          --
Payments on long-term debt..................................        --    (30,081)    (41,360)
Payments on capital lease obligations.......................      (194)      (122)       (270)
                                                              --------   --------   ---------
Net cash provided by (used in) financing activities.........    22,121    (29,946)    135,091
Effect of exchange rate changes on cash.....................       119         31           4
                                                              --------   --------   ---------
Net increase (decrease) in cash and cash equivalents........    11,142       (550)      6,309
Cash and cash equivalents at beginning of year..............     5,863      6,413         104
                                                              --------   --------   ---------
Cash and cash equivalents at end of year....................  $ 17,005   $  5,863   $   6,413
                                                              ========   ========   =========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-6
<PAGE>   118

              SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
             FOR THE PERIODS ENDED DECEMBER 31, 1999, 1998 AND 1997
                 (DOLLARS IN THOUSANDS, UNLESS OTHERWISE NOTED)

1. RECAPITALIZATION AND BASIS OF PRESENTATION

     On December 28, 1999, Sovereign Specialty Chemicals, Inc. (the Company)
amended and restated its certificate and articles of incorporation in order to
reclassify, change and convert its Capital Stock which was wholly owned by
Sovereign Specialty Chemicals L.P. (the Parent Partnership). This
recapitalization converted 1,000 shares of common stock, par value $0.01 per
share into 2,700,000 authorized shares of common stock, par value $0.01 per
share (common stock) and 2,100,000 authorized shares of non-voting common stock,
par value $0.01 per share (non-voting common stock). Immediately upon the
effectiveness of the amended and restated certificate of incorporation, the
Company had outstanding 1,469,418 shares of common stock and 730,182 share of
non-voting common stock.

     On December 28, 1999, the Company repurchased 33,179 shares of outstanding
common stock held by the Parent Partnership for an aggregate price of
approximately $3.3 million. The repurchase price of $2.3 million, net of $1.0
million in receivables due from the Parent Partnership, is a current liability
at December 31, 1999.

     On December 30, 1999, SSCI Investors LLC, a newly formed entity owned by an
investor group acquired approximately 75% of the Company's outstanding common
stock directly from the Company's Parent Partnership, which represented all of
their remaining shares owned by the Parent Partnership (Former Parent
Partnership). The balance of the common stock is owned by other investors and
members of the Company's management. The transaction resulted in a change of
controlling stockholder of the Company; however, generally accepted accounting
principles do not require a change in carrying value of assets and liabilities
and, as such, the Company continues to carry its assets and liabilities at their
historical carrying value.

     Effective July 31, 1997, the Parent Partnership reorganized its corporate
structure. The Parent Partnership purchased the outstanding minority interests
in its majority-owned subsidiaries through the exchange of partnership units for
the outstanding membership interests in Sovereign Engineered Adhesives, L.L.C.
(SEA) and common stock in P&S Holdings, Inc. which were not previously owned.
The acquisition of minority interests was accounted for as a purchase in
accordance with Accounting Principles Board Opinion No. 16, "Business
Combinations", and goodwill in the amount of $990 was recognized. Concurrently,
SEA was merged with and into SIA Adhesives, Inc. (SIA), a newly formed C
corporation and SEA was dissolved. Also, P&S Holdings, Inc., was merged into its
wholly owned subsidiary, Pierce & Stevens Corp. (P&S). At the same time,
Sovereign Specialty Chemicals, Inc. (Sovereign) was formed as a wholly owned
subsidiary of the Parent Partnership. The initial capitalization of Sovereign
was comprised of a $33.8 million contribution from investors through the Parent
Partnership. Additionally the Parent Partnership contributed its wholly owned
subsidiaries, SIA and P&S, to Sovereign. The contribution of the Subsidiaries
was accounted for at historical book value (after accounting for the purchase of
the minority interests) in a manner similar to pooling of interests. Upon the
consummation of the transactions, SIA and P&S became wholly owned subsidiaries
of Sovereign. The financial statements as of and for the year ended December 31,
1997 are presented on a basis "as if "the Company existed prior to July 31, 1997
and included the operations of the subsidiaries from their respective dates of
acquisition.

     Unless otherwise noted, all references to "the Company" herein refer to
Sovereign and its wholly owned subsidiaries.

                                       F-7
<PAGE>   119
              SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. NATURE OF BUSINESS

     The Company develops, produces and distributes adhesives, sealants and
coatings utilized in numerous industrial and commercial applications. Commercial
applications of the Company's products include housing repair, remodeling and
construction, industrial, overprint coatings, and flexible packaging. Products
are sold and distributed primarily throughout the United States.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  Principles of Consolidation

     The accompanying consolidated financial statements include the accounts and
transactions of the Company and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated.

  Cash and Cash Equivalents

     The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.

  Inventories

     Inventories are valued at the lower of cost or market. Cost is determined
primarily using the first-in first-out (FIFO) method.

  Property, Plant, and Equipment

     Property, plant, and equipment are stated at cost, less accumulated
depreciation. Depreciation is provided using the straight-line method over the
respective estimated useful lives of the assets for financial reporting
purposes, as follows: three to ten years for machinery and equipment; five to
seven years for furniture and fixtures, and 39 years for buildings and
improvements. Accelerated depreciation methods are used for income tax purposes.
Depreciation expense was $4,591, $4,237 and $2,979 for the periods ended
December 31, 1999, 1998 and 1997, respectively.

  Goodwill

     Goodwill represents the excess of acquisition cost over the fair value of
net assets acquired and is being amortized using the straight-line method over
periods ranging from 15 to 25 years. Accumulated amortization of goodwill was
$13,533 and $7,926 at December 31, 1999 and 1998, respectively.

  Deferred Financing Costs

     The costs of obtaining financing are capitalized and are being amortized
over the life of the related debt using a method which approximates the interest
method. Accumulated amortization was $2,645 and $1,877 at December 31, 1999 and
1998, respectively.

  Long-Lived Assets

     The Company evaluates its long-lived assets (including related goodwill) on
an ongoing basis. Long-lived assets are reviewed for impairment wherever events
or changes in circumstances indicate that the carrying amount of the related
asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of the asset to future
undiscounted cash flows expected to be generated by the asset. If the asset is
determined to be impaired, the impairment recognized is measured by the amount
by which the carrying value of the asset exceeds its fair value.

                                       F-8
<PAGE>   120
              SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  Income taxes

     Deferred taxes have been recognized for the tax consequences of temporary
differences by applying the enacted statutory income tax rates applicable to
future years of differences between the financial statement carrying amounts and
the tax bases of the existing assets and liabilities. Deferred taxes have been
recognized due to differences in timing for financial reporting and tax
reporting of depreciation, net operating loss carryforwards, goodwill, inventory
reserves and capitalization, the allowance for doubtful accounts, and various
accruals.

     Prior to its restructuring on July 31, 1997 (see also Note 1), the
consolidated entity was composed of various types of entities including a
limited partnership and a limited liability company. Income tax liabilities for
such entities are generally "passed through" to their owners. Subsequent to the
restructuring, the Company and its subsidiaries have filed a consolidated
federal tax return. The statement of operations for the year ended December 31,
1997 include "pro forma" income taxes as if the companies had been subject to
income taxes for all periods presented.

  Revenue Recognition

     Revenue is recognized when products are shipped to the customer.

  Research and Development

     Research and development costs are charged to expense as incurred. Research
and development expenses were $4.7 million, $4.2 million and $3.0 million for
the periods ended December 31, 1999, 1998 and 1997, respectively.

  Translation of Foreign Currencies

     Except as noted below, the Company's foreign subsidiaries use the local
currency as their functional currency; accordingly, their balance sheets are
translated using the current exchange rates as of the reporting dates and the
statement of operations accounts are translated using a weighted-average
exchange rate during the period. Adjustments resulting from such translation are
included in cumulative translation adjustment, a separate component of
stockholder's equity. Mexico was classified as a hyperinflationary economy
through December 31, 1998 and, as a result, the Company's Mexican subsidiary was
required to use the U.S. dollar as its functional currency. Accordingly, the
financial statements of the Mexican subsidiary have been remeasured from the
peso to the U.S. dollar and gains and losses on such remeasurement were included
in the statement of operations for the two years ended December 31, 1998.
Effective January 1, 1999, Mexico was no longer classified as a
hyper-inflationary economy and as a result the Company's Mexican subsidiary used
its local currency as its functional currency for the year ended December 31,
1999.

  Segment Information

     Management and the Company's chief operating decision maker assess
performance and make decisions about resource allocation on a consolidated basis
as the Company operates in one business segment, the adhesive sealants and
coatings segment of the specialty chemicals industry. Products are sold and
distributed primarily throughout the United States. No customer accounted for
more than 10.0% of the Company's accounts receivable or net sales for the years
ended December 31, 1999, 1998 and 1997.

                                       F-9
<PAGE>   121
              SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  Fair Value of Financial Instruments

     The carrying value of cash and cash equivalents, trade accounts receivable,
loans receivable, related party, accounts payable and accrued expenses, and
other current liabilities approximate to their fair value at December 31, 1999
and 1998, due to the short-term nature of these instruments.

     The carrying amounts reported in the Company's balance sheets for
variable-rate long term debt, including current portion, approximate fair-value,
as the underlying long-term debt instruments are comprised of notes that are
repriced on a short term basis.

     The Company estimates the fair value of fixed rate long-term debt
obligations including current portion, using the discounted cash flow method
with interest rates currently available for similar obligations. The carrying
amounts reported in the Company's balance sheets for these obligations
approximate fair value.

  Concentration of Credit Risk

     Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of trade accounts receivable.
To minimize this risk, ongoing credit evaluations of customers' financial
condition are performed, although collateral is not required. In addition, the
Company maintains an allowance for potential credit losses. The Company
estimates an allowance for doubtful accounts based on the creditworthiness of
its customers as well as general economic conditions. Consequently, an adverse
change in those factors could affect the Company's estimate of its allowance for
doubtful accounts.

  Use of Estimates

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

  Reclassifications

     Certain prior years' amounts have been reclassified to conform to the 1999
presentation.

4. BUSINESS COMBINATIONS AND SALE OF BUSINESS

     Effective June 12, 1998, the Company acquired the net assets of the C&A
Division of KJ Quinn (C&A Division) a Seabrook, New Hampshire developer and
manufacturer of specialty polyurethane formulations for adhesives and coatings.
The Company paid cash and issued $2.8 million in notes payable to former owners.
Goodwill of $1.2 million was recognized in the acquisition and is being
amortized over a period of 15 years.

     Effective August 3, 1998, the Company acquired the PL Adhesives and
Sealants brand and product line ("PL") from ChemRex Inc. in Shakopee, Minnesota.
PL consists of solvent-based and polyurethane adhesives and sealants. The
purchase price was approximately $9.8 million. Goodwill of $9.1 million was
recognized in the acquisition and is being amortized over a period of 15 years.

     Effective April 21, 1998, the Company sold Mercer to Burke Industries, Inc.
Net proceeds from the sale were approximately $35.3 million. The book value of
the net assets sold, including goodwill of approximately $25.0 million, was
approximately $36.3 million and the Company recognized a book loss on the sale
of approximately $1.0 million.

                                      F-10
<PAGE>   122
              SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Effective April 19, 1999, the Company acquired the net assets of the
flexible packaging coatings business from The Valspar Corporation. The purchase
price was approximately $15.8 million. Goodwill of approximately $10.5 million
and a covenant not to compete of $3.0 million were recognized in the acquisition
and are being amortized over a period of 15 and three years, respectively.

     These acquisitions have been accounted for under the purchase method of
accounting. Accordingly, the allocation of the cost of the acquired assets and
liabilities have been made on the basis of the estimated fair value. The
consolidated financial statements include the operating results of each business
from the date of acquisition.

5. INVENTORIES

     Inventories are summarized as follows:

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                              -----------------
                                                               1999      1998
                                                              -------   -------
<S>                                                           <C>       <C>
Raw materials...............................................  $ 9,920   $ 8,515
Work in process.............................................      386       326
Finished goods..............................................   15,722    10,981
                                                              -------   -------
                                                              $26,028   $19,822
                                                              =======   =======
</TABLE>

6. PROPERTY, PLANT, AND EQUIPMENT

     Property, plant, and equipment are summarized as follows:

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                              -----------------
                                                               1999      1998
                                                              -------   -------
<S>                                                           <C>       <C>
Land........................................................  $ 5,148   $ 4,891
Building and improvements...................................   22,956    19,677
Machinery and equipment.....................................   32,018    28,017
Furniture and fixtures......................................    1,121       936
Construction-in-progress....................................    2,618     3,742
                                                              -------   -------
                                                               63,861    57,263
Less: Accumulated depreciation..............................   12,336     7,766
                                                              -------   -------
                                                              $51,525   $49,497
                                                              =======   =======
</TABLE>

7. OTHER ASSETS

     Other assets are summarized as follows:

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                              ---------------
                                                               1999     1998
                                                              ------   ------
<S>                                                           <C>      <C>
Covenants not to compete....................................  $2,483   $  250
Other.......................................................     491      948
                                                              ------   ------
                                                              $2,974   $1,198
                                                              ======   ======
</TABLE>

     The Company recorded covenants not to compete of $3.0 million and $0.3
million from certain acquisitions. These covenants are being amortized over a
three year period, the lives of the agreements. Accumulated amortization related
to the covenants was $817 and $50, at December 31, 1999 and 1998, respectively.

                                      F-11
<PAGE>   123
              SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. ACCRUED EXPENSES

     Accrued expenses are summarized as follows:

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                              -----------------
                                                               1999      1998
                                                              -------   -------
<S>                                                           <C>       <C>
Interest....................................................  $ 5,212   $ 5,121
Compensations and benefits..................................    5,816     4,118
Rebates and warranty........................................    2,352     1,173
Stock repurchase............................................    2,348        --
Long Term Incentive Plan payable............................    1,536        --
Other.......................................................    2,550     3,040
                                                              -------   -------
                                                              $19,814   $13,452
                                                              =======   =======
</TABLE>

9. LONG-TERM DEBT

     Long-term debt is summarized as follows:

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                1999       1998
                                                              --------   --------
<S>                                                           <C>        <C>
Senior subordinated notes...................................  $125,000   $125,000
Credit facilities...........................................    28,103        902
Acquisition notes payable...................................     1,900      2,800
                                                               155,003    128,702
Less: Current maturities....................................    29,303      1,802
                                                              --------   --------
                                                              $125,700   $126,900
                                                              ========   ========
</TABLE>

  Senior Subordinated Notes

     On July 31, 1997, the Company completed a private placement issuance of
$125.0 million in principal amount of 9.5% Senior Subordinated Notes due 2007
(the Notes) which were subsequently registered with the Securities and Exchange
Commission. As a result of the change in control of the controlling stockholder
on December 30, 1999, the Company was required under the provisions of the
indenture, to offer to repurchase the Notes at a price equal to 101% of the
principal amount plus accrued and unpaid interest. See Note 18, "Subsequent
Events".

     The Notes are general obligations of the Company, subordinated in right of
payment to all existing and future senior debt and are guaranteed by the
Company's wholly-owned domestic subsidiaries -- SIA, P&S, OSI and Tanner (the
Guarantor Subsidiaries). The Company's wholly-owned foreign subsidiaries are not
guarantors of the Notes (the Non-Guarantor Subsidiaries). Each of the Guarantor
Subsidiaries' guarantees of the Notes are full, unconditional, and joint and
several. The Company may incur additional indebtedness, including borrowings
under its credit facilities, subject to certain limitations. See also Note 19
"Other Financial Information" for financial information as of December 31, 1999,
of the Guarantor and the Non-Guarantor Subsidiaries.

     The indenture under which the Notes were issued contains certain covenants
that, among other things, limit the Company from incurring other indebtedness,
engaging in transactions with affiliates, incurring liens, making certain
restricted payments (including dividends), and making certain asset sales.

                                      F-12
<PAGE>   124
              SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  Credit Facilities

     On December 30, 1999, the Company repaid all outstanding amounts under its
former credit facility and entered into a new credit agreement (Credit
Agreement) providing for aggregate borrowings of $200.0 million. The Credit
Agreement includes (1) a $50.0 million revolving credit facility (Credit
Facility) (including letters of credit of up to $1.5 million, $1.1 million
balance at December 31, 1999), (2) a $75.0 million term loan (Term Loan A) and
(3) a $75.0 million term loan (Term Loan B) for, among other uses, working
capital purposes and to fund acquisitions.

     The Credit Facility matures December 30, 2005. Commitment fees on the
unused portion of the Credit Facility of 0.375% to 0.050% are payable quarterly
in arrears. At December 31, 1999, the Company had $6.0 million outstanding and
$42.9 million in available borrowings under the Credit Facility.

     Term Loan A and Term Loan B are payable in quarterly principal installments
based on a percentage of the aggregate principal balance outstanding, as defined
in the Credit Agreement, beginning March 31, 2001 through December 30, 2005 and
December 30, 2006, respectively. At December 31, 1999, the Company had $75.0
million available under Term Loan A and had $21.0 million outstanding and $54.0
million available under Term Loan B.

     At the Company's election, amounts outstanding under the Credit Facility,
Term Loan A and Term Loan B will bear interest, payable quarterly, at either the
higher of the bank's prime rate (8.50% at December 31, 1999) or the Federal
Funds rate plus 1/2 to 1%, plus 0.75% to 2.00%, or LIBOR (6.00% at December 31,
1999) plus 1.75% to 3.00%. The variable spread to the prime rate or LIBOR is
determined by the Company's ratios of total debt to earnings before income
taxes, interest, depreciation and amortization expense (EBITDA) and senior debt,
as defined in the Agreement, to EBITDA after June 30, 2000.

     The Credit Agreement contains covenants that, among other things, restrict
the ability to incur additional indebtedness, dispose of assets, repay or amend
other indebtedness, pay dividends, or make other changes in the business
conducted by the Company or its subsidiaries. In addition the Credit Agreement
requires compliance with specific financial ratios and tests, as defined in the
Credit Agreement. All covenants were met at December 31, 1999. The Credit
Facility and term loans are collateralized by substantially all assets of the
Company and pledged by the common stock of the Company's subsidiaries.

     The Company's Singapore-based sales office has a facility providing for
borrowings up to SG $1.9 million and secured by a SG $1.9 million letter of
credit. Interest is payable at United States prime plus 1.0%. At December 31,
1999, approximately $1.1 million was drawn on the facility.

  Acquisition Notes Payable

     In connection with its acquisition of the C&A Division in June 1998, the
Company issued notes payable to the former owners aggregating $2.8 million, of
which $1.8 million is payable in two annual installments, and a $1.0 million
note payable that has a maturity date of June 30, 2003. Both notes accrue
interest at a rate of 8.5% payable on each June 30.

                                      F-13
<PAGE>   125
              SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  Annual Maturities

     Annual maturities of the Company's long-term debt are as follows at
December 31, 1999:

<TABLE>
<S>                                                         <C>
2000......................................................  $ 29,303
2001......................................................       200
2002......................................................       200
2003......................................................       300
2004......................................................        --
2005 and thereafter.......................................   125,000
                                                            --------
                                                            $155,003
                                                            ========
</TABLE>

10. INCOME TAXES

     The components of the provision for income taxes, are as follows for the
years ended December 31, 1999, 1998 and 1997:

<TABLE>
<CAPTION>
                                                              1999     1998     1997
                                                             ------   ------   ------
<S>                                                          <C>      <C>      <C>
Current income taxes:
  Federal..................................................  $3,417   $  979   $  801
  State....................................................     601      205      245
  Foreign..................................................      --      207       31
                                                             ------   ------   ------
                                                              4,018    1,391    1,077
Deferred income taxes......................................     200    2,103      238
                                                             ------   ------   ------
                                                              4,218    3,494    1,315
Extraordinary items........................................    (703)    (118)    (948)
                                                             ------   ------   ------
Income taxes...............................................  $3,515   $3,376   $  367
                                                             ======   ======   ======
</TABLE>

     The reconciliation of income tax expense computed at the U.S. federal
statutory tax rates to income tax expense (benefit), inclusive of tax benefits
on extraordinary items, is as follows for the years ended December 31, 1999,
1998 and 1997:

<TABLE>
<CAPTION>
                                                              1999      1998    1997
                                                             -------   ------   -----
<S>                                                          <C>       <C>      <C>
Income taxes at federal statutory rate.....................  $(1,523)  $1,663   $  47
Income not subject to income taxes.........................       --       --    (558)
State taxes, net of federal benefit........................      359      358     181
Foreign income taxes.......................................       --      207      31
Increase (decrease) in valuation allowance.................       --     (400)    400
Non-deductible amortization of goodwill....................      487      596     281
Non-deductible stock compensation expense..................    4,151      124      --
Other......................................................       41      828     (15)
                                                             -------   ------   -----
Income taxes at the effective rate.........................  $ 3,515   $3,376   $ 367
                                                             =======   ======   =====
</TABLE>

     Income not subject to income taxes represents income from the Parent
Partnership and SEA which, prior to the reorganization (see also Note 1), was
taxed at the partner/member level. Pro forma income taxes, as if the Company and
its subsidiaries were subject to income taxes for all periods presented, are
presented in the statement of operations. In 1998, the Company reversed the
valuation allowance it had established relative to the deferred tax asset
associated with its net operating loss carryforwards as it was able to utilize
those carryforwards in 1998. Stock compensation expense represents the tax
impact of non-

                                      F-14
<PAGE>   126
              SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

deductible stock compensation expense recognized by the Company. This
significant increase in 1999 is due primarily to the accelerated vesting of
incentive units as a result of the sale of equity by the Parent Partnership.

     The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as follows:

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                              -----------------
                                                               1999      1998
                                                              -------   -------
<S>                                                           <C>       <C>
Deferred tax assets:
  Allowance for doubtful accounts...........................  $   366   $   292
  Inventory obsolescence reserve............................      372       218
  Inventory capitalization..................................       --       197
  Accrued liabilities.......................................      421       531
  Deferred financing costs..................................      310       334
  Other.....................................................      262       553
                                                              -------   -------
Deferred tax assets.........................................    1,731     2,125
Deferred tax liabilities:
  Accelerated depreciation..................................   (2,562)   (2,244)
  Inventory capitalization..................................      (42)       --
  Amortization of goodwill..................................     (623)   (1,051)
  Refundable investment tax credits.........................       --      (126)
                                                              -------   -------
Deferred tax liabilities....................................   (3,227)   (3,421)
                                                              -------   -------
Net deferred tax liability..................................  $(1,496)  $(1,296)
                                                              =======   =======
</TABLE>

11. RETIREMENT PLANS

     The Company sponsors a defined benefit pension plan covering certain
salaried employees of one subsidiary of the Company. Employees vest in the plan
over a five-year period, and the plan is frozen to new participants.
Participants in the plan were given credit for prior years of service.

     The Company has a pension plan covering all union employees of a different
subsidiary. The Company's funding policy has been to contribute annually at
least the minimum required by ERISA. The Plan provides monthly benefits under a
benefit formula.

                                      F-15
<PAGE>   127
              SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following tables set forth the Company's two defined benefit plans:

<TABLE>
<CAPTION>
                                                               1999     1998
                                                              ------   ------
<S>                                                           <C>      <C>
Change in projected benefit obligations
  Projected benefit obligation at beginning of year.........  $1,965   $1,752
  Service cost..............................................      88      121
  Interest cost.............................................     129      123
  Actuarial (gains) losses..................................    (181)      75
  Benefits paid.............................................    (109)    (106)
                                                              ------   ------
  Projected benefit obligation at end of year...............  $1,892   $1,965
                                                              ======   ======
Change in plan assets
  Fair value of plan assets at beginning of year............  $1,621   $1,742
  Actual return on plan assets..............................     443     (114)
  Company contributions.....................................      75       99
  Benefits paid.............................................    (108)    (106)
                                                              ------   ------
  Fair value of plan assets at end of year..................  $2,031   $1,621
                                                              ======   ======
Funded status
  Funded status.............................................  $  139   $ (344)
  Unrecognized net actuarial (gain) loss....................     243     (223)
                                                              ------   ------
  Accrued benefit cost......................................  $  104   $  121
                                                              ======   ======
Amounts recognized in the consolidated balance sheets
  consist of:
  Accrued benefit liability.................................  $  104   $  121
                                                              ======   ======
Weighted-average assumptions as of December 31
  Discount rate.............................................     7.5%    6.75%
  Expected return on plan assets............................      10%      10%
  Rate of compensation increase.............................     4.5%     4.5%
</TABLE>

<TABLE>
<CAPTION>
                                                              1999    1998    1997
                                                              -----   -----   -----
<S>                                                           <C>     <C>     <C>
Components of net periodic benefit cost:
  Service cost..............................................  $  88   $ 121   $ 104
  Interest cost.............................................    129     123     117
  Expected return on plan assets............................   (160)   (174)   (316)
                                                              -----   -----   -----
  Net periodic benefit cost.................................  $  57   $  70   $ (95)
                                                              =====   =====   =====
</TABLE>

     The Company sponsored several defined contribution plans (IRS qualified
401(k) plans). Participation in the plans is available to all salaried and
hourly employees of the Company. Participating employees contribute to the
401(k) plans based on a percentage of their compensation which are matched,
based on a percentage of employee contributions by the Company. The Company
recorded expense of $1,042, $1,020 and $600 for the periods ended December 31,
1999, 1998 and 1997, respectively.

                                      F-16
<PAGE>   128
              SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. MANAGEMENT INCENTIVE PLANS AND NOTES RECEIVABLE

     The Company has implemented certain management incentive plans.

  Stock Incentive Pool

     The Former Parent Partnership established a Stock Incentive Pool in order
to provide incentives to employees and directors (including nonemployee
directors) of the Company and its subsidiaries by granting them ownership awards
in the form of Parent Partnership units and common stock of its general partner.
The Stock Incentive Pool awards were allocated by the Compensation Committee of
the Board of Directors of the Company. An award granted from the Stock Incentive
Pool was subject to five year time and performance vesting. The participant is
awarded units in the Parent Partnership and common stock in its general partner.
The Company recognized stock compensation expense for the excess of the fair
market value of the units and common stock over the purchase price in the amount
of $864, $408 and $22 for the years ended December 31, 1999, 1998 and 1997. The
change in controlling stockholder on December 30, 1999, constituted a change in
control under the securities agreements governing the Stock Incentive Pool. As a
result all units and stock issued under the plan immediately vested on December
30, 1999. The Company recognized stock compensation expense for the excess of
the fair market value of the units and common stock over the purchase price in
the amount of approximately $11.3 million. This expense has been classified in
special charges in our statement of operations. The Stock Incentive Pool was
terminated on December 30, 1999.

  Long-Term Incentive Plan

     The Former Parent Partnership established a Long-Term Incentive Plan to
provide long-term incentive awards to nonunion employees (excluding most
executives who participated directly in the Stock Incentive Pool). In connection
with the December 30, 1999 sale of the Company's common stock by the Parent
Partnership, the Board of directors determined that $1.5 million of cash should
be distributed to eligible employees. This value was contributed to the Company
from the Parent Partnership's net proceeds on December 30, 1999. The Company
recognized stock compensation expense for the value of the pool at December 30,
1999 of $1.5 million and has been classified in special changes in our statement
of operations.

  Management Notes Receivable

     Certain members of management borrowed from the Parent Partnership a
portion of the purchase price for their units in the Parent Partnership. In
1998, the Parent Partnership contributed those notes receivable to the Company
as an equity contribution. The amount contributed was approximately $2.8
million. The notes receivable were collateralized by the Parent Partnership
units, and as such, the balance had been reflected as a reduction of the
Company's stockholder's equity. The balance of the management loans at December
30, 1999 was approximately $2.5 million. Upon the change of controlling
stockholder of the Company on December 30, 1999, the balance of management loans
were repaid by certain members of management from their net sale proceeds.

  1999 Stock Option Plan

     On December 29, 1999, the Company adopted its Sovereign Specialty
Chemicals, Inc. Stock Option Plan (the Plan), which provides incentives to key
employees and directors (including nonemployee directors) of the Company by
granting them nonqualified stock options of up to 240,713 shares of the
Company's common stock. The Plan is administered by a committee of the Board of
Directors which has the authority to determine the employees to whom options
will be granted, the number of options, and other terms and conditions of the
options. Options are granted at not less than the fair value on the date of
                                      F-17
<PAGE>   129
              SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

grant. Options granted from the Plan are subject to a five year vesting period
and expire ten years from the date of grant. Options available for grant are
87,663 at December 31, 1999.

     As allowed under the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company will continue to apply APB Opinion No. 25
and related interpretations in accounting for the options under the Company's
Plan. Accordingly, compensation expense has only been recognized for options
with an exercise price below the market value at the date of grant. Had
compensation cost for the Company's Plan been determined in accordance with SFAS
No. 123, it would have resulted in net income that approximate the amounts
reported.

     The fair value of each award is estimated on the date of award using the
Minimum Value award-pricing model with risk free interest rates of 6.50% and
expected award lives of 5 years for 1999. The Company has not paid and does not
anticipate paying dividends; therefore, the expected dividend yield is assumed
to be zero.

     Because the Company's options have characteristics significantly different
from those of traded stock options, and because changes in subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its awards.

13. CAPITAL LEASES

     Property under capital leases included within property, plant, and
equipment are as follows:

<TABLE>
<CAPTION>
                                                                DECEMBER 31
                                                              ---------------
                                                               1999     1998
                                                              ------   ------
<S>                                                           <C>      <C>
Buildings...................................................  $1,912   $1,912
Machinery and equipment.....................................     298      105
                                                              ------   ------
                                                               2,210    2,017
Less: Accumulated depreciation..............................     539      324
                                                              ------   ------
                                                              $1,671   $1,693
                                                              ======   ======
</TABLE>

     Future minimum lease payments under capital leases at December 31, 1999,
together with the present value of the minimum lease payments are as follows:

<TABLE>
<S>                                                           <C>
2000.......................................................   $  692
2001.......................................................      688
2002.......................................................      708
2003.......................................................      684
2004.......................................................      676
2005 and thereafter........................................    2,611
                                                              ------
Total minimum payments.....................................    6,059
Less: Amounts representing interest........................    2,480
                                                              ------
Present value of minimum payments..........................    3,579
Less: Current portion......................................      229
                                                              ------
Total long-term portion....................................   $3,350
                                                              ======
</TABLE>

                                      F-18
<PAGE>   130
              SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

14. ENVIRONMENTAL MATTERS

     The Company is subject to various federal, state, local, and foreign
environmental laws and regulations pertaining to the discharge of materials into
the environment, the handling and disposal of solid and hazardous wastes, the
remediation of contamination, and otherwise relating to health, safety, and
protection of the environment. These laws and regulations provide for
substantial fines and criminal sanctions for violations and impose liability for
the costs of clean up, and for certain damages resulting from past spills,
disposals, or other releases of hazardous substances. In connection with its
acquisitions of businesses, the Company has conducted substantial investigations
to assess potential environmental liabilities. The investigations, performed by
independent consultants of all facilities, found that certain facilities have
had or may have had releases of hazardous materials that require or may require
remediation. In addition, certain subsidiaries have been named as potentially
responsible parties under the Comprehensive Environment Response, Compensation,
and Liability Act (CERCLA) and/or similar environmental laws for cleanup of
multiparty waste disposal sites.

     The Company has negotiated contractual indemnifications from previous
owners of acquired businesses, which, supplemented by commercial insurance
coverage designed for each acquisition, is currently expected to adequately
address a substantial portion of known and foreseeable environmental
liabilities. At December 31, 1999, the Company had accrued reserves relating to
environmental matters of approximately $0.4 million. The liabilities are
included in the balance sheet as "other current liabilities" and represent known
environmental liabilities for which the Company have been indemnified.
Management estimates that it will incur approximately $0.4 million of these
indemnified liabilities in 2000. The Company does not currently believe that
potential additional expenses for environmental liabilities will have a material
adverse effect on the financial condition or results of operations of the
Company.

15. SUPPLEMENTAL CASH FLOW INFORMATION

     The following table provides supplemental cash flow data in addition to the
information provided in the consolidated statements of cash flows for the years
ended December 31, 1999, 1998 and 1997:

<TABLE>
<CAPTION>
                                                            1999      1998      1997
                                                           -------   -------   ------
<S>                                                        <C>       <C>       <C>
Cash paid for:
  Interest...............................................  $13,427   $13,675   $3,536
  Income taxes...........................................    3,544     2,223      302
Supplemental disclosure of non-cash activity:
  Debt issued for capital leased assets..................      193        --       --
</TABLE>

16. SPECIAL CHARGES

     As a result of the change of controlling stockholder of the Company on
December 30, 1999, the Company incurred incremental expenses totaling $14.2
million, consisting of $11.3 million in stock compensation expense related to
accelerated vesting of incentive equity awards previously issued to certain
members of management, $1.5 million in compensation expense related to a
disbursement made to employees under the Long-Term Incentive Plan, $0.8 million
in cash bonuses related to the transaction and $0.6 million in legal, accounting
and other fees.

17. EXTRAORDINARY LOSSES

     During 1997, the Company repaid its outstanding debt obligations under
certain credit agreements and recognized an extraordinary loss related to the
write-off of unamortized deferred financing costs of $1,409, net of tax benefit
of $948.

                                      F-19
<PAGE>   131
              SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     During 1998, the Company repaid its outstanding debt obligations under its
$30.0 million term loan and recognized an extraordinary loss related to the
write-off of unamortized deferred financing costs of $176, net of tax benefit of
$118.

     During 1999, the Company refinanced its prior credit facility and
recognized an extraordinary loss related to the write-off of unamortized
deferred financing costs of $1,055, net of tax benefit of $703.

18. SUBSEQUENT EVENTS

  Employee Stock Purchase Plan

     On January 26, 2000, the Company adopted its Sovereign Specialty Chemicals,
Inc. Employee Stock Purchase Plan in order to provide incentives to salaried
employees (excluding executives who participate directly in the Sovereign
Specialty Chemicals, Inc. Stock Option Plan) by providing them the opportunity
to purchase up to 20,000 shares of common stock of the Company. The compensation
committee of the Board of Directors will administer the plan. As of March 23,
2000, the Company's employees have subscribed to purchase 7,045 Class A common
shares.

  Senior Subordinated Notes

     The change of controlling stockholder of the Company constituted a change
of control under the terms of the indenture relating to the Company's 9 1/2%
Senior Subordinated Notes due 2007 and, as a result, the Company was required to
make an offer to purchase for cash any and all of its outstanding $125.0 million
principal amount of 9 1/2% notes for 101% of the principal amount thereof plus
accrued and unpaid interest to the date of repurchase. The repurchase of 100% of
the outstanding Notes was completed on March 6, 2000 with the repurchase of the
entire $125.0 million principal amount of 9 1/2% notes for an aggregate purchase
price of approximately $127.4 million which was financed with borrowings under
the Credit Agreement.

     The Company is proposing to issue $150.0 million in aggregate principal
amount of senior subordinated notes due 2010 in a private placement to qualified
institutional investors in accordance with Securities Exchange Commission Rule
144A and outside of the United States in accordance with Regulation S under the
Securities Act of 1933. The Company intends to use proceeds from this offering,
if consummated, to repay amounts drawn under the Credit Agreement for the
repurchase of the 9 1/2% notes.

                                      F-20
<PAGE>   132
              SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

19. OTHER FINANCIAL INFORMATION

     The Company is a holding company with no independent assets or operations.
Full separate financial statements of the Guarantor Subsidiaries have not been
presented as the guarantors are wholly-owned subsidiaries of the Company.
Management does not believe that inclusion of such financial statements would be
material to investors. The financial statement data as of December 31, 1999,
1998 and 1997, respectively of the Guarantor Subsidiaries and the Non-Guarantor
Subsidiaries are below. The financial statement data of the Guarantor
Subsidiaries include SIA, P&S, OSI, and Tanner under the caption "the Company."

<TABLE>
<CAPTION>
                                                           GUARANTOR
                                                          SUBSIDIARIES
                                                          ------------   NON-GUARANTOR
                                                          THE COMPANY    SUBSIDIARIES     TOTAL
                                                          ------------   -------------   --------
<S>                                                       <C>            <C>             <C>
STATEMENT OF OPERATIONS DATA:
Net sales...............................................    $227,794        $9,614       $237,408
Cost of goods sold......................................     155,803         6,747        162,550
                                                            --------        ------       --------
Gross profit............................................      71,991         2,867         74,858
Selling, general, and administrative expenses...........      60,293         2,210         62,503
                                                            --------        ------       --------
Operating income........................................      11,698           657         12,355
Interest expense, net...................................      14,927           149         15,076
                                                            --------        ------       --------
Income (loss) before income taxes and extraordinary
  loss..................................................    $ (3,229)       $  508       $ (2,721)
                                                            ========        ======       ========

BALANCE SHEET DATA:
Assets:
Current assets..........................................    $ 80,156        $6,016       $ 86,172
Property, plant and equipment, net......................      50,462         1,063         51,525
Goodwill, net...........................................     106,157            --        106,157
Deferred financing costs, net...........................      11,011            --         11,011
Other assets............................................       2,878            96          2,974
                                                            --------        ------       --------
Total assets............................................    $250,664        $7,175       $257,839
                                                            ========        ======       ========

Liabilities and stockholders' equity:
Current liabilities.....................................    $ 62,799        $6,062       $ 68,861
Long-term liabilities...................................     132,362            --        132,362
Total stockholders' equity..............................      55,503         1,113         56,616
                                                            --------        ------       --------
Total liabilities and stockholders' equity..............    $250,664        $7,175       $257,839
                                                            ========        ======       ========

</TABLE>

                                      F-21
<PAGE>   133
              SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
                                                           GUARANTOR
                                                          SUBSIDIARIES
                                                          ------------   NON-GUARANTOR
                                                          THE COMPANY    SUBSIDIARIES     TOTAL
                                                          ------------   -------------   --------
<S>                                                       <C>            <C>             <C>
STATEMENT OF CASH FLOWS DATA
OPERATING ACTIVITIES
Net income (loss).......................................    $ (8,457)       $  463       $ (7,994)
Adjustments to reconcile net income (loss) to net cash
  provided by operating activities:
  Depreciation and amortization.........................      10,836           129         10,965
  Deferred income taxes.................................         200            --            200
  Compensation expense on management incentive plan.....      13,746            --         13,746
  Amortization of deferred financing costs..............       1,185            --          1,185
  Extraordinary losses..................................       1,055            --          1,055
  Changes in operating assets and liabilities (net of
     effect of acquired companies)......................      (7,883)         (323)        (8,206)
                                                            --------        ------       --------
Net cash provided by operating activities...............      10,682           269         10,951

INVESTING ACTIVITIES
Acquisition of business, net of acquired cash...........     (15,769)           --        (15,769)
Purchase of property, plant, and equipment..............      (5,908)         (372)        (6,280)
                                                            --------        ------       --------
Net cash used in investing activities...................     (21,677)         (372)       (22,049)

FINANCING ACTIVITIES
Capital contributions...................................          55            --             55
Net proceeds from revolving credit facilities...........      27,000           201         27,201
Deferred financing costs................................      (4,041)           --         (4,041)
Payments on acquisition notes payable...................        (900)           --           (900)
Payments on capital lease obligations...................        (194)           --           (194)
                                                            --------        ------       --------
Net cash provided by financing activities...............      21,920           201         22,121
Effect of exchange rate changes on cash.................         221          (102)           119
                                                            --------        ------       --------
Net increase (decrease) in cash and cash equivalents....      11,146            (4)        11,142
Cash and cash equivalents at beginning of year..........       5,523           340          5,863
                                                            --------        ------       --------
Cash and cash equivalents at end of year................    $ 16,595        $  336       $ 17,005
                                                            ========        ======       ========
</TABLE>

                                      F-22
<PAGE>   134
              SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following sets forth the financial data at December 31, 1998 and for
the year then ended. For purposes of this disclosure, the results of operations
for Mercer for the period ended April 21, 1998 (date of disposition) are
separately reported.

<TABLE>
<CAPTION>
                                                  GUARANTOR SUBSIDIARIES
                                                  ----------------------   NON-GUARANTOR
                                                  THE COMPANY    MERCER    SUBSIDIARIES     TOTAL
                                                  ------------   -------   -------------   --------
<S>                                               <C>            <C>       <C>             <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................................    $196,989     $7,218       $ 7,128      $211,335
Cost of goods sold..............................     133,997      4,700         5,342       144,039
                                                    --------     ------       -------      --------
Gross profit....................................      62,992      2,518         1,786        67,296
Selling, general, and administrative expenses...      43,094      1,439         1,885        46,418
                                                    --------     ------       -------      --------
Operating income (loss).........................      19,898      1,079           (99)       20,878
Interest expense, net...........................      13,718        840           154        14,712
Loss on sale of business........................       1,025         --            --         1,025
                                                    --------     ------       -------      --------
Income (loss) before income taxes and
  extraordinary losses..........................    $  5,155     $  239       $  (253)     $  5,141
                                                    ========     ======       =======      ========
BALANCE SHEET DATA:
Assets:
Current assets..................................    $ 60,379                  $ 3,375      $ 63,754
Property, plant and equipment, net..............      48,702                      795        49,497
Goodwill, net...................................     101,205                       --       101,205
Deferred financing costs, net...................       9,913                       --         9,913
Other assets....................................       1,016                      182         1,198
                                                    --------                  -------      --------
Total assets....................................    $221,215                  $ 4,352      $225,567
                                                    ========                  =======      ========
Liabilities and stockholder's equity (deficit):
Current liabilities.............................    $ 30,665                  $ 3,350      $ 34,015
Long-term liabilities...........................     135,130                    2,228       137,358
Total stockholder's equity (deficit)............      55,420                   (1,226)       54,194
                                                    --------                  -------      --------
Total liabilities and stockholder's equity......    $221,215                  $ 4,352      $225,567
                                                    ========                  =======      ========
</TABLE>

                                      F-23
<PAGE>   135
              SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
                                                  GUARANTOR SUBSIDIARIES
                                                  ----------------------   NON-GUARANTOR
                                                  THE COMPANY    MERCER    SUBSIDIARIES     TOTAL
                                                  ------------   -------   -------------   --------
<S>                                               <C>            <C>       <C>             <C>
STATEMENT OF CASH FLOWS DATA
OPERATING ACTIVITIES
Net income (loss)...............................    $  1,486     $  238       $  (253)     $  1,471
Adjustments to reconcile net income (loss) to
  net cash provided by (used in) operating
  activities:
  Depreciation and amortization.................       8,699        422           356         9,477
  Deferred income taxes.........................       2,025         --            --         2,025
  Loss on sale of business......................       1,025         --            --         1,025
  Compensation expense on management incentive
     plan.......................................         408         --            --           408
  Amortization of deferred financing costs......       1,129         84            --         1,213
  Extraordinary losses..........................         176         --            --           176
  Changes in operating assets and liabilities
     (net of effect of acquired companies)......      (1,189)    (1,021)           33        (2,177)
                                                    --------     ------       -------      --------
Net cash provided by (used in) operating
  activities....................................      13,759       (277)          136        13,618

INVESTING ACTIVITIES
Acquisition, disposition of businesses, net (net
  of acquired cash).............................      20,255        (36)           --        20,219
Purchase of property, plant, and equipment......      (3,960)      (188)         (324)       (4,472)
                                                    --------     ------       -------      --------
Net cash provided by (used in) investing
  activities....................................      16,295       (224)         (324)       15,747

FINANCING ACTIVITIES
Capital contributions...........................         230         --            --           230
Net proceeds from revolving credit facilities...         (29)        --           338           309
Proceeds from issuance of long-term debt........          --         --            --            --
Deferred financing costs........................        (282)        --            --          (282)
Payments on long-term debt......................     (30,081)        --            --       (30,081)
Payments on capital lease obligations...........        (122)        --            --          (122)
                                                    --------     ------       -------      --------
Net cash used in provided by financings
  activities....................................     (30,284)        --           338       (29,946)
Effect of exchange rate changes on cash.........          31         --            --            31
                                                    --------     ------       -------      --------
Net increase decrease in cash and cash
  equivalents...................................        (199)      (501)          150          (550)
Cash and cash equivalents at beginning of
  year..........................................       5,722        501           190         6,413
                                                    --------     ------       -------      --------
Cash and cash equivalents at end of year........    $  5,523     $   --       $   340      $  5,863
                                                    ========     ======       =======      ========
</TABLE>

                                      F-24
<PAGE>   136
              SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following sets forth the financial data at December 31, 1997 and for
the year then ended:

<TABLE>
<CAPTION>
                                                  GUARANTOR SUBSIDIARIES
                                                  ----------------------   NON-GUARANTOR
                                                  THE COMPANY    MERCER    SUBSIDIARIES     TOTAL
                                                  ------------   -------   -------------   --------
<S>                                               <C>            <C>       <C>             <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................................   $ 119,951     $9,945       $4,875       $134,771
Cost of goods sold..............................      82,608      6,921        3,360         92,889
                                                   ---------     ------       ------       --------
Gross profit....................................      37,343      3,024        1,515         41,882
Selling, general, and administrative expenses...      26,692      1,899        1,703         30,294
                                                   ---------     ------       ------       --------
Operating income (loss).........................      10,651      1,125         (188)        11,588
Interest expense................................       7,858      1,117          105          9,080
                                                   ---------     ------       ------       --------
Income (loss) before income taxes and
  extraordinary losses..........................   $   2,793     $    8       $ (293)      $  2,508
                                                   =========     ======       ======       ========
STATEMENT OF CASH FLOWS DATA
OPERATING ACTIVITIES
Net income (loss)...............................   $      75     $    2       $ (293)      $   (216)
Adjustments to reconcile net income (loss) to
  net cash provided by (used in) operating
  activities:
  Depreciation and amortization.................       5,323        699           27          6,049
  Deferred income taxes.........................          72        166           --            238
  Amortization of deferred financing costs......         651         --           --            651
  Extraordinary losses..........................       1,409         --           --          1,409
  Changes in operating assets and liabilities
     (net of effect of acquired companies)......      (1,301)      (391)        (103)        (1,745)
                                                   ---------     ------       ------       --------
Net cash provided by (used in) operating
  activities....................................       6,279        476         (369)         6,386

INVESTING ACTIVITIES
Acquisition of businesses, net (net of acquired
  cash).........................................    (133,338)        --           --       (133,338)
Purchase of property, plant, and equipment......      (1,429)       (37)        (368)        (1,834)
                                                   ---------     ------       ------       --------
Net cash used in investing activities...........    (134,767)       (37)        (368)      (135,172)

FINANCING ACTIVITIES
Capital contributions...........................      33,800         --           --         33,800
Proceeds from revolving credit facility.........          --         --          593            593
Payments on revolving credit facility...........          --         --           --             --
Proceeds from issuance of long-term debt........     155,000         --           --        155,000
Deferred financing costs........................     (12,672)        --           --        (12,672)
Payments on long-term debt......................     (41,360)        --           --        (41,360)
Payments on capital lease obligations...........        (270)        --           --           (270)
Distributions...................................          --         --           --             --
                                                   ---------     ------       ------       --------
Net cash provided by financings activities......     134,498         --          593        135,091
Effect of exchange rate changes on cash.........          --         --            4              4
                                                   ---------     ------       ------       --------
Net increase (decrease) in cash and cash
  equivalents...................................       6,010        439         (140)         6,309
Cash and cash equivalents at beginning of
  year..........................................        (288)        62          330            104
                                                   ---------     ------       ------       --------
Cash and cash equivalents at end of year........   $   5,722     $  501       $  190       $  6,413
                                                   =========     ======       ======       ========
</TABLE>

                                      F-25
<PAGE>   137

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

                                  $150,000,000

                   [SOVERIGN SPECIALTY CHEMICALS, INC. LOGO]

                                   SOVEREIGN
                           SPECIALTY CHEMICALS, INC.

                   11 7/8% SENIOR SUBORDINATED NOTES DUE 2010

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

                                   PROSPECTUS
                              --------------------

                                           , 2000

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>   138

                                    PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS

     Sovereign and SIA Adhesives, Inc. are incorporated under the laws of the
State of Delaware. Section 145 of the Delaware General Corporation Law (the
"DGCL") provides that a Delaware corporation may indemnify directors and
officers as well as other employees and individuals against expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement in connection
with specified actions, suits and proceedings, whether civil, criminal,
administrative, or investigative (other than action by or in the right of the
corporation -- a "derivative action"), if they acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests of
the corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful. A similar standard is
applicable in the case of derivative actions, except that indemnification only
extends to expenses (including attorneys' fees) incurred in connection with the
defense or settlement of such action, and the statute requires court approval
before there can be any indemnification where the person seeking indemnification
has been found liable to the corporation. The statute provides that it is not
exclusive of other indemnification that may be granted by a corporation's
certificate of incorporation, bylaws, disinterested director vote, stockholder
vote, agreement, or otherwise.

     The DGCL further authorizes a Delaware corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him and incurred by him in any such
capacity, arising out of his status as such, whether or not the corporation
would otherwise have the power to indemnify him under Section 145.

     The respective by-laws of Sovereign and SIA Adhesives provide that the
corporation shall indemnify, to the fullest extent permitted by the DGCL, any
person who was or is a party or is threatened to be made a party to or is
involved in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative by reason of the fact
that he or she is or was a director or officer of the corporation, or is or was
serving at the request of the corporation as a director, officer or member of
another corporation, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding and that such indemnification
will continue as to an indemnity who has ceased to be a director or officer. The
by-laws of Sovereign and SIA Adhesives further provide that any employee or
agent of the corporation, or any person serving at the request of the
corporation will be indemnified in the same manner as a director or officer of
the corporation.

     The respective by-laws of Sovereign and SIA Adhesives provide that the
corporation may purchase and maintain insurance on its own behalf and on behalf
of any person who is or was a director, officer, employee, fiduciary, or agent
of the corporation or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
her and incurred by him or her in any such capacity, whether or not the
corporation would have the power to indemnify such person against such liability
under its by-laws.

     Pierce & Stevens is incorporated under the laws of the State of New York.
Sections 722 and 723 of the Business Corporation Law of the State of New York
(the "New York Law") provides that a corporation may indemnify any person made a
party to an action by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that he, his testator or intestate, is or was
a director or officer of the corporation, against the reasonable expenses,
including attorneys' fees, actually and necessarily incurred by him in
connection with the defense of such action, or in connection with an appeal
therein, except in relation to matters as to which such director or officer is
adjudged to have breached his duty to the corporation under the New York law.

                                      II-1
<PAGE>   139

     A New York corporation may indemnify any person, made, or threatened to be
made, a party to an action or proceeding other than one by or in the right of
the corporation to procure a judgment in its favor, whether civil or criminal,
including an action by or in the right of any other corporation of any type or
kind, domestic or foreign, or any partnership, joint venture, trust, employee
benefit plan or other enterprise, which any director or officer of the
corporation served in any capacity at the request of the corporation, by reason
of the fact that he, his testator or intestate, was a director or officer of the
corporation, or served such other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise in any capacity, against
judgments, fines, amounts paid in settlement and reasonable expenses, including
attorneys' fees actually and necessarily incurred as a result of such action or
proceeding, or any appeal therein, if such director or officer acted, in good
faith, for a purpose which he reasonably believed to be in, or, in the case of
service for any other corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise, not opposed to, the best interests of
the corporation and, in criminal actions or proceedings, in addition, had no
reasonable cause to believe that his conduct was unlawful.

     The New York Law also authorizes a corporation to purchase and maintain
insurance to indemnify the corporation for any obligation which it incurs as a
result of the indemnification of directors and officers, to indemnify directors
and officers in instances in which they may be indemnified by the corporation,
and to indemnify directors and officers in instances in which they may not
otherwise be indemnified by the corporation under the provisions of the New York
Law provided the contract of insurance covering such directors and officers
provides for a retention amount and for co-insurance.

     The by-laws of Pierce & Stevens do not contain provisions regarding the
indemnification of directors and officers.

     OSI Sealants is incorporated under the laws of the State of Illinois.
Section 8.75 of the Business Corporation Act of 1983 of the State of Illinois
(the "Illinois Law") contains provisions permitting an Illinois corporation to
indemnify any person who was or is a party, or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that he or she is or was a
director, officer, employee or agent of the corporation, or who is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, if such person acted in good
faith an in a manner he or she reasonably believed to be in, or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his or her conduct was
unlawful.

     An Illinois corporation may indemnify any person who was or is a party, or
is threatened to be made a party, to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its favor
by reason of the fact that such person is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit, if such person
acted in good faith and in a manner he or she reasonably believed to be in, or
not opposed to the best interests of the corporation, provided that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his or her duty to the corporation, unless, and
only to the extent that, the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability,
but in view of the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses as the court shall deem
proper.

     The Illinois Law further authorizes an Illinois corporation to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or who is or was serving at the request of
the corporation as a director, officer, employee or agent of another

                                      II-2
<PAGE>   140

corporation, partnership, joint venture, trust or other enterprise, against any
liability asserted against such person and incurred by such person in any such
capacity, or arising out of his or her status as such, whether or not the
corporation would have the power to indemnify such person against such liability
under the provisions of Section 8.75.

     Tanner Chemicals, Inc. is incorporated under the laws of the State of New
Hampshire. Section 293-A:8 of the Business Corporation Act of the State of New
Hampshire (the "New Hampshire Law") contains provisions permitting a New
Hampshire corporation to indemnify directors, employees, and agents of the
corporation who are made a party to a proceeding if they acted in good faith and
reasonably believed that their conduct was in the best interests of the
corporation, or in the case of an employee benefit plan, in the best interests
of the participants and beneficiaries of the plan.

     The New Hampshire Law further authorizes a New Hampshire corporation to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any such
capacity or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against this liability under the
provisions of the New Hampshire Law.

     The by-laws of each of OSI Sealants and Tanner provide that the corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to or is involved in any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative by reason
of the fact that he or she is or was a director or officer of such corporation
or other entity, or is or was serving at the request of such corporation as a
director, officer or member of another corporation so long as such person acted
in good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of such corporation, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding
and that such indemnification shall continue as to an indemnitee who has ceased
to be a director or officer and shall inure to the benefit of the indemnitee's
heirs, executors and administrators. The by-laws of each of OSI Sealants and
Tanner further provide that any employee or agent of such corporation, or any
person serving at the request of such corporation an employee or agent of
another corporation, partnership, joint venture or other enterprise shall be
indemnified in the same manner as a director or officer of such entity.

     The by-laws of each of OSI Sealants and Tanner provide that each such
corporation may purchase and maintain insurance on its own behalf and on behalf
of any person who is or was a director, officer, employee, fiduciary, or agent
of such corporation or was serving at the request of that corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
her and incurred by him or her in any such capacity, whether or not the
corporation would have the power to indemnify such person against such liability
under its by-laws.

     We have obtained an indemnification insurance policy insuring our directors
and officers against certain liabilities they may incur in their capacity as
directors and officers. Under these policies, the insurer, on our behalf, may
also pay amounts for which we have granted indemnification to the directors or
officers.

                                      II-3
<PAGE>   141

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

  (a) Exhibits

<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                              DOCUMENT DESCRIPTION
        -------                              --------------------
<C>                      <S>
          3.1            -- Certificate of Incorporation Sovereign Specialty
                            Chemicals, Inc., incorporated by reference to Exhibit 4.1
                            of the Company's Registration Statement on Form S-8 as
                            filed on January 28, 2000.
          3.2            -- By-Laws of Sovereign Specialty Chemicals, Inc.,
                            incorporated by reference to Exhibit 4.2 of the Company's
                            Registration Statement on Form S-8 as filed on January
                            28, 2000.
          3.3            -- Certificate of Incorporation of Pierce & Stevens Corp.,
                            incorporated by reference to Exhibit 3.3 of the Company's
                            Registration Statement on Form S-4, as amended
                            (Registration No. 333-39373).
          3.4            -- By-laws of Pierce & Stevens Corp., incorporated by
                            reference to Exhibit 3.4 of the Company's Registration
                            Statement on Form S-4, as amended (Registration No.
                            333-39373).
          3.5            -- Certificate of Incorporation of SIA Adhesives, Inc.,
                            incorporated by reference to Exhibit 3.5 of the Company's
                            Registration Statement on Form S-4, as amended
                            (Registration No. 333-39373).
          3.6            -- By-Laws of SIA Adhesives, Inc., incorporated by reference
                            to Exhibit 3.6 of the Company's Registration Statement on
                            Form S-4, as amended (Registration No. 333-39373).
          3.7            -- Amended and Restated Articles of Incorporation of OSI
                            Sealants, Inc., incorporated by reference to Exhibit 3.7
                            of the Company's Registration Statement on Form S-4, as
                            amended (Registration No. 333-39373).
          3.8            -- By-Laws of OSI Sealants, Inc., incorporated by reference
                            to Exhibit 3.8 of the Company's Registration Statement on
                            Form S-4, as amended (Registration No. 333-39373).
          3.9            -- Articles of Incorporation of Tanner Chemicals, Inc.,
                            incorporated by reference to Exhibit 3.11 of the
                            Company's Registration Statement on Form S-4, as amended
                            (Registration No. 333-39373).
          3.10           -- By-Laws of Tanner Chemicals, Inc., as amended,
                            incorporated by reference to Exhibit 3.12 of the
                            Company's Registration Statement on Form S-4, as amended
                            (Registration No. 333-39373).
          4.1            -- Amended and Restated Credit Agreement, dated April 6,
                            2000 among Sovereign Specialty Chemicals, Inc., the
                            Guarantors and Merrill Lynch, Pierce, Fenner & Smith
                            Incorporated, J.P. Morgan Securities Inc. and the Chase
                            Manhattan Bank.+
          4.2            -- Amended and Restated Shareholders Agreement, dated May
                            12, 2000 between and among Sovereign Specialty Chemicals,
                            Inc., SSCI Investors LLC and the Shareholders listed on
                            Schedule I thereto.
          4.3            -- Amended and Restated Shareholders Agreement, dated
                            December 14, 1999, by and among Sovereign Specialty
                            Chemicals, Inc., SSCI Investors LLC, and Sovereign
                            Specialty Chemicals, L.P., incorporated by reference to
                            Exhibit 4.3 of the Company's Annual Report on Form 10-K
                            as filed on March 24, 2000.
</TABLE>

                                      II-4
<PAGE>   142

<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                              DOCUMENT DESCRIPTION
        -------                              --------------------
<C>                      <S>
          4.3A           -- Amendment No. 1 to Amended and Restated Shareholders
                            Agreement dated December 14, 1999, by and among Sovereign
                            Specialty Chemicals, Inc., SSCI Investors LLC, and
                            Sovereign Specialty Chemicals, L.P., incorporated by
                            reference to Exhibit 4.3A of the Company's Annual Report
                            on Form 10-K as filed on March 24, 2000.
          4.4            -- Indenture dated March 29, 2000 among Sovereign Specialty
                            Chemicals, Inc., the Guarantors and The Bank of New York,
                            as trustee.
          4.5            -- Forms of 11 7/8% Senior Subordinated Notes due 2010,
                            Series A and Series B Notes (contained in Exhibit 4.4 as
                            Exhibit A and B thereto, respectively).
          4.6            -- Form of Guarantee (contained in Exhibit 4.4 as Exhibit A
                            and B thereto).
          4.7            -- Registration Rights Agreement dated March 29, 2000 among
                            Sovereign Specialty Chemicals, Inc., the Guarantors, J.P.
                            Morgan Securities Inc., Merrill Lynch, Pierce Fenner &
                            Smith Incorporated and Chase Securities Inc.
          5.1            -- Opinion and consent of Fried, Frank, Harris, Shriver &
                            Jacobson.
          5.2            -- Opinion and consent of McBride Baker & Coles.
          5.3            -- Opinion and consent of Wiggin & Nourie, P.A.
         10.1            -- Employment Agreement, dated December 29, 1999 between
                            Sovereign Specialty Chemicals, Inc., and Robert B.
                            Covalt, incorporated by reference to Exhibit 10.1 of the
                            Company's Annual Report on Form 10-K as filed on March
                            24, 2000.
         10.1A           -- First Amendment to Employment Agreement between Sovereign
                            Specialty Chemicals, Inc. and Robert B. Covalt, dated
                            January 2, 2000, incorporated by reference to Exhibit
                            10.1A of the Company's Annual Report on Form 10-K as
                            filed on March 24, 2000.
         10.2            -- Employment Agreement, dated December 29, 1999 between
                            Sovereign Specialty Chemicals, Inc. and Gerard A. Loftus,
                            incorporated by reference to Exhibit 10.2 of the
                            Company's Annual Report on Form 10-K as filed on March
                            24, 2000.
         10.3            -- Employment Agreement, dated December 29, 1999 between
                            Sovereign Specialty Chemicals, Inc. and Peter Longo,
                            incorporated by reference to Exhibit 10.3 of the
                            Company's Annual Report on Form 10-K as filed on March
                            24, 2000.
         10.4            -- Employment Agreement, dated December 29, 1999 between
                            Sovereign Specialty Chemicals, Inc. and Frederick Quinn,
                            incorporated by reference to Exhibit 10.4 of the
                            Company's Annual Report on Form 10-K as filed on March
                            24, 2000.
         10.5            -- Employment Agreement, dated December 29, 1999 between
                            Sovereign Specialty Chemicals, Inc. and John Mellett,
                            incorporated by reference to Exhibit 10.5 of the
                            Company's Annual Report on Form 10-K as filed on March
                            24, 2000.
         10.6            -- Sovereign Specialty Chemicals, Inc. Management Incentive
                            Compensation Plan dated January 1, 2000, incorporated by
                            reference to Exhibit 10.6 of the Company's Annual Report
                            on Form 10-K as filed on March 24, 2000.
         10.7            -- Sovereign Specialty Chemicals, Inc. Stock Option Plan,
                            dated December 29, 1999, incorporated by reference to
                            Exhibit 10.7 of the Company's Annual Report on Form 10-K
                            as filed on March 24, 2000.
         10.8            -- Non-qualified Stock Option Agreement between Sovereign
                            Specialty Chemicals, Inc. and Robert B. Covalt, dated
                            December 31, 1999, incorporated by reference to Exhibit
                            10.8 of the Company's Annual Report on Form 10-K as filed
                            on March 24, 2000.
</TABLE>

                                      II-5
<PAGE>   143

<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                              DOCUMENT DESCRIPTION
        -------                              --------------------
<C>                      <S>
         10.8A           -- First Amendment to Non-qualified Stock Option Agreement
                            between Sovereign Specialty Chemicals, Inc. and Robert B.
                            Covalt, dated January 4, 2000, incorporated by reference
                            to Exhibit 10.8A of the Company's Annual Report on Form
                            10-K as filed on March 24, 2000.
         10.9            -- Sovereign Specialty Chemicals, Inc. Employee Stock
                            Purchase Plan, incorporated by reference to Exhibit 10.9
                            of the Company's Registration Statement on Form S-8 as
                            filed on January 28, 2000.
         10.10           -- Non-qualified stock option Agreement between Sovereign
                            Specialty Chemicals, Inc. and the individuals listed in
                            Schedule 1 thereto, dated December 29, 1999, incorporated
                            by reference to Exhibit 10.10 of the Company's Annual
                            Report on Form 10-K as filed on March 24, 2000.
         10.14           -- Asset Purchase Agreement dated March 31, 1996 among The
                            BFGoodrich Company, Sovereign Engineered Adhesives,
                            L.L.C. and the Parent Partnership, incorporated by
                            reference to Exhibit 10.14 of the Company's Registration
                            Statement on Form S-4, as amended (Registration No.
                            333-39373).+
         10.15           -- Purchase Agreement, dated August 19, 1996 among The
                            Sherwin-Williams Company, Pierce & Stevens Canada, Inc.,
                            the Parent Partnership and P&S Holdings, Inc,
                            incorporated by reference to Exhibit 10.15 of the
                            Company's Registration Statement on Form S-4, as amended
                            (Registration No. 333-39373).+
         10.16           -- Stock Purchase Agreement dated May 22, 1997 between
                            Laporte Inc. and the Parent Partnership, incorporated by
                            reference to Exhibit 10.16 of the Company's Registration
                            Statement on Form S-4, as amended (Registration No.
                            333-39373).+
         10.17           -- Closing Agreement dated August 5, 1997 between Laporte
                            Inc., the Parent Partnership and the Company,
                            incorporated by reference to Exhibit 10.17 of the
                            Company's Registration Statement on Form S-4, as amended
                            (Registration No. 333-39373).+
         10.20           -- Stock Purchase Agreement, dated March 5, 1998, by among
                            Burke Industries, Inc., Mercer and the Company,
                            incorporated by reference to Exhibit 10.20 of the
                            Company's Registration Statement on Form S-4, as amended
                            (Registration No. 333-39373).+
         12              -- Computation of ratios of earnings to fixed charges.
         21.1            -- Subsidiaries of the Company and the Guarantors,
                            incorporated by reference to Exhibit 21.1 of the
                            Company's Annual Report on Form 10-K as filed on March
                            24, 2000.
         23.1            -- Consent of Ernst & Young LLP (independent auditors).
         23.2            -- Consent of Fried, Frank, Harris, Shriver and Jacobson
                            (included in Exhibit 5.1).
         23.3            -- Consent of McBride Baker & Coles (included in Exhibit
                            5.2).
         23.4            -- Consent of Wiggin & Nourie, P.A. (included in Exhibit
                            5.3).
         24.1            -- Powers of Attorney (included in the signature pages to
                            the Registration Statement).
         25.1            -- Statement of Eligibility of Trustee on Form T-1.
         27              -- Financial Data Schedule.
</TABLE>

                                      II-6
<PAGE>   144

<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                              DOCUMENT DESCRIPTION
        -------                              --------------------
<C>                      <S>
         99.1            -- Cautionary Statements for Purposes of "Safe Harbor"
                            Provisions of Securities Reform Act of 1995, incorporated
                            by reference to Exhibit 99.1 of the Company's Annual
                            Report on Form 10-K as filed on March 24, 2000.
         99.2            -- Form of Letter of Transmittal.
         99.3            -- Form of Notice of Guaranteed Delivery.
         99.4            -- Form of Instructions to Registered Holder and/or
                            Book-Entry Transfer Facility Participant From Beneficial
                            Owner.
</TABLE>

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

+ The Company agrees to furnish supplementary to the Commission a copy of any
  omitted schedule to such agreement upon the request of the Commission in
  accordance with Item 601(b)(2) of Regulation S-K.

  (b) Schedules

     Schedule II -- Financial Statement Schedules

ITEM 22. UNDERTAKINGS

     The registrant hereby undertakes:

          (1) To file, during any period in which offers or sales are being
     made, a post-effective amendment to this Registration Statement:

             (i) To include any prospectus required by Section 10(a)(3) of the
        Securities Act of 1933;

             (ii) To reflect in the prospectus any facts or events arising after
        the effective date of this Registration Statement (or the most recent
        post-effective amendment thereof) which, individually or in the
        aggregate, represent a fundamental change in the information set forth
        in this Registration Statement; and

             (iii) To include any material information with respect to the plan
        of distribution not previously disclosed in this Registration Statement
        or any material change to such information in this Registration
        Statement.

          (2) That, for the purpose of determining any liability under the
     Securities Act, each such post-effective amendment shall be deemed to be a
     new registration statement relating to the securities offered therein, and
     the offering of such securities at that time shall be deemed to be the
     initial bona fide offering thereof.

          (3) To remove from registration by means of a post-effective amendment
     any of the securities being registered which remain unsold at the
     termination of the offering.

          (4) That, for the purpose of determining any liability under the
     Securities Act, each filing of the registrant's annual report pursuant to
     Section 13(a) or Section 15(d) of the Exchange Act (and where applicable,
     each filing of an employee benefit plan's annual report pursuant to Section
     15(d) of the Exchange Act) that is incorporated by reference in this
     Registration Statement shall be deemed to be a new registration statement
     relating to the securities offered therein, and the offering of such
     securities at that time shall be deemed to be the initial bona fide
     offering thereof.

          (5) Insofar as indemnification for liabilities arising under the
     Securities Act may be permitted to directors, officers and controlling
     persons of the registrant pursuant to the foregoing provisions, or
     otherwise, the registrant has been advised that in the opinion of the
     Commission such indemnification is against public policy as expressed in
     the Securities Act and is, therefore, unenforceable. In the event that a
     claim for indemnification against such liabilities (other than the payment
     by the registrant of expenses incurred or paid by a director, officer or
     controlling person of the registrant in

                                      II-7
<PAGE>   145

     the successful defense of any action, suit or proceeding) is asserted by
     such director, officer or controlling person in connection with the
     securities being registered, the registrant will, unless in the opinion of
     its counsel the matter has been settled by controlling precedent, submit to
     a court of appropriate jurisdiction the question whether such
     indemnification by it is against public policy as expressed in the
     Securities Act and will be governed by the final adjudication of such
     issue.

          (6) The undersigned registrant hereby undertakes to respond to
     requests for information that is incorporated by reference into the
     prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one
     business day of receipt of such request, and to send the incorporated
     documents by first class mail or other equally prompt means. This includes
     information contained in documents filed subsequent to the effective date
     of the registration statement through the date of responding to the
     request.

          (7) The undersigned registrant hereby undertakes to supply by means of
     a post-effective amendment all information concerning a transaction, and
     the company being acquired involved therein, that was not the subject of
     and included in the registration statement when it became effective.

                                      II-8
<PAGE>   146

                                   SIGNATURES

     Pursuant to the requirements of the Securities Act of 1933, as amended,
Sovereign Specialty Chemicals, Inc. has duly caused this Registration Statement
on Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Chicago, State of Illinois, on the 12th day of May,
2000.

                                            SOVEREIGN SPECIALTY CHEMICALS, INC.

                                            By:    /s/ ROBERT B. COVALT
                                              ----------------------------------
                                                       Robert B. Covalt
                                                  Chairman, President, Chief
                                                           Executive
                                                     Officer and Director

     KNOW ALL PERSONS BY THESE PRESENTS, that the persons whose signatures
appear below, constitute and appoint Robert B. Covalt and John R. Mellett, and
each of them as their true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for them, and in their names, places,
and steads, in any and all capacities, to sign the Registration Statement to be
filed in connection with the exchange offer of 11 7/8% Senior Subordinated Notes
due 2010 of Sovereign Specialty Chemicals, Inc. and the related guarantees and
any and all amendments (including post-effective amendments) to the Registration
Statement under the Securities Act of 1933, as amended, and to file the same,
with all exhibits thereto, and the other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as they might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his or her substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.

     This Power of Attorney may be executed in multiple counterparts, each of
which shall be deemed an original, but which taken together shall constitute one
Instrument.

     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:

<TABLE>
<CAPTION>
                      SIGNATURE                                     TITLE                     DATE
                      ---------                                     -----                     ----
<C>                                                    <S>                               <C>

                /s/ ROBERT B. COVALT                   Chairman and Director             May 12, 2000
- -----------------------------------------------------
                  Robert B. Covalt

                 /s/ JOHN R. MELLETT                   Vice President, Chief Financial   May 12, 2000
- -----------------------------------------------------    Officer, Chief Accounting
                   John R. Mellett                       Officer and Treasurer

                 /s/ JOHN L. GARCIA                    Director                          May 12, 2000
- -----------------------------------------------------
                   John L. Garcia

                  /s/ KARL D. LOOS                     Director                          May 12, 2000
- -----------------------------------------------------
                    Karl D. Loos
</TABLE>

                                      II-9
<PAGE>   147

<TABLE>
<CAPTION>
                      SIGNATURE                                     TITLE                     DATE
                      ---------                                     -----                     ----
<C>                                                    <S>                               <C>

                /s/ JOHN D. MACOMBER                   Director                          May 12, 2000
- -----------------------------------------------------
                  John D. Macomber

                /s/ ROBERT H. MALOTT                   Director                          May 12, 2000
- -----------------------------------------------------
                  Robert H. Malott
</TABLE>

<TABLE>
<CAPTION>
                /s/ THOMAS P. SALICE                   Director                          May 12, 2000
- -----------------------------------------------------
                  Thomas P. Salice
<C>                                                    <S>                               <C>
              /s/ NORMAN E. WELLS, JR.                 Director                          May 12, 2000
- -----------------------------------------------------
                Norman E. Wells, Jr.
</TABLE>

                                      II-10
<PAGE>   148

                                   SIGNATURES

     Pursuant to the requirements of the Securities Act of 1933, as amended,
Pierce & Stevens Corp. has duly caused this Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Chicago, State of Illinois, on the 12th day of May, 2000.

                                            PIERCE & STEVENS CORP.

                                            By:    /s/ ROBERT B. COVALT
                                              ----------------------------------
                                                      Robert B. Covalt
                                                   Chairman and Director

     KNOW ALL PERSONS BY THESE PRESENTS, that the persons whose signatures
appear below, constitute and appoint Robert B. Covalt and John R. Mellett, and
each of them, as their true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for them and in their names, places,
and steads, in any and all capacities, to sign the Registration Statement to be
filed in connection with the exchange offer of 11 7/8% Senior Subordinated Notes
due 2010 of Sovereign Specialty Chemicals, Inc. and the related guarantees and
any and all amendments (including post-effective amendments) to the Registration
Statement under the Securities Act of 1933, as amended, and to file the same,
with all exhibits thereto, and the other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as they might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his or her substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.

     This Power of Attorney may be executed in multiple counterparts, each of
which shall be deemed an original, but which taken together shall constitute one
Instrument.

     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:

<TABLE>
<CAPTION>
                      SIGNATURE                                     TITLE                     DATE
                      ---------                                     -----                     ----
<C>                                                    <S>                               <C>

                /s/ ROBERT B. COVALT                   Chairman and Director             May 12, 2000
- -----------------------------------------------------
                  Robert B. Covalt

                 /s/ JOHN R. MELLETT                   Vice President, Chief Financial   May 12, 2000
- -----------------------------------------------------    Officer, Chief Accounting
                   John R. Mellett                       Officer and Treasurer

                 /s/ JOHN L. GARCIA                    Director                          May 12, 2000
- -----------------------------------------------------
                   John L. Garcia

                /s/ THOMAS P. SALICE                   Director                          May 12, 2000
- -----------------------------------------------------
                  Thomas P. Salice
</TABLE>

                                      II-11
<PAGE>   149

                                   SIGNATURES

     Pursuant to the requirements of the Securities Act of 1933, as amended, SIA
Adhesives, Inc. has duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Chicago, State of Illinois, on the 12th day of May, 2000.

                                            SIA ADHESIVES, INC.

                                            By:    /s/ ROBERT B. COVALT
                                              ----------------------------------
                                                      Robert B. Covalt
                                                   Chairman and Director

     KNOW ALL PERSONS BY THESE PRESENTS, that the persons whose signatures
appear below, constitute and appoint Robert B. Covalt and John R. Mellett, and
each of them, as their true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for them and in their names, places,
and steads, in any and all capacities, to sign the Registration Statement to be
filed in connection with the exchange offer of 11 7/8% Senior Subordinated Notes
due 2010 of Sovereign Specialty Chemicals, Inc. and the related guarantees and
any and all amendments (including post-effective amendments) to the Registration
Statement under the Securities Act of 1933, as amended, and to file the same,
with all exhibits thereto, and the other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as they might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his or her substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.

     This Power of Attorney may be executed in multiple counterparts, each of
which shall be deemed an original, but which taken together shall constitute one
Instrument.

     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:

<TABLE>
<CAPTION>
                      SIGNATURE                                     TITLE                     DATE
                      ---------                                     -----                     ----
<C>                                                    <S>                               <C>

                /s/ ROBERT B. COVALT                   Chairman and Director             May 12, 2000
- -----------------------------------------------------
                  Robert B. Covalt

                 /s/ JOHN R. MELLETT                   Vice President, Chief Financial   May 12, 2000
- -----------------------------------------------------    Officer, Chief Accounting
                   John R. Mellett                       Officer and Treasurer

                 /s/ JOHN L. GARCIA                    Director                          May 12, 2000
- -----------------------------------------------------
                   John L. Garcia

                /s/ THOMAS P. SALICE                   Director                          May 12, 2000
- -----------------------------------------------------
                  Thomas P. Salice
</TABLE>

                                      II-12
<PAGE>   150

                                   SIGNATURES

     Pursuant to the requirements of the Securities Act of 1933, as amended, OSI
Sealants, Inc. has duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Chicago, State of Illinois, on the 12th day of May, 2000.

                                            OSI SEALANTS, INC.

                                            By:    /s/ ROBERT B. COVALT
                                              ----------------------------------
                                                      Robert B. Covalt
                                                   Chairman and Director

     KNOW ALL PERSONS BY THESE PRESENTS, that the persons whose signatures
appear below, constitute and appoint Robert B. Covalt and John R. Mellett, and
each of them, as their true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for them and in their names, places,
and steads, in any and all capacities, to sign the Registration Statement to be
filed in connection with the exchange offer of 11 7/8% Senior Subordinated Notes
due 2010 of Sovereign Specialty Chemicals, Inc. and the related guarantees and
any and all amendments (including post-effective amendments) to the Registration
Statement under the Securities Act of 1933, as amended, and to file the same,
with all exhibits thereto, and the other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as they might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his or her substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.

     This Power of Attorney may be executed in multiple counterparts, each of
which shall be deemed an original, but which taken together shall constitute one
Instrument.

     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:

<TABLE>
<CAPTION>
                      SIGNATURE                                     TITLE                     DATE
                      ---------                                     -----                     ----
<C>                                                    <S>                               <C>

                /s/ ROBERT B. COVALT                   Chairman and Director             May 12, 2000
- -----------------------------------------------------
                  Robert B. Covalt

                 /s/ JOHN R. MELLETT                   Vice President, Chief Financial   May 12, 2000
- -----------------------------------------------------    Officer, Chief Accounting
                   John R. Mellett                       Officer and Treasurer

                 /s/ JOHN L. GARCIA                    Director                          May 12, 2000
- -----------------------------------------------------
                   John L. Garcia

                /s/ THOMAS P. SALICE                   Director                          May 12, 2000
- -----------------------------------------------------
                  Thomas P. Salice
</TABLE>

                                      II-13
<PAGE>   151

                                   SIGNATURES

     Pursuant to the requirements of the Securities Act of 1933, as amended,
Tanner Chemicals, Inc. has duly caused this Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Chicago, State of Illinois, on the 12th day of May, 2000.

                                            TANNER CHEMICALS, INC.

                                            By:    /s/ ROBERT B. COVALT
                                              ----------------------------------
                                                      Robert B. Covalt
                                                   Chairman and Director

     KNOW ALL PERSONS BY THESE PRESENTS, that the persons whose signatures
appear below, constitute and appoint Robert B. Covalt and John R. Mellett, and
each of them, as their true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for them and in their names, places,
and steads, in any and all capacities, to sign the Registration Statement to be
filed in connection with the exchange offer of 11 7/8% Senior Subordinated Notes
due 2010 of Sovereign Specialty Chemicals, Inc. and the related guarantees and
any and all amendments (including post-effective amendments) to the Registration
Statement under the Securities Act of 1933, as amended, and to file the same,
with all exhibits thereto, and the other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as they might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his or her substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.

     This Power of Attorney may be executed in multiple counterparts, each of
which shall be deemed an original, but which taken together shall constitute one
Instrument.

     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:

<TABLE>
<CAPTION>
                      SIGNATURE                                     TITLE                     DATE
                      ---------                                     -----                     ----
<C>                                                    <S>                               <C>

                /s/ ROBERT B. COVALT                   Chairman and Director             May 12, 2000
- -----------------------------------------------------
                  Robert B. Covalt

                 /s/ JOHN R. MELLETT                   Vice President, Chief Financial   May 12, 2000
- -----------------------------------------------------    Officer, Chief Accounting
                   John R. Mellett                       Officer and Treasurer

                 /s/ JOHN L. GARCIA                    Director                          May 12, 2000
- -----------------------------------------------------
                   John L. Garcia

                /s/ THOMAS P. SALICE                   Director                          May 12, 2000
- -----------------------------------------------------
                  Thomas P. Salice
</TABLE>

                                      II-14

<PAGE>   1
                                                                     EXHIBIT 4.1

                                                                  EXECUTION COPY



                                 US$125,000,000


                      AMENDED AND RESTATED CREDIT AGREEMENT

                            Dated as of April 6, 2000

                                      Among

                       SOVEREIGN SPECIALTY CHEMICALS, INC.

                              as Domestic Borrower

                                       and

               THE SUBSIDIARIES OF THE DOMESTIC BORROWER NAMED AS
                            OFFSHORE BORROWERS HEREIN

                              as Offshore Borrowers

                                       and

                    THE INITIAL LENDERS, INITIAL ISSUING BANK
                       AND SWING LINE LENDERS NAMED HEREIN

         as Initial Lenders, Initial Issuing Bank and Swing Line Lenders

                                       and

               MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED

    as Joint Lead Arranger, Joint Book-Running Manager and Syndication Agent

                                       and

                           J.P. MORGAN SECURITIES INC.

   as Joint Lead Arranger, Joint Book-Running Manager and Documentation Agent

                                       and

                            THE CHASE MANHATTAN BANK

               as Administrative Agent and Offshore Currency Agent

                                Credit Agreement

<PAGE>   2





                          T A B L E  O F  C O N T E N T S



<TABLE>
<CAPTION>
SECTION                                                                                                        PAGE


<S>                                                                                                            <C>
                                               ARTICLE I DEFINITIONS, ACCOUNTING TERMS
       1.01.  Certain Defined Terms.............................................................................3
       1.02.  Computation of Time Periods; Other Definitional Provisions........................................3
       1.03.  Accounting Terms..................................................................................3

                                ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES AND THE LETTERS OF CREDIT
       2.01.  Advances and Letters of Credit....................................................................4
       2.02.  Making the Advances...............................................................................7
       2.03.  Issuance of and Drawings and Reimbursement Under Letters of Credit...............................10
       2.04.  Repayment of Advances............................................................................12
       2.05.  Termination, Reduction, Conversion and Restoration of the Commitments............................15
       2.06.  Prepayments......................................................................................18
       2.07.  Interest.........................................................................................23
       2.08.  Fees.............................................................................................24
       2.09.  Conversion of Advances...........................................................................25
       2.10.  Increased Costs, Etc.............................................................................26
       2.11.  Payments and Computations........................................................................28
       2.12.  Taxes............................................................................................31
       2.13.  Sharing of Payments, Etc.........................................................................35
       2.14.  Use of Proceeds..................................................................................35
       2.15.  Defaulting Lenders...............................................................................35
       2.16.  Evidence of Debt.................................................................................38

                                     ARTICLE III CONDITIONS OF LENDING AND ISSUANCES OF LETTERS OF
                                                               CREDIT
       3.01.  Conditions Precedent to Initial Extension of Credit to Domestic Borrower.........................39
       3.02.  Conditions Precedent to Swing Line Advances to any Offshore Borrower.............................41
       3.03.  Conditions Precedent to each Offshore Acquisition Advances.......................................43
       3.04.  Conditions Precedent to Each Borrowing and Issuance and Renewal..................................45
       3.05.  Determinations Under Section 3.01, 3.02 or 3.03..................................................46

                                              ARTICLE IV REPRESENTATIONS AND WARRANTIES
       4.01.  Representations and Warranties of the Domestic Borrower..........................................47

                                             ARTICLE V COVENANTS OF THE DOMESTIC BORROWER
       5.01.  Affirmative Covenants............................................................................56
       5.02.  Negative Covenants...............................................................................63

</TABLE>

                                Credit Agreement

<PAGE>   3

                                       ii

<TABLE>
<S>                                                                                                            <C>
       5.03.  Reporting Requirements...........................................................................76
       5.04.  Financial Covenants..............................................................................80

                                                     ARTICLE VI EVENTS OF DEFAULT
       6.01.  Events of Default................................................................................82
       6.02.  Actions in Respect of the Letters of Credit upon Default.........................................86

                                                        ARTICLE VII THE AGENTS
       7.01.  Authorization and Action.........................................................................86
       7.02.  Agents' Reliance, Etc............................................................................87
       7.03.  Chase, J.P. Morgan, ML&Co. and Affiliates........................................................87
       7.04.  Lender Party Credit Decision.....................................................................88
       7.05.  Indemnification..................................................................................88
       7.06.  Successor Agents.................................................................................89

                                                      ARTICLE VIII MISCELLANEOUS
       8.01.  Amendments, Etc..................................................................................90
       8.02.  Notices, Etc.....................................................................................93
       8.03.  No Waiver; Remedies..............................................................................94
       8.04.  Costs and Expenses...............................................................................94
       8.05.  Right of Set-off.................................................................................96
       8.06.  Binding Effect...................................................................................96
       8.07.  Assignments and Participations...................................................................96
       8.08.  Execution in Counterparts.......................................................................100
       8.09.  No Liability of the Issuing Bank................................................................100
       8.10.  Confidentiality.................................................................................101
       8.11.  Release of Collateral; Release of Subsidiary Guarantor..........................................101
       8.12.  Jurisdiction, Etc...............................................................................101
       8.13.  Judgment........................................................................................102
       8.14.  Substitution of Currency........................................................................102
       8.15.  Governing Law...................................................................................103
       8.16.  Waiver of Jury Trial............................................................................103
</TABLE>





                                Credit Agreement

<PAGE>   4


                                       iii


SECTION                                                                     PAGE

SCHEDULES

Schedule I        -    Commitments and Applicable Lending Offices
Schedule II       -    Certain Defined Terms
Schedule III      -    Other Approved Countries
Schedule 4.01(a)  -    Holders of Domestic Borrower Equity Interests
Schedule 4.01(b)  -    Subsidiaries
Schedule 4.01(c)  -    Consents
Schedule 4.01(d)  -    Authorizations, Approvals, Actions, Notices and Filings
Schedule 4.01(f)  -    Disclosed Litigation
Schedule 4.01(p)  -    Plans, Multiemployer Plans and Welfare Plans
Schedule 4.01(q)  -    Environmental Compliance
Schedule 4.01(r)  -    Open Years; Unpaid Tax Liabilities; Adjusted Tax Bases
Schedule 4.01(t)  -    Existing Debt
Schedule 4.01(u)  -    Surviving Debt
Schedule 4.01(v)  -    Liens
Schedule 4.01(w)  -    Owned Real Property
Schedule 4.01(x)  -    Leased Real Property
Schedule 4.01(y)  -    Investments
Schedule 4.01(z)  -    Intellectual Property
Schedule 4.01(aa) -    Material Contracts


EXHIBITS

Exhibit A-1       -    Form of Amended and Restated Revolving Credit Note
Exhibit A-2       -    Form of Amended and Restated Term A Note
Exhibit A-3       -    Form of Offshore Acquisition Note
Exhibit A-4       -    Form of Offshore Swing Line Note
Exhibit B-1       -    Form of Notice of Borrowing
Exhibit B-2       -    Form of Notice of Swing Line Borrowing
Exhibit C         -    Form of Assignment and Acceptance
Exhibit D         -    Form of Offshore Swing Line Lender Joinder Agreement
Exhibit E         -    Form of Credit Agreement Supplement
Exhibit F         -    Form of Amended and Restated Security Agreement
Exhibit G         -    Form of Amended and Restated Domestic Subsidiary Guaranty
Exhibit H         -    Form of Offshore Guaranty

                            Credit Agreement

<PAGE>   5


                                       iv

Exhibit I         -    Form of Opinion of Counsel to the Loan Parties
Exhibit J         -    Form of Certificate of Non-Bank Status
Exhibit K         -    Form of Intercompany Note
Exhibit L         -    Form of Collateral Sharing Agreement



                                Credit Agreement

<PAGE>   6




                      AMENDED AND RESTATED CREDIT AGREEMENT


                  AMENDED AND RESTATED CREDIT AGREEMENT dated as of April 6,
2000, among SOVEREIGN SPECIALTY CHEMICALS, INC., a Delaware corporation (the
"DOMESTIC BORROWER"), the Offshore Borrowers (as hereinafter defined), the
banks, financial institutions and other institutional lenders listed on the
signature pages hereof as the Initial Lenders (the "INITIAL LENDERS"), the Swing
Line Lenders (as hereinafter defined), MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED ("ML&CO.") and J.P. MORGAN SECURITIES INC. ("J.P. MORGAN"), each as
a joint lead arranger and a joint book-running manager (each a "JOINT LEAD
ARRANGER" and a "JOINT BOOK MANAGER", as the case may be) for the Facilities (as
hereinafter defined), ML&Co., as syndication agent for the Facilities (the
"SYNDICATION AGENT"), J.P. Morgan, as documentation agent for the Facilities
(the "DOCUMENTATION AGENT"), and THE CHASE MANHATTAN BANK ("CHASE"), as
administrative agent (together with any successor administrative agent appointed
pursuant to Article VII, the "ADMINISTRATIVE AGENT") for the Lender Parties (as
hereinafter defined), as offshore currency agent (the "OFFSHORE CURRENCY AGENT")
for the Revolving Credit Lenders (as hereinafter defined), as the Initial
Issuing Bank (the "INITIAL ISSUING BANK" and, together with the Initial Lenders,
the "INITIAL LENDER PARTIES") and as the Domestic Swing Line Lender (as
hereinafter defined).


                             PRELIMINARY STATEMENTS:

                  (1) SSCI Investors LLC, a Delaware limited liability company
("SSCI INVESTORS"), was organized by AEA Investors Inc., a Delaware corporation
(the "SPONSOR"), to acquire control of the Domestic Borrower.

                  (2) Pursuant to that certain Stock Purchase Agreement dated as
of November 24, 1999 (as such agreement may be amended from time to time in
accordance with the provisions thereof and of this Agreement, the "ACQUISITION
AGREEMENT"), between SSCI Investors and Sovereign Specialty Chemicals, L.P., a
Delaware limited partnership (the "SELLER"), SSCI Investors purchased
seventy-five percent of the outstanding capital stock of the Domestic Borrower
from the Seller (the "ACQUISITION") on December 30, 1999 (the "INITIAL CLOSING
DATE").

                  (3) Pursuant to that certain Indenture dated as of August 1,
1997 (as such indenture may be amended from time to time in accordance with the
provisions thereof and of this Agreement, the "EXISTING SENIOR SUBORDINATED NOTE
INDENTURE"), among the Domestic Borrower, the Domestic Subsidiary Guarantors (as
hereinafter defined) and The Bank of New York, a New York banking corporation,
as trustee (the "EXISTING SENIOR SUBORDINATED NOTE TRUSTEE"), and that certain
Change of Control Notice and Offer to Purchase dated January 18, 2000, and
delivered to the Existing Senior Subordinated Note Trustee, the Domestic
Borrower made an offer to purchase its 9 1/2% Existing Senior Subordinated Notes
due 2007 issued under

                                Credit Agreement

<PAGE>   7


                                       2

the Existing Senior Subordinated Note Indenture (the "EXISTING SENIOR
SUBORDINATED NOTES"), in accordance with the Existing Senior Subordinated Note
Indenture (the "OFFER TO PURCHASE").

                  (4) Pursuant to that certain Credit Agreement dated as of
December 29, 1999, as amended by that certain letter amendment dated as of
February 16, 2000, and that certain amendment and waiver letter dated as of
February 29, 2000 (as so amended, the "EXISTING CREDIT AGREEMENT"), each among
the Domestic Borrower, the Lender Parties and the Agents (as hereinafter
defined), (a) on the Initial Closing Date the Lender Parties made advances to
the Domestic Borrower to pay fees and expenses incurred in connection with the
Acquisition and to refinance certain Existing Debt (as hereinafter defined) of
the Domestic Borrower and its Subsidiaries, (b) the Lender Parties agreed to
lend to the Domestic Borrower funds to finance the Domestic Borrower's purchase
of the Existing Senior Subordinated Notes tendered pursuant to the Offer to
Purchase, (c) the Lender Parties agreed to lend the Domestic Borrower funds to
finance Domestic Permitted Acquisitions (as hereinafter defined), and (d) the
Lender Parties agreed to lend to the Domestic Borrower and issue Letters of
Credit for the account of the Domestic Borrower to provide working capital for
the Domestic Borrower and its Subsidiaries.

                  (5) On March 7, 2000 (the "NOTE PURCHASE DATE"), the Domestic
Borrower borrowed additional advances under the Existing Credit Agreement and
used the proceeds of such advances to purchase all the outstanding Existing
Senior Subordinated Notes.

                  (6) The Domestic Borrower issued US$150,000,000 of its Senior
Subordinated Notes due 2010 (the "SENIOR SUBORDINATED NOTES") pursuant to an
Indenture dated as of March 29, 2000, with respect to such Senior Subordinated
Notes (as such Indenture may be amended from time to time in accordance with the
provisions thereof and of this Agreement, the "SENIOR SUBORDINATED NOTE
INDENTURE"), among the Domestic Borrower, the Domestic Subsidiary Guarantors and
the trustee thereunder (the "SENIOR SUBORDINATED NOTE TRUSTEE"). The net
proceeds from such issuance of Senior Subordinated Notes was applied by the
Domestic Borrower to prepay all Term Advances outstanding under the Existing
Credit Agreement. Upon such prepayment (a) all the Term B Commitments under the
Existing Credit Agreement were terminated and (b) all the Term A Commitments (as
hereinafter defined) thereunder were restored to their full US$75,000,000 level,
in the aggregate.

                  (7) The Domestic Borrower has requested that the Lender
Parties amend and restate the Existing Credit Agreement in order to also make
Offshore Acquisition Advances (as hereinafter defined) and Offshore Swing Line
Advances (as hereinafter defined) available to the Offshore Borrowers. The
Lender Parties have indicated their willingness to amend and restate the
Existing Credit Agreement on the terms and conditions of this Agreement.

                  NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements contained herein, the parties hereto hereby
agree to amend and restate


                                Credit Agreement

<PAGE>   8

                                       3

the Existing Credit Agreement in its entirety on the Effective Date (as
hereinafter defined), as follows:


                                    ARTICLE I

                          DEFINITIONS, ACCOUNTING TERMS
                            AND CURRENCY CONVERSIONS

                  SECTION 1.01. Certain Defined Terms. Capitalized terms used
and not otherwise defined herein shall have the respective meanings specified
therefor in Schedule II to this Agreement.

                  SECTION 1.02. Computation of Time Periods; Other Definitional
Provisions. In this Agreement and the other Loan Documents in the computation of
periods of time from a specified date to a later specified date, the word "FROM"
means "from and including" and the words "TO" and "UNTIL" each mean "to but
excluding". References in the Loan Documents to any agreement or contract "AS
AMENDED" shall mean and be a reference to such agreement or contract as amended,
amended and restated, supplemented or otherwise modified from time to time in
accordance with its terms.

                  SECTION 1.03. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with generally
accepted accounting principles consistent with those applied in the preparation
of the financial statements referred to in Section 4.01(g) ("GAAP").

                  SECTION 1.04. Currency Conversions. (a) For all purposes of
any Swing Line Advance denominated in any Offshore Currency (including pursuant
to Section 8.13), the equivalent in such Offshore Currency of an amount in US
Dollars, and the equivalent in US Dollars of an amount in such Offshore
Currency, shall be determined by the Offshore Currency Agent by reference to the
Equivalent in such Offshore Currency or US Dollars as the case may be. On the
first Business Day of each calendar month (or at such greater frequency as the
Offshore Currency Agent may, in its discretion, elect), the Offshore Currency
Agent shall calculate the US Dollar Equivalent of each Offshore Swing Line
Advance which is outstanding on such date and the corresponding undrawn Offshore
Currency availability under each Applicable Swing Line Sub-Limit and shall
promptly deliver notice of such calculations to the Swing Line Lenders, the
Domestic Borrower and each Revolving Credit Lender. Upon receipt, the Domestic
Borrower shall promptly make such calculations available to each Offshore
Borrower.

                                Credit Agreement

<PAGE>   9


                                       4

                  (b) For all other purposes pursuant to this Agreement (but not
for purposes of the preparation of any financial statements delivered pursuant
hereto or as provided under Section 1.04(a)), (i) the equivalent in Canadian
Dollars of an amount in US Dollars, and the equivalent in US Dollars of an
amount in Canadian Dollars shall also be determined by reference to the
Equivalent in Canadian Dollars or US Dollars, as the case may be, and (ii) the
equivalent in any other Offshore Currency or any other currency of an amount in
US Dollars, and the equivalent in US Dollars of an amount in any other Offshore
Currency or any other currency, shall be determined on any date of determination
by reference to the spot rate of exchange for such date in London that appears
on the display page applicable to such currency on the Telerate System
Incorporated Service (or such other page as may replace such page on such
service for the purpose of displaying such spot rate of exchange in London) or
by reference to another similar rate publishing service designated in writing by
the Domestic Borrower and agreed to by the Administrative Agent (the "SPOT
RATE"). For purposes of determining compliance on any date with any restriction
expressed as a maximum (or a minimum) US Dollar amount in this Agreement (other
than to the extent relating to any Borrowing under this Agreement), the US
Dollar amount of any transactions denominated in another currency which occurred
prior to such date shall be calculated based on such Spot Rate determined as of
such date of determination; provided, however, that if any such maximum US
Dollar amount shall be exceeded (or any such minimum US Dollar amount shall not
be exceeded), then such restriction shall nonetheless be deemed not to be
violated if the US Dollar amount of each such transaction calculated based on
the relevant Spot Rate as in effect on the date of such transaction does not
exceed such maximum amount (or does exceed such minimum amount).


                                   ARTICLE II

                        AMOUNTS AND TERMS OF THE ADVANCES
                            AND THE LETTERS OF CREDIT

                  SECTION 2.01.  Advances and Letters of Credit.

                  (a)      Term A Advances; Offshore Acquisition Advances.

                           (i) Each Term A Lender severally agrees, on the terms
         and conditions hereinafter set forth, to make advances (each a "TERM A
         ADVANCE") to the Domestic Borrower in US Dollars on any Business Day
         during the period from the Effective Date until the date that occurs
         eighteen (18) month after the Initial Closing Date, in an amount not to
         exceed such Lender's Term A Commitment at such time. Each Term A
         Borrowing shall consist of Term A Advances made simultaneously by the
         Term A Lenders ratably according to their Term A Commitments. Except as
         otherwise provided in Section 2.05

                                Credit Agreement

<PAGE>   10


                                        5

         (b)(i)(A)(3), amounts borrowed under this Section 2.01(a)(i) and repaid
         or prepaid may not be reborrowed.

                           (ii) Each Offshore Acquisition Lender severally
         agrees, on the terms and conditions hereinafter set forth, to make
         advances (each a "OFFSHORE ACQUISITION ADVANCE") to any Offshore
         Borrower in US Dollars on any Business Day during the period from the
         Effective Date until the date that occurs eighteen (18) month after the
         Initial Closing Date, in an amount not to exceed such Lender's Offshore
         Acquisition Commitment at such time. Each Offshore Acquisition
         Borrowing shall consist of Offshore Acquisition Advances made
         simultaneously by the Offshore Acquisition Lenders ratably according to
         their Offshore Acquisition Commitments. Amounts borrowed under this
         Section 2.01(a)(ii) and repaid or prepaid may not be reborrowed.

                  (b) Term B Advances. Each Lender's Term B Commitments
terminated upon the repayment of the Term B Advances pursuant to the Existing
Credit Agreement. No further Term B Advances may be reborrowed under this
Agreement.

                  (c) Revolving Credit Advances. Each Revolving Credit Lender
severally agrees, on the terms and conditions hereinafter set forth, to make
advances (each a "REVOLVING CREDIT ADVANCE") to the Domestic Borrower in US
Dollars from time to time on any Business Day during the period from the
Effective Date until the Termination Date in an amount for each such Advance not
to exceed such Lender's Unused Revolving Credit Commitment at such time. Each
Revolving Credit Borrowing shall be in an aggregate amount of $1,000,000 or an
integral multiple of $1,000,000 in excess thereof (other than a Borrowing the
proceeds of which shall be used solely to repay or prepay in full outstanding
Swing Line Advances or outstanding Letter of Credit Advances) and shall consist
of Revolving Credit Advances made simultaneously by the Revolving Credit Lenders
ratably according to their Revolving Credit Commitments. Within the limits of
each Revolving Credit Lender's Unused Revolving Credit Commitment in effect from
time to time, the Domestic Borrower may borrow under this Section 2.01(c),
prepay pursuant to Section 2.06(a) and reborrow under this Section 2.01(c).

                  (d) Swing Line Advances. The Domestic Swing Line Lender agrees
to make, or to cause an Appropriate Swing Line Lender to make, on the terms and
conditions hereinafter set forth, Swing Line Advances in US Dollars or any
Offshore Currency to the Domestic Borrower or any Offshore Borrower from time to
time on any Business Day during the period from the Effective Date until the
Termination Date (i) in an aggregate amount (calculated on any date of
determination for purposes of each Offshore Swing Line Advance, as the US Dollar
Equivalent of such Offshore Swing Line Advance on such date) not to exceed at
any time outstanding US$20,000,000 (the "SWING LINE SUB-FACILITY"), (ii) in an
amount for each such Swing Line Borrowing (calculated on any date of
determination for purposes of each Swing Line Borrowing in an Offshore Currency,
as the US Dollar Equivalent of such Swing Line Borrowing


                                Credit Agreement


<PAGE>   11

                                       6

on such date) not to exceed the aggregate of the Unused Revolving Credit
Commitments of the Revolving Credit Lenders at such time and (iii) in an
aggregate amount for all Swing Line Advances in each Applicable Currency, not to
exceed the Applicable Swing Line Sub-Limit for such Applicable Currency. No
Swing Line Advance shall be used for the purpose of funding the payment of
principal of any other Swing Line Advance. Each Swing Line Borrowing in US
Dollars shall be in an amount of $1,000,000 or an integral multiple of $500,000
in excess thereof and shall be made as a Base Rate Advance. Each Swing Line
Borrowing in an Offshore Currency shall be in an amount of the US Dollar
Equivalent of $250,000 or an integral multiple of $100,000 in excess thereof and
shall be made as a Base Rate Advance. Within the limits of the Swing Line
Sub-Facility and within the limits referred to in clauses (ii) and (iii) above,
so long as the Domestic Swing Line Lender, in its sole discretion, elects to
make Swing Line Advances, or to cause another Appropriate Swing Line Lender to
make Swing Line Advances, the Domestic Borrower or any Offshore Borrower may
borrow under this Section 2.01(d), repay pursuant to Section 2.04(d) or prepay
pursuant to Section 2.06(a) and reborrow under this Section 2.01(d).

                  (e) Letters of Credit. The Domestic Borrower, the Issuing Bank
and each of the Revolving Credit Lenders hereby agree that each of the Existing
Letters of Credit shall, on and after the Effective Date, continue as and be
deemed for all purposes of this Agreement to be a Letter of Credit issued and
outstanding under the terms of this Agreement. The Issuing Bank agrees, on the
terms and conditions hereinafter set forth, to issue (or cause its Affiliate
that is a commercial bank to issue on its behalf) letters of credit (the
"LETTERS OF CREDIT") denominated in US Dollars for the account of the Domestic
Borrower from time to time on any Business Day during the period from the date
hereof until 60 days before the Termination Date in an aggregate Available
Amount (i) for all Letters of Credit not to exceed at any time the lesser of (x)
the Letter of Credit Sub-Facility at such time and (y) the Issuing Bank's Letter
of Credit Commitment at such time and (ii) for each such Letter of Credit not to
exceed an amount equal to the Unused Revolving Credit Commitments of the
Revolving Credit Lenders at such time. No Letter of Credit shall have an
expiration date (including all rights of the Domestic Borrower or the
beneficiary to require renewal) later than the earlier of 20 days before the
Termination Date and (A) in the case of a Standby Letter of Credit, one year
after the date of issuance thereof, but may by its terms be renewable annually
upon notice (a "NOTICE OF RENEWAL") given to the Issuing Bank and the
Administrative Agent on or prior to any date for notice of renewal set forth in
such Letter of Credit but in any event at least three Business Days prior to the
date of the proposed renewal of such Standby Letter of Credit and upon
fulfillment of the applicable conditions set forth in Article III unless the
Issuing Bank has notified the Domestic Borrower (with a copy to the
Administrative Agent) on or prior to the date for notice of termination set
forth in such Letter of Credit but in any event at least 10 Business Days prior
to the date of automatic renewal of its election not to renew such Standby
Letter of Credit (a "NOTICE OF TERMINATION") and (B) in the case of a Trade
Letter of Credit, 180 days after the date of issuance thereof; provided that the
terms of each Standby Letter of Credit that is automatically renewable annually
shall (x) require


                                Credit Agreement


<PAGE>   12

                                       7

the Issuing Bank to give the beneficiary named in such Standby Letter of Credit
notice of any Notice of Termination, (y) permit such beneficiary, upon receipt
of such notice, to draw under such Standby Letter of Credit prior to the date
such Standby Letter of Credit otherwise would have been automatically renewed
and (z) not permit the expiration date (after giving effect to any renewal) of
such Standby Letter of Credit in any event to be extended to a date later than
20 days before the Termination Date. If either a Notice of Renewal is not given
by the Domestic Borrower or a Notice of Termination is given by the Issuing Bank
pursuant to the immediately preceding sentence, such Standby Letter of Credit
shall expire on the date on which it otherwise would have been automatically
renewed; provided, however, that even in the absence of receipt of a Notice of
Renewal the Issuing Bank may in its discretion, unless instructed to the
contrary by the Administrative Agent or the Domestic Borrower, deem that a
Notice of Renewal had been timely delivered and in such case, a Notice of
Renewal shall be deemed to have been so delivered for all purposes under this
Agreement. Each Standby Letter of Credit shall contain a provision authorizing
the Issuing Bank to deliver to the beneficiary of such Letter of Credit, upon
the occurrence and during the continuance of an Event of Default, a notice (a
"DEFAULT TERMINATION NOTICE") terminating such Letter of Credit and giving such
beneficiary 15 days to draw such Letter of Credit. Within the limits of the
Letter of Credit Sub-Facility, and subject to the limits referred to above, the
Domestic Borrower may request the issuance of Letters of Credit under this
Section 2.01(e), repay any Letter of Credit Advances resulting from drawings
thereunder pursuant to Section 2.03(c) and request the issuance of additional
Letters of Credit under this Section 2.01(e).

                  SECTION 2.02. Making the Advances. (a) Except as otherwise
provided in Section 2.02(b) or 2.03, each Borrowing shall be made on notice,
given not later than 11:00 A.M. (New York City time) on the third Business Day
prior to the date of the proposed Borrowing in the case of a Borrowing
consisting of Eurodollar Rate Advances, or the first Business Day prior to the
date of the proposed Borrowing in the case of a Borrowing consisting of Base
Rate Advances, by the Domestic Borrower or, in the case of an Offshore
Acquisition Borrowing, the applicable Offshore Borrower, to the Administrative
Agent, which shall give to each Appropriate Lender prompt notice thereof by
telex or telecopier. Each such notice of a Borrowing (a "NOTICE OF BORROWING")
shall be by telephone, confirmed immediately in writing, or telex or telecopier,
in substantially the form of Exhibit B-1 hereto, specifying therein the
requested (i) date of such Borrowing, (ii) Facility under which such Borrowing
is to be made, (iii) Type of Advances comprising such Borrowing, (iv) aggregate
amount of such Borrowing, (v) in the case of a Borrowing consisting of
Eurodollar Rate Advances, initial Interest Period for each such Advance, (vi) if
any portion of such Borrowing is proposed to be used to pay the purchase price
of any Permitted Acquisition, the portion of such Borrowing, and the cash and
Cash Equivalent of the Domestic Borrower and its Subsidiaries on the date of
such Notice of Borrowing, proposed to be used to pay such purchase price of such
Permitted Acquisition and (vii) in the case of a requested Offshore Acquisition
Borrowing, the Applicable Borrower's Account to which the proceeds of such
Borrowing should be sent. Each Appropriate Lender shall, before 11:00 A.M.

                                Credit Agreement

<PAGE>   13

                                       8

(New York City time) on the date of such Borrowing, make available for the
account of its Applicable Lending Office to the Administrative Agent at the
Administrative Agent's Account, in same day funds, such Lender's ratable portion
of such Borrowing in accordance with the respective Commitments under the
applicable Facility of such Lender and the other Appropriate Lenders. After the
Administrative Agent's receipt of such funds and upon fulfillment of the
applicable conditions set forth in Article III, the Administrative Agent will
make such funds available to the Domestic Borrower by crediting the Domestic
Borrower's Account or, in the case of an Offshore Acquisition Borrowing, the
Administrative Agent will make such funds available to the Applicable Borrower's
Account; provided, however, that, in the case of any Revolving Credit Borrowing,
the Administrative Agent shall first make a portion of such funds equal to the
aggregate principal amount of any Swing Line Advances and Letter of Credit
Advances made by the Swing Line Lenders or the Issuing Bank, as the case may be,
and by any other Revolving Credit Lender and outstanding on the date of such
Revolving Credit Borrowing, plus interest accrued and unpaid thereon to and as
of such date, available to the Swing Line Bank or the Issuing Bank, as the case
may be, and such other Revolving Credit Lenders for repayment of such Swing Line
Advances and Letter of Credit Advances.

                  (b) (i) Each Swing Line Borrowing shall be made on notice,
given not later than 11:00 A.M. (Local Time) on the date of the proposed Swing
Line Borrowing, by the Domestic Borrower or the Offshore Borrower requesting
such Swing Line Borrowing to the Appropriate Swing Line Lender and the Offshore
Currency Agent. Each such notice of a Swing Line Borrowing (a "NOTICE OF SWING
LINE BORROWING") shall be by telephone, confirmed immediately in writing, or
telex or telecopier, in substantially the form of Exhibit B-2 hereto, specifying
therein the requested (A) date of such Borrowing, (B) amount of such Borrowing,
(C) maturity of such Borrowing (in the case of any Swing Line Borrowing in US
Dollars, which maturity shall be no later than the seventh day after the
requested date of such Borrowing), (D) the Applicable Borrower's Account to
which the proceeds of such Borrowing should be credited and (E) the Applicable
Currency of such Borrowing. The Domestic Swing Line Lender will make, or will
cause another Applicable Swing Line Lender to make, the amount thereof available
to the Offshore Currency Agent, in same day funds. After the Offshore Currency
Agent's receipt of such funds and upon fulfillment of the applicable conditions
set forth in Article III, the Offshore Currency Agent will make such funds
available to the Domestic Borrower or the Offshore Borrower requesting such
Borrowing by crediting the Applicable Borrower's Account.

                  (ii) Upon written demand by any Swing Line Lender, with a copy
of such demand to the Administrative Agent and the Offshore Currency Agent, each
Revolving Credit Lender shall purchase from such Swing Line Lender, and such
Swing Line Lender shall sell and assign to each Revolving Credit Lender, such
Revolving Credit Lender's Pro Rata Share of each outstanding Swing Line Advance
made by such Swing Line Lender as of the date of such demand, by making
available for the account of its Applicable Lending Office to the Administrative
Agent for the account of such Swing Line Lender, by deposit to the





                                Credit Agreement


<PAGE>   14
                                       9

Administrative Agent's Account, in same day funds, an amount equal to, if such
Swing Line Advance is in US Dollars, the portion of the outstanding principal
amount of such Swing Line Advance to be purchased by such Revolving Credit
Lender, or if such Swing Line Advance is in an Offshore Currency, the US Dollar
Equivalent of the portion of the outstanding principal amount of such Swing Line
Advance to be so purchased; provided, however, that the Swing Line Lenders shall
not deliver any such demand hereunder with respect to any Offshore Swing Line
Advance unless a Default or an Event of Default shall have occurred and be
continuing. The Domestic Borrower and each Offshore Borrower hereby agree to
each such sale and assignment. Each Revolving Credit Lender agrees to purchase
its Pro Rata Share of any outstanding Swing Line Advance on (A) the Business Day
on which demand therefor is made by the Appropriate Swing Line Lender, provided
that notice of such demand is given not later than 11:00 A.M. (New York City
time) on such Business Day or (B) the first Business Day next succeeding such
demand if notice of such demand is given after such time. Upon any such
assignment by a Swing Line Lender to any Revolving Credit Lender of a portion of
a Swing Line Advance, such Swing Line Lender represents and warrants to such
Revolving Credit Lender that such Swing Line Lender is the legal and beneficial
owner of such interest being assigned by it, but makes no other representation
or warranty and assumes no responsibility with respect to such Swing Line
Advance, the Loan Documents or any Loan Party. If and to the extent that any
Revolving Credit Lender shall not have so made an amount equal to its Pro Rata
Share of such Swing Line Advance (or the US Dollar Equivalent of its Pro Rata
Share of any such Swing Line Advance denominated in an Offshore Currency)
available to the Administrative Agent, such Revolving Credit Lender agrees to
pay to the Administrative Agent forthwith on demand such amount together with
interest thereon, for each day from the date of demand by the Appropriate Swing
Line Lender until the date such amount is paid to the Administrative Agent, at
the Federal Funds Rate. If such Lender shall pay to the Administrative Agent
such amount for the account of the Appropriate Swing Line Lender on any Business
Day, such amount so paid in respect of principal shall constitute a Swing Line
Advance made by such Lender on such Business Day for purposes of this Agreement,
and the outstanding principal amount of the Swing Line Advance made by the
Appropriate Swing Line Lender shall be reduced by such amount on such Business
Day.

                  (c) Anything in subsection (a) above to the contrary
notwithstanding, (i) neither the Domestic Borrower nor any Offshore Borrower
which has borrowed any Offshore Acquisition Advances may select Eurodollar Rate
Advances for any Borrowing if the aggregate amount of such Borrowing is less
than $1,000,000 or if the obligation of the Appropriate Lenders to make
Eurodollar Rate Advances shall then be suspended pursuant to Section 2.09 or
2.10 and (ii) the Advances (other than any Offshore Swing Line Advance) may not
be outstanding as part of more than 10 separate Borrowings.

                  (d) Each Notice of Borrowing and Notice of Swing Line
Borrowing shall be irrevocable and binding on the Domestic Borrower or the
applicable Offshore Borrower which


                                Credit Agreement

<PAGE>   15
                                       10

has delivered such Notice of Borrowing. In the case of any Borrowing that the
related Notice of Borrowing specifies is to be comprised of Eurodollar Rate
Advances, the Domestic Borrower or the applicable Offshore Borrower shall
indemnify each Appropriate Lender against any loss, cost or expense incurred by
such Lender as a result of any failure to fulfill on or before the date
specified in such Notice of Borrowing for such Borrowing the applicable
conditions set forth in Article III, including, without limitation, any loss
(including loss of anticipated profits), cost or expense incurred by reason of
the liquidation or reemployment of deposits or other funds acquired by such
Lender to fund the Advance to be made by such Lender as part of such Borrowing
when such Advance, as a result of such failure, is not made on such date.

                  (e) Unless the Administrative Agent shall have received notice
from an Appropriate Lender prior to the date of any Borrowing under a Facility
under which such Lender has a Commitment that such Lender will not make
available to the Administrative Agent such Lender's ratable portion of such
Borrowing, the Administrative Agent may assume that such Lender has made such
portion available to the Administrative Agent on the date of such Borrowing in
accordance with subsection (a) of this Section 2.02 and the Administrative Agent
may, in reliance upon such assumption, make available to the Applicable Borrower
on such date a corresponding amount. If and to the extent that such Lender shall
not have so made such ratable portion available to the Administrative Agent,
such Lender and each Applicable Borrower severally agree to repay or pay to the
Administrative Agent forthwith on demand such corresponding amount and to pay
interest thereon, for each day from the date such amount is made available to
the Applicable Borrower until the date such amount is repaid or paid to the
Administrative Agent, at (i) in the case of the Applicable Borrower, the
interest rate applicable at such time under Section 2.07 to Advances comprising
such Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If
such Lender shall pay to the Administrative Agent such corresponding amount,
such amount so paid shall constitute such Lender's Advance as part of such
Borrowing for all purposes.

                  (f) The failure of any Lender to make the Advance to be made
by it as part of any Borrowing shall not relieve any other Lender of its
obligation, if any, hereunder to make its Advance on the date of such Borrowing,
but no Lender shall be responsible for the failure of any other Lender to make
the Advance to be made by such other Lender on the date of any Borrowing.

                  SECTION 2.03. Issuance of and Drawings and Reimbursement Under
Letters of Credit. (a) Request for Issuance. Each Letter of Credit shall be
issued upon notice, given not later than 11:00 A.M. (New York City time) on the
fifth Business Day prior to the date of the proposed issuance of such Letter of
Credit, by the Domestic Borrower to the Issuing Bank, which shall give to the
Administrative Agent and each Revolving Credit Lender prompt notice thereof by
telex or telecopier. Each such notice of issuance of a Letter of Credit (a
"NOTICE OF ISSUANCE") shall be by telephone, confirmed immediately in writing,
or telex or telecopier, specifying therein the requested (A) date of such
issuance (which shall be a Business Day), (B) Available Amount




                                Credit Agreement
<PAGE>   16

                                       11


of such Letter of Credit, (C) expiration date of such Letter of Credit, (D) name
and address of the beneficiary of such Letter of Credit and (E) form of such
Letter of Credit, and shall be accompanied by such application and agreement for
letter of credit as the Issuing Bank may specify to the Domestic Borrower for
use in connection with such requested Letter of Credit (a "LETTER OF CREDIT
AGREEMENT"). If the requested form of such Letter of Credit is acceptable to the
Issuing Bank in its sole discretion, the Issuing Bank will, upon fulfillment of
the applicable conditions set forth in Article III, make such Letter of Credit
available to the Domestic Borrower at its office referred to in Section 8.02 or
as otherwise agreed with the Domestic Borrower in connection with such issuance.
In the event and to the extent that the provisions of any Letter of Credit
Agreement shall conflict with this Agreement, the provisions of this Agreement
shall govern.

                  (b) Letter of Credit Reports. The Issuing Bank shall furnish
(A) to the Administrative Agent on the first Business Day of each week a written
report summarizing issuance and expiration dates of Letters of Credit issued
during the previous week and drawings during such week under all Letters of
Credit, (B) to each Revolving Credit Lender on the first Business Day of each
month a written report summarizing issuance and expiration dates of Letters of
Credit issued during the preceding month and drawings during such month under
all Letters of Credit and (C) to the Administrative Agent and each Revolving
Credit Lender on the first Business Day of each calendar quarter a written
report setting forth the average daily aggregate Available Amount during the
preceding calendar quarter of all Letters of Credit.

                  (c) Drawing and Reimbursement. The payment by the Issuing Bank
of a draft drawn under any Letter of Credit shall constitute for all purposes of
this Agreement the making by the Issuing Bank of a Letter of Credit Advance,
which shall be a Base Rate Advance, in the amount of such draft. Upon written
demand by the Issuing Bank, with a copy of such demand to the Administrative
Agent, each Revolving Credit Lender shall purchase from the Issuing Bank, and
the Issuing Bank shall sell and assign to each such Revolving Credit Lender,
such Lender's Pro Rata Share of such outstanding Letter of Credit Advance as of
the date of such purchase, by making available for the account of its Applicable
Lending Office to the Administrative Agent for the account of the Issuing Bank,
by deposit to the Administrative Agent's Account, in same day funds, an amount
equal to the portion of the outstanding principal amount of such Letter of
Credit Advance to be purchased by such Lender. Promptly after receipt thereof,
the Administrative Agent shall transfer such funds to the Issuing Bank. The
Domestic Borrower hereby agrees to each such sale and assignment. Each Revolving
Credit Lender agrees to purchase its Pro Rata Share of an outstanding Letter of
Credit Advance on (i) the Business Day on which demand therefor is made by the
Issuing Bank, provided that notice of such demand is given not later than 11:00
A.M. (New York City time) on such Business Day, or (ii) the first Business Day
next succeeding such demand if notice of such demand is given after such time.
Upon any such assignment by the Issuing Bank to any Revolving Credit Lender of a
portion of a Letter of Credit Advance, the Issuing Bank represents and warrants
to such other Lender that the


                                Credit Agreement

<PAGE>   17

                                       12


Issuing Bank is the legal and beneficial owner of such interest being assigned
by it, free and clear of any liens, but makes no other representation or
warranty and assumes no responsibility with respect to such Letter of Credit
Advance, the Loan Documents or any Loan Party. If and to the extent that any
Revolving Credit Lender shall not have so made the amount of such Letter of
Credit Advance available to the Administrative Agent, such Revolving Credit
Lender agrees to pay to the Administrative Agent forthwith on demand such amount
together with interest thereon, for each day from the date of demand by the
Issuing Bank until the date such amount is paid to the Administrative Agent, at
the Federal Funds Rate for its account or the account of the Issuing Bank, as
applicable. If such Lender shall pay to the Administrative Agent such amount
for the account of the Issuing Bank on any Business Day, such amount so paid in
respect of principal shall constitute a Letter of Credit Advance made by such
Lender on such Business Day for purposes of this Agreement, and the outstanding
principal amount of the Letter of Credit Advance made by the Issuing Bank shall
be reduced by such amount on such Business Day.

                  (d) Failure to Make Letter of Credit Advances. The failure of
any Lender to make the Letter of Credit Advance to be made by it on the date
specified in Section 2.03(c) shall not relieve any other Lender of its
obligation hereunder to make its Letter of Credit Advance on such date, but no
Lender shall be responsible for the failure of any other Lender to make the
Letter of Credit Advance to be made by such other Lender on such date.

                  SECTION 2.04.  Repayment of Advances.

                  (a) Term A Advances; Offshore Acquisition Advances.

                  (i) The Domestic Borrower shall repay to the Administrative
         Agent for the ratable account of the Term A Lenders the aggregate
         outstanding principal amount of the Term A Advances in an amount on
         each of the following dates equal to the percentage indicated for such
         date of the aggregate principal amount of Term A Advances which are
         outstanding on the eighteen (18) month anniversary of the Initial
         Closing Date (which installment amounts shall be reduced as a result of
         the application of prepayments in accordance with Section 2.06):

<TABLE>
<CAPTION>

                                   Date                         Percentage
                                   ----                         ----------
<S>                                                             <C>
                           March 31, 2001                           0%

                           June 30, 2001                            0%

                           September 30, 2001                       5%

                           December 31, 2001                        5%

                           March 31, 2002                           5%

                           June 30, 2002                            5%

                           September 30, 2002                       5%
</TABLE>


                                Credit Agreement

<PAGE>   18


                                       13


<TABLE>
<CAPTION>

                                   Date                         Percentage
                                   ----                         ----------
<S>                                                             <C>
                           December 31, 2002                        5%

                           March 31, 2003                           5%

                           June 30, 2003                            5%

                           September 30, 2003                       5%

                           December 31, 2003                        5%

                           March 31, 2004                          6.25%

                           June 30, 2004                           6.25%

                           September 30, 2004                      6.25%

                           December 31, 2004                       6.25%

                           March 31, 2005                          6.25%

                           June 30, 2005                           6.25%

                           September 30, 2005                      6.25%

                           Termination Date                        6.25%
</TABLE>

         provided, however, that the final principal installment shall be repaid
         on the Termination Date and in any event shall be in an amount equal to
         the aggregate principal amount of the Term A Advances outstanding on
         such date.

                  (ii) Each Offshore Borrower which has received any Offshore
         Acquisition Advance shall repay to the Administrative Agent for the
         ratable account of the Offshore Acquisition Lenders the aggregate
         outstanding principal amount of the Offshore Acquisition Advances made
         to such Offshore Borrower in an amount on each of the following dates
         equal to the percentage indicated for such date of the aggregate
         Amortization Amount (which installment amounts shall be reduced as a
         result of the application of prepayments in accordance with Section
         2.06):

<TABLE>
<CAPTION>

                                   Date                        Percentage
                                  -----                        ----------
<S>                                                            <C>
                           March 31, 2001                           0%

                           June 30, 2001                            0%

                           September 30, 2001                       5%

                           December 31, 2001                        5%

                           March 31, 2002                           5%

                           June 30, 2002                            5%

                           September 30, 2002                       5%

                           December 31, 2002                        5%

                           March 31, 2003                           5%

                           June 30, 2003                            5%
</TABLE>



                                Credit Agreement


<PAGE>   19

                                       14


<TABLE>
<CAPTION>

                                   Date                         Percentage
                                   ----                         ----------
<S>                                                            <C>
                           September 30, 2003                       5%

                           December 31, 2003                        5%

                           March 31, 2004                          6.25%

                           June 30, 2004                           6.25%

                           September 30, 2004                      6.25%

                           December 31, 2004                       6.25%

                           March 31, 2005                          6.25%

                           June 30, 2005                           6.25%

                           September 30, 2005                      6.25%

                           Termination Date                        6.25%
</TABLE>

         On the Termination Date, each Offshore Borrower which has received any
         Offshore Acquisition Advances shall also repay to the Administrative
         Agent for the ratable account of the Offshore Acquisition Lenders the
         aggregate principal amount of such Offshore Acquisition Advances
         outstanding on such date.

                  (b) Term B Advances. As of the date hereof, the Domestic
Borrower has repaid all Term B Advances pursuant to the Existing Credit
Agreement.

                  (c) Revolving Credit Advances. The Domestic Borrower shall
repay to the Administrative Agent for the ratable account of the Revolving
Credit Lenders on the Termination Date the aggregate principal amount of the
Revolving Credit Advances then outstanding.

                  (d) Swing Line Advances. The Domestic Borrower shall repay to
the Administrative Agent for the account of the Appropriate Swing Line Lender
and each other Revolving Credit Lender that has made a Swing Line Advance to the
Domestic Borrower the outstanding principal amount of each Swing Line Advance
made by each of them to the Domestic Borrower, and each Offshore Borrower shall
repay to the Offshore Currency Agent for the account of the Appropriate Swing
Line Lender and each other Revolving Credit Lender that has made a Swing Line
Advance to such Offshore Borrower, in each case, the outstanding principal
amount of each Swing Line Advance made by each of them to such Offshore
Borrower, as the case may be, on the earlier of the maturity date specified in
the applicable Notice of Swing Line Borrowing (in the case of any Swing Line
Borrowing in US Dollars, which maturity shall be no later than the seventh day
after the requested date of such Borrowing) and the Termination Date.

                  (e) Letter of Credit Advances. (i) The Domestic Borrower shall
repay to the Administrative Agent for the account of the Issuing Bank and each
other Revolving Credit


                                Credit Agreement

<PAGE>   20

                                       15


Lender that has made a Letter of Credit Advance on the earlier of demand and the
Termination Date the outstanding principal amount of each Letter of Credit
Advance made by each of them.

                  (ii) The Obligations of the Domestic Borrower under this
Agreement, any Letter of Credit Agreement and any other agreement or instrument
relating to any Letter of Credit shall be unconditional and irrevocable, and
shall be paid strictly in accordance with the terms of this Agreement, such
Letter of Credit Agreement and such other agreement or instrument under all
circumstances, including, without limitation, the following circumstances(it
being understood that any such payment by the Domestic Borrower is without
prejudice to, and does not constitute a waiver of, any rights the Domestic
Borrower might have or might acquire as a result of the payment by the Issuing
Bank of any draft or the reimbursement by the Domestic Borrower thereof):

                  (A) any lack of validity or enforceability of any Loan
         Document, any Letter of Credit Agreement, any Letter of Credit or any
         other agreement or instrument relating thereto (all of the foregoing
         being, collectively, the "L/C RELATED DOCUMENTS");

                  (B) any change in the time, manner or place of payment of, or
         in any other term of, all or any of the Obligations of the Domestic
         Borrower in respect of any L/C Related Document or any other amendment
         or waiver of or any consent to departure from all or any of the L/C
         Related Documents;

                  (C) the existence of any claim, set-off, defense or other
         right that the Domestic Borrower may have at any time against any
         beneficiary or any transferee of a Letter of Credit (or any Persons for
         which any such beneficiary or any such transferee may be acting), the
         Issuing Bank or any other Person, whether in connection with the
         transactions contemplated by the L/C Related Documents or any unrelated
         transaction;

                  (D) any statement or any other document presented under a
         Letter of Credit proving to be forged, fraudulent, invalid or
         insufficient in any respect or any statement therein being untrue or
         inaccurate in any respect;

                  (E) payment by the Issuing Bank under a Letter of Credit
         against presentation of a draft or certificate that does not strictly
         comply with the terms of such Letter of Credit;

                  (F) any exchange, release or non-perfection of any Collateral
         or other collateral, or any release or amendment or waiver of or
         consent to departure from the Guaranties or any other guarantee, for
         all or any of the Obligations of the Domestic Borrower in respect of
         the L/C Related Documents; or


                                Credit Agreement


<PAGE>   21

                                       16


                  (G) any other circumstance or happening whatsoever, whether or
         not similar to any of the foregoing, including, without limitation, any
         other circumstance that might otherwise constitute a defense available
         to, or a discharge of, the Domestic Borrower or a guarantor.

                  SECTION 2.05. Termination, Reduction, Conversion and
Restoration of the Commitments. (a) Optional. The Domestic Borrower may, upon at
least three Business Days' notice to the Administrative Agent, terminate in
whole or reduce in part the unused portions of the Term A Commitments, the
Offshore Acquisition Commitments and the Letter of Credit Sub-Facility and the
Unused Revolving Credit Commitments; provided, however, that each partial
reduction of a Facility (i) shall be in an aggregate amount of $5,000,000 or an
integral multiple of $1,000,000 in excess thereof and (ii) shall be made ratably
among the Appropriate Lenders in accordance with their Commitments with respect
to such Facility. (As of the date of this Agreement, all the Term B Commitments
have been terminated.)

                  (b) Mandatory.

                  (i) Term A Commitment; Offshore Acquisition Commitments.

                           (A) (1) On each of the following dates the aggregate
                  Term A Commitments of the Term A Lenders shall be
                  automatically and permanently reduced, on a pro rata basis, by
                  the following amounts: (x) on the date that occurs eighteen
                  months after the Initial Closing Date, by an amount equal to
                  the amount by which the aggregate Term A Commitments
                  immediately prior to such reduction exceed the aggregate
                  unpaid principal amount of the Term A Advances then
                  outstanding, after giving effect to any Term A Borrowing on
                  such date and (y) from time to time on the date of each
                  repayment or prepayment of the Term A Advances, by an amount
                  equal to the amount of such repayment or prepayment.

                               (2) On each date prior to the date that occurs
                  eighteen months after the Initial Closing Date that an
                  Offshore Borrower delivers a Notice of Borrowing requesting a
                  Borrowing consisting of Offshore Acquisition Advances, the
                  aggregate Term A Commitments of the Term A Lenders shall also
                  be automatically and permanently reduced, on a pro rata basis,
                  by an amount equal to the lesser of (x) the aggregate amount
                  of such requested Borrowing, or (y) the amount by which the
                  aggregate Term A Commitments immediately prior to such
                  reduction exceed the aggregate unpaid principal amount of the
                  Term A Advances then outstanding. The aggregate amount by
                  which the Term A Commitments of the Term A Lenders are reduced
                  and converted to Offshore Acquisition Commitments pursuant to
                  this Section 2.05(b)(i)(A)(2) during the period prior to the
                  date that occurs eighteen months after the Initial Closing
                  Date is referred to herein as the "AMORTIZATION AMOUNT".


                                Credit Agreement


<PAGE>   22

                                       17


                                    (3) On each date prior to eighteen months
                  after the Initial Closing Date on which outstanding Term A
                  Advances are prepaid pursuant to Section 2.06(a), by written
                  notice from the Domestic Borrower delivered to the
                  Administrative Agent together with the prepayment notice for
                  such prepayment, the aggregate Term A Commitments of the Term
                  A Lenders shall be restored and increased, on a pro rata
                  basis, by an aggregate amount equal to the aggregate amount of
                  the Term A Advances so prepaid on such date; provided however,
                  that (x) each written notice requesting such a restoration
                  shall specify that an Offshore Borrower contemplates
                  requesting an Offshore Acquisition Advance in an amount equal
                  to or greater than the amount of the aggregate Term A
                  Commitments requested to be restored thereby, (y) if such
                  contemplated Offshore Acquisition Advance has not been
                  advanced within 30 days following the date of such written
                  notice, then the aggregate Term A Commitments so restored
                  pursuant to such notice shall nonetheless terminate on such
                  thirtieth day, and (z) not more than an aggregate of
                  $25,000,000 of Term A Commitments of the Term A Lenders may be
                  restored pursuant to this clause (3). Notwithstanding the
                  foregoing, at no time shall the Term A Facility as so restored
                  and increased exceed $75,000,000.

                           (B)      (1) On each date that an Offshore Borrower
                  delivers a Notice of Borrowing requesting a Borrowing
                  consisting of Offshore Acquisition Advances, the aggregate
                  Offshore Acquisition Commitments of the Offshore Acquisition
                  Lenders shall be automatically increased, on a pro rata basis,
                  by an amount equal to the aggregate amount by which the
                  aggregate Term A Commitments and the aggregate Revolving
                  Credit Commitments are reduced on such date pursuant to clause
                  (i)(A)(2) above and clause (iii)(A) below as a result of such
                  Notice of Borrowing; provided, however, the aggregate amount
                  of Term A Commitments and Revolving Credit Commitments which
                  may be so reduced and converted to Offshore Acquisition
                  Commitments during the term of this Agreement shall not exceed
                  US$50,000,000.

                                    (2) From time to time upon each repayment or
                  prepayment of the Offshore Acquisition Advances, the aggregate
                  Offshore Acquisition Commitments of the Offshore Acquisition
                  Lenders shall be automatically and permanently reduced, on a
                  pro rata basis, by an amount equal to the amount of such
                  repayment or prepayment.

                  (ii) Term B Commitments. All the Term B Commitments of the
         Term B Lenders have been terminated pursuant to the Existing Credit
         Agreement.


                                Credit Agreement

<PAGE>   23

                                       18


                  (iii) Revolving Credit Commitments.

                           (A) On each date that an Offshore Borrower delivers a
                  Notice of Borrowing requesting a Borrowing consisting of
                  Offshore Acquisition Advances, the aggregate Revolving Credit
                  Commitments of the Revolving Credit Lenders shall be
                  automatically and (except as provided in clause (iii)(B)
                  below) permanently reduced, on a pro rata basis, by an amount
                  equal to the difference between (x) the aggregate amount of
                  such requested Borrowing, and (y) the amount, if any, by which
                  the aggregate Term A Commitments are reduced on such date
                  pursuant to Section 2.05(b)(i)(A)(2) as a result of such
                  Notice of Borrowing; provided, however, that, during the term
                  of this Agreement, the aggregate amount of Revolving Credit
                  Commitments that may be so terminated and converted to
                  Offshore Acquisition Commitments shall not exceed the
                  difference between (x) US$25,000,000 and (y) the aggregate
                  amount of Revolving Credit Advances drawn at any time to fund
                  Domestic Permitted Acquisitions.
                           (B) From time to time on each date on which the
                  Offshore Acquisition Advances are repaid pursuant to Section
                  2.04(a)(ii) or 2.06(b) in an aggregate amount in excess of the
                  Amortization Amount, or prepaid pursuant to Section 2.06(a) in
                  any amount, the aggregate Revolving Credit Commitments of the
                  Revolving Credit Lenders shall be automatically restored and
                  increased, on a pro rata basis, by an amount equal to the
                  amount by which such Offshore Acquisition Advances are so
                  repaid or prepaid on such date; provided, however, that the
                  aggregate amount of Revolving Credit Commitments that may be
                  restored from time to time pursuant to this clause (iii)(B)
                  shall not exceed the aggregate amount by which the Revolving
                  Credit Commitments have previously been reduced pursuant to
                  clause (iii)(A) above.

                  (iv) Letter of Credit Sub-Facility. The Letter of Credit
Sub-Facility shall be permanently reduced from time to time on the date of each
reduction in the Revolving Credit Facility by the amount, if any, by which the
amount of the Letter of Credit Sub-Facility exceeds the Revolving Credit
Facility after giving effect to such reduction of the Revolving Credit Facility.

                  (v) Swing Line Sub-Facility. The Swing Line Sub-Facility shall
be permanently reduced from time to time on the date of each reduction in the
Revolving Credit Facility by the amount, if any, by which the amount of the
Swing Line Sub-Facility exceeds the Revolving Credit Facility after giving
effect to such reduction of the Revolving Credit Facility.

                  SECTION 2.06. Prepayments. (a) Optional. The Domestic
Borrower, or in the case of any Offshore Acquisition Advance, the applicable
Offshore Borrower, may, upon at least


                                Credit Agreement

<PAGE>   24


                                       19


three Business Day's notice to the Administrative Agent stating the proposed
date and aggregate principal amount of the prepayment, and if such notice is
given, the Domestic Borrower or such Offshore Borrower, as the case may be,
shall, prepay the outstanding aggregate principal amount of the Advances made to
it comprising part of the same Borrowing in whole or ratably in part, together
with accrued interest to the date of such prepayment on the aggregate principal
amount prepaid; provided, however, that (x) each partial prepayment of any
Offshore Swing Line Advance shall be in an aggregate principal amount of the US
Dollar Equivalent of $250,000 or an integral multiple of $100,000 in excess
thereof, (y) each partial prepayment of Revolving Credit Advances shall be in an
aggregate principal amount of $2,000,000, each partial prepayment of Term
Advances shall be in an aggregate principal amount of $5,000,000, or, in each
case, an integral multiple of $1,000,000 in excess thereof and (z) if any
prepayment of a Eurodollar Rate Advance is made on a date other than the last
day of an Interest Period for such Advance, the Domestic Borrower or such
Offshore Borrower, as the case may be, shall also pay any amounts owing pursuant
to Section 8.04(c); and provided further that a notice of prepayment may state
that it is conditioned upon the effectiveness of the closing of a credit
facility, debt financing or disposition of assets, in which case such notice may
be revoked by the Applicable Borrower by notice to the Administrative Agent
prior to the date of the proposed prepayment if such condition is not satisfied.
Each such optional prepayment of Term Advances shall be applied in the same
manner as is provided for mandatory prepayments of Term Advances in Section
2.06(b)(v).

                  (b) Mandatory. (i) Excess Cash Flow. The Domestic Borrower
shall, on the 100th day following the end of each Fiscal Year (commencing
following the Domestic Borrower's Fiscal Year ending on December 31, 2000),
prepay an aggregate principal amount of the Advances comprising part of the same
Borrowings (or cause the applicable Offshore Borrowers to prepay Offshore
Acquisition Advances) in an aggregate amount equal to fifty percent (50%) of the
amount of Excess Cash Flow for such Fiscal Year; provided, however, the
aggregate amount of any prepayment of Advances otherwise required under this
subsection (i) shall not exceed the amount which is $1 greater than the smallest
aggregate prepayment of Advances that would be required in order to reduce the
Total Debt/EBITDA Ratio to 3.0:1 (after giving effect to such prepayment); and
provided further that if the Total Debt/EBITDA Ratio as of such day is less than
3.0:1, then no such prepayment shall be required.

                  (ii) Net Cash Proceeds. The Domestic Borrower shall, on the
date which is three Business Days following the date of receipt of the Net Cash
Proceeds by the Domestic Borrower or any of its Subsidiaries from the following
sources (or at any time that a Default has occurred and is continuing, on such
date of receipt), prepay (or cause the applicable Offshore Borrowers to prepay
Offshore Acquisition Advances) an aggregate principal amount of the Advances as
follows:


                                Credit Agreement


<PAGE>   25

                                       20


                  (A) Asset Dispositions. On the date which is three Business
         Days following the date of receipt of the Net Cash Proceeds by the
         Domestic Borrower or any of its Subsidiaries from any Asset Sale,
         unless a Reinvestment Notice shall have been delivered in respect of
         such Asset Sale on or prior to the date which is three Business Days
         following the date of receipt of such Net Cash Proceeds, the Domestic
         Borrower shall prepay (or cause the applicable Offshore Borrowers to
         prepay Offshore Acquisition Advances) an aggregate principal amount of
         the Advances comprising part of the same Borrowings in an aggregate
         amount equal to 100% of such Net Cash Proceeds; provided, however,
         that, notwithstanding the foregoing (i) the aggregate Net Cash Proceeds
         of Asset Sales that may be excluded from the foregoing requirement
         pursuant to a Reinvestment Notice shall not exceed $5,000,000 in any
         Fiscal Year of the Domestic Borrower, or $10,000,000 in the aggregate
         during the term of this Agreement and (ii) on each Reinvestment
         Prepayment Date the Advances shall be prepaid, by an amount equal to
         the Reinvestment Prepayment Amount with respect to the relevant
         Reinvestment Event, as set forth in Section 2.06(b)(v);

                  (B) Debt. On the date which is three Business Days following
         the date of receipt of the Net Cash Proceeds by the Domestic Borrower
         or any of its Subsidiaries from the incurrence or issuance by the
         Domestic Borrower or any of its Subsidiaries of any Debt (other than
         Debt incurred or issued pursuant to clauses (i ) to (ix) and clause
         (xi) of Section 5.02(b)), the Domestic Borrower shall prepay (or cause
         the applicable Offshore Borrowers to prepay Offshore Acquisition
         Advances) an aggregate principal amount of the Advances comprising part
         of the same Borrowings in an aggregate amount equal to 100% of such Net
         Cash Proceeds; provided, however, that the amount of any prepayment of
         Advances otherwise required under this clause (B) shall not exceed the
         amount which is $1 greater than the smallest aggregate prepayment of
         Advances that would be required on the date of such prepayment to
         reduce the Senior Debt/EBITDA to 2.5:1 (after giving effect to such
         prepayment); and provided further that, if the Senior Debt/EBITDA Ratio
         as of such date is less than 2.5:1, then no amount of such Net Cash
         Proceeds need be prepaid;

                  (C) Equity Interests. On the date which is three Business Days
         following the date of receipt of the Net Cash Proceeds by the Domestic
         Borrower or any of its Subsidiaries from the sale or issuance by the
         Domestic Borrower or any of its Subsidiaries of any Equity Interests
         (including, without limitation, receipt of any capital contribution but
         excluding sales and issuances to employees of the Domestic Borrower and
         its Subsidiaries (x) pursuant to the granting or exercise of stock
         options or (y) to the extent of the Net Cash Proceeds from such
         issuance or sale to employees is applied by the Domestic Borrower to
         purchase the Equity Interests so issued as contemplated by Section
         5.02(h)(i)(D)), the Domestic Borrower shall prepay (or cause the
         applicable Offshore Borrowers to prepay Offshore Acquisition Advances)
         an aggregate principal amount of


                                Credit Agreement

<PAGE>   26

                                       21


         the Advances comprising part of the same Borrowings in an aggregate
         amount equal to 50% of such Net Cash Proceeds; provided, however, that
         if the Total Debt/EBITDA Ratio as of such date is less than 3.0:1, then
         the Domestic Borrower shall repay such Advances in an amount equal to
         25% of such Net Cash Proceeds; and

                  (D) Extraordinary Receipts. On the date which is three
         Business Days following the date of receipt of the Net Cash Proceeds by
         the Domestic Borrower or any of its Subsidiaries from any Extraordinary
         Receipt (x) at any time that any Existing Senior Subordinated Notes are
         outstanding, in any amount and (y) thereafter, in excess of $250,000,
         in each case, received by or paid to or for the account of the Domestic
         Borrower or any of its Subsidiaries and not otherwise included in
         clause (A), (B) or (C) above, the Domestic Borrower shall prepay (or
         cause the applicable Offshore Borrowers to prepay Offshore Acquisition
         Advances) an aggregate principal amount of the Advances comprising part
         of the same Borrowings in an aggregate amount equal to 100% of such Net
         Cash Proceeds.

                  (iii) Revolving Credit Facility; Swing Line Sub-Facility.

                           (A) The Domestic Borrower shall, on each Business
         Day, prepay an aggregate principal amount of the Revolving Credit
         Advances comprising part of the same Borrowings, the Letter of Credit
         Advances and the Swing Line Advances in an amount equal to the amount
         by which (1) the sum of (x) the aggregate principal amount of the
         Revolving Credit Advances, the Letter of Credit Advances and the Swing
         Line Advances in US Dollars then outstanding, plus (y) the aggregate US
         Dollar Equivalent of any Swing Line Advances in an Offshore Currency
         then outstanding plus (z) the aggregate Available Amount of all Letters
         of Credit then outstanding exceeds (2) the Revolving Credit Facility on
         such Business Day.

                           (B) The Applicable Borrower shall on each Business
         Day that the Offshore Currency Agent calculates the US Dollar
         Equivalent of outstanding Swing Line Advances in an Offshore Currency
         pursuant to Section 1.04, prepay an aggregate principal amount of the
         outstanding Swing Line Advances in any Applicable Currency in an amount
         equal to the amount by which the aggregate principal amount of such
         Swing Line Advances outstanding exceeds 105% of the Applicable Swing
         Line Sub-Limit.

                  (iv) Letter of Credit Sub-Facility. The Domestic Borrower
shall, on each Business Day, pay to the Administrative Agent for deposit in the
L/C Cash Collateral Account an amount sufficient to cause the aggregate amount
on deposit in the L/C Cash Collateral Account to equal the amount by which the
aggregate Available Amount of all Letters of Credit then outstanding exceeds the
Letter of Credit Sub-Facility on such Business Day.

                                Credit Agreement

<PAGE>   27

                                       22


                  (v) Application of Prepayments; Application of Prepayments of
Term Advances. (A) Each prepayment of Advances pursuant to subsections (i) and
(ii) of this Section 2.06(b) (and optional prepayments of Term Advances pursuant
to Section 2.06(a)) shall be applied (1) first, pro rata between the scheduled
amortization installments of the Term Facilities until all the Term A Advances
and the Amortization Amount of the Offshore Acquisition Advances are prepaid in
full, (2) second, to any other outstanding Offshore Acquisition Advances until
such Advances are prepaid in full, and (3) third, to the Revolving Credit
Facility as set forth in clause (vi) below.

                  (B) Amounts applied to each Term Facility pursuant to
subsection (A) above, shall be applied (1) first, to any scheduled amortization
installments of such Term Facility which are due within twelve (12) months after
the date of such prepayment in the order of their maturity until such
installments are prepaid in full, and (2) second, pro rata to the remaining
scheduled amortization installments of such Term Facility until such
installments are prepaid in full.

                  (vi) Revolving Credit Facility. Prepayments of the Revolving
Credit Facility made pursuant to clause (i), (ii) or (iii) above shall be first
applied to prepay Letter of Credit Advances then outstanding until such Advances
are paid in full, second applied to prepay Swing Line Advances then outstanding
until such Advances are paid in full, third applied to prepay Revolving Credit
Advances then outstanding comprising part of the same Borrowings until such
Advances are paid in full and fourth deposited in the L/C Cash Collateral
Account to cash collateralize 100% of the Available Amount of the Letters of
Credit then outstanding; and, in the case of prepayments of the Revolving Credit
Facility required pursuant to clause (i) or (ii) above, the amount remaining (if
any) after the prepayment in full of the Advances then outstanding and the 100%
cash collateralization of the aggregate Available Amount of Letters of Credit
then outstanding may be retained by the Domestic Borrower. Upon the drawing of
any Letter of Credit for which funds are on deposit in the L/C Cash Collateral
Account, such funds shall be applied to reimburse the Issuing Bank or Revolving
Credit Lenders, as applicable.

                  (vii) Deferred Prepayments. Notwithstanding anything to the
contrary contained in subsection (b)(ii) of this Section 2.06 or in Section
5.02(f), so long as no Default shall have occurred and be continuing, if, on any
date on which a prepayment of Advances would otherwise be required pursuant to
subsection (b)(ii) of this Section 2.06 and the applicable subsections of
Section 5.02(f), the aggregate amount of Net Cash Proceeds or other amounts
otherwise required by such subsections to be applied to prepay Advances on such
date are less than or equal to $5,000,000, the Applicable Borrowers may defer
such prepayment until (A) the date on which the aggregate amount of Net Cash
Proceeds or other amounts otherwise required by such subsections to be applied
to prepay Advances exceeds $5,000,000 or (B) any earlier date which is one
Business Day before the day on which the Domestic Borrower would be required to
make an offer to purchase Senior Subordinated Notes in an amount calculated by
reference to any such Net Cash Proceeds. During such deferral period the
Domestic Borrower may apply all


                                Credit Agreement


<PAGE>   28

                                       23


or any part of such aggregate amount to prepay Revolving Credit Advances and
may, subject to the fulfillment of the conditions set forth in Section 3.02,
reborrow such amounts (which amounts, to the extent originally constituting Net
Cash Proceeds, shall be deemed to retain their original character as Net Cash
Proceeds when so reborrowed for application as required by this Section 2.06).
Upon the occurrence of a Default, the Applicable Borrowers shall immediately
prepay Advances in the amount of all Net Cash Proceeds received by the Domestic
Borrower and its Subsidiaries and other amounts, as applicable, that are
required to be applied to prepay Advances by this Section 2.06 (without giving
effect to the first and second sentences of this subsection (b)(vii)) and
Section 5.02(f) but which have not previously been so applied.

                  (viii) Repatriation of Net Cash Proceeds. To the extent any or
all of the Net Cash Proceeds subject to Section 2.06(b)(i) or (ii) attributable
to Offshore Subsidiaries are prohibited or delayed by applicable local law from
being repatriated to the United States (after giving effect to any required
prepayment of outstanding Offshore Acquisition Advances), the portion of such
Net Cash Proceeds so affected shall not be required to be applied at the time
provided above, and may be (but shall not be required), at the election of the
Applicable Borrower, deposited in an escrow account maintained with a Lender and
under the sole dominion and control of the Administrative Agent pursuant to the
terms of an escrow agreement satisfactory in form and substance to the
Administrative Agent, until such time as the applicable local law will permit
repatriation to the United States (and the Domestic Borrower hereby agrees that
it will, and will cause the applicable Subsidiary to, promptly take all action
required by the applicable local law to permit such repatriation). If and when
repatriation of any of such affected Net Cash Proceeds is permitted under the
applicable local law, such repatriation shall be immediately effected and such
repatriated Net Cash Proceeds will be applied in the manner set forth in this
Agreement.

                  (ix) Accrued Interest, Etc. All prepayments under this
subsection (b) shall be made together with accrued interest to the date of such
prepayment on the principal amount prepaid. If any payment of Eurodollar Rate
Advances otherwise required to be made under this Section 2.06(b) would be made
on a day other than the last day of the applicable Interest Period therefor, the
Applicable Borrower may direct the Administrative Agent to (and if so directed,
the Administrative Agent shall) deposit such payment in the Collateral Account
until the last day of the applicable Interest Period at which time the
Administrative Agent shall apply the amount of such payment to the prepayment of
such Advances; provided, however, that such Advances shall continue to bear
interest as set forth in Section 2.07 until the last day of the applicable
Interest Period therefor.

                  SECTION 2.07. Interest. (a) Scheduled Interest. Each
Applicable Borrower shall pay interest on the unpaid principal amount of each
Advance owing by such Applicable Borrower to each Lender from the date of such
Advance until such principal amount shall be paid in full, at the following
rates per annum:


                                Credit Agreement

<PAGE>   29


                                       24


                  (i) Base Rate Advances. During such periods as such Advance is
         a Base Rate Advance, a rate per annum equal at all times to the sum of
         (A) the Base Rate in effect from time to time plus (B) the Applicable
         Margin in effect from time to time, payable in arrears quarterly on the
         last Business Day of each March, June, September and December during
         such periods and on the date such Base Rate Advance shall be Converted
         or paid in full.

                  (ii) Eurodollar Rate Advances. During such periods as such
         Advance is a Eurodollar Rate Advance, a rate per annum equal at all
         times during each Interest Period for such Advance to the sum of (A)
         the Eurodollar Rate for such Interest Period for such Advance plus (B)
         the Applicable Margin in effect on the first day of such Interest
         Period, payable in arrears on the last day of such Interest Period and,
         if such Interest Period has a duration of more than three months, on
         each day that occurs during such Interest Period every three months
         from the first day of such Interest Period and on the date such
         Eurodollar Rate Advance shall be Converted or paid in full.

                  (b) Default Interest. Upon the occurrence and during the
continuance of a Default, each Applicable Borrower shall pay interest on (i) the
unpaid principal amount of each Advance owing by such Applicable Borrower to
each Lender, payable in arrears on the dates referred to in clause (a)(i) or
(a)(ii) above and on demand, at a rate per annum equal at all times to 2% per
annum above the rate per annum required to be paid on such Advance pursuant to
clause (a)(i) or (a)(ii) above and (ii) to the fullest extent permitted by law,
the amount of any interest, fee or other amount payable by such Applicable
Borrower under the Loan Documents that is not paid when due, from the date such
amount shall be due until such amount shall be paid in full, payable in arrears
on the date such amount shall be paid in full and on demand, at a rate per annum
equal at all times to 2% per annum above the rate per annum required to be paid,
in the case of interest, on the Type of Advance on which such interest has
accrued pursuant to clause (a)(i) or (a)(ii) above and, in all other cases, on
Base Rate Advances pursuant to clause (a)(i) above.

                  (c) Notice of Interest Period and Interest Rate. Promptly
after receipt of a Notice of Borrowing pursuant to Section 2.02(a), a notice of
Conversion pursuant to Section 2.09 or a notice of selection of an Interest
Period pursuant to the terms of the definition of "INTEREST PERIOD", the
Administrative Agent shall give notice to the Domestic Borrower and each
Appropriate Lender of the applicable Interest Period and the applicable interest
rate determined by the Administrative Agent for purposes of clause (a)(i) or
(a)(ii) above.

                  SECTION 2.08. Fees. (a) Commitment Fee. The Domestic Borrower
shall pay to the Administrative Agent for the account of the Lenders a
commitment fee, from the date of this Agreement in the case of each Initial
Lender and from the effective date specified in the

                                Credit Agreement

<PAGE>   30


                                       25


Assignment and Acceptance pursuant to which it became a Lender in the case of
each other Lender until the Termination Date, payable in arrears quarterly on
the last Business Day of each June, September, December and March, commencing
June 30, 2000, and on the Termination Date, at the rate per annum equal to the
Applicable Percentage then in effect on the average daily unused portion of each
Appropriate Lender's Term A Commitment and Offshore Acquisition Commitment and
on the sum of the average daily Unused Revolving Credit Commitment of such
Lender plus its Pro Rata Share of the average daily outstanding Swing Line
Advances in US Dollars during such quarter; provided, however, that no
commitment fee shall accrue on any of the Commitments of a Defaulting Lender so
long as such Lender shall be a Defaulting Lender.

                  (b) Letter of Credit Fees, Etc. (i) The Domestic Borrower
shall pay to the Administrative Agent for the account of each Revolving Credit
Lender a commission, payable in arrears quarterly on the last Business Day of
each June, September, December and March, commencing June 30, 2000, and on the
earliest to occur of the full drawing, expiration, termination or cancellation
of any Letter of Credit and on the Termination Date, on such Lender's Pro Rata
Share of the average daily aggregate Available Amount during such quarter of (A)
all Standby Letters of Credit outstanding from time to time at a rate per annum
equal to the Applicable Margin then in effect for Eurodollar Rate Advances under
the Revolving Credit Facility and (B) all Trade Letters of Credit then
outstanding at a rate per annum equal to the Applicable Margin then in effect
for Eurodollar Rate Advances under the Revolving Credit Facility; provided,
however, that if the aggregate such commission for all Revolving Credit Lenders
for any Standby Letter of Credit or Trade Letter of Credit is less than $500,
then such commission shall instead be calculated for such Letter of Credit as
such Revolving Credit Lender's Pro Rata Share of $500.

                  (ii) The Domestic Borrower shall pay to the Issuing Bank, for
its own account, (A) an issuance fee, payable in arrears quarterly on the last
Business Day of each June, September, December and March, commencing June 30,
2000, and on the Termination Date, on the average daily amount of its Letter of
Credit Commitment during such quarter, from the date hereof until the
Termination Date, at the rate of 0.25% per annum; provided, however, that if
such commission for any Letter of Credit is less than $100, then such issuance
fee for such Letter of Credit shall be $100 and (B) such other commissions,
fronting fees, transfer fees and other fees and charges in connection with the
issuance or administration of each Letter of Credit as the Domestic Borrower and
the Issuing Bank shall agree.

                  (c) Agents' Fees. The Domestic Borrower shall pay to each
Agent for its own account such fees as may from time to time be agreed between
the Domestic Borrower and such Agent.

                  SECTION 2.09. Conversion of Advances. (a) Optional. The
Domestic Borrower (or in respect of any Offshore Acquisition Advance, the
applicable Offshore Borrower) may on any Business Day, upon notice given to the
Administrative Agent not later than


                                Credit Agreement

<PAGE>   31
                                       26


11:00 A.M. (New York City time) on the third Business Day prior to the date of
the proposed Conversion and subject to the provisions of Sections 2.07 and 2.10,
Convert all or any portion of the Advances of one Type comprising the same
Borrowing into Advances of the other Type; provided, however, that any
Conversion of Eurodollar Rate Advances into Base Rate Advances shall be made
only on the last day of an Interest Period for such Eurodollar Rate Advances,
any Conversion of Base Rate Advances into Eurodollar Rate Advances shall be in
an amount not less than the minimum amount specified in Section 2.02(c), no
Conversion of any Advances shall result in more separate Borrowings than
permitted under Section 2.02(c), each Conversion of Advances comprising part of
the same Borrowing under any Facility shall be made ratably among the
Appropriate Lenders in accordance with their Commitments under such Facility and
Swing Line Advances may not be so converted and may only be outstanding as Base
Rate Advances. Each such notice of Conversion shall, within the restrictions
specified above, specify (i) the date of such Conversion, (ii) the Advances to
be Converted and (iii) if such Conversion is into Eurodollar Rate Advances, the
duration of the initial Interest Period for such Advances. Each notice of
Conversion shall be irrevocable and binding on the Applicable Borrower.

                  (b)   Mandatory. (i) On the date on which the aggregate unpaid
principal amount of Eurodollar Rate Advances comprising any Borrowing shall be
reduced, by payment or prepayment or otherwise, to less than $1,000,000, such
Advances shall automatically Convert into Base Rate Advances.

                  (ii)  If an Applicable Borrower shall fail to select the
duration of any Interest Period for any Eurodollar Rate Advances in accordance
with the provisions contained in the definition of "INTEREST PERIOD" in Section
1.01, the Administrative Agent will forthwith so notify the Applicable Borrower
and the Appropriate Lenders, whereupon each such Eurodollar Rate Advance will
automatically, on the last day of the then existing Interest Period therefor,
Convert into a Base Rate Advance.

                  (iii) Upon the occurrence and during the continuance of any
Default, (x) each Eurodollar Rate Advance will automatically, on the last day of
the then existing Interest Period therefor, Convert into a Base Rate Advance and
(y) the obligation of the Lenders to make, or to Convert Advances into,
Eurodollar Rate Advances shall be suspended.

                  SECTION 2.10. Increased Costs, Etc. (a) If, due to either (i)
the introduction of or any change in or in the interpretation of any law or
regulation or (ii) the compliance with any guideline or request from any central
bank or other governmental authority (whether or not having the force of law),
there shall be any increase in the cost to any Lender Party of agreeing to make
or of making, funding or maintaining Eurodollar Rate Advances or of agreeing to
issue or of issuing or maintaining or participating in Letters of Credit or of
agreeing to make or of making or maintaining Letter of Credit Advances or of
agreeing to make or maintaining or of agreeing to purchase or participate in any
Swing Line Advances (excluding, for purposes of this


                                Credit Agreement
<PAGE>   32

                                       27


Section 2.10, any such increased costs resulting from Taxes, Other Taxes or
Excluded Taxes, as to which Section 2.12 shall govern), then the Applicable
Borrower shall from time to time, upon demand by such Lender Party (with a copy
of such demand to the Administrative Agent), pay to the Administrative Agent for
the account of such Lender Party additional amounts sufficient to compensate
such Lender Party for such increased cost; provided, however, that a Lender
Party claiming additional amounts under this Section 2.10(a) agrees to use
reasonable efforts (consistent with its internal policy and legal and regulatory
restrictions) to designate a different Applicable Lending Office if the making
of such a designation would avoid the need for, or reduce the amount of, such
increased cost that may thereafter accrue and would not, in the reasonable
judgment of such Lender Party, be otherwise disadvantageous to such Lender
Party; provided further that each Offshore Borrower shall only be liable for
those additional amounts as are specifically related to Advances made to such
Offshore Borrower (and any additional amounts attributable to maintaining any
Facility generally shall be solely the responsibility of the Domestic Borrower).
A certificate as to the amount of such increased cost, submitted to the
Applicable Borrower by such Lender Party, shall be conclusive and binding for
all purposes, absent manifest error.

                  (b) If, due to either (i) the introduction of or any change in
or in the interpretation of any law or regulation or (ii) the compliance with
any guideline or request from any central bank or other governmental authority
(whether or not having the force of law), there shall be any increase in the
amount of capital required or expected to be maintained by any Lender Party or
any corporation controlling such Lender Party as a result of or based upon the
existence of such Lender Party's commitment to lend or to issue or participate
in Letters of Credit or to purchase or participate in Swing Line Advances
hereunder and other commitments of such type or the issuance or maintenance of
or participation in the Letters of Credit or the purchase or participation in
Swing Line Advances (or similar contingent obligations), then, upon demand by
such Lender Party or such corporation (with a copy of such demand to the
Administrative Agent), the Applicable Borrower shall pay to the Administrative
Agent for the account of such Lender Party, from time to time as specified by
such Lender Party, additional amounts sufficient to compensate such Lender Party
in the light of such circumstances, to the extent that such Lender Party
reasonably determines such increase in capital to be allocable to the existence
of such Lender Party's commitment to lend or to issue or participate in Letters
of Credit or to purchase or participate in Swing Line Advances hereunder or to
the issuance or maintenance of or participation in any Letters of Credit or the
purchase or participation in any Swing Line Advance; provided further that each
Offshore Borrower shall only be liable for those additional amounts as are
specifically related to Advances made to such Offshore Borrower or any of its
Subsidiaries (and any additional amounts attributable to maintaining any
Facility generally shall be solely the responsibility of the Domestic Borrower).
A certificate as to such amounts submitted to the Domestic Borrower by such
Lender Party shall be conclusive and binding for all purposes, absent manifest
error.


                                Credit Agreement

<PAGE>   33

                                       28


                  (c) If, with respect to any Eurodollar Rate Advances under any
Facility, Lenders owed at least 50.1% of the then aggregate unpaid principal
amount thereof notify the Administrative Agent that the Eurodollar Rate for any
Interest Period for such Advances will not adequately reflect the cost to such
Lenders of making, funding or maintaining their Eurodollar Rate Advances for
such Interest Period, the Administrative Agent shall forthwith so notify the
Domestic Borrower, the other Applicable Borrowers and the Appropriate Lenders,
whereupon (i) each such Eurodollar Rate Advance under such Facility will
automatically, on the last day of the then existing Interest Period therefor,
Convert into a Base Rate Advance and (ii) the obligation of the Appropriate
Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be
suspended until the Administrative Agent shall notify the Domestic Borrower and
the other Applicable Borrowers that such Lenders have determined that the
circumstances causing such suspension no longer exist.

                  (d) Notwithstanding any other provision of this Agreement, if
the introduction of or any change in or in the interpretation of any law or
regulation shall make it unlawful, or any central bank or other governmental
authority shall assert that it is unlawful, for any Lender or its Eurodollar
Lending Office to perform its obligations hereunder to make Eurodollar Rate
Advances or to continue to fund or maintain Eurodollar Rate Advances hereunder,
then, on notice thereof and demand therefor by such Lender to the Domestic
Borrower and each other Applicable Borrower through the Administrative Agent,
(i) each Eurodollar Rate Advance under each Facility under which such Lender has
a Commitment will automatically, upon such demand, Convert into a Base Rate
Advance and (ii) the obligation of the Appropriate Lenders to make, or to
Convert Advances into, Eurodollar Rate Advances shall be suspended until the
Administrative Agent shall notify the Domestic Borrower and each other
Applicable Borrower that such Lender has determined that the circumstances
causing such suspension no longer exist; provided, however, that, before making
any such demand, such Lender agrees to use reasonable efforts (consistent with
its internal policy and legal and regulatory restrictions) to designate a
different Eurodollar Lending Office if the making of such a designation would
allow such Lender or its Eurodollar Lending Office to continue to perform its
obligations to make Eurodollar Rate Advances or to continue to fund or maintain
Eurodollar Rate Advances and would not, in the judgment of such Lender, be
otherwise disadvantageous to such Lender.

                  SECTION 2.11.  Payments and Computations.

                  (a) (i) US Dollar Payments. Each Applicable Borrower shall
make each payment denominated in US Dollars due from it hereunder and under its
Notes, irrespective of any right of counterclaim or set-off (except as otherwise
provided in Section 2.15), not later than 11:00 A.M. (New York City time) on the
day when due in US Dollars to the Administrative Agent at the Administrative
Agent's Account in same day funds, with payments being received by the
Administrative Agent after such time being deemed to have been received on the
next succeeding Business Day. The Administrative Agent will promptly thereafter
cause like funds to be


                                Credit Agreement
<PAGE>   34

                                       29


distributed as follows: (A) if such payment by the Applicable Borrower is in
respect of principal, interest, commitment fees or any other Obligation then
payable hereunder and under the Notes of the Applicable Borrower to more than
one Lender Party, to such Lender Parties for the account of their respective
Applicable Lending Offices ratably in accordance with the amounts of such
respective Obligations then payable to such Lender Parties and (B) if such
payment by the Applicable Borrower is in respect of any Obligation then payable
hereunder to one Lender Party, to such Lender Party for the account of its
Applicable Lending Office, in each case to be applied in accordance with the
terms of this Agreement.

                           (ii) Offshore Currency Payments. Each Applicable
         Borrower shall make each payment denominated in an Offshore Currency
         due from it hereunder and under its Notes, irrespective of any right of
         counterclaim or set-off (except as otherwise provided in Section 2.15),
         not later than 11:00 A.M. (Local Time) on the day when due in such
         Offshore Currency to the Offshore Currency Agent at the account
         designated by the Offshore Currency Agent from time to time to the
         Applicable Borrower for payments in such currency, in same day funds,
         with payments being received by the Offshore Currency Agent after such
         time being deemed to have been received on the next succeeding Business
         Day. The Offshore Currency Agent will promptly thereafter cause the
         following actions to be taken and the following distributions to be
         made:

                                (A) if such payment by the Applicable Borrower
                  is in respect of principal of any Offshore Swing Line Advance,
                  the Offshore Currency Agent shall either (1) distribute like
                  funds to the Appropriate Swing Line Lender, or (2) if the
                  Revolving Credit Lenders have purchased their respective Pro
                  Rata Shares of such Swing Line Advance from such Swing Line
                  Lender, the Offshore Currency Agent shall (x) apply such
                  payment to the purchase of US Dollars in an Equivalent amount
                  and (y) distribute the US Dollars so purchased to the
                  Revolving Credit Lenders for the account of their respective
                  Applicable Lending Offices ratably in accordance with their
                  respective Pro Rata Shares of such Swing Line Advance; and

                                (B) if such payment by the Applicable Borrower
                  is in respect of interest accrued on any Offshore Swing Line
                  Advance for any period, (1) the Offshore Currency Agent shall
                  (x) apply a portion of such payment to the purchase of US
                  Dollars in the amount of the US Dollar Equivalent of the
                  product of the Applicable Margin and the then outstanding
                  principal amount of such Swing Line Advance calculated for
                  such period and (y) distribute the US Dollars so purchased to
                  the Revolving Credit Lenders for the account of their
                  respective Applicable Lending Offices ratably in accordance
                  with their respective Pro Rata Shares of the Revolving Credit
                  Facility and (2) distribute the remainder of such interest
                  payment in like funds to the Appropriate Swing Line Lender, or
                  if the


                                Credit Agreement

<PAGE>   35

                                       30


                  Revolving Credit Lenders have purchased their respective Pro
                  Rata Shares of such Swing Line Advance, the Offshore Currency
                  Agent shall (x) apply the remainder of such payment to the
                  purchase of US Dollars in an Equivalent amount and (y)
                  distribute the US Dollars so purchased to the Revolving Credit
                  Lenders for the account of their respective Applicable Lending
                  Offices ratably in accordance with their respective Pro Rata
                  Shares of the Revolving Credit Facility.

                           (iii) Payments on Assigned Obligations. Upon its
         acceptance of an Assignment and Acceptance and recording of the
         information contained therein in the Register pursuant to Section
         8.07(d), from and after the effective date of such Assignment and
         Acceptance, the Administrative Agent shall make all payments hereunder
         and under the Notes in respect of the interest assigned thereby to the
         Lender Party assignee thereunder, and the parties to such Assignment
         and Acceptance shall make all appropriate adjustments in such payments
         for periods prior to such effective date directly between themselves.

                  (b)      Each Applicable Borrower hereby authorizes each
Lender Party and each of its Affiliates, if and to the extent payment owed to
such Lender Party is not made when due hereunder or, in the case of a Lender,
under the Note held by such Lender, to charge from time to time, to the fullest
extent permitted by law, against any or all of such Applicable Borrower's
accounts with such Lender Party or such Affiliate any amount so due.

                  (c)      Except as otherwise provided in any Joinder Agreement
with respect to the calculation of interest on any Offshore Swing Line Advances,
all computations of interest based on the Base Rate shall be made by the
Administrative Agent or the Offshore Currency Agent, as the case may be, on the
basis of a year of 365 or 366 days, as the case may be, and all computations of
interest based on the Eurodollar Rate or the Federal Funds Rate and of fees and
Letter of Credit commissions shall be made by the Administrative Agent on the
basis of a year of 360 days, in each case for the actual number of days
(including the first day but excluding the last day) occurring in the period for
which such interest, fees or commissions are payable. Each determination by the
Administrative Agent or the Offshore Currency Agent of an interest rate, fee,
commission or exchange rate hereunder shall be conclusive and binding for all
purposes, absent manifest error.

                  (d)      Whenever any payment hereunder or under the Notes
shall be stated to be due on a day other than a Business Day, such payment shall
be made on the next succeeding Business Day, and such extension of time shall in
such case be included in the computation of payment of interest or commitment
fee, as the case may be; provided, however, that, if such extension would cause
payment of interest on or principal of Eurodollar Rate Advances to be made in
the next following calendar month, such payment shall be made on the next
preceding Business Day.


                                Credit Agreement
<PAGE>   36

                                       31


                  (e) Unless the Administrative Agent shall have received notice
from an Applicable Borrower prior to the date on which any payment is due to any
Lender Party hereunder that the Applicable Borrower will not make such payment
in full, the Administrative Agent may assume that the Applicable Borrower has
made such payment in full to the Administrative Agent or the Offshore Currency
Agent, as the case may be, on such date and the Administrative Agent may, in
reliance upon such assumption, cause to be distributed to each such Lender Party
on such due date an amount equal to the amount then due such Lender Party. If
and to the extent the Applicable Borrower shall not have so made such payment in
full to the Administrative Agent, each such Lender Party shall repay to the
Administrative Agent forthwith on demand such amount distributed to such Lender
Party together with interest thereon, for each day from the date such amount is
distributed to such Lender Party until the date such Lender Party repays such
amount to the Administrative Agent, at the Federal Funds Rate.

                  (f) If the Administrative Agent receives funds for application
to the Obligations under the Loan Documents under circumstances for which the
Loan Documents do not specify the Advances or the Facility to which, or the
manner in which, such funds are to be applied, the Administrative Agent may, but
shall not be obligated to, elect to distribute such funds to each Lender Party
ratably in accordance with such Lender Party's proportionate share of the
principal amount of all outstanding Advances and the Available Amount of all
Letters of Credit then outstanding, in repayment or prepayment of such of the
outstanding Advances or other Obligations owed to such Lender Party, and for
application to such principal installments, as the Administrative Agent shall
direct.

                  (g) All payments of principal of, interest on, and any other
amount owing with respect to, any Offshore Swing Line Advances shall be made to
the Offshore Currency Agent as directed by it for the account of the Appropriate
Swing Line Lender and the Revolving Credit Lenders as provided pursuant to
Section 2.11(a)(ii). Except as otherwise provided herein, all payments by each
Applicable Borrower with respect to principal of, interest on, and any other
amount owing with respect to, any Offshore Swing Line Advance shall be made in
the Offshore Currency in which such Advance is denominated or payable. Such
payments shall be made in same day or other funds as may be determined by the
Offshore Currency Agent to be customary in the place of disbursement or payment
for the settlement of international banking transactions in such Offshore
Currency and no later than such time on the dates specified herein as may be
determined by the Offshore Currency Agent to be necessary for such payment to be
credited on such date, in each case, as specified in the applicable Joinder
Agreement for the Appropriate Swing Line Lender which has agreed to make Swing
Line Advances in such Offshore Currency available hereunder. Any payment
received by a Swing Line Lender later than the time specified above shall be
deemed to have been received on the following Business Day, and any applicable
interest or fee shall continue to accrue.


                                Credit Agreement
<PAGE>   37
                                       32


                  SECTION 2.12. Taxes. (a) Except as set forth in this Section
2.12, any and all payments by each Applicable Borrower hereunder or under its
Notes shall be made, in accordance with Section 2.11, and free and clear of and
without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding, in the case of each Lender Party and each Agent, taxes that are
imposed on overall net income, net profits or capital (and franchise or similar
taxes imposed as a result of doing business in lieu thereof, whether measured by
income, profits, receipts or capital) by the country, state or any political
subdivision thereof (x) under the laws of which such Lender Party or such Agent,
as the case may be, is organized or is a citizen or resident, or (y) in which
such Lender Party or such Agent, as the case may be, is doing business or has a
permanent establishment (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities in respect of payments
hereunder or under the Notes being hereinafter referred to as "TAXES" and all
such excluded taxes being referred to herein as "EXCLUDED TAXES"). If the
Applicable Borrower shall be required by law to deduct any Taxes from or in
respect of any sum payable hereunder or under any of its Notes to any Lender
Party or any Agent, (i) subject to Section 2.12(h), the sum payable by the
Applicable Borrower shall be increased as may be necessary so that after the
Applicable Borrower and the Administrative Agent have made all required
deductions (including deductions applicable to additional sums payable under
this Section 2.12) such Lender Party or such Agent, as the case may be, receives
an amount equal to the sum it would have received had no such deductions been
made, (ii) the Applicable Borrower shall make all such deductions and (iii) the
Applicable Borrower shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law.

                  (b) In addition, each Applicable Borrower shall pay any
present or future stamp, documentary, excise, property or similar taxes, charges
or levies that arise from any payment made by it hereunder or under its Notes or
from its execution, delivery or registration of, performance under, or otherwise
with respect to, this Agreement or its Notes (hereinafter referred to as "OTHER
TAXES").

                  (c) Subject to Section 2.12(h), each Applicable Borrower shall
indemnify each Lender Party and each Agent for and hold them harmless against
the full amount of Taxes and Other Taxes, imposed on or paid by such Lender
Party or such Agent (as the case may be) and any liability (including penalties,
additions to tax, interest and expenses) arising therefrom or with respect
thereto. This indemnification shall be made within 30 days from the date such
Lender Party or such Agent (as the case may be) makes written demand therefor.

                  (d) Within 30 days after the date of any payment of Taxes,
each Applicable Borrower shall furnish to the Administrative Agent, at its
address referred to in Section 8.02, the original or a certified copy of a
receipt (or other evidence of payment reasonably satisfactory to the
Administrative Agent) evidencing such payment. In the case of any payment
hereunder or under its Notes by or on behalf of the Domestic Borrower through an
account or branch outside


                                Credit Agreement
<PAGE>   38

                                       33


the United States or by or on behalf of the Domestic Borrower by a payor that is
not a United States person, if the Domestic Borrower determines that no Taxes
are payable in respect thereof, the Domestic Borrower shall furnish, or shall
cause such payor to furnish, to the Administrative Agent, at such address, an
opinion of counsel acceptable to the Administrative Agent stating that such
payment is exempt from Taxes. For purposes of this Section 2.12, the terms
"UNITED STATES" and "UNITED STATES PERSON" shall have the meanings specified in
Section 7701 of the Internal Revenue Code.

                  (e) Each Domestic Borrower Lender Party organized under the
laws of a jurisdiction outside the United States shall, on or prior to the date
of its execution and delivery of this Agreement in the case of each Initial
Lender Party and on the date of the Assignment and Acceptance pursuant to which
it becomes a Domestic Borrower Lender Party in the case of each other Lender
Party, provide each of the Administrative Agent and the Domestic Borrower with
(i) two original Internal Revenue Service forms W-8BEN or W-8ECI, as applicable
(or any successor or other applicable form prescribed by the Internal Revenue
Service), or (ii) in the case of a Lender Party claiming exemption from U.S.
federal withholding tax under Section 871(h) or 881(c) of the Internal Revenue
Code with respect to payments of "portfolio interest," a statement substantially
in the form of Exhibit J and two copies of Internal Revenue Service Form W-8BEN
(or any successor or other applicable form prescribed by the Internal Revenue
Service), certifying that such Lender Party is exempt from or entitled to a
reduced rate of United States withholding tax on payments pursuant to this
Agreement or the Notes. Upon request in writing by the Domestic Borrower, each
such Domestic Borrower Lender Party shall deliver to the Domestic Borrower and
Administrative Agent (provided that such Lender Party remains lawfully able to
do so), two further duly executed forms and statements, properly completed in
all material respects, at or before the time any such form or statement expires
or becomes obsolete, or as otherwise reasonably requested in writing by the
Domestic Borrower. Each such Domestic Borrower Lender Party shall promptly
notify the Domestic Borrower at any time it determines that it is no longer in a
position to provide any previously delivered certificate to the Domestic
Borrower (or any other form or certification adopted by the U.S. taxing
authorities for such purpose). If the forms provided by a Domestic Borrower
Lender Party at the time such Lender Party first becomes a party to this
Agreement indicate a United States interest withholding tax rate in excess of
zero, withholding tax at such rate shall be considered excluded from Taxes
unless and until such Lender Party provides the appropriate forms certifying
that a lesser rate applies, whereupon withholding tax at such lesser rate only
shall be considered excluded from Taxes for periods governed by such forms;
provided, however, that if, at the effective date of the Assignment and
Acceptance pursuant to which a Domestic Borrower Lender Party becomes a party to
this Agreement, the Domestic Borrower Lender Party assignor was entitled to
payments under subsection (a) of this Section 2.12 in respect of United States
withholding tax with respect to interest paid at such date, then, to such
extent, the term Taxes shall include (in addition to withholding taxes that may
be imposed in the future or other amounts otherwise includable in Taxes) United
States withholding tax, if any, applicable with respect to the Domestic Borrower


                                Credit Agreement
<PAGE>   39

                                       34


Lender Party assignee on such date. If any form or document referred to in this
subsection (e) requires the disclosure of information, other than information
necessary to compute the tax payable and information required on the date hereof
by Internal Revenue Service forms W-8BEN or W-8ECI (or the related certificate
described above), that the applicable Lender Party reasonably considers to be
confidential, such Lender Party shall give notice thereof to the Domestic
Borrower and shall not be obligated to include in such form or document such
confidential information.

                  (f) Each Domestic Borrower Lender Party which is a United
States person shall, on or prior to the date of its execution and delivery of
this Agreement in the case of each Initial Lender Party and on the date of the
Assignment and Acceptance pursuant to which it becomes a Domestic Borrower
Lender Party in the case of each other Domestic Borrower Lender Party, deliver
to the Domestic Borrower and the Administrative Agent two duly completed copies
of United States Internal Revenue Service Form W-9 (or any successor or other
applicable form prescribed by the Internal Revenue Service) unless it
establishes to the reasonable satisfaction of the Domestic Borrower that it is
otherwise eligible for an exemption from backup withholding tax or other
applicable withholding tax. Upon request in writing by the Domestic Borrower,
each such Domestic Borrower Lender Party shall deliver to the Domestic Borrower
and Administrative Agent (provided that such Lender Party remains lawfully able
to do so), two further duly executed forms and statements, properly completed in
all material respects, at or before the time any such form or statement expires
or becomes obsolete, or otherwise as reasonably requested by the Domestic
Borrower. Each such Lender Party shall promptly notify the Domestic Borrower at
any time it determines that it is no longer in a position to provide any
previously delivered certificate to the Domestic Borrower (or any other form or
certification adopted by the U.S. taxing authorities for such purpose).

                (g) Each Lender Party which has made an Advance to an Offshore
Borrower, or executed an Assignment and Acceptance with respect to such an
Advance shall, on or prior to the date it makes such an Advance or executes such
an Assignment and Acceptance, provide each of the Administrative Agent and
applicable Offshore Borrower with any forms, certifications or other information
as may reasonably be requested by such Offshore Borrower in writing prior to
requesting such Advance, for the purpose of minimizing or eliminating any Taxes
required to be paid with respect to any Offshore Acquisition Advance or Offshore
Swing Line Advance under the laws of the jurisdiction in which such Offshore
Borrower is organized, or is a resident, is doing business or has a fixed base
or permanent establishment and shall also deliver such forms at such other times
as an Offshore Borrower may reasonably request in writing. Each such Lender
Party shall promptly notify the applicable Offshore Borrower at any time it
determines it is no longer in a position to provide any previously delivered
form, certification or other applicable information.


                                Credit Agreement
<PAGE>   40

                                       35


                  (h) For any period with respect to which a Lender Party has
failed to provide any Applicable Borrower with the appropriate form described in
subsection (e), (f) or (g) above (other than if such failure is due to a change
in law occurring after the date on which a form originally was required to be
provided or, in the case of a form requested pursuant to clause (g) above, if
such Lender Party has notified the Applicable Borrower of a reasonable basis for
such failure), such Lender Party shall not be entitled to indemnification under
subsection (a) or (c) of this Section 2.12 with respect to Taxes imposed by
reason of such failure; provided, however, that should a Lender Party become
subject to Taxes because of its failure to deliver a form required hereunder,
the Applicable Borrower shall take such steps as such Lender Party shall
reasonably request to assist such Lender Party to recover such Taxes.

                  (i) Each Lender Party which is not a United States person,
agrees to indemnify and hold harmless the Domestic Borrower from and against any
and all taxes, related penalties and interest, and reasonable out-of-pocket
costs incurred by the Domestic Borrower as a result of a failure by the Domestic
Borrower to comply with its obligations to deduct or withhold any Taxes from any
payment made pursuant to this Agreement, which failure resulted solely from the
Domestic Borrower's reasonable reliance on information provided by such Lender
Party on a form referred to in Section 2.12(e) or (f).

                  (j) If any Lender Party determines, in its sole discretion,
that it has finally and irrevocably received a refund of any Taxes that have
been paid or reimbursed by any Applicable Borrower pursuant to Section 2.12(a)
or (c) in respect of payments hereunder or under the Notes that it would
otherwise not have obtained and that would result in total payments made under
this Section 2.12 exceeding that amount needed to make such Lender Party whole,
such Lender Party shall, to the extent that it determines in its sole discretion
that it can do so without prejudice to the retention of the amount of such
refund, pay to the Applicable Borrower following actual receipt of such refund
and without any interest thereon, the amount of such refund after deducting
therefrom all out-of-pocket expenses incurred by or on behalf of such Lender
Party in securing such refund; provided that the Applicable Borrower agrees,
upon request of such Lender Party, to return the amount of such refund to such
Lender Party, together with the amount of all additional out-of-pocket expenses,
penalties, interest or other charges in respect thereof, if such Lender Party is
required to repay or otherwise loses the benefit of such refund. Nothing in this
Section 2.12 shall be construed to interfere with the right of a Lender Party to
arrange its tax affairs in whatever manner it thinks fit or require any Lender
Party to claim any refund, or to require any Lender Party to make available to
any Applicable Borrower or Administrative Agent any of its tax returns or any
other information relating to Taxes that it deems to be confidential.

                  SECTION 2.13. Sharing of Payments, Etc. Each Initial Lender
hereby acknowledges and agrees to, and by its execution and delivery of its
Assignment and Acceptance, each other Lender acknowledges and agrees to, all the
terms and provisions of the Collateral Sharing Agreement. The Domestic Borrower
and each Offshore Borrower agrees that


                                Credit Agreement

<PAGE>   41

                                       36


any Lender Party purchasing an interest or participating interest from another
Lender Party pursuant to the Collateral Sharing Agreement may, to the fullest
extent permitted by law, exercise all its rights of payment (including the right
of set-off) with respect to such interest or participating interest, as the case
may be, as fully as if such Lender Party were the direct creditor of the
Applicable Borrower in the amount of such interest or participating interest, as
the case may be.

                  SECTION 2.14. Use of Proceeds. The proceeds of the Advances
(other than Term B Advances made pursuant to the Existing Credit Agreement) and
issuances of Letters of Credit shall be available (and the Domestic Borrower and
each Offshore Borrower each agrees that it shall use such proceeds and Letters
of Credit) solely to finance Domestic Permitted Acquisitions by the Domestic
Borrower and its Domestic Subsidiaries, to finance Offshore Permitted
Acquisitions by the Offshore Borrowers and for general corporate purposes of the
Domestic Borrower and its Subsidiaries (including the Offshore Borrowers).

                  SECTION 2.15. Defaulting Lenders. (a) In the event that, at
any one time, (i) any Lender Party shall be a Defaulting Lender, (ii) such
Defaulting Lender shall owe a Defaulted Advance to an Applicable Borrower and
(iii) the Applicable Borrower shall be required to make any payment hereunder or
under any other Loan Document to or for the account of such Defaulting Lender,
then the Applicable Borrower may, so long as no Default shall occur or be
continuing at such time and to the fullest extent permitted by applicable law,
set off and otherwise apply the Obligation of the Applicable Borrower to make
such payment to or for the account of such Defaulting Lender against the
obligation of such Defaulting Lender to make such Defaulted Advance. In the
event that, on any date, the Applicable Borrower shall so set off and otherwise
apply its obligation to make any such payment against the obligation of such
Defaulting Lender to make any such Defaulted Advance on or prior to such date,
the amount so set off and otherwise applied by the Applicable Borrower shall
constitute for all purposes of this Agreement and the other Loan Documents an
Advance by such Defaulting Lender made on the date of such setoff under the
Facility pursuant to which such Defaulted Advance was originally required to
have been made pursuant to Section 2.01. Such Advance shall be considered, for
all purposes of this Agreement, to comprise part of the Borrowing in connection
with which such Defaulted Advance was originally required to have been made
pursuant to Section 2.01, even if the other Advances comprising such Borrowing
shall be Eurodollar Rate Advances on the date such Advance is deemed to be made
pursuant to this subsection (a). The Applicable Borrower shall notify the
Administrative Agent at any time the Applicable Borrower exercises its right of
set-off pursuant to this subsection (a) and shall set forth in such notice (A)
the name of the Defaulting Lender and the Defaulted Advance required to be made
by such Defaulting Lender and (B) the amount set off and otherwise applied in
respect of such Defaulted Advance pursuant to this subsection (a). Any portion
of such payment otherwise required to be made by the Applicable Borrower to or
for the account of such Defaulting Lender which is paid by the Applicable
Borrower, after giving effect to the amount


                                Credit Agreement
<PAGE>   42
                                       37


set off and otherwise applied by the Applicable Borrower pursuant to this
subsection (a), shall be applied by the Administrative Agent as specified in
subsection (b) or (c) of this Section 2.15.

                  (b)   In the event that, at any one time, (i) any Lender Party
shall be a Defaulting Lender, (ii) such Defaulting Lender shall owe a Defaulted
Amount to any Agent or any of the other Lender Parties and (iii) an Applicable
Borrower shall make any payment hereunder or under any other Loan Document to
the Administrative Agent for the account of such Defaulting Lender, then the
Administrative Agent may, on its behalf or on behalf of such other Agents or
such other Lender Parties and to the fullest extent permitted by applicable law,
apply at such time the amount so paid by the Applicable Borrower to or for the
account of such Defaulting Lender to the payment of each such Defaulted Amount
to the extent required to pay such Defaulted Amount. In the event that the
Administrative Agent shall so apply any such amount to the payment of any such
Defaulted Amount on any date, the amount so applied by the Administrative Agent
shall constitute for all purposes of this Agreement and the other Loan Documents
payment, to such extent, of such Defaulted Amount on such date. Any such amount
so applied by the Administrative Agent shall be retained by the Administrative
Agent or distributed by the Administrative Agent to such other Agents or such
other Lender Parties, ratably in accordance with the respective portions of such
Defaulted Amounts payable at such time to the Administrative Agent, such other
Agents and such other Lender Parties and, if the amount of such payment made by
the Applicable Borrower shall at such time be insufficient to pay all Defaulted
Amounts owing at such time to the Administrative Agent, such other Agents and
such other Lender Parties, in the following order of priority:

                  (i)   first, to the Agents for any Defaulted Amounts then
         owing to them, in their capacities as such, ratably in accordance with
         such respective Defaulted Amounts then owing to the Agents;

                  (ii)  second, to the Issuing Bank and the Swing Line Lenders
         for any Defaulted Amounts then owing to them, in their capacities as
         such, ratably in accordance with such respective Defaulted Amounts then
         owing to the Issuing Bank and the Swing Line Lenders; and

                  (iii) third, to any other Lender Parties for any Defaulted
         Amounts then owing to such other Lender Parties, ratably in accordance
         with such respective Defaulted Amounts then owing to such other Lender
         Parties.

Any portion of such amount paid by the Applicable Borrower for the account of
such Defaulting Lender remaining, after giving effect to the amount applied by
the Administrative Agent pursuant to this subsection (b), shall be applied by
the Administrative Agent as specified in subsection (c) of this Section 2.15.


                                Credit Agreement
<PAGE>   43
                                       38


                  (c)   In the event that, at any one time, (i) any Lender Party
shall be a Defaulting Lender, (ii) such Defaulting Lender shall not owe a
Defaulted Advance or a Defaulted Amount and (iii) an Applicable Borrower, any
Agent or any other Lender Party shall be required to pay or distribute any
amount hereunder or under any other Loan Document to or for the account of such
Defaulting Lender, then the Applicable Borrower or such Agent or such other
Lender Party shall pay such amount to the Administrative Agent to be held by the
Administrative Agent, to the fullest extent permitted by applicable law, in
escrow or the Administrative Agent shall, to the fullest extent permitted by
applicable law, hold in escrow such amount otherwise held by it. Any funds held
by the Administrative Agent in escrow under this subsection (c) shall be
deposited by the Administrative Agent in an account with an institution
designated by the Administrative Agent, in the name and under the control of the
Administrative Agent, but subject to the provisions of this subsection (c). The
terms applicable to such account, including the rate of interest payable with
respect to the credit balance of such account from time to time, shall be such
designated institution's standard terms applicable to escrow accounts maintained
with it. Any interest credited to such account from time to time shall be held
by the Administrative Agent in escrow under, and applied by the Administrative
Agent from time to time in accordance with the provisions of, this subsection
(c). The Administrative Agent shall, to the fullest extent permitted by
applicable law, apply all funds so held in escrow from time to time to the
extent necessary to make any Advances required to be made by such Defaulting
Lender and to pay any amount payable by such Defaulting Lender hereunder and
under the other Loan Documents to the Administrative Agent or any other Lender
Party, as and when such Advances or amounts are required to be made or paid and,
if the amount so held in escrow shall at any time be insufficient to make and
pay all such Advances and amounts required to be made or paid at such time, in
the following order of priority:

                  (i)   first, to the Agents for any amounts then due and
         payable by such Defaulting Lender to them hereunder, in their
         capacities as such, ratably in accordance with such respective amounts
         then due and payable to the Agents;

                  (ii)  second, to the Issuing Bank and the Swing Line Lenders
         for any amounts then due and payable to them hereunder, in their
         capacities as such, by such Defaulting Lender, ratably in accordance
         with such respective amounts then due and payable to the Issuing Bank
         and the Swing Line Lender;

                  (iii) third, to any other Lender Parties for any amount then
         due and payable by such Defaulting Lender to such other Lender Parties
         hereunder, ratably in accordance with such respective amounts then due
         and payable to such other Lender Parties; and

                  (iv)  fourth, to the Applicable Borrower for any Advance then
         required to be made by such Defaulting Lender pursuant to a Commitment
         of such Defaulting Lender.


                                Credit Agreement
<PAGE>   44
                                       39


In the event that any Lender Party that is a Defaulting Lender shall, at any
time, cease to be a Defaulting Lender, any funds held by the Administrative
Agent in escrow at such time with respect to such Lender Party shall be
distributed by the Administrative Agent to such Lender Party and applied by such
Lender Party to the Obligations owing to such Lender Party at such time under
this Agreement and the other Loan Documents ratably in accordance with the
respective amounts of such Obligations outstanding at such time.

                  (d) The rights and remedies against a Defaulting Lender under
this Section 2.15 are in addition to other rights and remedies that any
Applicable Borrower may have against such Defaulting Lender with respect to any
Defaulted Advance and that any Agent or any Lender Party may have against such
Defaulting Lender with respect to any Defaulted Amount.

                  SECTION 2.16. Evidence of Debt. (a) Each Lender Party shall
maintain in accordance with its usual practice an account or accounts evidencing
the indebtedness of the Domestic Borrower and each Offshore Borrower to such
Lender Party resulting from each Advance owing to such Lender Party from time to
time, including the amounts of principal and interest payable and paid to such
Lender Party from time to time hereunder. The Domestic Borrower and each
Offshore Borrower agrees that upon notice by any Lender Party to the Domestic
Borrower or the applicable Offshore Borrower (with a copy of such notice to the
Administrative Agent) to the effect that a promissory note or other evidence of
indebtedness is required or appropriate in order for such Lender Party to
evidence (whether for purposes of pledge, enforcement or otherwise) the Advances
owing to, or to be made by, such Lender Party, the Domestic Borrower or the
applicable Offshore Borrower, as the case may be, shall promptly execute and
deliver to such Lender Party, with a copy to the Administrative Agent, a
Revolving Credit Note, a Term A Note, an Offshore Acquisition Note and/or an
Offshore Swing Line Note, as applicable, in substantially the form of Exhibits
A-1, A-2, A-3 and A-4 hereto, respectively, payable to the order of such Lender
Party in a principal amount equal to the Revolving Credit Commitment, the Term A
Commitment or the Offshore Acquisition Commitment, respectively, of such Lender
Party or the Applicable Swing Line Sub-Limit, as the case may be. All references
to Notes in the Loan Documents shall mean Notes, if any, to the extent issued
hereunder.

                  (b) The Register maintained by the Administrative Agent
pursuant to Section 8.07(d) shall include a control account, and a subsidiary
account for each Lender Party, in which accounts (taken together) shall be
recorded (i) the date and amount of each Borrowing made hereunder, the Type of
Advances comprising such Borrowing and, if appropriate, the Interest Period
applicable thereto, (ii) the terms of each Assignment and Acceptance delivered
to and accepted by it, (iii) the amount of any principal or interest due and
payable or to become due and payable from the Domestic Borrower and each
Offshore Borrower to each Lender Party hereunder, and (iv) the amount of any sum
received by the Administrative Agent or the Offshore


                                Credit Agreement
<PAGE>   45
                                       40


Currency Agent from the Domestic Borrower and each Offshore Borrower hereunder
and each Lender Party's share thereof.

                  (c) Entries made in good faith by the Administrative Agent in
the Register pursuant to subsection (b) above, and by each Lender Party in its
account or accounts pursuant to subsection (a) above, shall be prima facie
evidence of the amount of principal and interest due and payable or to become
due and payable from the Domestic Borrower and each Offshore Borrower to, in the
case of the Register, each Lender Party and, in the case of such account or
accounts, such Lender Party, under this Agreement, absent manifest error;
provided, however, that the failure of the Administrative Agent or such Lender
Party to make an entry, or any finding that an entry is incorrect, in the
Register or such account or accounts shall not limit or otherwise affect the
obligations of the Domestic Borrower or the applicable Offshore Borrower under
this Agreement.


                                   ARTICLE III

                            CONDITIONS OF LENDING AND
                         ISSUANCES OF LETTERS OF CREDIT

                  SECTION 3.01. Conditions Precedent to Initial Extension of
Credit to Domestic Borrower. The obligation of each Lender to make a Revolving
Credit Advance, a Term A Advance or a Swing Line Advance in US Dollars to the
Domestic Borrower or of the Issuing Bank to issue a Letter of Credit for the
account of the Domestic Borrower on the occasion of the Initial Extension of
Credit hereunder is subject to the satisfaction of the following conditions
precedent before or concurrently with the Initial Extension of Credit:

                  (a) the Administrative Agent shall have received on or before
         the day of the Initial Extension of Credit the following, each dated on
         or prior to such day (unless otherwise specified), in form and
         substance satisfactory to the Joint Lead Arrangers (unless otherwise
         specified) and in sufficient copies for each Lender Party:

                      (i)  this Agreement, duly executed by the Domestic
                  Borrower, the Agents, the Domestic Swing Line Lender, the
                  Initial Issuing Bank and the Initial Lenders;

                      (ii) the Domestic Security Agreement, duly executed by the
                  Domestic Borrower and each Domestic Subsidiary Guarantor,
                  together with evidence satisfactory to the Administrative
                  Agent that all actions that the Administrative Agent may deem
                  necessary or desirable in order to perfect and protect the
                  first


                                Credit Agreement
<PAGE>   46

                                       41


                  priority liens and security interests created under the
                  Domestic Security Agreement have been taken;

                           (iii) the Domestic Subsidiary Guaranty, duly executed
                  by each Domestic Subsidiary Guarantor;

                           (iv) a certificate of the Domestic Borrower and each
                  Domestic Subsidiary Guarantor, signed on behalf of each such
                  Loan Party by a Responsible Officer, dated the date of the
                  Initial Extension of Credit (the statements made in which
                  certificate shall be true on and as of the date of the Initial
                  Extension of Credit), certifying as to

                                    (A) the absence of any amendments to the
                           charter of such Loan Party since the date of the
                           Secretary of State's certificate referred to in
                           Section 3.01(a)(vi) of the Existing Credit Agreement,

                                    (B) the absence of any amendments to the
                           bylaws of such Loan Party delivered to the
                           Administrative Agent on the Initial Closing Date
                           pursuant to Section 3.01(a) of the Existing Credit
                           Agreement,

                                    (C) an attached, true, correct and complete
                           copy of the resolutions of the Board of Directors of
                           such Loan Party authorizing the execution, delivery
                           and performance by such Loan Party of each of the
                           foregoing Loan Documents to which it is a party and
                           of the Offshore Guaranty,

                                    (D) the due incorporation and good standing
                           or valid existence of such Loan Party as a
                           corporation organized under the laws of the
                           jurisdiction of its incorporation, and the absence of
                           any proceeding for the dissolution or liquidation of
                           such Loan Party,

                                    (E) the names and true signatures of the
                           officers of such Loan Party authorized to sign each
                           Loan Document to which it is or is to be a party,

                                    (F) the truth in all material respects of
                           the representations and warranties contained in the
                           Loan Documents as though made on and as of the date
                           of the Initial Extension of Credit, and

                                    (G) the absence of any event occurring and
                           continuing, or resulting from the Initial Extension
                           of Credit, that constitutes a Default;

                           (v) a Notice of Borrowing or Notice of Issuance, as
                  applicable, relating to the Initial Extension of Credit; and



                                Credit Agreement

<PAGE>   47

                                       42

                           (vi) a favorable opinion of Fried, Frank, Harris,
                  Shriver & Jacobson, counsel for the Loan Parties, in
                  substantially the form of Exhibit I hereto and as to such
                  other matters as any Lender Party through the Administrative
                  Agent may reasonably request;

                  (b) there shall exist no action, suit, investigation,
         litigation or proceeding affecting any Loan Party or any of its
         Subsidiaries pending or threatened before any court, governmental
         agency or arbitrator that (i) would reasonably be expected to have a
         Material Adverse Effect or (ii) purports to affect the legality,
         validity or enforceability of any Loan Document or the consummation of
         the transactions contemplated thereby; and

                  (c) the Domestic Borrower shall have paid all accrued fees of
         the Agents and the Lender Parties and all accrued expenses of the
         Agents (including the accrued fees and expenses of counsel to the
         Syndication Agent).

                  SECTION 3.02. Conditions Precedent to Swing Line Advances to
any Offshore Borrower. The obligation of each Swing Line Lender to make a Swing
Line Advance to any Offshore Borrower on the occasion of the initial extension
of credit hereunder to such Offshore Borrower is subject to the satisfaction of
the following conditions precedent before or concurrently with such initial
extension of credit:

                  (a) the Administrative Agent shall have received on or before
         the day of such initial extension of credit the following, each dated
         such day (unless otherwise specified), in form and substance
         satisfactory to the Administrative Agent (unless otherwise specified)
         and in sufficient copies for each Lender Party:

                           (i) the Offshore Guaranty, duly executed by the
                  Domestic Borrower and each Domestic Subsidiary Guarantor (if
                  not previously executed and delivered by such Loan Parties)
                  and, to the extent permissible under applicable local law and
                  requested by the Administrative Agent, each Offshore
                  Subsidiary of such Offshore Borrower;

                           (ii) a Credit Agreement Supplement, duly executed by
                  such Offshore Borrower;

                           (iii) to the extent permitted under applicable local
                  law, such Offshore Collateral Documents as the Administrative
                  Agent may reasonably request, duly executed by such Offshore
                  Borrower and each of its Offshore Subsidiaries, if any,
                  together with evidence satisfactory to the Administrative
                  Agent that all actions that the Administrative Agent may deem
                  necessary or desireable in order to


                                Credit Agreement

<PAGE>   48


                                       43



                  perfect and protect the first priority liens and security
                  interests created under such Offshore Collateral Documents
                  have been taken (or that arrangements for the taking of such
                  actions satisfactory to the Administrative Agent have been
                  made);

                           (iv) a certificate of such Offshore Borrower and each
                  of its Offshore Subsidiaries, if any, signed on behalf of each
                  such Loan Party by a Responsible Officer, dated the date of
                  such initial extension of credit (the statements made in which
                  certificate shall be true on and as of the date of such
                  initial extension of credit), certifying as to

                                    (A) attached, true, complete and correct
                           copies of the charter and bylaws (or any similar
                           organizational document) of such Loan Party,

                                    (B) an attached, true, complete and correct
                           copy of the resolutions of the Board of Directors (or
                           similar managerial body) of such Loan Party
                           authorizing the execution, delivery and performance
                           by such Loan Party of each of the foregoing Loan
                           Documents to which it is a party,

                                    (C) the due organization and good standing
                           or valid existence of such Loan Party as a company
                           organized under the laws of the jurisdiction of its
                           organization, and the absence of any proceeding for
                           the dissolution or liquidation of such Loan Party,

                                    (D) the names and true signatures of the
                           officers of such Loan Party authorized to sign each
                           Loan Document to which it is or is to be a party,

                                    (E) the truth in all material respects of
                           the representations and warranties contained in the
                           Loan Documents as though made on and as of the date
                           of such initial extension of credit, and

                                    (F) the absence of any event occurring and
                           continuing, or resulting from such initial extension
                           of credit, that constitutes a Default;

                           (v)      a Notice of Borrowing relating to such
                  initial extension of credit;

                           (vi) evidence that the process agent appointed by
                  such Offshore Borrower and any such Offshore Subsidiary
                  Guarantor as its agent for service of process pursuant to the
                  applicable Loan Document has accepted such appointment; and


                                Credit Agreement

<PAGE>   49

                                       44


                           (vii) at the request of the Administrative Agent, a
                  favorable opinion of counsel for such Loan Parties as to such
                  matters as the Administrative Agent may reasonably request;

                  (b) if the requested Swing Line Advance is to be denominated
         in an Offshore Currency, the Offshore Currency Agent and the Domestic
         Borrower shall have entered into a Joinder Agreement with an
         Appropriate Swing Line Lender setting forth the additional terms on
         which Swing Line Advances in such Offshore Currency will be made
         available hereunder; and

                  (c) the Domestic Borrower shall have paid, or caused such
         Offshore Borrower to pay, all accrued fees of the Agents and the Lender
         Parties and all accrued expenses of the Agents (including the accrued
         fees and expenses of counsel to the Administrative Agent).

                  SECTION 3.03. Conditions Precedent to each Offshore
Acquisition Advances. The obligation of each Offshore Acquisition Lender to make
an Offshore Acquisition Advance to an Offshore Borrower on the occasion of each
such extension of credit hereunder to such Offshore Borrower is subject to the
satisfaction of the following conditions precedent before or concurrently with
such extension of credit:

                  (a) the Administrative Agent shall have received on or before
         the day of such extension of credit the following, each dated such day
         (unless otherwise specified), in form and substance satisfactory to the
         Joint Lead Arrangers (unless otherwise specified) and in sufficient
         copies for each Lender Party:

                           (i) the Offshore Guaranty, duly executed by the
                  Domestic Borrower and each Domestic Subsidiary Guarantor (if
                  not previously executed and delivered by such Loan Parties)
                  and, to the extent permitted under applicable local law and
                  requested by the Administrative Agent, each Offshore
                  Subsidiary of the Domestic Borrower;

                           (ii) a Credit Agreement Supplement, duly executed by
                  such Offshore Borrower (if not previously executed and
                  delivered by such Loan Party);

                           (iii) to the extent permitted under applicable local
                  law such Offshore Collateral Documents as the Administrative
                  Agent may reasonably request, duly executed by such Offshore
                  Borrower and each of its Offshore Subsidiaries, if any (or if
                  such Offshore Borrower proposes to acquire any Offshore
                  Subsidiaries in a proposed Offshore Permitted Acquisition,
                  arrangements satisfactory to the Administrative Agent shall
                  have been made for the prompt execution and delivery


                                Credit Agreement

<PAGE>   50

                                       45


                  of such Offshore Collateral Documents by such Offshore
                  Subsidiaries) and by each such Offshore Subsidiary Guarantor,
                  together with evidence satisfactory to the Administrative
                  Agent that all actions that the Administrative Agent may deem
                  necessary or desirable in order to perfect and protect the
                  first priority liens and security interests created under such
                  Offshore Collateral Documents have been taken (or that
                  arrangements for the taking of such actions satisfactory to
                  the Administrative Agent have been made);

                           (iv) a certificate of each such Loan Party, if any,
                  signed on behalf of such Loan Party by a Responsible Officer,
                  dated the date of such initial extension of credit (the
                  statements made in which certificate shall be true on and as
                  of the date of such initial extension of credit), certifying
                  as to

                                    (A) attached, true, complete and correct
                           copies of the charter and bylaws (or any similar
                           organizational document) of such Loan Party,

                                    (B) an attached, a true, complete and
                           correct copy of the resolutions of the Board of
                           Directors (or similar managerial body) of such Loan
                           Party authorizing the execution, delivery and
                           performance by such Loan Party of each of the
                           foregoing Loan Documents to which it is a party,

                                    (C) the due organization and good standing
                           or valid existence of such Loan Party as a company
                           organized under the laws of the jurisdiction of its
                           organization, and the absence of any proceeding for
                           the dissolution or liquidation of such Loan Party,

                                    (D) the names and true signatures of the
                           officers of such Loan Party authorized to sign each
                           Loan Document to which it is or is to be a party,

                                    (E) the truth in all material respects of
                           the representations and warranties contained in the
                           Loan Documents as though made on and as of the date
                           of such extension of credit, and

                                    (G) the absence of any event occurring and
                           continuing, or resulting from such extension of
                           credit, that constitutes a Default;

                           (v)      a Notice of Borrowing relating to such
                  extension of credit;


                                Credit Agreement

<PAGE>   51

                                       46


                           (vi) evidence that the process agent appointed by
                  such Offshore Borrower and any such Offshore Subsidiary
                  Guarantor as its agent for service of process pursuant to the
                  applicable Loan Document has accepted such appointment; and

                           (vii) a favorable opinion or opinions of counsel for
                  such Loan Parties as to such matters as the Administrative
                  Agent may reasonably request;

                  (b) the Domestic Borrower shall have prepared an Acquisition
         Diligence Report in respect of the business to be acquired in the
         Offshore Permitted Acquisition to be funded by the requested Offshore
         Acquisition Advances;

                  (c) the Applicable Borrower shall have entered into Hedge
         Agreements (or made arrangements satisfactory to the Administrative
         Agent to enter into Hedge Agreements) with respect to the foreign
         currency risks related to such Offshore Permitted Acquisition, in such
         amounts and for such terms as shall be agreed to by the Administrative
         Agent and such Applicable Borrower; and

                  (d) the Domestic Borrower shall have paid, or caused such
         Offshore Borrower to pay, all accrued fees of the Agents and the Lender
         Parties and all accrued expenses of the Agents (including the accrued
         fees and expenses of counsel to the Administrative Agent).

                  SECTION 3.04. Conditions Precedent to Each Borrowing and
Issuance and Renewal. The obligation of each Appropriate Lender to make an
Advance (other than a Letter of Credit Advance made by the Issuing Bank or a
Revolving Credit Lender pursuant to Section 2.03(c) and a Swing Line Advance
made by a Revolving Credit Lender pursuant to Section 2.02(b)) on the occasion
of each Borrowing (including the initial Borrowing), and the obligation of the
Issuing Bank to issue a Letter of Credit (including the initial issuance) or
renew a Letter of Credit and the right of any Applicable Borrower to request a
Swing Line Borrowing, shall be subject to the further conditions precedent that
on the date of such Borrowing or issuance or renewal (a) the following
statements shall be true (and each of the giving of the applicable Notice of
Borrowing, Notice of Swing Line Borrowing, Notice of Issuance or Notice of
Renewal and the acceptance by the Applicable Borrower of the proceeds of such
Borrowing or of such Letter of Credit or the renewal of such Letter of Credit
shall constitute a representation and warranty by the Applicable Borrower that
both on the date of such notice and on the date of such Borrowing or issuance or
renewal such statements are true):

                  (i) the representations and warranties contained in each Loan
         Document are correct on and as of such date, before and after giving
         effect to such Borrowing or issuance or renewal and to the application
         of the proceeds therefrom, as though made on

                                Credit Agreement

<PAGE>   52

                                       47


         and as of such date, other than any such representations or warranties
         that, by their terms, refer to a specific date other than the date of
         such Borrowing or issuance or renewal, in which case as of such
         specific date; and

                  (ii) no Default has occurred and is continuing, or would
         result from such Borrowing or issuance or renewal or from the
         application of the proceeds therefrom;

                  (b) the obligations of each Revolving Credit Lender to make
Revolving Credit Advances shall be subject to the further condition precedent
that on any date on which any Revolving Credit Borrowing has been requested to
fund any portion of the purchase price to be paid by the Domestic Borrower or
any of its Subsidiaries in connection with a Domestic Permitted Acquisition, (i)
no amount of the Term A Commitments shall remain undrawn (after giving effect to
any Term A Advances made on such date); and (ii) after giving effect to such
Revolving Credit Borrowing, the sum of the aggregate amount of all Revolving
Credit Borrowings utilized to fund Domestic Permitted Acquisitions since the
Initial Closing Date plus the aggregate amount of Revolving Credit Commitments
which have been converted to Offshore Acquisition Commitments made since the
Effective Date shall not exceed $25,000,000; and

                  (c) the Administrative Agent shall have received such other
approvals, opinions or documents as are otherwise required to be delivered under
this Agreement and any Appropriate Lender Party through the Administrative Agent
may reasonably request.

                  SECTION 3.05. Determinations Under Section 3.01, 3.02 or 3.03.
For purposes of determining compliance with the conditions specified in Section
3.01, 3.02 or 3.03, each Lender Party shall be deemed to have consented to,
approved or accepted or to be satisfied with each document or other matter
required thereunder to be consented to or approved by or acceptable or
satisfactory to the Lender Parties unless an officer of the Administrative Agent
responsible for the transactions contemplated by the Loan Documents (or, in the
case of the Acquisition Diligence Report, a responsible officer of a Joint Lead
Arranger) shall have received notice from such Lender Party prior to the
applicable extension of credit specifying its objection thereto and, if such
extension of credit consists of a Borrowing, such Lender Party shall not have
made available to the Administrative Agent such Lender Party's ratable portion
of such Borrowing. Each Lender Party acknowledges and agrees that absent
direction to the contrary by the Required Lenders, the Administrative Agent, in
its sole discretion, (a) may elect not to require any Offshore Subsidiary (other
than any Offshore Borrower) to execute and deliver the Offshore Guaranty (or to
modify the terms and conditions of the Offshore Guaranty as it relates to such
Offshore Subsidiary) if the Administrative Agent shall be satisfied that such
execution and delivery would result in material adverse legal or tax
consequences to such Offshore Subsidiary, any Loan Party or any of its
affiliates, and (b) may exclude from the Lien of the Collateral Documents those
properties and assets of a Loan Party either (i) as to which the Administrative
Agent has determined that the costs of obtaining or maintaining such Lien are

                                Credit Agreement

<PAGE>   53

                                       48

excessive in relation to the value of the security to be afforded thereby, or
(ii) with respect to which the Administrative Agent shall be satisfied that the
creation or maintenance of such Lien would result in material adverse legal or
tax consequences to any Loan Party or its affiliates.

                                   ARTICLE IV

                         REPRESENTATIONS AND WARRANTIES

                  SECTION 4.01.  Representations and Warranties of the Domestic
Borrower.  The Domestic Borrower represents and warrants as follows:

                  (a) Each Loan Party and each of its Subsidiaries (i) is duly
         organized, validly existing and in good standing under the laws of the
         jurisdiction of its organization, (ii) is duly qualified and in good
         standing as a foreign Person in each other jurisdiction in which it
         owns or leases property or in which the conduct of its business
         requires it to so qualify or be licensed except where the failure to so
         qualify or be licensed would not be reasonably likely to have a
         Material Adverse Effect and (iii) has all requisite power and authority
         (corporate or otherwise, including, without limitation, all
         governmental licenses, permits and other approvals) to own or lease and
         operate its properties and to carry on its business as now conducted
         and as proposed to be conducted. All of the outstanding Equity
         Interests in the Domestic Borrower have been validly issued, and, as of
         the Initial Closing Date, are fully paid and non-assessable are owned
         by the Equity Investors and the other Persons identified on Schedule
         4.01(a) in the amounts specified on Schedule 4.01(a) hereto free and
         clear of all Liens.

                  (b) Set forth on Schedule 4.01(b) hereto is a complete and
         accurate list of all direct and indirect Subsidiaries of each Loan
         Party as of the Initial Closing Date, showing (as to each such
         Subsidiary) the jurisdiction of its organization as of the Initial
         Closing Date, the number of shares of each class of its Equity
         Interests authorized, and the number outstanding, on the Initial
         Closing Date and the percentage of each such class of its Equity
         Interests owned (directly or indirectly) by such Loan Party (or
         Subsidiary of such Loan Party, as applicable) and the number of shares
         covered by all outstanding options, warrants, rights of conversion or
         purchase and similar rights at the date hereof. All of the outstanding
         Equity Interests in each Loan Party's Subsidiaries have been validly
         issued, are fully paid and non-assessable and are owned by such Loan
         Party or one or more of its Subsidiaries free and clear of all Liens,
         except those created under the Collateral Documents.

                  (c) The execution, delivery and performance by each Loan Party
         of each Transaction Document to which it is or is to be a party, and
         the consummation of the


                                Credit Agreement

<PAGE>   54

                                      49


         Transaction, are within such Loan Party's corporate powers, have been
         duly authorized by all necessary corporate action, and do not (i)
         contravene such Loan Party's charter or bylaws, (ii) violate any law,
         rule, regulation (including, without limitation, Regulation X of the
         Board of Governors of the Federal Reserve System), order, writ,
         judgment, injunction, decree, determination or award, (iii) except as
         set forth on Schedule 4.01(c), conflict with or result in the breach
         of, or constitute a default or, other than the Offer to Purchase,
         require any payment to be made under, any material contract, loan
         agreement, indenture, mortgage, deed of trust, lease or other
         instrument binding on or affecting any Loan Party, any of its
         Subsidiaries or any of their properties or (iv) except for the Liens
         created under the Loan Documents, result in or require the creation or
         imposition of any Lien upon or with respect to any of the properties of
         any Loan Party or any of its Subsidiaries. No Loan Party or any of its
         Subsidiaries is in violation of any such law, rule, regulation, order,
         writ, judgment, injunction, decree, determination or award or in breach
         of any such contract, loan agreement, indenture, mortgage, deed of
         trust, lease or other instrument, the violation or breach of which
         would be reasonably likely to have a Material Adverse Effect.

                  (d) No authorization or approval or other action by, and no
         notice to or filing with, any governmental authority or regulatory body
         or any other third party is required for (i) the due execution,
         delivery, recordation, filing or performance by any Loan Party of any
         Transaction Document to which it is or is to be a party, or for the
         consummation of the Transaction, (ii) the grant by any Loan Party of
         the Liens granted by it pursuant to the Collateral Documents, (iii) the
         perfection or maintenance of the Liens created under the Collateral
         Documents (including the first priority nature thereof) or (iv) the
         exercise by any Agent or any Lender Party of its rights under the Loan
         Documents or the remedies in respect of the Collateral pursuant to the
         Collateral Documents, except for (A) those which have been duly
         obtained, taken, given or made and are in full force and (B) those
         authorizations or approvals or other actions by, or notices to or
         filings with, any governmental authority or regulatory body which may
         be necessary or desireable in order to perfect the Lien of the Offshore
         Collateral Documents or the Lien of the Domestic Security Agreement in
         the Collateral specifically described in Section 4.01(n)(ii) or (iii).
         All applicable waiting periods in connection with the Transaction have
         expired without any action having been taken by any competent authority
         restraining, preventing or imposing materially adverse conditions upon
         the Transaction or the rights of the Loan Parties or their Subsidiaries
         freely to transfer or otherwise dispose of, or to create any Lien on,
         any properties now owned or hereafter acquired by any of them. The
         Acquisition has been consummated in accordance with the Acquisition
         Agreement and applicable law.

                  (e) This Agreement has been, and each other Transaction
         Document when delivered hereunder will have been, duly executed and
         delivered by each Loan Party

                                Credit Agreement

<PAGE>   55

                                       50


         party thereto. This Agreement is, and each other Transaction Document
         when delivered hereunder will be (assuming this Agreement has been duly
         authorized, executed and delivered by the Lenders), the legal, valid
         and binding obligation of each Loan Party party thereto, enforceable
         against such Loan Party in accordance with its terms, except as
         enforceability may be limited by applicable bankruptcy, insolvency,
         reorganization, moratorium, fraudulent transfer or similar laws
         affecting the enforcement of creditors' rights generally and by general
         equitable principles (whether enforcement is sought by proceedings in
         equity or at law).

                  (f) Except as set forth on Schedule 4.01(f) (the "DISCLOSED
         LITIGATION"), there is no action, suit, investigation, litigation or
         proceeding affecting any Loan Party or any of its Subsidiaries,
         including any Environmental Action, pending or, to any Loan Party's
         knowledge, threatened before any court, governmental agency or
         arbitrator that (i) would be reasonably likely to have a Material
         Adverse Effect or (ii) purports to affect the legality, validity or
         enforceability of any Transaction Document or the consummation of the
         Transaction, and there has been no change in the status, or financial
         effect on any Loan Party or any of its Subsidiaries, of the Disclosed
         Litigation from that described on Schedule 4.01(f) hereto except for
         such changes as would not reasonably be expected, either individually
         or in the aggregate, to have a Material Adverse Effect.

                  (g) The audited Consolidated balance sheets of the Domestic
         Borrower and its Subsidiaries as at December 31, 1998, and the related
         audited Consolidated statements of income and Consolidated statement of
         cash flows of the Domestic Borrower and its Subsidiaries for the fiscal
         year then ended, accompanied by an unqualified opinion of Ernst & Young
         LLP, independent public accountants, and the unaudited Consolidated
         balance sheets of the Domestic Borrower and its Subsidiaries as at
         September 30, 1999, and the related unaudited Consolidated statements
         of income and Consolidated statement of cash flows of the Domestic
         Borrower and its Subsidiaries for the nine months then ended, duly
         certified by the Chief Financial Officer of the Domestic Borrower,
         copies of which have been furnished to each Lender Party, fairly
         present, subject, in the case of said balance sheet as at September 30,
         1999, and said statements of income and cash flows for the nine months
         then ended, to year-end audit adjustments, the Consolidated financial
         condition of the Domestic Borrower and its Subsidiaries as at such
         dates and the Consolidated results of operations of the Domestic
         Borrower and its Subsidiaries for the periods ended on such dates, all
         in accordance with generally accepted accounting principles applied on
         a consistent basis, and since December 31, 1998, there has been no
         Material Adverse Change.

                  (h) The Consolidated pro forma balance sheets of the Domestic
         Borrower and its Subsidiaries as at September 30, 1999, certified by
         the Chief Financial Officer of the Domestic Borrower, copies of which
         have been furnished to each Lender Party, fairly

                                Credit Agreement

<PAGE>   56

                                       51


         present the Consolidated pro forma financial condition of the Domestic
         Borrower and its Subsidiaries as at such date giving effect to the
         Acquisition and the Initial Extension of Credit hereunder. The
         financial statements on which such pro forma financial statements were
         based and the adjustments made thereto are in accordance with GAAP.

                  (i) The Consolidated forecasted balance sheets, statements of
         income and statements of cash flows of the Domestic Borrower and its
         Subsidiaries delivered to the Lender Parties pursuant to Section
         3.01(a)(xi) of the Existing Credit Agreement or 5.03 were prepared in
         good faith on the basis of the assumptions stated therein, which
         assumptions were fair in light of the conditions existing at the time
         of delivery of such forecasts, and represented, at the time of
         delivery, the Domestic Borrower's best estimate of its future financial
         performance.

                  (j) Neither the Information Memorandum nor any other
         information, exhibit or report prepared by or on behalf of any Loan
         Party and furnished to any Agent or any Lender Party in connection with
         the negotiation and syndication of the Loan Documents or pursuant to
         the terms of the Loan Documents contained, as of the date such
         Information Memorandum, exhibit or report was prepared or furnished,
         any untrue statement of a material fact or omitted to state a material
         fact necessary to make the statements made therein not misleading. The
         projections and pro forma financial information contained in the
         materials referenced above are based upon good faith estimates and
         assumptions believed by management of the Domestic Borrower to be
         reasonable at the time made, it being recognized by the Lenders that
         such financial information as it relates to future events is not to be
         viewed as fact and that actual results during the period or periods
         covered by such financial information may differ from the projected
         results set forth therein by a material amount.

                  (k) The Domestic Borrower is not engaged in the business of
         extending credit for the purpose of purchasing or carrying Margin
         Stock, and no proceeds of any Advance or drawings under any Letter of
         Credit will be used to purchase or carry any Margin Stock or to extend
         credit to others for the purpose of purchasing or carrying any Margin
         Stock.

                  (l) Neither any Loan Party nor any of its Subsidiaries is an
         "investment company", or an "affiliated person" of, or "promoter" or
         "principal underwriter" for, an "investment company", as such terms are
         defined in the Investment Company Act of 1940, as amended. Neither any
         Loan Party nor any of its Subsidiaries is a "holding company", or a
         "subsidiary company" of a "holding company", or an "affiliate" of a
         "holding company" or of a "subsidiary company" of a "holding company",
         as such terms are defined in the Public Utility Holding Company Act of
         1935, as amended. Neither the making of any Advances, nor the issuance
         of any Letters of Credit, nor the application of

                                Credit Agreement

<PAGE>   57

                                       52


         the proceeds or repayment thereof by the Domestic Borrower, nor the
         consummation of the other transactions contemplated by the Transaction
         Documents, will violate any provision of any such Act or any rule,
         regulation or order of the Securities and Exchange Commission
         thereunder.

                  (m) Neither any Loan Party nor any of its Subsidiaries is a
         party to any indenture, loan or credit agreement or any lease or other
         agreement or instrument or subject to any charter or corporate
         restriction that would be reasonably likely to have a Material Adverse
         Effect.

                  (n) Except for the filings and the other necessary actions (i)
         as may be necessary or desireable in order to perfect or maintain the
         Lien of the Offshore Collateral Documents, (ii) required in connection
         with perfecting the Lien of the Domestic Security Agreement in (A) any
         Intellectual Property which is registered in any jurisdiction outside
         the United States of America, (B) Off-site Goods or (C) any motor
         vehicles, or (iii) related to perfecting the Lien of the Collateral
         Documents in Collateral described in Section 5.01(j)(iv)(B), from and
         after the Effective Date all filings and other actions necessary or
         desirable to perfect and protect the security interest in the
         Collateral created under the Collateral Documents will have been duly
         made or taken and be in full force and effect, and from and after such
         date the Collateral Documents will create in favor of the
         Administrative Agent for the benefit of the Secured Parties a valid
         and, together with such filings and other actions, perfected first
         priority security interest in the Collateral subject only to the prior
         Liens and security interests permitted hereunder and under the other
         Loan Documents, securing the payment of the Secured Obligations. The
         Domestic Borrower will cause each other Loan Party to carry out the
         obligations specifically undertaken by such Loan Party under the
         Offshore Collateral Documents related to perfecting and protecting the
         Lien of such Offshore Collateral Documents. The Loan Parties are the
         legal and beneficial owners of the Collateral free and clear of any
         Lien, except for the liens and security interests created or permitted
         under the Loan Documents.

                  (o) Each Loan Party is, individually and together with its
         Subsidiaries, Solvent.

                  (p) (i) Set forth on Schedule 4.01(p) hereto is a complete and
         accurate list of all Plans, Multiemployer Plans and Welfare Plans of
         the Domestic Borrower as of the Initial Closing Date.

                  (ii) No ERISA Event has occurred or is reasonably expected to
         occur with respect to any Plan that has resulted in or is reasonably
         expected to result in a Material Adverse Effect.


                                Credit Agreement

<PAGE>   58

                                       53

                  (iii) Schedule B (Actuarial Information) to the most recent
         annual report (Form 5500 Series) for each Plan, copies of which have
         been filed with the Internal Revenue Service and furnished to the
         Lender Parties, is complete and accurate and fairly presents the
         funding status of such Plan, and since the date of such Schedule B
         there has been no material adverse change in such funding status.

                  (iv) Neither any Loan Party nor any ERISA Affiliate has
         incurred or is reasonably expected to incur any Withdrawal Liability to
         any Multiemployer Plan that could have a Material Adverse Effect.

                  (v) Neither any Loan Party nor any ERISA Affiliate has been
         notified by the sponsor of a Multiemployer Plan that such Multiemployer
         Plan is in reorganization or has been terminated, within the meaning of
         Title IV of ERISA, and no such Multiemployer Plan is reasonably
         expected to be in reorganization or to be terminated, within the
         meaning of Title IV of ERISA in either case, that has resulted, or is
         reasonably likely to result in a Material Adverse Effect.

                  (vi) With respect to each scheme or arrangement mandated by a
         government other than the United States (a "FOREIGN GOVERNMENT SCHEME
         OR ARRANGEMENT") and with respect to each employee benefit plan
         maintained or contributed to by any Loan Party or any Subsidiary of any
         Loan Party that is not subject to United States law (a "FOREIGN PLAN"),
         except for instances where the failure do so would not be reasonably
         likely to result in a Material Adverse Effect, either individually or
         in the aggregate:

                           (A) Any employer and employee contributions required
                  by law or by the terms of any Foreign Government Scheme or
                  Arrangement or any Foreign Plan have been made, or, if
                  applicable, accrued, in accordance with normal accounting
                  practices.

                           (B) The fair market value of the assets of each
                  funded Foreign Plan, the liability of each insurer for any
                  Foreign Plan funded through insurance or the book reserve
                  established for any Foreign Plan, together with any accrued
                  contributions, is sufficient to procure or provide for the
                  accrued benefit obligations, as of the date hereof, with
                  respect to all current and former participants in such Foreign
                  Plan according to the actuarial assumptions and valuations
                  most recently used to account for such obligations in
                  accordance with applicable generally accepted accounting
                  principles.

                           (C) Each Foreign Plan required to be registered has
                  been registered and has been maintained in good standing with
                  applicable regulatory authorities.


                                Credit Agreement

<PAGE>   59

                                       54


                  (q) Except as set forth in Schedule 4.01(q) or as would not,
         individually or in the aggregate, be reasonably likely to have a
         Material Adverse Effect:

                  (i) the operations and properties of each Loan Party and each
         of its Subsidiaries comply in all respects with all applicable
         Environmental Laws and Environmental Permits, all past non-compliance
         with such Environmental Laws and Environmental Permits has been
         resolved, and, to the knowledge of Domestic Borrower, no circumstances
         exist that would be reasonably likely to (A) form the basis of an
         Environmental Action against any Loan Party or any of its Subsidiaries
         or any of their properties or (B) cause any such property to be subject
         to any restrictions on ownership, occupancy, use or transferability
         under any Environmental Law.

                  (ii) None of the properties currently or, to the knowledge of
         the Domestic Borrower, formerly owned or operated by any Loan Party or
         any of its Subsidiaries is listed or, to the knowledge of Domestic
         Borrower, proposed for listing, on the NPL or on the CERCLIS or any
         analogous foreign, state or local list or, to the knowledge of Domestic
         Borrower, is adjacent to any such property; there is no asbestos or
         asbestos-containing material requiring abatement or any other action
         under applicable Environmental Law on any property currently owned or
         operated by any Loan Party or any of its Subsidiaries; and Hazardous
         Materials have not been released, discharged or disposed of on any
         property currently or, to the knowledge of the Domestic Borrower,
         formerly owned or operated by any Loan Party or any of its
         Subsidiaries.

                  (iii) Neither any Loan Party nor any of its Subsidiaries is
         undertaking either individually or together with other potentially
         responsible parties, any investigation or assessment or remedial or
         response action relating to any actual or threatened release, discharge
         or disposal of Hazardous Materials at any site, location or operation,
         either voluntarily or pursuant to the order of any governmental or
         regulatory authority or the requirements of any Environmental Law; and,
         to the knowledge of Domestic Borrower, all Hazardous Materials
         generated, used, treated, handled or stored at, or transported to or
         from, any property currently or formerly owned or operated by any Loan
         Party or any of its Subsidiaries have been disposed of in a manner not
         reasonably expected to result in material liability to any Loan Party
         or any of its Subsidiaries.

There has been no change in the status or financial effect on any Loan Party of
the matters disclosed on Schedule 4.01(q), including, without limitation, the
estimates referred to therein of amounts for which the Domestic Borrower and its
Subsidiaries are expected to receive indemnification payments, except for such
changes as would not reasonably be expected, either individually or in the
aggregate, to have a Material Adverse Effect.

                                Credit Agreement

<PAGE>   60

                                       55


                  (r) (i) Neither any Loan Party nor any of its Subsidiaries is
         party to any tax sharing agreement, except for tax sharing agreements
         among only the Domestic Borrower and its Subsidiaries, or only among
         Subsidiaries of the Domestic Borrower.

                  (ii) The Domestic Borrower and each of its Subsidiaries has
         filed, has caused to be filed or has been included in all Federal and
         all material state, local and foreign tax returns required to be filed
         and has paid all taxes shown thereon to be due, together with
         applicable interest and penalties.

                  (iii) Set forth on Schedule 4.01(r) hereto is a complete and
         accurate list, as of the Initial Closing Date, of each taxable year of
         the Domestic Borrower and each of its Subsidiaries and Affiliates for
         which Federal income tax returns have been filed and for which the
         expiration of the applicable statute of limitations for assessment or
         collection of Federal income taxes has not occurred by reason of
         extension or otherwise (an "OPEN YEAR").

                  (iv) The aggregate unpaid amount, as of the Initial Closing
         Date, of adjustments to the Federal income tax liability of the
         Domestic Borrower and its Subsidiaries proposed by the Internal Revenue
         Service with respect to Open Years does not exceed $5,000,000. No
         claims have been asserted by the Internal Revenue Service in respect of
         Open Years that, in the aggregate, would be reasonably likely to have a
         Material Adverse Effect.

                  (v) The aggregate unpaid amount, as of the Initial Closing
         Date, of adjustments to the state, local and foreign tax liability of
         the Domestic Borrower and its Subsidiaries proposed by all state, local
         and foreign taxing authorities (other than amounts arising from
         adjustments to Federal income tax returns) does not exceed $5,000,000.
         No claims have been asserted by such taxing authorities that, in the
         aggregate, would be reasonably likely to have a Material Adverse
         Effect.

                  (vi) The Acquisition will not be taxable to the Domestic
         Borrower or any of its Subsidiaries.

                  (s) Neither the business nor the properties of any Loan Party
         or any of its Subsidiaries have been and continue to be affected by any
         fire, explosion, accident, strike, lockout or other labor dispute,
         drought, storm, hail, earthquake, embargo, act of God or of the public
         enemy or other casualty (whether or not covered by insurance) that
         would be reasonably likely to have a Material Adverse Effect.



                                Credit Agreement
<PAGE>   61
                                       56

                  (t) Set forth on Schedule 4.01(t) hereto is a complete and
         accurate list of all Existing Debt (other than Surviving Debt) as of
         the Initial Closing Date, showing the obligor and the principal amount
         outstanding thereunder.

                  (u) Set forth on Schedule 4.01(u) hereto is a complete and
         accurate list of all Surviving Debt as of the Initial Closing Date,
         showing the obligor and the principal amount outstanding thereunder,
         the maturity date thereof and the amortization schedule therefor. As of
         the date of this Agreement all Obligations of the Loan Parties under
         the Existing Senior Subordinated Note Indenture have been paid in full.
         Upon issuance by the Domestic Borrower of any Senior Subordinated
         Notes, the Obligations of each Loan Party under the Loan Documents will
         constitute Senior Indebtedness and Designated Senior Indebtedness as
         such terms are used and defined in the Senior Subordinated Note
         Indenture. The Obligations of each Loan Party under the Loan Documents
         also constitute Senior Indebtedness as such term is used in each other
         note set forth on Schedule 4.01(u).

                  (v) Set forth on Schedule 4.01(v) hereto is a complete and
         accurate list of all Liens on the property or assets of any Loan Party
         or any of its Subsidiaries as of the Initial Closing Date, showing the
         lienholder thereof, the principal amount of the obligations secured
         thereby and the property or assets of such Loan Party or such
         Subsidiary subject thereto.

                  (w) Set forth on Schedule 4.01(w) hereto is a complete and
         accurate list of all real property owned by any Loan Party or any of
         its Subsidiaries as of the Initial Closing Date, showing the street
         address, county or other relevant jurisdiction, state, record owner and
         book and estimated fair value thereof. Each Loan Party or such
         Subsidiary has good, marketable and insurable fee simple title to such
         real property, free and clear of all Liens, other than Liens created or
         permitted by the Loan Documents.

                  (x) Set forth on Schedule 4.01(x) hereto is a complete and
         accurate list of all leases of real property under which any Loan Party
         or any of its Subsidiaries is the lessee as of the Initial Closing
         Date, showing the street address, county or other relevant
         jurisdiction, state, lessor, lessee, expiration date and annual rental
         cost thereof. Each such lease is the legal, valid and binding
         obligation of the lessor thereof, enforceable in accordance with its
         terms.

                  (y) Set forth on Schedule 4.01(y) hereto is a complete and
         accurate list of all Investments held by any Loan Party or any of its
         Subsidiaries on the Initial Closing Date, showing as of the date hereof
         the amount, obligor or issuer and maturity, if any, thereof.

                  (z) Set forth on Schedule 4.01(z) hereto is a complete and
         accurate list of all registered patents, trademarks, trade names,
         service marks and copyrights, and all


                                Credit Agreement


<PAGE>   62

                                       57

         applications therefor and licenses thereof, of each Loan Party or any
         of its Subsidiaries on the Initial Closing Date, showing as of the
         Initial Closing Date the jurisdiction in which registered, the
         registration number, the date of registration and the expiration date.

                  (aa) Set forth on Schedule 4.01(aa) hereto is a complete and
         accurate list of all Material Contracts of each Loan Party and its
         Subsidiaries as of the Initial Closing Date, showing the parties,
         subject matter and term thereof. As of the Initial Closing Date, each
         such Material Contract has been duly authorized, executed and delivered
         by all parties thereto is in full force and effect and is binding upon
         and enforceable against all parties thereto in accordance with its
         terms, and there exists no default under any Material Contract by any
         party thereto.

                  (bb) The Domestic Borrower has (i) initiated a review and
         assessment of all areas within its and each of its Subsidiaries'
         business and operations (including those affected by suppliers, vendors
         and customers) that could be adversely affected by the risk that
         computer applications used by the Domestic Borrower or any of its
         Subsidiaries (or suppliers, vendors and customers) may be unable to
         recognize and perform properly date-sensitive functions involving
         certain dates prior to and any date after December 31, 1999 (the "YEAR
         2000 PROBLEM"), (ii) developed a plan and timetable for addressing the
         Year 2000 Problem on a timely basis and (iii) to date, implemented that
         plan in accordance with such timetable. Based on the foregoing, the
         Domestic Borrower believes that all computer applications that are
         material to its or any of its Subsidiaries' business and operations are
         reasonably expected on a timely basis to be able to perform properly
         date-sensitive functions for all dates before and after January 1, 2000
         ("YEAR 2000 COMPLIANT"), except to the extent that a failure to do so
         could not reasonably be expected to have a Material Adverse Effect.


                                    ARTICLE V

                       COVENANTS OF THE DOMESTIC BORROWER

                  SECTION 5.01. Affirmative Covenants. So long as any Advance or
any other Obligation of any Loan Party under any Loan Document shall remain
unpaid, any Letter of Credit shall be outstanding or any Lender Party shall have
any Commitment hereunder, the Domestic Borrower will:

                  (a) Compliance with Laws, Etc. Comply, and cause each of its
         Subsidiaries to comply, in all material respects, with all applicable
         laws, rules, regulations and orders, such compliance to include,
         without limitation, compliance with ERISA and the Racketeer Influenced
         and Corrupt Organizations Chapter of the Organized Crime Control



                                Credit Agreement


<PAGE>   63




                                       58

         Act of 1970, unless any such non-compliance would not reasonably be
         expected to have a Material Adverse Effect.

                  (b) Payment of Taxes, Etc. Pay and discharge, and cause each
         of its Subsidiaries to pay and discharge, before the same shall become
         delinquent, (i) all taxes, assessments and governmental charges or
         levies imposed upon it or upon its property and (ii) all lawful claims
         that, if unpaid, might by law become a Lien upon its property;
         provided, however, that neither the Domestic Borrower nor any of its
         Subsidiaries shall be required to pay or discharge any such tax,
         assessment, charge or claim that is being contested in good faith and
         by proper proceedings and as to which appropriate reserves are being
         maintained, unless and until any Lien resulting therefrom attaches to
         its property and becomes enforceable against its other creditors.

                  (c) Compliance with Environmental Laws. Comply, and cause each
         of its Subsidiaries to comply, and use commercially reasonable efforts
         to cause all lessees and other Persons operating or occupying its
         properties to comply, in all material respects, with all applicable
         Environmental Laws and Environmental Permits; obtain and renew and
         cause each of its Subsidiaries to obtain and renew all material
         Environmental Permits necessary for its operations and properties; and
         conduct, and cause each of its Subsidiaries to conduct, any
         investigation, study, sampling and testing (collectively referred to as
         "INVESTIGATION"), and undertake any cleanup, removal, remedial or other
         action necessary to remove and clean up all Hazardous Materials
         (collectively referred to as "REMEDIAL ACTION") from any of its
         properties, to the extent required by Environmental Laws unless the
         failure to conduct such Investigation or undertake such Remedial Action
         would not, individually or in the aggregate, be reasonably likely to
         have a Material Adverse Effect ; provided, however, that neither the
         Domestic Borrower nor any of its Subsidiaries shall be required to
         undertake any such Remedial Action to the extent that its obligation to
         do so is being contested in good faith and by proper proceedings and
         appropriate reserves are being maintained with respect to such
         circumstances.

                  (d) Maintenance of Insurance. Maintain, and cause each of its
         Subsidiaries to maintain, insurance with responsible and reputable
         insurance companies or associations in such amounts and covering such
         risks as is usually carried by companies engaged in similar businesses
         and owning similar properties in the same general areas in which the
         Domestic Borrower or such Subsidiary operates.

                  (e) Preservation of Corporate Existence, Etc. Preserve and
         maintain, and cause each of its Subsidiaries to preserve and maintain,
         its existence, legal structure, legal name, rights (charter and
         statutory), permits, licenses, approvals, privileges and franchises,
         except to the extent any failure to preserve and maintain any of the
         foregoing could not reasonably be expected to have a Material Adverse
         Effect; provided, however,



                                Credit Agreement


<PAGE>   64

                                       59

         that the Domestic Borrower and its Subsidiaries may consummate any
         merger or consolidation permitted under Section 5.02(e); and provided,
         further, that neither the Domestic Borrower nor any of its Subsidiaries
         shall be required to preserve any right, permit, license, approval,
         privilege or franchise if the Board of Directors of the Domestic
         Borrower or such Subsidiary shall determine that the preservation
         thereof is no longer desirable in the conduct of the business of the
         Domestic Borrower or such Subsidiary, as the case may be, and that the
         loss thereof is not disadvantageous in any material respect to the
         Domestic Borrower, such Subsidiary or the Lender Parties.

                  (f) Visitation Rights. At any reasonable time and from time to
         time upon reasonable notice, permit the Administrative Agent or any of
         the Lender Parties, or any agents or representatives thereof, to
         examine and make copies of and abstracts from the records and books of
         account of, and visit the properties of, the Domestic Borrower and any
         of its Subsidiaries, and to discuss the affairs, finances and accounts
         of the Domestic Borrower and any of its Subsidiaries with any of their
         officers or directors and with their independent certified public
         accountants.

                  (g) Keeping of Books. Keep, and 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 the Domestic Borrower and each such Subsidiary in
         accordance with generally accepted accounting principles in effect from
         time to time.

                  (h) Maintenance of Properties, Etc. Maintain and preserve, and
         cause each of its Subsidiaries to maintain and preserve, all of its
         properties that are used or useful in the conduct of its business in
         good working order and condition, ordinary wear and tear excepted.

                  (i) Transactions with Affiliates. Conduct, and cause each of
         its Subsidiaries to conduct, all transactions otherwise permitted under
         the Loan Documents with any of their Affiliates on terms that are fair
         and reasonable and no less favorable to the Domestic Borrower or such
         Subsidiary than it would obtain in a comparable arm's-length
         transaction with a Person not an Affiliate. The following transactions
         shall in any event be deemed to comply with this Section 5.01(i): (i)
         the Domestic Borrower's execution and delivery of the Management
         Agreement and the payment of management fees to the Sponsor in an
         aggregate amount of up to $1.6 million per year pursuant to the
         Management Agreement, (ii) reimbursements of Sponsor for reasonable
         out-of-pocket expenses incurred by it in connection with performing
         management services for the Domestic Borrower and payments to Sponsor
         in respect of indemnification obligations under the Management
         Agreement; (iii) any transaction between the Domestic Borrower or any
         Subsidiary and an officer or member of the board of directors of, the
         Domestic






                                Credit Agreement



<PAGE>   65


                                       60


         Borrower or any Subsidiary in the ordinary course involving
         compensation, indemnity or employee benefit arrangements; (iv) the
         Transactions and (v) the Domestic Borrower's execution, delivery and
         performance of the Shareholder Agreements and a registration rights
         agreement with SSCI Investors containing customary terms and provisions
         for such agreements.

                  (j) Covenant to Guarantee Obligations and Give Security. Upon
         (x) the request of the Administrative Agent following the occurrence
         and during the continuance of a Default, (y) the formation or
         acquisition of any new direct or indirect Subsidiaries by any Loan
         Party or (z) the acquisition of any property by the Domestic Borrower
         or any of its Subsidiaries, and such property, in the judgment of the
         Collateral Agent, shall not already be subject to a perfected first
         priority security interest in favor of the Administrative Agent for the
         benefit of the Secured Parties, then the Domestic Borrower shall, in
         each case at the Domestic Borrower's expense:

                           (i) in connection with the formation or acquisition
                  of a Subsidiary, within 20 days after such formation or
                  acquisition, cause each such Subsidiary, and cause each direct
                  and indirect parent of such Subsidiary (if it has not already
                  done so), to duly execute and deliver to the Administrative
                  Agent a guaranty or guaranty supplement, in form and substance
                  satisfactory to the Administrative Agent, guaranteeing the
                  other Loan Parties' obligations under the Loan Documents, in
                  the case of each Domestic Subsidiary, in form and substance
                  similar to the Domestic Subsidiary Guaranty and the Offshore
                  Guaranty, and in the case of each Offshore Subsidiary, in form
                  and substance similar to the Offshore Guaranty,

                           (ii) within 20 days after such request, formation or
                  acquisition, furnish to the Administrative Agent a description
                  of the real and personal properties of the Loan Parties and
                  their respective Subsidiaries in detail satisfactory to the
                  Administrative Agent,

                           (iii) within 45 days after such request, formation or
                  acquisition, duly execute and deliver, and cause each such
                  Subsidiary and each direct and indirect parent of such
                  Subsidiary (if it has not already done so) to duly execute and
                  deliver, to the Administrative Agent mortgages, pledges,
                  assignments, security agreement supplements and other security
                  agreements, similar to the Mortgages and the Domestic Security
                  Agreement and otherwise in form and substance satisfactory to
                  the Administrative Agent, securing payment of all the
                  Obligations of the applicable Loan Party, such Subsidiary or
                  such parent, as the case may be, under the Loan Documents and
                  constituting Liens on all such properties,




                                Credit Agreement


<PAGE>   66


                                       61

                           (iv) within 30 days after such request, formation or
                  acquisition, take, and cause such Subsidiary or such parent to
                  take, whatever action (including, without limitation, the
                  filing of Uniform Commercial Code financing statements, the
                  giving of notices and the endorsement of notices on title
                  documents) may be necessary or advisable in the opinion of the
                  Administrative Agent to vest in the Administrative Agent (or
                  in any representative of the Administrative Agent designated
                  by it) valid and subsisting Liens on the properties purported
                  to be subject to the pledges, assignments, security agreement
                  supplements and security agreements delivered pursuant to this
                  Section 5.01(j), enforceable against all third parties in
                  accordance with their terms; provided, however, that the
                  Domestic Borrower and its Subsidiaries shall not be required
                  to comply with the requirements of this Section 5.01(j)(iv)
                  with respect to (A) any actions relating to Intellectual
                  Property under the Domestic Security Agreement that would
                  otherwise be required to be taken outside of the United
                  States, (B) Collateral for which the Administrative Agent, in
                  its reasonable discretion determines that the cost of
                  perfecting the lien of the Security Agreement therein is
                  excessive in relation to the security afforded thereby or (C)
                  except as otherwise provided under any Offshore Collateral
                  Documents, any actions in respect of any Equity Interests in
                  any Foreign Corporation (as defined in the Domestic Security
                  Agreement) other than as provided in Sections 1(d)(iv) and
                  18(8) of the Domestic Security Agreement,

                           (v) within 60 days after the request of the
                  Administrative Agent, deliver to the Administrative Agent, a
                  signed copy of a favorable opinion, addressed to the
                  Administrative Agent and the other Secured Parties, of counsel
                  for the Loan Parties acceptable to the Administrative Agent as
                  to the matters contained in clauses (i), (iii) and (iv) above,
                  as to such guaranties, guaranty supplements, mortgages,
                  pledges, assignments, security agreement supplements and
                  security agreements being legal, valid and binding obligations
                  of each Loan Party party thereto enforceable in accordance
                  with their terms, as to the matters contained in clause (iv)
                  above, as to such recordings, filings, notices, endorsements
                  and other actions being sufficient to create valid perfected
                  Liens on such personal property, and as to such other matters
                  as the Administrative Agent may reasonably request,

                           (vi) as promptly as reasonably practicable and in any
                  case not later than 60 days after the request of the
                  Administrative Agent in its sole discretion, deliver to the
                  Administrative Agent with respect to each parcel of real
                  property owned or held by the entity that is the subject of
                  such request, formation or acquisition title reports, surveys
                  and engineering, soils and other reports, and Phase I
                  environmental assessment reports, each in scope, form and
                  substance satisfactory



                                Credit Agreement


<PAGE>   67


                                       62

                  to the Administrative Agent, provided, however, that to the
                  extent that any Loan Party or any of its Subsidiaries shall
                  have otherwise received any of the foregoing items with
                  respect to such real property, such items shall, promptly
                  after the receipt thereof, be delivered to the Administrative
                  Agent, and take whatsoever action, including the recording of
                  mortgages, may be necessary or advisable in the opinion of the
                  Administrative Agent to vest in the Administrative Agent valid
                  and subsisting Liens on such real estate, enforceable against
                  all third parties in accordance with their terms,

                           (vii) upon the occurrence and during the continuance
                  of a Default, at the request of the Administrative Agent,
                  promptly cause to be deposited any and all cash dividends paid
                  or payable to it or any of its Subsidiaries from any of its
                  Subsidiaries from time to time into the Collateral Account,
                  and with respect to all other dividends paid or payable to it
                  or any of its Subsidiaries from time to time, promptly execute
                  and deliver, or cause such Subsidiary to promptly execute and
                  deliver, as the case may be, any and all further instruments
                  and take or cause such Subsidiary to take, as the case may be,
                  all such other action as the Administrative Agent may deem
                  necessary or desirable in order to obtain and maintain from
                  and after the time such dividend is paid or payable a
                  perfected, first priority lien on and security interest in
                  such dividends, and
                           (viii) at any time and from time to time, promptly
                  execute and deliver any and all further instruments and
                  documents and take all such other action as the Administrative
                  Agent may reasonably deem necessary or desirable in obtaining
                  the full benefits of, or in perfecting and preserving the
                  Liens of, such guaranties, mortgages, pledges, assignments,
                  security agreement supplements and security agreements.

                  (k) Further Assurances. (i) Promptly upon request by any
         Agent, or any Lender Party through the Administrative Agent, correct,
         and cause each of its Subsidiaries promptly to correct, any material
         defect or error that may be discovered in any Loan Document or in the
         execution, acknowledgment, filing or recordation thereof, and

                  (ii) Promptly upon request by any Agent, or any Lender Party
         through the Administrative Agent, do, execute, acknowledge, deliver,
         record, re-record, file, re-file, register and re-register any and all
         such further acts, deeds, conveyances, pledge agreements, mortgages,
         deeds of trust, trust deeds, assignments, financing statements and
         continuations thereof, termination statements, notices of assignment,
         transfers, certificates, assurances and other instruments as any Agent,
         or any Lender Party through the Administrative Agent, may reasonably
         require from time to time in order to (A) carry out more effectively
         the purposes of the Loan Documents, (B) to the fullest extent



                                Credit Agreement



<PAGE>   68



                                       63



         permitted by applicable law, subject any Loan Party's or any of its
         Subsidiaries' properties, assets, rights or interests to the Liens now
         or hereafter intended to be covered by any of the Collateral Documents,
         (C) perfect and maintain the validity, effectiveness and priority of
         any of the Collateral Documents and any of the Liens intended to be
         created thereunder and (D) assure, convey, grant, assign, transfer,
         preserve, protect and confirm more effectively unto the Secured Parties
         the rights granted or now or hereafter intended to be granted to the
         Secured Parties under any Loan Document or under any other instrument
         executed in connection with any Loan Document to which any Loan Party
         or any of its Subsidiaries is or is to be a party, and cause each of
         its Subsidiaries to do so.

                  (l) [Intentionally Omitted.]

                  (m) Preparation of Environmental Reports. At the reasonable
         request of the Required Lenders from time to time upon a violation by
         any Loan Party or any of its Subsidiaries of Environmental Law, or the
         occurrence or discovery (including, without limitation, from a report
         delivered pursuant to Section 5.01(j)(vi)) of any other fact,
         circumstance, event, act or condition that could result in the
         liability of any Loan Party or any of its Subsidiaries under
         Environmental Law, that, individually or in the aggregate, would be
         reasonably likely to have a Material Adverse Effect, provide to the
         Lender Parties within 90 days after such request, at the expense of the
         Domestic Borrower, an environmental site assessment report for any of
         its or its Subsidiaries' properties described in such request, prepared
         by an environmental consulting firm reasonably acceptable to the
         Required Lenders, indicating the presence or absence of Hazardous
         Materials and the estimated cost of any compliance or Remedial Action
         in connection with any Hazardous Materials on such properties; without
         limiting the generality of the foregoing, if any such report is not be
         provided within the time referred to above, the Required Lenders may
         retain an environmental consulting firm reasonably acceptable to
         Domestic Borrower to prepare such report at the expense of the Domestic
         Borrower, and the Domestic Borrower hereby grants and agrees to cause
         any Subsidiary that owns any property described in such request to
         grant at the time of such request to the Agents, the Lender Parties,
         such firm and any agents or representatives thereof an irrevocable
         non-exclusive license, subject to the rights of tenants, to enter onto
         their respective properties to undertake such an assessment during
         reasonable business hours (after giving reasonable prior notice to
         Domestic Borrower).

                  (n) Compliance with Terms of Leaseholds. Make all payments and
         otherwise perform all obligations in respect of each leases of real
         property to which the Domestic Borrower or any of its Subsidiaries is a
         party which provides for annual base lease rent thereunder of $250,000
         or more, keep such leases in full force and effect and not allow such
         leases to lapse or be terminated or any rights to renew such leases to
         be forfeited or




                                Credit Agreement



<PAGE>   69



                                       64


         cancelled, notify the Administrative Agent of any default by any party
         with respect to such leases and cooperate with the Administrative Agent
         in all respects to cure any such default, and cause each of its
         Subsidiaries to do so, except, in any case, where the failure to do so,
         either individually or in the aggregate, would not be reasonably likely
         to have a Material Adverse Effect.

                  (o) Interest Rate Hedging. After the completion of the Offer
         to Purchase and prior to the 6 month anniversary of the Initial
         Borrowing, enter into interest rate hedge agreements to the extent
         necessary to ensure that, after giving effect to such Hedge Agreements,
         at least 45% of the Domestic Borrower's Funded Debt (including any
         outstanding Senior Subordinated Notes) either by its terms accrues
         interest at a fixed rate until maturity or is subject to an interest
         rate Hedge Agreement. While the Domestic Borrower will have no
         obligation to exceed such 45% level, Domestic Borrower agrees to a
         target level of 50% of its Funded Debt being subject to interest rate
         Hedge Agreements.

                  (p) Performance of Material Contracts. Perform and observe all
         the terms and provisions of each Material Contract to be performed or
         observed by it, maintain each such Material Contract in full force and
         effect, enforce each such Material Contract in accordance with its
         terms, take all such action to such end as may be from time to time
         requested by the Administrative Agent and, upon request of the
         Administrative Agent, make to each other party to each such Material
         Contract such demands and requests for information and reports or for
         action as any Loan Party or any of its Subsidiaries is entitled to make
         under such Material Contract, and cause each of its Subsidiaries to do
         so, except, in any case, where the failure to do so, either
         individually or in the aggregate, would not be reasonably likely to
         have a Material Adverse Effect.

                  SECTION 5.02. Negative Covenants. So long as any Advance or
any other Obligation of any Loan Party under any Loan Document shall remain
unpaid, any Letter of Credit shall be outstanding or any Lender Party shall have
any Commitment hereunder, the Domestic Borrower will not, at any time:

                  (a) Liens, Etc. Create, incur, assume or suffer to exist, or
         permit any of its Subsidiaries to create, incur, assume or suffer to
         exist, any Lien on or with respect to any of its properties of any
         character (including, without limitation, accounts) whether now owned
         or hereafter acquired, or sign or file or suffer to exist, or permit
         any of its Subsidiaries to sign or file or suffer to exist, under the
         Uniform Commercial Code of any jurisdiction, a financing statement that
         names the Domestic Borrower or any of its Subsidiaries as debtor, or
         sign or suffer to exist, or permit any of its Subsidiaries to sign or
         suffer to exist, any security agreement authorizing any secured party
         thereunder to file such financing statement, or assign, or permit any
         of its Subsidiaries to assign, any accounts or other right to receive
         income, except:



                                Credit Agreement


<PAGE>   70


                                       65


                           (i)      Liens created under the Loan Documents;

                           (ii)     Permitted Liens;

                           (iii)    Liens existing on the Initial Closing Date
                  and described on Schedule 4.01(v) hereto;

                           (iv) purchase money Liens upon or in real property or
                  equipment acquired or held by the Domestic Borrower or any of
                  its Subsidiaries in the ordinary course of business to secure
                  the purchase price of such property or equipment or to secure
                  Debt incurred solely for the purpose of financing the
                  acquisition of any such property or equipment to be subject to
                  such Liens, or Liens existing on any such property or
                  equipment at the time of acquisition (other than any such
                  Liens created in contemplation of such acquisition that do not
                  secure the purchase price), or extensions, renewals or
                  replacements of any of the foregoing for the same or a lesser
                  amount; provided, however, that no such Lien shall extend to
                  or cover any property other than the property or equipment
                  being acquired, and no such extension, renewal or replacement
                  shall extend to or cover any property not theretofore subject
                  to the Lien being extended, renewed or replaced; and provided
                  further that the aggregate principal amount of the Debt
                  secured by Liens permitted by this clause (iv) shall not
                  exceed the amount permitted under Section 5.02(b)(ii) at any
                  time outstanding;

                           (v) Liens arising in connection with Capitalized
                  Leases permitted under Section 5.02(b)(ii); provided that no
                  such Lien shall extend to or cover any Collateral or assets
                  other than the assets subject to such Capitalized Leases;

                           (vi) Liens on property of a Person existing at the
                  time such Person is merged into or consolidated with the
                  Domestic Borrower or any Subsidiary of the Domestic Borrower
                  or becomes a Subsidiary of the Domestic Borrower after the
                  Effective Date securing Debt permitted by Section 5.02(b)(v);
                  provided that such Liens were not created in contemplation of
                  such merger, consolidation or investment and do not extend to
                  any assets other than those of the Person merged into or
                  consolidated with the Domestic Borrower or such Subsidiary or
                  acquired by the Domestic Borrower or such Subsidiary;

                           (vii) other Liens securing Debt and Contingent
                  Obligations outstanding in an aggregate principal amount not
                  to exceed $10,000,000, provided that no such Lien shall extend
                  to or cover any Collateral;


                                Credit Agreement


<PAGE>   71




                                       66


                           (viii) Liens arising solely by virtue of any
                  statutory or common law provision relating to banker's liens,
                  rights of set-off or similar rights and remedies as to deposit
                  amounts or other funds maintained with a credit or depository
                  institution; provided that (A) such deposit account is not a
                  dedicated cash collateral account and is not subject to
                  restrictions against access by Domestic Borrower or any
                  Subsidiary in excess of those set forth by regulations
                  promulgated by the Federal Reserve Board, and (B) such deposit
                  account is not intended by Domestic Borrower or any Subsidiary
                  to provide collateral to the depository institution;

                           (ix) Liens evidenced by UCC financing statements
                  regarding operating leases permitted by this Agreement or in
                  respect of consigned goods;

                           (x) Liens consisting of judgment or judicial
                  attachment liens (including prejudgment attachment); provided
                  that the enforcement of such Liens is effectively stayed or
                  payment of which is covered in full (subject to customary
                  deductibles) by insurance or which do not otherwise result in
                  an Event of Default;

                           (xi) Liens securing debt of Offshore and non-wholly
                  owned Subsidiaries to the extent such Debt is permitted
                  pursuant to Section 5.02(b);

                           (xii) Liens on documents of title and the property
                  covered thereby securing Debt in respect of letters of credit
                  which are commercial letters of credit;

                           (xiii) Liens solely in favor of the Domestic Borrower
                  or a Subsidiary of the Domestic Borrower; provided that such
                  Liens shall have been assigned as collateral under the
                  Security Agreement;

                           (xiv) any encumbrances or restriction (including any
                  put and call arrangements) with respect to the Equity
                  Interests of any joint venture agreement to which the Domestic
                  Borrower or any of its Subsidiaries is a party; and

                           (xv) the replacement, extension or renewal of any
                  Lien permitted by clause (iii) above upon or in the same
                  property theretofore subject thereto or the replacement,
                  extension or renewal (without increase in the amount or change
                  in any direct or contingent obligor) of the Debt secured
                  thereby.

                  (b) Debt. Create, incur, assume or suffer to exist, or permit
                      any of its Subsidiaries to create, incur, assume or suffer
                      to exist, any Debt, except:

                           (i)      Debt under the Loan Documents,



                                Credit Agreement



<PAGE>   72




                                       67


                           (ii) Capitalized Leases (including any Capitalized
                                Leases included as Surviving Debt) and Debt
                                secured by Liens permitted by Section 5.02(a)
                                (iv) and 5.02(a)(vi) not to exceed in the
                                aggregate $15,000,000 at any time outstanding,

                          (iii) the Surviving Debt,

                           (iv) unsecured Debt of the Domestic Borrower and its
                  Subsidiaries incurred in the ordinary course of business for
                  the deferred purchase price of property or services and
                  aggregating, on a Consolidated basis, not more than
                  $20,000,000 at any one time outstanding,

                            (v) Debt of any Person that becomes a Subsidiary of
                  the Domestic Borrower after the date hereof in accordance with
                  the terms of Section 5.02(g) which Debt is existing at the
                  time such Person becomes a Subsidiary of the Domestic Borrower
                  (other than Debt incurred solely in contemplation of such
                  Person becoming a Subsidiary of the Domestic Borrower),

                           (vi) Debt in respect of (A) Hedge Agreements as may
                  be required from time to time pursuant to Section 3.03(c), and
                  (B) other Hedge Agreements (including those required pursuant
                  to Section 5.01(o)) designed to hedge against fluctuations in
                  interest rates or foreign exchange rates incurred in the
                  ordinary course of business and consistent with prudent
                  business practice with the aggregate Agreement Value thereof
                  not to exceed $5,000,000 at any time outstanding,

                          (vii) Debt owed to the Domestic Borrower by a
                  Subsidiary of the Domestic Borrower and Debt owed by the
                  Domestic Borrower to a wholly-owned Subsidiary of the Domestic
                  Borrower, which Debt (x) shall constitute Pledged Debt, and
                  (y) shall be evidenced by promissory notes in substantially
                  the form attached as Exhibit I or such other form satisfactory
                  to the Administrative Agent;

                         (viii) Debt arising from honoring a check, draft or
                  similar instrument against insufficient funds; provided that
                  such Debt is extinguished within five Business days of its
                  incurrence;

                           (ix) unsecured Debt incurred by Domestic Borrower to
                  former employees in connection with the purchase or redemption
                  of stock of Domestic Borrower not to exceed in the aggregate
                  $2,000,000;

                            (x) the Senior Subordinated Notes; provided that,
                  after giving effect to the issuance of such Debt (A) no
                  Default shall have occurred and be continuing



                                Credit Agreement


<PAGE>   73




                                       68



                  and (B) the Domestic Borrower shall be in pro forma compliance
                  with the covenants contained in Section 5.04; and

                           (xi) any renewals, extensions, substitutions,
                  refinancings or replacements (each a "refinancing") of any
                  Debt permitted by this Section 5.02(b), including any
                  successive refinancings, so long as any such refinancing Debt
                  shall (A) not be on financial or other terms, in the
                  reasonable judgment of Domestic Borrower, that are more
                  onerous that the Debt being refinanced, (B) not have a stated
                  maturity or average life that is shorter than the Debt being
                  refinanced, (C) be at least as subordinate to the Obligations
                  under the Loan Documents as the Debt being refinanced (and
                  unsecured if the refinanced Debt is unsecured) and (D) be in a
                  principal amount that does not exceed the principal amount so
                  refinanced, plus the lesser of (1) the stated amount of any
                  premium or other payment required to be paid in connection
                  with such refinancing pursuant to the terms of the Debt being
                  refinanced and (2) the amount of premium or other payment
                  actually paid at such time to refinance the Debt, plus, in
                  either case, the amount of reasonable expenses of Domestic
                  Borrower or any Subsidiary incurred in connection with such
                  refinancing. If any Debt permitted hereunder is incurred to
                  refinance Debt denominated in a currency other than US Dollars
                  and such refinancing would cause a US Dollar Equivalent
                  restriction to be exceeded if calculated at the relevant
                  currency exchange rate in effect on the date of such
                  refinancing, such US Dollar Equivalent restriction shall not
                  be deemed to have been exceeded so long as the principal
                  amount of such refinancing Debt does not exceed the principal
                  amount of such Debt being refinanced, but the ability to make
                  subsequent incurrences of Debt subject to the applicable US
                  Dollar Equivalent restriction shall be determined as if the
                  relevant currency exchange rate applied to any such previous
                  refinancing was the rate in effect on the date of such
                  refinancing.

                  (c) Contingent Obligations. Create, incur, assume or suffer to
         exist, or permit any of its Subsidiaries to create, incur or suffer to
         exist any Contingent Obligations, except (i) Contingent Obligations
         under guaranties of Debt permitted under Section 5.02(b) (other than,
         with respect to Debt of any Person that becomes a Subsidiary of the
         Domestic Borrower on any date after the date hereof permitted pursuant
         to Section 5.02(b)(v), any guaranty of such Debt by the Domestic
         Borrower or any other Person which was a Subsidiary of the Domestic
         Borrower prior to such date) and (ii) other Contingent Obligations
         (including any guaranty by the Domestic Borrower or any of its existing
         Subsidiaries of any Debt of any Person that becomes a Subsidiary of the
         Domestic Borrower which is permitted pursuant to Section 5.02(b)(v))
         not to exceed $15,000,000 at any time outstanding.

                                Credit Agreement

<PAGE>   74



                                       69


                  (d) Change in Nature of Business. Make, or permit any of its
         Subsidiaries to make, any material change in the nature of its business
         as carried on at the date hereof.

                  (e) Mergers, Etc. Merge into or consolidate with any Person or
         permit any Person to merge into it, or permit any of its Subsidiaries
         to do so, except that:

                      (i) any Subsidiary of the Domestic Borrower may merge into
                  or consolidate with any other Subsidiary of the Domestic
                  Borrower, provided that, in the case of any such merger or
                  consolidation, the Person formed by such merger or
                  consolidation shall be a wholly-owned Domestic Subsidiary of
                  the Domestic Borrower, provided further that, in the case of
                  any such merger or consolidation to which a Subsidiary
                  Guarantor is a party, the Person formed by such merger or
                  consolidation shall be a Subsidiary Guarantor;

                      (ii) in connection with any Permitted Acquisition under
                  Section 5.02(g)(xiii), any Subsidiary of the Domestic Borrower
                  may merge into or consolidate with any other Person or permit
                  any other Person to merge into or consolidate with it;
                  provided that the Person surviving such merger shall be a
                  wholly-owned Subsidiary of the Domestic Borrower; and

                      (iii) in connection with any sale or other disposition
                  permitted under Section 5.02(f) (other than clause (ii)
                  thereof), any Subsidiary of the Domestic Borrower may merge
                  into or consolidate with any other Person or permit any other
                  Person to merge into or consolidate with it;

         provided, however, that in each case, immediately after giving effect
         thereto, no event shall occur and be continuing that constitutes a
         Default.

                  (f) Sales, Etc., of Assets. Sell, lease, transfer or otherwise
         dispose of, or permit any of its Subsidiaries to sell, lease, transfer
         or otherwise dispose of, any assets, or grant any option or other right
         to purchase, lease or otherwise acquire any assets other than Inventory
         to be sold in the ordinary course of its business, except:

                      (i) sales of Inventory in the ordinary course of its
                  business;

                      (ii) in a transaction authorized by Section 5.02(e)
                  (other than subsection (iii) thereof);

                      (iii) the sale of equipment to the extent that such
                  equipment is exchanged for credit against the purchase price
                  of similar replacement equipment, or the proceeds of such sale
                  are reasonably promptly applied to the purchase price of
                  similar replacement equipment;



                                Credit Agreement



<PAGE>   75



                                       70


                           (iv) the limited recourse sale of Receivables in
                  connection with the securitization thereof, which sale is
                  non-recourse to the extent customary in securitizations and
                  consistent with past practice;

                           (v) in the ordinary course of business, the license
                  of patents, trademarks, copyrights and know-how to third
                  Persons, so long as each such license of a Domestic Subsidiary
                  is subject to the Lien of the Domestic Security Agreement and
                  does not otherwise prohibit the granting of a Lien therein by
                  Domestic Borrower or any Subsidiary pursuant to the Domestic
                  Security Agreement;

                           (vi) the sale of worn out or obsolete equipment not
                  utilized in the business of Domestic Borrower or any
                  Subsidiary;

                           (vii) the abandonment or other disposition for no
                  consideration of patents, trademarks or other intellectual
                  property that is, in the reasonable judgment of Domestic
                  Borrower, no longer economically practicable to maintain or
                  useful in the conduct of the business of Domestic Borrower and
                  its Subsidiaries taken as a whole;

                           (viii) the sale of any asset by the Domestic Borrower
                  or any Subsidiary (other than a bulk sale of Inventory and a
                  sale of Receivables other than delinquent accounts for
                  collection purposes only) so long as (A) the purchase price
                  paid to the Domestic Borrower or such Subsidiary for such
                  asset shall be no less than the fair market value of such
                  asset at the time of such sale; (B) the purchase price for
                  such asset shall be paid to the Domestic Borrower or such
                  Subsidiary solely in cash; (C) the aggregate purchase price
                  paid to the Domestic Borrower and all of its Subsidiaries for
                  such asset and all other assets sold by the Domestic Borrower
                  and its Subsidiaries during the same Fiscal Year pursuant to
                  this clause (viii) shall not exceed $25,000,000 ; provided,
                  however, that the Domestic Borrower and it Subsidiaries may
                  sell Equity Interests in, or the properties and assets of, any
                  Person, for an aggregate amount in any Fiscal Year of the
                  Domestic Borrower which is greater than $25,000,000 on the
                  condition that the Domestic Borrower shall have delivered to
                  the Administrative Agent not later than five days prior to
                  such sale a report prepared in good faith and certified by the
                  Chief Financial Officer of the Domestic Borrower and approved
                  by the Joint Lead Arrangers, which report shall include an
                  analysis demonstrating in reasonable detail that the pro forma
                  EBITDA of such Person (or such properties and assets) for the
                  most recently completed four consecutive fiscal quarters,
                  together with the pro forma EBITDA of each other Person, the
                  Equity Interests in,




                                Credit Agreement
<PAGE>   76


                                       71


                 or the properties or assets of which, were previously sold by
                 the Domestic Borrower and its Subsidiaries pursuant to this
                 subsection (viii) during such Fiscal Year, for the most
                 recently completed four fiscal quarters as of the date such
                 Person (or such properties or assets) were sold, and does not,
                 in the aggregate, exceed 7.5% of the EBITDA of the Domestic
                 Borrower and its Subsidiaries for the most recently completed
                 four fiscal quarters of the Domestic Borrower; and (D) the
                 aggregate purchase price paid to the Domestic Borrower and its
                 Subsidiaries for all assets sold pursuant to this clause (viii)
                 during the term of this Agreement shall not exceed $50,000,000;
                 and

                           (ix) so long as no Default shall occur and be
                  continuing, the grant of any option or other right to purchase
                  any asset in a transaction that would be permitted under the
                  provisions of clause (viii) above.

                  (g)      Investments in Other Persons. Make or hold, or permit
         any of its Subsidiaries to make or hold, any Investment in any Person,
         except:

                            (i)     (A)   equity Investments by the Domestic
                 Borrower and its Subsidiaries in their Subsidiaries outstanding
                 on the date hereof; or

                                    (B)   additional equity Investments in
                           wholly-owned Domestic Subsidiaries of the Domestic
                           Borrower existing on the date hereof or the Equity
                           Interest of which are acquired by the Domestic
                           Borrower or one of its Domestic Subsidiaries pursuant
                           to clause (xiii) below, including, without
                           limitation, Investments in newly formed, wholly-owned
                           Domestic Subsidiaries of the Domestic Borrower or one
                           of its Domestic Subsidiaries which are to fund the
                           purchase by such newly formed Domestic Subsidiary of
                           the assets comprising a division or business unit or
                           a substantial part of the business of any other
                           Person if such Investment by such new Subsidiary is
                           made in accordance with clause (xiii) below; or

                                    (C)   additional Investments by the Domestic
                           Borrower and its Domestic Subsidiaries in
                           wholly-owned (other than with respect to any de
                           minimis director's qualifying shares) Offshore
                           Subsidiaries of the Domestic Borrower or any of its
                           wholly-owned Subsidiaries (other than with respect to
                           any de minimis director's qualifying shares) in an
                           aggregate amount for the Domestic Borrower and all
                           its Domestic Subsidiaries not to exceed $10,000,000
                           in any Fiscal Year (in addition to any Investments in
                           such Offshore Subsidiaries in the form of the
                           Offshore Guaranty); or



                                Credit Agreement

<PAGE>   77

                                       72



                                    (D)   additional Investments by Offshore
                           Subsidiaries of the Domestic Borrower and its
                           Subsidiaries in other Offshore Subsidiaries which are
                           wholly-owned by the Domestic Borrower or any of its
                           wholly-owned Subsidiaries; or

                                    (E)   additional Investments by the Domestic
                           Borrower and any of its wholly-owned Subsidiaries in
                           Subsidiaries and other Persons (including
                           joint-ventures) which are not wholly-owned by the
                           Domestic Borrower or its wholly-owned Subsidiaries,
                           but are controlled by the Domestic Borrower or one of
                           its wholly-owned Subsidiaries, (including, without
                           limitation, Contingent Obligations incurred by the
                           Domestic Borrower or any of its wholly-owned
                           Subsidiaries in respect of the Debt of any such
                           Subsidiary or other Person which are not
                           wholly-owned) not at any time exceeding in the
                           aggregate $5,000,000; or additional Investments by
                           such Subsidiaries of the Domestic Borrower (which are
                           not wholly-owned Subsidiaries of the Domestic
                           Borrower or any of its wholly-owned Subsidiaries) in
                           other such non-wholly-owned Subsidiaries or other
                           Persons which are controlled by the Domestic Borrower
                           or one of its wholly-owned Subsidiaries; or

                                    (F)   Investments in the form of the
                           Offshore Guaranty;

                           (ii)     loans and advances to employees in the
                  ordinary course of the business of the Domestic Borrower and
                  its Subsidiaries as presently conducted (A) to the extent such
                  loans and advances are used to purchase capital stock, or
                  options or warrants to purchase capital stock of the Domestic
                  Borrower, in an aggregate amount not to exceed $5,000,000 and
                  (B) other such loans and advances in an aggregate principal
                  amount not to exceed $3,000,000 at any time outstanding;

                           (iii)    Investments by the Domestic Borrower and its
                  Subsidiaries in Cash Equivalents;

                           (iv)     Investments existing on the Initial Closing
                  Date and described on Schedule 4.01(y) hereto;

                           (v)      Investments in Hedge Agreements permitted
                  under Section 5.02(b);

                           (vi)     Investments consisting of intercompany Debt
                  permitted under Section 5.02(b);



                                Credit Agreement


<PAGE>   78

                                       73



                           (vii)    Investments consisting of non-cash
                  consideration received in the form of securities, notes or
                  similar obligations in connection with dispositions of
                  obsolete or worn out assets permitted pursuant to Section
                  5.02(e)(vi) not at any time exceeding, in the case of all such
                  notes and similar obligations, the amount of $5,000,000;

                           (viii)   pledges or deposits required in the ordinary
                  course of business in connection with workmen's compensation,
                  unemployment insurance and other social security or similar
                  legislation;

                           (ix)     pledges or deposits in connection with (A)
                  non-delinquent performance of bids, trade contracts (other
                  than for borrowed money), leases or statutory obligations, (B)
                  contingent obligations on surety or appeal bonds and (C) other
                  non-delinquent obligations of a like nature, in each case
                  incurred in the ordinary course of business;

                           (x)      advances, loans or extensions of credit to
                  suppliers in the ordinary course of business by Domestic
                  Borrower or any Subsidiary consistent with past practice as of
                  the Effective Date not at any time exceeding in the aggregate
                  $2,000,000;

                           (xi)     other advances, loans or extensions of
                  credit in the ordinary course of business by Domestic Borrower
                  or any Subsidiary not at any time exceeding in the aggregate
                  $3,000,000;

                           (xii)    Investments (including debt obligations)
                  received in connection with the bankruptcy or reorganization
                  of suppliers and customers and in settlement of delinquent
                  obligations of, and other disputes with, customers and
                  suppliers arising in the ordinary course of business; and

                           (xiii)   other Investments in the equity interests or
                  assets of a newly acquired business or in the equity interests
                  of a new Subsidiary of the Domestic Borrower or any of its
                  Subsidiaries which new Subsidiary is organized to purchase any
                  such equity interests or assets; provided that with respect to
                  Investments made under this clause (xiii): (1) any such newly
                  acquired or organized Subsidiary of the Domestic Borrower or
                  any of its Subsidiaries shall be a wholly-owned Subsidiary of
                  the Domestic Borrower or one of its wholly-owned Subsidiaries
                  (other than in respect of any de minimis director's qualifying
                  shares) and shall be organized under the laws of an Approved
                  Country; (2) immediately before and after giving effect
                  thereto, no Default shall have occurred and be


                                Credit Agreement

<PAGE>   79


                                       74


                  continuing or would result therefrom; (3) any company or
                  business acquired or invested in pursuant to this clause
                  (xiii) shall be in the specialty chemicals business or in a
                  substantially similar line of business, and the material
                  assets of such company or business shall be principally
                  located in one or more Approved Countries (and a material
                  portion of the assets of such company or business, taken as a
                  whole, shall not be located in a country which is not an
                  Approved Country); (4) immediately after giving effect to the
                  acquisition of a company or business pursuant to this clause
                  (xiii), the Domestic Borrower shall be in pro forma compliance
                  with the covenants contained in Section 5.04, calculated based
                  on the financial statements most recently delivered to the
                  Lender Parties pursuant to Section 5.03 and as though such
                  acquisition had occurred at the beginning of the four-quarter
                  period covered thereby, as evidenced by a certificate of the
                  Chief Financial Officer of the Domestic Borrower delivered to
                  the Lender Parties demonstrating such compliance; (5) the
                  Domestic Borrower shall have delivered to the Administrative
                  Agent and the Lender Parties an Acquisition Diligence Report
                  for such company or business; and (6) any such newly formed
                  Subsidiary shall be in compliance with Section 5.01(j).

                  (h)   Restricted Payments. Declare or pay any dividends,
         purchase, redeem, retire, defease or otherwise acquire for value any of
         its Equity Interests now or hereafter outstanding, return any capital
         to its stockholders, partners or members (or the equivalent Persons
         thereof) as such, make any distribution of assets, Equity Interests,
         obligations or securities to its stockholders, partners or members (or
         the equivalent Persons thereof) as such or issue or sell any Equity
         Interests or accept any capital contributions, or permit any of its
         Subsidiaries to do any of the foregoing, or permit any of its
         Subsidiaries to purchase, redeem, retire, defease or otherwise acquire
         for value any Equity Interests in the Domestic Borrower or to issue or
         sell any Equity Interests therein, except that, so long as no Default
         shall have occurred and be continuing at the time of any action
         described in clause (i) or (ii) below or would result therefrom:

                           (i)      the Domestic Borrower may (A) declare and
                  pay dividends and distributions payable only in common stock
                  of the Domestic Borrower, (B) issue and sell shares of its
                  capital stock in a transaction which will not result in a
                  Change of Control, (C) except to the extent the Net Cash
                  Proceeds thereof are required to be applied to the prepayment
                  of the Advances pursuant to Section 2.06(b), purchase, redeem,
                  retire, defease or otherwise acquire shares of its capital
                  stock with the proceeds received contemporaneously from the
                  issue of new shares of its capital stock with equal or
                  inferior voting powers, designations, preferences and rights,
                  (D) redeem or purchase Equity Interests from the Sponsor or
                  other shareholders of the Domestic Borrower who are not
                  officers, directors or employees of the Domestic Borrower,
                  substantially concurrently with the issuance


                                Credit Agreement

<PAGE>   80

                                       75



                  and sale of such Equity Interests to employees of the Domestic
                  Borrower and its Subsidiaries; provided, however, that the
                  redemption or purchase price paid to the Sponsor for such
                  Equity Interests shall not exceed either (1) the Net Cash
                  Proceeds received by the Domestic Borrower from the issuance
                  of such Equity Interests to such employees, or (2) $5,000,000
                  in the aggregate for all such redemptions and purchases during
                  the term of this agreement, (E) accept capital contributions
                  from the Equity Investors, (F) make payments in accordance
                  with the Management Agreement and pay fees and indemnification
                  payments to directors and officers of the Domestic Borrower in
                  the ordinary course of business; provided, however, that the
                  aggregate amount of all such payments shall not exceed the sum
                  of $1,600,000 plus the actual out-of-pocket expenses of the
                  Sponsor in connection with providing management services to
                  Domestic Borrower plus such actual fees, expenses and
                  indemnity payments incurred by such officers and directors in
                  any Fiscal Year of the Domestic Borrower (beginning with the
                  Fiscal Year ending December 31, 2000), (G) the Domestic
                  Borrower may repurchase, redeem or otherwise acquire or retire
                  for value any Equity Interests of the Domestic Borrower held
                  by current or former employees of the Domestic Borrower or any
                  of its Subsidiaries pursuant to any employee equity
                  subscription agreement, stock option agreement or stock
                  ownership arrangement; provided, however, that the aggregate
                  price paid (including the principal amount of Debt issued
                  pursuant to Section 5.02(b)(ix)) for all such repurchased,
                  redeemed, acquired or retired Equity Interests shall not
                  exceed an aggregate of $2,000,000 over the term of this
                  Agreement, and (H) issue new shares of its capital stock to
                  the seller (or its affiliates) of any Equity Interests or
                  assets purchased by the Domestic Borrower or any of its
                  Subsidiaries, as all or a portion of the purchase price for
                  such Equity Interests or assets issue in connection with a
                  Permitted Acquisition; and

                           (ii)     any Subsidiary of the Domestic Borrower may
                  (A) declare and pay cash dividends to the Domestic Borrower,
                  (B) declare and pay cash dividends to any other wholly-owned
                  Subsidiary of the Domestic Borrower of which it is a
                  Subsidiary and (C) accept capital contributions from its
                  parent to the extent permitted under Section 5.02(g)(i).

                  (i) Lease Obligations. Create, incur, assume or suffer to
         exist, or permit any of its Subsidiaries to create, incur, assume or
         suffer to exist, any obligations as lessee under any operating leases
         (i) for the rental or hire of real or personal property in connection
         with any sale and leaseback transaction, or (ii) for the rental or hire
         of other real or personal property of any kind under leases or
         agreements to lease having an original term of one year or more that
         would cause the direct and contingent liabilities of the Domestic
         Borrower and its Subsidiaries, on a Consolidated basis, in respect of
         all such obligations to exceed $4,000,000 payable in the period of 12
         consecutive months






                                Credit Agreement

<PAGE>   81

                                       76




         ending on December 31, 2000 and increasing by $250,000 for each 12
         month period thereafter.

                  (j)    Amendments of Constitutive Documents. Amend, or permit
         any of its Subsidiaries to amend, its certificate of incorporation or
         bylaws or other constitutive documents in any manner which would have a
         material adverse effect on any rights of the Secured Parties under the
         Loan Documents.

                  (k)    Accounting Changes. Make or permit, or permit any of
         its Subsidiaries to make or permit, any change in any material respect
         in accounting policies or reporting practices, except as required by
         generally accepted accounting principles, or any change in Fiscal Year.

                  (l)    Prepayments, Etc., of Debt. Prepay, redeem, purchase,
         defease or otherwise satisfy prior to the scheduled maturity thereof in
         any manner, or make any payment in violation of any subordination terms
         of, any Debt, except (i) the prepayment of the Advances in accordance
         with the terms of this Agreement, (ii) the prepayment of Debt permitted
         pursuant to Section 5.02(b)(vii), (iii) the prepayment of Debt
         permitted pursuant to 5.02(b)(ix) to the extent also permitted pursuant
         to Section 5.02(h)(i)(G), (iv) regularly scheduled or required
         repayments or redemptions of Debt permitted pursuant to Section
         5.02(b), and refinancings of such Debt permitted pursuant to Section
         5.02(b)(xi), or amend, modify or change in any manner any term or
         condition of any Surviving Debt or Subordinated Debt, or permit any of
         its Subsidiaries to do any of the foregoing other than to prepay any
         Debt payable to the Domestic Borrower or any of its wholly-owned
         Subsidiaries.

                  (m)    Amendment, Etc., of Related Documents. Cancel or
         terminate any Related Document or consent to or accept any cancellation
         or termination thereof, amend, modify or change in any material manner
         any term or condition of any Related Document or give any consent,
         waiver or approval thereunder, waive any default under or any breach of
         any material term or condition of any Related Document, agree in any
         manner to any other amendment, modification or change of any term or
         condition of any Related Document or take any other action in
         connection with any Related Document that would impair the value of the
         interest or rights of any Loan Party thereunder or that would impair
         the rights or interests of any Agent or any Lender Party, or permit any
         of its Subsidiaries to do any of the foregoing.

                  (n)    Negative Pledge. Enter into or suffer to exist, or
         permit any of its Subsidiaries to enter into or suffer to exist, any
         agreement prohibiting or conditioning the creation or assumption of any
         Lien upon any of its property or assets except (i) in favor of the
         Secured Parties or (ii) in connection with (A) any Surviving Debt, (B)
         any purchase





                                Credit Agreement

<PAGE>   82


                                       77



         money Debt permitted by Section 5.02(b) solely to the extent that the
         agreement or instrument governing such Debt prohibits a Lien on the
         property acquired with the proceeds of such Debt, (C) any Capitalized
         Lease permitted by Section 5.02(b) solely to the extent that such
         Capitalized Lease prohibits a Lien on the property subject thereto or
         (D) any Debt outstanding on the date any Subsidiary of the Domestic
         Borrower becomes such a Subsidiary (so long as such agreement was not
         entered into solely in contemplation of such Subsidiary becoming a
         Subsidiary of the Domestic Borrower).

                  (o)    Partnerships, Etc. Become a general partner in any
         general or limited partnership or joint venture, or permit any of its
         Subsidiaries to do so, other than a Domestic, wholly-owned Subsidiary
         of the Domestic Borrower the sole assets of which consist of such
         Subsidiary's interest in one or more of such partnerships or joint
         ventures.

                  (p)    Speculative Transactions. Engage, or permit any of its
         Subsidiaries to engage, in any transaction involving commodity options
         or futures contracts or any similar speculative transactions other than
         Hedge Agreements entered into in the ordinary course of business and
         permitted by Section 5.02(b).

                  (q)    Capital Expenditures. Make, or permit any of its
         Subsidiaries to make, any Capital Expenditures that would cause the
         aggregate of all such Capital Expenditures made by the Domestic
         Borrower and its Subsidiaries in any Fiscal Year of the Domestic
         Borrower to exceed an amount equal to the greatest of (i) $13,000,000,
         (ii) 5% of the Consolidated net sales of the Domestic Borrower and its
         Subsidiaries for the immediately preceding Fiscal Year of the Domestic
         Borrower, calculated in accordance with GAAP or (iii) at any time after
         the Chief Financial Officer of the Domestic Borrower shall have
         delivered a certificate to the Lender Parties identifying the Permitted
         Acquisitions and permitted sales of assets of the Domestic Borrower and
         its Subsidiaries for any Fiscal Year of the Domestic Borrower, together
         with a calculation of the pro forma Consolidated net sales of the
         Domestic Borrower and its Subsidiaries for the preceding Fiscal Year
         and as though all such Permitted Acquisitions and dispositions had
         occurred at the beginning of such preceding Fiscal Year, 5% of such pro
         forma Consolidated net sales.

                  (r)    Formation of Subsidiaries. Organize or invest, or
         permit any Subsidiary to organize or invest, in any new Subsidiary,
         except as permitted under Section 5.02(g)(i) or (xiii).

                  (s)    Payment Restrictions Affecting Subsidiaries. Directly
         or indirectly, enter into or suffer to exist, or permit any of its
         Subsidiaries to enter into or suffer to exist, any agreement or
         arrangement limiting the ability of any of its Subsidiaries to declare
         or pay dividends or other distributions in respect of its Equity
         Interests or repay or prepay any




                                Credit Agreement

<PAGE>   83

                                       78




         Debt owed to, make loans or advances to, or otherwise transfer assets
         to or invest in, the Domestic Borrower or any Subsidiary of the
         Domestic Borrower (whether through a covenant restricting dividends,
         loans, asset transfers or investments, a financial covenant or
         otherwise), except (i) the Loan Documents , (ii) any agreement or
         instrument evidencing Surviving Debt and (iii) any agreement in effect
         at the time such Subsidiary becomes a Subsidiary of the Domestic
         Borrower, so long as such agreement was not entered into solely in
         contemplation of such Person becoming a Subsidiary of the Domestic
         Borrower.

                  (t)    Amendment, Etc., of Material Contracts. Cancel or
         terminate any Material Contract or consent to or accept any
         cancellation or termination thereof, amend or otherwise modify any
         Material Contract or give any consent, waiver or approval thereunder,
         waive any default under or breach of any Material Contract, agree in
         any manner to any other amendment, modification or change of any term
         or condition of any Material Contract or take any other action in
         connection with any Material Contract except for any such action as
         would not be reasonably likely to result in a Material Adverse Effect.
         The Domestic Borrower will use all reasonable efforts, and will cause
         its Subsidiaries to use all reasonable efforts to cause any Material
         Contract of the type referred to in clauses (iv) of the definition of
         such term entered into by the Domestic Borrower or such Subsidiary
         after the Effective Date not to contain a provision which would, by its
         terms, prohibit the assignment by the Domestic Borrower or such
         Subsidiary of its rights thereunder as security pursuant to the
         Security Agreement.

                  SECTION 5.03.  Reporting Requirements. So long as any Advance
or any other Obligation of any Loan Party under any Loan Document shall remain
unpaid, any Letter of Credit shall be outstanding or any Lender Party shall have
any Commitment hereunder, the Domestic Borrower will furnish to the Agents and
the Lender Parties:

                  (a)    Default Notice. As soon as possible and in any event
         within two days after the Domestic Borrower or any of its Subsidiaries
         becomes aware of the occurrence of each Default or any event,
         development or occurrence reasonably likely to have a Material Adverse
         Effect continuing on the date of such statement, a statement of the
         chief financial officer of the Domestic Borrower setting forth details
         of such Default and the action that the Domestic Borrower has taken and
         proposes to take with respect thereto.

                  (b)    Annual Financials. As soon as available and in any
         event within 100 days after the end of each Fiscal Year, a copy of the
         annual audit report for such year for the Domestic Borrower and its
         Subsidiaries, including therein Consolidated balance sheets of the
         Domestic Borrower and its Subsidiaries as of the end of such Fiscal
         Year and Consolidated statements of income and a Consolidated statement
         of cash flows of the Domestic Borrower and its Subsidiaries for such
         Fiscal Year, in each case accompanied by an opinion without a "going
         concern" or similar qualification or exception or a




                                Credit Agreement

<PAGE>   84


                                       79



         qualification arising out of the scope of the audit and otherwise
         acceptable to the Administrative Agent of Ernst & Young LLP or other
         independent public accountants of recognized standing acceptable to the
         Required Lenders, together with (i) a certificate of such accounting
         firm to the Lender Parties stating that in the course of the regular
         audit of the business of the Domestic Borrower and its Subsidiaries,
         which audit was conducted by such accounting firm in accordance with
         generally accepted auditing standards, such accounting firm has
         obtained no knowledge that a Default has occurred and is continuing, or
         if, in the opinion of such accounting firm, a Default has occurred and
         is continuing, a statement as to the nature thereof, (ii) a schedule in
         form satisfactory to the Administrative Agent of the computations used
         by such accountants in determining, as of the end of such Fiscal Year,
         compliance with the covenants contained in Section 5.04, provided that
         in the event of any change in GAAP used in the preparation of such
         financial statements, the Domestic Borrower shall also provide, if
         necessary for the determination of compliance with Section 5.04, a
         statement of reconciliation conforming such financial statements to
         GAAP as in effect on the date hereof and (iii) a certificate of the
         Chief Financial Officer of the Domestic Borrower stating either that
         such Chief Financial Officer has, after due inquiry, no knowledge that
         any Default has occurred and is continuing or, if the Chief Financial
         Officer has knowledge that a Default has occurred and is continuing, a
         statement as to the nature thereof and the action that the Domestic
         Borrower has taken and proposes to take with respect thereto.

                  (c)    Quarterly Financials. As soon as available and in any
         event within 45 days after the end of each of the first three quarters
         of each Fiscal Year, Consolidated balance sheets of the Domestic
         Borrower and its Subsidiaries as of the end of such quarter and
         Consolidated statements of income and a Consolidated statement of cash
         flows of the Domestic Borrower and its Subsidiaries for the period
         commencing at the end of the previous fiscal quarter and ending with
         the end of such fiscal quarter and Consolidated statements of income
         and a Consolidated statement of cash flows of the Domestic Borrower and
         its Subsidiaries for the period commencing at the end of the previous
         Fiscal Year and ending with the end of such quarter, setting forth in
         each case in comparative form the corresponding figures for the
         corresponding date or period of the preceding Fiscal Year, all in
         reasonable detail and duly certified (subject to normal year-end audit
         adjustments and the absence of footnotes) by the Chief Financial
         Officer of the Domestic Borrower as having been prepared in accordance
         with GAAP, together with (i) a certificate of said officer stating
         either that such Chief Financial Officer has, after due inquiry, no
         knowledge that any Default has occurred and is continuing or, if the
         Chief Financial Officer has knowledge that a Default has occurred and
         is continuing, a statement as to the nature thereof and the action that
         the Domestic Borrower has taken and proposes to take with respect
         thereto and (ii) a schedule in form satisfactory to the Administrative
         Agent of the computations used by the Domestic Borrower in determining
         compliance with the covenants contained in Section 5.04, provided that
         in the event of




                                Credit Agreement

<PAGE>   85


                                       80




         any change in GAAP used in the preparation of such financial
         statements, the Domestic Borrower shall also provide, if necessary for
         the determination of compliance with Section 5.04, a statement of
         reconciliation conforming such financial statements to GAAP in effect
         on the date hereof.

                  (d)    Annual Forecasts. As soon as available and in any event
         no later than 45 days after the end of each Fiscal Year, an annual
         budget prepared by management of the Domestic Borrower, of balance
         sheets, income statements and cash flow statements on a quarterly basis
         for the Fiscal Year following such Fiscal Year.

                  (e)    Litigation. Promptly after the commencement thereof,
         notice of all actions, suits, investigations, litigation and
         proceedings before any court or governmental department, commission,
         board, bureau, agency or instrumentality, domestic or foreign,
         affecting any Loan Party or any of its Subsidiaries of the type
         described in Section 4.01(f) (except proceedings that, if adversely
         determined, would not reasonably be expected, either individually or in
         the aggregate, to have a Material Adverse Effect), and promptly after
         the occurrence thereof, notice of any material adverse change in the
         status or the financial effect on any Loan Party or any of its
         Subsidiaries of the Disclosed Litigation from that described on
         Schedule 4.01(f) hereto.

                  (f)    Securities Reports. Promptly after the sending or
         filing thereof, copies of all proxy statements, financial statements
         and reports that any Loan Party or any of its Subsidiaries sends to its
         stockholders, and copies of all regular, periodic and special reports,
         and all registration statements, that any Loan Party or any of its
         Subsidiaries files with the Securities and Exchange Commission or any
         governmental authority that may be substituted therefor, or with any
         national securities exchange.

                  (g)    Creditor Reports. Promptly after the furnishing
         thereof, copies of any statement or report furnished to any holder of
         Debt securities of any Loan Party or of any of its Subsidiaries
         pursuant to the terms of any indenture, loan or credit or similar
         agreement and not otherwise required to be furnished to the Lender
         Parties pursuant to any other clause of this Section 5.03.

                  (h)    Agreement Notices. Promptly upon receipt thereof,
         copies of all notices, requests and other documents received by any
         Loan Party or any of its Subsidiaries under or pursuant to any Related
         Document or Material Contract or instrument, indenture, loan or credit
         or similar agreement regarding or related to any breach or default by
         any party thereto or any other event that could have a Material Adverse
         Effect, copies of each proposed Subordinated Debt Document, and copies
         of any proposed amendment, modification or waiver of any provision of
         any Related Document or Material Contract or instrument, indenture,
         loan or credit or similar agreement and, from time to time upon




                                Credit Agreement

<PAGE>   86

                                       81



         request by the Administrative Agent, such information and reports
         regarding the Related Documents, the Material Contracts and such
         instruments, indentures and loan and credit and similar agreements as
         the Administrative Agent may reasonably request.

                  (i)    ERISA. (i) ERISA Events and ERISA Reports. (A) Promptly
         and in any event within 10 Business Days after any Loan Party or any
         ERISA Affiliate knows or has reason to know that any ERISA Event has
         occurred, a statement of the Chief Financial Officer of the Domestic
         Borrower describing such ERISA Event and the action, if any, that such
         Loan Party or such ERISA Affiliate has taken and proposes to take with
         respect thereto and (B) on the date any records, documents or other
         information must be furnished to the PBGC with respect to any Plan
         pursuant to Section 4010 of ERISA, a copy of such records, documents
         and information.

                  (ii)   Plan Terminations. Promptly and in any event within two
         Business Days after receipt thereof by any Loan Party or any ERISA
         Affiliate, copies of each notice from the PBGC stating its intention to
         terminate any Plan or to have a trustee appointed to administer any
         Plan.

                  (iii)  Plan Annual Reports. Promptly and in any event within
         30 days after a request from the Administrative Agent, copies of each
         Schedule B (Actuarial Information) to the annual report (Form 5500
         Series) with respect to each Plan.

                  (iv)   Multiemployer Plan Notices. Promptly and in any event
         within ten Business Days after receipt thereof by any Loan Party or any
         ERISA Affiliate from the sponsor of a Multiemployer Plan, copies of
         each notice concerning (A) the imposition of Withdrawal Liability by
         any such Multiemployer Plan, (B) the reorganization or termination,
         within the meaning of Title IV of ERISA, of any such Multiemployer Plan
         or (C) the amount of liability incurred, or that may be incurred, by
         such Loan Party or any ERISA Affiliate in connection with any event
         described in clause (A) or (B).

                  (j)    Environmental Conditions. Promptly after the assertion
         or occurrence thereof, notice of any Environmental Action against or of
         any noncompliance by any Loan Party or any of its Subsidiaries with any
         Environmental Law or Environmental Permit that could (i) reasonably be
         expected to have a Material Adverse Effect or (ii) cause any property
         described in the Mortgages to be subject to any material restrictions
         on ownership, occupancy, use or transferability under any Environmental
         Law.
                  (k)    Real Property. As soon as available and in any event
         within 100 days after the end of each Fiscal Year beginning with the
         Fiscal Year ended December 31, 2000, a report supplementing Schedules
         4.01(w) and 4.01(x) hereto, including an identification of all owned
         and leased real property disposed of by the Domestic Borrower or any of
         its






                                Credit Agreement

<PAGE>   87


                                       82


         Subsidiaries during such Fiscal Year, a list and description (including
         the street address, county or other relevant jurisdiction, state,
         record owner, book value thereof and, in the case of leases of
         property, lessor, lessee, expiration date and annual rental cost
         thereof) of all real property acquired or leased during such Fiscal
         Year and a description of such other changes in the information
         included in such Schedules as may be necessary for such Schedules to be
         accurate and complete.

                  (l)    Insurance. As soon as available and in any event within
         30 days after the end of each Fiscal Year, a report summarizing the
         insurance coverage (specifying type, amount and carrier) in effect for
         the Domestic Borrower and its Subsidiaries and containing such
         additional information as any Agent, or any Lender Party through the
         Administrative Agent, may reasonably specify.

                  (m)    Year 2000 Compliance. Promptly after the Domestic
         Borrower's discovery or determination thereof, notice (in reasonable
         detail) that any computer application (including those of its
         suppliers, vendors and customers) that is material to its or any of its
         Subsidiaries' business and operations will not be Year 2000 Compliant
         (as defined in Section 4.01(bb)), except to the extent that such
         failure could not reasonably be expected to have a Material Adverse
         Effect.

                  (n)    Other Information. Such other information respecting
         the business, condition (financial or otherwise), operations,
         performance, properties or prospects of any Loan Party or any of its
         Subsidiaries as any Agent, or any Lender Party through the
         Administrative Agent, may from time to time reasonably request.

                  SECTION 5.04. Financial Covenants. So long as any Advance or
any other Obligation of any Loan Party under any Loan Document shall remain
unpaid, any Letter of Credit shall be outstanding or any Lender Party shall have
any Commitment hereunder, the Domestic Borrower will:

                  (a)    Total Debt/EBITDA Ratio. Maintain at the end of each
         fiscal quarter of the Domestic Borrower a Total Debt/EBITDA Ratio of
         not more than the amount set forth below for each period set forth
         below:

<TABLE>
<CAPTION>

                   ==============================================

                     DURING FISCAL YEAR ENDING            RATIO
                                                 ================

                   <S>                           <C>
                      December 31, 2000           5.50:1
                      December 31, 2001           5.50:1
                      December 31, 2002           5.25:1
                      December 31, 2003           5.00:1
                   ==============================================
</TABLE>

                                Credit Agreement


<PAGE>   88

                                       83


<TABLE>

                   <S>                            <C>
                      December 31, 2004           5.00:1
                      December 31, 2005           4.75:1
                       and thereafter
                     ============================================
</TABLE>
                  (b)    Senior Debt/EBITDA Ratio. Maintain at the end of each
         fiscal quarter of the Domestic Borrower a Senior Debt/EBITDA Ratio of
         not more than the amount set forth below for each period set forth
         below:

<TABLE>
<CAPTION>

                   ==============================================

                     DURING FISCAL YEAR ENDING            RATIO
                                                 ================

                   <S>                           <C>
                      December 31, 2000           4.25:1
                      December 31, 2001           4.25:1
                      December 31, 2002           4.00:1
                      December 31, 2003           3.75:1
                      December 31, 2004           3.50:1
                         and thereafter
                   ==============================================
</TABLE>
                  (c)    Fixed Charge Coverage Ratio. Maintain at the end of
         each fiscal quarter of the Domestic Borrower a Fixed Charge Coverage
         Ratio of not less than the amount set forth below for each period set
         forth below:

<TABLE>
<CAPTION>


                   ==============================================

                     DURING FISCAL YEAR ENDING            RATIO
                                                 ================
                  <S>                            <C>
                      December 31, 2000           1.10:1
                      December 31, 2001           1.10:1
                      December 31, 2002           1.10:1
                      December 31, 2003           1.15:1
                      December 31, 2004           1.20:1
                         and thereafter
                   ==============================================
</TABLE>

                  (d)    Interest Coverage Ratio. Maintain at the end of each
         fiscal quarter of the Domestic Borrower an Interest Coverage Ratio of
         not less than the amount set forth below for each period set forth
         below:


                   ==============================================

                     DURING FISCAL YEAR ENDING            RATIO
                                                 ================



                                Credit Agreement

<PAGE>   89


                                       84


<TABLE>


                   <S>                            <C>
                      December 31, 2000           1.75:1
                      December 31, 2001           2.00:1
                      December 31, 2002           2.00:1
                      December 31, 2003           2.25:1
                      December 31, 2004           2.50:1
                         and thereafter
                   ==============================================
</TABLE>



                                   ARTICLE VI

                                EVENTS OF DEFAULT

                 SECTION 6.01. Events of Default. If any of the following events
("EVENTS OF DEFAULT") shall occur and be continuing:

                 (a)   (i) the Domestic Borrower shall fail to pay any principal
         of any Advance when the same shall become due and payable or (ii) the
         Domestic Borrower shall fail to pay any interest on any Advance, or any
         Loan Party shall fail to make any other payment under any Loan
         Document, in each case under this clause (ii) within five Business Days
         after the same becomes due and payable; or

                 (b)   any representation or warranty made by any Loan Party (or
         any of its officers) under or in connection with any Loan Document
         shall prove to have been incorrect in any material respect when made;
         or

                 (c)   the Domestic Borrower shall fail to perform or observe
         any term, covenant or agreement contained in Section 2.14, 5.01(e),
         (f), or (m), 5.02, 5.03 or 5.04; or

                 (d)   any Loan Party shall fail to perform or observe any other
         term, covenant or agreement contained in any Loan Document on its part
         to be performed or observed if such failure shall remain unremedied for
         20 days after the earlier of the date on which (i) a Responsible
         Officer becomes aware of such failure or (ii) written notice thereof
         shall have been given to the Domestic Borrower by the Administrative
         Agent or any Lender Party; or

                 (e)   any Loan Party or any of its Subsidiaries shall fail to
         pay any principal of, premium or interest on or any other amount
         payable in respect of any Debt of such Loan Party or such Subsidiary
         (as the case may be) that is outstanding in a principal amount (or, in
         the case of any Hedge Agreement, an Agreement Value) of at least
         $5,000,000 either individually or in the aggregate (but excluding Debt
         outstanding hereunder), when



                                Credit Agreement

<PAGE>   90

                                       85




         the same becomes due and payable (whether by scheduled maturity,
         required prepayment, acceleration, demand or otherwise), and such
         failure shall continue after the applicable grace period, if any,
         specified in the agreement or instrument relating to such Debt; or any
         other event shall occur or condition shall exist under any agreement or
         instrument relating to any such Debt and shall continue after the
         applicable grace period, if any, specified in such agreement or
         instrument, if the effect of such event or condition is to accelerate,
         or to permit the acceleration of, the maturity of such Debt or
         otherwise to cause, or to permit the holder thereof to cause, such Debt
         to mature; or any such Debt shall be declared to be due and payable or
         required to be prepaid or redeemed (other than by a regularly scheduled
         required prepayment or redemption), purchased or defeased, or an offer
         to prepay, redeem, purchase or defease such Debt shall be required to
         be made, in each case prior to the stated maturity thereof; provided,
         however, that this subsection (e) shall not apply to any secured Debt,
         that becomes due as a result of a voluntary sale or transfer of the
         assets securing such Debt; or

                 (f)   any Loan Party or any of its Subsidiaries or SSCI
         Investors shall generally not pay its debts as such debts become due,
         or shall admit in writing its inability to pay its debts generally, or
         shall make a general assignment for the benefit of creditors; or any
         proceeding shall be instituted by or against any Loan Party or any of
         its Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or
         seeking liquidation, winding up, reorganization, arrangement,
         adjustment, protection, relief, or composition of it or its debts under
         any law relating to bankruptcy, insolvency or reorganization or relief
         of debtors, or seeking the entry of an order for relief or the
         appointment of a receiver, trustee or other similar official for it or
         for any substantial part of its property and, in the case of any such
         proceeding instituted against it (but not instituted by it) that is
         being diligently contested by it in good faith, either such proceeding
         shall remain undismissed or unstayed for a period of 60 days or any of
         the actions sought in such proceeding (including, without limitation,
         the entry of an order for relief against, or the appointment of a
         receiver, trustee, custodian or other similar official for, it or any
         substantial part of its property) shall occur; or any Loan Party or any
         of its Subsidiaries shall take any corporate action to authorize any of
         the actions set forth above in this subsection (f); or

                 (g)   any judgments or orders, either individually or in the
         aggregate, for the payment of money in excess of $5,000,000 (exclusive
         of any amounts fully covered by insurance (less any applicable
         deductible) or indemnification and as to which the insurer or the
         indemnifying party, as the case may be, has acknowledged its obligation
         to cover such judgment or order) shall be rendered against any Loan
         Party or any of its Subsidiaries and either (i) enforcement proceedings
         shall have been commenced by any creditor upon such judgment or order
         or (ii) there shall be any period of 25 consecutive days during which a
         stay of enforcement of such judgment or order, by reason of a pending
         appeal or otherwise, shall not be in effect; or





                                Credit Agreement
<PAGE>   91
                                       86

                  (h) any non-monetary judgment or order shall be rendered
         against any Loan Party or any of its Subsidiaries that would reasonably
         be expected to have a Material Adverse Effect, and there shall be any
         period of 25 consecutive days during which a stay of enforcement of
         such judgment or order, by reason of a pending appeal or otherwise,
         shall not be in effect; or

                  (i) any provision of any Loan Document after delivery thereof
         pursuant to Section 3.01, 3.02, 3.03, 3.04 or 5.01(j) of this Agreement
         or Section 5.01(q) of the Existing Credit Agreement shall for any
         reason cease to be valid and binding on or enforceable against any Loan
         Party party to it, or any such Loan Party shall so state in writing; or

                  (j) any Collateral Document after delivery thereof pursuant to
         Section 3.01, 3.02, 3.03, 3.04 or 5.01(j) of this Agreement or Section
         or 5.01(q) of the Existing Credit Agreement shall for any reason (other
         than pursuant to the terms thereof) cease to create a valid and
         perfected first priority lien on and security interest in the
         Collateral purported to be covered thereby; or

                  (k) a Change of Control shall occur; or

                  (l) any ERISA Event shall have occurred with respect to a Plan
         and the sum (determined as of the date of occurrence of such ERISA
         Event) of the Insufficiency of such Plan and the Insufficiency of any
         and all other Plans with respect to which an ERISA Event shall have
         occurred and then exist (or the liability of the Loan Parties and the
         ERISA Affiliates related to such ERISA Event) exceeds $1,000,000; or

                  (m) any Loan Party or any ERISA Affiliate shall have been
         notified by the sponsor of a Multiemployer Plan that it has incurred
         Withdrawal Liability to such Multiemployer Plan in an amount that, when
         aggregated with all other amounts required to be paid to Multiemployer
         Plans by the Loan Parties and the ERISA Affiliates as Withdrawal
         Liability (determined as of the date of such notification), exceeds
         $2,000,000 or requires payments exceeding $1,000,000 per annum; or

                  (n) any Loan Party or any ERISA Affiliate shall have been
         notified by the sponsor of a Multiemployer Plan that such Multiemployer
         Plan is in reorganization or is being terminated, within the meaning of
         Title IV of ERISA, and as a result of such reorganization or
         termination the aggregate annual contributions of the Loan Parties and
         the ERISA Affiliates to all Multiemployer Plans that are then in
         reorganization or being terminated have been or will be increased over
         the amounts contributed to such Multiemployer Plans for the plan years
         of such Multiemployer Plans immediately



                                Credit Agreement
<PAGE>   92

                                       87


          preceding the plan year in which such reorganization or termination
          occurs by an amount exceeding $1,000,000; or

                  (o) an "Event of Default" (as defined in any Mortgage) shall
          have occurred and be continuing;

then, and in any such event, the Administrative Agent (i) shall at the request,
or may with the consent, of the Required Lenders, by notice to the Domestic
Borrower and each Offshore Borrower, declare the Commitments of each Lender
Party and the obligation of each Lender Party to make Advances (other than
Letter of Credit Advances by the Issuing Bank or a Revolving Credit Lender
pursuant to Section 2.03(c) and Swing Line Advances by a Revolving Credit Lender
pursuant to Section 2.02(b)) and of the Issuing Bank to issue Letters of Credit
to be terminated, whereupon the same shall forthwith terminate, and (ii) shall
at the request, or may with the consent, of the Required Lenders, (A) by notice
to the Domestic Borrower and each Offshore Borrower, declare the Notes, all
interest thereon and all other amounts payable under this Agreement and the
other Loan Documents to be forthwith due and payable, whereupon the Notes, all
such interest and all such amounts shall become and be forthwith due and
payable, without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by the Domestic Borrower and each Offshore
Borrower, (B) by notice to each party required under the terms of any agreement
in support of which a Standby Letter of Credit is issued, request that all
Obligations under such agreement be declared to be due and payable and (C) by
notice to the Issuing Bank, direct the Issuing Bank to deliver a Default
Termination Notice to the beneficiary of each Standby Letter of Credit issued by
it, and the Issuing Bank shall deliver such Default Termination Notices;
provided, however, that in the event of an actual or deemed entry of an order
for relief with respect to the Domestic Borrower under the Federal Bankruptcy
Code, (x) the Commitments of each Lender Party and the obligation of each Lender
Party to make Advances (other than Letter of Credit Advances by the Issuing Bank
or a Revolving Credit Lender pursuant to Section 2.03(c) and Swing Line Advances
by a Revolving Credit Lender pursuant to Section 2.02(b)) and of the Issuing
Bank to issue Letters of Credit shall automatically be terminated and (y) the
Notes, all such interest and all such amounts shall automatically become and be
due and payable, without presentment, demand, protest or any notice of any kind,
all of which are hereby expressly waived by the Domestic Borrower and each
Offshore Borrower.

                  SECTION 6.02. Actions in Respect of the Letters of Credit upon
Default. If any Event of Default shall have occurred and be continuing, the
Administrative Agent may, or shall at the request of the Required Lenders,
irrespective of whether it is taking any of the actions described in Section
6.01 or otherwise, make demand upon the Domestic Borrower to, and forthwith upon
such demand the Domestic Borrower will, pay to the Administrative Agent on
behalf of the Lender Parties in same day funds at the Administrative Agent's
office designated in such demand, for deposit in the L/C Cash Collateral
Account, an amount equal to the aggregate



                                Credit Agreement
<PAGE>   93

                                       88


Available Amount of all Letters of Credit then outstanding. If at any time the
Administrative Agent or the Administrative Agent determines that any funds held
in the L/C Cash Collateral Account are subject to any right or claim of any
Person other than the Agents and the Lender Parties or that the total amount of
such funds is less than the aggregate Available Amount of all Letters of Credit,
the Domestic Borrower will, forthwith upon demand by the Administrative Agent or
the Administrative Agent, pay to the Administrative Agent, as additional funds
to be deposited and held in the L/C Cash Collateral Account, an amount equal to
the excess of (a) such aggregate Available Amount over (b) the total amount of
funds, if any, then held in the L/C Cash Collateral Account that the
Administrative Agent or the Administrative Agent, as the case may be, determines
to be free and clear of any such right and claim. Upon the drawing of any Letter
of Credit for which funds are on deposit in the L/C Cash Collateral Account,
such funds shall be applied to reimburse the Issuing Bank or Lenders, as
applicable, to the extent permitted by applicable law.


                                   ARTICLE VII

                                   THE AGENTS


                  SECTION 7.01. Authorization and Action. Each Lender Party (in
its capacities as a Lender, Swing Line Lender (if applicable), Issuing Bank (if
applicable) and on behalf of itself and its Affiliates as potential Hedge Banks)
hereby appoints and authorizes each Agent to take such action as agent on its
behalf and to exercise such powers and discretion under this Agreement and the
other Loan Documents as are delegated to such Agent by the terms hereof and
thereof, together with such powers and discretion as are reasonably incidental
thereto. As to any matters not expressly provided for by the Loan Documents
(including, without limitation, enforcement or collection of the Notes), no
Agent shall be required to exercise any discretion or take any action, but shall
be required to act or to refrain from acting (and shall be fully protected in so
acting or refraining from acting) upon the instructions of the Required Lenders,
and such instructions shall be binding upon all Lender Parties and all holders
of Notes; provided, however, that no Agent shall be required to take any action
that exposes such Agent to personal liability or that is contrary to this
Agreement or applicable law. Each Agent agrees to give to each Lender Party
prompt notice of each notice given to it by the Domestic Borrower pursuant to
the terms of this Agreement.

                  SECTION 7.02. Agents' Reliance, Etc. Neither any Agent nor any
of their respective directors, officers, agents or employees shall be liable for
any action taken or omitted to be taken by it or them under or in connection
with the Loan Documents, except for its or their own gross negligence or willful
misconduct. Without limitation of the generality of the foregoing, each Agent:
(a) may treat the payee of any Note as the holder thereof until, in the case of
the Administrative Agent, the Administrative Agent receives and accepts an
Assignment and



                                Credit Agreement
<PAGE>   94
                                       89

Acceptance entered into by the Lender that is the payee of such Note, as
assignor, and an Eligible Assignee, as assignee, or, in the case of any other
Agent, such Agent has received notice from the Administrative Agent that it has
received and accepted such Assignment and Acceptance, in each case as provided
in Section 8.07; (b) may consult with legal counsel (including counsel for any
Loan Party), independent public accountants and other experts selected by it and
shall not be liable for any action taken or omitted to be taken in good faith by
it in accordance with the advice of such counsel, accountants or experts; (c)
makes no warranty or representation to any Lender Party and shall not be
responsible to any Lender Party for any statements, warranties or
representations (whether written or oral) made in or in connection with the Loan
Documents; (d) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of any
Loan Document on the part of any Loan Party or to inspect the property
(including the books and records) of any Loan Party; (e) shall not be
responsible to any Lender Party for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of, or the perfection or
priority of any lien or security interest created or purported to be created
under or in connection with, any Loan Document or any other instrument or
document furnished pursuant thereto; and (f) shall incur no liability under or
in respect of any Loan Document by acting upon any notice, consent, certificate
or other instrument or writing (which may be by telegram, telecopy or telex)
believed by it to be genuine and signed or sent by the proper party or parties.

                  SECTION 7.03. Chase, J.P. Morgan, ML&Co. and Affiliates. With
respect to its Commitments or the Commitments of its Affiliates, the Advances
made by it or the Advances made by its Affiliates and the Notes issued to it or
to its Affiliates, Chase, J.P. Morgan and ML&Co. and their Affiliates shall have
the same rights and powers under the Loan Documents as any other Lender Party
and may exercise the same as though it or its Affiliate were not an Agent; and
the term "Lender Party" or "Lender Parties" shall, unless otherwise expressly
indicated, include Chase, Morgan Guaranty Trust Company of New York and Merrill
Lynch Capital Corporation in their respective individual capacities. Chase,
Morgan Guaranty Trust Company of New York and Merrill Lynch Capital Corporation
and their respective Affiliates may accept deposits from, lend money to, act as
trustee under indentures of, accept investment banking engagements from and
generally engage in any kind of business with, any Loan Party, any of its
Subsidiaries and any Person that may do business with or own securities of any
Loan Party or any such Subsidiary, all as if Chase, J.P. Morgan and ML&Co. were
not Agents and without any duty to account therefor to the Lender Parties.

                  SECTION 7.04. Lender Party Credit Decision. Each Lender Party
acknowledges that it has, independently and without reliance upon any Agent or
any other Lender Party and based on the financial statements referred to in
Section 4.01 and such other documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement. Each Lender Party also acknowledges that it will, independently and
without reliance upon any Agent or any other Lender Party and based on such
documents and



                                Credit Agreement
<PAGE>   95
                                       90


information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement.

                  SECTION 7.05. Indemnification. (a) Each Lender Party severally
agrees to indemnify each Agent (to the extent not promptly reimbursed by the
Domestic Borrower) from and against such Lender Party's ratable share
(determined as provided below) of any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever that may be imposed on, incurred by, or
asserted against such Agent in any way relating to or arising out of the Loan
Documents or any action taken or omitted by such Agent under the Loan Documents;
provided, however, that no Lender Party shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from such Agent's gross negligence or
willful misconduct as found in a final, non-appealable judgment by a court of
competent jurisdiction. Without limitation of the foregoing, each Lender Party
agrees to reimburse each Agent promptly upon demand for its ratable share of any
costs and expenses (including, without limitation, fees and expenses of counsel)
payable by the Domestic Borrower under Section 8.04, to the extent that such
Agent is not promptly reimbursed for such costs and expenses by the Domestic
Borrower.

                  (b) Each Lender Party severally agrees to indemnify the
Issuing Bank (to the extent not promptly reimbursed by the Domestic Borrower)
from and against such Lender Party's ratable share (determined as provided
below) of any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever that may be imposed on, incurred by, or asserted against the
Issuing Bank in any way relating to or arising out of the Loan Documents or any
action taken or omitted by the Issuing Bank under the Loan Documents; provided,
however, that no Lender Party shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from the Issuing Bank's gross
negligence or willful misconduct as found in a final, non-appealable judgment by
a court of competent jurisdiction. Without limitation of the foregoing, each
Lender Party agrees to reimburse the Issuing Bank promptly upon demand for its
ratable share of any costs and expenses (including, without limitation, fees and
expenses of counsel) payable by the Domestic Borrower under Section 8.04, to the
extent that the Issuing Bank is not promptly reimbursed for such costs and
expenses by the Domestic Borrower.

                  (c) For purposes of this Section 7.05, the Lender Parties'
respective ratable shares of any amount shall be determined, at any time,
according to the sum of (i) the aggregate principal amount of the Advances
outstanding at such time and owing to the respective Lender Parties, (ii) their
respective Pro Rata Shares of the aggregate Available Amount of all Letters of
Credit outstanding at such time, (iii) the aggregate unused portions of their
respective Term Commitments at such time and (iv) their respective Unused
Revolving Credit Commitments at

                                Credit Agreement
<PAGE>   96
                                       91


such time; provided that the aggregate principal amount of Swing Line Advances
owing to the Swing Line Bank and of Letter of Credit Advances owing to the
Issuing Bank shall be considered to be owed to the Revolving Credit Lenders
ratably in accordance with their respective Revolving Credit Commitments. The
failure of any Lender Party to reimburse any Agent or the Issuing Bank, as the
case may be, promptly upon demand for its ratable share of any amount required
to be paid by the Lender Parties to such Agent or the Issuing Bank, as the case
may be, as provided herein shall not relieve any other Lender Party of its
obligation hereunder to reimburse such Agent or the Issuing Bank, as the case
may be, for its ratable share of such amount, but no Lender Party shall be
responsible for the failure of any other Lender Party to reimburse such Agent or
the Issuing Bank, as the case may be, for such other Lender Party's ratable
share of such amount. Without prejudice to the survival of any other agreement
of any Lender Party hereunder, the agreement and obligations of each Lender
Party contained in this Section 7.05 shall survive the payment in full of
principal, interest and all other amounts payable hereunder and under the other
Loan Documents.

                  SECTION 7.06. Successor Agents. Any Agent may resign at any
time by giving written notice thereof to the Lender Parties and the Domestic
Borrower and may be removed at any time with or without cause by the Required
Lenders. Upon any such resignation or removal, the Required Lenders shall have
the right to appoint a successor Agent which, so long as no Default has occurred
and is continuing, shall be approved by the Domestic Borrower (such approval not
to be unreasonably withheld or delayed), and, which shall be a commercial bank
organized under the laws of the United States or of any State thereof and having
a combined capital and surplus of at least $1,000,000,000. If no successor Agent
shall have been so appointed by the Required Lenders, and shall have accepted
such appointment, within 30 days after the retiring Agent's giving of notice of
resignation or the Required Lenders' removal of the retiring Agent, then the
retiring Agent may, on behalf of the Lender Parties, appoint a successor Agent.
Upon the acceptance of any appointment as Agent hereunder by a successor Agent
and, in the case of a successor Administrative Agent, upon the execution and
filing or recording of such financing statements, or amendments thereto, and
such amendments or supplements to the Mortgages, and such other instruments or
notices, as may be necessary or desirable, or as the Required Lenders may
request, in order to continue the perfection of the Liens granted or purported
to be granted by the Collateral Documents, such successor Agent shall succeed to
and become vested with all the rights, powers, discretion, privileges and duties
of the retiring Agent, and the retiring Agent shall be discharged from its
duties and obligations under the Loan Documents. Upon the acceptance of any
appointment as Agent hereunder by a successor Agent as to less than all of the
Facilities and, in the case of a successor Administrative Agent, upon the
execution and filing or recording of such financing statements, or amendments
thereto, and such amendments or supplements to the Mortgages, and such other
instruments or notices, as may be necessary or desirable, or as the Required
Lenders may request, in order to continue the perfection of the Liens granted or
purported to be granted by the Collateral Documents, such successor Agent shall
succeed to and become vested with all the rights, powers, discretion,

                                Credit Agreement
<PAGE>   97

                                       92

privileges and duties of the retiring Agent as to such Facilities, other than
with respect to funds transfers and other similar aspects of the administration
of Borrowings under such Facilities, issuances of Letters of Credit
(notwithstanding any resignation as Agent with respect to the Letter of Credit
Sub-Facility) and payments by the Domestic Borrower in respect of such
Facilities, and the retiring Administrative Agent shall be discharged from its
duties and obligations under this Agreement as to such Facilities, other than as
aforesaid. If within 45 days after written notice is given of the retiring
Agent's resignation or removal under this Section 7.06 no successor Agent shall
have been appointed and shall have accepted such appointment, then on such 45th
day (a) the retiring Agent's resignation or removal shall become effective, (b)
the retiring Agent shall thereupon be discharged from its duties and obligations
under the Loan Documents and (c) the Required Lenders shall thereafter perform
all duties of the retiring Agent under the Loan Documents until such time, if
any, as the Required Lenders appoint a successor Agent as provided above. After
any retiring Agent's resignation or removal hereunder as Agent shall have become
effective, the provisions of this Article VII shall inure to its benefit as to
any actions taken or omitted to be taken by it while it was Agent under this
Agreement.


                                  ARTICLE VIII

                                  MISCELLANEOUS

                  SECTION 8.01. Amendments, Etc. No amendment or waiver of any
provision of this Agreement or the Notes or any other Loan Document, nor consent
to any departure by any Loan Party therefrom, shall in any event be effective
unless the same shall be in writing and signed (or, in the case of the
Collateral Documents, consented to) by the Required Lenders, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given; provided, however, that

                (a) no amendment, waiver or consent shall, unless in writing
         and signed by the Domestic Borrower, the Offshore Borrowers and all of
         the Lenders (other than any Lender Party that is, at such time, a
         Defaulting Lender), do any of the following at any time:

                    (i) waive any of the conditions specified in Section 3.01,
               3.02, 3.03 or, in the case of the Initial Extension of Credit,
               Section 3.04,

                    (ii) change the number of Lenders or the percentage of (x)
               the Commitments, (y) the aggregate unpaid principal amount of the
               Advances or (z) the aggregate Available Amount of outstanding
               Letters of Credit that, in each case, shall be required for the
               Lenders or any of them to take any action hereunder,




                                Credit Agreement
<PAGE>   98
                                       93

                    (iii) reduce or limit the obligations of any Guarantor under
               Section 1 of the Guaranty issued by it or release such Guarantor
               or otherwise limit such Guarantor's liability with respect to the
               Obligations owing to the Agents and the Lender Parties (other
               than, (x) to the extent permitted under the Guaranty, (y)
               pursuant to a merger permitted pursuant to Section 5.02(e) or (z)
               in connection with a sale of such Guarantor permitted pursuant to
               Section 5.02(f) or a waiver of such Section effected with the
               consent of the Required Lenders),

                    (iv) release all or substantially all of the Collateral in
               any transaction or series of related transactions or permit the
               creation, incurrence, assumption or existence of any Lien on all
               or substantially all of the Collateral in any transaction or
               series of related transactions to secure any Obligations other
               than Obligations owing to the Secured Parties under the Loan
               Documents, or

                    (v) amend Section 2.13, the Collateral Sharing Agreement or
               this Section 8.01;

               (b) no amendment, waiver or consent shall, unless in writing
          and signed by the Domestic Borrower, each Offshore Borrower and the
          Required Lenders and each Lender (other than any Lender that is, at
          such time, a Defaulting Lender) that has a Commitment under the Term A
          Facility, the Offshore Acquisition Facility or the Revolving Credit
          Facility if such Lender is directly affected by such amendment, waiver
          or consent,

                    (i) increase the Commitments of such Lender (it being
               understood that waivers or modification of conditions precedent,
               covenants, Defaults or Events of Default or a mandatory reduction
               in the Revolving Credit Facility shall not constitute an increase
               of the Commitment of any Lender, and that an increase in the
               available portion of any Commitment of any Lender shall not
               constitute an increase in the Commitment of such Lender for these
               purposes),
                    (ii) reduce the principal of, or interest on, the Notes held
               by such Lender or any fees or other amounts payable hereunder to
               such Lender (other than as a result of any waiver of the
               applicability of any post default increase in interest rates; it
               being understood that any amendment or modification to the
               financial definitions in this Agreement shall not constitute a
               reduction in any rate of interest or fees for these purposes,
               notwithstanding the fact that such amendment or modification
               actually results in such a reduction, so long as the primary
               purpose (as determined in good faith by the Joint Lead Arrangers)
               of the respective amendment or modification was not to decrease
               the pricing pursuant to this Agreement), or




                                Credit Agreement
<PAGE>   99

                                       94

                           (iii) postpone any date fixed for any payment of
                  principal of, or interest on, the Notes held by such Lender
                  pursuant to Section 2.04 or 2.07 or any fees or other amounts
                  payable hereunder to such Lender pursuant to Section 2.08;

                  (c) no amendment, waiver or consent shall, unless in writing
          and signed by the Domestic Borrower, the Offshore Borrowers and the
          Required Lenders and, if the Lenders that have Commitments under, or
          are owed any amounts under or in respect of, any Facility are directly
          affected by such amendment, waiver or consent, Lenders holding more
          than 50% of the aggregate Commitments under the Term A Facility, the
          Offshore Acquisition Facility or the Revolving Credit Facility, change
          the order of application of any reduction in the Commitments or any
          prepayment of Advances between the Term A Facility or the Offshore
          Acquisition Facility from the application thereof set forth in the
          applicable provisions of Section 2.06(b)(v) in any manner that
          materially affects the Lenders under such Facility or require the
          permanent reduction of the Revolving Credit Facility at any time when
          all or a portion of any Term Facility remains in effect;

                  (d) no amendment, waiver or consent shall, unless in writing
          and signed by the Appropriate Swing Line Lender or the Issuing Bank,
          as the case may be, in addition to the Lenders required above to take
          such action, affect the rights or obligations of the Appropriate Swing
          Line Lender or of the Issuing Bank, as the case may be, under this
          Agreement; and

                  (e) no amendment, waiver or consent shall, unless in writing
          and signed by an Agent in addition to the Lenders required above to
          take such action, affect the rights or duties of such Agent under this
          Agreement or the other Loan Documents.

At any time that no Default shall have occurred and be continuing, if, in
connection with any proposed change, waiver, discharge or termination to any of
the provisions of this Agreement as contemplated by subsection (c) of this
Section 8.01, the consent of the Required Lenders is obtained but the consent of
one or more of such other Lenders whose consent is required is not obtained,
then the Domestic Borrower shall have the right, so long as all non-consenting
Lenders whose individual consent is required are treated as described below, to
replace each such non-consenting Lender or Lenders with one or more Eligible
Assignees so long as at the time of such replacement, each such Eligible
Assignee consents to the proposed change, waiver, discharge or termination. At
the time any such non-consenting Lender (a "DEPARTING LENDER") is replaced by an
Eligible Assignee (a "REPLACEMENT LENDER") designated by the Domestic Borrower
hereunder, the Replacement Lender and the Departing Lender shall enter into an
Assignment and Acceptance pursuant to Section 8.07 pursuant to which all of the
Commitments, Advances and Notes owed to, or held by, the Departing Lender are
assigned to the Replacement Lender, against payment by the Replacement Lender to
the Departing Lender of an amount equal to the principal

                                Credit Agreement
<PAGE>   100

                                       95

amount of such outstanding Advances, together with accrued and unpaid interest
on such Advances to the date of assignment and all accrued and unpaid fees and
other amounts due to the Departing Lender hereunder on such date. The Domestic
Borrower or the Replacement Lender shall pay the Administrative Agent's fees in
connection with any such assignment.

                  SECTION 8.02. Notices, Etc. All notices and other
communications provided for hereunder shall be in writing (including
telegraphic, telecopy or telex communication) and mailed, telegraphed,
telecopied, telexed or delivered, if to the Domestic Borrower, at its address at
225 West Washington Street, Suite 2200, Chicago, IL 60606, Telecopy Number:
(312) 419-4034, Attention: John R. Mellet; if to an Offshore Borrower or any
other Loan Party, to it c/o the Domestic Borrower with a copy to the address
provided on Schedule I to the Credit Agreement Supplement executed and delivered
by such Offshore Borrower; if to any Initial Lender Party, at its Domestic
Lending Office specified opposite its name on Schedule I hereto; if to any other
Lender Party (other than any Offshore Swing Line Lender), at its Domestic
Lending Office specified in the Assignment and Acceptance pursuant to which it
became a Lender Party; if to any Offshore Swing Line Lender, to the Offshore
Currency Agent, with a copy to the notice address specified in the Joinder
Agreement pursuant to which it became an Offshore Swing Line Lender; if to
Chase, in its capacity as the Administrative Agent or Offshore Currency Agent,
at its address at The Loan and Agency Services Group, One Chase Manhattan Plaza,
8th Floor, New York, New York 10081, Telecopy Number: (212) 552-5777, Attention:
Michael Cerniglia, with a copy, in the case of all notices other than Notices of
Borrowing, Notices of Issuance, Notices of Renewal and Notices of Swing Line
Borrowings, to The Chase Manhattan Bank, 270 Park Avenue, 38th Floor, New York,
New York 10017, Telecopy Number: (212) 270-7939, Attention: Lawrence Palumbo; if
to ML&Co. in its capacity as a Joint Lead Arranger, Joint Book Manager or
Syndication Agent, at its address at World Financial Center, North Tower, 250
Vesey Street, New York, New York 10281, Telecopy Number: (212) 449-8635,
Attention: David Manzano; if to J.P. Morgan in its capacity as a Joint Lead
Arranger, Joint Book Manager or Documentation Agent, at its address at 60 Wall
Street, New York, New York 10260-0060, Telecopy Number: (212) 648-5348,
Attention: Jose Briones; or, as to the Domestic Borrower or the Administrative
Agent, at such other address as shall be designated by such party in a written
notice to the other parties and, as to each other party, at such other address
as shall be designated by such party in a written notice to the Domestic
Borrower and the Administrative Agent. All such notices and other communications
shall, when mailed, telegraphed, telecopied or telexed, be effective when
deposited in the mails, delivered to the telegraph company, transmitted by
telecopier or confirmed by telex answerback, respectively, except that notices
and communications to any Agent pursuant to Article II, III or VII shall not be
effective until received by such Agent. Delivery by telecopier of an executed
counterpart of any amendment or waiver of any provision of this Agreement or the
Notes or of any Exhibit hereto to be executed and delivered hereunder shall be
effective as delivery of an original executed counterpart thereof.




                                Credit Agreement
<PAGE>   101
                                       96

                SECTION 8.03. No Waiver; Remedies. No failure on the part of any
Lender Party or any Agent to exercise, and no delay in exercising, any right
hereunder or under any Note shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.

                SECTION 8.04. Costs and Expenses. (a) The Domestic Borrower
agrees to pay on demand (i) all reasonable costs and expenses of each Agent in
connection with the preparation, execution, delivery, administration,
modification and amendment of the Loan Documents (including, without limitation,
(A) all due diligence, collateral review, syndication, transportation, computer,
duplication, appraisal, audit, insurance, consultant, search, filing and
recording fees and expenses and (B) the reasonable fees and expenses of counsel
for the Syndication Agent and the reasonable fees and expenses of counsel to the
Administrative Agent with respect thereto, with respect to advising such Agent
as to its rights and responsibilities, or the perfection, protection or
preservation of rights or interests, under the Loan Documents (including,
without limitation, pursuant to Section 3.02, 3.03, 5.01(j), (k) and (m)), with
respect to negotiations with any Loan Party or with other creditors of any Loan
Party or any of its Subsidiaries arising out of any Default or any events or
circumstances that may give rise to a Default and with respect to presenting
claims in or otherwise participating in or monitoring any bankruptcy, insolvency
or other similar proceeding involving creditors' rights generally and any
proceeding ancillary thereto) and (ii) all costs and expenses of each Agent and
each Lender Party in connection with the enforcement of the Loan Documents,
whether in any action, suit or litigation, or any bankruptcy, insolvency or
other similar proceeding affecting creditors' rights generally (including,
without limitation, the reasonable fees and expenses of counsel for the
Administrative Agent and each Lender Party with respect thereto).

                (b) The Domestic Borrower agrees to indemnify, defend and save
and hold harmless each Agent, each Lender Party and each of their Affiliates and
their respective officers, directors, employees, agents and advisors (each, an
"INDEMNIFIED PARTY") from and against, and shall pay on demand, any and all
claims, damages, losses, liabilities and expenses (including, without
limitation, reasonable fees and expenses of counsel) that may be incurred by or
asserted or awarded against any Indemnified Party, in each case arising out of
or in connection with or by reason of (including, without limitation, in
connection with any investigation, litigation or proceeding or preparation of a
defense in connection therewith) (i) the Facilities, the actual or proposed use
of the proceeds of the Advances or the Letters of Credit, the Transaction
Documents or any of the transactions contemplated thereby, including, without
limitation, the Offer to Purchase and any Permitted Acquisition or other
proposed acquisition (including, without limitation, the Acquisition) by the
Domestic Borrower or any of its Subsidiaries or (ii) the actual or alleged
presence of Hazardous Materials on any property of any Loan Party or any of its
Subsidiaries or any Environmental Action relating in any way to any Loan Party
or any of its Subsidiaries, except to the extent such claim, damage, loss,
liability or expense is found in



                                Credit Agreement
<PAGE>   102

                                       97

a final, non-appealable judgment by a court of competent jurisdiction to have
resulted from such Indemnified Party's bad faith, gross negligence or willful
misconduct. In the case of an investigation, litigation or other proceeding to
which the indemnity in this Section 8.04(b) applies, such indemnity shall be
effective whether or not such investigation, litigation or proceeding is brought
by any Loan Party, its directors, shareholders or creditors or an Indemnified
Party, whether or not any Indemnified Party is otherwise a party thereto and
whether or not the Transaction is consummated. The Domestic Borrower also agrees
that no Indemnified Party shall have any liability (whether direct or indirect,
in contract or tort or otherwise) for any Losses to any Loan Party or any Loan
Party's security holders or creditors resulting from, arising out of or in any
way related to or by reason of, the Facilities, the actual or proposed use of
the proceeds of the Advances or the Letters of Credit, the Transaction Documents
or any of the transactions contemplated by the Transaction Documents except to
the extent that any Loss resulted from the gross negligence or bad faith of such
Indemnified Person.

                  (c) If any payment of principal of, or Conversion of, any
Eurodollar Rate Advance is made by an Applicable Borrower to or for the account
of a Lender Party other than on the last day of the Interest Period for such
Advance, as a result of a payment or Conversion pursuant to Section 2.06,
2.09(b)(i) or 2.10(d), acceleration of the maturity of the Notes pursuant to
Section 6.01 or for any other reason, or by an Eligible Assignee to a Lender
Party other than on the last day of the Interest Period for such Advance upon an
assignment of rights and obligations under this Agreement pursuant to Section
8.07 as a result of a demand by the Domestic Borrower pursuant to Section
8.07(a), or if the Applicable Borrower fails to make any payment or prepayment
of an Advance for which a notice of prepayment has been given or that is
otherwise required to be made, whether pursuant to Section 2.04, 2.06 or 6.01 or
otherwise, the Applicable Borrower shall, upon demand by such Lender Party (with
a copy of such demand to the Administrative Agent), pay to the Administrative
Agent for the account of such Lender Party any amounts required to compensate
such Lender Party for any additional losses, costs or expenses that it may
reasonably incur as a result of such payment or Conversion or such failure to
pay or prepay, as the case may be, including, without limitation, any loss
(including loss of anticipated profits), cost or expense incurred by reason of
the liquidation or reemployment of deposits or other funds acquired by any
Lender Party to fund or maintain such Advance.

                  (d) If any Loan Party fails to pay when due any costs,
expenses or other amounts payable by it under any Loan Document, including,
without limitation, fees and expenses of counsel and indemnities, such amount
may be paid on behalf of such Loan Party by the Administrative Agent or any
Lender Party, in its sole discretion.

                  (e) Without prejudice to the survival of any other agreement
of any Loan Party hereunder or under any other Loan Document, the agreements and
obligations of each Applicable Borrower contained in Sections 2.10 and 2.12 and
this Section 8.04 shall survive the payment in full of principal, interest and
all other amounts payable hereunder and under any of the other Loan Documents.



                                Credit Agreement
<PAGE>   103

                                       98

                  SECTION 8.05. Right of Set-off. Upon (a) the occurrence and
during the continuance of any Event of Default and (b) the making of the request
or the granting of the consent specified by Section 6.01 to authorize the
Administrative Agent to declare the Notes due and payable pursuant to the
provisions of Section 6.01, each Agent and each Lender Party and each of their
respective Affiliates is hereby authorized at any time and from time to time, to
the fullest extent permitted by law, to set off and otherwise apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by such Agent, such Lender Party
or such Affiliate to or for the credit or the account of (i) the Domestic
Borrower against any and all of the Obligations of the Domestic Borrower now or
hereafter existing under the Loan Documents, or (ii) any Offshore Borrower,
against any and all of the obligations of such Offshore Borrower now or
hereafter existing under the Loan Documents, in either case, irrespective of
whether such Agent or such Lender Party shall have made any demand under this
Agreement or such Note or Notes and although such Obligations may be unmatured.
Each Agent and each Lender Party agrees promptly to notify the Domestic Borrower
or such Offshore Borrower, as the case may be, after any such set-off and
application; provided, however, that the failure to give such notice shall not
affect the validity of such set-off and application. The rights of each Agent
and each Lender Party and their respective Affiliates under this Section are in
addition to other rights and remedies (including, without limitation, other
rights of set-off) that such Agent, such Lender Party and their respective
Affiliates may have.

                  SECTION 8.06. Binding Effect. This Agreement shall become
effective on the Effective Date and thereafter shall be binding upon and inure
to the benefit of the Domestic Borrower, each Offshore Borrower, each Agent and
each Lender Party and their respective successors and assigns, except that
neither the Domestic Borrower nor any Offshore Borrower shall have the right to
assign its rights hereunder or any interest herein without the prior written
consent of the Lender Parties.

                  SECTION 8.07. Assignments and Participations. (a) Each Lender
may assign to one or more Eligible Assignees all or a portion of its rights and
obligations under this Agreement (including, without limitation, all or a
portion of its Commitment or Commitments, the Advances owing to it and the Note
or Notes held by it); provided, however, that (i) each such assignment shall be
of a uniform, and not a varying, percentage of all rights and obligations under
and in respect of one or more Facilities, (ii) except in the case of an
assignment to a Person that, immediately prior to such assignment, was a Lender,
an Affiliate of any Lender or an Approved Fund of any Lender or an assignment of
all of a Lender's rights and obligations under this Agreement, the aggregate
amount of the Commitments being assigned to such Eligible Assignee pursuant to
such assignment (determined as of the date of the Assignment and Acceptance with
respect to such assignment) shall in no event be less than $1,000,000 (or such
lesser amount as shall be approved by the Administrative Agent and, so long as
no Default shall have occurred

                                Credit Agreement
<PAGE>   104


                                       99


and be continuing at the time of effectiveness of such assignment, the Domestic
Borrower, acting on behalf of itself and any other Applicable Borrower) under
each Facility for which a Commitment is being assigned, (iii) except in the case
of an assignment to a Person that, immediately prior to such assignment was a
Lender, an Affiliate of any Lender or an Approved Fund of any Lender, each such
assignment shall be to an Eligible Assignee approved by the Administrative Agent
and, so long as no Default shall have occurred, the Domestic Borrower (acting on
behalf of itself and any other Applicable Borrower), such consent not to be
unreasonably withheld or delayed, (iv) no such assignments shall be permitted
without the consent of the Joint Lead Arrangers until the Joint Lead Arrangers
shall have notified the Lender Parties that syndication of the Commitments
hereunder has been completed and (v) the parties to each such assignment shall
execute and deliver to the Administrative Agent, for its acceptance and
recording in the Register, an Assignment and Acceptance, together with any Note
or Notes subject to such assignment and a processing and recordation fee of
$3,500.

                  (b) Upon such execution, delivery, acceptance and recording,
from and after the effective date specified in such Assignment and Acceptance,
(i) the assignee thereunder shall be a party hereto and, to the extent that
rights and obligations hereunder have been assigned to it pursuant to such
Assignment and Acceptance, have the rights and obligations of a Lender or
Issuing Bank, as the case may be, hereunder and (ii) the Lender or Issuing Bank
assignor thereunder shall, to the extent that rights and obligations hereunder
have been assigned by it pursuant to such Assignment and Acceptance, relinquish
its rights (other than its rights under Sections 2.10, 2.12 and 8.04 to the
extent any claim thereunder relates to an event arising prior to such
assignment) and be released from its obligations under this Agreement (and, in
the case of an Assignment and Acceptance covering all of the remaining portion
of an assigning Lender's or Issuing Bank's rights and obligations under this
Agreement, such Lender or Issuing Bank shall cease to be a party hereto).

                  (c) By executing and delivering an Assignment and Acceptance,
each Lender Party assignor thereunder and each assignee thereunder confirm to
and agree with each other and the other parties thereto and hereto as follows:
(i) other than as provided in such Assignment and Acceptance, such assigning
Lender Party makes no representation or warranty and assumes no responsibility
with respect to any statements, warranties or representations made in or in
connection with any Loan Document or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of, or the perfection or
priority of any lien or security interest created or purported to be created
under or in connection with, any Loan Document or any other instrument or
document furnished pursuant thereto; (ii) such assigning Lender Party makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of any Loan Party or the performance or observance by any
Loan Party of any of its obligations under any Loan Document or any other
instrument or document furnished pursuant thereto; (iii) such assignee confirms
that it has received a copy of this Agreement and the Collateral Sharing
Agreement, together with copies of the financial statements referred to in
Section 4.01

                                Credit Agreement
<PAGE>   105

                                      100

and such other documents and information as it has deemed appropriate to make
its own credit analysis and decision to enter into such Assignment and
Acceptance; (iv) such assignee will, independently and without reliance upon any
Agent, such assigning Lender Party or any other Lender Party and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi) such
assignee appoints and authorizes each Agent to take such action as agent on its
behalf and to exercise such powers and discretion under the Loan Documents as
are delegated to such Agent by the terms hereof and thereof, together with such
powers and discretion as are reasonably incidental thereto; and (vii) such
assignee agrees that it will be bound by the provisions of this Agreement and
the Collateral Sharing Agreement and will perform in accordance with their terms
all of the obligations that by the terms of this Agreement and the Collateral
Sharing Agreement are required to be performed by it as a Lender or Issuing
Bank, as the case may be.

                  (d) The Administrative Agent, acting for this purpose (but
only for this purpose) as the agent of the Applicable Borrowers, shall maintain
at its address referred to in Section 8.02 a copy of each Assignment and
Acceptance delivered to and accepted by it and a register for the recordation of
the names and addresses of the Lender Parties and the Commitment under each
Facility of, and principal amount of the Advances owing under each Facility to,
each Lender Party from time to time (the "REGISTER"). The entries in the
Register shall be conclusive and binding for all purposes, absent manifest
error, and the Applicable Borrowers, the Agents and the Lender Parties shall
treat each Person whose name is recorded in the Register as a Lender Party
hereunder for all purposes of this Agreement. The Register shall be available
for inspection by the Applicable Borrowers or any Agent or any Lender Party at
any reasonable time and from time to time upon reasonable prior notice.

                  (e) Upon its receipt of an Assignment and Acceptance executed
by an assigning Lender Party and an assignee, together with any Note or Notes
subject to such assignment, the Administrative Agent shall, if such Assignment
and Acceptance has been completed and is in substantially the form of Exhibit C
hereto (and is accompanied by any required U.S. Internal Revenue Service Forms
referred to in Section 3(vii) thereof), (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in the Register and
(iii) give prompt notice thereof to the Domestic Borrower, any other Applicable
Borrower and each other Agent. In the case of any assignment by a Lender, within
five Business Days after its receipt of such notice, each Applicable Borrower,
at its own expense, shall (if so requested) execute and deliver to the
Administrative Agent in exchange for the surrendered Note or Notes a new Note to
the order of such Eligible Assignee in an amount equal to the Commitment assumed
by it under each Facility pursuant to such Assignment and Acceptance and, if any
assigning Lender has retained a Commitment hereunder under such Facility, a new
Note to the order of such assigning Lender in an amount equal to the Commitment
retained by it hereunder. Such new Note or Notes shall be in an aggregate
principal amount equal to the



                                Credit Agreement
<PAGE>   106
                                      101

aggregate principal amount of such surrendered Note or Notes, shall be dated the
Effective Date and shall otherwise be in substantially the form of Exhibit A-1,
A-2, A-3 or A-4 hereto, as the case may be.

                  (f) The Issuing Bank may assign to an Eligible Assignee all of
its rights and obligations under the undrawn portion of its Letter of Credit
Commitment at any time; provided, however, that the parties to each such
assignment shall execute and deliver to the Administrative Agent, for its
acceptance and recording in the Register, an Assignment and Acceptance, together
with a processing and recordation fee of $3,500.

                  (g) Each Lender Party may sell participations to one or more
Persons (other than any Loan Party or any of its Affiliates) in or to all or a
portion of its rights and obligations under this Agreement (including, without
limitation, all or a portion of its Commitments, the Advances owing to it and
the Note or Notes (if any) held by it); provided, however, that (i) such Lender
Party's obligations under this Agreement (including, without limitation, its
Commitments) shall remain unchanged, (ii) such Lender Party shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) such Lender Party shall remain the holder of any such Note for all
purposes of this Agreement, (iv) the Domestic Borrower, the Offshore Borrowers,
the Agents and the other Lender Parties shall continue to deal solely and
directly with such Lender Party in connection with such Lender Party's rights
and obligations under this Agreement and (v) no participant under any such
participation shall have any right to approve any amendment or waiver of any
provision of any Loan Document, or any consent to any departure by any Loan
Party therefrom, except to the extent that such amendment, waiver or consent
would reduce the principal of, or interest on, the Notes or any fees or other
amounts payable hereunder, in each case to the extent subject to such
participation, postpone any date fixed for any payment of principal of, or
interest on, the Notes or any fees or other amounts payable hereunder, in each
case to the extent subject to such participation, or release all or
substantially all of the Collateral.

                  (h) Any Lender Party that sells a participating interest under
Section 8.07(g) shall indemnify and hold harmless each Applicable Borrower and
the Administrative Agent from and against any taxes, related penalties and
interest, and reasonable out-of-pocket costs (including reasonable attorneys'
fees and expenses) incurred or payable by the Applicable Borrower or such Agent
as a result of the failure of Applicable Borrower or such Agent to comply with
its obligations to deduct or withhold any Taxes from any payments made pursuant
to this Agreement to such Lender Party (or such participant) or such Agent, as
the case may be, which taxes would not have been incurred or payable but for
such participation.

                  (i) Any Lender Party may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
8.07, disclose to the assignee or participant or proposed assignee or
participant any information relating to the Domestic Borrower and the other
Applicable Borrowers furnished to such Lender Party by or on behalf of the
Domestic

                                Credit Agreement
<PAGE>   107

                                  102

Borrower and the other Applicable Borrowers; provided, however, that, prior to
any such disclosure, the assignee or participant or proposed assignee or
participant shall agree to preserve the confidentiality of any Confidential
Information received by it from such Lender Party.

                  (j) Notwithstanding any other provision set forth in this
Agreement, any Lender Party may at any time create a security interest in all or
any portion of its rights under this Agreement (including, without limitation,
the Advances owing to it and the Note or Notes held by it) in favor of any
Federal Reserve Bank in accordance with Regulation A of the Board of Governors
of the Federal Reserve System.

                  SECTION 8.08. Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different 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. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of an original executed
counterpart of this Agreement.

                  SECTION 8.09. No Liability of the Issuing Bank. The Domestic
Borrower assumes all risks of the acts or omissions of any beneficiary or
transferee of any Letter of Credit with respect to its use of such Letter of
Credit. Neither the Issuing Bank nor any of its officers or directors shall be
liable or responsible for: (a) the use that may be made of any Letter of Credit
or any acts or omissions of any beneficiary or transferee in connection
therewith; (b) the validity, sufficiency or genuineness of documents, or of any
endorsement thereon, even if such documents should prove to be in any or all
respects invalid, insufficient, fraudulent or forged; (c) payment by the Issuing
Bank against presentation of documents that do not comply with the terms of a
Letter of Credit, including failure of any documents to bear any reference or
adequate reference to the Letter of Credit; or (d) any other circumstances
whatsoever in making or failing to make payment under any Letter of Credit,
except that the Domestic Borrower shall have a claim against the Issuing Bank,
and Issuing Bank shall be liable to the Domestic Borrower, to the extent of any
direct, but not consequential, damages suffered by the Domestic Borrower that
the Domestic Borrower proves were caused by (i) Issuing Bank's willful
misconduct or gross negligence as determined in a final, non-appealable judgment
by a court of competent jurisdiction in determining whether documents presented
under any Letter of Credit comply with the terms of the Letter of Credit or (ii)
Issuing Bank's willful failure to make lawful payment under a Letter of Credit
after the presentation to it of a draft and certificates strictly complying with
the terms and conditions of the Letter of Credit. In furtherance and not in
limitation of the foregoing, Issuing Bank may accept documents that appear on
their face to be in order, without responsibility for further investigation,
regardless of any notice or information to the contrary.



                                Credit Agreement
<PAGE>   108
                                      103

                  SECTION 8.10. Confidentiality. Neither any Agent nor any
Lender Party shall disclose any Confidential Information to any Person without
the consent of the Domestic Borrower, other than (a) to such Agent's or such
Lender Party's Affiliates and their officers, directors, employees, agents and
advisors and to actual or prospective Eligible Assignees and participants, and
then only on a confidential basis, (b) as required by any law, rule or
regulation or judicial process, (c) as requested or required by any state,
Federal or foreign authority or examiner regulating such Lender Party and (d) to
any rating agency when required by it, provided that, prior to any such
disclosure, such rating agency shall undertake to preserve the confidentiality
of any Confidential Information relating to the Loan Parties received by it from
such Lender Party.

                  SECTION 8.11. Release of Collateral; Release of Subsidiary
Guarantor. Upon the sale, lease, transfer or other disposition of any item of
Collateral of any Loan Party (including, without limitation, as a result of the
sale, in accordance with the terms of the Loan Documents, of the Loan Party that
owns such Collateral) in accordance with the terms of the Loan Documents, the
Administrative Agent will (without the necessity of any notice to, or consent
of, any Lender), at the Domestic Borrower's expense, execute and deliver to such
Loan Party such documents as such Loan Party may reasonably request to evidence
the release of such item of Collateral from the assignment and security interest
granted under the Collateral Documents in accordance with the terms of the Loan
Documents. Upon the consummation of the sale, transfer or other disposition by
the Domestic Borrower and any of its Subsidiaries of all of the Equity Interests
of the Domestic Borrower and its Subsidiaries in any other Subsidiary which is a
Guarantor as permitted by, and in accordance with the terms of, the Loan
Documents, such Guarantor shall be automatically released from the applicable
Guaranty and shall have no further obligations thereunder. Upon the written
request of the Domestic Borrower, together with a certificate detailing the
manner of any such sale of a Guarantor and the absence of any Default hereunder
both before and after giving effect thereto, the Administrative Agent or the
Required Lenders shall execute and deliver to the Domestic Borrower such
documents as the Domestic Borrower may reasonably request to evidence the
release of such Guarantor from the applicable Guaranty.

                  SECTION 8.12. Jurisdiction, Etc. (a) Each of the parties
hereto hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or any of the other Loan Documents to which it is a
party, or for recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that all claims in
respect of any such action or proceeding may be heard and determined in any such
New York State court or, to the fullest extent permitted by law, in such Federal
court. Each of the parties hereto agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the

                                Credit Agreement
<PAGE>   109
                                      104

judgment or in any other manner provided by law. Nothing in this Agreement shall
affect any right that any party may otherwise have to bring any action or
proceeding relating to this Agreement or any of the other Loan Documents in the
courts of any jurisdiction.

                  (b) Each of the parties hereto irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection that it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement or any of the
other Loan Documents to which it is a party in any New York State or Federal
court. Each of the parties hereto hereby irrevocably waives, to the fullest
extent permitted by law, the defense of an inconvenient forum to the maintenance
of such action or proceeding in any such court.

                  SECTION 8.13. Judgment. (a) If for the purposes of obtaining
judgment in any court it is necessary to convert either (i) a sum due hereunder
in US Dollars into another currency or (ii) a sum due hereunder in any currency
other than US Dollars into US Dollars, the parties hereto agree, to the fullest
extent that they may effectively do so, that the rate of exchange used shall be
determined in accordance with Section 1.04 on the Business Day preceding that on
which final judgment is given.

                  (b) The obligation of each Loan Party in respect of any sum
due from it in any currency (the "PRIMARY CURRENCY") to any Lender Party or any
Agent under the Loan Documents shall, notwithstanding any judgment in any other
currency, be discharged only to the extent that on the Business Day following
receipt by such Lender Party or such Agent (as the case may be), of any sum
adjudged to be so due in such other currency, such Lender Party or such Agent
(as the case may be) may in accordance with normal banking procedures purchase
the applicable Primary Currency with such other currency; if the amount of the
applicable Primary Currency so purchased is less than such sum due to such
Lender Party or such Agent (as the case may be) in the applicable Primary
Currency, such Loan Party agrees, as a separate obligation and notwithstanding
any such judgment, to indemnify such Lender Party or such Agent (as the case may
be) against such loss, and if the amount of the applicable Primary Currency so
purchased exceeds such sum due to any Lender Party or such Agent (as the case
may be) in the applicable Primary Currency, such Lender Party or such Agent (as
the case may be) agrees to remit to such Loan Party such excess.

                  SECTION 8.14. Substitution of Currency. If a change in any
Offshore Currency occurs pursuant to any applicable law, rule or regulation of
any governmental, monetary or multi-national authority, this Agreement will be
amended to the extent determined by the Offshore Currency Agent, acting
reasonably and in consultation with the Domestic Borrower, to be necessary to
reflect the change in currency and to put the Swing Line Lenders and the
Applicable Borrowers in the same position, so far as possible, that they would
have been in if no change in such Offshore Currency had occurred.



                                Credit Agreement
<PAGE>   110

                                      105

                  SECTION 8.15. Governing Law. This Agreement and the Notes
shall be governed by, and construed in accordance with, the laws of the State of
New York.

                  SECTION 8.16. Waiver of Jury Trial. Each of the Domestic
Borrower, the Agents and the Lender Parties irrevocably waives all right to
trial by jury in any action, proceeding or counterclaim (whether based on
contract, tort or otherwise) arising out of or relating to any of the Loan
Documents, the Advances, the Letters of Credit or the actions of any Agent or
any Lender Party in the negotiation, administration, performance or enforcement
thereof.


             [The remainder of this page intentionally left blank.]


                                Credit Agreement
<PAGE>   111



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


                                    SOVEREIGN SPECIALTY CHEMICALS, INC.


                                    By /s/ Brian Hoesterey
                                      ------------------------------------------
                                      Title: Vice President


                                    MERRILL LYNCH, PIERCE, FENNER &
                                    SMITH INCORPORATED, as Joint Lead
                                    Arranger, Joint Book Manager and Syndication
                                    Agent


                                    By /s/ Christopher Birosak
                                      ------------------------------------------
                                      Title: Managing Director


                                    J.P. MORGAN SECURITIES INC., as Joint
                                    Lead Arranger, Joint Book Manager and
                                    Documentation Agent


                                    By /s/  Jose Briones
                                      ------------------------------------------
                                      Title: Vice President


                                    THE CHASE MANHATTAN BANK,
                                    as Administrative Agent, Offshore Currency
                                    Agent, Initial Issuing Bank and Domestic
                                    Swing Line Lender


                                    By /s/ Lawrence Palumbo, Jr.
                                      ------------------------------------------
                                      Title: Vice President


                                Credit Agreement
<PAGE>   112
Initial Lenders

CORPORATION
                                    MERRILL LYNCH CAPITAL CORPORATION


                                    By /s/ Christopher Birosak
                                      ------------------------------------------
                                      Title: Managing Director


                                    MORGAN GUARANTY TRUST COMPANY
                                    OF NEW YORK


                                    By /s/ Francoise Berthelot
                                      ------------------------------------------
                                      Title: Francoise Berthelot


                                    THE CHASE MANHATTAN BANK


                                    By /s/ Lawrence Palumbo, Jr.
                                      ------------------------------------------
                                      Title: Vice President


                                    NATIONAL CITY BANK


                                    By /s/ Matthew R. Klinger
                                      ------------------------------------------
                                      Title: Vice President


                                    THE BANK OF NOVA SCOTIA


                                    By /s/ F.C.H. Ashby
                                      ------------------------------------------
                                       Title: Senior Manager Loan Operations


                                Credit Agreement
<PAGE>   113




                                    BANK ONE, NA (Main Chicago Office)


                                    By /s/ Erik Back
                                      ------------------------------------------
                                      Title: Erik Back


                                    ABN AMRO BANK N.V.


                                    By /s/ Scott J. Albert
                                      ------------------------------------------
                                      Title: Group Vice President


                                    By /s/ Steven M. Buehler
                                      ------------------------------------------
                                      Title: Vice President


                                    CREDIT AGRICOLE INDOSUEZ


                                    By /s/ Sarah U. Johnson
                                      ------------------------------------------
                                      Title: Vice President


                                    By /s/ Susan Knight
                                      ------------------------------------------
                                      Title: Vice President


                                Credit Agreement
<PAGE>   114




                                   SCHEDULE I

                   COMMITMENTS AND APPLICABLE LENDING OFFICES

<TABLE>
<CAPTION>

==============================================================================

                               TERM A      REVOLVING CREDIT  LETTER OF CREDIT
  NAME OF INITIAL LENDER     COMMITMENT*      COMMITMENT*       COMMITMENT
- ------------------------------------------------------------------------------
<S>                       <C>              <C>                <C>
Merrill Lynch Capital     $10,800,000.00   $ 7,200,000.00     $         0.00
Corporation




- ------------------------------------------------------------------------------
Morgan Guaranty Trust     $10,800,000.00   $ 7,200,000.00     $         0.00
Company of New York




- ------------------------------------------------------------------------------
The Chase Manhattan Bank  $10,200,000.00   $ 6,800,000.00     $20,000,000.00




- ------------------------------------------------------------------------------
National City Bank        $ 9,600,000.00   $ 6,400,000.00     $         0.00
</TABLE>


<TABLE>
<CAPTION>

======================================================================================================================

                                           DOMESTIC LENDING OFFICE                   EURODOLLAR
  NAME OF INITIAL LENDER                                                           LENDING OFFICE
- ----------------------------------------------------------------------------------------------------------------------
<S>                                    <C>                                     <C>
Merrill Lynch Capital                  Merrill Lynch & Co.                     Merrill Lynch & Co.
Corporation                            WFC North - 16th Floor                  WFC North - 16th Floor
                                       250 Vesey Street                        250 Vesey Street
                                       New York, NY 10281                      New York, NY 10281
                                       Attn: Margaret Sellinger/               Attn: Margaret Sellinger/
                                             Mack Campbell                           Mack Campbell
                                       Tel: 212-449-6187/6996                  Tel: 212-449-6187/6996
                                       Fax: 212-738-1719                       Fax: 212-738-1719
- ----------------------------------------------------------------------------------------------------------------------
Morgan Guaranty Trust                  Morgan Guaranty Trust                   Morgan Guaranty Trust
Company of New York                    Company of New York                     Company of New York
                                       c/o J.P. Morgan Services, Inc.          c/o J.P. Morgan Services, Inc.
                                       500 Stanton Christiana Road             500 Stanton Christiana Road
                                       Newark, DE 19713                        Newark, DE 19713
                                       Attn: Michelle Stigliano                Attn: Michelle Stigliano
                                       Tel: 302-634-1867                       Tel: 302-634-1867
                                       Fax: 302-634-4061                       Fax: 302-634-4061
- ----------------------------------------------------------------------------------------------------------------------
The Chase Manhattan Bank               1 Chase Manhattan Plaza                 1 Chase Manhattan Plaza
                                       8th Floor                               8th Floor
                                       New York, NY 10081                      New York, NY 10081
                                       Attn: Tonya Mitchell                    Attn: Tonya Mitchell
                                       Tel: 212-552-7206                       Tel: 212-552-7206
                                       Fax: 212-552-5777                       Fax: 212-552-5777
- ----------------------------------------------------------------------------------------------------------------------

National City Bank                     National City Bank                      National City Bank
                                       1900 East Ninth Street                  1900 East Ninth Street
                                       Cleveland, OH 44114                     Cleveland, OH 44114
                                       Attn: Bevette Vickerstaff               Attn: Bevette Vickerstaff
                                       Tel: 216-488-7080                       Tel: 216-488-7080
                                       Fax: 216-488-7110                       Fax: 216-488-7110
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>



                  Credit Agreement - Schedule I - Commitments
<PAGE>   115

<TABLE>

- ------------------------------------------------------------------------------
<S>                       <C>              <C>                <C>
The Bank of Nova Scotia   $ 9,000,000.00   $ 6,000,000.00     $         0.00




- ------------------------------------------------------------------------------
Bank One, NA (Main        $ 6,600,000.00   $ 4,400,000.00     $         0.00
Chicago Office)



- ------------------------------------------------------------------------------
ABN AMRO Bank N.V.        $ 9,000,000.00   $ 6,000,000.00     $         0.00





- ------------------------------------------------------------------------------
Credit Agricole Indosuez  $ 9,000,000.00   $ 6,000,000.00     $         0.00




- ------------------------------------------------------------------------------
TOTAL                     $75,000,000.00   $50,000,000.00     $20,000,000.00
==============================================================================
</TABLE>

<TABLE>
<CAPTION>

- ----------------------------------------------------------------------------------------------------------------------
<S>                                    <C>                                     <C>
The Bank of Nova Scotia                The Bank of Nova Scotia                 Bank of Nova Scotia
                                       Atlanta Agency                          Atlanta Agency
                                       600 Peachtree St. N.E., Suite 2700      600 Peachtree St. N.E., Suite 2700
                                       Atlanta, GA 30308                       Atlanta, GA 30308
                                       Attn: Cleve Bushey                      Attn: Cleve Bushey
                                       Tel: 404-877-1500                       Tel: 404-877-1500
                                       Fax: 404-888-8998                       Fax: 404-888-8998
- ----------------------------------------------------------------------------------------------------------------------
Bank One, NA (Main Chicago             Bank One, N.A.                          Bank One, N.A.
Office)                                1 Bank One Plaza                        1 Bank One Plaza
                                       Chicago, IL 60670                       Chicago, IL 60670
                                       Attn: Torin Johnson                     Attn: Torin Johnson
                                       Tel: 312-732-8573                       Tel: 312-732-8573
                                       Fax: 312-732-4840                       Fax: 312-732-4840
- ----------------------------------------------------------------------------------------------------------------------
ABN AMRO Bank N.V.                     ABN AMRO Bank N.V.                      ABN AMRO Bank N.V.
                                       U.S. Branch Credit Administration       U.S. Branch Credit Administration
                                       208 S. La Salle, Suite 1500             208 S. La Salle, Suite 1500
                                       Chicago, IL 60604                       Chicago, IL 60604
                                       Attn: Brendan Korb                      Attn: Brendan Korb
                                       Tel: 312-992-5127                       Tel: 312-992-5127
                                       Fax: 312-992-5111                       Fax: 312-992-5111
- ----------------------------------------------------------------------------------------------------------------------
Credit Agricole Indosuez               Credit Agricole Indosuez                Credit Agricole Indosuez
                                       55 East Monroe Street, Suite 4700       55 East Monroe Street, Suite 4700
                                       Chicago, IL 60603                       Chicago, IL 60603
                                       Attn: Phillip Salter/Jennifer Davis     Attn: Phillip Salter/Jennifer Davis
                                       Tel: 312-917-7417/7563                  Tel: 312-917-7417/7563
                                       Fax: 312-372-9329                       Fax: 312-372-9329
======================================================================================================================
</TABLE>



          Offshore Acquisition Commitment:   The Offshore Acquisition Commitment
          of each Term A Lender and each Revolving Credit Lender shall initially
          be zero (0) on the Effective Date. After the Effective Date, the Term
          A Commitment of each Term A Lender and/or the Revolving Credit
          Commitment of each Revolving Credit Lender shall be reduced, and the
          Offshore Acquisition Commitment of each such Lender shall be
          correspondingly and concurrently increased, at the time of delivery of
          each Notice of Borrowing requesting that an Offshore Acquisition
          Advances be made available to an Offshore Borrower,



                  Credit Agreement - Schedule I - Commitments
<PAGE>   116




          in each case, in the amounts provided in Section 2.05. As provided in
          Section 2.05(b)(i)(B)(1), and subject to the limitation on conversion
          of Revolving Credit Commitments set forth in Section 2.05(b)(iii)(A),
          the aggregate amount of Term A Commitments and Revolving Credit
          Commitments which may be converted to Offshore Acquisition Commitments
          during the Term of this Agreement shall not exceed US$50,000,000.




                  Credit Agreement - Schedule I - Commitments
<PAGE>   117





                                   SCHEDULE II

                              CERTAIN DEFINED TERMS

                  As used in the Amended and Restated Credit Agreement dated as
of April 6, 2000 (as amended, amended and restated, supplemented or otherwise
modified from time to time, this "AGREEMENT"), to which this Schedule is
attached, and the other Loan Documents referred to therein, 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):

                  "ACCOUNT COLLATERAL" means the Collateral referred to in
          Section 1(e) of the Domestic Security Agreement.

                  "ACQUISITION" has the meaning specified in the Preliminary
          Statements.

                  "ACQUISITION AGREEMENT" has the meaning specified in the
          Preliminary Statements.

                  "ACQUISITION DILIGENCE REPORT" means, with respect to the
         Equity Interests in, or the properties and assets of, any Person that
         have been or are to be purchased or otherwise acquired by the Domestic
         Borrower or any of its Subsidiaries, a due diligence report on such
         Person and its Subsidiaries (or the properties and assets thereof),
         prepared in good faith and certified by the Chief Financial Officer of
         the Domestic Borrower and approved by the Joint Lead Arrangers, which
         report shall include, (i) a Consolidated pro forma closing balance
         sheet of such Person and its Subsidiaries as of the date of
         consummation of the related purchase or acquisition, (ii) a
         Consolidated pro forma income statement of such Person and its
         Subsidiaries for the most recently completed four consecutive fiscal
         quarters of such Person prior to the date of consummation of the
         related purchase or acquisition, (iii) an itemized schedule of the add
         back adjustments (reflecting cost saving realized by such Person (or
         the Domestic Borrower and its Subsidiaries) upon the date of
         consummation of such transaction or which management intends to
         implement within six months of such date made to the consolidated pro
         forma income statement of such Person and its Subsidiaries referred to
         in clause (ii) of this definition, (iv) a calculation of the Pro Forma
         Consolidated EBITDA of such Person and its Subsidiaries for the most
         recently completed four consecutive fiscal quarters of such Person
         prior to the date of consummation of the related purchase or
         acquisition, (v) a schedule of the computations used by the Domestic
         Borrower in determining pro forma compliance with the covenants
         contained in Section 5.04 calculated based on the financial statements
         most recently delivered to the Lender Parties pursuant to Section 5.03
         and as though such acquisition had occurred at the beginning of the
         four quarter period covered thereby and (vi) in the case of an
         Acquisition Diligence Report which relates to an acquisition or
         purchase which is proposed to be financed with an Offshore Acquisition
         Advance, a schedule detailing

                  Credit Agreement - Schedule II - Definitions
<PAGE>   118
                                       2


         the rate of withholding tax that is expected to be imposed on any
         interest paid with respect to such Offshore Acquisition Advance, which
         schedule shall be prepared based on (a) the internal laws of the
         country in which the Offshore Borrower that proposes to make such
         acquisition or purchase is resident for relevant tax purposes and (b)
         the maximum withholding tax rate applicable to payments of interest to
         a resident of the United States entitled to the benefits of the income
         tax treaty, if any, between such country and the United States (in the
         case of each of clauses (a) and (b), as in effect at the time of the
         preparation of such Acquisition Diligence Report).

                  "ADDITIONAL GRANTOR" has the meaning specified in Section
         22(b) of the Domestic Security Agreement.

                  "ADMINISTRATIVE AGENT" has the meaning specified in the
         recital of parties to this Agreement.

                  "ADMINISTRATIVE AGENT'S ACCOUNT" means the account of the
         Administrative Agent maintained by the Administrative Agent with Chase
         at its office at One Chase Manhattan Plaza, New York, New York 10081,
         Account No. 323-142-362, Attention: Michael Cerniglia (fax number:
         212-552-5777), or such other account as the Administrative Agent shall
         specify in writing to the Lender Parties.

                  "ADVANCE" means a Term Advance, a Revolving Credit Advance, a
         Swing Line Advance or a Letter of Credit Advance.

                  "AFFILIATE" means, as to any Person, any other Person that,
         directly or indirectly, controls, is controlled by or is under common
         control with such Person or is a director or officer of such Person.
         For purposes of this definition, the term "control" (including the
         terms "controlling", "controlled by" and "under common control with")
         of a Person means the possession, direct or indirect, of the power to
         direct or cause the direction of the management and policies of such
         Person, whether through the ownership of Voting Interests, by contract
         or otherwise.

                  "AFTER-ACQUIRED INTELLECTUAL PROPERTY" has the meaning
         specified in Section 14(g) of the Domestic Security Agreement.

                  "AGENTS" means, collectively, the Administrative Agent, the
         Offshore Currency Agent, the Joint Lead Arrangers, the Joint Book
         Managers, the Documentation Agent and the Syndication Agent.

                  "AGREEMENT VALUE" means, for each Hedge Agreement, on any date
         of determination, an amount determined by the Administrative Agent
         equal to: (a) in the

                  Credit Agreement - Schedule II - Definitions
<PAGE>   119

                                       3


         case of a Hedge Agreement documented pursuant to the Master Agreement
         (Multicurrency-Cross Border) published by the International Swap and
         Derivatives Association, Inc. (the "MASTER AGREEMENT"), the amount, if
         any, that would be payable by any Loan Party or any of its Subsidiaries
         to its counterparty to such Hedge Agreement, as if (i) such Hedge
         Agreement was being terminated early on such date of determination,
         (ii) such Loan Party or Subsidiary was the sole "Affected Party", and
         (iii) the Administrative Agent was the sole party determining such
         payment amount (with the Administrative Agent making such determination
         pursuant to the provisions of the form of Master Agreement); or (b) in
         the case of a Hedge Agreement traded on an exchange, the mark-to-market
         value of such Hedge Agreement, which will be the unrealized loss on
         such Hedge Agreement to the Loan Party or Subsidiary of a Loan Party
         party to such Hedge Agreement determined by the Administrative Agent
         based on the settlement price of such Hedge Agreement on such date of
         determination, or (c) in all other cases, the mark-to-market value of
         such Hedge Agreement, which will be the unrealized loss on such Hedge
         Agreement to the Loan Party or Subsidiary of a Loan Party party to such
         Hedge Agreement determined by the Administrative Agent as the amount,
         if any, by which (i) the present value of the future cash flows to be
         paid by such Loan Party or Subsidiary exceeds (ii) the present value of
         the future cash flows to be received by such Loan Party or Subsidiary
         pursuant to such Hedge Agreement; capitalized terms used and not
         otherwise defined in this definition shall have the respective meanings
         set forth in the above described Master Agreement.

                  "AMORTIZATION AMOUNT" has the meaning specified in Section
         2.05(b)(i)(A)(2).

                  "APPLICABLE BORROWER" means, with respect to any Advance, the
         Domestic Borrower or the applicable Offshore Borrower which has
         borrowed or requested such Advance hereunder.

                  "APPLICABLE BORROWER'S ACCOUNT" means, for the Domestic
         Borrower, the Domestic Borrower's Account, and for each Offshore
         Borrower, the account of such Offshore Borrower maintained by such
         Offshore Borrower with Chase and more specifically described in the
         Credit Agreement Supplement executed and delivered by such Offshore
         Borrower.

                  "APPLICABLE CURRENCY" means, as to any particular payment or
         Borrowing, US Dollars or the Offshore Currency in which such payment or
         Borrowing is denominated or is payable.

                  "APPLICABLE LENDING OFFICE" means, with respect to each Lender
         Party, such Lender Party's Domestic Lending Office in the case of a
         Base Rate Advance and such Lender Party's Eurodollar Lending Office in
         the case of a Eurodollar Rate Advance.



                  Credit Agreement - Schedule II - Definitions
<PAGE>   120
                                       4

                  "APPLICABLE MARGIN" means (i) during the period from the
         Effective Date until the six-month anniversary of the Effective Date,
         in respect of the Term A Facility, the Offshore Acquisition Facility or
         the Revolving Credit Facility, 1.50% per annum for Base Rate Advances
         and 2.50% per annum for Eurodollar Rate Advances, and (ii) after the
         six month anniversary of the Effective Date, a percentage per annum
         determined by reference to both the Total Debt/EBITDA Ratio and the
         Senior Debt/EBITDA Ratio to be the higher per annum percentage
         indicated by either such ratio as set forth below:

<TABLE>
<CAPTION>

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

                                                                  TERM A, OFFSHORE ACQUISITION AND REVOLVING CREDIT
                                                                                       FACILITIES
         -----------------------------------------------------------------------------------------------------------
         <S>                          <C>                           <C>                       <C>
         TOTAL DEBT/EBITDA RATIO      SENIOR DEBT/EBITDA RATIO      EURODOLLAR MARGIN         BASE RATE MARGIN
         -----------------------------------------------------------------------------------------------------------
         GREATER THAN OR EQUAL TO     GREATER THAN OR EQUAL TO             2.50%                    1.50%
         4.50:1                       3.50:1
         -----------------------------------------------------------------------------------------------------------
         GREATER THAN OR EQUAL TO     GREATER THAN OR EQUAL TO             2.25%                    1.25%
         4.25:1, BUT LESS THAN        3.00:1, BUT LESS THAN
         4.50:1                       3.50:1
         -----------------------------------------------------------------------------------------------------------
         GREATER THAN OR EQUAL TO     GREATER THAN OR EQUAL TO             2.00%                    1.00%
         3.75:1, BUT LESS THAN        2.50:1, BUT LESS THAN
         4.25:1                       3.00:1
         -----------------------------------------------------------------------------------------------------------
         LESS THAN 3.75:1             LESS THAN 2.50:1                     1.75%                    0.75%
         -----------------------------------------------------------------------------------------------------------
</TABLE>

         The Applicable Margin for each Base Rate Advance shall be determined by
         reference to the Total Debt/EBITDA Ratio and the Senior Debt/EBITDA
         Ratio in effect from time to time and the Applicable Margin for each
         Eurodollar Rate Advance shall be determined by reference to the Total
         Debt/EBITDA Ratio and the Senior Debt/EBITDA Ratio in effect on the
         first day of each Interest Period for such Advance; provided, however,
         that (A) no change in the Applicable Margin shall be effective until
         one Business Day after the date on which the Administrative Agent
         receives the financial statements required to be delivered pursuant to
         Section 5.03(b) or (c) or an Acquisition Diligence Report, as the case
         may be, and a certificate of the Chief Financial Officer of the
         Domestic Borrower demonstrating such ratios, and (B) the Applicable
         Margin shall be at the percentage in effect when the Total Debt/EBITDA
         Ratio is greater than or equal to 4.50:1 for so long as the Domestic
         Borrower has not submitted to the Administrative Agent the information
         described in Clause (A) of this proviso as and when required under
         Section 5.03(b) or (c), as the case may be. For purposes of this
         definition, the Swing Line Advances are extended pursuant to
         subfacilities of the Revolving Credit Facility.

                  "APPLICABLE PERCENTAGE" means (i) during the period from the
         Effective Date until the six-month anniversary of the Effective Date,
         0.50% and (ii) thereafter, a percentage


                  Credit Agreement - Schedule II - Definitions
<PAGE>   121


                                       5

         per annum determined by reference to both the Total Debt/EBITDA Ratio
         and the Senior Debt/EBITDA Ratio to be the higher per annum percentage
         indicated by either such ratio as set forth below:

<TABLE>
<CAPTION>
         ------------------------------------- ------------------------------------ --------------------------------
         TOTAL DEBT/EBITDA RATIO               SENIOR DEBT/EBITDA RATIO                     COMMITMENT FEE
         ------------------------------------- ------------------------------------ --------------------------------
        <S>                                   <C>                                    <C>
         GREATER THAN OR EQUAL TO 4.25:1       GREATER THAN OR EQUAL TO 3.00:1                   0.50%
         ------------------------------------- ------------------------------------ --------------------------------
         LESS THAN 4.25:1                      LESS THAN 3.00:1                                  0.375%
         ------------------------------------- ------------------------------------ --------------------------------
</TABLE>

         The Applicable Percentage shall be determined by reference to the Total
         Debt/EBITDA Ratio and the Senior Debt/EBITDA Ratio in effect from time
         to time; provided, however, that (A) no change in the Applicable
         Percentage shall be effective until one Business Day after the date on
         which the Administrative Agent receives the financial statements
         required to be delivered pursuant to Section 5.03(b) or (c) or an
         Acquisition Diligence Report, as the case may be, and a certificate of
         the Chief Financial Officer of the Domestic Borrower demonstrating such
         ratios, and (B) the Applicable Percentage shall be at the percentage in
         effect when the Total Debt/EBITDA Ratio is greater than or equal to
         4.25:1 for so long as the Domestic Borrower has not submitted to the
         Administrative Agent the information described in Clause (A) of this
         proviso as and when required under Section 5.03(b) or (c), as the case
         may be.

                  "APPLICABLE SWING LINE SUB-LIMIT" means, (a) with respect to
         Swing Line Advances in US Dollars, $10,000,000; and (b) with respect to
         Swing Line Advances in any other Applicable Currency, the following US
         Dollar Equivalent for such Applicable Currency:

                           (i) for Swing Line Advances in Euros, the $5,000,000
                  US Dollar Equivalent less the US Dollar Equivalent of
                  outstanding Swing Line Advances in Pounds Sterling less the US
                  Dollar Equivalent of outstanding Swing Line Advances in any
                  Offshore Alternative Currency;

                           (ii) for Swing Line Advances in Pounds Sterling, the
                  $5,000,000 US Dollar Equivalent less the US Dollar Equivalent
                  of outstanding Swing Line Advances in Euros less the US Dollar
                  Equivalent of outstanding Swing Line Advances in any Offshore
                  Alternative Currency;

                           (iii) for Swing Line Advances in any Offshore
                  Alternative Currency, the $5,000,000 US Dollar Equivalent less
                  the US Dollar Equivalent of outstanding Swing Line Advances in
                  Euros less the US Dollar Equivalent of outstanding Swing Line
                  Advances in Pounds Sterling;

                  Credit Agreement - Schedule II - Definitions
<PAGE>   122

                                       6

                           (iv) for Swing Line Advances in Canadian Dollars, the
                  $2,000,000 US Dollar Equivalent; and

                           (v)      for Swing Line Advances in Singapore
                  Dollars, the $3,000,000 US Dollar Equivalent.

                  "APPROPRIATE LENDER" means, at any time, with respect to:

                           (a) any of the Term or Revolving Credit Facilities, a
                  Lender that has a Commitment with respect to such Facility at
                  such time,

                           (b) the Letter of Credit Sub-Facility, (i) the
                  Issuing Bank and (ii) if the other Revolving Credit Lenders
                  have made Letter of Credit Advances pursuant to Section
                  2.03(c) that are outstanding at such time, each such Revolving
                  Credit Lender, and

                           (c) the Swing Line Facility, (i) the Appropriate
                  Swing Line Lender and (ii) if the Revolving Credit Lenders
                  have made Swing Line Advances pursuant to Section 2.02(b) that
                  are outstanding at such time, each such Revolving Credit
                  Lender.

                  "APPROPRIATE SWING LINE LENDER" means, at any time, with
         respect to any Swing Line Advance, the Swing Line Lender to which a
         request for such Swing Line Advance has been made hereunder or which
         has made such Swing Line Advance.

                  "APPROVED COUNTRY" means the United States of America
         (including the District of Columbia and any state thereof), Canada, the
         United Kingdom, the European countries identified in Schedule III, and
         each other Western European country (excluding any former Soviet-bloc
         country or client state) which has been designated by the Domestic
         Borrower and approved in writing by the Joint Lead Arrangers and the
         Administrative Agent.

                  "APPROVED FUND" means, with respect to any Lender that is a
         fund that invests in bank loans, any other fund that invests in bank
         loans and is advised or managed by the same investment advisor as such
         Lender or by an Affiliate of such investment advisor.

                  "ASSET SALE" means the sale, lease, transfer or other
         disposition of any assets of the Domestic Borrower or any of its
         Subsidiaries (other than any sale, lease, transfer or other disposition
         of assets pursuant to clause (i), (ii), (iii), (v) and (ix) of Section
         5.02(f)) which yields to the Domestic Borrower or any of its
         Subsidiaries gross proceeds in excess of $250,000. Any sale, lease,
         transfer or other disposition of assets pursuant to clause (ix)

                  Credit Agreement - Schedule II - Definitions

<PAGE>   123

                                       7


         of Section 5.02(f) shall only be treated as an Asset Sales at the time
         and to the extent such sale or other transaction closes and yields
         gross proceeds to the Domestic Borrower as provided in clause (viii) of
         Section 5.02(f).

                  "ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance
         entered into by a Lender Party and an Eligible Assignee, and accepted
         by the Administrative Agent, in accordance with Section 8.07 and in
         substantially the form of Exhibit C hereto.

                  "AVAILABLE AMOUNT" of any Letter of Credit means, at any time,
         the maximum amount available to be drawn under such Letter of Credit at
         such time (assuming compliance at such time with all conditions to
         drawing).

                  "BASE RATE" means a fluctuating interest rate per annum in
         effect from time to time, which rate per annum shall at all times be
         equal to:

                  (a)      in the case of Advances denominated in US Dollars,
         the higher of:

                           (i) the rate of interest announced publicly by Chase
                  in New York, New York, from time to time, as such bank's base
                  rate, with the understanding that such base rate is not
                  necessarily the lowest rate charge by such bank to its
                  customers; and

                           (ii)     1/2 of 1% per annum above the Federal Funds
                  Rate; and

                  (b) in the case of Swing Line Advances denominated in an
         Offshore Currency, a rate of interest determined in the manner agreed
         to between the Offshore Currency Agent and the Domestic Borrower and
         set forth in the Joinder Agreement executed and delivered by the
         Appropriate Swing Line Lender which has been designated to make Swing
         Line Advances in such Offshore Currency available hereunder.

                  "BASE RATE ADVANCE" means an Advance that bears interest as
provided in Section 2.07(a)(i).

                  "BORROWING" means a Term Borrowing, a Revolving Credit
Borrowing or a Swing Line Borrowing.

                  "BUSINESS DAY" means a day of the year (a) on which banks are
not required or authorized by law to close in New York City or Illinois and,
(b)(i) if the applicable Business Day relates to any Eurodollar Rate Advances,
on which dealings are carried on in the London interbank market or (ii) if the
applicable Business Day relates to any Swing Line Advance denominated in an
Offshore Currency, on which dealings are carried on in the London interbank
market and on which dealings are carried on in the applicable

                  Credit Agreement - Schedule II - Definitions

<PAGE>   124

                                       8


         offshore foreign exchange interbank market in which disbursements of or
         payments in such Offshore Currency will be made or received hereunder.

                  "CANADIAN DOLLARS" and "CN$" each means the freely
         transferable lawful money of Canada (expressed in dollars).

                  "CAPITAL EXPENDITURES" means, for any Person for any period,
         the sum of, without duplication, (a) all expenditures made, directly or
         indirectly, by such Person or any of its Subsidiaries during such
         period (net of any credit granted by the seller of such assets for any
         assets being traded-in at the same time) for equipment, fixed assets,
         real property or improvements, or for replacements or substitutions
         therefor or additions thereto, that have been or should be, in
         accordance with GAAP, capitalized and reflected as additions to
         property, plant or equipment on a Consolidated balance sheet of such
         Person or have a useful life of more than one year plus (b), without
         duplication, the aggregate principal amount of all Debt (including
         Obligations under Capitalized Leases) assumed or incurred in connection
         with any such expenditures, but excluding, to the extent included under
         clause (a) or (b) above, the following, without duplication, (i)
         expenditures made in connection with the replacement, substitution or
         restoration of assets to the extent financed (x) from insurance
         proceeds, indemnification payments (or similar recoveries) paid on
         account of the loss of or damage to the assets being replaced or
         restored or (y) with awards or compensation arising from the taking by
         eminent domain, expropriation or condemnation of the assets being
         replaced, (ii) any Permitted Acquisition and (iii) any other Investment
         permitted under Section 5.02(g).

                  "CAPITALIZED LEASES" means all leases that have been or should
         be capitalized in accordance with GAAP.

                  "CASH EQUIVALENTS" means any of the following, to the extent
         owned by the Domestic Borrower or any of its Subsidiaries free and
         clear of all Liens other than Liens created under the Collateral
         Documents and having a maturity of not greater than one year from the
         date of acquisition thereof: (a) readily marketable direct obligations
         of the Government of the United States or any agency or instrumentality
         thereof or obligations unconditionally guaranteed by the full faith and
         credit of the Government of the United States, (b) insured certificates
         of deposit of or time deposits with any commercial bank that is a
         Lender Party or a member of the Federal Reserve System or a commercial
         banking institution organized in a country recognized by the United
         States of America, in each case, that issues (or the parent of which
         issues) commercial paper rated as described in clause (c) below, and
         has combined capital and surplus of at least $500 million (or the
         foreign currency equivalent thereof), (c) commercial paper issued by
         any corporation organized under the laws of any State of the United
         States and rated at least "Prime-1" (or the then equivalent grade) by
         Moody's Investors Service, Inc. or "A-1" (or the then

                  Credit Agreement - Schedule II - Definitions

<PAGE>   125

                                       9


         equivalent grade) by Standard & Poor's, a division of The McGraw-Hill
         Companies, Inc., (d) any money market deposit accounts issued or
         offered by any Lender Party or a commercial banking institution
         described under clause (b) above and (e) other short-term investments
         utilized by Offshore Subsidiaries in accordance with normal investment
         practices for cash management not exceeding a dollar equivalent amount
         of $1,000,000 in the aggregate principal amount outstanding at any
         time.

                  "CERCLA" means the Comprehensive Environmental Response,
         Compensation and Liability Act of 1980, as amended from time to time.

                  "CERCLIS" means the Comprehensive Environmental Response,
         Compensation and Liability Information System maintained by the U.S.
         Environmental Protection Agency.

                  "CHANGE OF CONTROL" means the occurrence of any of the
         following: (a) prior to an initial public offering of Equity Interests
         in SSCI Investors or the Domestic Borrower, (i) the Equity Investors
         shall cease to own on a fully diluted basis in the aggregate at least a
         majority of the Equity Interests and Voting Interests in SSCI Investors
         or (ii) SSCI Investors shall cease to own on a fully diluted basis in
         the aggregate at least a majority of the Equity Interests and Voting
         Interests in the Domestic Borrower; or (b) after such an initial public
         offering, any Person or two or more Persons acting in concert other
         than the Equity Investors shall have acquired beneficial ownership
         (within the meaning of Rule 13d-3 of the Securities and Exchange
         Commission under the Securities Exchange Act of 1934), directly or
         indirectly, on a fully diluted basis of Voting Interests of SSCI
         Investors or the Domestic Borrower, as the case may be, (or other
         securities convertible into such Voting Interests) representing 30% or
         more of the combined voting power of all Voting Interests of SSCI
         Investors or the Domestic Borrower; or (c) after such an initial public
         offering, during any period of up to 24 consecutive months, commencing
         after the date of this Agreement, individuals who at the beginning of
         such 24-month period were directors of the Domestic Borrower (together
         with any new directors whose election or nomination for election was
         approved by a vote of b or more of the directors still in office who
         were either directors at the beginning of such period or whose election
         or nomination for election was previously so approved) shall cease for
         any reason to constitute a majority of the board of directors of the
         Domestic Borrower; or (d) unless the Domestic Borrower's obligation
         under the Senior Subordinated Note Indenture to make an Offer to
         Purchase (as defined under the Senior Subordinated Note Indenture) any
         outstanding Senior Subordinated Notes has been waived or will not
         otherwise be triggered by such event, a Change of Control (as defined
         under the Senior Subordinated Note Indenture) shall have occurred.

                  "CHASE" has the meaning specified in the recitals of parties
         to this Agreement.

                  Credit Agreement - Schedule II - Definitions

<PAGE>   126

                                       10


                  "COLLATERAL" means all "Collateral" referred to in Section 1
         of the Domestic Security Agreement and in the other Collateral
         Documents and all other property that is or is intended to be subject
         to any Lien in favor of the Administrative Agent for the benefit of the
         Secured Parties.

                  "COLLATERAL ACCOUNT" has the meaning specified in the recital
         to the Domestic Security Agreement.

                  "COLLATERAL BANK" has the meaning specified in Section 6 of
         the Domestic Security Agreement.

                  "COLLATERAL DOCUMENTS" means the Domestic Security Agreement,
         the Mortgages, the Offshore Collateral Documents and any other
         agreement that creates or purports to create a Lien in favor of the
         Administrative Agent for the benefit of the Secured Parties.

                  "COLLATERAL SHARING AGREEMENT" means a Collateral Sharing
         Agreement in the form of Exhibit L to be dated as of the date hereof
         among the Administrative Agent and the Lender Parties, as amended, and
         as supplemented from time to time by each Assignment and Acceptance
         delivered pursuant to Section 8.07.

                  "COMMITMENT" means a Term Commitment, a Revolving Credit
         Commitment or a Letter of Credit Commitment.

                  "COMPUTER SOFTWARE" has the meaning specified in Section 1(f)
         (v) of the Domestic Security Agreement.

                  "CONFIDENTIAL INFORMATION" means information that any Loan
         Party furnishes to any Agent or any Lender Party on a confidential
         basis, including such information furnished pursuant to Section
         5.01(f), but does not include any such information that is or becomes
         generally available to the public or that is or becomes available to
         such Agent or such Lender Party from a source other than the Loan
         Parties and not in breach of Section 8.10 of this Agreement.

                  "CONSOLIDATED" refers to the consolidation of accounts in
         accordance with GAAP.

                  "CONSOLIDATED NET INCOME" means, for any period, the net
         income (or net loss) of any Person and its Subsidiaries for such
         period, determined on a Consolidated basis but excluding for each such
         period (without duplication):

                           (a) the income (or loss) of any other Person accrued
                  prior to the date on which it became a Subsidiary of such
                  Person or was merged into or consolidated with such Person or
                  any of its Subsidiaries or all or substantially all


                  Credit Agreement - Schedule II - Definitions

<PAGE>   127

                                       11


                  of the property and assets of such other Person were acquired
                  by such Person or any of its Subsidiaries;

                           (b) the income (or loss) of any other Person in which
                  a Person other than such Person or any of its Subsidiaries
                  owns or otherwise holds an Equity Interest, except to the
                  extent such income (or loss) shall have been received in the
                  form of Cash Distributions actually paid to such Person or any
                  of its Subsidiaries by such other Person during such period;

                           (c) the income of any Subsidiary of such Person to
                  the extent that the declaration or payment of any dividends or
                  other distributions of such income by such Subsidiary is not
                  permitted to be made or paid (whether by contract or
                  otherwise) on the last day of such period;

                           (d) any gains or losses on Hedge Agreements; and

                           (e) any gains or losses on foreign currency
                  translation adjustments.

                  "CONTINGENT OBLIGATION" means, with respect to any Person, any
         Obligation or arrangement of such Person to guarantee or intended to
         guarantee any Debt, leases, dividends or other payment Obligations
         ("PRIMARY OBLIGATIONS") of any other Person (the "PRIMARY OBLIGOR") in
         any manner, whether directly or indirectly, including, without
         limitation, (a) the direct or indirect guarantee, endorsement (other
         than for collection or deposit in the ordinary course of business),
         co-making, discounting with recourse or sale with recourse by such
         Person of the Obligation of a primary obligor, (b) the Obligation to
         make take-or-pay or similar payments, if required, regardless of
         nonperformance by any other party or parties to an agreement or (c) any
         Obligation of such Person, whether or not contingent, (i) to purchase
         any such primary obligation or any property constituting direct or
         indirect security therefor, (ii) to advance or supply funds (A) for the
         purchase or payment of any such primary obligation or (B) to maintain
         working capital or equity capital of the primary obligor or otherwise
         to maintain the net worth or solvency of the primary obligor, (iii) to
         purchase property, assets, 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. 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


                  Credit Agreement - Schedule II - Definitions

<PAGE>   128

                                       12

         anticipated liability in respect thereof (assuming such Person is
         required to perform thereunder), as determined by such Person in good
         faith.

                  "CONVERSION", "CONVERT" and "CONVERTED" each refer to a
         conversion of Advances of one Type into Advances of the other Type
         pursuant to Section 2.09 or 2.10.

                  "COPYRIGHTS" has the meaning specified in Section 1(f)(iii) of
         the Domestic Security Agreement.

                  "CREDIT AGREEMENT SUPPLEMENT" means a supplement to this
         Agreement in the form of Exhibit E executed and delivered by each
         Offshore Borrower.

                  "CURRENT ASSETS" of any Person means all assets of such Person
         that would, in accordance with GAAP, be classified as current assets of
         a company conducting a business the same as or similar to that of such
         Person, after deducting adequate reserves in each case in which a
         reserve is proper in accordance with GAAP.

                  "CURRENT LIABILITIES" of any Person means (a) all Debt of such
         Person except Funded Debt, (b) all amounts of Funded Debt of such
         Person required to be paid or prepaid within one year after such date
         and (c) all other items (including taxes accrued as estimated) that in
         accordance with GAAP would be classified as current liabilities of such
         Person.

                  "DEBT" of any Person means, without duplication for purposes
         of calculating financial ratios, (a) all indebtedness of such Person
         for borrowed money, (b) all Obligations of such Person for the deferred
         purchase price of property or services (other than trade payables not
         overdue by more than 60 days incurred in the ordinary course of such
         Person's business), (c) all Obligations of such Person evidenced by
         notes, bonds, debentures or other similar instruments, (d) all
         Obligations of such Person created or arising under any conditional
         sale or other title retention agreement with respect to property
         acquired by such Person (even though the rights and remedies of the
         seller or lender under such agreement in the event of default are
         limited to repossession or sale of such property), (e) all Obligations
         of such Person as lessee under Capitalized Leases, (f) all Obligations
         of such Person under acceptance, letter of credit or similar
         facilities, (g) all Obligations of such Person to purchase, redeem,
         retire, defease or otherwise make any payment in respect of any Equity
         Interests in such Person or any other Person or any warrants, rights or
         options to acquire such capital stock, valued, in the case of
         Redeemable Preferred Interests, at the greater of its voluntary or
         involuntary liquidation preference plus accrued and unpaid dividends
         (excluding any such Obligations arising after the eighth anniversary of
         the Effective Date or conditioned on compliance with this Agreement),
         (h) all Obligations of such Person in respect of Hedge Agreements,
         valued at

                  Credit Agreement - Schedule II - Definitions

<PAGE>   129

                                       13


         the Agreement Value thereof, and (i) all indebtedness and other payment
         Obligations referred to in clauses (a) through (h) above and all
         Contingent Obligations of another Person secured by (or for which the
         holder of such Debt has an existing right, contingent or otherwise, to
         be secured by) any Lien on property (including, without limitation,
         accounts and contract rights) owned by such Person, even though such
         Person has not assumed or become liable for the payment of such
         indebtedness or other payment Obligations. Debt shall not include (x)
         accounts extended by suppliers in the ordinary course of business on
         normal trade terms not overdue by more than 60 days in connection with
         the purchase of goods and services and (y) notes payable with stated
         maturities of no more than one year from the date of issuance in
         respect of the deferred payment of insurance policy premiums in an
         amount not in excess of $3 million at any time outstanding.

                  "DEBT FOR BORROWED MONEY" of any Person means all items that,
         in accordance with GAAP, would be classified as indebtedness on a
         Consolidated balance sheet of such Person.

                  "DECLINING LENDER" has the meaning specified in Section
         2.06(b)(v).

                  "DEFAULT" means any Event of Default or any event that would
         constitute an Event of Default but for the requirement that notice be
         given or time elapse or both.

                  "DEFAULT TERMINATION NOTICE" has the meaning specified in
         Section 2.01(e).

                  "DEFAULTED ADVANCE" means, with respect to any Lender Party at
         any time, the portion of any Advance required to be made by such Lender
         Party to the Domestic Borrower or the applicable Offshore Borrower
         pursuant to Section 2.01 or 2.02 at or prior to such time that has not
         been made by such Lender Party or by the Administrative Agent for the
         account of such Lender Party pursuant to Section 2.02(e) as of such
         time. In the event that a portion of a Defaulted Advance shall be
         deemed made pursuant to Section 2.15(a), the remaining portion of such
         Defaulted Advance shall be considered a Defaulted Advance originally
         required to be made pursuant to Section 2.01 on the same date as the
         Defaulted Advance so deemed made in part.

                  "DEFAULTED AMOUNT" means, with respect to any Lender Party at
         any time, any amount required to be paid by such Lender Party to any
         Agent or any other Lender Party hereunder or under any other Loan
         Document at or prior to such time that has not been so paid as of such
         time, including, without limitation, any amount required to be paid by
         such Lender Party to (a) a Swing Line Lender pursuant to Section
         2.02(b) to purchase a portion of a Swing Line Advance made by such
         Swing Line Lender, (b) the Issuing Bank pursuant to Section 2.03(c) to
         purchase a portion of a Letter of Credit Advance made by


                  Credit Agreement - Schedule II - Definitions

<PAGE>   130

                                       14


         the Issuing Bank, (c) the Administrative Agent pursuant to Section
         2.02(e) to reimburse the Administrative Agent for the amount of any
         Advance made by the Administrative Agent for the account of such Lender
         Party, (d) any other Lender Party pursuant to Section 2.13 or the
         Collateral Sharing Agreement to purchase any participation in Advances
         owing to such other Lender Party and (e) any Agent or the Issuing Bank
         pursuant to Section 7.05 to reimburse such Agent or the Issuing Bank
         for such Lender Party's ratable share of any amount required to be paid
         by the Lender Parties to such Agent or the Issuing Bank as provided
         therein. In the event that a portion of a Defaulted Amount shall be
         deemed paid pursuant to Section 2.15(b), the remaining portion of such
         Defaulted Amount shall be considered a Defaulted Amount originally
         required to be paid hereunder or under any other Loan Document on the
         same date as the Defaulted Amount so deemed paid in part.

                  "DEFAULTING LENDER" means, at any time, any Lender Party that,
         at such time, (a) owes a Defaulted Advance or a Defaulted Amount or (b)
         shall take any action or be the subject of any action or proceeding of
         a type described in Section 6.01(f).

                  "DESIGNATED MATERIAL CONTRACTS" means the following
         agreements: (i) Patent License Agreement, dated as of July 1, 1991, by
         and between Pierce and Stevens Corporation and Matsumoto Yushi Seiyaku
         Co., Ltd.; (ii) Agreement of Intent, dated as of September 1, 1997, by
         and between the Company and Matsumoto Yushi-Seiyaku Co.; (iii)
         Distributorship Agreement dated as of October 23, 1996 between Kohler
         Co. and Darworth; (iv) Exclusive Distributor Agreement dated as of July
         29, 1998 (but effective as of the close of business on July 31, 1998)
         by and between ChemRex, Inc. and OSI Sealants, Inc.; (v) License
         Agreement, dated July 29, 1998, between OSI, as Licensor, and ChemRex,
         Inc., as Licensee; (vi) License Agreement, dated April 20, 1999,
         between Pierce & Stevens, as Licensor, and Valspar Corporation, as
         Licensee.

                  "DISCLOSED LITIGATION" has the meaning provided in Section
         4.01(f).

                  "DOCUMENTATION AGENT" has the meaning specified in the
         recitals of parties to this Agreement.

                  "DOMESTIC BORROWER" has the meaning specified in the recital
         of parties to this Agreement.

                  "DOMESTIC BORROWER LENDER PARTY" means any Lender Party which
         has (i) made an Advance to the Domestic Borrower or (ii) executed an
         Assignment and Acceptance with a Lender Party that is a Domestic
         Borrower Lender Party with respect to an Advance other than an Offshore
         Acquisition Advance.

                  Credit Agreement - Schedule II - Definitions

<PAGE>   131

                                       15


                  "DOMESTIC BORROWER'S ACCOUNT" means the account of the
         Domestic Borrower maintained by the Domestic Borrower with Chase at its
         office at One Chase Manhattan Plaza, New York, New York 10081, Account
         No. 9102788529, or such other account as the Domestic Borrower shall
         specify in writing to the Administrative Agent).

                  "DOMESTIC LENDING OFFICE" means, with respect to any Lender
         Party, the office of such Lender Party specified as its "Domestic
         Lending Office" opposite its name on Schedule I hereto or in the
         Assignment and Acceptance pursuant to which it became a Lender Party,
         as the case may be, or such other office of such Lender Party as such
         Lender Party may from time to time specify to the Domestic Borrower and
         the Administrative Agent.

                  "DOMESTIC OBLIGOR" means the Domestic Borrower and each
         Domestic Subsidiary Guarantor.

                  "DOMESTIC PERMITTED ACQUISITION" means (a) any purchase or
         other acquisition by the Domestic Borrower or any of its Domestic
         Subsidiaries of all the Equity Interests in any other Person in a
         transaction effected pursuant to, and satisfying the requirements of,
         Section 5.02(g)(xiii), or (b) the purchase or acquisition by an
         existing Domestic Subsidiary of the Domestic Borrower, or the
         organization of a new Domestic Subsidiary by the Domestic Borrower or
         any of its existing Domestic Subsidiaries for the purpose of purchasing
         or acquiring, substantially all the assets of any Person or division or
         line of business of any Person in a transaction effected pursuant to,
         and satisfying the requirements of, Section 5.02(g)(xiii).

                  "DOMESTIC SECURED OBLIGATIONS" means, for each Domestic
         Obligor, the Obligations of such Domestic Obligor under the Loan
         Documents existing on the date such Domestic Obligor becomes a party to
         the Loan Documents and thereafter existing, whether direct or indirect,
         absolute or contingent, and whether for principal, reimbursement
         obligations, interest, fees, premiums, penalties, indemnifications,
         contract causes of action, costs, expenses or otherwise .

                  "DOMESTIC SECURITY AGREEMENT" means an amended and restated
         security agreement to be dated as of the date hereof in the form of
         Exhibit F hereto and to be duly executed by the Domestic Borrower and
         each Domestic Subsidiary Guarantor, together with each other security
         agreement and security agreement supplement delivered pursuant to
         Section 5.01(j), in each case, as amended.

                  "DOMESTIC SUBSIDIARY" means any Subsidiary other than an
         Offshore Subsidiary.

                  "DOMESTIC SUBSIDIARY GUARANTOR" means each of (i) SIA
         Adhesives, Inc., a Delaware corporation, (ii) Pierce & Stevens Corp., a
         New York corporation, (iii) OSI

                  Credit Agreement - Schedule II - Definitions

<PAGE>   132

                                       16


         Sealants, Inc., an Illinois corporation, (iv) Tanner Chemicals, Inc., a
         New Hampshire corporation. and (v) each other Domestic Subsidiary of
         the Domestic Borrower that shall be required to execute and deliver a
         guaranty or a guaranty supplement pursuant to Section 5.01(j).

                  "DOMESTIC SUBSIDIARY GUARANTY" means an amended and restated
         guaranty to be dated as of the date hereof in substantially the form of
         Exhibit G hereto and to be duly executed by each Domestic Subsidiary
         Guarantor, together with each other guaranty and guaranty supplement
         delivered pursuant to Section 5.01(j), in each case, as amended.

                  "DOMESTIC SWING LINE LENDER" means Chase.

                  "EBITDA" means, for any period, the sum, determined on a
         Consolidated basis without duplication, of (a) Consolidated Net Income
         (but excluding, to the extent reflected in determining such
         Consolidated Net Income (i) extraordinary gains and losses for such
         period, (ii) any gain or loss associated with the sale or write-down of
         assets not in the ordinary course of business, (iii) any deferred
         financing costs for such period written off in connection with the
         early extinguishment of Debt hereunder or under the Existing Senior
         Subordinated Notes, and (iv) any other non-cash or non-recurring items
         of income or expense (other than any non-cash item of expense requiring
         an accrual or reserve for future cash expense (other than non-cash,
         non-recurring items related to restructuring operations (including
         severance payments) of the Domestic Borrower and its Subsidiaries
         ("restructuring charges"); provided that any cash disbursements
         relating to any such restructuring charges shall (notwithstanding GAAP
         or any other provision of this Agreement), without duplication, reduce
         EBITDA when made))), (b) interest expense, (c) income tax expense, (d)
         depreciation expense, (e) amortization expense, (f) expenses for which
         Domestic Borrower receives payments under indemnification agreements,
         (g) prepayment penalties on early retirement of Debt, (h) consent
         payments with respect to Debt (other than any payment or prepayment of
         any principal or interest in respect of such Debt), (i) management
         compensation expenses associated with the Transactions to the extent
         paid for by Seller, (j) non-cash expenses for the granting of stock
         options, (k) all management and consulting fees (including
         reimbursement of expenses) paid or payable by Domestic Borrower and its
         Subsidiaries to Sponsor and (l) any non-recurring charges related to
         the Acquisition, any non-recurring, cash charges related to any
         Permitted Acquisition in an aggregate amount during the term of this
         Agreement not to exceed $5,000,000 and any non-recurring non-cash
         charges related to any Permitted Acquisition by Domestic Borrower or
         any Subsidiary occurring after the Closing Date in each case of the
         Domestic Borrower and its Subsidiaries, determined in accordance with
         GAAP for such period.

                  Credit Agreement - Schedule II - Definitions

<PAGE>   133

                                       17


                  "EFFECTIVE DATE" means the first date on which the conditions
         set forth in Section 3.01 shall have been satisfied.

                  "ELIGIBLE ASSIGNEE" means (a) with respect to any Facility
         (other than the Letter of Credit Sub-Facility), (i) a Lender; (ii) an
         Affiliate of a Lender; (iii) a commercial bank organized under the laws
         of the United States, or any State thereof, and having total assets in
         excess of $250,000,000; (iv) a savings and loan association or savings
         bank organized under the laws of the United States, or any State
         thereof, and having total assets in excess of $250,000,000; (v) a
         commercial bank organized under the laws of any other country that is a
         member of the OECD, or a political subdivision of any such country, and
         having total assets in excess of $250,000,000, so long as such bank is
         acting through a branch or agency located in the United States; (vi) a
         finance company, insurance company or other financial institution or
         fund (whether a corporation, partnership, trust or other entity)
         organized under the laws of the United States, any state thereof or any
         other country that is a member of the OECD that is engaged in making,
         purchasing or otherwise investing in commercial loans in the ordinary
         course of its business and having total assets in excess of
         $250,000,000; and (vii) any other Person approved by the Administrative
         Agent and, unless a Default has occurred and is continuing at the time
         any assignment is effected pursuant to Section 8.07, the Domestic
         Borrower, such approval not to be unreasonably withheld or delayed, and
         (b) with respect to the Letter of Credit Sub-Facility, a Person that is
         an Eligible Assignee under subclause (iii) or (v) of clause (a) of this
         definition and is approved by the Administrative Agent and, unless a
         Default has occurred and is continuing at the time any assignment is
         effected pursuant to Section 8.07, the Domestic Borrower, such approval
         not to be unreasonably withheld or delayed; provided, however, that
         neither any Loan Party nor any Affiliate of a Loan Party shall qualify
         as an Eligible Assignee under this definition.

                  "ENVIRONMENTAL ACTION" means any action, suit, demand, demand
         letter, claim, notice of non-compliance or violation, notice of
         liability or potential liability, investigation, proceeding, consent
         order or consent agreement relating to any Environmental Law, any
         Environmental Permit or Hazardous Material or arising from alleged
         injury or threat to health, safety or the environment, including,
         without limitation, (a) by any governmental or regulatory authority for
         enforcement, cleanup, removal, response, remedial or other actions or
         damages and (b) by any governmental or regulatory authority or third
         party for damages, contribution, indemnification, cost recovery,
         compensation or injunctive relief.

                  "ENVIRONMENTAL LAW" means any Federal, state, local or foreign
         statute, law, ordinance, rule, regulation, code, order, writ, judgment,
         injunction or decree, or judicial or agency interpretation, policy or
         guidance having the force or effect of law, relating to pollution or
         protection of the environment, health, safety or natural resources,
         including,


                  Credit Agreement - Schedule II - Definitions

<PAGE>   134

                                       18


         without limitation, those relating to the use, handling,
         transportation, treatment, storage, disposal, release or discharge of
         Hazardous Materials.

                  "ENVIRONMENTAL PERMIT" means any permit, approval,
         identification number, license or other authorization required under
         any Environmental Law.

                  "EQUIPMENT" means all Equipment referred to in Section 1(a) of
         the Domestic Security Agreement.

                  "EQUITY INTERESTS" means, with respect to any Person, shares
         of capital stock of (or other ownership or profit interests in) such
         Person, warrants, options or other rights for the purchase or other
         acquisition from such Person of shares of capital stock of (or other
         ownership or profit interests in) such Person, securities convertible
         into or exchangeable for shares of capital stock of (or other ownership
         or profit interests in) such Person or warrants, rights or options for
         the purchase or other acquisition from such Person of such shares (or
         such other interests), and other ownership or profit interests in such
         Person (including, without limitation, partnership, member or trust
         interests therein), whether voting or nonvoting, and whether or not
         such shares, warrants, options, rights or other interests are
         authorized or otherwise existing on any date of determination.

                  "EQUITY INVESTOR" means the Sponsor and its current, former
         and future employees, stockholders, directors and officers and the
         employees and officers of SSCI Investors and the Domestic Borrower and
         its Subsidiaries, and (i) trusts for the benefit of such Persons or the
         spouses, issue (including adopted issue), parents and grandparents of
         such Person, (ii) entities controlled by such Persons and (iii) in the
         event of the death of any such individual Person, heirs or testamentary
         legatees of such Person.

                  "EQUIVALENT" (a) in US Dollars of any Offshore Currency (other
         than Canadian Dollars) on any date, means the equivalent in US Dollars
         of such Offshore Currency determined by using the quoted spot rate at
         which the Offshore Currency Agent's principal office in London offers
         to exchange US Dollars for such Offshore Currency in London prior to
         4:00 P.M. (London time) (unless otherwise indicated by the terms of
         this Agreement) on such date as is required pursuant to the terms of
         this Agreement, (b) in any Offshore Currency (other than Canadian
         Dollars) of US Dollars, means the equivalent in such Offshore Currency
         of US Dollars determined by using the quoted spot rate at which the
         Offshore Currency Agent's principal office in London offers to exchange
         such Offshore Currency for Dollars in London prior to 4:00 P.M. (London
         time) (unless otherwise indicated by the terms of this Agreement) on
         such date as is required pursuant to the terms of this Agreement, (c)
         in US Dollars of Canadian Dollars on any date, means the equivalent
         thereof determined by using the quoted spot rate at which the Offshore
         Currency Agent's principal office in Toronto, Ontario offers to
         exchange US Dollars for

                  Credit Agreement - Schedule II - Definitions

<PAGE>   135

                                       19


         Canadian Dollars in Toronto, Ontario at 11:00 A.M. (New York City time)
         on such date and (d) in Canadian Dollars of US Dollars on any date,
         means the equivalent thereof determined by using the quoted spot rate
         at which the Offshore Currency Agent's principal office in New York
         City, New York offers to exchange Canadian Dollars for US Dollars in
         New York City, New York at 11:00 A.M. (New York City time) on such
         date.

                  "ERISA" means the Employee Retirement Income Security Act of
         1974, as amended from time to time, and the regulations promulgated and
         rulings issued thereunder.

                  "ERISA AFFILIATE" means any Person that for purposes of Title
         IV of ERISA is a member of the controlled group of any Loan Party, or
         under common control with any Loan Party, within the meaning of Section
         414 of the Internal Revenue Code.

                  "ERISA EVENT" means (a)(i) the occurrence of a reportable
         event, within the meaning of Section 4043 of ERISA, with respect to any
         Plan unless the 30-day notice requirement with respect to such event
         has been waived by the PBGC or (ii) the requirements of Section 4043(b)
         of ERISA apply with respect to a contributing sponsor, as defined in
         Section 4001(a)(13) of ERISA, of a Plan, and an event described in
         paragraph (9), (10), (11), (12) or (13) of Section 4043(c) of ERISA is
         reasonably expected to occur with respect to such Plan within the
         following 30 days; (b) the application for a minimum funding waiver
         with respect to a Plan; (c) the provision by the administrator of any
         Plan of a notice of intent to terminate such Plan, pursuant to Section
         4041(a)(2) of ERISA (including any such notice with respect to a plan
         amendment referred to in Section 4041(e) of ERISA); (d) the cessation
         of operations at a facility of any Loan Party or any ERISA Affiliate in
         the circumstances described in Section 4062(e) of ERISA; (e) the
         withdrawal by any Loan Party or any ERISA Affiliate from a Multiple
         Employer Plan during a plan year for which it was a substantial
         employer, as defined in Section 4001(a)(2) of ERISA; (f) the conditions
         for imposition of a lien under Section 302(f) of ERISA shall have been
         met with respect to any Plan; (g) the adoption of an amendment to a
         Plan requiring the provision of security to such Plan pursuant to
         Section 307 of ERISA; or (h) the institution by the PBGC of proceedings
         to terminate a Plan pursuant to Section 4042 of ERISA, or the
         occurrence of any event or condition described in Section 4042 of ERISA
         that constitutes grounds for the termination of, or the appointment of
         a trustee to administer, such Plan.

                  "EURO" means the single currency introduced on January 1,
         1999, as contemplated by the Treaty Establishing the European Community
         (being the Treaty of Rome dated March 25, 1957, as amended by the
         Single European Act 1986 and the Maastricht Treaty signed February 7,
         1992, and effective as of November 1, 1993, as further amended from
         time to time).

                  Credit Agreement - Schedule II - Definitions
<PAGE>   136
                                       20


                  "EUROCURRENCY LIABILITIES" has the meaning specified in
         Regulation D of the Board of Governors of the Federal Reserve System,
         as in effect from time to time.

                  "EURODOLLAR LENDING OFFICE" means, with respect to any Lender
         Party, the office of such Lender Party specified as its "Eurodollar
         Lending Office" opposite its name on Schedule I hereto or in the
         Assignment and Acceptance pursuant to which it became a Lender Party
         (or, if no such office is specified, its Domestic Lending Office), or
         such other office of such Lender Party as such Lender Party may from
         time to time specify to the Domestic Borrower and the Administrative
         Agent.

                  "EURODOLLAR RATE" means, for any Interest Period for all
         Eurodollar Rate Advances comprising part of the same Borrowing, an
         interest rate per annum equal to the rate per annum obtained by
         dividing (a) the rate per annum (rounded upwards, if necessary, to the
         nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor
         page) as the London interbank offered rate for deposits in U.S. dollars
         at 11:00 A.M. (London time) two Business Days before the first day of
         such Interest Period for a period equal to such Interest Period
         (provided that, if for any reason such rate is not available, the term
         "Eurodollar Rate" shall mean, for any Interest Period for all
         Eurodollar Rate Advances comprising part of the same Borrowing, the
         rate per annum (rounded upwards, if necessary, to the nearest 1/100 of
         1%) appearing on Reuters Screen LIBO Page as the London interbank
         offered rate for deposits in Dollars at approximately 11:00 A.M.
         (London time) two Business Days prior to the first day of such Interest
         Period for a term comparable to such Interest Period; provided,
         however, if more than one rate is specified on Reuters Screen LIBO
         Page, the applicable rate shall be the arithmetic mean of all such
         rates) by (b) a percentage equal to 100% minus the Eurodollar Rate
         Reserve Percentage for such Interest Period.

                  "EURODOLLAR RATE ADVANCE" means an Advance that bears interest
         as provided in Section 2.07(a)(ii).

                  "EURODOLLAR RATE RESERVE PERCENTAGE" for any Interest Period
         for all Eurodollar Rate Advances comprising part of the same Borrowing
         means the reserve percentage applicable two Business Days before the
         first day of such Interest Period under regulations issued from time to
         time by the Board of Governors of the Federal Reserve System (or any
         successor) for determining the maximum reserve requirement (including,
         without limitation, any emergency, supplemental or other marginal
         reserve requirement) for a member bank of the Federal Reserve System in
         New York City with respect to liabilities or assets consisting of or
         including Eurocurrency Liabilities (or with respect to any other
         category of liabilities that includes deposits by reference to which
         the interest



                  Credit Agreement - Schedule II - Definitions


<PAGE>   137

                                       21

         rate on Eurodollar Rate Advances is determined) having a term equal to
         such Interest Period.

                  "EVENTS OF DEFAULT" has the meaning specified in Section 6.01.

                  "EXCESS CASH FLOW" means, for any period,

                           (a) Consolidated Net Income of the Domestic Borrower
                  and its Subsidiaries for such period, but excluding, to the
                  extent reflected in determining such Consolidated Net Income
                  (x) depreciation expense and amortization expense, (y) all
                  non-cash credits and charges which are extraordinary or
                  non-recurring and (z) gains or losses on the sale or other
                  disposition of assets (other than sales of Inventory and
                  licenses of patents, trademarks, copyrights of know-how, in
                  each case, in the ordinary course of business), to the extent
                  added or deducted in arriving at such Consolidated Net Income;
                  less

                           (b) the sum of:

                                    (i) scheduled payment and permanent
                           prepayments of the principal amount of Term Advances,
                           to the extent actually made, during such period
                           pursuant to Section 2.04(a) or (b) or Section 2.06(a)
                           plus
                                    (ii) prepayments of Revolving Credit
                           Borrowings to the extent of any concurrent permanent
                           reduction in the Revolving Credit Commitments plus

                                    (iii) the portion of any regularly scheduled
                           payments with respect to Capitalized Leases allocable
                           to principal plus

                                    (iv)    Capital Expenditures plus

                                    (v) cash paid in connection with any
                           Permitted Acquisition during such period (other than
                           the proceeds of any Debt incurred to finance any
                           Permitted Acquisition) plus

                                    (vi) the net increase, if greater than zero,
                           of Current Assets over Current Liabilities of the
                           Domestic Borrower and its Subsidiaries from the last
                           day of the immediately preceding fiscal year.

                  "EXCLUDED AGREEMENTS" means the agreements and other documents
         defined in Section 1(c) of the Domestic Security Agreement.




                  Credit Agreement - Schedule II - Definitions


<PAGE>   138




                                       22


                  "EXCLUDED LICENSES" has the meaning specified in Section
         1(f)(vi) of the Domestic Security Agreement.

                  "EXCLUDED TAXES" has the meaning specified in Section 2.12(a).

                  "EXISTING CREDIT AGREEMENT" has the meaning specified in the
         Preliminary Statements.

                  "EXISTING DEBT" means Debt of each Loan Party and its
         Subsidiaries outstanding immediately before giving effect to the
         consummation of the Transaction on the Initial Closing Date.

                  "EXISTING LETTERS OF CREDIT" means the standby letters of
         credit (i) issued by Chase or one or more of its affiliates under the
         terms of the Refinanced Credit Agreement and outstanding on the Initial
         Closing Date, in each case, as more fully described on Schedule III to
         the Existing Credit Agreement or (ii) issued under the Existing Credit
         Agreement on or after the Initial Closing Date.

                  "EXISTING SENIOR SUBORDINATED NOTE INDENTURE" has the meaning
         specified in the Preliminary Statements.

                  "EXISTING SENIOR SUBORDINATED NOTE TRUSTEE" has the meaning
         specified in the Preliminary Statements.

                  "EXISTING SENIOR SUBORDINATED NOTES" has the meaning specified
         in the Preliminary Statements.

                  "EXTRAORDINARY RECEIPT" means any cash received by or paid to
         or for the account of any Person not in the ordinary course of
         business, including, without limitation, tax refunds, pension plan
         reversions, proceeds of insurance (including, without limitation, any
         key man life insurance but excluding proceeds of business interruption
         insurance to the extent such proceeds constitute compensation for lost
         earnings), condemnation awards (and payments in lieu thereof),
         indemnity payments and any purchase price adjustment received in
         connection with any purchase agreement; provided, however, that an
         Extraordinary Receipt shall not include cash receipts received from
         proceeds of insurance, condemnation awards (or payments in lieu
         thereof) or indemnity payments to the extent that such proceeds, awards
         or payments (A) in respect of loss or damage to equipment, fixed assets
         or real property are applied (or in respect of which expenditures were
         previously incurred) to replace or repair the equipment, fixed assets
         or real property in respect of which such proceeds were received in
         accordance with the terms of the Loan Documents, so long as such
         application is made within one year, in each case, after the




                  Credit Agreement - Schedule II - Definitions

<PAGE>   139


                                       23


         occurrence of such damage or loss or (B) are received by any Person in
         respect of any third party claim against such Person and applied to pay
         (or to reimburse such Person for its prior payment of) such claim and
         the costs and expenses of such Person with respect thereto.

                  "FACILITY" means the Term A Facility, the Offshore Acquisition
         Facility, the Revolving Credit Facility, the Swing Line Sub-Facility or
         the Letter of Credit Sub-Facility.

                  "FEDERAL FUNDS RATE" means, for any period, a fluctuating
         interest rate per annum equal for each day during such period to the
         weighted average of the rates on overnight Federal funds transactions
         with members of the Federal Reserve System arranged by Federal funds
         brokers, as published for such day (or, if such day is not a Business
         Day, for the next preceding Business Day) by the Federal Reserve Bank
         of New York, or, if such rate is not so published for any day that is a
         Business Day, the average of the quotations for such day for such
         transactions received by the Administrative Agent from three Federal
         funds brokers of recognized standing selected by it.

                  "FEE LETTER" means the fee letter dated as of December 29,
         1999, between the Domestic Borrower and the Administrative Agent, as
         amended.

                  "FISCAL YEAR" means a fiscal year of the Domestic Borrower and
         its Consolidated Subsidiaries ending on December 31 in any calendar
         year.

                  "FIXED CHARGE COVERAGE RATIO" means, at any date of
         determination, the ratio of (a) Pro Forma Consolidated EBITDA to (b)
         the sum of (i) Pro Forma Interest Expense plus (ii) principal amounts
         of all Debt for Borrowed Money payable plus (iii) the aggregate amount
         of all Capital Expenditures made in cash of or by the Domestic Borrower
         and its Subsidiaries during the four consecutive fiscal quarters most
         recently ended for which financial statements are required to be
         delivered to the Lender Parties pursuant to Section 5.03(b) or (c), as
         the case may be.

                  "FOREIGN CORPORATION" has the meaning specified in Section
         1(d)(iii) of the Domestic Security Agreement.

                  "FUNDED DEBT" of any Person means Debt in respect of the
         Advances, in the case of the Domestic Borrower, and all other Debt of
         such Person that by its terms matures more than one year after the date
         of determination or matures within one year from such date but is
         renewable or extendible, at the option of such Person, to a date more
         than one year after such date or arises under a revolving credit or
         similar agreement that obligates the lender or lenders to extend credit
         during a period of more than one year after such




                  Credit Agreement - Schedule II - Definitions



<PAGE>   140




                                       24


         date, including, without limitation, all amounts of Funded Debt of such
         Person required to be paid or prepaid within one year after the date of
         determination.

                  "GAAP" has the meaning specified in Section 1.03.

                  "GUARANTIES" means the Domestic Subsidiary Guaranty and the
         Offshore Guaranty.

                  "GUARANTORS" means the Domestic Subsidiary Guarantors, the
         Domestic Borrower and the Offshore Subsidiary Guarantors.

                  "HAZARDOUS MATERIALS" means (a) petroleum or petroleum
         products, by-products or breakdown products, radioactive materials,
         asbestos-containing materials, polychlorinated biphenyls and radon gas
         and (b) any other chemicals, materials or substances designated,
         classified or regulated as hazardous or toxic or as a pollutant or
         contaminant under any Environmental Law.

                  "HEDGE AGREEMENTS" means interest rate swap, cap or collar
         agreements, interest rate future or option contracts, currency swap
         agreements, currency future or commodity or option contracts and other
         hedging agreements.

                  "HEDGE BANK" means any Lender Party or an Affiliate of a
         Lender Party in its capacity as a party to a Secured Hedge Agreement.

                  "INDEMNIFIED PARTY" has the meaning specified in Section
         8.04(b) and in Section 21 of the Domestic Security Agreement.

                  "INFORMATION MEMORANDUM" means, collectively, the information
         memorandum dated December 1999 used by the Joint Lead Arrangers in
         connection with the initial syndication of the Commitments under the
         Existing Credit Agreement and the information memorandum dated February
         2000 used by the Joint Lead Arrangers in connection with the subsequent
         syndication of the Commitments under this Agreement.

                  "INITIAL CLOSING DATE" means December 30, 1999.

                  "INITIAL EXTENSION OF CREDIT" means the earlier to occur of
         the initial Borrowing and the initial issuance of a Letter of Credit
         hereunder.

                  "INITIAL ISSUING BANK", "INITIAL LENDER PARTIES" and "INITIAL
         LENDERS" each has the meaning specified in the recital of parties to
         this Agreement.



                  Credit Agreement - Schedule II - Definitions



<PAGE>   141



                                       25



                  "INITIAL PLEDGED DEBT" has the meaning specified in the
         recital to the Domestic Security Agreement.

                  "INITIAL PLEDGED SHARES" has the meaning specified in the
         recital to the Domestic Security Agreement.

                  "INSUFFICIENCY" means, with respect to any Plan, the amount,
         if any, of its unfunded benefit liabilities, as defined in Section
         4001(a)(18) of ERISA.

                  "INTELLECTUAL PROPERTY" has the meaning specified in the
         Domestic Security Agreement.

                  "INTELLECTUAL PROPERTY COLLATERAL" has the meaning specified
         in Section 1(f) of the Domestic Security Agreement.

                  "INTELLECTUAL PROPERTY SECURITY AGREEMENT" has the meaning
         specified in Section 14(f) of the Domestic Security Agreement.

                  "INTEREST COVERAGE RATIO" means, at any date of determination,
         the ratio of (a) Pro Forma Consolidated EBITDA to (b) Pro Forma
         Interest Expense during the four consecutive fiscal quarters most
         recently ended for which financial statements are required to be
         delivered to the Lender Parties pursuant to Section 5.03(b) or (c), as
         the case may be.

                  "INTEREST EXPENSE" means for any period the Consolidated
         interest expense (net of interest income) of Domestic Borrower and its
         Subsidiaries for such period (including all imputed interest on
         Capitalized Leases, but excluding (i) amortization of fees and expenses
         in connection with the Acquisition, (ii) amortization in connection
         with Hedge Agreements, (iii) interest expense on deferred compensation
         or customer deposits and (iv) for purposes of calculating the Fixed
         Charge Coverage Ratio and the Interest Coverage Ratio, amortization of
         deferred financing costs, discounts and other non-cash interest
         expense).

                  "INTEREST PERIOD" means, for each Eurodollar Rate Advance
         comprising part of the same Borrowing, the period commencing on the
         date of such Eurodollar Rate Advance or the date of the Conversion of
         any Base Rate Advance into such Eurodollar Rate Advance, and ending on
         the last day of the period selected by the Domestic Borrower pursuant
         to the provisions below and, thereafter, each subsequent period
         commencing on the last day of the immediately preceding Interest Period
         and ending on the last day of the period selected by the Domestic
         Borrower pursuant to the provisions below. The duration of each such
         Interest Period shall be, in the case of the period until 90 days
         following the



                  Credit Agreement - Schedule II - Definitions


<PAGE>   142



                                       26


         Effective Date, one month, and thereafter, one, two, three or six
         months, as the Domestic Borrower may, upon notice received by the
         Administrative Agent not later than 11:00 A.M. (New York City time) on
         the third Business Day prior to the first day of such Interest Period,
         select; provided, however, that:

                           (a) the Domestic Borrower may not select any Interest
                  Period with respect to any Eurodollar Rate Advance under a
                  Facility that ends after any principal repayment installment
                  date for such Facility unless, after giving effect to such
                  selection, the aggregate principal amount of Base Rate
                  Advances and of Eurodollar Rate Advances having Interest
                  Periods that end on or prior to such principal repayment
                  installment date for such Facility shall be at least equal to
                  the aggregate principal amount of Advances under such Facility
                  due and payable on or prior to such date;

                           (b) Interest Periods commencing on the same date for
                  Eurodollar Rate Advances comprising part of the same Borrowing
                  shall be of the same duration;

                           (c) whenever the last day of any Interest Period
                  would otherwise occur on a day other than a Business Day, the
                  last day of such Interest Period shall be extended to occur on
                  the next succeeding Business Day, provided, however, that, if
                  such extension would cause the last day of such Interest
                  Period to occur in the next following calendar month, the last
                  day of such Interest Period shall occur on the next preceding
                  Business Day; and

                           (d) whenever the first day of any Interest Period
                  occurs on a day of an initial calendar month for which there
                  is no numerically corresponding day in the calendar month that
                  succeeds such initial calendar month by the number of months
                  equal to the number of months in such Interest Period, such
                  Interest Period shall end on the last Business Day of such
                  succeeding calendar month.

                  "INTERNAL REVENUE CODE" means the Internal Revenue Code of
         1986, as amended from time to time, and the regulations promulgated and
         rulings issued thereunder.

                  "INVENTORY" means all Inventory referred to in Section 1(b) of
         the Domestic Security Agreement.

                  "INVESTMENT" in any Person means any loan or advance to such
         Person, any purchase or other acquisition of any Equity Interests or
         Debt or the assets comprising a division or business unit or a
         substantial part or all of the business of such Person, any capital
         contribution to such Person or any other direct or indirect investment
         in such Person, including, without limitation, any acquisition by way
         of a merger or




                  Credit Agreement - Schedule II - Definitions


<PAGE>   143



                                       27


         consolidation and any Contingent Obligation or any arrangement pursuant
         to which the investor incurs Debt of the types referred to in clause
         (i) of the definition of "DEBT" in respect of such Person.

                  "IP SECURITY AGREEMENT SUPPLEMENT" has the meaning specified
         in Section 14(g) of the Domestic Security Agreement.

                  "ISSUING BANK" means Chase, in respect of the Existing Letters
         of Credit, the Initial Issuing Bank and any Eligible Assignee to which
         a Letter of Credit Commitment hereunder has been assigned pursuant to
         Section 8.07 so long as each such Eligible Assignee expressly agrees to
         perform in accordance with their terms all of the obligations that by
         the terms of this Agreement are required to be performed by it as an
         Issuing Bank and notifies the Administrative Agent of its Applicable
         Lending Office and the amount of its Letter of Credit Commitment (which
         information shall be recorded by the Administrative Agent in the
         Register), for so long as such Initial Issuing Bank or Eligible
         Assignee, as the case may be, shall have a Letter of Credit Commitment.

                  "JOINDER AGREEMENT" means, for any Offshore Currency, a
         supplement to this Agreement in the form of Exhibit D duly executed by
         the Appropriate Swing Line Lender designated to make Swing Line
         Advances in such Offshore Currency available hereunder, the Offshore
         Currency Agent and the Domestic Borrower.

                  "JOINT BOOK MANAGER" has the meaning specified in the recitals
         of parties to this Agreement.

                  "JOINT LEAD ARRANGER" has the meaning specified in the
         recitals of parties to this Agreement.

                  "L/C CASH COLLATERAL ACCOUNT" has the meaning specified in the
         recital to the Security Agreement.

                  "L/C RELATED DOCUMENTS" has the meaning specified in Section
         2.04(e)(ii).

                  "LENDER PARTY" means any Lender, the Issuing Bank or any Swing
         Line Lender.

                  "LENDERS" means the Initial Lenders and each Person that shall
         become a Lender hereunder pursuant to Section 8.07 for so long as such
         Initial Lender or Person, as the case may be, shall be a party to this
         Agreement.

                  "LETTER OF CREDIT ADVANCE" means an advance made by the
         Issuing Bank or any Revolving Credit Lender pursuant to Section
         2.03(c).



                  Credit Agreement - Schedule II - Definitions



<PAGE>   144



                                       28



                  "LETTER OF CREDIT AGREEMENT" has the meaning specified in
         Section 2.03(a).

                  "LETTER OF CREDIT COMMITMENT" means, with respect to the
         Issuing Bank at any time, the amount set forth opposite the Issuing
         Bank's name on Schedule I hereto under the caption "Letter of Credit
         Commitment" or, if the Issuing Bank has entered into one or more
         Assignment and Acceptances, set forth for the Issuing Bank in the
         Register maintained by the Administrative Agent pursuant to Section
         8.07(d) as the Issuing Bank's "Letter of Credit Commitment", as such
         amount may be reduced at or prior to such time pursuant to Section
         2.05.

                  "LETTER OF CREDIT SUB-FACILITY" means, at any time, an amount
         equal to the amount of the Issuing Bank's Letter of Credit Commitment
         at such time, as such amount may be reduced at or prior to such time
         pursuant to Section 2.05.

                  "LETTERS OF CREDIT" has the meaning specified in Section
         2.01(e).

                  "LICENSES" has the meaning specified in Section 1(f)(vi) of
         the Domestic Security Agreement.

                  "LIEN" means any lien, security interest or other charge or
         encumbrance of any kind, or any other type of preferential arrangement,
         including, without limitation, the lien or retained security title of a
         conditional vendor and any easement, right of way or other encumbrance
         on title to real property.

                  "LOAN DOCUMENTS" means (a) for purposes of this Agreement and
         the Notes and any amendment, supplement or modification hereof or
         thereof, (i) this Agreement (including each Assignment and Acceptance,
         Offshore Swing Line Lender Joinder Agreement and Credit Agreement
         Supplement), (ii) the Notes, (iii) the Guaranties, (iv) the Collateral
         Documents, (v) the Fee Letter, (vi) the Collateral Sharing Agreement
         and (vii) each Letter of Credit Agreement and (b) for purposes of the
         Guaranties and the Collateral Documents and for all other purposes
         other than for purposes of this Agreement and the Notes, (i) this
         Agreement (including each Assignment and Acceptance, Offshore Swing
         Line Lender Joinder Agreement and Credit Agreement Supplement), (ii)
         the Notes, (iii) the Guaranties, (iv) the Collateral Documents, (v) the
         Fee Letter, (vi) each Letter of Credit Agreement, (vii) the Collateral
         Sharing Agreement and (viii) each Secured Hedge Agreement, in each case
         as amended.

                  "LOAN PARTIES" means the Domestic Borrower, the Offshore
         Borrowers and the Guarantors.




                  Credit Agreement - Schedule II - Definitions


<PAGE>   145




                                       29



                  "LOCAL TIME" means, for any Offshore Currency, the time zone
         specified in the Joinder Agreement of the Appropriate Swing Line Lender
         which has agreed to make Swing Line Advances in such Offshore Currency
         available hereunder.

                  "MANAGEMENT AGREEMENT" means the Amended and Restated
         Management Agreement dated as of March 21, 2000, among the Sponsor and
         the Domestic Borrower, as amended or renewed, to the extent permitted
         under the Loan Documents.

                  "MARGIN STOCK" has the meaning specified in Regulation U.

                  "MATERIAL ADVERSE CHANGE" means any material adverse change in
         the business, assets, operations, properties, financial condition or
         liabilities (contingent or otherwise) of the Domestic Borrower and its
         Subsidiaries taken as a whole since September 30, 1999; provided,
         however, that in no event shall the Transactions, individually or in
         the aggregate, be deemed a Material Adverse Change.

                  "MATERIAL ADVERSE EFFECT" means a material adverse effect on
         (a) the business, assets, operations, properties, financial condition
         or liabilities (contingent or otherwise) of the Domestic Borrower and
         its Subsidiaries taken as a whole, or (b) the rights and remedies of
         any Agent or any Lender Party under any Transaction Document; provided,
         however, that in no event shall the Transactions, individually or in
         the aggregate, be deemed a Material Adverse Effect.

                  "MATERIAL CONTRACT" means, with respect to any Person, each
         contract (or group of related contracts with the same party) to which
         such Person is a party involving (i) the lease under which such Person
         is lessee of, or holds or operates any personal property owned by any
         other party, for which the annual rental exceeds $1,000,000, (ii) the
         lease under which such Person is lessor of or permits any third party
         to hold or operate any property, real or personal, for which the annual
         rental exceeds $1,000,000, (iii) any joint venture or partnership
         agreement, (iv) the acquisition of or disposition of stock, assets or
         business with a value in excess of $1,000,000, other than in the
         ordinary course of business, (v) the license, as licensee or licensor,
         of any patent, trademark, copyright or know-how for which the annual
         license fees and other payments thereunder exceed $1,000,000, or (vi)
         the Designated Material Contracts.

                  "MEASUREMENT PERIOD" means, at any date of determination, the
         most recently completed four consecutive quarterly fiscal accounting
         periods of the Domestic Borrower on or immediately prior to such date.

                  "MORTGAGE POLICIES" has the meaning specified in Section
         5.01(q) to the Existing Credit Agreement.




                  Credit Agreement - Schedule II - Definitions


<PAGE>   146




                                       30

                  "MORTGAGES" has the meaning specified in Section 5.01(q) to
         the Existing Credit Agreement.

                  "MULTIEMPLOYER PLAN" means a multiemployer plan, as defined in
         Section 4001(a)(3) of ERISA, to which any Loan Party or any ERISA
         Affiliate is making or accruing an obligation to make contributions, or
         has within any of the preceding five plan years made or accrued an
         obligation to make contributions.

                  "MULTIPLE EMPLOYER PLAN" means a single employer plan, as
         defined in Section 4001(a)(15) of ERISA, that (a) is maintained for
         employees of any Loan Party or any ERISA Affiliate and at least one
         Person other than the Loan Parties and the ERISA Affiliates or (b) was
         so maintained and in respect of which any Loan Party or any ERISA
         Affiliate could have liability under Section 4064 or 4069 of ERISA in
         the event such plan has been or were to be terminated.

                  "NET CASH PROCEEDS" means, with respect to any sale, lease,
         transfer or other disposition of any asset or the incurrence or
         issuance of any Debt or the sale or issuance of any Equity Interests
         (including, without limitation, any capital contribution) by any
         Person, or any Extraordinary Receipt received by or paid to or for the
         account of any Person, the aggregate amount of cash received from time
         to time (whether as initial consideration or through payment or
         disposition of deferred consideration) by or on behalf of such Person
         in connection with such transaction after deducting therefrom only
         (without duplication), the following: (a) with respect to any asset
         sale, (i) the direct and indirect costs relating to such asset sale
         (including sales commissions and legal, accounting and investment
         banking fees) which are incurred by the Domestic Borrower or any of its
         Subsidiaries, (ii) amounts applied to the repayment of any Debt secured
         by a Lien on the asset subject to such asset sale, (iii) amounts
         required to be paid to any Person (other than Domestic Borrower or any
         Subsidiary) owning a beneficial interest in the assets subject to the
         asset sale; (iv) liabilities of the entity, or relating to the business
         or assets, sold, transferred or otherwise disposed of which are
         retained by Domestic Borrower or the applicable Subsidiary, (v)
         appropriate amounts to be provided by Domestic Borrower or any
         Subsidiary, as the case may be, as a reserve in accordance with GAAP
         against any liabilities specifically associated with such asset sale
         and retained by Domestic Borrower or any Subsidiary, as the case may
         be, after such asset sale (but upon reversal of such reserve, any
         amount so reversed shall thereupon become Net Cash Proceeds); and (vi)
         the amount of taxes payable in connection with or as a result of such
         transaction, in each case to the extent, but only to the extent, that
         the amounts so deducted are, at the time of receipt of such cash,
         actually paid to a Person that is not an Affiliate of such Person or
         any Loan Party or any Affiliate of any Loan Party and are properly
         attributable to such transaction or to the asset that is the subject
         thereof; provided,



                  Credit Agreement - Schedule II - Definitions

<PAGE>   147




                                       31


         however, that in the case of taxes that are deductible under clause
         (vi) above but for the fact that, at the time of receipt of such cash,
         such taxes have not been actually paid or are not then payable, such
         Loan Party or such Subsidiary may deduct an amount (the "RESERVED
         AMOUNT") equal to the amount reserved in accordance with GAAP for such
         Loan Party's or such Subsidiary's reasonable estimate of such taxes,
         other than taxes for which such Loan Party or such Subsidiary is
         indemnified, provided further, however, that, at the time such taxes
         are paid, an amount equal to the amount, if any, by which the Reserved
         Amount for such taxes exceeds the amount of such taxes actually paid
         shall constitute "Net Cash Proceeds" of the type for which such taxes
         were reserved for all purposes hereunder; (b) with respect to any
         issuance of Equity Interests or Debt, the direct costs relating to such
         issuance (including sale and underwriter's commissions and legal,
         accounting and investment banking fees) incurred by the Domestic
         Borrower or any of its Subsidiaries; and (c) with respect to any
         Extraordinary Receipt, the reasonable costs incurred by the Domestic
         Borrower or any of its Subsidiaries to adjust and/or recover such
         Extraordinary Receipt. Cash received and cost and expenses incurred by
         the Domestic Borrower and any of its Subsidiaries in any currency other
         than US Dollars will be deemed to have been received or incurred in the
         equivalent amount of US Dollars calculated as provided pursuant to
         Section 1.04(b) hereof.

                  "NONRATABLE ASSIGNMENT" means an assignment by a Lender Party
         pursuant to Section 8.07(a) of a portion of its rights and obligations
         under this Agreement, other than an assignment of a uniform, and not a
         varying, percentage of all of the rights and obligations of such Lender
         Party under and in respect of all of the Facilities (other than the
         Letter of Credit Sub-Facility and the Swing Line Sub-Facility).

                  "NON-VOTING EQUITY INTERESTS" has the meaning specified in
         Section 1(d)(iii) of the Domestic Security Agreement.

                  "NOTE" means a Term Note, a Revolving Credit Note or an
         Offshore Swing Line Note.

                  "NOTE PURCHASE DATE" has the meaning specified in the
         Preliminary Statements.

                  "NOTICE OF BORROWING" has the meaning specified in Section
         2.02(a).

                  "NOTICE OF ISSUANCE" has the meaning specified in Section
         2.03(a).

                  "NOTICE OF RENEWAL" has the meaning specified in Section
         2.01(e).

                  "NOTICE OF SWING LINE BORROWING" has the meaning specified in
         Section 2.02(b).




                  Credit Agreement - Schedule II - Definitions


<PAGE>   148




                                       32


                  "NOTICE OF TERMINATION" has the meaning specified in Section
         2.01(e).

                  "NPL" means the National Priorities List under CERCLA.

                  "OBLIGATION" means, with respect to any Person, any payment,
         performance or other obligation of such Person of any kind, including,
         without limitation, any liability of such Person on any claim, whether
         or not the right of any creditor to payment in respect of such claim is
         reduced to judgment, liquidated, unliquidated, fixed, contingent,
         matured, disputed, undisputed, legal, equitable, secured or unsecured,
         and whether or not such claim is discharged, stayed or otherwise
         affected by any proceeding referred to in Section 6.01(f). Without
         limiting the generality of the foregoing, the Obligations of any Loan
         Party under the Loan Documents include (a) the obligation to pay
         principal, interest, Letter of Credit commissions, charges, expenses,
         fees, attorneys' fees and disbursements, indemnities and other amounts
         payable by such Loan Party under any Loan Document and (b) the
         obligation of such Loan Party to reimburse any amount in respect of any
         of the foregoing that any Lender Party, in its sole discretion, may
         elect to pay or advance on behalf of such Loan Party.

                  "OBLIGOR" has the meaning in Section 5(b) of the Domestic
         Security Agreement.

                  "OECD" means the Organization for Economic Cooperation and
         Development.

                  "OFFER TO PURCHASE" has the meaning specified in the
         Preliminary Statements.

                  "OFFSHORE ACQUISITION ADVANCE" has the meaning specified in
         Section 2.01(a)(ii).

                  "OFFSHORE ACQUISITION BORROWINGS" means a borrowing of
         simultaneous Offshore Acquisition Advances of the same Type made by the
         Offshore Acquisition Lenders.

                  "OFFSHORE ACQUISITION COMMITMENT" means, at any time, (i) with
         respect to any Term A Lender, an amount equal to the aggregate amount
         of such Lender's Term A Commitment which has been converted to an
         Offshore Acquisition Commitment pursuant to Section 2.05(b)(i)(A)(2)
         and 2.05 (b)(i)(B)(1) at such time, (ii) with respect to any Revolving
         Credit Lender, an amount equal to the aggregate amount of such Lender's
         Revolving Credit Commitment which has been converted to an Offshore
         Acquisition Commitment pursuant to Section 2.05(b)(iii)(A) and
         2.05(b)(i)(B)(1) at such time, or (iii) with respect to a Lender which
         has entered into one or more Assignment and Acceptances, the amount set
         forth for such Lender in the Register maintained by the Administrative
         Agent pursuant to Section 8.07(d) as such Lender's "Offshore
         Acquisition Commitment", in each case, as such amount may be reduced at
         or prior to such time pursuant to Section 2.05.




                  Credit Agreement - Schedule II - Definitions


<PAGE>   149
                                       33


                  "OFFSHORE ACQUISITION FACILITY" means at any time the
         aggregate amount of the Offshore Acquisition Commitments of the
         Offshore Acquisition Lenders.

                  "OFFSHORE ACQUISITION LENDERS" means any Lender with an
         Offshore Acquisition Commitment.

                  "OFFSHORE ACQUISITION NOTE" means, with respect to an Offshore
         Acquisition Advance, a promissory note of the Offshore Borrower to
         which such Advance was made, payable to the order of any Offshore
         Acquisition Lender, in substantially the form of Exhibit A-3 hereto,
         evidencing the indebtedness of such Offshore Borrower to such Lender
         resulting from the Offshore Acquisition Advances made to such Offshore
         Borrower by such Lender, as amended.

                  "OFFSHORE ALTERNATE CURRENCY" means any lawful currency
         constituting a eurocurrency (other than Pounds Sterling or Euros) which
         has been designated by the Domestic Borrower to the Offshore Currency
         Agent and which the Offshore Currency Agent has confirmed by written
         notice to the Domestic Borrower, the Appropriate Swing Line Lender and
         the Revolving Credit Lenders, is, at the time of such designation,
         freely traded in the offshore interbank foreign exchange markets and is
         freely transferable and freely convertible into US Dollars.

                  "OFFSHORE BORROWER" means each wholly-owned (other than in
         respect of any de minimis director's qualifying shares) Offshore
         Subsidiary of the Domestic Borrower which shall have entered into a
         Credit Agreement Supplement pursuant to Section 3.02 or 3.03 for so
         long as such Offshore Subsidiary shall be a party to this Agreement.

                  "OFFSHORE BORROWING" means any Swing Line Advance borrowed by
         an Offshore Borrower and any Offshore Acquisition Borrowing.

                  "OFFSHORE COLLATERAL DOCUMENTS" means the security agreements,
         pledge agreements, mortgages, deeds and other agreement delivered by an
         Offshore Obligor to the Administrative Agent that creates or purports
         to create a first priority Lien in favor of the Administrative Agent
         for the benefit of the Secured Parties to secure the Offshore
         Obligations in substantially all the assets of such Offshore Obligor,
         whether delivered from time to time pursuant to Section 3.02, 3.03 or
         5.01(j) or otherwise.

                  "OFFSHORE CURRENCY" means Canadian Dollars, Euros, Pounds
         Sterling, Singapore Dollars and any Offshore Alternative Currency.



                  Credit Agreement - Schedule II - Definitions
<PAGE>   150

                                       34

                  "OFFSHORE CURRENCY AGENT" has the meaning specified in the
         recitals of parties to this Agreement.

                  "OFFSHORE GUARANTY" means a guaranty in substantially the form
         of Exhibit H hereto, together with each other guaranty and guaranty
         supplement delivered pursuant to Section 3.02, 3.03 and 5.01(j), duly
         executed by the Domestic Borrower, each Domestic Subsidiary Guarantor
         and each Offshore Obligor, as amended.

                  "OFFSHORE OBLIGOR" means each Offshore Borrower and each
         Offshore Subsidiary Guarantor.

                  "OFFSHORE PERMITTED ACQUISITION" means (a) any purchase or
         other acquisition by any Offshore Borrower of all the Equity Interests
         in any other Person in a transaction effected pursuant to, and
         satisfying the requirements of, Section 5.02(g)(xiii), or (b) the
         purchase or acquisition by an existing Offshore Borrower, or the
         organization of a new Offshore Subsidiary by an Offshore Borrower for
         the purpose of purchasing or acquiring, substantially all the assets of
         any Person or division or line of business of any Person in a
         transaction effected pursuant to, and satisfying the requirements of,
         Section 5.02(g)(xiii).

                  "OFFSHORE SECURED OBLIGATIONS" means, for each Offshore
         Obligor, the Obligations of such Offshore Obligor under the Loan
         Documents existing on the date such Offshore Obligor becomes a party to
         the Loan Documents and thereafter existing, whether direct or indirect,
         absolute or contingent, and whether for principal, reimbursement
         obligations, interest, fees, premiums, penalties, indemnifications,
         contract causes of action, costs, expenses or otherwise.

                  "OFFSHORE SUBSIDIARY" means a Subsidiary organized under the
         laws of a jurisdiction other than the United States or any State
         thereof or the District of Columbia.

                  "OFFSHORE SUBSIDIARY GUARANTOR" means each Offshore Subsidiary
         of the Domestic Borrower which shall execute and deliver a counterpart
         of the Offshore Guaranty pursuant to Section 3.03 or 5.01(j) for so
         long as such Offshore Subsidiary shall be a party to the Offshore
         Guaranty.

                  "OFFSHORE SWING LINE ADVANCE" means a Swing Line Advance made
         by the Appropriate Swing Line Lender to the Domestic Borrower or an
         Offshore Borrower in an Offshore Currency.

                  "OFFSHORE SWING LINE LENDER" means, with respect to each
         Offshore Currency, Chase or the affiliate of Chase which Chase may
         designate from time to time to the

                  Credit Agreement - Schedule II - Definitions
<PAGE>   151

                                       34

         Offshore Currency Agent and the Domestic Borrower as the lender which
         will make Offshore Currency Advances in such Offshore Currency
         available under this Agreement.

                  "OFFSHORE SWING LINE NOTE" means a promissory note of an
         Offshore Borrower payable to the order of any Offshore Swing Line
         Lender, in substantially the form of Exhibit A-4 hereto, evidencing the
         aggregate indebtedness of such Offshore Borrower to such Lender
         resulting from the Offshore Swing Line Advances made by such Lender, as
         amended.

                  "OFF-SITE GOODS" has the meaning specified in Section 9(a) of
         the Domestic Security Agreement.

                  "OPEN YEAR" has the meaning specified in Section 4.01(r)(ii).

                  "OTHER TAXES" has the meaning specified in Section 2.12(b).

                  "PATENTS" has the meaning specified in Section 1(f)(i) of the
         Domestic Security Agreement.

                  "PBGC" means the Pension Benefit Guaranty Corporation (or any
         successor).

                  "PERMITTED ABANDONED IP" has the meaning specified in the
         Section 14 of the Domestic Security Agreement.

                  "PERMITTED ACQUISITION" means a Domestic Permitted Acquisition
         or an Offshore Permitted Acquisition.

                  "PERMITTED ENCUMBRANCES" means with respect to any real
         property of the Domestic Borrower or any of its Subsidiaries,
         easements, rights-of-way, servitudes, covenants, restrictive covenants,
         encumbrances, minor defects or irregularities in title and other
         similar restrictions which (a) individually or in the aggregate, do not
         materially interfere with the ordinary conduct of the businesses of
         Domestic Borrower or its Subsidiary at the real estate to which they
         relate, (b) do not materially impair for its intended purpose the real
         property to which they relate, (c) in the case of any real property
         subject to a Mortgage or an Offshore Collateral Document, shall be as
         set forth on a schedule to such Mortgage or Offshore Collateral
         Document and (d) shall encumber only the real property to which they
         relate and no other material Collateral.

                  "PERMITTED LIENS" means such of the following as to which no
         enforcement, collection, execution, levy or foreclosure proceeding
         shall have been commenced: (a) Liens for taxes, assessments and
         governmental charges or levies to the extent not

                  Credit Agreement - Schedule II - Definitions

<PAGE>   152

                                       36


         required to be paid under Section 5.01(b); (b) Liens imposed by law,
         such as landlord's, materialmen's, mechanics', carriers', workmen's and
         repairmen's Liens and other similar Liens arising in the ordinary
         course of business securing obligations that (i) either are not overdue
         for a period of more than 60 days or are being contested in good faith
         by appropriate proceedings and (ii) individually or together with all
         other Permitted Liens outstanding on any date of determination do not
         materially adversely affect the use of the property to which they
         relate; (c) pledges or deposits to secure obligations under workers'
         compensation laws or similar legislation or to secure public or
         statutory obligations; and (d) Permitted Encumbrances.

                  "PERSON" means an individual, partnership, corporation
         (including a business trust), limited liability company, joint stock
         company, trust, unincorporated association, joint venture or other
         entity, or a government or any political subdivision or agency thereof.

                  "PLAN" means a Single Employer Plan or a Multiple Employer
         Plan.

                  "PLEDGED ACCOUNTS" has the meaning specified in Section 5(a)
         of the Domestic Security Agreement.

                  "PLEDGED ACCOUNT BANKS" has the meaning specified in Section
         5(a) of the Domestic Security Agreement.

                  "PLEDGED ACCOUNT LETTERS" has the meaning specified in Section
         5(a) of the Domestic Security Agreement.

                  "PLEDGED DEBT" has the meaning specified in Section 1(d)(iv)
         of the Domestic Security Agreement.

                  "PLEDGED SHARES" has the meaning specified in Section
         1(d)(iii) of the Domestic Security Agreement.

                  "POUNDS STERLING" means the freely transferable lawful money
         of the United Kingdom (expressed in Pounds Sterling).

                  "PREFERRED INTERESTS" means, with respect to any Person,
         Equity Interests issued by such Person that are entitled to a
         preference or priority over any other Equity Interests issued by such
         Person upon any distribution of such Person's property and assets,
         whether by dividend or upon liquidation.

                  Credit Agreement - Schedule II - Definitions
<PAGE>   153
                                       37


                  "PRO FORMA CONSOLIDATED EBITDA" means (a) with respect to the
         Domestic Borrower at any date of determination, an amount equal to the
         Consolidated EBITDA of the Domestic Borrower and its Subsidiaries for
         the most recently completed Measurement Period for which the Domestic
         Borrower has delivered financial statements pursuant to Section 5.03
         and (b) with respect to any other Person at any date of determination,
         an amount equal to the Consolidated EBITDA of such Person and its
         Subsidiaries for the most recently completed Measurement Period of such
         Person prior to such date for which such Person has delivered
         Consolidated financial statements for itself and its Subsidiaries in
         form and scope reasonably satisfactory to the Joint Lead Arrangers;
         provided that, with respect to any Permitted Acquisition or any
         purchase or other acquisition of any property or assets of any Person
         by the Domestic Borrower or any of its Subsidiaries pursuant to Section
         5.02(g) or any sale, lease, transfer or other disposition of property
         or assets by the Domestic Borrower or any of its Subsidiaries pursuant
         to Section 5.02(f) or otherwise, if the Domestic Borrower or any of its
         Subsidiaries shall have purchased or otherwise acquired or shall have
         sold, leased, transferred or otherwise disposed of any property or
         assets at any time on or after the first day of any Measurement Period,
         the Consolidated EBITDA of the Domestic Borrower and its Subsidiaries
         for such Measurement Period shall be increased (in the case of each
         such purchase or other acquisition) or reduced (in the case of each
         such sale, lease, transfer or other disposition) by the Consolidated
         EBITDA thereof that would have been contributed thereto by such
         property or assets during such Measurement Period, as determined in
         good faith by the Chief Financial Officer of the Domestic Borrower on a
         pro forma basis as though the Domestic Borrower or the Subsidiary of
         the Domestic Borrower that is effecting such transaction had purchased
         or otherwise acquired or had sold, transferred or otherwise disposed of
         such property or assets on the first day of such Measurement Period and
         after giving effect to all of the pro forma cost savings to the
         Domestic Borrower and its Subsidiaries that are to be recognized as a
         result of such transaction during such Measurement Period (which, in
         the case of any Permitted Acquisition, shall be those pro forma cost
         savings to such Person (or the Domestic Borrower and its Subsidiaries)
         realized upon the date of consummation of such transaction or which
         management intends to implement within six months of the consummation
         of such transaction, and which are reflected on the itemized schedule
         of add-back adjustments to the Consolidated pro forma income statement
         of the acquired Person and its Subsidiaries comprising part of the
         Acquisition Diligence Report on such Person and its Subsidiaries).

                  "PRO FORMA INCREMENTAL INTEREST EXPENSE" means, with respect
         to each Permitted Acquisition, for the first three Measurement Periods
         ending after the date on which such Permitted Acquisition is
         consummated, the product of (A)(B)(C) where:

                  (A) = total cash paid plus assumed Debt in such Permitted
                        Acquisition;

                  Credit Agreement - Schedule II - Definitions
<PAGE>   154

                                       38


                  (B) = the per annum cost of Debt used for such Permitted
                        Acquisition; and

                  (C) = a fraction, the numerator of which is 360 minus the
                        number of days since the date of the consummation of
                        such Permitted Acquisition and the denominator of
                        which is equal to 360.

                  "PRO FORMA INTEREST EXPENSE" means with respect to the
         Domestic Borrower and its Subsidiaries for any Measurement Period the
         sum of (a) Interest Expense for such Measurement Period plus (b) Pro
         Forma Incremental Interest Expense for each Permitted Acquisition which
         was consummated by the Domestic Borrower or one of its Subsidiaries
         during such Measurement Period.

                  "PRO RATA SHARE" of any amount means, with respect to any
         Lender under any Facility at any time, the product of any applicable
         amount times a fraction the numerator of which is the amount of such
         Lender's Commitment under such Facility at such time (or, if the
         Commitments under such Facility shall have been terminated pursuant to
         Section 2.05 or 6.01, such Lender's Commitment under such Facility as
         in effect immediately prior to such termination) and the denominator of
         which is the aggregate Commitments under such Facility at such time
         (or, if the Commitments under such Facility shall have been terminated
         pursuant to Section 2.05 or 6.01, the aggregate Commitments under such
         Facility as in effect immediately prior to such termination).

                  "RECEIVABLES" means all Receivables referred to in Section
         1(c) of the Domestic Security Agreement.

                  "REDEEMABLE" means, with respect to any Equity Interest, any
         Debt or any other right or Obligation, any such Equity Interest, Debt,
         right or Obligation that (a) the issuer has undertaken to redeem at a
         fixed or determinable date or dates, whether by operation of a sinking
         fund or otherwise, or upon the occurrence of a condition not solely
         within the control of the issuer or (b) is redeemable at the option of
         the holder.

                  "REDEMPTION" means the Redemption as such term is defined and
         used in Section 1.04 of the Acquisition Agreement.

                  "REFINANCED CREDIT AGREEMENT" means that certain Amended and
         Restated Credit Agreement dated as of August 15, 1997, among the
         Domestic Borrower and certain of the other Loan Parties, as borrowers,
         the lenders party thereto and Chase, as administrative agent for such
         lenders, as amended and in effect on the Initial Closing Date.

                  "REGISTER" has the meaning specified in Section 8.07(d).

                  Credit Agreement - Schedule II - Definitions
<PAGE>   155

                                       39


                  "REGULATION U" means Regulation U of the Board of Governors of
         the Federal Reserve System, as in effect from time to time.

                  "REINVESTMENT DEFERRED AMOUNT" with respect to any
         Reinvestment Event, the aggregate Net Cash Proceeds received by the
         Domestic Borrower or any of its Subsidiaries in connection therewith
         that are not applied to prepay the Term Advances or the Revolving
         Credit Advances pursuant to Section 2.06(b)(ii)(A) as a result of the
         delivery of a Reinvestment Notice.

                  "REINVESTMENT EVENT" any Asset Sale in respect of which the
         Domestic Borrower has delivered a Reinvestment Notice.

                  "REINVESTMENT NOTICE" a written notice executed by an officer
         of the Domestic Borrower stating that no Default or Event of Default
         has occurred and is continuing and that the Domestic Borrower (directly
         or indirectly through a Subsidiary) intends and expects to use all or a
         specified portion of the Net Cash Proceeds of an Asset Sale to acquire
         assets useful in its business.

                  "REINVESTMENT PREPAYMENT AMOUNT" with respect to any
         Reinvestment Event, the Reinvestment Deferred Amount relating thereto
         less any amount expended prior to the relevant Reinvestment Prepayment
         Date to acquire asset useful in the Domestic Borrower's business.

                  "REINVESTMENT PREPAYMENT DATE" with respect to any
         Reinvestment Event, the earlier of (a) the date occurring 365 days
         after such Reinvestment Event and (b) the date on which the Domestic
         Borrower shall have determined not to, or shall have otherwise ceased
         to, acquire assets useful in the Domestic Borrower's business with all
         or any portion of the relevant Reinvestment Deferred Amount.

                  "RELATED CONTRACTS" means the agreements, leases and contracts
         defined in Section 1(c) of the Domestic Security Agreement.

                  "RELATED DOCUMENTS" means the Acquisition Agreement, the
         Shareholders Agreements, the Management Agreement, the Subordinated
         Debt Documents, the documents setting forth the terms of, and
         effecting, the Offer to Purchase, and any intercompany notes issued
         pursuant to Section 5.02(b)(vii)(y).

                  "REMEDIAL ACTION" has the meaning specified in Section 5.01(c)

                  "REQUIRED LENDERS" means, at any time, Lenders owed or holding
         at least a majority in interest of the sum of (a) the aggregate
         principal amount of the Advances


                  Credit Agreement - Schedule II - Definitions
<PAGE>   156

                                       40


         outstanding at such time (outstanding Offshore Swing Line Advances
         being deemed to be outstanding for these purposes in their US Dollar
         Equivalent as of any date of determination), (b) the aggregate
         Available Amount of all Letters of Credit outstanding at such time, (c)
         the aggregate unused Commitments under the Term Facilities at such time
         and (d) the aggregate Unused Revolving Credit Commitments at such time;
         provided, however, that if any Lender shall be a Defaulting Lender at
         such time, there shall be excluded from the determination of Required
         Lenders at such time (A) the aggregate principal amount of the Advances
         owing to such Lender (in its capacity as a Lender) and outstanding at
         such time, (B) such Lender's Pro Rata Share of the aggregate Available
         Amount of all Letters of Credit outstanding at such time, (C) the
         aggregate unused Term Commitments of such Lender at such time and (D)
         the Unused Revolving Credit Commitment of such Lender at such time. For
         purposes of this definition, the aggregate principal amount of Swing
         Line Advances owing to the Swing Line Bank and of Letter of Credit
         Advances owing to the Issuing Bank and the Available Amount of each
         Letter of Credit shall be considered to be owed to the Revolving Credit
         Lenders ratably in accordance with their respective Revolving Credit
         Commitments.

                  "RESPONSIBLE OFFICER" means the Chairman or any officer of any
         Loan Party or any of its Subsidiaries.

                  "REVOLVING CREDIT ADVANCE" has the meaning specified in
         Section 2.01(c).

                  "REVOLVING CREDIT BORROWING" means a borrowing consisting of
         simultaneous Revolving Credit Advances of the same Type made by the
         Revolving Credit Lenders.

                  "REVOLVING CREDIT COMMITMENT" means, with respect to any
         Revolving Credit Lender at any time, the amount set forth opposite such
         Lender's name on Schedule I hereto under the caption "Revolving Credit
         Commitment" or, if such Lender has entered into one or more Assignment
         and Acceptances, set forth for such Lender in the Register maintained
         by the Administrative Agent pursuant to Section 8.07(d) as such
         Lender's "Revolving Credit Commitment", as such amount may be reduced
         at or prior to such time pursuant to Section 2.05.

                  "REVOLVING CREDIT FACILITY" means, at any time, the aggregate
         amount of the Revolving Credit Lenders' Revolving Credit Commitments at
         such time.

                  "REVOLVING CREDIT LENDER" means any Lender that has a
         Revolving Credit Commitment.

                  "REVOLVING CREDIT NOTE" means a promissory note of the
         Domestic Borrower payable to the order of any Revolving Credit Lender,
         in substantially the form of Exhibit A-1 hereto, evidencing the
         aggregate indebtedness of the Domestic Borrower to

                  Credit Agreement - Schedule II - Definitions
<PAGE>   157

                                       41


         such Lender resulting from the Revolving Credit Advances, Letter of
         Credit Advances and Swing Line Advances made by such Lender, as
         amended.

                  "SECURED HEDGE AGREEMENT" means any Hedge Agreement required
         or permitted under Article V that is entered into by and between the
         Domestic Borrower or an Offshore Borrower and any Hedge Bank.

                  "SECURED OBLIGATIONS" means the Domestic Secured Obligations
         or the Offshore Secured Obligations, as the case may be.

                  "SECURED PARTIES" means the Agents, the Lender Parties and the
         Hedge Banks.

                  "SECURITY AGREEMENT SUPPLEMENT" has the meaning specified in
         Section 22(b) of the Domestic Security Agreement.

                  "SECURITY COLLATERAL" means all the Collateral defined in
         Section 1(d) of the Domestic Security Agreement.

                  "SELLER" has the meaning specified in the Preliminary
         Statements.

                  "SENIOR DEBT/EBITDA RATIO" means, at any date of
         determination, the ratio of (a) the sum of (i) Consolidated total Debt
         for Borrowed Money of the Domestic Borrower and its Subsidiaries less
         (ii) Subordinated Debt, in each case, as at the end of the most
         recently ended fiscal quarter of the Domestic Borrower for which
         financial statements are required to be delivered to the Lender Parties
         pursuant to Section 5.03(b) or (c), as the case may be, to (b) Pro
         Forma Consolidated EBITDA of the Domestic Borrower and its Subsidiaries
         for such fiscal quarter and the immediately preceding three fiscal
         quarters.

                  "SENIOR SUBORDINATED NOTE INDENTURE" has the meaning specified
         in the Preliminary Statements.

                  "SENIOR SUBORDINATED NOTE TRUSTEE" has the meaning specified
         in the Preliminary Statements.

                  "SENIOR SUBORDINATED NOTES" has the meaning specified in the
         Preliminary Statements.

                  "SHAREHOLDERS AGREEMENTS" means (a) the Amended and Restated
         Shareholders Agreement dated as of December 14, 1999, as amended
         through the Effective Date, among SSCI Investors, the Seller, the
         Domestic Borrower and the other shareholders of the Domestic Borrower
         immediately prior to the Acquisition and (b) the Shareholders

                  Credit Agreement - Schedule II - Definitions
<PAGE>   158

                                       42


         Agreement dated as of December 29, 1999, among the SSCI Investors,
         certain members of the management of the Domestic Borrower and its
         Subsidiaries and the Domestic Borrower, in each case, as amended, to
         the extent permitted under the Loan Documents.

                  "SINGAPORE DOLLARS" or "SP$" mean the freely transferable
         lawful money of Singapore (expressed in dollars).

                  "SINGLE EMPLOYER PLAN" means a single employer plan, as
         defined in Section 4001(a)(15) of ERISA, that (a) is maintained for
         employees of any Loan Party or any ERISA Affiliate and no Person other
         than the Loan Parties and the ERISA Affiliates or (b) was so maintained
         and in respect of which any Loan Party or any ERISA Affiliate could
         have liability under Section 4069 of ERISA in the event such plan has
         been or were to be terminated.

                  "SOLVENT" and "SOLVENCY" mean, with respect to any Person on a
         particular date, that on such date (a) the fair value of the property
         of such Person is greater than the total amount of liabilities,
         including, without limitation, contingent liabilities, of such Person,
         (b) the present fair salable value of the assets of such Person is not
         less than the amount that will be required to pay the probable
         liability of such Person on its debts as they become absolute and
         matured, (c) such Person does not intend to, and does not believe that
         it will, incur debts or liabilities beyond such Person's ability to pay
         such debts and liabilities as they mature and (d) such Person is not
         engaged in business or a transaction, and is not about to engage in
         business or a transaction, for which such Person's property would
         constitute an unreasonably small capital. The amount of contingent
         liabilities at any time shall be computed as the amount that, in the
         light of all the facts and circumstances existing at such time,
         represents the amount that can reasonably be expected to become an
         actual or matured liability.

                  "SPONSOR" has the meaning specified in the Preliminary
         Statements.

                  "SPOT RATE" has the meaning specified in Section 1.04.

                  "SSCI INVESTORS" has the meaning specified in the Preliminary
         Statements.

                  "STANDBY LETTER OF CREDIT" means any Letter of Credit issued
         under the Letter of Credit Sub-Facility, other than a Trade Letter of
         Credit.

                  "SUBAGENT" has the meaning specified in Section 19(b) of the
         Domestic Security Agreement.

                  Credit Agreement - Schedule II - Definitions
<PAGE>   159

                                       43

                  "SUBORDINATED DEBT" means any Senior Subordinated Notes and
         any other Debt of any Loan Party that is subordinated to the
         Obligations of such Loan Party under the Loan Documents on, and that
         otherwise contains, terms and conditions satisfactory to the Required
         Lenders.

                  "SUBORDINATED DEBT DOCUMENTS" means the Senior Subordinated
         Note Indenture, the Senior Subordinated Notes and all other agreements,
         indentures and instruments pursuant to which Subordinated Debt is
         issued, in each case as amended, to the extent permitted under the Loan
         Documents.

                  "SUBSIDIARY" of any Person means any corporation, partnership,
         joint venture, limited liability company, trust or estate of which (or
         in which) more than 50% of the issued and outstanding capital stock or
         other ownership interests having ordinary voting power to elect a
         majority of the Board of Directors or other managers of such
         corporation or other entity (irrespective of whether at the time
         interests of any other class or classes of such entity shall or might
         have voting power upon the occurrence of any contingency) is at the
         time directly or indirectly owned or controlled by such Person, by such
         Person and one or more of its other Subsidiaries or by one or more of
         such Person's other Subsidiaries.

                  "SUBSIDIARY GUARANTORS" means each Domestic Subsidiary
         Guarantor and Offshore Subsidiary Guarantor.

                  "SURVIVING DEBT" means Debt of each Loan Party and its
         Subsidiaries outstanding immediately before and after giving effect to
         the Transaction on the Initial Closing Date.

                  "SWING LINE ADVANCE" means an advance made by (a) a Swing Line
         Lender pursuant to Section 2.01(d) or (b) any Revolving Credit Lender
         pursuant to Section 2.02(b).

                  "SWING LINE LENDER" means the Domestic Swing Line Lender and
         each Offshore Swing Line Lender.

                  "SWING LINE BORROWING" means a borrowing consisting of a Swing
         Line Advance made by a Swing Line Lender pursuant to Section 2.01(d) or
         the Revolving Credit Lenders pursuant to Section 2.02(b).

                  "SWING LINE SUB-FACILITY" has the meaning specified in Section
         2.01(d).

                  "SYNDICATION AGENT" has the meaning specified in the recitals
         of parties to this Agreement

                  Credit Agreement - Schedule II - Definitions
<PAGE>   160

                                       44


                  "TAXES" has the meaning specified in Section 2.12(a).

                  "TERM A ADVANCE" has the meaning specified in Section
         2.01(a)(i).

                  "TERM A BORROWING" means a borrowing consisting of
         simultaneous Term A Advances of the same Type made by the Term A
         Lenders.

                  "TERM A COMMITMENT" means, with respect to any Term A Lender
         at any time, the amount set forth opposite such Lender's name on
         Schedule I hereto under the caption "Term A Commitment" or, if such
         Lender has entered into one or more Assignment and Acceptances, set
         forth for such Lender in the Register maintained by the Administrative
         Agent pursuant to Section 8.07(d) as such Lender's "Term A Commitment",
         as such amount may be reduced at or prior to such time pursuant to
         Section 2.05.

                  "TERM A FACILITY" means, at any time, the aggregate amount of
         the Term A Lenders' Term A Commitments at such time. Pursuant to the
         Existing Credit Agreement, the Term A Facility was restored in full
         upon repayment of outstanding Term A Advances with the proceeds of the
         Senior Subordinated Notes. As of the date hereof, the Term A Facility
         is equal to $75,000,000.

                  "TERM A LENDER" means any Lender that has a Term A Commitment.

                  "TERM A NOTE" means a promissory note of the Domestic Borrower
         payable to the order of any Term A Lender, in substantially the form of
         Exhibit A-2 hereto, evidencing the indebtedness of the Domestic
         Borrower to such Lender resulting from the Term A Advances made by such
         Lender, as amended.

                  "TERM ADVANCE" means a Term A Advance or an Offshore
         Acquisition Advance.

                  "TERM B ADVANCE" has the meaning specified in Section 2.01(b)
         of the Existing Credit Agreement.

                  "TERM B BORROWING" means a borrowing consisting of
         simultaneous Term B Advances of the same Type made by the Term B
         Lenders.

                  "TERM B COMMITMENT" has the meaning specified in the Existing
         Credit Agreement.

                  "TERM B FACILITY" has the meaning specified in the Existing
         Credit Agreement.

                  Credit Agreement - Schedule II - Definitions
<PAGE>   161
                                       45

                  "TERM B LENDER" has the meaning specified in the Existing
         Credit Agreement.

                  "TERM B NOTE" has the meaning specified in the Existing Credit
         Agreement.

                  "TERM BORROWING" means any Term A Borrowing or Offshore
         Acquisition Borrowing.

                  "TERM COMMITMENT" means any Term A Commitment or Offshore
         Acquisition Commitment.

                  "TERM FACILITY" means the Term A Facility or Offshore
         Acquisition Facility.

                  "TERM LENDER" means any Term A Lender or Offshore Acquisition
         Lender.

                  "TERM NOTE" means any Term A Note or Offshore Acquisition
         Note.

                  "TERMINATION DATE" means the earlier of (a) the date of
         termination in whole of the Revolving Credit Commitments, the Letter of
         Credit Commitment and the Term Commitments pursuant to Section 2.05 or
         6.01 and (b) (i) for purposes of the Revolving Credit Facility and the
         Letter of Credit Sub-Facility, the sixth anniversary of the Initial
         Closing Date, (ii) for purposes of the Term A Facility, the sixth
         anniversary of the Initial Closing Date and (iii) for purposes of the
         Offshore Acquisition Facility, the sixth anniversary of the Initial
         Closing Date.

                  "TOTAL DEBT/EBITDA RATIO" means, at any date of determination,
         the ratio of (a) Consolidated total Debt for Borrowed Money of the
         Domestic Borrower and its Subsidiaries as at the end of the most
         recently ended fiscal quarter of the Domestic Borrower for which
         financial statements are required to be delivered to the Lender Parties
         pursuant to Section 5.03(b) or (c), as the case may be, to (b) Pro
         Forma Consolidated EBITDA of the Domestic Borrower and its Subsidiaries
         for such fiscal quarter and the immediately preceding three fiscal
         quarters.

                  "TRADE LETTER OF CREDIT" means any Letter of Credit that is
         issued under the Letter of Credit Sub-Facility for the benefit of a
         supplier of Inventory to the Domestic Borrower or any of its
         Subsidiaries to effect payment for such Inventory, the conditions to
         drawing under which include the presentation to the Issuing Bank of
         negotiable bills of lading, invoices and related documents sufficient,
         in the judgment of the Issuing Bank, to create a valid and perfected
         lien on or security interest in such Inventory, bills of lading,
         invoices and related documents in favor of the Issuing Bank.

                  Credit Agreement - Schedule II - Definitions
<PAGE>   162

                                       46

                  "TRADEMARKS" has the meaning specified in Section 1(f)(ii) of
         the Domestic Security Agreement.

                  "TRADE SECRETS" has the meaning specified in Section 1(f)(iv)
         of the Domestic Security Agreement.

                  "TRANSACTION" means the Redemption, the Acquisition, the Offer
         to Purchase and the other transactions contemplated by the Transaction
         Documents.

                  "TRANSACTION DOCUMENTS" means, collectively, the Loan
         Documents and the Related Documents.

                  "TYPE" refers to the distinction between Advances bearing
         interest at the Base Rate and Advances bearing interest at the
         Eurodollar Rate.

                  "UNUSED REVOLVING CREDIT COMMITMENT" means, with respect to
         any Revolving Credit Lender at any time, (a) such Lender's Revolving
         Credit Commitment at such time minus (b) the sum of (i) the aggregate
         principal amount of all Revolving Credit Advances, Swing Line Advances
         (outstanding Offshore Swing Line Advances being deemed to be
         outstanding for these purposes in their US Dollar Equivalent as of any
         date of determination) and Letter of Credit Advances made by such
         Lender (in its capacity as a Lender) and outstanding at such time plus
         (ii) such Lender's Pro Rata Share of (A) the aggregate Available Amount
         of all Letters of Credit outstanding at such time, (B) the aggregate
         principal amount of all Letter of Credit Advances made by the Issuing
         Bank pursuant to Section 2.03(c) and outstanding at such time and (C)
         without duplication of amounts under clause (i) above, the aggregate
         principal amount of all Swing Line Advances made by the Swing Line
         Lenders pursuant to Section 2.01(d) and outstanding at such time
         (outstanding Offshore Swing Line Advances being deemed to be
         outstanding for these purposes in their US Dollar Equivalent as of any
         date of determination).

                  "US DOLLARS" or "US$" or "DOLLARS" or "$" mean the freely
         transferable lawful money of the United States of America (expressed in
         dollars).

                  "VOTING EQUITY INTERESTS" has the meaning specified in Section
         1(d)(iii) of the Domestic Security Agreement.

                  "VOTING INTERESTS" means shares of capital stock issued by a
         corporation, or equivalent Equity Interests in any other Person, the
         holders of which are ordinarily, in the absence of contingencies,
         entitled to vote for the election of directors (or persons performing
         similar functions) of such Person, even if the right so to vote has
         been suspended by the happening of such a contingency.

                  Credit Agreement - Schedule II - Definitions
<PAGE>   163

                                       47

                  "WELFARE PLAN" means a welfare plan, as defined in Section
         3(1) of ERISA, that is maintained for employees of any Loan Party or in
         respect of which any Loan Party could have liability.

                  "WITHDRAWAL LIABILITY" has the meaning specified in Part I of
         Subtitle E of Title IV of ERISA.



                  Credit Agreement - Schedule II - Definitions

<PAGE>   164


                                  SCHEDULE III

                            OTHER APPROVED COUNTRIES


1.       Andorra
2.       Austria
3.       Belgium
4.       Denmark
5.       Finland
6.       France
7.       Germany
8.       Greece
9.       Greenland
10.      Iceland
11.      Ireland
12.      Italy
13.      Liechtenstein
14.      Luxembourg
15.      Monaco
16.      Netherlands
17.      Norway
18.      Portugal
19.      San Marino
20.      Spain
21.      Sweden
22.      Switzerland
23.      United Kingdom of Great Britain and Northern Ireland
24.      Vatican City


              Credit Agreement - Schedule III - Approved Countries
<PAGE>   165





                                 OTHER SCHEDULES

                  (From Existing Credit Agreement, as amended)

<TABLE>
<S>                       <C>
Schedule 4.01(a)  -        Holders of Domestic Borrower Equity Interests
Schedule 4.01(b)  -        Subsidiaries
Schedule 4.01(c)  -        Consents
Schedule 4.01(d)  -        Authorizations, Approvals, Actions, Notices and Filings
Schedule 4.01(f)  -        Disclosed Litigation
Schedule 4.01(p)  -        Plans, Multiemployer Plans and Welfare Plans
Schedule 4.01(q)  -        Environmental Compliance
Schedule 4.01(r)  -        Open Years; Unpaid Tax Liabilities; Adjusted Tax Bases
Schedule 4.01(t)  -        Existing Debt
Schedule 4.01(u)  -        Surviving Debt
Schedule 4.01(v)  -        Liens
Schedule 4.01(w)  -        Owned Real Property
Schedule 4.01(x)  -        Leased Real Property
Schedule 4.01(y)  -        Investments
Schedule 4.01(z)  -        Intellectual Property
Schedule 4.01(aa) -        Material Contracts
</TABLE>

                       Credit Agreement - Other Schedules
<PAGE>   166

                                                                     EXHIBIT A-1
                                                         TO THE CREDIT AGREEMENT


               FORM OF AMENDED AND RESTATED REVOLVING CREDIT NOTE


US$_______________                                      Dated: December 30, 1999


                  FOR VALUE RECEIVED, the undersigned, SOVEREIGN SPECIALTY
CHEMICALS, INC., a Delaware corporation (the "DOMESTIC BORROWER"), HEREBY
PROMISES TO PAY _________________________ or its registered assigns (the
"LENDER") for the account of its Applicable Lending Office (as defined in the
Credit Agreement referred to below) the aggregate principal amount of the
Revolving Credit Advances, the Letter of Credit Advances and the Swing Line
Advances (each as defined below) owing to the Lender by the Domestic Borrower
pursuant to the Credit Agreement dated as of December 29, 1999, as amended by a
Letter Amendment dated as of February 16, 2000, and an Amendment and Waiver
Letter dated as of February 29, 2000, and as amended and restated by the Amended
and Restated Credit Agreement dated as of April 6, 2000 (as further amended,
amended and restated, supplemented or otherwise modified from time to time, the
"CREDIT AGREEMENT"; terms defined therein, unless otherwise defined herein,
being used herein as therein defined), each among the Domestic Borrower, the
Lender and certain other lender parties party thereto, and The Chase Manhattan
Bank, as Administrative Agent for the Lender and such other lender parties on
the Termination Date.

                  The Domestic Borrower promises to pay to the Lender interest
on the unpaid principal amount of each Revolving Credit Advance, Letter of
Credit Advance and Swing Line Advance from the date of such Revolving Credit
Advance, Letter of Credit Advance or Swing Line Advance, as the case may be,
until such principal amount is paid in full, at such interest rates, and payable
at such times, as are specified in the Credit Agreement.

                  Both principal and interest are payable in lawful money of the
United States of America to the Administrative Agent at the Administrative
Agent's Account in same day funds. Each Revolving Credit Advance, Letter of
Credit Advance and Swing Line Advance owing to the Lender by the Domestic
Borrower and the maturity thereof, and all payments made on account of principal
thereof, shall be recorded by the Lender and, prior to any transfer hereof,
endorsed on the grid attached hereto, which is part of this Promissory Note;
provided, however, that the failure of the Lender to make any such recordation
or endorsement shall not affect the Obligations of the Domestic Borrower under
this Promissory Note.

                         Credit Agreement - Exhibit A-1

<PAGE>   167


                                        2



                  This Promissory Note is one of the Revolving Credit Notes
referred to in, and is entitled to the benefits of, the Credit Agreement. The
Credit Agreement, among other things, (i) provides for the making of advances
(variously, the "REVOLVING CREDIT ADVANCES", the "LETTER OF CREDIT ADVANCES" or
the "SWING LINE Advances") by the Lender to or for the benefit of the Domestic
Borrower from time to time in an aggregate amount not to exceed at any time
outstanding the U.S. dollar amount first above mentioned, the indebtedness of
the Domestic Borrower resulting from each such Revolving Credit Advance, Letter
of Credit Advance and Swing Line Advance being evidenced by this Promissory
Note, and (ii) contains provisions for acceleration of the maturity hereof upon
the happening of certain stated events and also for prepayments on account of
principal hereof prior to the maturity hereof upon the terms and conditions
therein specified. The obligations of the Domestic Borrower under this
Promissory Note and the other Loan Documents, and the obligations of the other
Loan Parties under the Loan Documents, are secured by the Collateral as provided
in the Loan Documents.

                  This Promissory Note and the obligations evidenced hereby may
not be transferred or assigned in whole or in part, except pursuant to and in
accordance with the provisions of Section 8.07 of the Credit Agreement,
including, without limitation, the requirement that the Administrative Agent
shall have accepted and recorded each such transfer or assignment in the
Register.


                                    SOVEREIGN SPECIALTY CHEMICALS, INC.


                                    By__________________________________________
                                      Title:


                         Credit Agreement - Exhibit A-1

<PAGE>   168





                       ADVANCES AND PAYMENTS OF PRINCIPAL


<TABLE>
<CAPTION>


====================================================================================================================
                                                  AMOUNT OF                 UNPAID
                          AMOUNT OF             PRINCIPAL PAID            PRINCIPAL                NOTATION
       DATE                ADVANCE                OR PREPAID               BALANCE                  MADE BY
====================================================================================================================
<S>                      <C>                    <C>                      <C>                     <C>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

- --------------------------------------------------------------------------------------------------------------------
</TABLE>

                         Credit Agreement - Exhibit A-1

<PAGE>   169





                                                                     EXHIBIT A-2
                                                         TO THE CREDIT AGREEMENT


                    FORM OF AMENDED AND RESTATED TERM A NOTE


US$_______________                                      Dated: December 30, 1999


                  FOR VALUE RECEIVED, the undersigned, SOVEREIGN SPECIALTY
CHEMICALS, INC., a Delaware corporation (the "DOMESTIC BORROWER"), HEREBY
PROMISES TO PAY _________________________ or its registered assigns (the
"LENDER") for the account of its Applicable Lending Office (as defined in the
Credit Agreement referred to below) the aggregate principal amount of the Term A
Advances (as defined below) owing to the Lender by the Domestic Borrower
pursuant to the Credit Agreement dated as of December 29, 1999, as amended by a
Letter Amendment dated as of February 16, 2000, and an Amendment and Waiver
Letter dated as of February 29, 2000, and as amended and restated by the Amended
and Restated Credit Agreement dated as of April 6, 2000 (as further amended,
amended and restated, supplemented or otherwise modified from time to time, the
"CREDIT AGREEMENT"; terms defined therein, unless otherwise defined herein,
being used herein as therein defined), each among the Domestic Borrower, the
Lender and certain other lender parties party thereto, and The Chase Manhattan
Bank, as Administrative Agent for the Lender and such other lender parties on
the dates and in the amounts specified in the Credit Agreement.

                  The Domestic Borrower promises to pay to the Lender interest
on the unpaid principal amount of each Term A Advance from the date of such Term
A Advance until such principal amount is paid in full, at such interest rates,
and payable at such times, as are specified in the Credit Agreement.

                  Both principal and interest are payable in lawful money of the
United States of America to the Administrative Agent, at the Administrative
Agent's Account in same day funds. The Term A Advances owing to the Lender by
the Domestic Borrower and the maturity thereof, and all payments made on account
of principal thereof, shall be recorded by the Lender and, prior to any transfer
hereof, endorsed on the grid attached hereto, which is part of this Promissory
Note; provided, however, that the failure of the Lender to make any such
recordation or endorsement shall not affect the Obligations of the Domestic
Borrower under this Promissory Note.

                  This Promissory Note is one of the Term A Notes referred to
in, and is entitled to the benefits of, the Credit Agreement. The Credit
Agreement, among other things, (i) provides for the making of Term A Advances by
the Lender to the Domestic Borrower in an aggregate


                         Credit Agreement - Exhibit A-2
<PAGE>   170


                                        2



amount not to exceed the U.S. dollar amount first above mentioned, the
indebtedness of the Domestic Borrower resulting from such Term A Advances being
evidenced by this Promissory Note, and (ii) contains provisions for acceleration
of the maturity hereof upon the happening of certain stated events and also for
prepayments on account of principal hereof prior to the maturity hereof upon the
terms and conditions therein specified. The obligations of the Domestic Borrower
under this Promissory Note and the other Loan Documents, and the obligations of
the other Loan Parties under the Loan Documents, are secured by the Collateral
as provided in the Loan Documents.

                  This Promissory Note and the obligations evidenced hereby may
not be transferred or assigned in whole or in part, except pursuant to and in
accordance with the provisions of Section 8.07 of the Credit Agreement,
including, without limitation, the requirement that the Administrative Agent
shall have accepted and recorded each such transfer or assignment in the
Register.


                                   SOVEREIGN SPECIALTY CHEMICALS, INC.


                                   By___________________________________________
                                     Title:




                         Credit Agreement - Exhibit A-2
<PAGE>   171





                       ADVANCES AND PAYMENTS OF PRINCIPAL




<TABLE>
<CAPTION>


====================================================================================================================
                                                  AMOUNT OF                 UNPAID
                          AMOUNT OF             PRINCIPAL PAID            PRINCIPAL                NOTATION
       DATE                ADVANCE                OR PREPAID               BALANCE                  MADE BY
====================================================================================================================
<S>                      <C>                    <C>                      <C>                     <C>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

- --------------------------------------------------------------------------------------------------------------------
</TABLE>


                        Credit Agreement - Exhibit A-2
<PAGE>   172





                                                                     EXHIBIT A-3
                                                         TO THE CREDIT AGREEMENT


                        FORM OF OFFSHORE ACQUISITION NOTE


US$_______________                                      Dated: ________, ____


                  FOR VALUE RECEIVED, the undersigned, [NAME OF OFFSHORE
BORROWER], a company organized under the laws of [Name of country of
organization] (the "OFFSHORE BORROWER"), HEREBY PROMISES TO PAY
_________________________ or its registered assigns (the "LENDER") for the
account of its Applicable Lending Office (as defined in the Credit Agreement
referred to below) the aggregate principal amount of the Offshore Acquisition
Advances (as defined below) owing to the Lender by the Offshore Borrower
pursuant to the Amended and Restated Credit Agreement dated as of April 6, 2000
(as amended, amended and restated, supplemented or otherwise modified from time
to time, the "CREDIT AGREEMENT"; terms defined therein, unless otherwise defined
herein, being used herein as therein defined) among the Domestic Borrower, the
Offshore Borrower, the Lender and certain other lender parties party thereto,
and The Chase Manhattan Bank, as Administrative Agent for the Lender and such
other lender parties on the dates and in the amounts specified in the Credit
Agreement.

                  The Offshore Borrower promises to pay to the Lender interest
on the unpaid principal amount of each Offshore Acquisition Advance from the
date of such Offshore Acquisition Advance until such principal amount is paid in
full, at such interest rates, and payable at such times, as are specified in the
Credit Agreement.

                  Both principal and interest are payable in lawful money of the
United States of America to the Administrative Agent, at the Administrative
Agent's Account in same day funds. The Offshore Acquisition Advances owing to
the Lender by the Offshore Borrower and the maturity thereof, and all payments
made on account of principal thereof, shall be recorded by the Lender and, prior
to any transfer hereof, endorsed on the grid attached hereto, which is part of
this Promissory Note; provided, however, that the failure of the Lender to make
any such recordation or endorsement shall not affect the Obligations of the
Offshore Borrower under this Promissory Note.

                  This Promissory Note is one of the Offshore Acquisition Notes
referred to in, and is entitled to the benefits of, the Credit Agreement. The
Credit Agreement, among other things, (i) provides for the making Offshore
Acquisition Advances by the Lender to the Offshore Borrower in an aggregate
amount not to exceed the U.S. dollar amount first above mentioned, the


                         Credit Agreement - Exhibit A-3

<PAGE>   173


                                        2



indebtedness of the Offshore Borrower resulting from such Offshore Acquisition
Advances being evidenced by this Promissory Note, and (ii) contains provisions
for acceleration of the maturity hereof upon the happening of certain stated
events and also for prepayments on account of principal hereof prior to the
maturity hereof upon the terms and conditions therein specified. The obligations
of the Offshore Borrower under this Promissory Note and the other Loan
Documents, and the obligations of the other Loan Parties under the Loan
Documents, are secured by the Collateral as provided in the Loan Documents.

                  This Promissory Note and the obligations evidenced hereby may
not be transferred or assigned in whole or in part, except pursuant to and in
accordance with the provisions of Section 8.07 of the Credit Agreement,
including, without limitation, the requirement that the Administrative Agent
shall have accepted and recorded each such transfer or assignment in the
Register.


                                     [NAME OF OFFSHORE BORROWER]


                                     By_________________________________________
                                       Title:



                         Credit Agreement - Exhibit A-3

<PAGE>   174






                       ADVANCES AND PAYMENTS OF PRINCIPAL



<TABLE>
<CAPTION>


====================================================================================================================
                                                  AMOUNT OF                 UNPAID
                          AMOUNT OF             PRINCIPAL PAID            PRINCIPAL                NOTATION
       DATE                ADVANCE                OR PREPAID               BALANCE                  MADE BY
====================================================================================================================
<S>                      <C>                    <C>                      <C>                     <C>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

- --------------------------------------------------------------------------------------------------------------------
</TABLE>


                         Credit Agreement - Exhibit A-3
<PAGE>   175





                                                                     EXHIBIT A-4
                                                         TO THE CREDIT AGREEMENT


                        FORM OF OFFSHORE SWING LINE NOTE


[Applicable Currency]                                   Dated: ________ __, ____


                  FOR VALUE RECEIVED, the undersigned, [NAME OF OFFSHORE
BORROWER], a company organized under the laws of [name of country of
organization] ___________ (the "OFFSHORE BORROWER"), HEREBY PROMISES TO PAY
_________________________ or its registered assigns (the "LENDER") for the
account of its Applicable Lending Office (as defined in the Credit Agreement
referred to below) the aggregate principal amount of the Offshore Swing Line
Advances (as defined below) owing to the Lender by the Offshore Borrower
pursuant to the Amended and Restated Credit Agreement dated as of April 6, 2000
(as further amended, amended and restated, supplemented or otherwise modified
from time to time, the "CREDIT AGREEMENT"; terms defined therein, unless
otherwise defined herein, being used herein as therein defined), among Sovereign
Specialty Chemicals, Inc., the Lender and certain other lender parties party
thereto, and The Chase Manhattan Bank, as Administrative Agent and Offshore
Currency Agent for the Lender and such other lender parties on the Termination
Date.

                  The Offshore Borrower promises to pay to the Lender interest
on the unpaid principal amount of each Offshore Swing Line Advance from the date
of such Offshore Swing Line Advance, until such principal amount is paid in
full, at such interest rates, and payable at such times, as are specified in the
Credit Agreement and the Joinder Agreement entered into by the Lender.

                  Both principal and interest are payable in lawful money of the
[jurisdiction of the Applicable Currency] to the Offshore Currency Agent at the
Offshore Currency Agent's Account, designated by the Offshore Currency Agent
pursuant to the Credit Agreement, in same day funds. Each Offshore Swing Line
Advance owing to the Lender by the Offshore Borrower and the maturity thereof,
and all payments made on account of principal thereof, shall be recorded by the
Lender and, prior to any transfer hereof, endorsed on the grid attached hereto,
which is part of this Promissory Note; provided, however, that the failure of
the Lender to make any such recordation or endorsement shall not affect the
Obligations of the Offshore Borrower under this Promissory Note.

                  This Promissory Note is one of the Offshore Swing Line Notes
referred to in, and is entitled to the benefits of, the Credit Agreement. The
Credit Agreement, among other things,



                         Credit Agreement - Exhibit A-4
<PAGE>   176


                                        2


(i) provides for the making of advances (the "OFFSHORE SWING LINE ADVANCES") by
the Lender to or for the benefit of the Offshore Borrower from time to time in
an aggregate amount not to exceed at any time outstanding the Applicable Swing
Line Sub-Limit, the indebtedness of the Offshore Borrower resulting from each
such Offshore Swing Line Advance being evidenced by this Promissory Note, and
(ii) contains provisions for acceleration of the maturity hereof upon the
happening of certain stated events and also for prepayments on account of
principal hereof prior to the maturity hereof upon the terms and conditions
therein specified. The obligations of the Offshore Borrower under this
Promissory Note and the other Loan Documents, and the obligations of the other
Loan Parties under the Loan Documents, are secured by the Collateral as provided
in the Loan Documents.

                  This Promissory Note and the obligations evidenced hereby may
not be transferred or assigned in whole or in part, except pursuant to and in
accordance with the provisions of Section 8.07 of the Credit Agreement,
including, without limitation, the requirement that the Administrative Agent
shall have accepted and recorded each such transfer or assignment in the
Register.


                                   [NAME OF OFFSHORE BORROWER]


                                   By___________________________________________
                                     Title:


                         Credit Agreement - Exhibit A-4

<PAGE>   177





                       ADVANCES AND PAYMENTS OF PRINCIPAL



<TABLE>
<CAPTION>


====================================================================================================================
                                                  AMOUNT OF                 UNPAID
                          AMOUNT OF             PRINCIPAL PAID            PRINCIPAL                NOTATION
       DATE                ADVANCE                OR PREPAID               BALANCE                  MADE BY
====================================================================================================================
<S>                      <C>                    <C>                      <C>                     <C>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

- --------------------------------------------------------------------------------------------------------------------
</TABLE>

                         Credit Agreement - Exhibit A-4

<PAGE>   178





                                                                     EXHIBIT B-1
                                                         TO THE CREDIT AGREEMENT


                           FORM OF NOTICE OF BORROWING

                                     [Date]


The Chase Manhattan Bank,
  as Administrative Agent
  under the Credit Agreement
  referred to below
The Loan and Agency Services Group
1 Chase Manhattan Plaza
New York, NY 10081

                  Attention:  _______________

Ladies and Gentlemen:

                  The undersigned, [Sovereign Specialty Chemicals, Inc.][Name of
applicable Offshore Borrower], refers to the Amended and Restated Credit
Agreement dated as of April 6, 2000 (as amended, amended and restated,
supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT";
the terms defined therein being used herein as therein defined), among the
undersigned, [Sovereign Specialty Chemicals, Inc.,] the Lender Parties party
thereto, and The Chase Manhattan Bank, as Administrative Agent for the Lender
Parties, and hereby gives you notice, irrevocably, pursuant to Section 2.02 of
the Credit Agreement that the undersigned hereby requests a Borrowing under the
Credit Agreement, and in that connection sets forth below the information
relating to such Borrowing (the "PROPOSED BORROWING") as required by Section
2.02(a) of the Credit Agreement:

                   (i) The Business Day of the Proposed Borrowing is _________
               __, ____.

                   (ii) The Facility under which the Proposed Borrowing is
         requested is the _______________ Facility.

                   (iii) The Type of Advances comprising the Proposed Borrowing
         is [Base Rate Advances] [Eurodollar Rate Advances].

                   (iv) The aggregate amount of the Proposed Borrowing is
         $__________.


                         Credit Agreement - Exhibit B-1
<PAGE>   179


                                       2




                   [(v) The initial Interest Period for each Eurodollar Rate
         Advance made as part of the Proposed Borrowing is __________ month[s].]

                   (vi) [No portion of the Proposed Borrowing shall be used to
         pay the purchase price of a Domestic Permitted Acquisition or Offshore
         Permitted Acquisition.] [Set forth on Annex I hereto is a detail of the
         consideration proposed to be paid for a [Domestic][Offshore] Permitted
         Acquisition (a portion of which consideration is constituted by a
         portion of the Proposed Borrowing).]

                   [(vii) the Applicable Borrower's Account to which the
         proceeds of the Proposed Borrowing should be sent is:________________.]

                   The undersigned hereby certifies that the following
         statements are true on the date hereof, and will be true on the date of
         the Proposed Borrowing:

                   (A) The representations and warranties contained in each Loan
         Document are correct on and as of the date of the Proposed Borrowing,
         before and after giving effect to the Proposed Borrowing and to the
         application of the proceeds therefrom, as though made on and as of such
         date, other than any such representations or warranties that, by their
         terms, refer to a specific date other than the date of the Proposed
         Borrowing, in which case, as of such specific date.

                   (B) No Default has occurred and is continuing, or would
         result from such Proposed Borrowing or from the application of the
         proceeds therefrom.

                   Delivery of an executed counterpart of this Notice of
         Borrowing by telecopier shall be effective as delivery of an original
         executed counterpart of this Notice of Borrowing.


                                            Very truly yours,

                                            SOVEREIGN SPECIALTY CHEMICALS, INC.
                                            [NAME OF OFFSHORE BORROWER]

                                            By__________________________________
                                              Title:

                         Credit Agreement - Exhibit B-1
<PAGE>   180





                                                                         ANNEX I
                                                      TO THE NOTICE OF BORROWING


                         [NAME OF PERMITTED ACQUISITION]


1.       Purchase Price:       $_________

         which shall be constituted by:

                  Cash from the Proposed Borrowing    $___________
                  Cash from other Sources                $___________
                  Cash Equivalents totaling:             $___________



1.       Cash Equivalents referred to above:


                         Credit Agreement - Exhibit B-1
<PAGE>   181

                                                                     EXHIBIT B-2
                                                         TO THE CREDIT AGREEMENT


                     FORM OF NOTICE OF SWING LINE BORROWING

                                     [Date]



The Chase Manhattan Bank,
  as Administrative Agent and
  as Offshore Currency Agent
  under the Credit Agreement
  referred to below

The Loan and Agency Services Group
1 Chase Manhattan Plaza
New York, NY 10081

                  Attention:

Ladies and Gentlemen:

                  The undersigned, [Sovereign Specialty Chemicals, Inc.][Name of
applicable Offshore Borrower], refers to the Amended and Restated Credit
Agreement dated as of April 6, 2000 (as amended, amended and restated,
supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT";
the terms defined therein being used herein as therein defined), among the
undersigned, [Sovereign Specialty Chemicals, Inc.,] the Lender Parties party
thereto, and The Chase Manhattan Bank, as Administrative Agent for the Lender
Parties, and hereby gives you notice, irrevocably, pursuant to Section 2.02(b)
of the Credit Agreement that the undersigned hereby requests a Swing Line
Borrowing under the Credit Agreement, and in that connection sets forth below
the information relating to such Borrowing (the "PROPOSED BORROWING") as
required by Section 2.02(b) of the Credit Agreement:

                (i) The Business Day of the Proposed Borrowing is       ,      .

               (ii) The Applicable Currency of the Proposed Borrowing is       .
                    The aggregate amount of the Proposed Borrowing is          .

              (iii) The maturity of the Proposed Borrowing is      ,
                    (in the case of any Swing Line Borrowing in U.S. Dollars,
                    this Maturity Date shall not be later than seven days after
                    the date set forth in clause (i) above).


                         Credit Agreement - Exhibit B-2

<PAGE>   182


                  (iv) the Applicable Borrower's Account to which the proceeds
         of the Proposed Borrowing should be sent is:                          .


                  The undersigned hereby certifies that the following statements
         are true on the date hereof, and will be true on the date of the
         Proposed Borrowing:

                  (A) The representations and warranties contained in each Loan
         Document are correct on and as of the date of the Proposed Borrowing,
         before and after giving effect to the Proposed Borrowing and to the
         application of the proceeds therefrom, as though made on and as of such
         date, other than any such representations or warranties that, by their
         terms, refer to a specific date other than the date of the Proposed
         Borrowing, in which case, as of such specific date.

                  (B) No Default has occurred and is continuing, or would result
         from such Proposed Borrowing or from the application of the proceeds
         therefrom.

                  Delivery of an executed counterpart of this Notice of Swing
Line Borrowing by telecopier shall be effective as delivery of an original
executed counterpart of this Notice of Swing Line Borrowing.


                                       Very truly yours,

                                       SOVEREIGN SPECIALTY CHEMICALS, INC.
                                       [NAME OF OFFSHORE BORROWER]


                                       By
                                         ---------------------------------------
                                       Title:


                         Credit Agreement - Exhibit B-2

<PAGE>   183


                                                                       EXHIBIT C
                                                         TO THE CREDIT AGREEMENT


                        FORM OF ASSIGNMENT AND ACCEPTANCE


                  Reference is made to the Amended and Restated Credit Agreement
dated as of April 6, 2000 (as amended, amended and restated, supplemented or
otherwise modified from time to time, the "CREDIT AGREEMENT"; the terms defined
therein, unless otherwise defined herein, being used herein as therein defined),
among Sovereign Specialty Chemicals, Inc., a Delaware corporation (the "DOMESTIC
BORROWER"), the Offshore Borrowers party thereto, the Lender Parties party
thereto, and The Chase Manhattan Bank, as Administrative Agent for the Lender
Parties.

                  Each "Assignor" referred to on Schedule 1 hereto (each, an
"ASSIGNOR") and each "Assignee" referred to on Schedule 1 hereto (each, an
"ASSIGNEE") agrees severally with respect to all information relating to it and
its assignment hereunder and on Schedule 1 hereto as follows:

                  1. Such Assignor hereby sells and assigns, without recourse
except as to the representations and warranties made by it herein, to such
Assignee, and such Assignee hereby purchases and assumes from such Assignor, an
interest in and to such Assignor's rights and obligations under the Credit
Agreement as of the date hereof equal to the percentage interest specified on
Schedule 1 hereto of all outstanding rights and obligations under the Facility
or Facilities specified on Schedule 1 hereto. After giving effect to such sale
and assignment, such Assignee's Commitments and the amount of the Advances owing
to such Assignee will be as set forth on Schedule 1 hereto.

                  2. Such Assignor (i) represents and warrants that its name set
forth on Schedule 1 hereto is its legal name, that it is the legal and
beneficial owner of the interest or interests being assigned by it hereunder and
that such interest or interests are free and clear of any adverse claim; (ii)
makes no representation or warranty and assumes no responsibility with respect
to any statements, warranties or representations made in or in connection with
any Loan Document or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of, or the perfection or priority of any lien
or security interest created or purported to be created under or in connection
with, any Loan Document or any other instrument or document furnished pursuant
thereto; (iii) makes no representation or warranty and assumes no responsibility
with respect to the financial condition of any Loan Party or the performance or
observance by any Loan Party of any of its obligations under any Loan Document
or any other instrument or document furnished pursuant thereto; and (iv)
attaches the Note or Notes held by such Assignor and requests that the
Administrative Agent exchange such Note or Notes for a new Note or Notes payable
to the order of such Assignee in an amount equal

                          Credit Agreement - Exhibit C
<PAGE>   184

                                       2

to the Commitments assumed by such Assignee pursuant hereto or new Notes payable
to the order of such Assignee in an amount equal to the Commitments assumed by
such Assignee pursuant hereto and such Assignor in an amount equal to the
Commitments retained by such Assignor under the Credit Agreement, respectively,
as specified on Schedule 1 hereto.

                  3. Such Assignee (i) confirms that it has received a copy of
the Credit Agreement and the Collateral Sharing Agreement, together with copies
of the financial statements referred to in Section 4.01 thereof and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assignment and Acceptance; (ii) agrees
that it will, independently and without reliance upon any Agent, any Assignor or
any other Lender Party and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under the Credit Agreement; (iii) represents and
warrants that its name set forth on Schedule 1 hereto is its legal name; (iv)
confirms that it is an Eligible Assignee; (v) appoints and authorizes each Agent
to take such action as agent on its behalf and to exercise such powers and
discretion under the Loan Documents as are delegated to such Agent by the terms
thereof, together with such powers and discretion as are reasonably incidental
thereto; (vi) agrees that it will be bound by the provisions of the Credit
Agreement and the Collateral Sharing Agreement and will perform in accordance
with their terms all of the obligations that by the terms of the Credit
Agreement and the Collateral Sharing Agreement are required to be performed by
it as a Lender Party; and (vii) attaches any U.S. Internal Revenue Service or
other forms required under Section 2.12 of the Credit Agreement.

                  4. Following the execution of this Assignment and Acceptance,
it will be delivered to the Administrative Agent for acceptance and recording by
the Administrative Agent. The effective date for this Assignment and Acceptance
(the "EFFECTIVE DATE") shall be the date of acceptance hereof by the
Administrative Agent, unless otherwise specified on Schedule 1 hereto.

                  5. Upon such acceptance and recording by the Administrative
Agent, as of the Effective Date, (i) such Assignee shall be a party to the
Credit Agreement and the Collateral Sharing Agreement and, to the extent
provided in this Assignment and Acceptance, have the rights and obligations of a
Lender Party thereunder and (ii) such Assignor shall, to the extent provided in
this Assignment and Acceptance, relinquish its rights and be released from its
obligations under the Credit Agreement and the Collateral Sharing Agreement
(other than its rights and obligations under the Loan Documents that are
specified under the terms of such Loan Documents to survive the payment in full
of the Obligations of the Loan Parties under the Loan Documents to the extent
any claim thereunder relates to an event arising prior to the Effective Date of
this Assignment and Acceptance) and, if this Assignment and Acceptance covers
all of the remaining portion of the rights and obligations of such Assignor
under the Credit Agreement, such Assignor shall cease to be a party thereto.

                          Credit Agreement - Exhibit C

<PAGE>   185
                                       3

                  6. Upon such acceptance and recording by the Administrative
Agent, from and after the Effective Date, the Administrative Agent shall make
all payments under the Credit Agreement and the Notes in respect of the interest
assigned hereby (including, without limitation, all payments of principal,
interest and commitment fees with respect thereto) to such Assignee. Such
Assignor and such Assignee shall make all appropriate adjustments in payments
under the Credit Agreement and the Notes for periods prior to the Effective Date
directly between themselves.

                  7. This Assignment and Acceptance shall be governed by, and
construed in accordance with, the laws of the State of New York.

                  8. This Assignment and Acceptance may be executed in any
number of counterparts and by different 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. Delivery of an
executed counterpart of Schedule 1 to this Assignment and Acceptance by
telecopier shall be effective as delivery of an original executed counterpart of
this Assignment and Acceptance.

                  IN WITNESS WHEREOF, each Assignor and each Assignee have
caused Schedule 1 to this Assignment and Acceptance to be executed by their
officers thereunto duly authorized as of the date specified thereon.


                          Credit Agreement - Exhibit C

<PAGE>   186





                                   SCHEDULE 1
                                       TO
                            ASSIGNMENT AND ACCEPTANCE
<TABLE>
<S>                                                        <C>         <C>       <C>         <C>         <C>
- ---------------------------------------------------------- ----------- --------- ----------- ----------- -----------
ASSIGNORS:
- ---------------------------------------------------------- ----------- --------- ----------- ----------- -----------
REVOLVING CREDIT FACILITY
- ---------------------------------------------------------- ----------- --------- ----------- ----------- -----------
     Percentage interest assigned                                   %         %           %           %           %
- ---------------------------------------------------------- ----------- --------- ----------- ----------- -----------
     Revolving Credit Commitment assigned                  $           $         $           $           $
- ---------------------------------------------------------- ----------- --------- ----------- ----------- -----------
     Aggregate outstanding principal amount of
         Revolving Credit Advances assigned                $           $         $           $           $
- ---------------------------------------------------------- ----------- --------- ----------- ----------- -----------
     Principal amount of Revolving Credit Note
         payable to ASSIGNOR (after assignment)            $           $         $           $           $
- ---------------------------------------------------------- ----------- --------- ----------- ----------- -----------
TERM A FACILITY
- ---------------------------------------------------------- ----------- --------- ----------- ----------- -----------
     Percentage interest assigned                                   %         %           %           %           %
- ---------------------------------------------------------- ----------- --------- ----------- ----------- -----------
     Term A Commitment assigned                            $           $         $           $           $
- ---------------------------------------------------------- ----------- --------- ----------- ----------- -----------
     Outstanding principal amount of
         Term A Advance assigned                           $           $         $           $           $
- ---------------------------------------------------------- ----------- --------- ----------- ----------- -----------
     Principal amount of Term A Note
         payable to ASSIGNOR (after assignment)            $           $         $           $           $
- ---------------------------------------------------------- ----------- --------- ----------- ----------- -----------
OFFSHORE ACQUISITION FACILITY
- ---------------------------------------------------------- ----------- --------- ----------- ----------- -----------
     Percentage interest assigned                                   %         %           %           %           %
- ---------------------------------------------------------- ----------- --------- ----------- ----------- -----------
     Offshore Acquisition Commitment assigned              $           $         $           $           $
- ---------------------------------------------------------- ----------- --------- ----------- ----------- -----------
     Outstanding principal amount of
         Offshore Acquisition Advance assigned             $           $         $           $           $
- ---------------------------------------------------------- ----------- --------- ----------- ----------- -----------
     Principal amount of Offshore Acquisition Note
         payable to ASSIGNOR (after assignment)            $           $         $           $           $
- ---------------------------------------------------------- ----------- --------- ----------- ----------- -----------
LETTER OF CREDIT SUB-FACILITY
- ---------------------------------------------------------- ----------- --------- ----------- ----------- -----------
     Letter of Credit Commitment assigned                  $           $         $           $           $
- ---------------------------------------------------------- ----------- --------- ----------- ----------- -----------
     Letter of Credit Commitment retained                  $           $         $           $           $
- ---------------------------------------------------------- ----------- --------- ----------- ----------- -----------
</TABLE>

                          Credit Agreement - Exhibit C

<PAGE>   187



                                       2


<TABLE>
<S>                                                        <C>          <C>      <C>         <C>         <C>
- ---------------------------------------------------------- ----------- --------- ----------- ----------- -----------
ASSIGNEES:
- ---------------------------------------------------------- ----------- --------- ----------- ----------- -----------
REVOLVING CREDIT FACILITY
- ---------------------------------------------------------- ----------- --------- ----------- ----------- -----------
     Percentage interest assumed                                    %         %           %           %           %
- ---------------------------------------------------------- ----------- --------- ----------- ----------- -----------
     Revolving Credit Commitment assumed                   $           $         $           $           $
- ---------------------------------------------------------- ----------- --------- ----------- ----------- -----------
     Aggregate outstanding principal amount of
         Revolving Credit Advances assumed                 $           $         $           $           $
- ---------------------------------------------------------- ----------- --------- ----------- ----------- -----------
     Principal amount of Revolving Credit Note
         payable to ASSIGNEE (after assignment)            $           $         $           $           $
- ---------------------------------------------------------- ----------- --------- ----------- ----------- -----------
TERM A FACILITY
- ---------------------------------------------------------- ----------- --------- ----------- ----------- -----------
     Percentage interest assumed                                    %         %           %           %           %
- ---------------------------------------------------------- ----------- --------- ----------- ----------- -----------
     Term A Commitment assumed                             $           $         $           $           $
- ---------------------------------------------------------- ----------- --------- ----------- ----------- -----------
     Outstanding principal amount of
         Term A Advance assumed                            $           $         $           $           $
- ---------------------------------------------------------- ----------- --------- ----------- ----------- -----------
     Principal amount of Term A Note
         payable to ASSIGNEE (after assignment)            $           $         $           $           $
- ---------------------------------------------------------- ----------- --------- ----------- ----------- -----------
OFFSHORE ACQUISITION FACILITY
- ---------------------------------------------------------- ----------- --------- ----------- ----------- -----------
     Percentage interest assumed                                    %         %           %           %           %
- ---------------------------------------------------------- ----------- --------- ----------- ----------- -----------
     Offshore Acquisition Commitment assumed               $           $         $           $           $
- ---------------------------------------------------------- ----------- --------- ----------- ----------- -----------
     Outstanding principal amount of
         Offshore Acquisition Advance assumed              $           $         $           $           $
- ---------------------------------------------------------- ----------- --------- ----------- ----------- -----------
     Principal amount of Offshore Acquisition Note
         payable to ASSIGNEE (after assignment)            $           $         $           $           $
- ---------------------------------------------------------- ----------- --------- ----------- ----------- -----------
LETTER OF CREDIT SUB-FACILITY
- ---------------------------------------------------------- ----------- --------- ----------- ----------- -----------
     Letter of Credit Commitment assumed                   $           $         $           $           $
- ---------------------------------------------------------- ----------- --------- ----------- ----------- -----------
</TABLE>

                          Credit Agreement - Exhibit C

<PAGE>   188

                                       3


Effective Date (if other than date of acceptance by Administrative Agent):
(1)                  ,


                             ASSIGNORS


                                                                   , as Assignor
                                          [Type or print legal name of Assignor]


                                          By
                                             -----------------------------------
                                          Title:

                                          Dated:                ,
                                                ---------------- ---------------


                                                                   , as Assignor
                                          [Type or print legal name of Assignor]


                                          By
                                             -----------------------------------
                                          Title:

                                          Dated:                ,
                                                ---------------- ---------------


                                                                   , as Assignor
                                          [Type or print legal name of Assignor]


                                          By
                                             -----------------------------------
                                          Title:





- ----------------------------------
(1) This date should be earlier than five Business Days after the delivery of
    this Assignment and Acceptance to the Administrative Agent.

                          Credit Agreement - Exhibit C

<PAGE>   189


                                     4

                                          Dated:
                                                -----------------,--------------
                                                                   , as Assignor
                                          [Type or print legal name of Assignor]


                                          By
                                             -----------------------------------
                                          Title:

                                          Dated:                ,
                                                ---------------- ---------------


                                                                   , as Assignor
                                          [Type or print legal name of Assignor]


                                          By
                                             -----------------------------------
                                          Title:

                                          Dated:                ,
                                                ---------------- ---------------


                         ASSIGNEES



                                                                   , as Assignee
                                          [Type or print legal name of Assignor]


                                          By
                                             -----------------------------------
                                          Title:

                                          Dated:                ,
                                                ---------------- ---------------

                                          Domestic Lending Office:

                                          Eurodollar Lending Office:



                                                                   , as Assignee

                          Credit Agreement - Exhibit C


<PAGE>   190

                                       5


                                          [Type or print legal name of Assignor]


                                          By
                                             -----------------------------------
                                          Title:

                                          Dated:                ,
                                                ---------------- ---------------

                                          Domestic Lending Office:

                                          Eurodollar Lending Office:


                                                                   , as Assignee
                                          [Type or print legal name of Assignor]


                                          By
                                             -----------------------------------
                                          Title:

                                          Dated:                ,
                                                ---------------- ---------------

                                          Domestic Lending Office:

                                          Eurodollar Lending Office:



                                                                   , as Assignee
                                          [Type or print legal name of Assignor]


                                          By
                                             -----------------------------------
                                          Title:

                                          Dated:                ,
                                                ---------------- ---------------

                                          Domestic Lending Office:

                                          Eurodollar Lending Office:



                          Credit Agreement - Exhibit C

<PAGE>   191

                                       6



                                                                   , as Assignee
                                          [Type or print legal name of Assignor]


                                          By
                                             -----------------------------------
                                          Title:

                                          Dated:                ,
                                                ---------------- ---------------

                                          Domestic Lending Office:

                                          Eurodollar Lending Office:



Accepted (2)[and Approved] this
day of              ,

[NAME OF Administrative Agent],
     as Administrative Agent


By
   --------------------------------
Title:


(3)[Approved this ____ day
of ___________ , _____

SOVEREIGN SPECIALTY CHEMICALS, INC.


- -------------------------
(2)  Required if the Assignee is an Eligible Assignee solely by reason of
     clause (a)(viii) or (b) of the definition of "ELIGIBLE ASSIGNEE".

(3)  See footnote 2 above.


                          Credit Agreement - Exhibit C

<PAGE>   192


                                       7

By
   ----------------------------------
                 Title:



                          Credit Agreement - Exhibit C

<PAGE>   193



                                                                       EXHIBIT D
                                                         TO THE CREDIT AGREEMENT


              FORM OF OFFSHORE SWING LINE LENDER JOINDER AGREEMENT

                  OFFSHORE SWING LINE LENDER JOINDER AGREEMENT, dated as of the
date set forth on Schedule I hereto, made by the Offshore Swing Line Lender
designated on Schedule I hereto (the "OFFSHORE LENDER") pursuant to the Amended
and Restated Credit Agreement, dated as of April 6, 2000 (as amended,
supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"),
among Sovereign Specialty Chemicals Inc., a Delaware corporation (the "DOMESTIC
BORROWER"), the Offshore Borrowers from time to time party thereto, the other
Lender Parties from time to time party thereto, Merrill Lynch, Pierce, Fenner &
Smith Incorporated, as joint lead arranger, joint book-running manager and
syndication agent, J.P. Morgan Securities Inc., as joint lead arranger, joint
book-running manager and documentation agent, and The Chase Manhattan Bank, as
administrative agent (in such capacity, the "ADMINISTRATIVE AGENT") and offshore
currency agent (the "OFFSHORE CURRENCY AGENT"). Unless otherwise defined herein,
terms defined in the Credit Agreement and used herein shall have the meanings
given to them in the Credit Agreement.

                  For good and valid consideration, the sufficiency of which
hereby is acknowledged, the Offshore Swing Line Lender hereby agrees that it
shall serve as an "Offshore Swing Line Lender" under the Credit Agreement upon
the terms and subject to the conditions set forth therein.

                  The undersigned hereby:

(a)      represents and warrants that it is a legally authorized to enter into
         this Offshore Swing Line Lender Joinder Agreement;

(b)      confirms that it has received a copy of the Credit Agreement, the
         Collateral Sharing Agreement and the other Loan Documents relevant to
         it; and

(c)      agrees that it will (i) be bound by the provisions of the Credit
         Agreement, the Collateral Sharing Agreement and each other Loan
         Document, in each case, applicable to it as an Offshore Swing Line
         Lender and as a Lender Party and (ii) perform all obligations which are
         required to be performed by it as an Offshore Swing Line Lender and as
         a Lender Party pursuant to the Credit Agreement, the Collateral Sharing
         Agreement and each other Loan Document.

                  From and after the Effective Date set forth on Schedule I
hereto, the Offshore Swing Line Lender shall (a) be an "Offshore Swing Line
Lender" with respect to the Offshore

                          Credit Agreement - Exhibit D

<PAGE>   194


                                        3

Currency set forth on Schedule I hereto for all purposes under the Loan
Documents and (b) have the rights and obligations of an Offshore Lender and as a
Lender Party under the Credit Agreement and under the other Loan Documents and
(c) be bound by the provisions of the Loan Documents.

                  THIS OFFSHORE SWING LINE LENDER JOINDER AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK.

                  IN WITNESS WHEREOF, the Offshore Swing Line Lender has caused
this Offshore Swing Line Lender Joinder Agreement to be executed on Schedule I
hereto by its duly authorized officer as of the date set forth on Schedule I
hereto.

                          Credit Agreement - Exhibit D

<PAGE>   195





                                   SCHEDULE I
                                       TO
                  OFFSHORE SWING LINE LENDER JOINDER AGREEMENT
            TO THE AMENDED AND RESTATED CREDIT AGREEMENT, DATED AS OF
                                  APRIL 6, 2000
              (AS AMENDED, SUPPLEMENTED OR OTHERWISE MODIFIED FROM
               TIME TO TIME), AMONG SOVEREIGN SPECIALTY CHEMICALS,
                          INC., A DELAWARE CORPORATION,
                THE OFFSHORE BORROWERS FROM TIME TO TIME PARTIES
              THERETO, THE FINANCIAL INSTITUTIONS FROM TIME TO TIME
                                PARTIES THERETO,
    THE AGENTS NAMED THEREIN, AND THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE
                       AGENT AND OFFSHORE CURRENCY AGENT

EFFECTIVE DATE:

NAME OF OFFSHORE SWING LINE LENDER:

OFFSHORE CURRENCY:

TIME ZONE/LOCAL TIME:        :00  .M. (          TIME)

BASE RATE: The Base Rate for outstanding Swing Line Advances in the Offshore
Currency designated above shall be determined by the Offshore Currency Agent as
provided on Annex 1 attached to this Offshore Swing Line Lender Joinder
Agreement

MISCELLANEOUS: The account of the Offshore Currency Agent to which payments in
respect of Swing Line Advances in such Offshore Currency, the time of day (Local
Time) on which such payments must be credited to such account in order to be
deemed received on any Business Day, other terms and provisions applicable to
Swing Line Advances to be made by the Offshore Swing Line Lender in the Offshore
Currency designated above and any notice address of the Offshore Swing Line
Lender are set forth on Annex 1 attached to this Offshore Swing Line Lender
Joinder Agreement

THE CHASE MANHATTAN BANK,                   [NAME OF OFFSHORE SWING LINE LENDER]
 as Offshore Currency Agent


By:                                         By:
   ------------------------------------        ---------------------------------
   Title:                                      Title:



ACKNOWLEDGED AND AGREED:

SOVEREIGN SPECIALTY CHEMICALS, INC.


By:
   ------------------------------------
   Title:




                          Credit Agreement - Exhibit D

<PAGE>   196

                                                                       EXHIBIT E
                                                         TO THE CREDIT AGREEMENT


                       FORM OF CREDIT AGREEMENT SUPPLEMENT

                  CREDIT AGREEMENT SUPPLEMENT, dated as of the date set forth on
Schedule I hereto, made by the Offshore Borrower designated on Schedule I hereto
(the "OFFSHORE BORROWER") pursuant to the Amended and Restated Credit Agreement,
dated as of April 6, 2000 (as amended, supplemented or otherwise modified from
time to time, the "CREDIT AGREEMENT"), among Sovereign Specialty Chemicals Inc.,
a Delaware corporation (the "DOMESTIC Borrower"), the other Offshore Borrowers
from time to time party thereto, the Lender Parties from time to time party
thereto, Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint lead
arranger, joint book-running manager and syndication agent, J.P. Morgan
Securities Inc., as joint lead arranger, joint book-running manager and
documentation agent, and The Chase Manhattan Bank, as administrative agent and
offshore currency agent. Unless otherwise defined herein, terms defined in the
Credit Agreement and used herein shall have the meanings given to them in the
Credit Agreement.

                  In consideration of the agreement of each Lender Party to
extend credit to it from time to time under, and on the terms and conditions set
forth in the Credit Agreement, and for other good and valid consideration, the
sufficiency of which hereby is acknowledged, the Offshore Borrower hereby
assumes each of the obligations imposed upon an "Offshore Borrower" under the
Credit Agreement and agrees to be bound by all the terms and conditions of the
Credit Agreement.

                  The undersigned hereby:

(a)     represents and warrants that it is a legally authorized to enter into
        this Credit Agreement Supplement;

(b)     confirms that it has received a copy of the Credit Agreement, the
        Collateral Sharing Agreement and the other Loan Documents relevant to
        it;

(c)     confirms that it has caused its duly authorized officer to execute and
        deliver each other Loan Document which is contemplated to be executed
        and delivered by such Offshore Borrower on or before the date set forth
        on Schedule I hereto pursuant to Article III of the Credit Agreement;
        and

(d)     agrees that it will (i) be bound by the provisions of the Credit
        Agreement and each other Loan Document, in each case, applicable to it
        as an Offshore Borrower (including, without limitation, Section 1(b) of
        the Collateral Sharing Agreement) and (ii) perform all obligations which
        are required to be performed by it as an Offshore Borrower pursuant to
        the Credit Agreement and each other Loan Document.


                          Credit Agreement - Exhibit E


<PAGE>   197

                                       2



                  From and after the Effective Date set forth on Schedule I
hereto, the undersigned shall (a) be an "Offshore Borrower", "Applicable
Borrower" and a "Loan Party" for all purposes under the Loan Documents and (b)
have the rights and obligations of an Offshore Borrower, "Applicable Borrower"
and a "Loan Party" under the Credit Agreement and under the other Loan Documents
and (c) be bound by the provisions of the Loan Documents.

                  THIS CREDIT AGREEMENT SUPPLEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

                  Any legal action or proceeding with respect to this Credit
Agreement Supplement or any other Loan 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 Credit Agreement Supplement, the
Offshore Borrower hereby irrevocably accepts for itself and in respect of its
property, generally and unconditionally, the jurisdiction of the aforesaid
courts. The Offshore Borrower hereby further irrevocably waives any claim that
any such courts lack jurisdiction over such Offshore Borrower, and agrees not to
plead or claim, in any legal action or proceeding with respect to this Credit
Agreement Supplement or any other Loan Document brought in any of the aforesaid
courts, that any such court lacks jurisdiction over the Offshore Borrower. The
Offshore Borrower agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. The Offshore Borrower hereby
irrevocably appoints CT Corporation System with an office on the date hereof at
1633 Broadway, New York, New York 10019 (the "PROCESS AGENT"), as its agent to
receive on behalf of the Offshore Borrower and its property service of copies of
the summons and complaint and any other process which may be served in any such
action or proceeding. The Offshore Borrower irrevocably consents to the service
of process in any such action or proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to the Offshore Borrower at its
address set forth on Schedule I hereto, such service to become effective 10 days
after such mailing. The Offshore Borrower hereby irrevocably waives any
objection to such service of process and further irrevocably waives and agrees
not to plead or claim in any action or proceeding commenced hereunder or under
any other Loan Document that service of process was in any way invalid or
ineffective. Nothing herein shall affect the right of any agent, any Lender
Party or the holder of any Note to serve process in any other manner permitted
by law or to commence legal proceedings or otherwise proceed against the
Offshore Borrower in any other jurisdiction.

                  The Offshore Borrower 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
Credit Agreement Supplement or any other Loan Document brought in the courts
referred to 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.




                          Credit Agreement - Exhibit E

<PAGE>   198



                                       3



                  To the extent that the Offshore Borrower has or hereafter may
acquire any immunity from jurisdiction of any court or from any legal process
(whether through service or notice, attachment prior to judgment, attachment in
aid of execution, execution or otherwise) with respect to itself or its
property, the Offshore Borrower to the extent permitted by law hereby
irrevocably waives such immunity in respect of its obligations under this Credit
Agreement Supplement or any other Loan Document and, without limiting the
generality of the foregoing, agrees that the waivers set forth in this paragraph
shall have the fullest scope permitted under the United States Foreign Sovereign
Immunities Act of 1976, as amended, or any other similarly applicable foreign
law and are intended to be irrevocable for purposes of such Act or any other
similarly applicable foreign law.

                  The Offshore Borrower hereby irrevocably waives all right to
trial by jury in any action, proceeding or counterclaim (whether based on
contract, tort or otherwise) arising out of or relating to this Credit Agreement
Supplement or any of the other Loan Documents to which it is a party, or the
actions of any agent or any Lender Party in the negotiation, administration,
performance or enforcement thereof.

                  IN WITNESS WHEREOF, the Offshore Borrower has caused this
Offshore Credit Agreement Supplement to be executed on Schedule I hereto by its
duly authorized officer as of the date set forth on Schedule I hereto.











                          Credit Agreement - Exhibit E


<PAGE>   199


                                   SCHEDULE I
                                       TO
                           CREDIT AGREEMENT SUPPLEMENT
            TO THE AMENDED AND RESTATED CREDIT AGREEMENT, DATED AS OF
              APRIL 6, 2000 (AS AMENDED, SUPPLEMENTED OR OTHERWISE
             MODIFIED FROM TIME TO TIME), AMONG SOVEREIGN SPECIALTY
                    CHEMICALS, INC., A DELAWARE CORPORATION,
                THE OFFSHORE BORROWERS FROM TIME TO TIME PARTIES
              THERETO, THE FINANCIAL INSTITUTIONS FROM TIME TO TIME
                                PARTIES THERETO,
 THE AGENTS NAMED THEREIN, AND THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE AGENT
                                      AND
                            OFFSHORE CURRENCY AGENT
- --------------------------------------------------------------------------------

EFFECTIVE DATE:

NAME OF OFFSHORE BORROWER:

JURISDICTION OF ORGANIZATION OF OFFSHORE BORROWER:

TYPE OF ORGANIZATION OF OFFSHORE BORROWER:

NOTICE ADDRESS OF OFFSHORE BORROWER:


                  IN WITNESS WHEREOF, the Offshore Borrower has caused this
Credit Agreement Supplement to be executed by its duly authorized officer
effective as of the above Effective Date.


                                             [NAME OF OFFSHORE BORROWER]


                                             By:
                                                --------------------------------
                                                Title:


ACKNOWLEDGED AND AGREED:

THE CHASE MANHATTAN BANK,
 as Administrative Agent


By:
   -----------------------------
   Title:







                          Credit Agreement - Exhibit E


<PAGE>   200





                     AMENDED AND RESTATED SECURITY AGREEMENT


                  AMENDED AND RESTATED SECURITY AGREEMENT dated as of April 6,
2000 (this "AGREEMENT"), made by SOVEREIGN SPECIALTY CHEMICALS, INC., a Delaware
corporation (the "DOMESTIC BORROWER"), the other Persons listed on the signature
pages hereof and the Additional Grantors (as defined in Section 24) (the
Domestic Borrower, the Persons so listed and the Additional Grantors being,
collectively, the "GRANTORS"), to The Chase Manhattan Bank, as administrative
agent (together with any successor administrative agent appointed pursuant to
Article VII of the Credit Agreement (as hereinafter defined), the
"ADMINISTRATIVE AGENT") for the Secured Parties (as defined in the Credit
Agreement).

                  PRELIMINARY STATEMENTS.

                  (1)    The Domestic Borrower entered into a Credit Agreement
dated as of December 29, 1999 (said agreement, as amended and in effect prior to
the date hereof, the "EXISTING CREDIT AGREEMENT"), with the Lender Parties and
the Agents (each as defined therein). Pursuant to the Existing Credit Agreement,
each of the Grantors entered into a Security Agreement dated December 29, 1999
(said agreement, as amended and in effect prior to the date hereof, the
"EXISTING SECURITY AGREEMENT"), in favor of the Administrative Agent in order to
grant to the Administrative Agent for the ratable benefit of the Secured Parties
a security interest in all of its personal property and fixtures then owned or
thereafter acquired, subject only to the exclusions set forth in Section 1
hereof.

                  (2)    The Domestic Borrower has amended and restated the
Existing Credit Agreement pursuant to the Amended and Restated Credit Agreement
dated as of the date hereof (as said Agreement may hereafter be further amended
and restated, supplemented or otherwise modified from time to time, the "CREDIT
AGREEMENT"), with the Lender Parties and the Agents. Pursuant to the Credit
Agreement, each of the Grantors is entering into this Agreement in order to
amend and restate the Existing Security Agreement in its entirety as provided
herein.

                  (3)    Each Grantor is the owner of the shares (the "INITIAL
PLEDGED SHARES") of stock set forth opposite such Grantor=s name on and as
otherwise described in Part I of Schedule I hereto and issued by the
corporations named therein and of the indebtedness (the "INITIAL PLEDGED DEBT")
set forth opposite such Grantor=s name on and as otherwise described in Part II
of Schedule I hereto and issued by the obligors named therein.

                  (4)    The Domestic Borrower has opened a collateral
securities account, Account No.323142397 (the "COLLATERAL ACCOUNT"), with The
Chase Manhattan Bank at its office at 270 Park Avenue, New York, New York 10017,
in the name of the Administrative Agent and under the sole control and dominion
of the Administrative Agent and subject to the terms of this Agreement.

                  (5)    The Domestic Borrower has opened a collateral
securities account, Account No.323142389 (the "L/C COLLATERAL ACCOUNT"), with
The Chase Manhattan Bank at its




                          Credit Agreement - Exhibit F

<PAGE>   201


                                       2



office at 270 Park Avenue, New York, New York 10017, in the name of the
Administrative Agent and under the sole control and dominion of the
Administrative Agent and subject to the terms of this Agreement.

                  (6)    It is a condition precedent to the making of Advances
and the issuance of Letters of Credit by the Lender Parties under the Credit
Agreement and the entry into Secured Hedge Agreements by the Hedge Banks from
time to time that the Grantors shall have granted the assignment and security
interest and made the pledge and assignment contemplated by this Agreement.

                  (7)    Each Grantor will derive substantial direct and
indirect benefit from the transactions contemplated by the Loan Documents.

                  (8)    Terms defined in the Credit Agreement and not otherwise
defined in this Agreement are used in this Agreement as defined in the Credit
Agreement. Further, unless otherwise defined in this Agreement or in the Credit
Agreement, terms defined in Article 8 or 9 of the Uniform Commercial Code in
effect in the State of New York ("N.Y. UNIFORM COMMERCIAL CODE") and/or in the
Federal Book Entry Regulations (as defined below) are used in this Agreement as
such terms are defined in such Article 8 or 9 and/or the Federal Book Entry
Regulations. The term "FEDERAL BOOK ENTRY REGULATIONS" means (a) the federal
regulations contained in Subpart B ("Treasury/Reserve Automated Debt Entry
System (TRADES)") governing book-entry securities consisting of U.S. Treasury
bonds, notes and bills and Subpart D ("Additional Provisions") of 31 C.F.R. Part
357, 31 C.F.R. Section 357.2, Section 357.10 through Section 357.14 and Section
357.41 through Section 357.44 and (b) to the extent substantially identical to
the federal regulations referred to in clause (a) above (as in effect from time
to time), the federal regulations governing other book-entry securities.

                  NOW, THEREFORE, in consideration of the premises and in order
to induce the Lender Parties to make Advances and issue Letters of Credit under
the Credit Agreement and to induce the Hedge Banks to enter into Secured Hedge
Agreements from time to time, the Existing Security Agreement is hereby amended
and restated in its entirety, and each Grantor hereby agrees with the
Administrative Agent for the ratable benefit of the Secured Parties, as follows:

                  Section 1. Grant of Security. Each Grantor hereby assigns and
pledges to the Administrative Agent for the ratable benefit of the Secured
Parties, and hereby grants to the Administrative Agent for the ratable benefit
of the Secured Parties a security interest in, such Grantor's right, title and
interest in and to the following, in each case, as to each type of property
described below, whether now owned or hereafter acquired by such Grantor,
wherever located, and whether now or hereafter existing or arising
(collectively, the "Collateral"):

                  (a)    all equipment in all of its forms (including, without
         limitation, all motor vehicles), all fixtures and all parts thereof and
         all accessions thereto (any and all such equipment, fixtures, parts and
         accessions being the "EQUIPMENT");



                               Security Agreement

<PAGE>   202

                                       3



                  (b)    all inventory in all of its forms, (including, without
         limitation, (i) all adhesives, sealants and coatings and raw materials
         and work in process therefor, finished goods thereof and materials used
         or consumed in the manufacture, production, preparation or shipping
         thereof, (ii) goods in which such Grantor has an interest in mass or a
         joint or other interest or right of any kind (including, without
         limitation, goods in which such Grantor has an interest or right as
         consignee) and (iii) goods that are returned to or repossessed or
         stopped in transit by such Grantor), and all accessions thereto and
         products thereof and documents therefor (any and all such inventory,
         accessions, products and documents being the "INVENTORY");

                  (c)    all accounts, chattel paper, instruments, deposit
         accounts, general intangibles and other obligations of any kind,
         whether or not arising out of or in connection with the sale or lease
         of goods or the rendering of services and whether or not earned by
         performance, and all rights now or hereafter existing in and to all
         security agreements, leases and other contracts securing or otherwise
         relating to any such accounts, chattel paper, instruments, deposit
         accounts, general intangibles or obligations (any and all such
         accounts, chattel paper, instruments, deposit accounts, general
         intangibles and obligations, to the extent not referred to in clause
         (d), (e) or (f) below, being the "RECEIVABLES", and any and all such
         security agreements, leases and other contracts being the "RELATED
         CONTRACTS"); provided, however, that any contract rights arising under
         any agreement or other document to which any of the Grantors is a party
         shall be excluded from the lien and security interest granted by such
         Grantor under this subsection (c) and under subsection (f) of this
         Section 1 to the extent that the assignment thereof or the creation of
         a lien and security interest therein would constitute a breach of the
         terms of the agreement or other document in which such contract rights
         are set forth, or would permit any party to such agreement or other
         document to terminate such contract rights or agreement (all of the
         agreements and other documents referred to in this proviso clause being
         the AEXCLUDED Agreements@); provided further, however, that (i) the
         exclusion of any contract rights of any of the Grantors under one or
         more of the Excluded Agreements pursuant to the immediately preceding
         proviso clause shall not limit, restrict or impair the grant by such
         Grantor of the lien and security interest in any accounts or
         receivables arising under any such Excluded Agreement or any payments
         due or to become due thereunder and (ii) any of the Excluded Agreements
         shall cease to be excluded from this subsection (c) and from subsection
         (f) of this Section 1, as the case may be, if, at any time, (A) the
         prohibition of assignment or of the creation of a lien and security
         interest in such agreement is no longer in effect or (B) the applicable
         Grantor has obtained the consent of the other parties to such agreement
         to the assignment of, or creation of a lien and security interest in,
         the contract rights of such Grantor thereunder;

                  (d)    the following (the "SECURITY COLLATERAL"):

                         (i)   the Initial Pledged Shares and the certificates,
                  if any, representing the Initial Pledged Shares, and all
                  dividends, cash, instruments and other property



                               Security Agreement

<PAGE>   203

                                       4




                  from time to time received, receivable or otherwise
                  distributed in respect of or in exchange for any or all of the
                  Initial Pledged Shares;

                         (ii)   the Initial Pledged Debt and the instruments, if
                  any, evidencing the Initial Pledged Debt, and all interest,
                  cash, instruments and other property from time to time
                  received, receivable or otherwise distributed in respect of or
                  in exchange for any or all of the Initial Pledged Debt;

                         (iii)  all additional shares of stock and other Equity
                  Interests from time to time acquired by such Grantor in any
                  manner (such shares, together with the Initial Pledged Shares,
                  being the "PLEDGED SHARES"), and the certificates, if any,
                  representing such additional shares, and all dividends, cash,
                  instruments and other property from time to time received,
                  receivable or otherwise distributed in respect of or in
                  exchange for any or all of such shares, provided, however,
                  that none of the Grantors shall be required to pledge any
                  Equity Interest in any Foreign Subsidiary that constitutes a
                  "controlled foreign corporation" under Section 957 of the
                  Internal Revenue Code (a "FOREIGN CORPORATION") owned or
                  otherwise held thereby which, when aggregated with all of the
                  other Equity Interests in such Foreign Corporation pledged by
                  such Grantor and the other Grantors, would result in more than
                  66% of the Equity Interests in such Foreign Corporation
                  entitled to vote (within the meaning of Treasury Regulation
                  Section 1.956-2(c)(2) promulgated under the Internal Revenue
                  Code (or any successor provision or interpretation thereof))
                  (the "VOTING EQUITY INTERESTS") being pledged to the
                  Administrative Agent, on behalf of the Secured Parties, under
                  this Agreement and the other Collateral Documents (although
                  all of the Equity Interests in such Foreign Corporation not
                  entitled to vote (within the meaning of Treasury Regulation
                  Section 1.956-2(c)(2) promulgated under the Internal Revenue
                  Code (or any successor provision or interpretation thereof))
                  (the "NON-VOTING EQUITY INTERESTS") shall be pledged by each
                  of the Grantors that owns or otherwise holds any such
                  Non-Voting Equity Interest therein); provided that, if, as a
                  result of any change in the tax laws of the United States of
                  America after the date of this Agreement, the pledge by such
                  Grantor of any additional Equity Interests in any such Foreign
                  Corporation to the Administrative Agent, on behalf of the
                  Secured Parties, under this Agreement or any of the other
                  Collateral Documents would not result in an increase in the
                  current or future aggregate net consolidated tax liabilities
                  of the Domestic Borrower and its Subsidiaries, then, promptly
                  after the change in such laws, all such additional Equity
                  Interests shall be so pledged under this Agreement or such
                  other Collateral Document, as applicable;

                         (iv)   all additional indebtedness from time to time
                  owed to such Grantor (such indebtedness, together with the
                  Initial Pledged Debt, being the "PLEDGED DEBT") and the
                  instruments, if any, evidencing such indebtedness, and all
                  interest, cash, instruments and other property from time to
                  time received, receivable or




                               Security Agreement

<PAGE>   204

                                       5




                  otherwise distributed in respect of or in exchange for any or
                  all of such indebtedness; and

                         (v)   all additional investment property (including,
                  without limitation, all securities, security entitlements,
                  security accounts, commodity contracts and commodity
                  accounts), whether or not evidenced by certificates or
                  instruments, and all of the certificates and instruments, if
                  any, representing or evidencing such additional investment
                  property, all security therefor and all dividends, interest,
                  distributions, value, cash, instruments and other property and
                  assets from time to time received, receivable or otherwise
                  distributed in respect of or in exchange for any or all of
                  such additional investment property;

                  (e)    the following (collectively, the "ACCOUNT COLLATERAL"):

                         (i)   the Collateral Account, all financial assets from
                  time to time credited to the Collateral Account (including,
                  without limitation, all Cash Equivalents from time to time
                  credited to the Collateral Account), and all dividends,
                  interest, cash, instruments and other property from time to
                  time received, receivable or otherwise distributed in respect
                  of or in exchange for any or all of such financial assets;

                         (ii)  the L/C Collateral Account, all financial assets
                  from time to time credited to the L/C Collateral Account
                  (including, without limitation, all Cash Equivalents from time
                  to time credited to the L/C Collateral Account), and all
                  dividends, interest, cash, instruments and other property from
                  time to time received, receivable or otherwise distributed in
                  respect of or in exchange for any or all of such financial
                  assets;

                         (iii) all Pledged Accounts (as hereinafter defined)
                  from time to time, all funds held therein and all certificates
                  and instruments, if any, from time to time representing or
                  evidencing the Pledged Accounts;

                         (iv)  all other deposit accounts of such Grantor from
                  time to time, all funds held therein and all certificates and
                  instruments, if any, from time to time representing or
                  evidencing such deposit accounts;

                         (v)   all notes, certificates of deposit, deposit
                  accounts, checks and other instruments from time to time
                  delivered to or otherwise possessed by the Administrative
                  Agent for or on behalf of such Grantor, including, without
                  limitation, those delivered or possessed in substitution for
                  or in addition to any or all of the then existing Account
                  Collateral; and




                               Security Agreement

<PAGE>   205

                                       6



                         (vi)  all interest, dividends, cash, instruments and
                  other property from time to time received, receivable or
                  otherwise distributed in respect of or in exchange for any or
                  all of the then existing Account Collateral; and

                  (f) the following (collectively, the "INTELLECTUAL PROPERTY
                  COLLATERAL"):

                         (i)   all United States, international and foreign
                  patents, patent applications and statutory invention
                  registrations, including, without limitation, the patents and
                  patent applications set forth in Schedule IV hereto (as such
                  Schedule IV may be supplemented from time to time), together
                  with all reissues, divisions, continuations,
                  continuations-in-part, extensions and reexaminations thereof,
                  all inventions therein, all rights therein provided by
                  international treaties or conventions and all improvements
                  thereto, and all other rights of any kind whatsoever of such
                  Grantor accruing thereunder or pertaining thereto (the
                  "PATENTS");

                         (ii)  all trademarks (including, without limitation,
                  service marks), certification marks, collective marks, trade
                  dress, logos, domain names, product configurations, trade
                  names, business names, corporate names and other source
                  identifiers, whether or not registered, whether currently in
                  use or not, including, without limitation, all common law
                  rights and registrations and applications for registration
                  thereof, including, without limitation, the trademark
                  registrations and trademark applications set forth in Schedule
                  IV hereto (as such Schedule IV may be supplemented from time
                  to time), and all other marks registered in the U.S. Patent
                  and Trademark Office or in any office or agency of any State
                  or Territory of the United States or any foreign country (but
                  excluding any United States intent-to-use trademark
                  application prior to the filing and acceptance of a Statement
                  of Use or an Amendment to Allege Use in connection therewith
                  to the extent that a valid security interest may not be taken
                  in such an intent-to-use trademark application under
                  applicable law), and all rights therein provided by
                  international treaties or conventions, all reissues,
                  extensions and renewals of any of the foregoing, together in
                  each case with the goodwill of the business connected
                  therewith and symbolized thereby, and all rights corresponding
                  thereto throughout the world and all other rights of any kind
                  whatsoever of such Grantor accruing thereunder or pertaining
                  thereto (the "TRADEMARKS"); excluding however the twelve
                  Trademarks listed on Schedule IV under the heading "OSI",
                  commencing with the Trademark "BUILDING A SAFER TOMORROW" and
                  ending with the Trademark "PL 500" and the Unlicensed
                  Trademarks (as defined in the license agreement referred to in
                  this sentence) (all such trademarks are collectively, the
                  "ENCUMBERED TRADEMARKS"), which, as of the Effective Date, are
                  subject to a right of first refusal in favor of ChemRex Inc.
                  pursuant to that certain License Agreement dated July 29,
                  1998, between OSI Sealants, Inc. and ChemRex Inc., until such
                  time as that license agreement has expired or otherwise
                  terminated with such right of first refusal unexercised;







                               Security Agreement

<PAGE>   206

                                       7


                         (iii) all copyrights, copyright applications, copyright
                  registrations and like protections in each work of authorship,
                  whether statutory or common law, whether published or
                  unpublished, any renewals or extensions thereof, all
                  copyrights of works based on, incorporated in, derived from,
                  or relating to works covered by such copyrights, including,
                  without limitation, the copyright registrations and copyright
                  applications set forth in Schedule IV hereto (as such Schedule
                  IV may be supplemented from time to time), together with all
                  rights corresponding thereto throughout the world and all
                  other rights of any kind whatsoever of such Grantor accruing
                  thereunder or pertaining thereto (the "COPYRIGHTS");

                         (iv)  all confidential and proprietary information,
                  including, without limitation, know-how, trade secrets,
                  manufacturing and production processes and techniques,
                  inventions, research and development information, technical
                  data, financial, marketing and business data, pricing and cost
                  information, business and marketing plans and customer and
                  supplier lists and information (the "TRADE SECRETS");

                         (v)   all computer software programs and databases
                  (including, without limitation, source code, object code and
                  all related applications and data files), firmware, and
                  documentation and materials relating thereto, and all rights
                  with respect to the foregoing, together with any and all
                  options, warranties, service contracts, program services, test
                  rights, maintenance rights, improvement rights, renewal rights
                  and indemnifications and any substitutions, replacements,
                  additions or model conversions of any of the foregoing (the
                  "COMPUTER SOFTWARE");

                         (vi)  all license agreements, permits, authorizations
                  and franchises, whether with respect to the Patents,
                  Trademarks, Copyrights, Trade Secrets or Computer Software, or
                  with respect to the patents, trademarks, copyrights, trade
                  secrets, computer software or other proprietary right of any
                  other Person, including, without limitation, the license
                  agreements set forth in Schedule IV hereto (as such Schedule
                  IV may be supplemented from time to time), and all income,
                  royalties and other payments now or hereafter due and/or
                  payable with respect thereto, subject, in each case, to the
                  terms of such license agreements, permits, authorizations and
                  franchises, (the "LICENSES"); provided further, however, that
                  any such license agreements to which any of the Grantors is a
                  party shall be excluded from the lien and security interest
                  granted by such Grantor under this subsection (f) to the
                  extent that the assignment thereof or the creation of a lien
                  and security interest therein would constitute a breach of the
                  terms of such license agreement, or would permit any party to
                  such license agreement to terminate such rights thereunder
                  (all of the license agreements referred to in this proviso
                  clause being the "EXCLUDED LICENSES"); provided further,
                  however, that any of the Excluded Licenses shall cease to be
                  excluded from this subsection (f)






                               Security Agreement

<PAGE>   207

                                       8


                  if, at any time, (A) the prohibition of assignment or of the
                  creation of a lien and security interest in such license
                  agreement is no longer in effect or (B) the applicable Grantor
                  has obtained the consent of the other parties to such license
                  agreement to the assignment of, or creation of a lien and
                  security interest in, the rights of such Grantor thereunder;
                  and

                         (vii)   any and all claims for damages for past,
                  present and future infringement, misappropriation or breach
                  with respect to the Patents, Trademarks, Copyrights, Trade
                  Secrets, Computer Software or Licenses, with the right, but
                  not the obligation, to sue for and collect, or otherwise
                  recover, such damages; and

                  (g)  all proceeds of any and all of the Collateral (including,
         without limitation, proceeds that constitute property of the types
         described in clauses (a) through (f) of this Section 1 and this clause
         (g)) and, to the extent not otherwise included, all (i) payments under
         insurance (whether or not the Administrative Agent is the loss payee
         thereof), or any indemnity, warranty or guaranty, payable by reason of
         loss or damage to or otherwise with respect to any of the foregoing
         Collateral and (ii) cash.

                  Section 2. Security for Obligations. This Agreement secures,
in the case of each Grantor, the payment of all Obligations of such Grantor now
or hereafter existing under the Loan Documents, whether direct or indirect,
absolute or contingent, and whether for principal, reimbursement obligations,
interest, fees, premiums, penalties, indemnifications, contract causes of
action, costs, expenses or otherwise (all such Obligations being the "SECURED
OBLIGATIONS").

                  Section 3. Grantors Remain Liable. Anything herein to the
contrary notwithstanding, (a) each Grantor shall remain liable under the
contracts and agreements included in such Grantor's Collateral to the extent set
forth therein to perform all of its duties and obligations thereunder to the
same extent as if this Agreement had not been executed, (b) the exercise by the
Administrative Agent of any of the rights hereunder shall not release any
Grantor from any of its duties or obligations under the contracts and agreements
included in the Collateral and (c) no Secured Party shall have any obligation or
liability under the contracts and agreements included in the Collateral by
reason of this Agreement or any other Loan Document, nor shall any Secured Party
be obligated to perform any of the obligations or duties of any Grantor
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder.

                  Section 4. Delivery and Control of Security Collateral. (a)
All certificates or instruments representing or evidencing Security Collateral
shall be delivered to and held by or on behalf of the Administrative Agent
pursuant hereto and shall be in suitable form for transfer by delivery, or shall
be accompanied by duly executed instruments of transfer or assignment in blank,
all in form and substance satisfactory to the Administrative Agent; provided
however, that each Grantor shall not be required to so deliver any such
certificate issued by any issuer of Pledged Shares which is organized under the
laws of Mexico until June 30, 2000. The Administrative Agent shall have the
right, during the continuation of a Default under Section 6.01(a) or (f) of the
Credit Agreement or an Event of Default and without notice to any Grantor,





                               Security Agreement

<PAGE>   208

                                       9





to transfer to or to register in the name of the Administrative Agent or any of
its nominees any or all of the Security Collateral, subject only to the
revocable rights specified in Section 15(a). In addition, the Administrative
Agent shall have the right at any time to exchange certificates or instruments
representing or evidencing Security Collateral for certificates or instruments
of smaller or larger denominations.

                  (b)    With respect to any Security Collateral in which any
Grantor has any right, title or interest and that constitutes an uncertificated
security, such Grantor will cause the issuer thereof either (i) to register the
Administrative Agent as the registered owner of such security or (ii) to comply
with instructions with respect to such security originated by the Administrative
Agent without further consent of such Grantor, such agreement to be in form and
substance satisfactory to the Administrative Agent.

                  (c)    With respect to any Security Collateral in which any
Grantor has any right, title or interest and that constitutes a security
entitlement, such Grantor will cause the securities intermediary with respect to
such security entitlement either (i) to identify in its records the
Administrative Agent as the entitlement holder of such security entitlement
against such securities intermediary or (ii) to comply with entitlement orders
(that is, notifications communicated to such securities intermediary directing
transfer or redemption of the financial asset to which such Grantor has a
security entitlement) originated by the Administrative Agent without further
consent of such Grantor, such agreement to be in form and substance satisfactory
to the Administrative Agent.

                  (d)    With respect to any Security Collateral in which any
Grantor has any right, title or interest and that constitutes a commodity
contract, such Grantor shall cause the commodity intermediary with respect to
such commodity contract to agree in writing with such Grantor and the
Administrative Agent that such commodity intermediary will apply any value
distributed on account of such commodity contract as directed by the
Administrative Agent without further consent of such Grantor, such agreement to
be in form and substance satisfactory to the Administrative Agent.

                  (e)    No Grantor will change or add any securities
intermediary or commodity intermediary that maintains any securities account or
commodity account in which any of the Collateral is credited or carried, or
change or add any such securities account or commodity account, in each case
without first complying with the above provisions of this Section 4 in order to
perfect the security interest granted hereunder in such Collateral.

                  Section 5. Maintaining the Pledged Accounts. At any time on
and after the Effective Date so long as any Advance or any other Obligation of
any Loan Party under any Loan Document shall remain unpaid, any Letter of Credit
shall be outstanding, any Secured Hedge Agreement shall be in effect or any
Lender Party shall have any Commitment under the Credit Agreement:

                  (a)   Except for those deposit accounts set forth in Part B of
         Schedule V hereto, as such Schedule V may be amended from time to time
         pursuant to Section 5(e) of this




                               Security Agreement

<PAGE>   209


                                       10



         Agreement, each Grantor will maintain lockbox accounts and deposit
         accounts (collectively, the "PLEDGED ACCOUNTS") only with banks (the
         "PLEDGED ACCOUNT BANKS") that have entered into letter agreements in
         substantially the form of Exhibit B hereto or otherwise in form and
         substance satisfactory to the Administrative Agent with such Grantor
         and the Administrative Agent (the "PLEDGED ACCOUNT LETTERS"); provided
         however, that the Grantors will have until June 30, 2000, to enter into
         Pledged Account Letters with Bital Bank in respect of their accounts at
         such bank.

                  (b)   Each Grantor will (i) immediately instruct each Person
         obligated at any time to make any payment to such Grantor for any
         reason (an "OBLIGOR") to make such payment to a Pledged Account of such
         Grantor and (ii) deposit in a Pledged Account, at the end of each
         Business Day, all proceeds of Collateral and all other cash of such
         Grantor which, when aggregated with all proceeds of Collateral and
         other cash of the other Grantors, are in excess of $3,000,000.

                  (c)   Each Grantor agrees that it will not add any bank as a
         Pledged Account Bank or add any account as a Pledged Account to those
         listed in Part A of Schedule V hereto, unless the Administrative Agent
         shall have received at least 10 days' prior written notice of such
         addition and shall have received a Pledged Account Letter executed by
         such new Pledged Account Bank and such Grantor or a supplement to an
         existing Pledged Account Letter covering such new Pledged Account, as
         the case may be (and, upon the receipt by the Administrative Agent of
         such Pledged Account Letter or supplement, Part A of Schedule V hereto
         shall be automatically amended to include such Pledged Account Bank or
         Pledged Account). Each Grantor agrees that it will not terminate any
         bank as a Pledged Account Bank or terminate any account as a Pledged
         Account, unless the Administrative Agent shall have received at least
         10 days= prior written notice of such termination (and, upon such
         termination, Schedule V hereto shall be automatically amended to delete
         such Pledged Account Bank or Pledged Account); provided, however, that
         Administrative Agent will be deemed to have consented to the
         termination of any Pledged Account that is a lockbox account so long as
         (i) the Administrative Agent shall have received prompt notice of such
         termination, together with a certificate of the Chief Financial Officer
         of the applicable Grantor certifying that (A) before and after the
         termination of such Pledged Account, no Default has occurred and is
         continuing, (B) all cash and other items credited to such Pledged
         Account have been credited to another Pledged Account of such Grantor
         and (C) that all Obligors making payments to the Pledged Account to be
         terminated have been instructed by such Grantor to make all future
         payments to another Pledged Account of such Grantor.

                  (d)   Upon any termination of any Pledged Account Letter or
         other agreement with respect to the maintenance of a Pledged Account by
         any Grantor or any Pledged Account Bank, such Grantor will immediately
         notify all Obligors that were making payments to such Pledged Account
         to make all future payments to another Pledged Account. Each Grantor
         agrees to terminate any or all Pledged Accounts and Pledged Account
         Letters upon request by the Administrative Agent.





                               Security Agreement

<PAGE>   210

                                       11



                  (e)   Each Grantor agrees that it will not add any account as
         an unblocked account to those listed in Part B of Schedule V hereto,
         unless the Administrative Agent shall have received at least 10 days'
         prior written notice of such addition or termination (and, upon such
         addition or termination, Schedule V shall be automatically amended to
         add or delete such account, as applicable).

                  Section 6. Maintaining the Collateral Account and the L/C
Collateral Account. So long as any Advance or any other Obligation of any Loan
Party under any Loan Document shall remain unpaid, any Letter of Credit shall be
outstanding, any Secured Hedge Agreement shall be in effect or any Lender shall
have any Commitment under the Credit Agreement:

                  (a)   The Domestic Borrower will maintain the Collateral
         Account and the L/C Collateral Account with the Administrative Agent or
         another commercial bank acceptable to the Administrative Agent and
         that, in the case of the Collateral Account and the L/C Collateral
         Account, and each Grantor, as applicable, has entered into a Securities
         Account Control Agreement (the Administrative Agent or any bank with
         which the Collateral Account or the L/C Collateral Account are
         maintained being a "COLLATERAL BANK").

                  (b)   It shall be a term and condition of each of the
         Collateral Account and the L/C Collateral Account, notwithstanding any
         term or condition to the contrary in any other agreement relating to
         the Collateral Account or the L/C Collateral Account, as the case may
         be, and except as otherwise provided by the provisions of Sections 5, 8
         and 20, that no amount (including interest on Cash Equivalents credited
         thereto) will be paid or released to or for the account of, or
         withdrawn by or for the account of, the Domestic Borrower or any other
         Person from the Collateral Account or the L/C Collateral Account, as
         the case may be.

                  Section 7. Investing of Amounts in the Collateral Account and
the L/C Collateral Account. The Administrative Agent will, subject to the
provisions of Sections 8 and 20, from time to time direct the applicable
Collateral Bank to (a) invest amounts received with respect to the Collateral
Account and the L/C Collateral Account in such Cash Equivalents credited to the
Collateral Account and the L/C Collateral Account, respectively, as the Domestic
Borrower may select and (b) invest interest paid on the Cash Equivalents
referred to in clause (a) above, and reinvest other proceeds of any such Cash
Equivalents that may mature or be sold, in each case in such Cash Equivalents
credited to the Collateral Account and the L/C Collateral Account, respectively,
as the Domestic Borrower may select. Interest and proceeds that are not invested
or reinvested in Cash Equivalents as provided above shall be deposited and held
in a deposit account with the applicable Collateral Bank in the name of the
Administrative Agent and under the sole control and dominion of the
Administrative Agent, such deposit account to be deemed to constitute part of
the Collateral Account or the L/C Collateral Account, as the case may be. In
addition, the Administrative Agent shall have the right at any time to direct
the applicable Collateral Bank to exchange such Cash Equivalents for similar
Cash Equivalents of smaller or




                               Security Agreement

<PAGE>   211

                                       12



larger determinations, or for other Cash Equivalents, credited to the Collateral
Account or the L/C Collateral Account, as the case may be.

                  Section 8. Release of Amounts. So long as no Default under
Section 6.01(a) or (f) of the Credit Agreement or Event of Default shall have
occurred and be continuing, the Administrative Agent will direct the applicable
Collateral Bank to pay and release to the Domestic Borrower or at its order or,
at the request of the Domestic Borrower, to the Administrative Agent to be
applied to the Obligations of the Domestic Borrower under the Loan Documents, in
the case of the L/C Collateral Account, such amount, if any, as is then on
deposit in the L/C Collateral Account to the extent permitted to be released
under the terms of the Credit Agreement and, in the case of the Collateral
Account, the amount, if any, by which the aggregate principal amount of the Cash
Equivalents credited to the Collateral Account exceeds all amounts then due and
payable under the Loan Documents.


                  Section 9. Representations and Warranties. Each Grantor
represents and warrants as follows:

                  (a)   All of the Equipment and Inventory (other than Inventory
         consisting of consigned and other goods of the Grantors, that, as of
         any date of determination, that have an aggregate value of not more
         than $3,000,000 (such Inventory being, collectively, the "OFF-SITE
         GOODS"); provided however, that, not more than $1,000,000 of any such
         consigned and other goods shall be located in any single location) of
         such Grantor are located at the places specified therefor in Schedule
         II hereto, as such Schedule II may be amended from time to time
         pursuant to Section 11(a). The chief executive office of such Grantor,
         and all originals of all chattel paper that evidence Receivables of
         such Grantor are located at the address specified therefor in Schedule
         III hereto, as such Schedule III may be amended from time to time
         pursuant to Section 13(a). Such Grantor's federal tax identification
         number is set forth opposite such Grantor's name in Schedule III
         hereto. All Security Collateral consisting of certificated securities
         and instruments have been delivered to the Administrative Agent. None
         of the Receivables is evidenced by a promissory note or other
         instrument that has not been delivered to the Administrative Agent.

                  (b)   Such Grantor is the legal and beneficial owner of the
         Collateral of such Grantor free and clear of any Lien, claim, option or
         right of others, except for the Liens created under the Collateral
         Documents or permitted under the Credit Agreement. No effective
         financing statement or other instrument similar in effect covering all
         or any part of such Collateral or listing such Grantor or any trade
         name of such Grantor as debtor is on file in any recording office,
         except such as may have been filed in favor of the Administrative Agent
         relating to the Loan Documents or as otherwise permitted under the
         Credit Agreement. Such Grantor has the trade names listed on Schedule
         IV hereto.

                  (c)   Such Grantor has exclusive possession and control of the
         Equipment and Inventory other than (i) Off-Site Goods and (ii)
         Inventory stored at any leased premises or







                               Security Agreement

<PAGE>   212

                                       13



         warehouse, (A) for which no landlord's or warehouseman's agreement is
         in place; provided that not more than 15% of the aggregate Inventory
         owned by the Grantors may be located at such locations at any time or
         (B) for which a landlord's or warehouseman's agreement in form and
         substance satisfactory to the Administrative Agent, is in effect and
         which leased premises or warehouse is so indicated by an asterisk on
         Schedule II hereto, as such Schedule II may be amended from time to
         time pursuant to Section 11(a).

                  (d)   The Pledged Shares in any issuer that is a Loan Party or
         a Subsidiary of any of the Loan Parties pledged by such Grantor
         hereunder have been duly authorized and validly issued and are fully
         paid and non-assessable. The Pledged Debt issued by any Loan Party or
         Subsidiary of a Loan Party pledged by such Grantor hereunder has been
         duly authorized, authenticated or issued and delivered, is the legal,
         valid and binding obligation of the issuers thereof, is evidenced by
         one or more promissary notes (which notes have been delivered to the
         Administrative Agent) and is not in default.

                  (e)   The Initial Pledged Shares constitute the percentage of
         the issued and outstanding shares of stock of the issuers thereof
         indicated on Schedule I hereto as of the Effective Date. The Initial
         Pledged Debt constitutes all of the outstanding indebtedness owed to
         such Grantor by the issuers thereof and is outstanding, as of the
         Effective Date, in the principal amount indicated on Schedule I hereto
         as of the Effective Date.

                  (f)   Such Grantor does not own any investment property as of
         the Effective Date other than such Grantor's Initial Pledged Shares,
         the Voting Equity Interests in its Foreign Subsidiaries not required to
         be pledged hereunder pursuant to the terms of Section 1 hereof and
         Initial Pledged Indebtedness.

                  (g)   Such Grantor has no lockbox accounts, deposit accounts
         or other accounts other than those listed on Schedule V hereto, as such
         Schedule V may be amended from time to time pursuant to Sections 5(c)
         and (e). Such Grantor has no Pledged Accounts or other deposit accounts
         other than the Pledged Accounts listed on Schedule V hereto, as such
         Schedule V may be amended from time to time pursuant to Section 5(c),
         and such Grantor has instructed all existing Obligors to make all
         payments to a Pledged Account. The average daily balance of all
         permitted unblocked accounts of such Grantor which, when aggregated
         with the average daily balance of all permitted unblocked accounts of
         the other Grantors, does not exceed $3,000,000.

                  (h)   Except as described in Section 4.01(n) of the Credit
         Agreement and except for those actions with respect to certain Mexican
         Collateral which Sections 4(a) and 5(a) of this Agreement provide may
         be taken on or prior to June 30, 2000, all filings and other actions
         necessary or desirable to perfect and protect the security interest in
         the Collateral of such Grantor created under this Agreement have been
         duly made or taken and are in full force and effect, and this Agreement
         creates in favor of the Administrative Agent for the benefit of the
         Secured Parties a valid and, together with such filings and other
         actions, perfected first priority security interest in the Collateral
         of such Grantor, securing the





                               Security Agreement

<PAGE>   213

                                       14



         payment of the Secured Obligations, except for (A) the filing of
         continuation statements under the Uniform Commercial Code, (B) the
         actions described in Section 4 with respect to Security Collateral,
         which actions have been taken and are in full force and effect, (C)
         actions necessary or desirable to perfect such security interest in any
         motor vehicles, and (D) as may be required in connection with the
         disposition of any portion of the Security Collateral by laws affecting
         the offering and sale of securities generally; provided however that no
         such recordation need be made with respect to any Encumbered
         Trademarks.

                  (i)   The Inventory that has been produced or distributed by
         such Grantor has been produced in compliance with all requirements of
         applicable law, including, without limitation, the Fair Labor Standards
         Act, except where such non-compliance is not reasonable likely to have
         a Material Adverse Effect.


                  (j)   As to itself and its Intellectual Property Collateral:

                           (i)    The rights of such Grantor in or to the
                  Intellectual Property Collateral do not conflict with,
                  misappropriate or infringe upon the intellectual property
                  rights of any third party, and no claim has been asserted that
                  the use of such Intellectual Property Collateral does or may
                  infringe upon the intellectual property rights of any third
                  party, except for such conflict, misappropriation or
                  infringement, or assertion of any such claim which,
                  individually or in the aggregate, is not reasonably likely to
                  have a Material Adverse Effect.

                           (ii)    Such Grantor is the exclusive owner of the
                  entire and unencumbered right, title and interest in and to
                  the Intellectual Property Collateral and/or is entitled to use
                  all such Intellectual Property Collateral without limitation,
                  subject only to the license terms of the Licenses.

                           (iii)   The Intellectual Property Collateral set
                  forth on Schedule IV hereto includes all of the patents,
                  patent applications, trademark registrations and applications,
                  copyright registrations and applications and Licenses owned by
                  such Grantor.

                           (iv)    Except for those items identified on Schedule
                  II as constituting Permitted Abandoned IP, the Intellectual
                  Property Collateral is subsisting and has not been adjudged
                  invalid or unenforceable in whole or part, and to the best of
                  such Grantor=s knowledge, is valid and enforceable. Such
                  Grantor is not aware of any uses of any item of Intellectual
                  Property Collateral that could be expected to lead to such
                  item becoming invalid or unenforceable except where the
                  invalidity or unenforceability of such item is not reasonably
                  likely to cause a Material Adverse Effect.




                               Security Agreement

<PAGE>   214

                                       15



                           (v)    Such Grantor has used proper statutory notice
                  in connection with its use of each patent, trademark and
                  copyright of the Intellectual Property Collateral.


                  Section 10. Further Assurances. (a) Each Grantor agrees that
from time to time, at the expense of such Grantor, such Grantor will, subject to
the terms of the Credit Agreement, including, without limitation, Section 5.01,
promptly execute and deliver all further instruments and documents, and take all
further action, that may be necessary or desirable, or that the Administrative
Agent may reasonably request, in order to perfect and protect any pledge,
assignment or security interest granted or purported to be granted by such
Grantor hereunder or to enable the Administrative Agent to exercise and enforce
its rights and remedies hereunder with respect to any Collateral of such
Grantor. Without limiting the generality of the foregoing, each Grantor will
promptly with respect to Collateral of such Grantor: (i) mark conspicuously each
document included in Inventory, each chattel paper included in Receivables, each
Related Contract and, at the request of the Administrative Agent, each of its
records pertaining to such Collateral with a legend, in form and substance
satisfactory to the Administrative Agent, indicating that such document, chattel
paper, Related Contract or Collateral is subject to the security interest
granted hereby; (ii) if any such Collateral shall be evidenced by a promissory
note or other instrument or chattel paper, deliver and pledge to the
Administrative Agent hereunder such note or instrument or chattel paper duly
indorsed and accompanied by duly executed instruments of transfer or assignment,
all in form and substance satisfactory to the Administrative Agent; (iii)
execute and file such financing or continuation statements, or amendments
thereto, and such other instruments or notices, as may be necessary or
desirable, or as the Administrative Agent may request, in order to perfect and
preserve the security interest granted or purported to be granted by such
Grantor hereunder; (iv) deliver and pledge to the Administrative Agent for
benefit of the Secured Parties certificates representing Security Collateral
that constitutes certificated securities, accompanied by undated stock or bond
powers executed in blank; and (v) deliver to the Administrative Agent evidence
that all other action that the Administrative Agent may deem reasonably
necessary or desirable in order to perfect and protect the security interest
created by such Grantor under this Agreement has been taken.

                  (b)   Each Grantor hereby authorizes the Administrative Agent
to file one or more financing or continuation statements, and amendments
thereto, relating to all or any part of the Collateral of such Grantor without
the signature of such Grantor where permitted by law. A photocopy or other
reproduction of this Agreement or any financing statement covering the
Collateral or any part thereof shall be sufficient as a financing statement
where permitted by law.

                  (c)   Each Grantor will furnish to the Administrative Agent
from time to time statements and schedules further identifying and describing
the Collateral of such Grantor and such other reports in connection with such
Collateral as the Administrative Agent may reasonably request, all in reasonable
detail.

                  Section 11. As to Equipment and Inventory. (a) Each Grantor
will keep the Equipment and Inventory of such Grantor (other than (i) Off-Site
Goods and (ii) Equipment and




                               Security Agreement

<PAGE>   215

                                       16




Inventory sold as specifically allowed under Section 5.02(f) of the Credit
Agreement) at the places therefor specified in Section 9(a) or, upon 30 days'
prior written notice to the Administrative Agent, at such other places in a
jurisdiction where all action required by Section 10 shall have been taken with
respect to such Equipment and Inventory (and, upon the taking of such action in
such jurisdiction, Schedule III hereto shall be automatically amended to include
such other places).

                  (b)   Each Grantor will cause the Equipment of such Grantor to
be maintained and preserved in the same condition, repair and working order as
in effect on the date hereof, ordinary wear and tear and casualty and
condemnation excepted, and in accordance with any manufacturer's manual, and
will forthwith, or in the case of any material loss or damage to any of such
Equipment as soon as practicable after the occurrence thereof, make or cause to
be made all repairs, replacements and other improvements in connection therewith
that are reasonably necessary or desirable to such end.

                  (c)   Each Grantor will pay promptly when due all property and
other taxes, assessments and governmental charges or levies imposed upon, and
all claims (including, without limitation, claims for labor, materials and
supplies) against, the Equipment and Inventory of such Grantor, except to the
extent payment thereof is not required by Section 5.01(b) of the Credit
Agreement. In producing its Inventory, each Grantor will comply with all
requirements of applicable law, including, without limitation, the Fair Labor
Standards Act, except where such non-compliance is not reasonably likely to have
a Material Adverse Effect.

                  Section 12. Insurance. (a) Each Grantor will, at its own
expense, maintain insurance with respect to the Equipment and Inventory of such
Grantor in such amounts, against such risks, in such form and with responsible
and reputable insurance companies or associations as is usually carried by
companies engaged in similar businesses and owning similar properties in the
same general areas in which such Grantor operates. Each policy of each Grantor
for liability insurance shall provide for all losses to be paid on behalf of the
Administrative Agent and such Grantor as their interests may appear, and each
policy for property damage insurance shall provide for all losses (except for
losses of less than $5,000,000 per occurrence) to be paid directly to the
Administrative Agent. Each such policy shall in addition (i) name such Grantor
and the Administrative Agent as insured parties thereunder (without any
representation or warranty by or obligation upon the Administrative Agent) as
their interests may appear, (ii) contain the agreement by the insurer that any
loss thereunder shall be payable to the Administrative Agent notwithstanding any
action, inaction or breach of representation or warranty by such Grantor, (iii)
provide that there shall be no recourse against the Administrative Agent for
payment of premiums or other amounts with respect thereto and (iv) provide that
at least 10 days' prior written notice of cancellation or of lapse shall be
given to the Administrative Agent by the insurer. Each Grantor will, if so
requested by the Administrative Agent, deliver to the Administrative Agent
original or duplicate policies of such insurance and, as often as the
Administrative Agent may reasonably request, a report of a reputable insurance
broker with respect to such insurance. Further, each Grantor will, at the
request of the Administrative Agent,





                               Security Agreement
<PAGE>   216
                                       17


duly execute and deliver instruments of assignment of such insurance policies to
comply with the requirements of Section 10 and cause the insurers to acknowledge
notice of such assignment.

                  (b) Reimbursement under any liability insurance maintained by
any Grantor pursuant to this Section 12 may be paid directly to the Person who
shall have incurred liability covered by such insurance. In case of any loss
involving damage to Equipment or Inventory when subsection (c) of this Section
12 is not applicable, the applicable Grantor will make or cause to be made the
necessary repairs to or replacements of such Equipment or Inventory, and any
proceeds of insurance properly received by or released to such Grantor shall be
used by such Grantor, except as otherwise required hereunder or by the Credit
Agreement, to pay or as reimbursement for the costs of such repairs or
replacements.

                  (c) So long as no Default under Section 6.01(a) or (f) of the
Credit Agreement or any Event of Default shall have occurred and be continuing,
all insurance payments received by the Administrative Agent in connection with
any loss, damage or destruction of any Inventory or Equipment will be released
by the Administrative Agent to the applicable Grantor for the repair,
replacement or restoration thereof, subject to such terms and conditions with
respect to the release thereof as the Administrative Agent may reasonably
require. To the extent that (i) the amount of any such insurance payments
exceeds the cost of any such repair, replacement or restoration, or (ii) such
insurance payments are not otherwise required by the applicable Grantor to
complete any such repair, replacement or restoration required hereunder, the
Administrative Agent will not be required to release the amount thereof to such
Grantor and may hold or continue to hold such amount in the Collateral Account
as additional security for the Secured Obligations of such Grantor (except that
the Administrative Agent will release to such Grantor any such amount if and to
the extent that any prepayment of Obligations is required under the Credit
Agreement in connection with the receipt of such amount and such prepayment has
been made). Upon the occurrence and during the continuance of any Default under
Section 6.01(a) or (f) of the Credit Agreement or any Event of Default or the
actual or constructive total loss (in excess of $5,000,0000 per occurrence) of
any Equipment or Inventory, all insurance payments in respect of such Equipment
or Inventory shall be paid to the Administrative Agent and shall, in the
Administrative Agent's sole discretion, (i) be released to the applicable
Grantor to be applied as set forth in the first sentence of this subsection (c)
or (ii) be held as additional Collateral hereunder or applied as specified in
Section 20(b).

                  Section 13. Place of Perfection; Records; Collection of
Receivables. (a) Each Grantor will keep its chief executive office and all
originals of all chattel paper that evidence Receivables of such Grantor, at the
location therefor specified in Section 9(a) or, upon 30 days= prior written
notice to the Administrative Agent, at such other location in a jurisdiction
where all actions required by Section 10 shall have been taken with respect to
the Collateral of such Grantor (and, upon the taking of such action in such
jurisdiction, Schedule IV hereto shall be automatically amended to include such
other location). Each Grantor will hold and preserve, subject to its ordinary
course document retention policy, its records relating to the Collateral, the
Related Contracts and chattel paper and will permit representatives of the
Administrative Agent, at any reasonable time during normal business hours (and
if no Event of Default has occurred


                               Security Agreement


<PAGE>   217



                                       18


and is continuing, upon reasonable notice), to inspect and make abstracts from
such records and other documents.

                  (b) Except as otherwise provided in this subsection (b), each
Grantor will continue to collect, at its own expense, all amounts due or to
become due such Grantor under the Receivables and the Related Contracts. In
connection with such collections, such Grantor may take (and, at the
Administrative Agent's direction, will take) such action as such Grantor or the
Administrative Agent may deem necessary or advisable to enforce collection of
the Receivables and the Related Contracts; provided, however, that the
Administrative Agent shall have the right at any time, upon the occurrence and
during the continuance of a Default under Section 6.01(a) or (f) of the Credit
Agreement or any Event of Default and upon written notice to such Grantor of its
intention to do so, to notify the Obligors under any Receivables or Related
Contracts of the assignment of such Receivables or Related Contracts to the
Administrative Agent and to direct such Obligors to make payment of all amounts
due or to become due to such Grantor thereunder directly to the Administrative
Agent and, upon such notification and at the expense of such Grantor, to enforce
collection of any such Receivables or Related Contracts, and to adjust, settle
or compromise the amount or payment thereof, in the same manner and to the same
extent as such Grantor might have done. After receipt by any Grantor of the
notice from the Administrative Agent referred to in the proviso to the preceding
sentence, (i) all amounts and proceeds (including instruments) received by such
Grantor in respect of the Receivables and the Related Contracts of such Grantor
shall be received in trust for the benefit of the Administrative Agent
hereunder, shall be segregated from other funds of such Grantor and shall be
forthwith paid over to the Administrative Agent in the same form as so received
(with any necessary indorsement) to be deposited in the Collateral Account and
either (A) released to such Grantor on the terms set forth in Section 8 so long
as no Default under Section 6.01(a) or (f) of the Credit Agreement or any Event
of Default shall have occurred and be continuing or (B) if any Default under
Section 6.01(a) or (f) of the Credit Agreement or any Event of Default shall
have occurred and be continuing, applied as provided in Section 20(b) and (ii)
such Grantor will not adjust, settle or compromise the amount or payment of any
Receivable, release wholly or partly any Obligor thereof, or allow any credit or
discount thereon. No Grantor will permit or consent to the subordination of its
right to payment under any of the Receivables or the Related Contracts to any
other indebtedness or obligations of the Obligor thereof.

                  SECTION 14. As to Intellectual Property Collateral. (a) With
respect to each item of its Intellectual Property Collateral other than
Permitted Abandoned IP (as defined below), each Grantor agrees to take, at its
expense, all necessary steps, including, without limitation, in the U.S. Patent
and Trademark Office, the U.S. Copyright Office and any other governmental
authority, to (i) maintain the validity and enforceability of each such item of
Intellectual Property Collateral and maintain each such item of Intellectual
Property Collateral in full force and effect, and (ii) pursue the registration
and maintenance of each patent, trademark, or copyright registration or
application, now or hereafter included in the Intellectual Property Collateral
of such Grantor, including, without limitation, the payment of required fees and
taxes, the filing of responses to office actions issued by the U.S. Patent and
Trademark Office, the U.S. Copyright Office or other governmental authorities,
the filing of applications for renewal or extension, the




                               Security Agreement


<PAGE>   218




                                       19


filing of affidavits under Sections 8 and 15 of the U.S. Trademark Act, the
filing of divisional, continuation, continuation-in-part, reissue and renewal
applications or extensions, the payment of maintenance fees and the
participation in interference, reexamination, opposition, cancellation,
infringement and misappropriation proceedings. No Grantor shall, without the
written consent of the Administrative Agent, discontinue use of or otherwise
abandon any Intellectual Property Collateral, or abandon any right to file an
application for letters patent, trademark, or copyright, unless such Grantor
shall have previously determined that such use or the pursuit or maintenance of
such Intellectual Property Collateral is no longer desirable in the conduct of
such Grantor's business and that the loss thereof would not be reasonably likely
to have a Material Adverse Effect (such Intellectual Property Collateral being
the "PERMITTED ABANDONED IP"), in which case, such Grantor will give prompt
notice of any such abandonment to the Administrative Agent.

                  (b) Each Grantor agrees promptly to notify the Administrative
Agent if such Grantor learns (i) that any item of the Intellectual Property
Collateral (other than Permitted Abandoned IP) may have become abandoned, placed
in the public domain, invalid or unenforceable, or of any adverse determination
or development regarding such Grantor's ownership of any of the Intellectual
Property Collateral (other than Permitted Abandoned IP) or its right to register
the same or to keep and maintain and enforce the same, or (ii) of any adverse
determination or the institution of any proceeding (including, without
limitation, the institution of any proceeding in the U.S. Patent and Trademark
Office or any court) regarding any item of the Intellectual Property Collateral
(other than Permitted Abandoned IP) except if such adverse determination or the
institution of such a proceeding is not reasonably likely to have a Material
Adverse Effect.

                  (c) In the event that any Grantor becomes aware that any item
of the Intellectual Property Collateral, which Intellectual Property Collateral
is of material value to the Domestic Borrower and its Subsidiaries taken as a
whole, is being infringed or misappropriated by a third party, such Grantor
shall promptly notify the Administrative Agent and shall take such actions, at
its expense, as such Grantor or the Administrative Agent deems reasonable and
appropriate under the circumstances to protect such Intellectual Property
Collateral, including, without limitation, suing for infringement or
misappropriation and for an injunction against such infringement or
misappropriation.

                  (d) Each Grantor shall use proper statutory notice in
connection with its use of each item of its Intellectual Property Collateral,
which Intellectual Property Collateral is of material value to the Domestic
Borrower and its Subsidiaries taken as a whole. No Grantor shall do or permit
any act or knowingly omit to do any act whereby any of its Intellectual Property
Collateral, which Intellectual Property Collateral is of material value to the
Domestic Borrower and its Subsidiaries taken as a whole, may lapse or become
invalid or unenforceable or placed in the public domain.

                  (e) Each Grantor shall take all steps which it or the
Administrative Agent deems reasonable and appropriate under the circumstances to
preserve and protect each item of



                               Security Agreement

<PAGE>   219



                                       20


its Intellectual Property Collateral (other than Permitted Abandoned IP),
including, without limitation, maintaining the quality of any and all products
or services used or provided in connection with any of the Trademarks,
consistent with the quality of the products and services as of the date hereof,
and taking all steps necessary to ensure that all licensed users of any of the
Trademarks use such consistent standards of quality.

                  (f) With respect to its Intellectual Property Collateral, each
of the Grantors listed on the signature pages of this Agreement has executed an
agreement in substantially the form of Exhibit C to the Existing Security
Agreement, and each other Grantor hereby agrees to execute an agreement, in
substantially the form set forth in Exhibit C hereto (each an "INTELLECTUAL
PROPERTY SECURITY AGREEMENT"), for recording the security interest granted
hereunder to the Administrative Agent in such Intellectual Property Collateral
with the U.S. Patent and Trademark Office, the U.S. Copyright Office and any
other governmental authorities necessary to perfect the security interest
hereunder in such Intellectual Property Collateral.

                  (g) Each Grantor agrees that, should it obtain an ownership
interest in any item of the type set forth in Section 1(f) which is not on the
date hereof a part of the Intellectual Property Collateral (the "AFTER-ACQUIRED
INTELLECTUAL PROPERTY"), (i) the provisions of Section 1 shall automatically
apply thereto, (ii) any such After-Acquired Intellectual Property and, in the
case of trademarks, the goodwill of the business connected therewith or
symbolized thereby, shall automatically become part of the Intellectual Property
Collateral subject to the terms and conditions of this Agreement with respect
thereto, (iii) such Grantor shall give prompt written notice thereof to the
Administrative Agent in accordance herewith and (iv) such Grantor shall execute
and deliver to the Administrative Agent a supplement to this Agreement, each
such supplement being in the form of Exhibit D hereto (an "IP SECURITY AGREEMENT
SUPPLEMENT") covering such After-Acquired Intellectual Property as "Additional
Collateral" thereunder and as defined therein, and shall record such IP Security
Agreement Supplement with the U.S. Patent and Trademark Office, the U.S.
Copyright Office and any other governmental authorities necessary to perfect the
security interest hereunder in such After-Acquired Intellectual Property.

                  Section 15. Voting Rights; Dividends; Etc. (a) So long as no
Default under Section 6.01(a) or (f) of the Credit Agreement or Event of Default
shall have occurred and be continuing:

                  (i) Each Grantor shall be entitled to exercise any and all
         voting and other consensual rights pertaining to the Security
         Collateral of such Grantor or any part thereof for any purpose other
         than to originate entitlement orders with respect to the securities
         accounts or the commodity accounts; provided however, that such Grantor
         will not exercise or refrain from exercising any such right if such
         action would have a material adverse effect on the value of the
         Security Collateral.

                  (ii) Each Grantor shall be entitled to receive and retain any
         and all dividends, interest and other distributions paid in respect of
         the Security Collateral of such Grantor if



                               Security Agreement



<PAGE>   220



                                       21


         and to the extent that the payment thereof is not otherwise prohibited
         by the terms of the Loan Documents; provided, however, that any and all

                           (A) dividends, interest and other distributions paid
                  or payable other than in cash in respect of, and instruments
                  and other property received, receivable or otherwise
                  distributed in respect of, or in exchange for, any Security
                  Collateral,

                           (B) dividends and other distributions paid or payable
                  in cash in respect of any Security Collateral in connection
                  with a partial or total liquidation or dissolution or in
                  connection with a reduction of capital, capital surplus or
                  paid-in-surplus and

                           (C) cash paid, payable or otherwise distributed in
                  respect of principal of, or in redemption of, or in exchange
                  for, any Security Collateral

         shall be, and shall be forthwith delivered to the Administrative Agent
         to hold as, Security Collateral and shall, if received by such Grantor,
         be received in trust for the benefit of the Administrative Agent, be
         segregated from the other property or funds of such Grantor and be
         forthwith delivered to the Administrative Agent as Security Collateral
         in the same form as so received (with any necessary indorsement).

                  (iii) The Administrative Agent will execute and deliver (or
         cause to be executed and delivered) to each Grantor all such proxies
         and other instruments as such Grantor may reasonably request for the
         purpose of enabling such Grantor to exercise the voting and other
         rights that it is entitled to exercise pursuant to paragraph (i) above
         and to receive the dividends or interest payments that it is authorized
         to receive and retain pursuant to paragraph (ii) above.

                  (b) Upon the occurrence and during the continuance of a
Default under Section 6.01(a) or (f) of the Credit Agreement or an Event of
Default:

                  (i) All rights of each Grantor (x) to exercise or refrain from
         exercising the voting and other consensual rights that it would
         otherwise be entitled to exercise pursuant to Section 15(a)(i) shall,
         upon notice to such Grantor by the Administrative Agent, cease and (y)
         to receive the dividends, interest and other distributions that it
         would otherwise be authorized to receive and retain pursuant to Section
         15(a)(ii) shall automatically cease, and all such rights shall
         thereupon become vested in the Administrative Agent, which shall
         thereupon have the sole right to exercise or refrain from exercising
         such voting and other consensual rights and to receive and hold as
         Security Collateral such dividends, interest and other distributions.

                  (ii) All dividends, interest and other distributions that are
         received by any Grantor contrary to the provisions of paragraph (i) of
         this Section 15(b) shall be received in trust for the benefit of the
         Administrative Agent, shall be segregated from other funds



                               Security Agreement


<PAGE>   221



                                       22


         of such Grantor and shall be forthwith paid over to the Administrative
         Agent as Security Collateral in the same form as so received (with any
         necessary indorsement).

                  (iii) The Administrative Agent shall be authorized to send to
         each Securities Intermediary or Commodity Intermediary as defined in
         and under any Control Agreement a Notice of Exclusive Control as
         defined in and under such Control Agreement.

                  Section 16. Transfers and Other Liens; Additional Shares. (a)
Each Grantor agrees that it will not (i) sell, assign or otherwise dispose of,
or grant any option with respect to, any of the Collateral, other than sales,
assignments and other dispositions of Collateral, and options relating to
Collateral, permitted under the terms of the Credit Agreement, or (ii) create or
suffer to exist any Lien upon or with respect to any of the Collateral of such
Grantor except for the pledge, assignment and security interest created under
this Agreement and Liens permitted under the Credit Agreement.

                  (b) Each Grantor agrees that it (i) shall cause each issuer of
the Pledged Shares that is a Subsidiary of such Grantor not to issue any stock
or other securities in addition to or in substitution for the Pledged Shares
issued by such issuer, except (A) to such Grantor or one or more of the other
Grantors or (B) or the issuance of any such Equity Interests that is expressly
permitted under 5.02(h) of the Credit Agreement, and (ii) shall pledge
hereunder, immediately upon its acquisition (directly or indirectly) thereof,
any and all additional shares of stock or other securities; provided, that none
of the Grantors shall be required to pledge any Equity Interest in any Foreign
Corporation owned or otherwise held thereby which, when aggregated with all of
the other Equity Interests in such Foreign Corporation pledged by such Grantor
and the other Grantors, would result in more than 66% of the Voting Equity
Interests being pledged to the Administrative Agent, on behalf of the Secured
Parties, under this Agreement and the other Collateral Documents (although all
of the Non-Voting Equity Interests shall be pledged by each of the Grantors that
owns or otherwise holds any such Non-Voting Equity Interest therein); provided,
however, that, if, as a result of any change in the tax laws of the United
States of America after the date of this Agreement, the pledge by such Grantor
of any additional Equity Interests in any such Foreign Corporation to the
Administrative Agent, on behalf of the Secured Parties, under this Agreement or
any of the other Collateral Documents would not result in an increase in the
current or future aggregate net consolidated tax liabilities of the Domestic
Borrower and its Subsidiaries, then, promptly after the change in such laws, all
such additional Equity Interests shall be so pledged under this Agreement or
such other Collateral Document, as applicable.

                  Section 17. Administrative Agent Appointed Attorney-in-Fact.
Each Grantor hereby irrevocably appoints the Administrative Agent such Grantor's
attorney-in-fact, with full authority in the place and stead of such Grantor and
in the name of such Grantor or otherwise, from time to time during the
continuation of a Default under Section 6.01(a) or (f) of the Credit Agreement
or any Event of Default in the Administrative Agent's discretion, to take any
action and to execute any instrument that the Administrative Agent may deem
necessary or advisable to accomplish the purposes of this Agreement, including,
without limitation:



                               Security Agreement


<PAGE>   222



                                       23


                  (a) to obtain and adjust insurance required to be paid to the
         Administrative Agent pursuant to Section 12,

                  (b) to ask for, demand, collect, sue for, recover, compromise,
         receive and give acquittance and receipts for moneys due and to become
         due under or in respect of any of the Collateral,

                  (c) to receive, indorse and collect any drafts or other
         instruments, documents and chattel paper, in connection with clause (a)
         or (b) above, and

                  (d) to file any claims or take any action or institute any
         proceedings that the Administrative Agent may deem necessary or
         desirable for the collection of any of the Collateral or otherwise to
         enforce compliance with the terms and conditions of any Assigned
         Agreement or the rights of the Administrative Agent with respect to any
         of the Collateral.

                  Section 18. Administrative Agent May Perform. If any Grantor
fails to perform any agreement contained herein, the Administrative Agent may,
but without any obligation to do so and without notice, itself perform, or cause
performance of, such agreement, and the expenses of the Administrative Agent
incurred in connection therewith shall be payable by such Grantor under Section
21(b).

                  Section 19. The Administrative Agent's Duties. (a) The powers
conferred on the Administrative Agent hereunder are solely to protect the
Secured Parties= interest in the Collateral and shall not impose any duty upon
it to exercise any such powers. Except for the safe custody of any Collateral in
its possession and the accounting for moneys actually received by it hereunder,
the Administrative Agent shall have no duty as to any Collateral, as to
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Collateral, whether or not
any Secured Party has or is deemed to have knowledge of such matters, or as to
the taking of any necessary steps to preserve rights against any parties or any
other rights pertaining to any Collateral. The Administrative Agent shall be
deemed to have exercised reasonable care in the custody and preservation of any
Collateral in its possession if such Collateral is accorded treatment
substantially equal to that which it accords its own property.

                  (b) Anything contained herein to the contrary notwithstanding,
the Administrative Agent may from time to time, when the Administrative Agent
deems it to be necessary, appoint one or more subagents (each a "SUBAGENT") for
the Administrative Agent hereunder with respect to all or any part of the
Collateral. In the event that the Administrative Agent so appoints any Subagent
with respect to any Collateral, (i) the assignment and pledge of such Collateral
and the security interest granted in such Collateral by each Grantor hereunder
shall be deemed for purposes of this Security Agreement to have been made to
such Subagent, in addition to the Administrative Agent, for the ratable benefit
of the Secured Parties, as security for



                               Security Agreement


<PAGE>   223



                                       24


the Secured Obligations of such Grantor, (ii) such Subagent shall automatically
be vested, in addition to the Administrative Agent, with all rights, powers,
privileges, interests and remedies of the Administrative Agent hereunder with
respect to such Collateral, and (iii) the term "Administrative Agent," when used
herein in relation to any rights, powers, privileges, interests and remedies of
the Administrative Agent with respect to such Collateral, shall include such
Subagent; provided, however, that no such Subagent shall be authorized to take
any action with respect to any such Collateral unless and except to the extent
expressly authorized in writing by the Administrative Agent.

                  Section 20. Remedies. If any Event of Default shall have
         occurred and be continuing:

                  (a) The Administrative Agent may exercise in respect of the
         Collateral, in addition to other rights and remedies provided for
         herein or otherwise available to it, all the rights and remedies of a
         secured party upon default under the N.Y. Uniform Commercial Code
         (whether or not the N.Y. Uniform Commercial Code applies to the
         affected Collateral) and also may: (i) require each Grantor to, and
         each Grantor hereby agrees that it will at its expense and upon request
         of the Administrative Agent forthwith, assemble all or part of the
         Collateral as directed by the Administrative Agent and make it
         available to the Administrative Agent at a place and time to be
         designated by the Administrative Agent that is reasonably convenient to
         both parties; (ii) without notice except as specified below, sell the
         Collateral or any part thereof in one or more parcels at public or
         private sale, at any of the Administrative Agent's offices or
         elsewhere, for cash, on credit or for future delivery, and upon such
         other terms as the Administrative Agent may deem commercially
         reasonable; (iii) occupy any premises owned or leased by any of the
         Grantors where the Collateral or any part thereof is assembled or
         located for a reasonable period in order to effectuate its rights and
         remedies hereunder or under law, without obligation to such Grantor in
         respect of such occupation; and (iv) exercise any and all rights and
         remedies of any of the Grantors under or in connection with the
         Receivables and the Related Contracts or otherwise in respect of the
         Collateral, including, without limitation, any and all rights of such
         Grantor to demand or otherwise require payment of any amount under, or
         performance of any provision of, the Receivables and the Related
         Contracts. Each Grantor agrees that, to the extent notice of sale shall
         be required by law, at least ten days= notice to such Grantor of the
         time and place of any public sale or the time after which any private
         sale is to be made shall constitute reasonable notification. The
         Administrative Agent shall not be obligated to make any sale of
         Collateral regardless of notice of sale having been given. The
         Administrative Agent may adjourn any public or private sale from time
         to time by announcement at the time and place fixed therefor, and such
         sale may, without further notice, be made at the time and place to
         which it was so adjourned.

                  (b) Any cash held by or on behalf of the Administrative Agent
         and all cash proceeds received by or on behalf of the Administrative
         Agent in respect of any sale of, collection from, or other realization
         upon all or any part of the Collateral may, in the




                               Security Agreement

<PAGE>   224



                                       25


         discretion of the Administrative Agent, be held by the Administrative
         Agent as collateral for, and/or then or at any time thereafter applied
         (after payment of any amounts payable to the Administrative Agent
         pursuant to Section 21) in whole or in part by the Administrative Agent
         for the ratable benefit of the Secured Parties against, all or any part
         of the Secured Obligations, in the following manner:

                           (i) first, to the Agents for any amounts owing to the
                  Agents pursuant to Section 8.04 of the Credit Agreement or
                  otherwise under the Loan Documents, ratably in accordance with
                  such respective amounts then owing to the Agents;

                           (ii) second, deposited as Collateral in the L/C
                  Collateral Account up to an amount equal to 100% of the
                  aggregate Available Amount of all outstanding Letters of
                  Credit, provided that in the event that any such Letter of
                  Credit is drawn, the Administrative Agent shall pay to the
                  Issuing Bank that issued such Letter of Credit the amount held
                  in the L/C Collateral Account in respect of such Letter of
                  Credit, provided further that, to the extent that any such
                  Letter of Credit shall expire or terminate undrawn and as a
                  result thereof the amount of the Collateral in the L/C
                  Collateral Account shall exceed the aggregate Available Amount
                  of all then outstanding Letters of Credit, such excess amount
                  of such Collateral shall be applied in accordance with the
                  order of priority set out in this Section 20(b);

                           (iii) third, to the Issuing Bank and the Swing Line
                  Lenders for any amounts then owing to them, in their
                  capacities as such, under the Loan Documents ratably in
                  accordance with such respective amounts then owing to the
                  Issuing Bank and the Swing Line Lenders (including, without
                  limitation, the Dollar Equivalent of any amount due to any
                  Offshore Swing Line Lender in an Offshore Currency); and

                           (iv) fourth, to the Lender Parties and the Hedge
                  Banks, respectively, for any amount then owing to them, in
                  their capacities as such, under the Loan Documents ratably in
                  accordance with such respective amounts then owing to the
                  Lender Parties and the Hedge Banks, provided that for purposes
                  of this Section 20, the amount owing to any such Hedge Bank
                  pursuant to any Secured Hedge Agreement to which it is a party
                  (other than any amount theretofore accrued and unpaid) shall
                  be deemed to be equal to the Agreement Value therefor.

         Any surplus of such cash or cash proceeds held by or on the behalf of
         the Administrative Agent and remaining after payment in full of all the
         Secured Obligations shall be paid over to the applicable Grantor or to
         whomsoever may be lawfully entitled to receive such surplus.

                  (c) All payments received by any Grantor in respect of the
         Collateral shall be received in trust for the benefit of the
         Administrative Agent, shall be segregated from



                               Security Agreement


<PAGE>   225



                                       26


         other funds of such Grantor and shall be forthwith paid over to the
         Administrative Agent in the same form as so received (with any
         necessary indorsement).

                  (d) The Administrative Agent may, without notice to any
         Grantor except as required by law and at any time or from time to time,
         charge, set-off and otherwise apply all or any part of the Secured
         Obligations against any funds held in the Collateral Account or the L/C
         Collateral Account or in any deposit account related thereto.

                  (e) In the event of any sale or other disposition of any of
         the Intellectual Property Collateral of any Grantor, the goodwill of
         the business connected with and symbolized by any Trademarks subject to
         such sale or other disposition shall be included therein, and such
         Grantor shall supply to the Administrative Agent or its designee such
         Grantor's know-how and expertise, and documents and things relating to
         any Intellectual Property Collateral subject to such sale or other
         disposition, and such Grantor's customer lists and other records and
         documents relating to such Intellectual Property Collateral and to the
         manufacture, distribution, advertising and sale of products and
         services of such Grantor.

                  (f) If the Administrative Agent shall determine to exercise
         its right to sell all or any of the Security Collateral of any Grantor
         pursuant to this Section 20, each Grantor agrees that, upon request of
         the Administrative Agent, such Grantor will, at its own expense:

                           (i) cause each such issuer of such Security
                  Collateral to make available to its security holders, as soon
                  as practicable, an earnings statement and such other
                  information and projections as may be necessary or, in the
                  opinion of the Administrative Agent, advisable to enable the
                  Administrative Agent to effect the sale of such Security
                  Collateral; and

                           (ii) do or cause to be done all such other acts and
                  things as may be necessary to make such sale of such Security
                  Collateral or any part thereof valid and binding and in
                  compliance with applicable law.

                  (g) The Administrative Agent is authorized, in connection with
         any sale of the Security Collateral pursuant to this Section 20, to
         deliver or otherwise disclose to any prospective purchaser of the
         Security Collateral: (i) any information and projections provided to it
         pursuant to subsection (f)(i) above; and (ii) any other information in
         its possession relating to such Security Collateral.

                  (h) Each Grantor acknowledges the impossibility of
         ascertaining the amount of damages that would be suffered by the
         Secured Parties by reason of the failure by such Grantor to perform any
         of the covenants contained in subsection (f) above and, consequently,
         agrees that, if such Grantor shall fail to perform any of such
         covenants, it will pay, as liquidated damages and not as a penalty, an
         amount equal to the value of the




                               Security Agreement


<PAGE>   226



                                       27


         Security Collateral on the date the Administrative Agent shall demand
         compliance with subsection (f) above.

                  Section 21. Indemnity and Expenses. (a) Each Grantor agrees to
indemnify, defend and save and hold harmless each Secured Party and each of
their Affiliates and their respective officers, directors, employees, agents and
advisors (each, an "INDEMNIFIED PARTY") from and against, and shall pay on
demand, any and all claims, damages, losses, liabilities and expenses
(including, without limitation, reasonable fees and expenses of counsel) that
may be incurred by or asserted or awarded against any Indemnified Party, in each
case arising out of or in connection with or resulting from this Agreement
(including, without limitation, enforcement of this Agreement), except to the
extent such claim, damage, loss, liability or expense is found in a final,
non-appealable judgment by a court of competent jurisdiction to have resulted
from such Indemnified Party's bad faith, gross negligence or willful misconduct.

                  (b) Each Grantor will upon demand pay to the Administrative
Agent the amount of any and all reasonable expenses, including, without
limitation, the reasonable fees and expenses of its counsel and of any experts
and agents, that the Administrative Agent may incur in connection with (i) the
administration of this Agreement, (ii) the custody, preservation, use or
operation of, or the sale of, collection from or other realization upon, any of
the Collateral of such Grantor, (iii) the exercise or enforcement of any of the
rights of the Administrative Agent or the other Secured Parties hereunder or
(iv) the failure by such Grantor to perform or observe any of the provisions
hereof.

                  Section 22. Amendments; Waivers; Additional Grantors; Etc. (a)
No amendment or waiver of any provision of this Agreement, and no consent to any
departure by any Grantor herefrom, shall in any event be effective unless the
same shall be in writing and signed by the Administrative Agent, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given. No failure on the part of the Administrative
Agent or any other Secured Party to exercise, and no delay in exercising any
right hereunder, shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right preclude any other or further exercise
thereof or the exercise of any other right.

                  (b) Upon the execution and delivery by any Person of a
security agreement supplement in substantially the form of Exhibit A hereto
(each a "SECURITY AGREEMENT SUPPLEMENT"), (i) such Person shall be referred to
as an "ADDITIONAL GRANTOR" and shall be and become a Grantor hereunder and each
reference in this Agreement and the other Loan Documents to "Grantor" shall also
mean and be a reference to such Additional Grantor, and (ii) the supplemental
schedules I, II, III, IV and V attached to each Security Agreement Supplement
shall be incorporated into and become a part of and supplement Schedules I, II,
III, IV and V, respectively, hereto, and the Administrative Agent may attach
such supplemental schedules to such Schedules; and each reference to such
Schedules shall mean and be a reference to such Schedules as supplemented
pursuant to each Security Agreement Supplement.



                               Security Agreement



<PAGE>   227



                                       28



                  Section 23. Notices; Etc. All notices and other communications
provided for hereunder shall be in writing (including telegraphic, telecopier or
telex communication) and mailed, telegraphed, telecopied, telexed or delivered
to, in the case of the Domestic Borrower or the Administrative Agent, addressed
to it at its address specified in the Credit Agreement and, in the case of each
Grantor other than the Domestic Borrower, addressed to it at its address set
forth opposite such Grantor's name on the signature pages hereto or on the
signature page to the Security Agreement Supplement pursuant to which it became
a party hereto; or, as to any party, at such other address as shall be
designated by such party in a written notice to the other parties. All such
notices and other communications shall, when mailed, telegraphed, telecopied or
telexed, be effective when deposited in the mails, delivered to the telegraph
company, telecopied or confirmed by telex answerback, respectively, addressed as
aforesaid; except that notices and other communications to the Administrative
Agent shall not be effective until received by the Administrative Agent.
Delivery by telecopier of an executed counterpart of any amendment or waiver of
any provision of this Agreement or of any Security Agreement Supplement or
Schedule hereto shall be effective as delivery of an original executed
counterpart thereof.

                  Section 24. Continuing Security Interest; Assignments Under
the Credit Agreement. This Agreement shall create a continuing security interest
in the Collateral and shall (a) remain in full force and effect until the latest
of (i) the payment in full in cash of the Secured Obligations, (ii) the
Termination Date and (iii) the termination or expiration of all Letters of
Credit and all Secured Hedge Agreements, (b) be binding upon each Grantor, its
successors and assigns and (c) inure, together with the rights and remedies of
the Administrative Agent hereunder, to the benefit of the Secured Parties and
their respective successors, transferees and assigns. Without limiting the
generality of the foregoing clause (c), any Lender Party may assign or otherwise
transfer all or any portion of its rights and obligations under the Credit
Agreement (including, without limitation, all or any portion of its Commitments,
the Advances owing to it and the Note or Notes, if any, held by it) to any other
Person, and such other Person shall thereupon become vested with all the
benefits in respect thereof granted to such Lender Party herein or otherwise, in
each case as provided in Section 8.07 of the Credit Agreement.

                  Section 25. Release; Termination. (a) Upon any sale, lease,
transfer or other disposition of any item of Collateral of any Grantor in
accordance with the terms of the Loan Documents (other than sales of Inventory
in the ordinary course of business), including, without limitation, as
contemplated by Section 8.11 of the Credit Agreement, the Administrative Agent
will, at such Grantor's expense, execute and deliver to such Grantor such
documents as such Grantor shall reasonably request to evidence the release of
such item of Collateral from the assignment and security interest granted
hereby; provided, however, that (i) at the time of such request and such release
no Default shall have occurred and be continuing, (ii) such Grantor shall have
delivered to the Administrative Agent, at least ten Business Days prior to the
date of the proposed release, a written request for release describing the item
of Collateral and the terms of the sale, lease, transfer or other disposition in
reasonable detail, including, without limitation, the price thereof and any
expenses in connection therewith, together with a form of release for execution
by the Administrative Agent and a certificate of such Grantor to the effect that
the transaction is in compliance with the Loan Documents and as to such other
matters as the




                               Security Agreement



<PAGE>   228





                                       29



Administrative Agent may request and (iii) the proceeds of any
such sale, lease, transfer or other disposition required to be applied, or any
payment to be made in connection therewith, in accordance with Section 2.06 of
the Credit Agreement shall, to the extent so required, be paid or made to, or in
accordance with the instructions of, the Administrative Agent when and as
required under Section 2.06 of the Credit Agreement.

                  (b) Upon the latest of (i) the payment in full in cash of the
Secured Obligations, (ii) the Termination Date and (iii) the termination or
expiration of all Letters of Credit and all Secured Hedge Agreements, the
pledge, assignment and security interest granted hereby shall terminate and all
rights to the Collateral shall revert to the applicable Grantor. Upon any such
termination, the Administrative Agent will, at the applicable Grantor's expense,
execute and deliver to such Grantor such documents as such Grantor shall
reasonably request to evidence such termination.

                  Section 26. Execution in Counterparts. This Agreement may be
executed in any number of 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. Delivery of an executed counterpart of a signature page
to this Agreement by telecopier shall be effective as delivery of an original
executed counterpart of this Agreement.

                  Section 27. The Mortgages. In the event that any of the
Collateral hereunder is also subject to a valid and enforceable Lien under the
terms of any Mortgage and the terms of such Mortgage are inconsistent with the
terms of this Agreement, then with respect to such Collateral, the terms of such
Mortgage shall be controlling in the case of fixtures and real estate leases,
letting and licenses of, and contracts and agreements relating to the lease of,
real property, and the terms of this Agreement shall be controlling in the case
of all other Collateral.

                  Section 28. Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of New York.




                               Security Agreement



<PAGE>   229



                                       30


                  IN WITNESS WHEREOF, each Grantor has caused this Agreement to
be duly executed and delivered by its officer thereunto duly authorized as of
the date first above written.

                                       SOVEREIGN SPECIALTY CHEMICALS, INC.


                                       By
                                         ------------------------------------
                                         Title:


Address for Notices:                   SIA ADHESIVES, INC,
- -------------------
123 West Burtges Street
Akron, OH 44311
                                       By
                                         ------------------------------------
                                         Title:


Address for Notices:                   PIERCE & STEVENS CORP.
- -------------------
710 Ohio Street
Buffalo, NY 14203
                                       By
                                         ------------------------------------
                                         Title:


Address for Notices:                   OSI SEALANTS, INC.
- -------------------
7405 Production Drive
Mentor, OH 44060
                                       By
                                         ------------------------------------
                                         Title:


Address for Notices:                   TANNER CHEMICALS, INC.
- -------------------
9 Furman Hall Court
Greenville, SC 29602
                                       By
                                         ------------------------------------
                                         Title:



                               Security Agreement


<PAGE>   230





                                                                EXHIBIT A TO THE
                                                              SECURITY AGREEMENT



                      FORM OF SECURITY AGREEMENT SUPPLEMENT

                                         [Date of Security Agreement Supplement]

The Chase Manhattan Bank,
  as the Administrative Agent for the
  Secured Parties referred to in the
Credit Agreement referred to below

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

- ---------------------------------
   Attn:
         ------------------------


                       Sovereign Specialty Chemicals, Inc.

Ladies and Gentlemen:

                  Reference is made to (i) the Amended and Restated Credit
Agreement dated as of April 6, 2000 (as such agreement may be further amended
and restated, supplemented or otherwise modified from time to time, the "CREDIT
AGREEMENT"), among Sovereign Specialty Chemicals, Inc., a Delaware corporation,
as the Domestic Borrower, the Lender Parties party thereto, The Chase Manhattan
Bank, as administrative agent for the Lender Parties (together with any
successor administrative agent appointed pursuant to Article VII of the Credit
Agreement, the "ADMINISTRATIVE AGENT"), and (ii) the Amended and Restated
Security Agreement dated as of April 6, 2000 (as such agreement may be further
amended and restated, supplemented or otherwise modified from time to time, the
"SECURITY AGREEMENT"), made by the Grantors from time to time party thereto in
favor of the Administrative Agent for the Secured Parties. Terms defined in the
Credit Agreement or the Security Agreement and not otherwise defined herein are
used herein as defined in the Credit Agreement or the Security Agreement.

                  Section 1. Grant of Security. The undersigned hereby assigns
and pledges to the Administrative Agent for the ratable benefit of the Secured
Parties, and hereby grants to the Administrative Agent for the ratable benefit
of the Secured Parties, a security interest in, all of its right, title and
interest in and to all of the Collateral of the undersigned, whether now owned
or hereafter acquired by the undersigned, wherever located and whether now or
hereafter existing or arising, including, without limitation, the property and
assets of the undersigned set forth on the attached supplemental schedules to
the Schedules to the Security Agreement.




                               Security Agreement
<PAGE>   231
                                      A-2

                  Section 2. Security for Obligations. The pledge and assignment
of, and the grant of a security interest in, the Collateral by the undersigned
under this Security Agreement Supplement and the Security Agreement secures the
payment of all Obligations of the undersigned now or hereafter existing under or
in respect of the Loan Documents, whether direct or indirect, absolute or
contingent, and whether for principal, reimbursement obligations, interest,
premiums, penalties, fees, indemnifications, contract causes of action, costs,
expenses or otherwise.

                  Section 3. Supplements to Security Agreement Schedules. The
undersigned has attached hereto supplemental Schedules I, II, III, IV and V to
Schedules I, II, III, IV and V, respectively, to the Security Agreement, and the
undersigned hereby certifies, as of the date first above written, that such
supplemental schedules have been prepared by the undersigned in substantially
the form of the equivalent Schedules to the Security Agreement and are complete
and correct in all material respects.

                  Section 4. Representations and Warranties. The undersigned
hereby makes each representation and warranty set forth in Section 9 of the
Security Agreement (as supplemented by the attached supplemental schedules) to
the same extent as each other Grantor.

                  Section 5. Obligations Under the Security Agreement. The
undersigned hereby agrees, as of the date first above written, to be bound as a
Grantor by all of the terms and provisions of the Security Agreement to the same
extent as each of the other Grantors. The undersigned further agrees, as of the
date first above written, that each reference in the Security Agreement to an
"Additional Grantor" or a "Grantor" shall also mean and be a reference to the
undersigned.

                  Section 6. Governing Law. This Security Agreement Supplement
shall be governed by, and construed in accordance with, the laws of the State of
New York.

                                         Very truly yours,

                                         [NAME OF ADDITIONAL GRANTOR]


                                         By_______________________________
                                           Title:

                                           Address for notices:

                                           __________________________
                                           __________________________
                                           __________________________


                               Security Agreement
<PAGE>   232





                                                                EXHIBIT B TO THE
                                                              SECURITY AGREEMENT


                         FORM OF PLEDGED ACCOUNT LETTER



                                             ---------------, ----

[Name and address
of Pledged Account Bank]

                              [Name of the Grantor]

Gentlemen/women:

                  Reference is made to the [lockbox accounts] [and] deposit
accounts listed on Schedule I hereto (such deposit accounts being, collectively,
the "PLEDGED ACCOUNTS") maintained with you by                            (the
"GRANTOR"). Pursuant to the Amended and Restated Security Agreement dated as of
April 6, 2000 (as such agreement may be further amended and restated,
supplemented or otherwise modified from time to time, the "SECURITY AGREEMENT"),
the Grantor has granted to The Chase Manhattan Bank, as Administrative Agent
(the "ADMINISTRATIVE AGENT") for the Secured Parties referred to in the Amended
and Restated Credit Agreement dated as of April 6, 2000 (as such agreement may
be further amended and restated, supplemented or otherwise modified from time to
time, the "CREDIT AGREEMENT") with [Sovereign Specialty Chemicals, Inc.] [the
Grantor], a security interest in, and sole dominion and control of, certain
property of the Grantor, including, among other things, the following (the
"ACCOUNT COLLATERAL"): each Pledged Account, all funds held therein and all
certificates and instruments, if any, from time to time representing or
evidencing such Pledged Account, all interest, dividends, distributions, cash,
instruments and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the then
existing Account Collateral and all proceeds of any and all of the foregoing
Account Collateral. It is a condition to the continued maintenance of the
Pledged Accounts with you that you agree to this letter agreement.

                  By executing this letter agreement, you acknowledge notice of,
and consent to the grant of the security interest in, and the pledge and
assignment of, the Account Collateral to the Administrative Agent for the
benefit of the Secured Parties and you confirm to the Administrative Agent that
the description of the Pledged Accounts set forth on Schedule I hereto is
correct and that you have not received any notice of any other security interest
in, pledge or assignment of, or other claim (other than that of the Grantor) on,
any of the Pledged Accounts. Further, you hereby agree with the Administrative
Agent that:


                              Security Agreement
<PAGE>   233
                                      B-2

                  (a) Notwithstanding anything to the contrary in any other
         agreement relating to any Pledged Account, each Pledged Account is and
         will be subject to the security interest of the Secured Parties in the
         Pledged Accounts, will have the title set forth opposite the account
         number therefor on Schedule I hereto and will be subject to written
         instructions from an officer of the Administrative Agent as provided in
         this letter agreement.

                  (b) Unless and until the Administrative Agent shall deliver
         written notice to you (a "DIRECTION NOTICE") directing you to no longer
         permit the Grantor to withdraw funds from the Pledged Accounts (which
         notice shall be delivered only if an Event of Default has occurred and
         is continuing under the Credit Agreement), the Grantor is authorized by
         the Administrative Agent to withdraw funds credited to the Pledged
         Accounts. Upon delivery of a Direction Notice by the Administrative
         Agent to you and until the Direction of Notice is withdrawn in writing
         by the Administrative Agent, you shall no longer follow instructions
         from the Grantor or any person acting on the behalf of the Grantor with
         respect to the Pledged Accounts and shall instead take directions
         solely from the Administrative Agent (including instructions to
         withdraw and transfer funds from the Pledged Accounts).

                  (c) Beginning on the date of your receipt of a Direction
         Notice and notwithstanding anything herein or elsewhere to the
         contrary, the Administrative Agent, and not the Grantor, shall be
         irrevocably exclusively entitled to exercise any and all rights
         (including, without limitation, those specified in paragraph (b) above)
         in respect of or in connection with each Pledged Account, including,
         without limitation, the right to direct dispositions of the funds in
         each Pledged Account.

                  (d) All transfers referred to in paragraph (c) above shall be
         made by you irrespective of, and without deduction for, any
         counterclaim, defense, recoupment or set-off (except that you may set
         off (i) all amounts due to you in respect of your customary fees and
         expenses for the routine maintenance and operation of the applicable
         Pledged Account, and (ii) the face amount of any checks which have been
         credited to such Pledged Account but are subsequently returned unpaid
         because of uncollected or insufficient funds) and shall be final, and
         you will not seek to recover from the Administrative Agent for any
         reason any such payment once made.

                  (e) All service charges and fees with respect to any Pledged
         Account shall be payable by the Grantor, and deposited checks returned
         for any reason shall not be charged to the applicable Pledged Account
         (except to the extent of any credit previously effected with respect to
         such returned check).

                  You hereby represent and warrant that the person executing
this letter agreement on your behalf is duly authorized to do so.


                              Security Agreement

<PAGE>   234
                                      B-3


               You agree to give the Administrative Agent and the Grantor
prompt notice if any Pledged Account becomes subject to any writ, judgment,
warrant of attachment, execution or similar process.

                  No amendment or waiver of any provision of this letter
agreement, nor consent to any departures by you or the Grantor herefrom, shall
be effective unless the same shall be in writing as signed by you, the Grantor
and the Administrative Agent.

                  You shall not assign or transfer your rights or obligations
hereunder (other than to the Administrative Agent) without the prior written
consent of the Administrative Agent and the Grantor. Subject to the preceding
sentence, this Agreement shall be binding upon each of the parties hereto and
their respective successor and assigns, and shall inure to the benefit of the
Secured Parties and their successors, transferees and assigns. You may terminate
this letter agreement upon thirty days= prior written notice to the Grantor and
the Administrative Agent. Upon such termination you shall close the Pledged
Accounts and transfer all funds in the Pledged Accounts to an account as
instructed by the Administrative Agent at such time. After any such termination,
you shall nonetheless remain obligated promptly to transfer to such other
account as instructed by the Administrative Agent at such time all funds and
other property received in respect of the Pledged Accounts.

                  This letter agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which when
taken together shall constitute one and the same agreement. Delivery of an
executed counterpart of a signature page to this letter agreement by telecopier
shall be effective as delivery of an original executed counterpart of this
letter agreement.

                  Any notice, demand or other communication required or
permitted to be given hereunder shall be in writing and may be personally served
or sent by telecopier or by courier service or by United States mail and shall
be deemed to have been delivered when delivered in person or by courier service
or by telecopier or three (3) Business Days after deposit in the United States
mail (registered or certified, with postage prepaid and properly addressed). For
the purposes hereof, (i) the addresses of the parties hereto shall be as set
forth below each party's name below, or, as to each party, at such other address
as may be designated by such party in a written notice to the other party and
the Agent and (ii) the address of the Administrative Agent shall be The Chase
Manhattan Bank, as administrative agent, _________________________, Attention:
_________________, or at such other address as may be designated by the
Administrative Agent in a written notice to each of the parties hereto.




                               Security Agreement
<PAGE>   235

                                      B-4

                  Please indicate your acknowledgment of and agreement to the
provisions of this letter agreement by signing in the appropriate space provided
below and returning this letter agreement to ________________, _______________,
__________, ________ ______, Telecopier No.: (212) ___-____, Attention:
________________. If you elect to deliver this letter agreement by telecopier,
please arrange for the executed original to follow by next-day courier.

                  This letter agreement shall be governed by and construed in
accordance with the laws of the State of New York.





                                             Very truly yours,

                                             [NAME OF GRANTOR]


                                             By_________________________________
                                               Title:


                                             THE CHASE MANHATTAN BANK, as
                                             Administrative Agent


                                             By_________________________________
                                               Title:



Acknowledged and agreed to as of
the date first above written:

[NAME OF PLEDGED ACCOUNT BANK]


By_____________________________
  Title:


                               Security Agreement

<PAGE>   236





                                                               SCHEDULE I TO THE
                                                          PLEDGED ACCOUNT LETTER




ACCOUNT NAME              ACCOUNT NUMBER                     LOCKBOX NUMBER****
- ------------              --------------                     ------------------
































- ----------------------
**** As applicable.




                               Security Agreement
<PAGE>   237





                                                                EXHIBIT C TO THE
                                                              SECURITY AGREEMENT



                FORM OF INTELLECTUAL PROPERTY SECURITY AGREEMENT


                  This INTELLECTUAL PROPERTY SECURITY AGREEMENT (as amended,
amended and restated, supplemented or otherwise modified from time to time, the
"IP SECURITY AGREEMENT") dated as of _________ __, 200_ (this "AGREEMENT"), is
made by the Persons listed on the signature pages hereof (collectively, the
"GRANTORS") in favor of The Chase Manhattan Bank ("CHASE"), as Administrative
Agent (the "ADMINISTRATIVE AGENT") for the Secured Parties (as defined in the
Credit Agreement referred to below).

                  WHEREAS, Sovereign Specialty Chemicals, Inc., a Delaware
corporation, has entered into an Amended and Restated Credit Agreement dated as
of April 6, 2000 (as such agreement may be further amended and restated,
supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"),
with the Administrative Agent and the Lender Parties party thereto. Terms
defined in the Credit Agreement and not otherwise defined herein are used herein
as defined in the Credit Agreement.

                  WHEREAS, as a condition precedent to the making of Advances
and the issuance of Letters of Credit by the Lender Parties under the Credit
Agreement and the entry into Secured Hedge Agreements by the Hedge Banks from
time to time, each Grantor has become a party to that certain Amended and
Restated Security Agreement dated as of April 6, 2000, made by the Grantors to
the Administrative Agent (as such agreement may be further amended and restated,
supplemented or otherwise modified from time to time, the "SECURITY AGREEMENT").

                  WHEREAS, under the terms of the Security Agreement, the
Grantors have granted a security interest in, among other property, certain
intellectual property of the Grantors to the Administrative Agent for the
ratable benefit of the Secured Parties, and have agreed as a condition thereof
to execute this IP Security Agreement covering such intellectual property for
recording with the U.S. Patent and Trademark Office, the United States Copyright
Office and other governmental authorities.

                  NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, each Grantor agrees as
follows:

                  SECTION 1. Grant of Security. Each Grantor hereby grants to
the Administrative Agent for the ratable benefit of the Secured Parties a
security interest in and to all of such Grantor's right, title and interest in
and to the following (the "COLLATERAL"):



                               Security Agreement

<PAGE>   238


                                       C-2




                  (i) the United States, international, and foreign patents,
         patent applications and patent licenses set forth in Schedule A hereto
         (as such Schedule A may be supplemented from time to time by
         supplements to the Security Agreement and this IP Security Agreement,
         each such supplement being in substantially the form of Exhibit G to
         the Security Agreement (an "IP SECURITY AGREEMENT SUPPLEMENT"),
         executed and delivered by such Grantor to the Administrative Agent from
         time to time), together with all reissues, divisions, continuations,
         continuations-in-part, extensions and reexaminations thereof, and all
         rights therein provided by international treaties or conventions (the
         "PATENTS");

                  (ii) the United States and foreign trademark and service mark
         registrations, applications (other than any United States intent-to-use
         trademark application prior to the filing and acceptance of a Statement
         of Use or an Amendment to Allege Use in connection therewith to the
         extent that a valid security interest may not be taken in such
         intent-to-use trademark application under applicable law), and licenses
         set forth in Schedule B hereto (as such Schedule B may be supplemented
         from time to time by IP Security Agreement Supplements executed and
         delivered by such Grantor to the Administrative Agent from time to
         time) together in each case with all goodwill of the business connected
         therewith and symbolized thereby and all rights corresponding thereto
         throughout the world and all other rights of any kind whatsoever
         pertaining thereto (the "TRADEMARKS");

                  (iii) the copyrights, United States and foreign copyright
         registrations and applications and copyright licenses set forth in
         Schedule C hereto (as such Schedule C may be supplemented from time to
         time by IP Security Agreement Supplements executed and delivered by
         such Grantor to the Administrative Agent from time to time) (the
         "COPYRIGHTS");

                  (iv) any and all claims for damages for past, present and
         future infringement, misappropriation or breach with respect to the
         Patents, Trademarks and Copyrights, with the right, but not the
         obligation, to sue for and collect, or otherwise recover, such damages;
         and

                  (v)      any and all proceeds of the foregoing.

                  SECTION 2. Security for Obligations. The pledge and assignment
of, and the grant of a security interest in, the Collateral by each Grantor
under this IP Security Agreement secures the payment of all Obligations of such
Grantor now or hereafter existing under or in respect of the Loan Documents,
whether direct or indirect, absolute or contingent, and whether for principal,
reimbursement obligations, interest, premiums, penalties, fees,
indemnifications, contract causes of action, costs, expenses or otherwise.


                               Security Agreement



<PAGE>   239

                  SECTION 3. Recordation. Each Grantor authorizes and requests
that the Register of Copyrights, the Commissioner of Patents and Trademarks and
any other applicable government officer record this IP Security Agreement.

                  SECTION 4. Execution in Counterparts. This Agreement may be
executed in any number of 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.

                  SECTION 5. Grants, Rights and Remedies. This IP Security
Agreement has been entered into in conjunction with the provisions of the
Security Agreement. Each Grantor does hereby acknowledge and confirm that the
grant of the security interest hereunder to, and the rights and remedies of, the
Administrative Agent with respect to the Collateral are more fully set forth in
the Security Agreement, the terms and provisions of which are incorporated
herein by reference as if fully set forth herein.

                  SECTION 6. Governing Law. This IP Security Agreement shall be
governed by, and construed in accordance with, the laws of the State of New
York.

                  IN WITNESS WHEREOF, each Grantor has caused this Agreement to
be duly executed and delivered by its officer thereunto duly authorized as of
the date first above written.

Address for Notices:                   [NAME OF GRANTOR]
______________________
______________________                 By_______________________________________
______________________                   Name:
                                         Title:


Address for Notices:                   [NAME OF GRANTOR]
______________________
______________________                 By_______________________________________
______________________                   Title:


                               Security Agreement


<PAGE>   240





                                                                EXHIBIT D TO THE
                                                              SECURITY AGREEMENT

           FORM OF INTELLECTUAL PROPERTY SECURITY AGREEMENT SUPPLEMENT


                  This INTELLECTUAL PROPERTY SECURITY AGREEMENT SUPPLEMENT (this
"IP SECURITY AGREEMENT Supplement") dated _________ __, ____, is made by the
Person listed on the signature page hereof (the "GRANTOR") in favor of The Chase
Manhattan Bank ("CHASE"), as Administrative Agent (the "ADMINISTRATIVE AGENT")
for the Secured Parties (as defined in the Credit Agreement referred to below).

                  WHEREAS, Sovereign Specialty Chemicals, Inc., a Delaware
corporation, has entered into a Credit Agreement dated as of December 29, 1999,
as amended and restated pursuant to an Amended and Restated Credit Agreement
dated as of April 6, 2000 (as such agreement may be further amended and
restated, supplemented or otherwise modified from time to time, the "CREDIT
AGREEMENT"), with the Administrative Agent and the Lender Parties party thereto.
Terms defined in the Credit Agreement and not otherwise defined herein are used
herein as defined in the Credit Agreement.

                  WHEREAS, pursuant to the Credit Agreement, the Grantor and
certain other Persons have executed and delivered that certain Security
Agreement dated December 29, 1999, as amended and restated pursuant to an
Amended and Restated Security Agreement dated as of April 6, 2000, made by the
Grantor and such other Persons to the Administrative Agent (as such agreement
may be further amended and restated, supplemented or otherwise modified from
time to time, the "SECURITY AGREEMENT"). To create a short form version of the
Security Agreement covering certain intellectual property of the Grantor and
such other Persons for recording with the U.S. Patent and Trademark Office, the
United States Copyright Office and other governmental authorities, the Grantor
and such other Persons have executed and delivered that certain Intellectual
Property Security Agreement made by the Grantor and such other Persons to the
Administrative Agent dated _________ __, ____ (as amended and restated,
supplemented or otherwise modified from time to time, the "IP SECURITY
AGREEMENT").

                  WHEREAS, under the terms of the Security Agreement and the IP
Security Agreement, the Grantor has granted a security interest in the
Additional Collateral (as defined in Section 1 below) of the Grantor to the
Administrative Agent for the ratable benefit of the Secured Parties and has
agreed as a condition thereof to execute this IP Security Agreement Supplement
for recording with the U.S. Patent and Trademark Office, the United States
Copyright Office and other governmental authorities.

                  NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Grantor agrees as
follows:


                               Security Agreement


<PAGE>   241


                                       D-2



                  SECTION 1. Confirmation of Grant of Security. The Grantor
hereby acknowledges and confirms the grant of a security interest to the
Administrative Agent for the ratable benefit of the Secured Parties under the
Security Agreement and the IP Security Agreement in and to all of the Grantor's
right, title and interest in and to the following (the "ADDITIONAL COLLATERAL"):

                  (i) The United States, international, and foreign patents,
         patent applications, and patent licenses set forth in Schedule A
         hereto, together with all reissues, divisions, continuations,
         continuations-in-part, extensions and reexaminations thereof, and all
         rights therein provided by international treaties or conventions (the
         "PATENTS");

                  (ii) The United States and foreign trademark and service mark
         registrations, applications (other than any United States intent-to-use
         trademark application prior to the filing and acceptance of a Statement
         of Use or an Amendment to Allege Use in connection therewith to the
         extent that a valid security interest may not be taken in such
         intent-to-use trademark application under applicable law), and licenses
         set forth in Schedule B hereto together with all goodwill of the
         business connected therewith and symbolized thereby and all rights
         corresponding thereto throughout the world and all other rights of any
         kind whatsoever pertaining thereto (the "TRADEMARKS");

                  (iii) The copyrights, United States and foreign copyright
         registrations and applications and copyright licenses set forth in
         Schedule C hereto (the "COPYRIGHTS");

                  (iv) any and all claims for damages for past, present and
         future infringement, misappropriation or breach with respect to the
         Patents, Trademarks and Copyrights, with the right, but not the
         obligation, to sue for and collect, or otherwise recover, such damages;
         and

                  (v)      any and all proceeds of the foregoing.

                  SECTION 2. Supplement to Security Agreement and IP Security
Agreement. Schedule V to the Security Agreement and Schedules A, B and C to the
IP Security Agreement are each, effective as of the date hereof, hereby
supplemented to add to such Schedules the Additional Collateral.

                  SECTION 3. Recordation. The Grantor authorizes and requests
that the Register of Copyrights, the Commissioner of Patents and Trademarks and
any other applicable government officer to record this IP Security Agreement
Supplement.

                  SECTION 4. Governing Law. This IP Security Agreement
Supplement shall be governed by, and construed in accordance with, the laws of
the State of New York.


                               Security Agreement

<PAGE>   242
                                      D-3


                  IN WITNESS WHEREOF, the Grantor has caused this Agreement to
be duly executed and delivered by its officer thereunto duly authorized as of
the date first above written.

                                    [NAME OF GRANTOR]


                                    By__________________________________________
                                      Name:
                                      Title:

                                     Address for Notices:




                               Security Agreement
<PAGE>   243





                                                                       EXHIBIT F
                                                         TO THE CREDIT AGREEMENT










                     AMENDED AND RESTATED SECURITY AGREEMENT

                            Dated as of April 6, 2000

                                      from

                         The Grantors referred to herein

                                   as Grantors

                                       to

                            The Chase Manhattan Bank

                             as Administrative Agent



                               Security Agreement
<PAGE>   244






                          T A B L E  O F  C O N T E N T S
<TABLE>
<CAPTION>


SECTION                                                                                                        PAGE
<S>                                                                                                            <C>
1.  Grant of Security.............................................................................................2

2.  Security for Obligations......................................................................................8

3.  Grantors Remain Liable........................................................................................8

4.  Delivery and Control of Security Collateral...................................................................9

5.  Maintaining the Pledged Accounts.............................................................................10

6.  Maintaining the Collateral Account and the L/C Collateral Account............................................11

7.  Investing of Amounts in the Collateral Account and the L/C Collateral Account................................12

8.  Release of Amounts...........................................................................................12

9.  Representations and Warranties...............................................................................12

10.  Further Assurances..........................................................................................15

11.  As to Equipment and Inventory...............................................................................16

12.  Insurance...................................................................................................17

13.  Place of Perfection; Records; Collection of Receivables.....................................................18

14.  As to Intellectual Property Collateral......................................................................19

15.  Voting Rights; Dividends; Etc...............................................................................21

16.  Transfers and Other Liens; Additional Shares................................................................23

17.  Administrative Agent Appointed Attorney-in-Fact.............................................................23

18.  Administrative Agent May Perform............................................................................24

19.  The Administrative Agent's Duties...........................................................................24
</TABLE>





                               Security Agreement

<PAGE>   245

<TABLE>

<S>                                                                                                             <C>
20.  Remedies....................................................................................................25

21.  Indemnity and Expenses......................................................................................28

22.  Amendments; Waivers; Additional Grantors; Etc...............................................................28

23.  Notices; Etc................................................................................................29

24.  Continuing Security Interest; Assignments Under the Credit Agreement........................................29

25.  Release; Termination........................................................................................29

26.  Execution in Counterparts...................................................................................30

27.  The Mortgages...............................................................................................30

28.  Governing Law...............................................................................................30
</TABLE>



                               Security Agreement


<PAGE>   246


                                       iii






Schedules

Schedule I     -    Pledged Shares and Pledged Debt
Schedule II    -    Locations of Equipment and Inventory
Schedule III   -    Chief Executive Office and Federal Tax Identification Number
Schedule IV    -    Patents, Trademarks and Trade Names, Copyrights and Licenses
Schedule V     -    Accounts


Exhibits

Exhibit A      -    Form of Security Agreement Supplement
Exhibit B      -    Form of Pledged Account Letter
Exhibit C      -    Form of Intellectual Property Security Agreement
Exhibit D      -    Form of Intellectual Property Security Agreement Supplement


                               Security Agreement






<PAGE>   247

                AMENDED AND RESTATED DOMESTIC SUBSIDIARY GUARANTY


                  AMENDED AND RESTATED DOMESTIC SUBSIDIARY GUARANTY dated as of
April 6, 2000 (this "GUARANTY"), made by the Persons listed on the signature
pages hereof under the caption "DOMESTIC SUBSIDIARY GUARANTORS" and the
Additional Guarantors (as defined in Section 8(b)) (such Persons so listed and
the Additional Guarantors being, collectively, the "GUARANTORS" and,
individually, each a "GUARANTOR") in favor of the Secured Parties (as defined in
the Credit Agreement referred to below).

                  PRELIMINARY STATEMENT. Sovereign Specialty Chemicals, Inc., a
Delaware corporation (the "DOMESTIC BORROWER"), entered into a Credit Agreement
dated as of December 29, 1999, as amended through the date hereof (the "EXISTING
CREDIT AGREEMENT"). In order to satisfy a condition to the effectiveness to the
Existing Credit Agreement, each Domestic Subsidiary Guarantor entered into a
Subsidiary Guaranty dated December 29, 1999 (the "EXISTING GUARANTY") in favor
of the Secured Parties. In order to amend and restate the Existing Credit
Agreement, the Domestic Borrower has entered into an Amended and Restated Credit
Agreement dated as of the date hereof (as such agreement may hereafter be
further amended and restated, supplemented or otherwise modified from time to
time, the "CREDIT AGREEMENT"; the capitalized terms defined therein and not
otherwise defined herein being used herein as therein defined) with certain
Lender Parties party thereto, Merrill Lynch, Pierce, Fenner & Smith Incorporated
and J.P. Morgan Securities Inc., as Joint Lead Arrangers, and The Chase
Manhattan Bank, as Administrative Agent for such Lender Parties. Each Guarantor
may receive, directly or indirectly, a portion of the proceeds of the Advances
under the Credit Agreement and will derive substantial direct and indirect
benefits from the transactions contemplated by the Credit Agreement. It is a
condition precedent to the making of Advances and the issuance of Letters of
Credit by the Lender Parties under the Credit Agreement and the entry by the
Hedge Banks into Secured Hedge Agreements from time to time that each Guarantor
shall have executed and delivered this Guaranty in order to amend and restate
the Existing Guaranty on the terms and conditions contained herein.

                  NOW, THEREFORE, in consideration of the premises and in order
to induce the Lender Parties to make Advances and to issue Letters of Credit
under the Credit Agreement and the Hedge Banks to enter into Secured Hedge
Agreements from time to time, the Existing Guaranty is hereby amended and
restated in its entirety, and each Guarantor, jointly and severally with each
other Guarantor, hereby agrees as follows:

                  Section 1. Guaranty; Limitation of Liability. (a) Each
Guarantor hereby absolutely, unconditionally and irrevocably guarantees the
punctual payment when due, whether at scheduled maturity or on any date of a
required prepayment or by acceleration, demand or otherwise, of all Obligations
of each other Loan Party now or hereafter existing under or in respect of the
Loan Documents (including, without limitation, any extensions, modifications,
substitutions, amendments or renewals of any or all of the foregoing
Obligations), whether direct or indirect, absolute or contingent, and whether
for principal, interest, premiums, fees, indemnities, contract causes of action,
costs, expenses or otherwise (such Obligations being the "GUARANTEED
OBLIGATIONS"), and agrees to pay any and all expenses (including, without
limitation, fees and expenses of counsel)

                                  Subsidiary Guaranty

<PAGE>   248

                                       2


incurred by the Administrative Agent or any other Secured Party in enforcing any
rights under this Guaranty or any other Loan Document. Without limiting the
generality of the foregoing, each Guarantor's liability shall extend to all
amounts that constitute part of the Guaranteed Obligations and would be owed by
any other Loan Party to any Secured Party under or in respect of the Loan
Documents but for the fact that they are unenforceable or not allowable due to
the existence of a bankruptcy, reorganization or similar proceeding involving
such other Loan Party.

                  (b) Each Guarantor, and by its acceptance of this Guaranty,
the Administrative Agent and each other Secured Party, hereby confirms that it
is the intention of all such Persons that this Guaranty and the Obligations of
each Guarantor hereunder not constitute a fraudulent transfer or conveyance for
purposes of Bankruptcy Law (as hereinafter defined), the Uniform Fraudulent
Conveyance Act, the Uniform Fraudulent Transfer Act or any similar foreign,
federal or state law to the extent applicable to this Guaranty and the
Obligations of each Guarantor hereunder. To effectuate the foregoing intention,
the Administrative Agent, the other Secured Parties and the Guarantors hereby
irrevocably agree that the Obligations of each Guarantor under this Guaranty at
any time shall be limited to the maximum amount as will result in the
Obligations of such Guarantor under this Guaranty not constituting a fraudulent
transfer or conveyance. For purposes hereof, "BANKRUPTCY LAW" means any
proceeding of the type referred to in Section 6.01(f) of the Credit Agreement or
Title 11, U.S. Code, or any similar foreign, federal or state law for the relief
of debtors.

                  (c) Each Guarantor hereby unconditionally and irrevocably
agrees that in the event any payment shall be required to be made to any Secured
Party under this Guaranty or any other guaranty, such Guarantor will contribute,
to the maximum extent permitted by law, such amounts to each other Guarantor and
each other guarantor so as to maximize the aggregate amount paid to the Secured
Parties under or in respect of the Loan Documents.

                  Section 2. Guaranty Absolute. Each Guarantor guarantees that
the Guaranteed Obligations will be paid strictly in accordance with the terms of
the Loan Documents, regardless of any law, regulation or order now or hereafter
in effect in any jurisdiction affecting any of such terms or the rights of any
Secured Party with respect thereto. The Obligations of each Guarantor under or
in respect of this Guaranty are independent of the Guaranteed Obligations or any
other Obligations of any other Loan Party under or in respect of the Loan
Documents, and a separate action or actions may be brought and prosecuted
against each Guarantor to enforce this Guaranty, irrespective of whether any
action is brought against the Domestic Borrower or any other Loan Party or
whether the Domestic Borrower or any other Loan Party is joined in any such
action or actions. The liability of each Guarantor under this Guaranty shall be
irrevocable, absolute and unconditional irrespective of, and each Guarantor
hereby irrevocably waives any defenses it may now have or hereafter acquire in
any way relating to, any or all of the following:

                  (a)      any lack of validity or enforceability of any Loan
         Document or any agreement or instrument relating thereto;

                                  Subsidiary Guaranty

<PAGE>   249

                                       3

                  (b) any change in the time, manner or place of payment of, or
         in any other term of, all or any of the Guaranteed Obligations or any
         other Obligations of any other Loan Party under or in respect of the
         Loan Documents, or any other amendment or waiver of or any consent to
         departure from any Loan Document, including, without limitation, any
         increase in the Guaranteed Obligations resulting from the extension of
         additional credit to any Loan Party or any of its Subsidiaries or
         otherwise;

                  (c) any taking, exchange, release or non-perfection of any
         Collateral or any other collateral, or any taking, release or amendment
         or waiver of, or consent to departure from, any other guaranty, for all
         or any of the Guaranteed Obligations;

                  (d) any manner of application of Collateral or any other
         collateral, or proceeds thereof, to all or any of the Guaranteed
         Obligations, or any manner of sale or other disposition of any
         Collateral or any other collateral for all or any of the Guaranteed
         Obligations or any other Obligations of any Loan Party under the Loan
         Documents or any other assets of any Loan Party or any of its
         Subsidiaries;

                  (e) any change, restructuring or termination of the corporate
         structure or existence of any Loan Party or any of its Subsidiaries;

                  (f) any failure of any Secured Party to disclose to any Loan
         Party any information relating to the business, condition (financial or
         otherwise), operations, performance, properties or prospects of any
         other Loan Party now or hereafter known to such Secured Party (each
         Guarantor waiving any duty on the part of the Secured Parties to
         disclose such information);

                  (g) the failure of any other Person to execute or deliver this
         Guaranty, any Guaranty Supplement (as hereinafter defined) or any other
         guaranty or agreement or the release or reduction of liability of any
         Guarantor or other guarantor or surety with respect to the Guaranteed
         Obligations; or

                  (h) any other circumstance (including, without limitation, any
         statute of limitations) or any existence of or reliance on any
         representation by any Secured Party that might otherwise constitute a
         defense available to, or a discharge of, any Loan Party or any other
         guarantor or surety.

This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Guaranteed Obligations is rescinded
or must otherwise be returned by any Secured Party or any other Person upon the
insolvency, bankruptcy or reorganization of the Domestic Borrower or any other
Loan Party or otherwise, all as though such payment had not been made.

                  Section 3. Waivers and Acknowledgments. (a) Each Guarantor
hereby unconditionally and irrevocably waives promptness, diligence, notice of
acceptance, presentment,

                                  Subsidiary Guaranty

<PAGE>   250

                                       4

demand for performance, notice of nonperformance, default, acceleration, protest
or dishonor and any other notice with respect to any of the Guaranteed
Obligations and this Guaranty and any requirement that any Secured Party
protect, secure, perfect or insure any Lien or any property subject thereto or
exhaust any right or take any action against any Loan Party or any other Person
or any Collateral.

                  (b) Each Guarantor hereby unconditionally and irrevocably
waives any right to revoke this Guaranty and acknowledges that this Guaranty is
continuing in nature and applies to all Guaranteed Obligations, whether existing
now or in the future.

                  (c) Each Guarantor hereby unconditionally and irrevocably
waives (i) any defense arising by reason of any claim or defense based upon an
election of remedies by any Secured Party that in any manner impairs, reduces,
releases or otherwise adversely affects the subrogation, reimbursement,
exoneration, contribution or indemnification rights of such Guarantor or other
rights of such Guarantor to proceed against any of the other Loan Parties, any
other guarantor or any other Person or any Collateral and (ii) any defense based
on any right of set-off or counterclaim against or in respect of the Obligations
of such Guarantor hereunder.

                  (d) Each Guarantor acknowledges that the Administrative Agent
may, without notice to or demand upon such Guarantor and without affecting the
liability of such Guarantor under this Guaranty, foreclose under any mortgage by
nonjudicial sale, and each Guarantor hereby waives any defense to the recovery
by the Administrative Agent and the other Secured Parties against such Guarantor
of any deficiency after such nonjudicial sale and any defense or benefits that
may be afforded by applicable law.

                  (e) Each Guarantor hereby unconditionally and irrevocably
waives any duty on the part of any Secured Party to disclose to such Guarantor
any matter, fact or thing relating to the business, condition (financial or
otherwise), operations, performance, properties or prospects of any other Loan
Party or any of its Subsidiaries now or hereafter known by such Secured Party.

                  (f) Each Guarantor acknowledges that it will receive
substantial direct and indirect benefits from the financing arrangements
contemplated by the Loan Documents and that the waivers set forth in Section 2
and this Section 3 are knowingly made in contemplation of such benefits.

                  Section 4. Subrogation. Each Guarantor hereby unconditionally
and irrevocably agrees not to exercise any rights that it may now have or
hereafter acquire against the Domestic Borrower, any other Loan Party or any
other insider guarantor that arise from the existence, payment, performance or
enforcement of such Guarantor's Obligations under or in respect of this Guaranty
or any other Loan Document, including, without limitation, any right of
subrogation, reimbursement, exoneration, contribution or indemnification and any
right to participate in any claim or remedy of any Secured Party against the
Domestic Borrower, any other Loan Party or any other insider guarantor or any
Collateral, whether or not such claim, remedy or right arises in equity or under
contract, statute or common law, including, without limitation, the right to
take or receive from the Domestic Borrower, any other Loan Party or any other
insider guarantor, directly or

                                  Subsidiary Guaranty

<PAGE>   251

                                       5

indirectly, in cash or other property or by set-off or in any other manner,
payment or security on account of such claim, remedy or right, unless and until
all of the Guaranteed Obligations and all other amounts payable under this
Guaranty shall have been paid in full in cash, all Letters of Credit and all
Secured Hedge Agreements shall have expired or been terminated and the
Commitments shall have expired or been terminated. If any amount shall be paid
to any Guarantor in violation of the immediately preceding sentence at any time
prior to the latest of (a) the payment in full in cash of the Guaranteed
Obligations and all other amounts payable under this Guaranty, (b) the
Termination Date and (c) the latest date of expiration or termination of all
Letters of Credit and all Secured Hedge Agreements, such amount shall be
received and held in trust for the benefit of the Secured Parties, shall be
segregated from other property and funds of such Guarantor and shall forthwith
be paid or delivered to the Administrative Agent in the same form as so received
(with any necessary endorsement or assignment) to be credited and applied to the
Guaranteed Obligations and all other amounts payable under this Guaranty,
whether matured or unmatured, in accordance with the terms of the Loan
Documents, or to be held as Collateral for any Guaranteed Obligations or other
amounts payable under this Guaranty thereafter arising. If (i) any Guarantor
shall make payment to any Secured Party of all or any part of the Guaranteed
Obligations, (ii) all of the Guaranteed Obligations and all other amounts
payable under this Guaranty shall have been paid in full in cash, (iii) the
Termination Date shall have occurred and (iv) all Letters of Credit and all
Secured Hedge Agreements shall have expired or been terminated, the Secured
Parties will, at such Guarantor's request and expense, execute and deliver to
such Guarantor appropriate documents, without recourse and without
representation or warranty, necessary to evidence the transfer by subrogation to
such Guarantor of an interest in the Guaranteed Obligations resulting from such
payment made by such Guarantor pursuant to this Guaranty.

                  Section 5. Payments Free and Clear of Taxes, Etc. (a) Except
as set forth in this Section 5, any and all payments made by any Guarantor under
or in respect of this Guaranty or any other Loan Document shall be made, in
accordance with Section 2.11 of the Credit Agreement, and free and clear of and
without deduction for any and all present or future Taxes. If any Guarantor
shall be required by law to deduct any Taxes from or in respect of any sum
payable under or in respect of this Guaranty or any other Loan Document to any
Secured Party, (i) subject to Section 5(h), the sum payable by such Guarantor
shall be increased as may be necessary so that after such Guarantor and the
Administrative Agent have made all required deductions (including deductions
applicable to additional sums payable under this Section 5), such Secured Party
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) such Guarantor shall make all such deductions and
(iii) such Guarantor shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law.

                  (b) In addition, each Guarantor agrees to pay any present or
future Other Taxes that arise from any payment made by or on behalf of such
Guarantor under or in respect of this Guaranty or any other Loan Document or
from the execution, delivery or registration of, performance under, or otherwise
with respect to, this Guaranty and the other Loan Documents.

                  (c) Subject to Section 5(h), each Guarantor will indemnify
each Secured Party for and hold it harmless against the full amount of Taxes and
Other Taxes, imposed on or paid by

                                  Subsidiary Guaranty


<PAGE>   252

                                       6

such Secured Party and any liability (including penalties, additions to tax,
interest and expenses) arising therefrom or with respect thereto. This
indemnification shall be made within 30 days from the date such Secured Party
makes written demand therefor.

                  (d) Within 30 days after the date of any payment of Taxes by
or on behalf of any Guarantor, such Guarantor shall furnish to the
Administrative Agent, at its address referred to in Section 9, the original or a
certified copy of a receipt (or other evidence reasonably satisfactory to the
Administrative Agent) evidencing such payment. In the case of any payment
hereunder by or on behalf of any Guarantor through an account or branch outside
the United States or by or on behalf of such Guarantor by a payor that is not a
United States person, if such Guarantor determines that no Taxes are payable in
respect thereof, such Guarantor shall furnish, or shall cause such payor to
furnish, to the Administrative Agent, at such address, an opinion of counsel
acceptable to the Administrative Agent stating that such payment is exempt from
Taxes. For purposes of this Section 5, the terms "UNITED STATES" and "UNITED
STATES PERSON" shall have the meanings specified in Section 7701 of the Internal
Revenue Code.

                  (e) Upon the reasonable request in writing of any Guarantor,
each Domestic Borrower Lender Party organized under the laws of a jurisdiction
outside the United States shall, on or prior to the date of its execution and
delivery of the Credit Agreement in the case of each Initial Lender or Initial
Issuing Bank, as the case may be, and on or prior to the date of the Assignment
and Acceptance, the Joinder Agreement or Secured Hedge Agreement pursuant to
which it becomes a Domestic Borrower Lender Party in the case of each other
Domestic Borrower Lender Party, and from time to time thereafter upon the
reasonable request in writing by any Guarantor (but only so long thereafter as
such Secured Party remains lawfully able to do so), provide each of the
Administrative Agent and such Guarantor with (i) two original Internal Revenue
Service forms W-8BEN or W-8ECI, as applicable (or any successor or other
applicable form prescribed by the Internal Revenue Service), or (ii) in the case
of a Secured Party claiming exemption from U.S. federal withholding tax under
Section 871(h) or 881(c) of the Code with respect to payments of "portfolio
interest," a statement substantially in the form of Exhibit J to the Credit
Agreement and two copies of Internal Revenue Service Form W-8BEN (or any
successor or other applicable form prescribed by the Internal Revenue Service),
certifying that such Secured Party is exempt from or entitled to a reduced rate
of United States withholding tax on payments pursuant to this Guaranty or any
other Loan Document. Upon request in writing by any Guarantor, each Domestic
Borrower Lender Party shall deliver to such Guarantor and the Administrative
Agent (provided that such Secured Party remains lawfully able to do so), two
further duly executed forms and statements, properly completed in all material
respects, at or before the time any such form or statement expires or becomes
obsolete, or as otherwise reasonably requested in writing by such Guarantor.
Each such Domestic Borrower Lender Party shall promptly notify such Guarantor at
any time it determines that it is no longer in a position to provide any
previously delivered certificate to such Guarantor (or any other form or
certification adopted by the U.S. taxing authorities for such purpose). If the
forms provided by a Domestic Borrower Lender Party at the time such Domestic
Borrower Lender Party first becomes a party to the Credit Agreement or the
applicable Secured Hedge Agreement indicate a United States interest withholding
tax rate in excess of zero, withholding tax at such rate shall be considered
excluded from Taxes unless and until such Domestic Borrower Lender Party
provides the

                                  Subsidiary Guaranty

<PAGE>   253

                                       7

appropriate forms certifying that a lesser rate applies, whereupon withholding
tax at such lesser rate only shall be considered excluded from Taxes for periods
governed by such forms; provided, however, that if, in the case of a Domestic
Borrower Lender Party becoming a party to the Credit Agreement at the effective
date of the Assignment and Acceptance or Joinder Agreement pursuant to which a
Domestic Borrower Lender Party becomes a party to the Credit Agreement, the
Domestic Borrower Lender Party assignor was entitled to payments under
subsection (a) of this Section 5 in respect of United States withholding tax
with respect to interest paid at such date, then, to such extent, the term Taxes
shall include (in addition to withholding taxes that may be imposed in the
future or other amounts otherwise includable in Taxes) United States withholding
tax, if any, applicable with respect to the Domestic Borrower Lender Party
assignee on such date. If any form or document referred to in this subsection
(e) requires the disclosure of information, other than information necessary to
compute the tax payable and information required on the date hereof by Internal
Revenue Service forms W-8BEN or W-8ECI (or the related certificate described
above), that the applicable Secured Party reasonably considers to be
confidential, such Secured Party shall give notice thereof to the applicable
Guarantor and shall not be obligated to include in such form or document such
confidential information.

                  (f) Upon the reasonable request in writing of any Guarantor,
each Domestic Borrower Lender Party which is a United States person shall, on or
prior to the date of its execution and delivery of the Credit Agreement in the
case of each Initial Lender Party or Initial Issuing Bank, as the case may be,
and on the effective date of the Assignment and Acceptance, the Joinder
Agreement or Secured Hedge Agreement pursuant to which it becomes a Domestic
Borrower Lender Party in the case of each other Domestic Borrower Lender Party,
deliver to such Guarantor and the Administrative Agent two duly completed copies
of United States Internal Revenue Service Form W-9 (or any successor or other
applicable form prescribed by the Internal Revenue Service) unless it
establishes to the reasonable satisfaction of such Guarantor that it is
otherwise eligible for an exemption from backup withholding tax or other
applicable withholding tax. Upon request in writing by such Guarantor, each such
Domestic Borrower Lender Party shall deliver to such Guarantor and the
Administrative Agent (provided that such Secured Party remains lawfully able to
do so), two further duly executed forms and statements, properly completed in
all material respects, at or before the time any such form or statement expires
or becomes obsolete, or otherwise as reasonably requested by such Guarantor.
Each such Secured Party shall promptly notify the applicable Guarantor at any
time it determines that it is no longer in a position to provide any previously
delivered certificate to such Guarantor (or any other form or certification
adopted by the U.S. taxing authorities for such purpose).

                  (g) Upon the reasonable request in writing of any Guarantor
prior to the date on which an Offshore Borrower requests an Advance, each Lender
Party which has made an Advance to an Offshore Borrower or executed an
Assignment and Acceptance with respect to such an Advance shall, on or prior to
the date it makes such an Advance or executes such an Assignment and Acceptance,
provide each of the Administrative Agent and such Guarantor with any forms,
certifications or other information as may reasonably be requested by such
Guarantor for the purpose of minimizing or eliminating any Taxes required to be
paid by such Guarantor with respect to any Offshore Acquisition Advance or
Offshore Swing Line Advance under the laws of the jurisdiction in

                                  Subsidiary Guaranty

<PAGE>   254


                                       8


which such Guarantor is organized, or is a resident, is doing business or has a
fixed base or permanent establishment, and shall also deliver such forms at such
other times as a Guarantor may reasonably request in writing. Each such Lender
Party shall promptly notify the applicable Guarantor at any time it determines
it is no longer in a position to provide any previously delivered form,
certification or other applicable information.

                  (h) For any period with respect to which a Secured Party has
failed to provide any Guarantor following such Guarantor's request therefor
pursuant to subsection (e), (f) or (g) above with the appropriate form described
in subsection (e), (f) or (g) above (other than if such failure is due to a
change in law occurring after the date on which a form originally was required
to be provided or, in the case of a form requested pursuant to clause (g) above,
if such Secured Party has notified the applicable Guarantor of a reasonable
basis for such failure), such Secured Party shall not be entitled to
indemnification under subsection (a) or (c) of this Section 5 with respect to
Taxes imposed by the United States by reason of such failure; provided, however,
that should a Secured Party become subject to Taxes because of its failure to
deliver a form required hereunder, such Guarantor shall take such steps as such
Secured Party shall reasonably request to assist such Secured Party to recover
such Taxes.

                  (i) Each Secured Party which is not a United States person
agrees to indemnify and hold harmless each Guarantor from and against any and
all taxes, related penalties and interest, and reasonable out-of-pocket costs
incurred by such Guarantor as a result of a failure by such Guarantor to comply
with its obligations to deduct or withhold any Taxes from any payment made under
this Guaranty or any other Loan Document, which failure resulted solely from
such Guarantor=s reasonable reliance on information provided by such Secured
Party on a form referred to in Section 5(e) or (f).

                  (j) If any Secured Party determines, in its sole discretion,
that it has finally and irrevocably received a refund of any Taxes that have
been paid or reimbursed by any Guarantor pursuant to Section 5(a) or (c) in
respect of payments hereunder or under such Guarantor that it would otherwise
not have obtained and that would result in total payments made under this
Section 5 exceeding that amount needed to make such Secured Party whole, such
Secured Party shall, to the extent that it determines in its sole discretion
that it can do so without prejudice to the retention of the amount of such
refund, pay to such Guarantor following actual receipt of such refund and
without any interest thereon, the amount of such refund after deducting
therefrom all out-of-pocket expenses incurred by or on behalf of such Secured
Party in securing such refund; provided that such Guarantor agrees, upon request
of such Secured Party, to return the amount of such refund to such Secured
Party, together with the amount of all additional out-of-pocket expenses,
penalties, interest or other charges in respect thereof, if such Secured Party
is required to repay or otherwise loses the benefit of such refund. Nothing in
this Section 5 shall be construed to interfere with the right of a Secured Party
to arrange its tax affairs in whatever manner it thinks fit or require any
Secured Party to claim any refund, or to require any Secured Party to make
available to such Guarantor or the Administrative Agent any of its tax returns
or any other information relating to Taxes that it deems to be confidential.


                                  Subsidiary Guaranty

<PAGE>   255

                                     9


                  Section 6. Representations and Warranties. Each Guarantor
hereby makes each representation and warranty made in the Loan Documents by the
Domestic Borrower with respect to such Guarantor (provided that each reference
in each such representation and warranty to the Domestic Borrower's knowledge
shall, for the purposes of this Section 6, be deemed to be a reference to such
Guarantor's knowledge) and each Guarantor hereby further represents and warrants
as follows:

                  (a) There are no conditions precedent to the effectiveness of
         this Guaranty that have not been satisfied or waived.

                  (b) Such Guarantor has, independently and without reliance
         upon any Secured Party and based on such documents and information as
         it has deemed appropriate, made its own credit analysis and decision to
         enter into this Guaranty and each other Loan Document to which it is or
         is to be a party, and such Guarantor has established adequate means of
         obtaining from each other Loan Party on a continuing basis information
         pertaining to, and is now and on a continuing basis will be completely
         familiar with, the business, condition (financial or otherwise),
         operations, performance, properties and prospects of such other Loan
         Party.

                  Section 7. Covenants. Each Guarantor covenants and agrees
that, so long as any part of the Guaranteed Obligations shall remain unpaid, any
Letter of Credit shall be outstanding, any Lender Party shall have any
Commitment or any Secured Hedge Agreement shall be in effect, such Guarantor
will perform and observe, and cause each of its Subsidiaries to perform and
observe, all of the terms, covenants and agreements set forth in the Loan
Documents on its or their part to be performed or observed or that the Domestic
Borrower has agreed to cause such Guarantor or such Subsidiaries to perform or
observe.

                  Section 8. Amendments, Guaranty Supplements, Etc. (a) No
amendment or waiver of any provision of this Guaranty and no consent to any
departure by any Guarantor therefrom shall in any event be effective unless the
same shall be in writing and signed by the Administrative Agent and the Required
Lenders, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given; provided, however, that
no amendment, waiver or consent shall, unless in writing and signed by all of
the Secured Parties (other than any Lender Party that is, at such time, a
Defaulting Lender), (a) reduce or limit the obligations of any Guarantor
hereunder, release any Guarantor hereunder or otherwise limit any Guarantor's
liability with respect to the Obligations owing to the Secured Parties under or
in respect of the Loan Documents except (x) as provided in Section 15 hereof,
(y) pursuant to a merger permitted under Section 5.02(e) of the Credit Agreement
or (z) in connection with the sale of such Guarantor permitted pursuant to
Section 5.02(f) of the Credit Agreement or a waiver of such Section 5.02 of the
Credit Agreement effected with the consent of the Required Lenders, (b) postpone
any date fixed for payment hereunder or (c) change the number of Secured Parties
or the percentage of (x) the Commitments, (y) the aggregate unpaid principal
amount of the Advances or (z) the aggregate Available Amount of outstanding
Letters of Credit that, in each case, shall be required for the Secured Parties
or any of them to take any action hereunder; provided further, however, that no

                                  Subsidiary Guaranty

<PAGE>   256

                                       10


amendment, waiver or consent shall, unless in writing and signed by the
Administrative Agent in addition to the Lenders required above to take such
action, affect the rights or duties of the Administrative Agent under this
Guaranty or the other Loan Documents.

                  (b) Upon the execution and delivery by any Person of a
guaranty supplement in substantially the form of Exhibit A hereto (each, a
"GUARANTY SUPPLEMENT"), (i) such Person shall be referred to as an "ADDITIONAL
GUARANTOR" and shall become and be a Guarantor hereunder, and each reference in
this Guaranty to a "GUARANTOR" shall also mean and be a reference to such
Additional Guarantor, and each reference in any other Loan Document to a
"DOMESTIC SUBSIDIARY GUARANTOR" shall also mean and be a reference to such
Additional Guarantor, and (ii) each reference herein to "THIS GUARANTY",
"HEREUNDER", "HEREOF" or words of like import referring to this Guaranty, and
each reference in any other Loan Document to the "DOMESTIC SUBSIDIARY GUARANTY",
"THEREUNDER", "THEREOF" or words of like import referring to this Guaranty,
shall mean and be a reference to this Guaranty as supplemented by such Guaranty
Supplement.

                  Section 9. Notices, Etc. All notices and other communications
provided for hereunder shall be in writing (including telegraphic, telecopy or
telex communication) and mailed, telegraphed, telecopied, telexed or delivered
to it, if to any Guarantor, addressed to it in care of the Domestic Borrower at
the Domestic Borrower's address specified in Section 8.02 of the Credit
Agreement, if to any Agent or any Lender Party, at its address specified in
Section 8.02 of the Credit Agreement, if to any Hedge Bank, at its address
specified in the Secured Hedge Agreement to which it is a party, or, as to any
party, at such other address as shall be designated by such party in a written
notice to each other party. All such notices and other communications shall,
when mailed, telegraphed, telecopied or telexed, be effective when deposited in
the mails, delivered to the telegraph company, transmitted by telecopier or
confirmed by telex answerback, respectively. Delivery by telecopier of an
executed counterpart of a signature page to any amendment or waiver of any
provision of this Guaranty or of any Guaranty Supplement to be executed and
delivered hereunder shall be effective as delivery of an original executed
counterpart thereof.

                  Section 10. No Waiver; Remedies. No failure on the part of any
Secured Party to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.

                  Section 11. Right of Set-off. Upon (a) the occurrence and
during the continuance of any Event of Default and (b) the making of the request
or the granting of the consent specified by Section 6.01 of the Credit Agreement
to authorize the Administrative Agent to declare the Notes due and payable
pursuant to the provisions of said Section 6.01, each Agent and each Lender
Party and each of their respective Affiliates is hereby authorized at any time
and from time to time, to the fullest extent permitted by law, to set off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by such Agent,
such Lender Party or such Affiliate to or for the credit or the account of any
Guarantor against any and all of the Obligations of such Guarantor now or
hereafter existing under the Loan

                                  Subsidiary Guaranty

<PAGE>   257

                                       11


Documents, irrespective of whether such Agent or such Lender Party shall have
made any demand under this Guaranty or any other Loan Document and although such
Obligations may be unmatured. Each Agent and each Lender Party agrees promptly
to notify such Guarantor after any such set-off and application; provided,
however, that the failure to give such notice shall not affect the validity of
such set-off and application. The rights of each Agent and each Lender Party and
their respective Affiliates under this Section are in addition to other rights
and remedies (including, without limitation, other rights of set-off) that such
Agent, such Lender Party and their respective Affiliates may have.

                  Section 12. Indemnification. (a) Without limitation on any
other Obligations of any Guarantor or remedies of the Secured Parties under this
Guaranty, each Guarantor shall, to the fullest extent permitted by law,
indemnify, defend and save and hold harmless each Secured Party and each of
their Affiliates and their respective officers, directors, employees, agents and
advisors (each, an "INDEMNIFIED PARTY") from and against, and shall pay on
demand, any and all claims, damages, losses, liabilities and expenses
(including, without limitation, reasonable fees and expenses of counsel) that
may be incurred by or asserted or awarded against any Indemnified Party in
connection with or as a result of any failure of any Guaranteed Obligations to
be the legal, valid and binding obligations of any Loan Party enforceable
against such Loan Party in accordance with their terms.

                  (b) Each Guarantor also agrees that no Indemnified Party shall
have any liability (whether direct or indirect, in contract or tort or
otherwise) for any Losses to any Loan Party or any Loan Party=s security holders
or creditors resulting from, arising out of or in any way related to or by
reason of, the Facilities, the actual or proposed use of the proceeds of the
Advance or the Letters of Credit, the Transaction Documents or any of the
transactions contemplated by the Transaction Documents except to the extent that
any Loss resulted from the gross negligence or bad faith of such Indemnified
Persons.

                  (c) Without prejudice to the survival of any of the other
agreements of any Guarantor under this Guaranty or any of the other Loan
Documents, the agreements and obligations of each Guarantor contained in Section
1(a) (with respect to enforcement expenses), the last sentence of Section 2,
Section 5 and this Section 12 shall survive the payment in full of the
Guaranteed Obligations and all of the other amounts payable under this Guaranty.

                  Section 13. Subordination. Each Guarantor hereby subordinates
any and all debts, liabilities and other Obligations owed to such Guarantor by
each other Loan Party (the "SUBORDINATED OBLIGATIONS") to the Guaranteed
Obligations to the extent and in the manner hereinafter set forth in this
Section 13:

                  (a) Prohibited Payments, Etc. Except during the continuance of
         a Default under Section 6.01(a) or (f) of the Credit Agreement or an
         Event of Default (including the commencement and continuation of any
         proceeding under any Bankruptcy Law relating to any other Loan Party),
         each Guarantor may receive regularly scheduled payments from any other
         Loan Party on account of the Subordinated Obligations. After the
         occurrence and during the continuance of any Default under Section
         6.01(a) or (f) of the Credit Agreement

                                  Subsidiary Guaranty

<PAGE>   258

                                       12


         or an Event of Default (including the commencement and continuation of
         any proceeding under any Bankruptcy Law relating to any other Loan
         Party), however, unless the Administrative Agent otherwise agrees, no
         Guarantor shall demand, accept or take any action to collect any
         payment on account of the Subordinated Obligations.

                  (b) Prior Payment of Guaranteed Obligations. In any proceeding
         under any Bankruptcy Law relating to any other Loan Party, each
         Guarantor agrees that the Secured Parties shall be entitled to receive
         payment in full in cash of all Guaranteed Obligations (including all
         interest and expenses accruing after the commencement of a proceeding
         under any Bankruptcy Law, whether or not constituting an allowed claim
         in such proceeding ("POST PETITION INTEREST")) before such Guarantor
         receives payment of any Subordinated Obligations.

                  (c) Turn-Over. After the occurrence and during the continuance
         of any Default under Section 6.01(a) or (f) of the Credit Agreement or
         an Event of Default (including the commencement and continuation of any
         proceeding under any Bankruptcy Law relating to any other Loan Party),
         each Guarantor shall, if the Administrative Agent so requests, collect,
         enforce and receive payments on account of the Subordinated Obligations
         as trustee for the Secured Parties and deliver such payments to the
         Administrative Agent on account of the Guaranteed Obligations
         (including all Post Petition Interest), together with any necessary
         endorsements or other instruments of transfer, but without reducing or
         affecting in any manner the liability of such Guarantor under the other
         provisions of this Guaranty.

                  (d) Administrative Agent Authorization. After the occurrence
         and during the continuance of any Default under Section 6.01(a) or (f)
         of the Credit Agreement or any Event of Default (including the
         commencement and continuation of any proceeding under any Bankruptcy
         Law relating to any other Loan Party), the Administrative Agent is
         authorized and empowered (but without any obligation to so do), in its
         discretion, (i) in the name of each Guarantor, to collect and enforce,
         and to submit claims in respect of, Subordinated Obligations and to
         apply any amounts received thereon to the Guaranteed Obligations
         (including any and all Post Petition Interest), and (ii) to require
         each Guarantor (A) to collect and enforce, and to submit claims in
         respect of, Subordinated Obligations and (B) to pay any amounts
         received on such obligations to the Administrative Agent for
         application to the Guaranteed Obligations (including any and all Post
         Petition Interest).

                  Section 14. Continuing Guaranty; Assignments under the Credit
Agreement. This Guaranty is a continuing guaranty and shall (a) remain in full
force and effect until the latest of (i) the payment in full in cash of the
Guaranteed Obligations and all other amounts payable under this Guaranty, (ii)
the Termination Date and (iii) the latest date of expiration or termination of
all Letters of Credit and all Secured Hedge Agreements, (b) be binding upon the
Guarantor, its successors and assigns and (c) inure to the benefit of and be
enforceable by the Secured Parties and their successors, transferees and
assigns. Without limiting the generality of clause (c) of the immediately
preceding sentence, any Secured Party may assign or otherwise transfer all or
any portion of its rights and obligations under the Credit Agreement (including,
without limitation, all or

                                  Subsidiary Guaranty

<PAGE>   259

                                       13

any portion of its Commitments, the Advances owing to it and the Note or Notes
held by it) to any other Person, and such other Person shall thereupon become
vested with all the benefits in respect thereof granted to such Secured Party
herein or otherwise, in each case as and to the extent provided in Section 8.07
of the Credit Agreement. No Guarantor shall have the right to assign its rights
hereunder or any interest herein without the prior written consent of the
Secured Parties.

                  Section 15. Release of Guarantors. If any of the Guarantors
shall cease to be a Subsidiary of the Domestic Borrower for any reason in
accordance with the terms of the Credit Agreement and the other Loan Documents
(including, without limitation, in connection with a transaction permitted under
Section 5.02(e) or 5.02(f) of the Credit Agreement), such Guarantor shall,
automatically and without any further action on the part of any of the other
Loan Parties or the Administrative Agent or any of the other Secured Parties,
and upon notice to the Administrative Agent, be fully released and discharged
from all its Obligations under or in respect of the Loan Documents to which such
Guarantor is a party. Upon the written request of the Domestic Borrower and the
satisfaction of any conditions precedent under the terms of the Loan Documents
(including, without limitation, Section 8.11 of the Credit Agreement) the
Administrative Agent or the Required Lenders shall, at the Domestic Borrower's
sole expense, execute such documents as shall be reasonably requested by the
Domestic Borrower to evidence the release of such Guarantor from all such
Obligations.

                  Section 16. Execution in Counterparts. This Guaranty and each
amendment, waiver and consent with respect hereto may be executed in any number
of counterparts and by different parties thereto 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. Delivery of an
executed counterpart of a signature page to this Guaranty by telecopier shall be
effective as delivery of an original executed counterpart of this Guaranty.

                  Section 17.  Governing Law; Jurisdiction; Waiver of Jury
Trial, Etc.  (a)  This Guaranty shall be governed by, and construed in
accordance with, the laws of the State of New York.

                  (b) Each Guarantor hereby irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive jurisdiction of any
New York State court or federal court of the United States of America sitting in
New York City, and any appellate court from any thereof, in any action or
proceeding arising out of or relating to this Guaranty or any of the other Loan
Documents to which it is or is to be a party, or for recognition or enforcement
of any judgment, and each Guarantor hereby irrevocably and unconditionally
agrees that all claims in respect of any such action or proceeding may be heard
and determined in any such New York State court or, to the extent permitted by
law, in such federal court. Each Guarantor agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Guaranty or any other Loan Document shall affect any right that
any party may otherwise have to bring any action or proceeding relating to this
Guaranty or any other Loan Document in the courts of any jurisdiction.


                                  Subsidiary Guaranty

<PAGE>   260

                                       14


                  (c) Each Guarantor irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection that it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Guaranty or any of the other Loan
Documents to which it is or is to be a party in any New York State or federal
court. Each Guarantor hereby irrevocably waives, to the fullest extent permitted
by law, the defense of an inconvenient forum to the maintenance of such suit,
action or proceeding in any such court.

                  (d) EACH GUARANTOR HEREBY IRREVOCABLY WAIVES ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON
CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF THE LOAN
DOCUMENTS, THE ADVANCES OR THE ACTIONS OF ANY SECURED PARTY IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF.



                                  Subsidiary Guaranty

<PAGE>   261



                  IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to
be duly executed and delivered by its officer thereunto duly authorized as of
the date first above written.


Domestic Subsidiary Guarantors:        SIA ADHESIVES, INC.


                                       By
                                         ---------------------------------------
                                         Title:


                                       PIERCE & STEVENS CORP.


                                       By
                                         ---------------------------------------
                                         Title:


                                       OSI SEALANTS, INC.


                                       By
                                         ---------------------------------------
                                         Title:


                                       TANNER CHEMICALS, INC.


                                       By
                                          --------------------------------------
                                          Title:




                               Subsidiary Guaranty

<PAGE>   262


                                                                       EXHIBIT A
                                                                          TO THE
                                                    DOMESTIC SUBSIDIARY GUARANTY


                 FORM OF DOMESTIC SUBSIDIARY GUARANTY SUPPLEMENT


                                                          --------- --, ----


The Chase Manhattan Bank, as Administrative Agent
[Address of Administrative Agent]

Attention:

                  Amended and Restated Credit Agreement dated as of April 6,
                  2000 among Sovereign Specialty Chemicals, Inc., a Delaware
                  corporation (the "DOMESTIC BORROWER"), the Lender Parties
                  party to the Credit Agreement, and The Chase Manhattan Bank,
                  as Administrative Agent


Ladies and Gentlemen:

                  Reference is made to the above-captioned Amended and Restated
Credit Agreement and to the Domestic Subsidiary Guaranty referred to therein
(such Domestic Subsidiary Guaranty, as in effect on the date hereof and as it
may hereafter be amended, supplemented or otherwise modified from time to time,
together with this Guaranty Supplement, being the "DOMESTIC SUBSIDIARY
GUARANTY"). The capitalized terms defined in the Domestic Subsidiary Guaranty or
in such Amended and Restated Credit Agreement and not otherwise defined herein
are used herein as therein defined.

                  Section 1. Guaranty; Limitation of Liability. (a) The
undersigned hereby absolutely, unconditionally and irrevocably guarantees the
punctual payment when due, whether at scheduled maturity or on any date of a
required prepayment or by acceleration, demand or otherwise, of all Obligations
of each other Loan Party now or hereafter existing under or in respect of the
Loan Documents (including, without limitation, any extensions, modifications,
substitutions, amendments or renewals of any or all of the foregoing
Obligations), whether direct or indirect, absolute or contingent, and whether
for principal, interest, premium, fees, indemnities, contract causes of action,
costs, expenses or otherwise (such Obligations being the "GUARANTEED
OBLIGATIONS"), and agrees to pay any and all expenses (including, without
limitation, fees and expenses of counsel) incurred by the Administrative Agent
or any other Secured Party in enforcing any rights under this Guaranty
Supplement, the Domestic Subsidiary Guaranty or any other Loan Document. Without
limiting the generality of the foregoing, the undersigned=s liability shall
extend to all amounts that constitute part

                               Subsidiary Guaranty

<PAGE>   263

                                       2

of the Guaranteed Obligations and would be owed by any other Loan Party to any
Secured Party under or in respect of the Loan Documents but for the fact that
they are unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving such other Loan Party.

                  (b) The undersigned, and by its acceptance of this Guaranty
Supplement, the Administrative Agent and each other Secured Party, hereby
confirms that it is the intention of all such Persons that this Guaranty
Supplement, the Domestic Subsidiary Guaranty and the Obligations of the
undersigned hereunder and thereunder not constitute a fraudulent transfer or
conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance
Act, the Uniform Fraudulent Transfer Act or any similar foreign, federal or
state law to the extent applicable to this Guaranty Supplement, the Domestic
Subsidiary Guaranty and the Obligations of the undersigned hereunder and
thereunder. To effectuate the foregoing intention, the Administrative Agent, the
other Secured Parties and the undersigned hereby irrevocably agree that the
Obligations of the undersigned under this Guaranty Supplement and the Domestic
Subsidiary Guaranty at any time shall be limited to the maximum amount as will
result in the Obligations of the undersigned under this Guaranty Supplement and
the Domestic Subsidiary Guaranty not constituting a fraudulent transfer or
conveyance.

                  (c) The undersigned hereby unconditionally and irrevocably
agrees that in the event any payment shall be required to be made to any Secured
Party under this Guaranty Supplement, the Domestic Subsidiary Guaranty or any
other guaranty, the undersigned will contribute, to the maximum extent permitted
by applicable law, such amounts to each other Guarantor and each other guarantor
so as to maximize the aggregate amount paid to the Secured Parties under or in
respect of the Loan Documents.

                  Section 2. Obligations Under the Guaranty. The undersigned
hereby agrees, as of the date first above written, to be bound as a Guarantor by
all of the terms and conditions of the Domestic Subsidiary Guaranty to the same
extent as each of the other Guarantors thereunder. The undersigned further
agrees, as of the date first above written, that each reference in the
Subsidiary Guaranty to an "ADDITIONAL GUARANTOR" or a "GUARANTOR" shall also
mean and be a reference to the undersigned, and each reference in any other Loan
Document to a "DOMESTIC SUBSIDIARY GUARANTOR" or a "LOAN PARTY" shall also mean
and be a reference to the undersigned.

                  Section 3. Representations and Warranties. The undersigned
hereby makes each representation and warranty set forth in Section 6 of the
Domestic Subsidiary Guaranty to the same extent as each other Guarantor.

                  Section 4. Delivery by Telecopier. Delivery of an executed
counterpart of a signature page to this Guaranty Supplement by telecopier shall
be effective as delivery of an original executed counterpart of this Guaranty
Supplement.


                               Subsidiary Guaranty

<PAGE>   264

                                       3


                  Section 5.  Governing Law; Jurisdiction; Waiver of Jury Trial,
Etc.  (a)  This Guaranty Supplement shall be governed by, and construed in
accordance with, the laws of the State of New York.

                  (b) The undersigned hereby irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive jurisdiction of any
New York State court or any federal court of the United States of America
sitting in New York City, and any appellate court from any thereof, in any
action or proceeding arising out of or relating to this Guaranty Supplement, the
Domestic Subsidiary Guaranty or any of the other Loan Documents to which it is
or is to be a party, or for recognition or enforcement of any judgment, and the
undersigned hereby irrevocably and unconditionally agrees that all claims in
respect of any such action or proceeding may be heard and determined in any such
New York State court or, to the extent permitted by law, in such federal court.
The undersigned agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Guaranty
Supplement or the Domestic Subsidiary Guaranty or any other Loan Document shall
affect any right that any party may otherwise have to bring any action or
proceeding relating to this Guaranty Supplement, the Domestic Subsidiary
Guaranty or any of the other Loan Documents to which it is or is to be a party
in the courts of any other jurisdiction.

                  (c) The undersigned irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection that it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Guaranty Supplement, the Domestic
Subsidiary Guaranty or any of the other Loan Documents to which it is or is to
be a party in any New York State or federal court. The undersigned hereby
irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such suit, action or proceeding in any
such court.

                  (d) THE UNDERSIGNED HEREBY IRREVOCABLY WAIVES ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON
CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF THE LOAN
DOCUMENTS, THE ADVANCES OR THE ACTIONS OF ANY SECURED PARTY IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF.


                                         Very truly yours,

                                         [NAME OF ADDITIONAL GUARANTOR]


                                          By
                                             -----------------------------------
                                             Title:



                               Subsidiary Guaranty
<PAGE>   265

                                                                       EXHIBIT G
                                                         TO THE CREDIT AGREEMENT





                AMENDED AND RESTATED DOMESTIC SUBSIDIARY GUARANTY

                            Dated as of April 6, 2000

                                      From

                           THE GUARANTORS NAMED HEREIN

                                       and

                  THE ADDITIONAL GUARANTORS REFERRED TO HEREIN

                                  as Guarantors

                                   in favor of

                       THE SECURED PARTIES REFERRED TO IN
                     THE CREDIT AGREEMENT REFERRED TO HEREIN


                               Subsidiary Guaranty
<PAGE>   266



                          T A B L E O F C O N T E N T S

<TABLE>
<CAPTION>


SECTION                                                                                                        PAGE
<S>                                                                                                            <C>
1.  Guaranty; Limitation of Liability.............................................................................1

2.  Guaranty Absolute.............................................................................................2

3.  Waivers and Acknowledgments...................................................................................4

4.  Subrogation...................................................................................................4

5.  Payments Free and Clear of Taxes, Etc.........................................................................5

6.  Representations and Warranties................................................................................9

7.  Covenants.....................................................................................................9

8.  Amendments, Guaranty Supplements, Etc........................................................................10

9.  Notices, Etc.................................................................................................10

10.  No Waiver; Remedies.........................................................................................11

11.  Right of Set-off............................................................................................11

12.  Indemnification.............................................................................................11

13.  Subordination...............................................................................................12

14.  Continuing Guaranty; Assignments under the Credit Agreement.................................................13

15.  Release of Guarantors.......................................................................................13

16.  Execution in Counterparts...................................................................................14

17.  Governing Law; Jurisdiction; Waiver of Jury Trial, Etc......................................................14
</TABLE>




Exhibit A  -  Guaranty Supplement




                              Subsidiary Guaranty
<PAGE>   267





                                OFFSHORE GUARANTY


                  OFFSHORE GUARANTY dated as of April 6, 2000 (this "GUARANTY")
made by Sovereign Specialty Chemicals, Inc., a Delaware corporation (the
"DOMESTIC BORROWER"), the Persons listed on the signature pages hereof under the
caption "DOMESTIC SUBSIDIARY GUARANTORS" and the Additional Guarantors (as
defined in Section 8(b)) (the Domestic Borrower, the Domestic Subsidiary
Guarantors so listed and the Additional Guarantors being, collectively, the
"GUARANTORS" and, individually, each a "GUARANTOR") in favor of the Secured
Parties (as defined in the Credit Agreement referred to below).

                  PRELIMINARY STATEMENT. The Domestic Borrower is party to an
Amended and Restated Credit Agreement dated as of the date hereof (as such
agreement may hereafter be amended and restated, supplemented or otherwise
modified from time to time, the "CREDIT AGREEMENT"; the capitalized terms
defined therein and not otherwise defined herein being used herein as therein
defined) with certain Lender Parties party thereto, Merrill Lynch, Pierce,
Fenner & Smith Incorporated and J.P. Morgan Securities Inc., as Joint Lead
Arrangers, and The Chase Manhattan Bank, as Administrative Agent for such Lender
Parties. Each Guarantor may receive, directly or indirectly, a portion of the
proceeds of the Advances under the Credit Agreement and will derive substantial
direct and indirect benefits from the transactions contemplated by the Credit
Agreement. It is a condition precedent to the making of Offshore Acquisition
Advances and Offshore Swing Line Advances to any Offshore Borrower by the Lender
Parties under the Credit Agreement and the entry by the Hedge Banks into Secured
Hedge Agreements with any Offshore Borrower from time to time that each
Guarantor shall have executed and delivered this Guaranty.

                  NOW, THEREFORE, in consideration of the premises and in order
to induce the Lender Parties to make Offshore Acquisition Advances and Offshore
Swing Line Advances to any Offshore Borrower under the Credit Agreement and the
Hedge Banks to enter into Secured Hedge Agreements from time to time with any
Offshore Borrower, each Guarantor, jointly and severally with each other
Guarantor, hereby agrees as follows:

                  Section 1. Guaranty; Limitation of Liability. (a) Each
Guarantor hereby absolutely, unconditionally and irrevocably guarantees the
punctual payment when due, whether at scheduled maturity or on any date of a
required prepayment or by acceleration, demand or otherwise, of all Offshore
Secured Obligations of each Offshore Obligor now or hereafter existing under or
in respect of the Loan Documents (including, without limitation, any extensions,
modifications, substitutions, amendments or renewals of any or all of the
foregoing Obligations), whether direct or indirect, absolute or contingent, and
whether for principal, interest, premiums, fees, indemnities, contract causes of
action, costs, expenses or otherwise (such Obligations being the "GUARANTEED
OBLIGATIONS"), and agrees to pay any and all expenses (including, without
limitation, fees and expenses of counsel) incurred by the Administrative Agent
or any other Secured Party in enforcing any rights under this Guaranty. Without
limiting the generality of the foregoing, each Guarantor's liability shall
extend to all amounts that constitute part of the Guaranteed Obligations and
would be owed by any other Loan Party to any Secured Party under or in respect
of the Loan Documents but


                               Offshore Guaranty

<PAGE>   268



for the fact that they are unenforceable or not allowable due to the existence
of a bankruptcy, reorganization or similar proceeding involving such other Loan
Party.

                  (b) Each Guarantor (other than the Domestic Borrower), and by
its acceptance of this Guaranty, the Administrative Agent and each other Secured
Party, hereby confirms that it is the intention of all such Persons that this
Guaranty and the Obligations of each such Guarantor hereunder not constitute a
fraudulent transfer or conveyance for purposes of Bankruptcy Law (as hereinafter
defined), the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer
Act or any similar foreign, federal or state law to the extent applicable to
this Guaranty and the Obligations of each such Guarantor hereunder. To
effectuate the foregoing intention, the Administrative Agent, the other Secured
Parties and the Guarantors hereby irrevocably agree that the Obligations of each
Guarantor (other than the Domestic Borrower) under this Guaranty at any time
shall be limited to the maximum amount as will result in the Obligations of such
Guarantor under this Guaranty not constituting a fraudulent transfer or
conveyance. For purposes hereof, "BANKRUPTCY LAW" means any proceeding of the
type referred to in Section 6.01(f) of the Credit Agreement or Title 11, U.S.
Code, or any similar foreign, federal or state law for the relief of debtors.

                  (c) Each Guarantor hereby unconditionally and irrevocably
agrees that in the event any payment shall be required to be made to any Secured
Party under this Guaranty or any other guaranty, such Guarantor will contribute,
to the maximum extent permitted by law, such amounts to each other Guarantor and
each other guarantor so as to maximize the aggregate amount paid to the Secured
Parties under or in respect of the Loan Documents.

                  Section 2. Guaranty Absolute. Each Guarantor guarantees that
the Guaranteed Obligations will be paid strictly in accordance with the terms of
the Loan Documents, regardless of any law, regulation or order now or hereafter
in effect in any jurisdiction affecting any of such terms or the rights of any
Secured Party with respect thereto. The Obligations of each Guarantor under or
in respect of this Guaranty are independent of the Guaranteed Obligations or any
other Obligations of any other Loan Party under or in respect of the Loan
Documents, and a separate action or actions may be brought and prosecuted
against each Guarantor to enforce this Guaranty, irrespective of whether any
action is brought against the Domestic Borrower or any other Loan Party or
whether the Domestic Borrower or any other Loan Party is joined in any such
action or actions. The liability of each Guarantor under this Guaranty shall be
irrevocable, absolute and unconditional irrespective of, and each Guarantor
hereby irrevocably waives any defenses it may now have or hereafter acquire in
any way relating to, any or all of the following:

                  (a) any lack of validity or enforceability of any Loan
         Document or any agreement or instrument relating thereto;

                  (b) any change in the time, manner or place of payment of, or
         in any other term of, all or any of the Guaranteed Obligations or any
         other Obligations of any other Loan Party under or in respect of the
         Loan Documents, or any other amendment or waiver of or any consent to
         departure from any Loan Document, including, without limitation, any
         increase in


                               Offshore Guaranty

<PAGE>   269



                                       3

         the Guaranteed Obligations resulting from the extension of
         additional credit to any Loan Party or any of its Subsidiaries or
         otherwise;

                  (c) any taking, exchange, release or non-perfection of any
         Collateral or any other collateral, or any taking, release or amendment
         or waiver of, or consent to departure from, any other guaranty, for all
         or any of the Guaranteed Obligations;

                  (d) any manner of application of Collateral or any other
         collateral, or proceeds thereof, to all or any of the Guaranteed
         Obligations, or any manner of sale or other disposition of any
         Collateral or any other collateral for all or any of the Guaranteed
         Obligations or any other Obligations of any Loan Party under the Loan
         Documents or any other assets of any Loan Party or any of its
         Subsidiaries;

                  (e) any change, restructuring or termination of the corporate
         structure or existence of any Loan Party or any of its Subsidiaries;

                  (f) any failure of any Secured Party to disclose to any Loan
         Party any information relating to the business, condition (financial or
         otherwise), operations, performance, properties or prospects of any
         other Loan Party now or hereafter known to such Secured Party (each
         Guarantor waiving any duty on the part of the Secured Parties to
         disclose such information);

                  (g) the failure of any other Person to execute or deliver this
         Guaranty, any Guaranty Supplement (as hereinafter defined) or any other
         guaranty or agreement or the release or reduction of liability of any
         Guarantor or other guarantor or surety with respect to the Guaranteed
         Obligations; or

                  (h) any other circumstance (including, without limitation, any
         statute of limitations) or any existence of or reliance on any
         representation by any Secured Party that might otherwise constitute a
         defense available to, or a discharge of, any Loan Party or any other
         guarantor or surety.

This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Guaranteed Obligations is rescinded
or must otherwise be returned by any Secured Party or any other Person upon the
insolvency, bankruptcy or reorganization of the Domestic Borrower or any other
Loan Party or otherwise, all as though such payment had not been made.

                  Section 3. Waivers and Acknowledgments. (a) Each Guarantor
hereby unconditionally and irrevocably waives promptness, diligence, notice of
acceptance, presentment, demand for performance, notice of nonperformance,
default, acceleration, protest or dishonor and any other notice with respect to
any of the Guaranteed Obligations and this Guaranty and any requirement that any
Secured Party protect, secure, perfect or insure any Lien or any property

                               Offshore Guaranty
<PAGE>   270


                                       4

subject thereto or exhaust any right or take any action against any Loan Party
or any other Person or any Collateral.

                  (b) Each Guarantor hereby unconditionally and irrevocably
waives any right to revoke this Guaranty and acknowledges that this Guaranty is
continuing in nature and applies to all Guaranteed Obligations, whether existing
now or in the future.

                  (c) Each Guarantor hereby unconditionally and irrevocably
waives (i) any defense arising by reason of any claim or defense based upon an
election of remedies by any Secured Party that in any manner impairs, reduces,
releases or otherwise adversely affects the subrogation, reimbursement,
exoneration, contribution or indemnification rights of such Guarantor or other
rights of such Guarantor to proceed against any of the other Loan Parties, any
other guarantor or any other Person or any Collateral and (ii) any defense based
on any right of set-off or counterclaim against or in respect of the Obligations
of such Guarantor hereunder.

                  (d) Each Guarantor acknowledges that the Administrative Agent
may, without notice to or demand upon such Guarantor and without affecting the
liability of such Guarantor under this Guaranty, foreclose under any mortgage by
nonjudicial sale, and each Guarantor hereby waives any defense to the recovery
by the Administrative Agent and the other Secured Parties against such Guarantor
of any deficiency after such nonjudicial sale and any defense or benefits that
may be afforded by applicable law.

                  (e) Each Guarantor hereby unconditionally and irrevocably
waives any duty on the part of any Secured Party to disclose to such Guarantor
any matter, fact or thing relating to the business, condition (financial or
otherwise), operations, performance, properties or prospects of any other Loan
Party or any of its Subsidiaries now or hereafter known by such Secured Party.

                  (f) Each Guarantor acknowledges that it will receive
substantial direct and indirect benefits from the financing arrangements
contemplated by the Loan Documents and that the waivers set forth in Section 2
and this Section 3 are knowingly made in contemplation of such benefits.

                  Section 4. Subrogation. Each Guarantor hereby unconditionally
and irrevocably agrees not to exercise any rights that it may now have or
hereafter acquire against the Domestic Borrower, any other Loan Party or any
other insider guarantor that arise from the existence, payment, performance or
enforcement of such Guarantor's Obligations under or in respect of this Guaranty
or any other Loan Document, including, without limitation, any right of
subrogation, reimbursement, exoneration, contribution or indemnification and any
right to participate in any claim or remedy of any Secured Party against the
Domestic Borrower, any other Loan Party or any other insider guarantor or any
Collateral, whether or not such claim, remedy or right arises in equity or under
contract, statute or common law, including, without limitation, the right to
take or receive from the Domestic Borrower, any other Loan Party or any other
insider guarantor, directly or indirectly, in cash or other property or by
set-off or in any other manner, payment or security on account of such claim,
remedy or right, unless and until all of the Guaranteed Obligations and all


                               Offshore Guaranty



<PAGE>   271
                                       5

other amounts payable under this Guaranty shall have been paid in full in cash,
and all Secured Hedge Agreements with any Offshore Borrower shall have expired
or been terminated and the Commitments shall have expired or been terminated. If
any amount shall be paid to any Guarantor in violation of the immediately
preceding sentence at any time prior to the latest of (a) the payment in full in
cash of the Guaranteed Obligations and all other amounts payable under this
Guaranty, (b) the Termination Date and (c) the latest date of expiration or
termination of all Secured Hedge Agreements with any Offshore Borrower, such
amount shall be received and held in trust for the benefit of the Secured
Parties, shall be segregated from other property and funds of such Guarantor and
shall forthwith be paid or delivered to the Administrative Agent in the same
form as so received (with any necessary endorsement or assignment) to be
credited and applied to the Guaranteed Obligations and all other amounts payable
under this Guaranty, whether matured or unmatured, in accordance with the terms
of the Loan Documents, or to be held as Collateral for any Guaranteed
Obligations or other amounts payable under this Guaranty thereafter arising. If
(i) any Guarantor shall make payment to any Secured Party of all or any part of
the Guaranteed Obligations, (ii) all of the Guaranteed Obligations and all other
amounts payable under this Guaranty shall have been paid in full in cash, (iii)
the Termination Date shall have occurred and (iv) all Secured Hedge Agreements
with any Offshore Borrower shall have expired or been terminated, the Secured
Parties will, at such Guarantor's request and expense, execute and deliver to
such Guarantor appropriate documents, without recourse and without
representation or warranty, necessary to evidence the transfer by subrogation to
such Guarantor of an interest in the Guaranteed Obligations resulting from such
payment made by such Guarantor pursuant to this Guaranty.

                  Section 5. Payments Free and Clear of Taxes, Etc. (a) Except
as set forth in this Section 5, any and all payments made by any Guarantor under
or in respect of this Guaranty shall be made, in accordance with Section 2.11 of
the Credit Agreement, and free and clear of and without deduction for any and
all present or future Taxes. If any Guarantor shall be required by law to deduct
any Taxes from or in respect of any sum payable under or in respect of this
Guaranty to any Secured Party, (i) subject to Section 5(h), the sum payable by
such Guarantor shall be increased as may be necessary so that after such
Guarantor and the Administrative Agent have made all required deductions
(including deductions applicable to additional sums payable under this Section
5), such Secured Party receives an amount equal to the sum it would have
received had no such deductions been made, (ii) such Guarantor shall make all
such deductions and (iii) such Guarantor shall pay the full amount deducted to
the relevant taxation authority or other authority in accordance with applicable
law.

                  (b) In addition, each Guarantor agrees to pay any present or
future Other Taxes that arise from any payment made by or on behalf of such
Guarantor under or in respect of this Guaranty or from the execution, delivery
or registration of, performance under, or otherwise with respect to, this
Guaranty.

                  (c) Subject to Section 5(h), each Guarantor will indemnify
each Secured Party for and hold it harmless against the full amount of Taxes and
Other Taxes, imposed on or paid by such Secured Party in respect of payments
made by or on behalf of such Guarantor under or in respect of this Guaranty and
any liability (including penalties, additions to tax, interest and expenses)


                               Offshore Guaranty

<PAGE>   272

                                       6

arising therefrom or with respect thereto. This indemnification shall be made
within 30 days from the date such Secured Party makes written demand therefor.

                  (d) Within 30 days after the date of any payment of Taxes by
or on behalf of any Guarantor, such Guarantor shall furnish to the
Administrative Agent, at its address referred to in Section 9, the original or a
certified copy of a receipt (or other evidence reasonably satisfactory to the
Administrative Agent) evidencing such payment. In the case of any payment
hereunder by or on behalf of any Domestic Obligor through an account or branch
outside the United States or by or on behalf of such Domestic Obligor by a payor
that is not a United States person, if such Domestic Obligor determines that no
Taxes are payable in respect thereof, such Domestic Obligor shall furnish, or
shall cause such payor to furnish, to the Administrative Agent, at such address,
an opinion of counsel acceptable to the Administrative Agent stating that such
payment is exempt from Taxes. For purposes of this Section 5, the terms "UNITED
STATES" and "UNITED STATES PERSON" shall have the meanings specified in Section
7701 of the Internal Revenue Code.

                  (e) Upon the reasonable request in writing of any Guarantor,
each Domestic Borrower Lender Party organized under the laws of a jurisdiction
outside the United States shall, on or prior to the date of its execution and
delivery of the Credit Agreement in the case of each Initial Lender or Initial
Issuing Bank, as the case may be, and on or prior to the date of the Assignment
and Acceptance, the Joinder Agreement or Secured Hedge Agreement pursuant to
which it becomes a Domestic Borrower Lender Party in the case of each other
Domestic Borrower Lender Party, and from time to time thereafter upon the
reasonable request in writing by any Guarantor (but only so long thereafter as
such Secured Party remains lawfully able to do so), provide each of the
Administrative Agent and such Guarantor with (i) two original Internal Revenue
Service forms W-8BEN or W-8ECI, as applicable (or any successor or other
applicable form prescribed by the Internal Revenue Service), or (ii) in the case
of a Secured Party claiming exemption from U.S. federal withholding tax under
Section 871(h) or 881(c) of the Code with respect to payments of "portfolio
interest," a statement substantially in the form of Exhibit J to the Credit
Agreement and two copies of Internal Revenue Service Form W-8BEN (or any
successor or other applicable form prescribed by the Internal Revenue Service),
certifying that such Secured Party is exempt from or entitled to a reduced rate
of United States withholding tax on payments pursuant to this Guaranty or any
other Loan Document. Upon request in writing by any Guarantor, each Domestic
Borrower Lender Party shall deliver to such Guarantor and the Administrative
Agent (provided that such Secured Party remains lawfully able to do so), two
further duly executed forms and statements, properly completed in all material
respects, at or before the time any such form or statement expires or becomes
obsolete, or as otherwise reasonably requested in writing by such Guarantor.
Each such Domestic Borrower Lender Party shall promptly notify such Guarantor at
any time it determines that it is no longer in a position to provide any
previously delivered certificate to such Guarantor (or any other form or
certification adopted by the U.S. taxing authorities for such purpose). If the
forms provided by a Domestic Borrower Lender Party at the time such Domestic
Borrower Lender Party first becomes a party to the Credit Agreement or the
applicable Secured Hedge Agreement indicate a United States interest withholding
tax rate in excess of zero, withholding tax at such rate shall be considered
excluded from Taxes unless and until such Domestic Borrower Lender Party
provides the appropriate forms certifying that a lesser rate applies, whereupon
withholding tax at such lesser rate


                               Offshore Guaranty

<PAGE>   273
                                       7

only shall be considered excluded from Taxes for periods governed by such forms;
provided, however, that if, in the case of a Domestic Borrower Lender Party
becoming a party to the Credit Agreement at the effective date of the Assignment
and Acceptance or the Joinder Agreement pursuant to which a Domestic Borrower
Lender Party becomes a party to the Credit Agreement, the Domestic Borrower
Lender Party assignor was entitled to payments under subsection (a) of this
Section 5 in respect of United States withholding tax with respect to interest
paid at such date, then, to such extent, the term Taxes shall include (in
addition to withholding taxes that may be imposed in the future or other amounts
otherwise includable in Taxes) United States withholding tax, if any, applicable
with respect to the Domestic Borrower Lender Party assignee on such date. If any
form or document referred to in this subsection (e) requires the disclosure of
information, other than information necessary to compute the tax payable and
information required on the date hereof by Internal Revenue Service forms W-8BEN
or W-8ECI (or the related certificate described above), that the applicable
Secured Party reasonably considers to be confidential, such Secured Party shall
give notice thereof to the applicable Guarantor and shall not be obligated to
include in such form or document such confidential information.

                  (f) Upon the reasonable request in writing of any Guarantor,
each Domestic Borrower Lender Party which is a United States person shall, on or
prior to the date of its execution and delivery of the Credit Agreement in the
case of each Initial Lender Party or Initial Issuing Bank, as the case may be,
and on the effective date of the Assignment and Acceptance, the Joinder
Agreement or Secured Hedge Agreement pursuant to which it becomes a Domestic
Borrower Lender Party in the case of each other Domestic Borrower Lender Party,
deliver to such Guarantor and the Administrative Agent two duly completed copies
of United States Internal Revenue Service Form W-9 (or any successor or other
applicable form prescribed by the Internal Revenue Service) unless it
establishes to the reasonable satisfaction of such Guarantor that it is
otherwise eligible for an exemption from backup withholding tax or other
applicable withholding tax. Upon request in writing by such Guarantor, each such
Secured Party shall deliver to such Guarantor and the Administrative Agent
(provided that such Domestic Borrower Lender Party remains lawfully able to do
so), two further duly executed forms and statements, properly completed in all
material respects, at or before the time any such form or statement expires or
becomes obsolete, or otherwise as reasonably requested by such Guarantor. Each
such Secured Party shall promptly notify the applicable Guarantor at any time it
determines that it is no longer in a position to provide any previously
delivered certificate to such Guarantor (or any other form or certification
adopted by the U.S. taxing authorities for such purpose).

                  (g) Upon the reasonable request in writing of any Guarantor
prior to the date on which an Offshore Borrower requests an Advance, each Lender
Party which has made an Advance to an Offshore Borrower or executed an
Assignment and Acceptance with respect to such an Advance shall, on or prior to
the date it makes such an Advance or executes such an Assignment and Acceptance,
provide each of the Administrative Agent and such Guarantor with any forms,
certifications or other information as may reasonably be requested by such
Guarantor for the purpose of minimizing or eliminating any Taxes required to be
paid by such Guarantor with respect to any Offshore Acquisition Advance or
Offshore Swing Line Advance under the laws of the jurisdiction in which such
Guarantor is organized, or is a resident, is doing business or has a fixed base
or




                               Offshore Guaranty



<PAGE>   274
                                       8

permanent establishment, and shall also deliver such forms at such other times
as a Guarantor may reasonably request in writing. Each such Lender Party shall
promptly notify the applicable Guarantor at any time it determines it is no
longer in a position to provide any previously delivered form, certification or
other applicable information.

                  (h) For any period with respect to which a Secured Party has
failed to provide any Guarantor following such Guarantor's request therefor
pursuant to subsection (e), (f) or (g) above with the appropriate form described
in subsection (e), (f) or (g) above (other than if such failure is due to a
change in law occurring after the date on which a form originally was required
to be provided or, in the case of a form requested pursuant to clause (g) above,
if such Secured Party has notified the applicable Guarantor of a reasonable
basis for such failure), such Secured Party shall not be entitled to
indemnification under subsection (a) or (c) of this Section 5 with respect to
Taxes imposed by the United States by reason of such failure; provided, however,
that should a Secured Party become subject to Taxes because of its failure to
deliver a form required hereunder, such Guarantor shall take such steps as such
Secured Party shall reasonably request to assist such Secured Party to recover
such Taxes.

                  (i) Each Secured Party which is not a United States person
agrees to indemnify and hold harmless each Guarantor from and against any and
all taxes, related penalties and interest, and reasonable out-of-pocket costs
incurred by such Guarantor as a result of a failure by such Guarantor to comply
with its obligations to deduct or withhold any Taxes from any payment made under
this Guaranty, which failure resulted solely from such Guarantor's reasonable
reliance on information provided by such Secured Party on a form referred to in
Section 5(e) or (f).

                  (j) If any Secured Party determines, in its sole discretion,
that it has finally and irrevocably received a refund of any Taxes that have
been paid or reimbursed by any Guarantor pursuant to Section 5(a) or (c) in
respect of payments hereunder or under such Guarantor that it would otherwise
not have obtained and that would result in total payments made under this
Section 5 exceeding that amount needed to make such Secured Party whole, such
Secured Party shall, to the extent that it determines in its sole discretion
that it can do so without prejudice to the retention of the amount of such
refund, pay to such Guarantor following actual receipt of such refund and
without any interest thereon, the amount of such refund after deducting
therefrom all out-of-pocket expenses incurred by or on behalf of such Secured
Party in securing such refund; provided that such Guarantor agrees, upon request
of such Secured Party, to return the amount of such refund to such Secured
Party, together with the amount of all additional out-of-pocket expenses,
penalties, interest or other charges in respect thereof, if such Secured Party
is required to repay or otherwise loses the benefit of such refund. Nothing in
this Section 5 shall be construed to interfere with the right of a Secured Party
to arrange its tax affairs in whatever manner it thinks fit or require any
Secured Party to claim any refund, or to require any Secured Party to make
available to such Guarantor or the Administrative Agent any of its tax returns
or any other information relating to Taxes that it deems to be confidential.

                  Section 6. Representations and Warranties. Each Guarantor
hereby makes each representation and warranty made in the Loan Documents by the
Domestic Borrower with respect to

                               Offshore Guaranty
<PAGE>   275


                                       9

such Guarantor (provided that each reference in each such representation and
warranty to the Domestic Borrower's knowledge shall, for the purposes of this
Section 6, be deemed to be a reference to such Guarantor's knowledge) and each
Guarantor hereby further represents and warrants as follows:

                  (a) There are no conditions precedent to the effectiveness of
         this Guaranty that have not been satisfied or waived.

                  (b) Such Guarantor has, independently and without reliance
         upon any Secured Party and based on such documents and information as
         it has deemed appropriate, made its own credit analysis and decision to
         enter into this Guaranty and each other Loan Document to which it is or
         is to be a party, and such Guarantor has established adequate means of
         obtaining from each other Loan Party on a continuing basis information
         pertaining to, and is now and on a continuing basis will be completely
         familiar with, the business, condition (financial or otherwise),
         operations, performance, properties and prospects of such other Loan
         Party.

                  Section 7. Covenants. Each Guarantor covenants and agrees
that, so long as any part of the Guaranteed Obligations shall remain unpaid, any
Lender Party shall have any Commitment or any Secured Hedge Agreement with any
Offshore Borrower shall be in effect, such Guarantor will perform and observe,
and cause each of its Subsidiaries to perform and observe, all of the terms,
covenants and agreements set forth in the Loan Documents on its or their part to
be performed or observed or that the Domestic Borrower has agreed to cause such
Guarantor or such Subsidiaries to perform or observe.

                  Section 8. Amendments, Guaranty Supplements, Etc. (a) No
amendment or waiver of any provision of this Guaranty and no consent to any
departure by any Guarantor therefrom shall in any event be effective unless the
same shall be in writing and signed by the Administrative Agent and the Required
Lenders, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given; provided, however, that
no amendment, waiver or consent shall, unless in writing and signed by all of
the Secured Parties (other than any Lender Party that is, at such time, a
Defaulting Lender), (a) reduce or limit the obligations of any Guarantor
hereunder, release any Guarantor hereunder or otherwise limit any Guarantor's
liability with respect to the Obligations owing to the Secured Parties under or
in respect of the Loan Documents except (x) as provided in Section 15 hereof,
(y) pursuant to a merger permitted under Section 5.02(e) of the Credit Agreement
or (z) in connection with the sale of such Guarantor permitted pursuant to
Section 5.02(f) of the Credit Agreement or a waiver of such Section 5.02 of the
Credit Agreement effected with the consent of the Required Lenders, (b) postpone
any date fixed for payment hereunder or (c) change the number of Secured Parties
or the percentage of (x) the Commitments, (y) the aggregate unpaid principal
amount of the Advances or (z) the aggregate Available Amount of outstanding
Letters of Credit that, in each case, shall be required for the Secured Parties
or any of them to take any action hereunder; provided further, however, that no
amendment, waiver or consent shall, unless in writing and signed by the
Administrative Agent in





                               Offshore Guaranty

<PAGE>   276

                                      10

addition to the Lenders required above to take such action, affect the rights or
duties of the Administrative Agent under this Guaranty or the other Loan
Documents.

                  (b) Upon the execution and delivery by any Person of a
guaranty supplement in substantially the form of Exhibit A hereto (each, a
"GUARANTY SUPPLEMENT"), (i) such Person shall be referred to as an "ADDITIONAL
GUARANTOR" and shall become and be a Guarantor hereunder, and each reference in
this Guaranty to a "GUARANTOR" shall also mean and be a reference to such
Additional Guarantor, and each reference in any other Loan Document to a
"OFFSHORE GUARANTOR" shall also mean and be a reference to such Additional
Guarantor, and (ii) each reference herein to "THIS GUARANTY", "HEREUNDER",
"HEREOF" or words of like import referring to this Guaranty, and each reference
in any other Loan Document to the "OFFSHORE GUARANTY", "THEREUNDER", "THEREOF"
or words of like import referring to this Guaranty, shall mean and be a
reference to this Guaranty as supplemented by such Guaranty Supplement.

                  Section 9. Notices, Etc. All notices and other communications
provided for hereunder shall be in writing (including telegraphic, telecopy or
telex communication) and mailed, telegraphed, telecopied, telexed or delivered
to it, if to any Guarantor, addressed to it in care of the Domestic Borrower at
the Domestic Borrower's address specified in Section 8.02 of the Credit
Agreement, if to any Agent or any Lender Party, at its address specified in
Section 8.02 of the Credit Agreement, if to any Hedge Bank, at its address
specified in the Secured Hedge Agreement to which it is a party, or, as to any
party, at such other address as shall be designated by such party in a written
notice to each other party. All such notices and other communications shall,
when mailed, telegraphed, telecopied or telexed, be effective when deposited in
the mails, delivered to the telegraph company, transmitted by telecopier or
confirmed by telex answerback, respectively. Delivery by telecopier of an
executed counterpart of a signature page to any amendment or waiver of any
provision of this Guaranty or of any Guaranty Supplement to be executed and
delivered hereunder shall be effective as delivery of an original executed
counterpart thereof.

                  Section 10. No Waiver; Remedies. No failure on the part of any
Secured Party to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.

                  Section 11. Right of Set-off. Upon (a) the occurrence and
during the continuance of any Event of Default and (b) the making of the request
or the granting of the consent specified by Section 6.01 of the Credit Agreement
to authorize the Administrative Agent to declare the Notes due and payable
pursuant to the provisions of said Section 6.01, each Agent and each Lender
Party and each of their respective Affiliates is hereby authorized at any time
and from time to time, to the fullest extent permitted by law, to set off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by such Agent,
such Lender Party or such Affiliate to or for the credit or the account of any
Guarantor against any and all of the Obligations of such Guarantor now or
hereafter existing under the Loan Documents, irrespective of whether such Agent
or such Lender Party shall have made any demand

                               Offshore Guaranty

<PAGE>   277

                                       11

under this Guaranty or any other Loan Document and although such Obligations may
be unmatured. Each Agent and each Lender Party agrees promptly to notify such
Guarantor after any such set-off and application; provided, however, that the
failure to give such notice shall not affect the validity of such set-off and
application. The rights of each Agent and each Lender Party and their respective
Affiliates under this Section are in addition to other rights and remedies
(including, without limitation, other rights of set-off) that such Agent, such
Lender Party and their respective Affiliates may have.

                  Section 12. Indemnification. (a) Without limitation on any
other Obligations of any Guarantor or remedies of the Secured Parties under this
Guaranty, each Guarantor shall, to the fullest extent permitted by law,
indemnify, defend and save and hold harmless each Secured Party and each of
their Affiliates and their respective officers, directors, employees, agents and
advisors (each, an "INDEMNIFIED PARTY") from and against, and shall pay on
demand, any and all claims, damages, losses, liabilities and expenses
(including, without limitation, reasonable fees and expenses of counsel) that
may be incurred by or asserted or awarded against any Indemnified Party in
connection with or as a result of any failure of any Guaranteed Obligations to
be the legal, valid and binding obligations of any Loan Party enforceable
against such Loan Party in accordance with their terms.

                  (b) Each Guarantor also agrees that no Indemnified Party shall
have any liability (whether direct or indirect, in contract or tort or
otherwise) for any Losses to any Loan Party or any Loan Party's security holders
or creditors resulting from, arising out of or in any way related to or by
reason of, the Facilities, the actual or proposed use of the proceeds of the
Advance or the Letters of Credit, the Transaction Documents or any of the
transactions contemplated by the Transaction Documents except to the extent that
any Loss resulted from the gross negligence or bad faith of such Indemnified
Persons.

                  (c) Without prejudice to the survival of any of the other
agreements of any Guarantor under this Guaranty or any of the other Loan
Documents, the agreements and obligations of each Guarantor contained in Section
1(a) (with respect to enforcement expenses), the last sentence of Section 2,
Section 5 and this Section 12 shall survive the payment in full of the
Guaranteed Obligations and all of the other amounts payable under this Guaranty.

                  Section 13. Subordination. Each Guarantor hereby subordinates
any and all debts, liabilities and other Obligations owed to such Guarantor by
each other Loan Party (the "SUBORDINATED OBLIGATIONS") to the Guaranteed
Obligations to the extent and in the manner hereinafter set forth in this
Section 13:

                  (a) Prohibited Payments, Etc. Except during the continuance of
         a Default under Section 6.01(a) or (f) of the Credit Agreement or an
         Event of Default (including the commencement and continuation of any
         proceeding under any Bankruptcy Law relating to any other Loan Party),
         each Guarantor may receive regularly scheduled payments from any other
         Loan Party on account of the Subordinated Obligations. After the
         occurrence and during the continuance of any Default under Section
         6.01(a) or (f) of the Credit Agreement or an Event of Default
         (including the commencement and continuation of any proceeding

                               Offshore Guaranty
<PAGE>   278
                                       12

         under any Bankruptcy Law relating to any other Loan Party), however,
         unless the Administrative Agent otherwise agrees, no Guarantor shall
         demand, accept or take any action to collect any payment on account of
         the Subordinated Obligations.

                  (b) Prior Payment of Guaranteed Obligations. In any proceeding
         under any Bankruptcy Law relating to any other Loan Party, each
         Guarantor agrees that the Secured Parties shall be entitled to receive
         payment in full in cash of all Guaranteed Obligations (including all
         interest and expenses accruing after the commencement of a proceeding
         under any Bankruptcy Law, whether or not constituting an allowed claim
         in such proceeding ("POST PETITION INTEREST")) before such Guarantor
         receives payment of any Subordinated Obligations.

                  (c) Turn-Over. After the occurrence and during the continuance
         of any Default under Section 6.01(a) or (f) of the Credit Agreement or
         an Event of Default (including the commencement and continuation of any
         proceeding under any Bankruptcy Law relating to any other Loan Party),
         each Guarantor shall, if the Administrative Agent so requests, collect,
         enforce and receive payments on account of the Subordinated Obligations
         as trustee for the Secured Parties and deliver such payments to the
         Administrative Agent on account of the Guaranteed Obligations
         (including all Post Petition Interest), together with any necessary
         endorsements or other instruments of transfer, but without reducing or
         affecting in any manner the liability of such Guarantor under the other
         provisions of this Guaranty.

                  (d) Administrative Agent Authorization. After the occurrence
         and during the continuance of any Default under Section 6.01(a) or (f)
         of the Credit Agreement or any Event of Default (including the
         commencement and continuation of any proceeding under any Bankruptcy
         Law relating to any other Loan Party), the Administrative Agent is
         authorized and empowered (but without any obligation to so do), in its
         discretion, (i) in the name of each Guarantor, to collect and enforce,
         and to submit claims in respect of, Subordinated Obligations and to
         apply any amounts received thereon to the Guaranteed Obligations
         (including any and all Post Petition Interest), and (ii) to require
         each Guarantor (A) to collect and enforce, and to submit claims in
         respect of, Subordinated Obligations and (B) to pay any amounts
         received on such obligations to the Administrative Agent for
         application to the Guaranteed Obligations (including any and all Post
         Petition Interest).

                  Section 14. Continuing Guaranty; Assignments under the Credit
Agreement. This Guaranty is a continuing guaranty and shall (a) remain in full
force and effect until the latest of (i) the payment in full in cash of the
Guaranteed Obligations and all other amounts payable under this Guaranty, (ii)
the Termination Date and (iii) the latest date of expiration or termination of
all Secured Hedge Agreements with any Offshore Borrower, (b) be binding upon
each Guarantor, its successors and assigns and (c) inure to the benefit of and
be enforceable by the Secured Parties and their successors, transferees and
assigns. Without limiting the generality of clause (c) of the immediately
preceding sentence, any Secured Party may assign or otherwise transfer all or
any portion of its rights and obligations under the Credit Agreement (including,
without limitation, all or any portion of its Commitments, the Advances owing to
it and the Note or Notes held by it) to any

                               Offshore Guaranty

<PAGE>   279

                                       13


other Person, and such other Person shall thereupon become vested with all the
benefits in respect thereof granted to such Secured Party herein or otherwise,
in each case as and to the extent provided in Section 8.07 of the Credit
Agreement. No Guarantor shall have the right to assign its rights hereunder or
any interest herein without the prior written consent of the Secured Parties.

                  Section 15. Release of Guarantors. If any of the Guarantors
shall cease to be a Subsidiary of the Domestic Borrower for any reason in
accordance with the terms of the Credit Agreement and the other Loan Documents
(including, without limitation, in connection with a transaction permitted under
Section 5.02(e) or 5.02(f) of the Credit Agreement), such Guarantor shall,
automatically and without any further action on the part of any of the other
Loan Parties or the Administrative Agent or any of the other Secured Parties,
and upon notice to the Administrative Agent, be fully released and discharged
from all its Obligations under or in respect of the Loan Documents to which such
Guarantor is a party. Upon the written request of the Domestic Borrower and the
satisfaction of any conditions precedent under the terms of the Loan Documents
(including, without limitation, Section 8.11 of the Credit Agreement) the
Administrative Agent or the Required Lenders shall, at the Domestic Borrower's
sole expense, execute such documents as shall be reasonably requested by the
Domestic Borrower to evidence the release of such Guarantor from all such
Obligations.

                  Section 16. Execution in Counterparts. This Guaranty and each
amendment, waiver and consent with respect hereto may be executed in any number
of counterparts and by different parties thereto 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. Delivery of an
executed counterpart of a signature page to this Guaranty by telecopier shall be
effective as delivery of an original executed counterpart of this Guaranty.

                  Section 17. Governing Law; Jurisdiction; Waiver of Jury Trial,
Etc. (a) This Guaranty shall be governed by, and construed in accordance with,
the laws of the State of New York.

                  (b) Each Guarantor hereby irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive jurisdiction of any
New York State court or federal court of the United States of America sitting in
New York City, and any appellate court from any thereof, in any action or
proceeding arising out of or relating to this Guaranty or any of the other Loan
Documents to which it is or is to be a party, or for recognition or enforcement
of any judgment, and each Guarantor hereby irrevocably and unconditionally
agrees that all claims in respect of any such action or proceeding may be heard
and determined in any such New York State court or, to the extent permitted by
law, in such federal court. Each Guarantor agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Guaranty or any other Loan Document shall affect any right that
any party may otherwise have to bring any action or proceeding relating to this
Guaranty or any other Loan Document in the courts of any jurisdiction.



                               Offshore Guaranty


<PAGE>   280

                                       14
                  (c) Each Guarantor irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection that it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Guaranty or any of the other Loan
Documents to which it is or is to be a party in any New York State or federal
court. Each Guarantor hereby irrevocably waives, to the fullest extent permitted
by law, the defense of an inconvenient forum to the maintenance of such suit,
action or proceeding in any such court.

                  (d) EACH GUARANTOR HEREBY IRREVOCABLY WAIVES ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON
CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF THE LOAN
DOCUMENTS, THE ADVANCES OR THE ACTIONS OF ANY SECURED PARTY IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF.



                               Offshore Guaranty
<PAGE>   281





                  IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to
be duly executed and delivered by its officer thereunto duly authorized as of
the date first above written.


Domestic Borrower:                   SOVEREIGN SPECIALTY CHEMICALS, INC.


                                     By_________________________________________
                                       Title:


Domestic Subsidiary Guarantors:      SIA ADHESIVES, INC.


                                     By_________________________________________
                                       Title:


                                     PIERCE & STEVENS CORP.


                                     By_________________________________________
                                       Title:


                                     OSI SEALANTS, INC.


                                     By_________________________________________
                                       Title:


                                     TANNER CHEMICALS, INC.


                                     By_________________________________________
                                       Title:


                               Offshore Guaranty

<PAGE>   282

                                                                       EXHIBIT A
                                                                          TO THE
                                                               OFFSHORE GUARANTY


                                        FORM OF OFFSHORE GUARANTY SUPPLEMENT


                                                              --------- --, ----


The Chase Manhattan Bank, as Administrative Agent
[Address of Administrative Agent]

Attention:

                  Amended and Restated Credit Agreement dated as of April 6,
                  2000 among Sovereign Specialty Chemicals, Inc., a Delaware
                  corporation (the "DOMESTIC BORROWER"), the Lender Parties
                  party to the Credit Agreement, and The Chase Manhattan Bank,
                  as Administrative Agent


Ladies and Gentlemen:

                  Reference is made to the above-captioned Amended and Restated
Credit Agreement and to the Offshore Guaranty referred to therein (such Offshore
Guaranty, as in effect on the date hereof and as it may hereafter be amended,
supplemented or otherwise modified from time to time, together with this
Guaranty Supplement, being the "OFFSHORE GUARANTY"). The capitalized terms
defined in the Offshore Guaranty or in such Amended and Restated Credit
Agreement and not otherwise defined herein are used herein as therein defined.

                  Section 1. Guaranty; Limitation of Liability. (a) The
undersigned hereby absolutely, unconditionally and irrevocably guarantees the
punctual payment when due, whether at scheduled maturity or on any date of a
required prepayment or by acceleration, demand or otherwise, of all Offshore
Secured Obligations of each Offshore Obligor now or hereafter existing under or
in respect of the Loan Documents (including, without limitation, any extensions,
modifications, substitutions, amendments or renewals of any or all of the
foregoing Obligations), whether direct or indirect, absolute or contingent, and
whether for principal, interest, premium, fees, indemnities, contract causes of
action, costs, expenses or otherwise (such Obligations being the "GUARANTEED
OBLIGATIONS"), and agrees to pay any and all expenses (including, without
limitation, fees and expenses of counsel) incurred by the Administrative Agent
or any other Secured Party in enforcing any rights under this Guaranty
Supplement, the Offshore Guaranty or any other Loan Document to which the
undersigned is a party. Without limiting the generality of the foregoing, the
undersigned=s liability shall extend to all amounts that constitute part of the
Guaranteed Obligations and would be owed by any other Loan Party to any Secured
Party under or in respect of the Loan Documents but

                               Offshore Guaranty

<PAGE>   283

for the fact that they are unenforceable or not allowable due to the existence
of a bankruptcy, reorganization or similar proceeding involving such other Loan
Party.

                  (b) The undersigned, and by its acceptance of this Guaranty
Supplement, the Administrative Agent and each other Secured Party, hereby
confirms that it is the intention of all such Persons that this Guaranty
Supplement, the Offshore Guaranty and the Obligations of the undersigned
hereunder and thereunder not constitute a fraudulent transfer or conveyance for
purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform
Fraudulent Transfer Act or any similar foreign, federal or state law to the
extent applicable to this Guaranty Supplement, the Offshore Guaranty and the
Obligations of the undersigned hereunder and thereunder. To effectuate the
foregoing intention, the Administrative Agent, the other Secured Parties and the
undersigned hereby irrevocably agree that the Obligations of the undersigned
under this Guaranty Supplement and the Offshore Guaranty at any time shall be
limited to the maximum amount as will result in the Obligations of the
undersigned under this Guaranty Supplement and the Offshore Guaranty not
constituting a fraudulent transfer or conveyance.

                  (c) The undersigned hereby unconditionally and irrevocably
agrees that in the event any payment shall be required to be made to any Secured
Party under this Guaranty Supplement, the Offshore Guaranty or any other
guaranty, the undersigned will contribute, to the maximum extent permitted by
applicable law, such amounts to each other Guarantor under the Offshore Guaranty
and each other guarantor so as to maximize the aggregate amount paid to the
Secured Parties under or in respect of the Loan Documents.

                  Section 2. Obligations Under the Guaranty. The undersigned
hereby agrees, as of the date first above written, to be bound as a Guarantor by
all of the terms and conditions of the Offshore Guaranty to the same extent as
each of the other Guarantors thereunder. The undersigned further agrees, as of
the date first above written, that each reference in the Offshore Guaranty to an
"ADDITIONAL GUARANTOR" or a "GUARANTOR" shall also mean and be a reference to
the undersigned, and each reference in any other Loan Document to an "OFFSHORE
SUBSIDIARY GUARANTOR" or a "LOAN PARTY" shall also mean and be a reference to
the undersigned.

                  Section 3. Representations and Warranties. The undersigned
hereby makes each representation and warranty set forth in Section 6 of the
Offshore Guaranty to the same extent as each other Guarantor.

                  Section 4. Delivery by Telecopier. Delivery of an executed
counterpart of a signature page to this Guaranty Supplement by telecopier shall
be effective as delivery of an original executed counterpart of this Guaranty
Supplement.

                  Section 5.  Governing Law; Jurisdiction; Waiver of Jury Trial,
Etc.  (a)  This Guaranty Supplement shall be governed by, and construed in
accordance with, the laws of the State of New York.

                  (b) The undersigned hereby irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive jurisdiction of any
New York State court or any federal court of the United States of America
sitting in New York City, and any appellate court from any thereof, in

                               Offshore Guaranty

<PAGE>   284

                                       3

any action or proceeding arising out of or relating to this Guaranty Supplement,
the Offshore Guaranty or any of the other Loan Documents to which it is or is to
be a party, or for recognition or enforcement of any judgment, and the
undersigned hereby irrevocably and unconditionally agrees that all claims in
respect of any such action or proceeding may be heard and determined in any such
New York State court or, to the extent permitted by law, in such federal court.
The undersigned agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. The undersigned hereby
irrevocably appoints CT Corporation System with an office on the date hereof at
1633 Broadway, New York, New York 10019 (the "PROCESS AGENT"), as its agent to
receive on behalf of the undersigned and its property service of copies of the
summons and complaint and any other process which may be served in any such
action or proceeding. The undersigned irrevocably consents to the service of
process in any such action or proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to the undersigned at its address
set forth below, such service to become effective 10 days after such mailing.
The undersigned hereby irrevocably waives any objection to such service of
process and further irrevocably waives and agrees not to plead or claim in any
action or proceeding commenced hereunder or under any other Loan Document that
service of process was in any way invalid or ineffective. Nothing herein shall
affect the right of any Agent, any Lender Party or the holder of any Note to
serve process in any other manner permitted by law or to commence legal
proceedings or otherwise proceed against the undersigned in any other
jurisdiction.

                  (c) The undersigned irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection that it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Guaranty Supplement, the Offshore
Guaranty or any of the other Loan Documents to which it is or is to be a party
in any New York State or federal court. The undersigned hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such suit, action or proceeding in any such court.

                  (d) THE UNDERSIGNED HEREBY IRREVOCABLY WAIVES ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON
CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF THE LOAN
DOCUMENTS, THE ADVANCES OR THE ACTIONS OF ANY SECURED PARTY IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF.

                                       Very truly yours,

                                       [NAME OF ADDITIONAL GUARANTOR]


                                       By
                                          --------------------------------------
                                          Title:
                                          Address:


                               Offshore Guaranty

<PAGE>   285





                                                                       EXHIBIT H
                                                         TO THE CREDIT AGREEMENT










                                OFFSHORE GUARANTY

                            Dated as of April 6, 2000

                                      From

                           THE GUARANTORS NAMED HEREIN

                                       and

                  THE ADDITIONAL GUARANTORS REFERRED TO HEREIN

                                  as Guarantors

                                   in favor of

                       THE SECURED PARTIES REFERRED TO IN
                     THE CREDIT AGREEMENT REFERRED TO HEREIN


                               Offshore Guaranty

<PAGE>   286



                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
SECTION                                                                                                        PAGE

<S>                                                                                                           <C>
1.  Guaranty; Limitation of Liability.............................................................................1

2.  Guaranty Absolute.............................................................................................2

3.  Waivers and Acknowledgments...................................................................................4

4.  Subrogation...................................................................................................4

5.  Payments Free and Clear of Taxes, Etc.........................................................................5

6.  Representations and Warranties................................................................................9

7.  Covenants.....................................................................................................9

8.  Amendments, Guaranty Supplements, Etc.........................................................................9

9.  Notices, Etc.................................................................................................10

10.  No Waiver; Remedies.........................................................................................11

11.  Right of Set-off............................................................................................11

12.  Indemnification.............................................................................................11

13.  Subordination...............................................................................................12

14.  Continuing Guaranty; Assignments under the Credit Agreement.................................................13

15.  Release of Guarantors.......................................................................................13

16.  Execution in Counterparts...................................................................................14

17.  Governing Law; Jurisdiction; Waiver of Jury Trial, Etc......................................................14
</TABLE>



Exhibit A  -  Guaranty Supplement

                               Offshore Guaranty

<PAGE>   287




                                                                       EXHIBIT I
                                                         TO THE CREDIT AGREEMENT


                   FORM OF OPINION OF COUNSEL TO LOAN PARTIES

                                   [To follow]




                               Offshore Guaranty


<PAGE>   288


                                                                       EXHIBIT J
                                                         TO THE CREDIT AGREEMENT


                     FORM OF CERTIFICATE OF NON-BANK STATUS

                  The undersigned hereby certifies (i) that it is not a "bank"
within the meaning of Section 881(c)(3)(A) of the Internal Revenue Code of 1986,
as amended (the "Code"); (ii) that it is not a "10 percent shareholder", within
the meaning of Section 881(c)(3)(B) of the Code, of the Borrower; (iii) that it
is not a "controlled foreign corporation" within the meaning of Section
881(c)(3)(C) of the Code; (iv) that it is a "foreign corporation" as such term
is used in Section 881(c)(1) of the Code; and (v) that it is entitled to receive
payments of interest without deduction or withholding of any United States
federal income tax pursuant to Section 881 of the Code (including applicable
treasury regulations).



                                         Lender:
                                                --------------------------------
                                         By:
                                            ------------------------------------

                                            ------------------------------------
                                         Date:
                                              ----------------------------------


                          Credit Agreement - Exhibit J


<PAGE>   289





                                                                       EXHIBIT K
                                                         TO THE CREDIT AGREEMENT


                           FORM OF INTERCOMPANY NOTE

THE INDEBTEDNESS EVIDENCED BY THIS INSTRUMENT IS SUBORDINATED TO THE PRIOR
PAYMENT IN FULL OF (1) ALL OF THE GUARANTEED OBLIGATIONS (AS DEFINED IN THE
GUARANTIES REFERRED TO BELOW) OF THE COMPANY (REFERRED TO BELOW) PURSUANT TO,
AND AS PROVIDED IN, SUCH GUARANTIES AND (2) ALL OF THE SUBORDINATED DEBT OF THE
COMPANY UNDER THE SUBORDINATED DEBT DOCUMENTS (EACH AS DEFINED IN THE CREDIT
AGREEMENT REFERRED TO BELOW) ISSUED OR ENTERED IN BY THE COMPANY IN COMPLIANCE
WITH THE CREDIT AGREEMENT.



         Dated:        ,

                  FOR VALUE RECEIVED, the undersigned,
                          , a                     [corporation][limited
partnership][limited liability company] (the "COMPANY"), HEREBY PROMISES TO PAY
TO THE ORDER OF                     , a                   [corporation][limited
partnership][limited liability company](the "SUBORDINATED LENDER"), UPON DEMAND,
the aggregate unpaid principal amount of all loan, advances and other Debt (as
defined in the Credit Agreement referred to below) owing at the time of such
demand from the Company to the Subordinated Lender in accordance with Section
5.02(b)(vii) of the Amended and Restated Credit Agreement dated as of April 6,
2000 (as amended, supplemented or otherwise modified from time to time, the
"CREDIT AGREEMENT"; terms defined therein unless otherwise defined herein being
used herein as therein defined), among [the Company,][the Subordinated
Lender,][Sovereign Specialty Chemicals, Inc.,] the banks, financial institutions
and other institutional lenders from time to time party thereto, The Chase
Manhattan Bank, as administrative agent (together with any successor
administrative agent appointed pursuant to Article VIII thereof, the
"ADMINISTRATIVE AGENT") for the Lender Parties, and the other Agents referred to
therein; provided that any and all amounts of any loan, advance or other Debt as
may, from time to time, be advanced by the Company to the Subordinated Lender at
the time of any such demand hereunder shall be applied to the payment of the
outstanding amounts under this Intercompany Note (including any interest which
constitutes part of such outstanding amounts). Capitalized terms not otherwise
defined in this Intercompany Note shall have the same meanings as specified
therefor in the Credit Agreement.

                  Interest shall be payable under this Intercompany Note on any
and all principal amounts from time to time outstanding hereunder from and
including the date of the initial extension of credit by the Subordinated Lender
to the Company until such principal amounts are paid in full, at a rate per
annum (computed on the basis of                 ) equal to      %. Accrued and
unpaid interest shall be payable upon demand.


                          Credit Agreement - Exhibit K

<PAGE>   290

                  Both principal and interest are payable in lawful money of the
United States of America to the Subordinated Lender at such location as shall be
designated from time to time by the Subordinated Lender in a written notice to
the Company and the Administrative Agent, in same day funds. The Company agrees
that the books, records and accounts of the Subordinated Lender shall be prima
facie evidence of the amounts advanced by the Subordinated Lender to the Company
and the amounts repaid by the Company to the Subordinated Lender. All advances
made by the Subordinated Lender to the Company hereunder, and all payments made
on account of principal hereof, shall be recorded by the Subordinated Lender
and, prior to any transfer hereof, endorsed on the grid attached hereto that is
part of this Intercompany Note; provided that the failure of the Subordinated
Lender to make any such recordation or endorsement shall not affect the
obligations of the Company under this Intercompany Note.

                  The principal amount outstanding under this Intercompany Note
may, at the option of the Company, be prepaid at any time, in whole or in part,
without penalty or premium. If at any time demand is made against the Company
under, and pursuant to the terms of, any Loan Document to which the Company is a
party or any other guarantee executed by the Company in connection with the
Senior INDEBTEDNESS (as hereinafter defined), this Intercompany Note, and the
payment obligations of the Company evidenced hereby, shall be reduced by any
amounts paid by the Company under such Loan Documents, or any such other
guarantee.

                  The aggregate principal amount owing to the Subordinated
Lender from time to time under this Intercompany Note, all accrued and unpaid
interest thereon, and any and all other indebtedness and Obligations evidenced
by or otherwise owing in respect of this Intercompany Note (collectively, the
"SUBORDINATED INDEBTEDNESS") is and shall be subordinate and junior in right of
payment and otherwise (1) to the Obligations of the Company under that certain
Amended and Restated Subsidiary Guaranty dated as of April 6, 2000, from the
Company and the other Guarantors named therein in favor of the Secured Parties,
and that certain Offshore Guaranty dated as of April 6, 2000, from the Company
and the other Guaranties named therein in favor of the Secured Parties, in each
case as amended and in effect from time to time (collectively, the
"GUARANTIES"), to the extent and in the manner set forth in Section 13 of each
such Guaranty, and the terms and provisions of Section 13 of each Guaranty are
incorporated by reference herein for all purposes and shall be effective as
fully as if set forth in this Intercompany Note, and (2) to the prior payment in
full of the outstanding Subordinated Debt of the Company under the Senior
Subordinated Notes or any other Subordinated Debt Document issued or entered
into by the Company in compliance with Section 5.02(b)(x) of the Credit
Agreement.

                  The Company hereby waives promptness, diligence, presentment
for payment, demand, notice of dishonor and protest and any other notice with
respect to this Intercompany Note.

                  No amendment, waiver or modification of this Intercompany Note
(including, without limitation, the subordination provisions incorporated by
reference herein), and no consent to any departure herefrom, that could
adversely affect the rights or interests of the Administrative Agent or any of
the other Secured Parties under or in respect of this Intercompany Note, any of
the

                          Credit Agreement - Exhibit K

<PAGE>   291
                                       3


Loan Documents or any of the Secured Hedge Agreements in any manner shall be
effective unless the same shall be in writing and signed by the Administrative
Agent, and then, in each case, such waiver, modification or consent shall be
effective only in the specific instance and for the specific purpose for which
given.

                  No failure on the part of the Subordinated Lender or the
Administrative Agent to exercise, and no delay in exercising, any right, power
or privilege hereunder shall operate as a waiver thereof or a consent thereto;
nor shall a single or partial exercise of any such right, power or privilege
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The remedies provided herein are cumulative and are
not exclusive of any remedies provided by applicable law.

                  This Intercompany Note shall be governed by, and construed in
accordance with, the laws of the State of New York.

                                           [NAME OF COMPANY]


                                           By
                                              ----------------------------------
                                              Name:
                                              Title:







                          Credit Agreement - Exhibit K
<PAGE>   292






                       ADVANCES AND PAYMENTS OF PRINCIPAL

<TABLE>
<CAPTION>


====================================================================================================================
                                                  AMOUNT OF                 UNPAID
                          AMOUNT OF             PRINCIPAL PAID            PRINCIPAL                NOTATION
       DATE                ADVANCE                OR PREPAID               BALANCE                  MADE BY
====================================================================================================================
<S>                      <C>                    <C>                      <C>                     <C>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

- --------------------------------------------------------------------------------------------------------------------
</TABLE>



                          Credit Agreement - Exhibit K
<PAGE>   293







                                   ENDORSEMENT



PAY TO THE ORDER OF _______________________________________


Dated: _________, ____                          [COMPANY]


                                                By:_____________________________
                                                Name:
                                                Title:








                          Credit Agreement - Exhibit K

<PAGE>   294





                                                                       EXHIBIT L
                                                         TO THE CREDIT AGREEMENT


                      FORM OF COLLATERAL SHARING AGREEMENT

                  COLLATERAL SHARING AGREEMENT, dated as of April 6, 2000 (this
"AGREEMENT"), among the Lender Parties referred to in the Amended and Restated
Credit Agreement, dated as of the date hereof (as amended, supplemented or
otherwise modified from time to time, the "CREDIT AGREEMENT"), among Sovereign
Specialty Chemicals Inc., a Delaware corporation (the "DOMESTIC BORROWER"), the
other Offshore Borrowers from time to time party thereto, such Lender Parties,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint lead arranger,
joint book-running manager and syndication agent, J.P. Morgan Securities Inc.,
as joint lead arranger, joint book-running manager and documentation agent, and
The Chase Manhattan Bank, as administrative agent and offshore currency agent.
Unless otherwise defined herein, terms defined in the Credit Agreement and used
herein shall have the meanings given to them in the Credit Agreement.

                  NOW, THEREFORE, in consideration of the agreement of each
other Lender Party, and for other good and valid consideration the sufficiency
of which is acknowledged, each Secured Party, (a) in the case of each Lender
Party identified on the signature page below by its execution and delivery of a
counterpart of this Agreement and (b) in the case of each other Lender Party
which may hereafter become a party to the Credit Agreement, by its execution and
delivery of its Assignment and Acceptance or its Offshore Swing Line Lender
Joinder Agreement, as the case may be, agrees as follows:

                  SECTION 1.  Sharing of Payments, Etc.

                  (a) If any Lender Party shall obtain at any time any payment
(whether voluntary, involuntary, through the exercise of any right of set-off,
the liquidation of any collateral or otherwise, other than as a result of an
assignment pursuant to Section 8.07 of the Credit Agreement) (i) on account of
Obligations (whether Offshore Secured Obligations or Domestic Secured
Obligations) due and payable to such Lender Party hereunder, under the Notes or
under the other Loan Documents at such time in excess of its ratable share
(according to the proportion of (A) the amount of such Obligations due and
payable to such Lender Party at such time to (B) the aggregate amount of the
Obligations due and payable to all Lender Parties hereunder, under the Notes and
under the other Loan Documents at such time) of payments on account of the
Obligations due and payable to all Lender Parties hereunder, under the Notes and
under the other Loan Documents at such time obtained by all the Lender Parties
at such time or (ii) on account of Obligations (whether Offshore Secured
Obligations or Domestic Secured Obligations) owing (but not due and payable) to
such Lender Party hereunder, under the Notes or under the other Loan Documents
at such time in excess of its ratable share (according to the proportion of (A)
the amount of such Obligations owing to such Lender Party at such time to (B)
the aggregate amount of the Obligations owing (but not due and payable) to all
Lender Parties hereunder, under the Notes and under the other Loan Documents


                          Collateral Sharing Agreement
<PAGE>   295

                                       2

at such time) of payments on account of the Obligations owing (but not due and
payable) to all Lender Parties hereunder, under the Notes and under the other
Loan Documents at such time obtained by all of the Lender Parties at such time,
such Lender Party shall forthwith purchase from the other Lender Parties such
interests or participating interests in the Obligations (whether Offshore
Secured Obligations and/or Domestic Secured Obligations) due and payable or
owing to them, as the case may be, as shall be necessary to cause such
purchasing Lender Party to share the excess payment ratably with each of them;
provided, however, that if all or any portion of such excess payment is
thereafter recovered from such purchasing Lender Party, such purchase from each
other Lender Party shall be rescinded and such other Lender Party shall repay to
the purchasing Lender Party the purchase price to the extent of such Lender
Party's ratable share (according to the proportion of (A) the purchase price
paid to such Lender Party to (B) the aggregate purchase price paid to all Lender
Parties) of such recovery together with an amount equal to such Lender Party's
ratable share (according to the proportion of (A) the amount of such other
Lender Party's required repayment to (B) the total amount so recovered from the
purchasing Lender Party) of any interest or other amount paid or payable by the
purchasing Lender Party in respect of the total amount so recovered; provided,
further that, so long as the Obligations under the Loan Documents shall not have
been accelerated and the Administrative Agent has not exercised any remedies
under the other Loan Documents after an Event of Default has occurred, any
excess payment received by any Appropriate Lender shall be shared on a pro rata
basis only with other Appropriate Lenders.

                  (b) The Domestic Borrower, by its execution of the
acknowledgment of this Agreement as provided below, and each other Applicable
Borrower by its execution of its Credit Agreement Supplement, agrees that any
Lender Party so purchasing an interest or participating interest from another
Lender Party pursuant to Section 1(a) may, to the fullest extent permitted by
law, exercise all its rights of payment (including the right of set-off) with
respect to such interest or participating interest, as the case may be, as fully
as if such Lender Party were the direct creditor of such Applicable Borrower in
the amount of such interest or participating interest, as the case may be.

                  (c) The agreements of each Lender Party contained herein are
exclusively for the benefit of each other Lender Party and may not be relied on
by any other Person.

                  SECTION 2.  Miscellaneous.

                  (a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

                  (b) Any legal action or proceeding with respect to this
Agreement or any other Loan 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, or its Assignment and Acceptance or
its Offshore Swing Line Lender Joinder Agreement, as the case may be, each
Lender Party hereby irrevocably accepts for itself and in respect of its
property, generally and unconditionally, the jurisdiction of the aforesaid
courts. Each Lender Party hereby further irrevocably waives any claim that any
such courts lack jurisdiction over such Lender Party, and agrees not to plead or
claim, in any legal action or proceeding with respect to this Agreement or any



                          Collateral Sharing Agreement

<PAGE>   296
                                       3


other Loan Document brought in any of the aforesaid courts, that any such court
lacks jurisdiction over such Lender Party. Each Lender Party agrees that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Each Lender Party irrevocably consents to the service of
process in any such action or proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to such Lender Party at its
address set forth pursuant to Section 8.02 of the Credit Agreement, such service
to become effective 10 days after such mailing. Each Lender Party hereby
irrevocably waives any objection to such service of process and further
irrevocably waives and agrees not to plead or claim in any action or proceeding
commenced hereunder or under any other Loan Document that service of process was
in any way invalid or ineffective. Nothing herein shall affect the right of any
Agent, any Lender Party or 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 Lender Party or any Loan Party in any other jurisdiction.

                  (c) Each Lender 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 Loan Document brought in the courts referred to 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.

                  (d) To the extent that any Lender Party has or hereafter may
acquire any immunity from jurisdiction of any court or from any legal process
(whether through service or notice, attachment prior to judgment, attachment in
aid of execution, execution or otherwise) with respect to itself or its
property, such Lender Party to the extent permitted by law hereby irrevocably
waives such immunity in respect of its obligations under this Agreement or any
other Loan Document and, without limiting the generality of the foregoing,
agrees that the waivers set forth in this paragraph shall have the fullest scope
permitted under the United States Foreign Sovereign Immunities Act of 1976, as
amended, or any other similarly applicable foreign law and are intended to be
irrevocable for purposes of such Act or any other similarly applicable foreign
law.

                  (e) Each Lender Party hereby irrevocably waives all right to
trial by jury in any action, proceeding or counterclaim (whether based on
contract, tort or otherwise) arising out of or relating to this Agreement or any
of the other Loan Documents.

                          Collateral Sharing Agreement
<PAGE>   297




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


                                  MERRILL LYNCH, PIERCE, FENNER &
                                  SMITH INCORPORATED, as Joint Lead
                                  Arranger, Joint Book Manager and Syndication
                                  Agent


                                  By___________________________________
                                    Title:


                                  MERRILL LYNCH CAPITAL CORPORATION,
                                  as an Initial Lender


                                  By___________________________________
                                    Title:


                                   J.P. MORGAN SECURITIES INC., as Joint Lead
                                   Arranger, Joint Book Manager and
                                   Documentation Agent


                                   By___________________________________
                                     Title:


                                   MORGAN GUARANTY TRUST COMPANY
                                   OF NEW YORK, as an Initial Lender


                                  By___________________________________
                                    Title:




                          Collateral Sharing Agreement


<PAGE>   298







                                  THE CHASE MANHATTAN BANK,
                                  as Administrative Agent, Offshore Currency
                                  Agent, Initial Issuing Bank, Domestic Swing
                                  Line Lender and an Initial Lender


                                  By___________________________________
                                    Title:


                                  NATIONAL CITY BANK,
                                    as an Initial Lender


                                  By___________________________________
                                    Title:


                                  THE BANK OF NOVA SCOTIA,
                                  as an Initial Lender


                                  By___________________________________
                                    Title:


                                  BANK ONE, NA (Main Chicago Office),
                                  as an Initial Lender


                                  By___________________________________
                                    Title:


                                  ABN AMRO BANK N.V.,
                                  as an Initial Lender


                                  By___________________________________
                                    Title:


                          Collateral Sharing Agreement


<PAGE>   299




                                 By___________________________________
                                    Title:




                                 CREDIT AGRICOLE INDOSUEZ,
                                 as an Initial Lender


                                 By___________________________________
                                   Title:


                                 By___________________________________
                                   Title:



                          Collateral Sharing Agreement


<PAGE>   300






                                  ACKNOWLEDGED AND AGREED TO:

                                  SOVEREIGN SPECIALTY CHEMICALS, INC.


                                  By___________________________________
                                    Title:



<PAGE>   1
                                                                     EXHIBIT 4.2



================================================================================






                              AMENDED AND RESTATED
                             SHAREHOLDERS AGREEMENT


                                  by and among


                      SOVEREIGN SPECIALTY CHEMICALS, INC.,

                               SSCI INVESTORS LLC


                                       and


                  The Shareholders Listed on Schedule I Hereto







                            Dated as of May 12, 2000








================================================================================


<PAGE>   2





                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

<S>                                                                                                <C>
ARTICLE I  DEFINITIONS ........................................................................    2

       Section 1.1. Definitions ...............................................................    2

ARTICLE II  REPRESENTATIONS AND WARRANTIES ....................................................   10

       Section 2.1. Representations and Warranties of the Company .............................   10
       Section 2.2. Representations and Warranties of Investors LLC ...........................   11
       Section 2.3. Representations and Warranties of Employee Parties ........................   11

ARTICLE III  CORPORATE GOVERNANCE; CERTAIN CORPORATE ACTIONS ..................................   12

       Section 3.1. Voting of Shares ..........................................................   12
       Section 3.2. Composition of the Board of Directors .....................................   12
       Section 3.3. Certain Transactions ......................................................   13
       Section 3.4.  Books, Records and Reports ...............................................   14

ARTICLE IV  TRANSFER ..........................................................................   14

       Section 4.1. Transfer Restrictions .....................................................   14
       Section 4.2. Take Along Rights .........................................................   17
       Section 4.3. Tag Along Rights ..........................................................   18
       Section 4.4. Permitted Transfers .......................................................   19
       Section 4.5. Certain Consequences of Termination of Employee's Employment or Competition   19
       Section 4.6. Employee Offer Proposal Rights ............................................   21

ARTICLE V  REGISTRATION RIGHTS ................................................................   23

       Section 5.1. Piggyback Registrations ...................................................   23
       Section 5.2. Demand Registration .......................................................   24
       Section 5.3. Holdback ..................................................................   25
       Section 5.4. Registration Procedures ...................................................   25
       Section 5.5. Registration Expenses .....................................................   28
       Section 5.6. Indemnification ...........................................................   29
       Section 5.7. Participation in Underwritten Registrations ...............................   31
       Section 5.8. Pre-Emptive Rights ........................................................   32
</TABLE>


                                      -i-


<PAGE>   3

<TABLE>
<CAPTION>

<S>                                                                                               <C>
ARTICLE VI  GENERAL PROVISIONS ................................................................   33

       Section 6.1. Notices ...................................................................   33
       Section 6.2. Assignment; Binding Effect; Benefit; Additional Signatories ...............   35
       Section 6.3. Entire Agreement ..........................................................   36
       Section 6.4. Amendment .................................................................   36
       Section 6.5. Governing Law .............................................................   36
       Section 6.6. Counterparts ..............................................................   36
       Section 6.7. Headings ..................................................................   36
       Section 6.8. Interpretation ............................................................   37
       Section 6.9. Incorporation of Exhibits and Schedules ...................................   37
       Section 6.10. Third Party Beneficiary ..................................................   37
       Section 6.11. Severability .............................................................   37
       Section 6.12. Enforcement of Agreement .................................................   37
       Section 6.13. Termination ..............................................................   37
</TABLE>








                                      -ii-



<PAGE>   4




                              AMENDED AND RESTATED

        AMENDED AND RESTATED SHAREHOLDERS AGREEMENT, dated as of May 12, 2000
(this "Agreement"), by and among Sovereign Specialty Chemicals, Inc., a Delaware
corporation (the "Company"), SSCI Investors LLC, a Delaware limited liability
company ("Investors LLC"), and the shareholders listed on Schedule I hereto (the
"Employees"). Capitalized terms used in this Agreement are set forth in Article
I hereof.

                                    RECITALS:

        A. Whereas Investors LLC purchased certain Shares pursuant to that
certain Stock Purchase Agreement dated as of November 24, 1999, as amended,
between Investors LLC, Sovereign Specialty Chemicals, L.P. (the "Selling
Partnership"), and the other parties thereto (the "Stock Purchase Agreement");
and

        B. Whereas, in connection with the transactions contemplated by the
Stock Purchase Agreement, the Selling Partnership made a distribution of Shares
to the Employees; and

        C. Whereas each Employee held Shares prior to the Closing or received
options to purchase Shares ("Stock Options") pursuant to an employee stock
option plan (the "Stock Option Plan") and may purchase additional Shares from
time to time ("Additional Shares"); and

        D. Whereas, at the Closing, the parties entered into that certain
Shareholders Agreement dated December 29, 1999 (the "Initial Agreement" and the
"Initial Execution Date," respectively); and

        E. Whereas the parties wish to amend and restate the Initial Agreement
as herein below set forth.

                                   AGREEMENT:

        Now, therefore, in consideration of the foregoing Recitals, and of the
representations, warranties, covenants and agreements contained herein and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto hereby agree to amend and restate the
Initial Agreement as follows:



<PAGE>   5

                                    ARTICLE I
                                   DEFINITIONS

        Section 1.1. Definitions.

        "Additional Shares": as defined in the Preamble to this Agreement.

        "AEA": AEA Investors Inc., a Delaware corporation.

        "Affiliate": of any Person, means any other Person controlling,
controlled by or under common control with such Person.

        "Agreement": as defined in the Preamble to this Agreement.

        "Applicable Valuation Date": the date of a Call Option Notice, or the
date of an Offer Proposal Notice, as the case may be.

        "Bank Credit Agreement": the Credit Agreement dated of as April 6, 2000
among Sovereign Specialty Chemicals, Inc. and the banks, financial institutions
and other institutional lenders listed on the signature pages thereof as amended
or restated from time to time.

        "Board of Directors": the board of directors of the Company or a duly
designated committee thereof.

        "Business Day": a day that is not a Saturday, a Sunday or a day on which
banking institutions in New York, New York are not required to open.

        "Call Option": the rights of the Company set forth under Section 4.5.

        "Call Option Notice": as defined in Section 4.5(d).

        "Call Option Proceeds": as defined in Section 4.5(d).

        "Call Option Shares": shall mean all Additional Shares and all Option
Shares held by an Employee Party.

        "Change of Control": means (i) the approval by members or shareholders
of the liquidation or dissolution of Investors LLC or the Company, (ii) a sale
or other disposition of 51% or more of the outstanding interests or voting
stock, respectively, of Investors LLC or the Company, (iii) the merger or
consolidation of Investors LLC or the Company with or into any entity, or (iv) a
sale or other disposition of substantially all of the assets of Investors LLC or
the Company; provided, however, that the term "Change of


                                      -2-
<PAGE>   6

Control" shall exclude each transaction which is a "Non-Control Transaction."
"Non-Control Transaction" means (i) any transaction following which Investors
LLC Parties own, directly or indirectly, a majority of the outstanding interests
or shares of voting stock of the purchasing or surviving entity, as applicable,
(ii) a merger or consolidation following which those persons who owned directly
or indirectly a majority of the outstanding interests or shares of voting stock
of Investors LLC and/or the Company immediately prior to such merger or
consolidation will own directly or indirectly a majority of the outstanding
interests or shares of voting stock of the surviving corporation, (iii) a sale
or other disposition of interests or capital stock, respectively, of Investors
LLC or the Company following which those persons who owned directly or
indirectly a majority of the outstanding interests or shares of voting stock
immediately prior to such sale will own directly or indirectly a majority of the
outstanding interests or shares of voting stock of the purchasing entity, (iv) a
sale or other disposition of substantially all of the assets of Investors LLC or
the Company to an Affiliate of Investors LLC or the Company, (v) an IPO of the
Company or (vi) any transaction following which Investors LLC Parties constitute
a majority of the directors on the board of directors of the Company or have a
right to elect a majority of the board of directors.

        "Closing": December 30, 1999.

        "Commission": the Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act.

        "Common Stock": the common stock of the Company (all classes) now or
hereafter authorized to be issued, whether voting or non-voting.

        "Company": as defined in the Preamble to this Agreement.

        "Competition": directly or indirectly own any interest in, invest in,
lend to, borrow from, manage, control, participate in, consult with, render
services to, or in any other manner whatsoever engage in, any business which is
competitive with any business actively being engaged in by the Company, its
Subsidiaries and their Affiliates or actively (and demonstrably) being
considered by the Company, its Subsidiaries and their Affiliates for entry into
on the date of the termination of employment, within any states or geographical
regions in which any such business is being conducted or in which the Company,
its Subsidiaries and their Affiliates is or are actively (and demonstrably)
considering engaging in on the date of the termination of the employment. The
preceding to the contrary notwithstanding shall not include the making of
investments in the publicly traded securities of any corporation, provided
further that such investments do not amount to more than 1% of the outstanding
securities of any class of such corporation, provided that, except as this
definition is used in Sections 3.2 and 3.4, with


                                      -3-
<PAGE>   7

respect to any Employee who has an employment agreement with the Company or any
Subsidiary which defines a non-competition period the activities which are
prohibited during such period shall constitute Competition for purposes of such
Employee.

        "Convertible Security": any security of the Company (other than a Stock
Option) convertible into Shares of Common Stock of the Company.

        "Cost of the Shares": in the case of Roll-Over Shares, an amount equal
to the purchase price paid by the Investors LLC for Shares pursuant to the Stock
Purchase Agreement divided by the number of Shares purchased by the Investors
LLC Parties; in the case of Option Shares, the exercise price thereof paid by
the Employee therefor; and in the case of Additional Shares, the price paid
therefor by the Employee who purchased such Additional Shares.

        "Covalt": Robert Covalt.

        "Covalt Family Group": Covalt, Tregooden Partners, L.P., Nautical
Partners, L.P. and Serendipity Partners, L.P. and any transferee of Covalt or
such other existing holders who would be a Permitted Transferee pursuant to
Section 4.1(e)(i) (except that for clause (3) all partners thereof shall be
Covalt and his spouse or lineal ancestor or descendants).

        "Demand Registration": as defined in Section 5.2.

        "Employee": as defined in the preamble to this Agreement.

        "Employee Offer Proposal": as defined in Section 4.6(a).

        "Employee Offer Proposal Notice": as defined in Section 4.6(b).

        "Employee Offer Proposal Permissibility Notice": as defined in Section
4.6(d).

        "Employee Parties": the original signatories hereto (other than the
Company and Investors LLC), any other employees of the Company or any Subsidiary
that may become a party hereto from time to time and their Permitted
Transferees.

        "Equity Value": the estimated realizable sales price of the Company in
its entirety in a sale to an unrelated third party in an arm's length
transaction at the Applicable Valuation Date, as determined by the Board of
Directors in good faith, by employing the same methodologies as have been
employed by AEA in accordance with its customary practices, in the preparation
of its periodic reports to Participants of the probable disposition value of
Investors LLC's investment in the Company. It is



                                      -4-
<PAGE>   8

understood that the Board of Directors would review, among other things, market
valuations of comparable companies (provided that the equity value of publicly
traded comparables shall be their market capitalizations without any adjustments
for control premiums), other market data and other factors and will take into
consideration outstanding indebtedness, other liabilities and potential
transaction expenses.

        "Exit Sale": as defined in Section 4.2.

        "Fair Market Value": (x) the aggregate sum of (i) the Equity Value of
the Company determined as of Applicable Valuation Date plus (ii) the aggregate
sum of the exercise prices of all issued and outstanding Stock Options on the
Applicable Valuation Date plus (iii) the aggregate sum of the conversion prices
of all issued and outstanding Convertible Securities on the Applicable Valuation
Date, divided by (y) the number of Shares of Common Stock outstanding on a fully
diluted basis (assuming full exercise of all issued and outstanding Stock
Options and the conversion of all issued and outstanding Convertible
Securities). If the Fair Market Value (without giving effect to the exercise of
any Stock Option or the conversion of any Convertible Security) is less than the
exercise price of such Stock Option and\or less than the conversion price of any
Convertible Security, then such Stock Option and\or such Convertible Security,
as the case may be, shall be excluded from the calculation in both clauses (x)
and (y) for purposes of determining Fair Market Value.

        "IPO": an initial underwritten public offering of Shares registered
under the Securities Act, whether for the sale of Shares by the Company or by
shareholders.

        "Indenture": the Indenture dated as of March 29, 2000 among the Company,
certain subsidiaries of the Company and the Bank of New York as Trustee, as
amended from time to time.

        "Investors": AEA SSC Investors Inc.

        "Investors LLC": as defined in the preamble to this Agreement.

        "Investors LLC Parties": Investors LLC, AEA, any Person controlling or
controlled by AEA or any officers, directors, employees, participants,
shareholders of AEA or members of Investors LLC.

        "Non-Transferring Party": as defined in Section 4.3(iv).

        "Notified Shareholders": as defined in Section 5.8.

        "Offered Rollover Shares": as defined in Section 4.6 (a).





                                      -5-
<PAGE>   9

        "Offer Proposal Notice": as defined in Section 4.6 (b).

        "Offer Price Notice": as defined in Section 4.6 (b).

        "Offering Employee": as defined in Section 4.6(a).

        "Option Shares": Shares received upon exercise of Stock Options.

        "Participants": any Investors LLC Party or any Person who is the
beneficial owner of any equity interest in any Investors LLC Party.

        "Permitted Transferees": any Person to whom Shares are transferred by an
Employee or any previous Permitted Transferees, excluding any Shares transferred
under Article V or pursuant to Sections 4.2 and 4.3 and excluding any Shares
sold after the consummation of an IPO pursuant to Rule 144 under the Securities
Act in compliance with Sections 4.1 and 5.3.

        "Person": any natural person, corporation, limited liability company,
partnership, firm, association, trust, government, governmental agency or other
entity, whether acting in an individual, fiduciary or other capacity.

        "Piggyback Registration": as defined in Section 5.1(a).

        "Pre-emptive Right Notice": as defined in Section 5.8.

        "Private Offering": as defined in Section 5.8.

        "Qualified Request": as defined in Section 5.2(a).

        "Registrable Securities": (i) any shares of Common Stock owned by the
Employee Parties or an Investors LLC Party, as the case may be, and (ii) any
securities issued as a dividend on or other distribution with respect to or in
exchange, replacement or in subdivision of, any such Common Stock. As to any
particular Registrable Securities, such securities shall cease to be Registrable
Securities when (i) a registration statement with respect to the sale of such
securities shall have been declared effective under the Securities Act and such
securities shall have been disposed of in accordance with such registration
statement, or (ii) such securities shall have been sold (other than in a
privately negotiated sale) pursuant to Rule 144 (or any successor provision)
under the Securities Act and in compliance with the requirements of paragraphs
(c), (e), (f), (g) and (k) of Rule 144.

        "Related Party": with respect to any Person means, as of the time of any
Transfer, (i) any person or entity that, directly or indirectly, through one or
more


                                      -6-
<PAGE>   10

intermediaries, has voting control of, or is under common voting control with,
or is controlled by such Person, (ii) with respect to individuals, such Person's
spouse, parents, children, siblings and/or grandchildren, and (iii) a trust,
corporation, partnership or other entity, whose beneficiaries, shareholders,
partners, or owners, or other persons or entities holding a controlling interest
in which, consist solely of such Person and/or such other persons or entities
referred to in the immediately preceding clauses (i) or (ii).

        "Registration Expenses": as defined in Section 5.5(a).

        "Resignation": the voluntary termination of employment hereunder by the
Employee which is not a Resignation with Good Grounds (except if made in
contemplation of a Termination by the Company for Cause), provided that if such
action is taken by the Employee without the giving of at least ninety (90) days
prior written notice, such termination of employment shall not be a
"Resignation," but instead shall constitute a Termination by the Company for
Cause; provided, however, that with respect to any Employee who has an
employment agreement with the Company or any Subsidiary this definition shall be
replaced by any corresponding definition in such employment agreement with
respect to such Employee.

        "Resignation with Good Grounds": a voluntary termination of the
Employee's employment hereunder on account of, and within 60 days after, the
occurrence of one or more of the following events:

             (i) the assignment to the Employee of any duties inconsistent in
any material respect with the Employee's position (including status, offices and
titles), authority, duties or responsibilities which results in a diminution of
the Employee's position, excluding for this purpose an isolated, insubstantial
or inadvertent action not taken in bad faith and which is remedied by the
Company or any Subsidiary promptly after receipt of written notice thereof given
by the Employee;

             (ii) the Employee's annual salary and/or target bonus opportunity
is/are decreased below the amount of his then annual salary and/or target bonus
opportunity (provided that so long as the aggregate sum of the Employee's annual
base compensation and potential annual target bonus in respect of any calendar
year are not decreased, the Company or any Subsidiary shall be free to decrease
the potential annual target bonus for that year and commensurately increase the
annual base compensation for that year without any affect in the subsequent
calendar year annual base compensation and potential annual target bonus, it
being expressly acknowledged by the Employee that the operating result
achievement criteria for the payment of any of the potential annual target bonus
by the Company, its Subsidiaries and their Affiliates shall be determined by the
Company or any Subsidiary in its absolute discretion) or the Employee's benefits






                                      -7-
<PAGE>   11

under any material employee benefit plan, program or arrangement of the Company
or any Subsidiary (other than a change that affects all Employees of the Company
or any Subsidiary) are materially reduced from the level in effect upon the
Employee's commencement of participation therein;

             (iii) the Employee is required by the Company or any Subsidiary to
relocate his personal residence outside of a 50 mile radius of the current
principal place of business (other than as agreed to by the Employee prior to
the execution of this Agreement or as provided in another agreement); or

             (iv) the failure of the Company or any Subsidiary to comply with
any of the provisions of this Agreement or any employment agreement, other than
an isolated, insubstantial or inadvertent action not taken in bad faith and
which is remedied by the Company or any Subsidiary promptly after receipt of
written notice thereof given by the Employee;

provided; however that with respect to any Employee who has an employment
agreement with the Company or any Subsidiary this definition shall be replaced
by any corresponding definition in such employment agreement with respect to
such Employee.

     "Restricted Certificate": as defined in Section 4.1(b).

     "Restricted Period": as defined in Section 4.1.

     "Restricted Shares": as defined in Section 4.1.

     "Rollover Shares": any shares of Common Stock owned by Employees on the
Initial Execution Date.

     "Secondary Offering": any underwritten public offering of Shares registered
under the Securities Act following an IPO in which Shares are being sold by any
shareholder.

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

     "Selling Partnership": as defined in the Preamble to this Agreement.

     "Shares": shares of Common Stock, provided that in the case of an Employee
Party, Shares shall mean all Rollover Shares, all Additional Shares, all Option
Shares and all Shares such Employee Party is entitled to purchase pursuant to
vested but unexercised Stock Options.



                                      -8-
<PAGE>   12

     "Stock Options": as defined in the Preamble to this Agreement.

     "Stock Option Plan": as defined in the Preamble to this Agreement.

     "Stock Purchase Agreement": as defined in the Preamble to this Agreement.

     "Subsidiary": of any Person shall mean any corporation or other legal
entity of which such Person (either alone or through or together with any other
Subsidiary) owns, directly or indirectly, 50% or more of the stock or other
equity interests, the holders of which are generally entitled to vote for the
election of the board of directors or other governing body of such corporation
or other legal entity.

     "Tag Along Notice": as defined in Section 4.3.

     "Termination by the Company for Cause": means termination by the Company or
any of its Subsidiaries or Affiliates of the Employee's employment for: (i)
misappropriation of any significant monies or significant assets or properties
of the Company or any Subsidiary, (ii) conviction of a felony or a crime
involving moral turpitude, (iii) substantial and repeated failure to comply with
directions of the Chief Executive Officer of the Company or other superior of
the Employee or the board of directors of the Company or any of its Subsidiaries
or Affiliates, (iv) gross negligence or willful misconduct, (v) chronic
alcoholism or drug addiction together with the Employee's refusal to cooperate
with or participate in counseling and/or treatment of same or (vi) any willful
action or inaction of the Employee which, in the reasonable opinion of the
Board, constitutes dereliction (willful neglect or willful abandonment of
assigned duties), or a material breach of Company or Subsidiary policy or rules
which, if susceptible to cure, is not cured by the Employee within five (5) days
following the Employee's receipt of written notice from the Company or any
Subsidiary advising the Employee with reasonable specificity as to the action or
inaction viewed by the Company or Subsidiary to be dereliction or a material
breach of Company or Subsidiary policy or rules provided, however, that with
respect to any Employee who has an employment agreement with the Company or any
Subsidiary this definition shall be replaced by any corresponding definition in
such employment Agreement with respect to such Employee.

     "Termination by the Company Without Cause": means a termination of the
Employee's employment by the Company or any Subsidiary which is not a
Termination by the Company for Cause, provided, however, that with respect to
any Employee who has an employment agreement with the Company or any Subsidiary
this definition shall be replaced by any corresponding definition in such
employment agreement with respect to such Employee.



                                      -9-
<PAGE>   13

     "Total Disability": the Employee's inability, because of illness, injury or
other physical or mental incapacity, to perform his duties hereunder (as
determined by the Board of Directors in good faith) for a continuous period of
one hundred eighty (180) consecutive days, or for a total of ninety (90) days
within any three hundred sixty (360) consecutive day period, in which case such
Total Disability shall be deemed to have occurred on the last day of such one
hundred eighty (180) day or three hundred sixty (360) day period, as applicable
provided, however, that with respect to any Employee who has an employment
agreement with the Company or any Subsidiary this definition shall be replaced
by any corresponding definition in such employment agreement with respect to
such Employee.

     "Transfer": any sale, transfer, assignment, exchange, grant of a
participation in, gift, hypothecation, encumbrance, pledge or other disposition
by testamentary bequest, inter vivos transfer or otherwise of any securities or
any interests therein, whether direct or indirect.

     "Transferring Party": as defined in Section 4.3(iv).

                                   ARTICLE II
                         REPRESENTATIONS AND WARRANTIES

     Section 2.1. Representations and Warranties of the Company. The Company
hereby represents and warrants to the other parties hereto as follows: The
Company has all requisite corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery by the Company of this Agreement, and the consummation by the
Company of the transactions contemplated hereby, have been duly authorized by
all necessary corporate action on the part of the Company. This Agreement has
been duly executed and delivered by the Company and constitutes a valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms. No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, is required by, or with respect to, the Company in connection with the
execution and delivery of this Agreement by the Company or the consummation by
the Company of the transactions contemplated hereby. The execution and delivery
of this Agreement by the Company and the consummation of the transactions
contemplated hereby by the Company does not conflict with, or result in a breach
of, any law or regulation of any governmental authority applicable to the
Company or any material agreement to which the Company is a party.


                                      -10-
<PAGE>   14

     Section 2.2. Representations and Warranties of Investors LLC. Investors LLC
hereby represents and warrants to the other parties hereto as follows:

     (a) Authority. Investors LLC has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated by this Agreement. The execution and delivery by Investors LLC of
this Agreement and the consummation by Investors LLC of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate action on the part of Investors LLC. This Agreement has been duly
executed and delivered by Investors LLC and constitutes a valid and binding
obligation of Investors LLC enforceable against Investors LLC in accordance with
its terms. No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign, is
required by, or with respect to, Investors LLC in connection with the execution
and delivery by Investors LLC of this Agreement or the consummation by Investors
LLC of the transactions contemplated by this Agreement. The execution and
delivery by Investors LLC of this Agreement and the consummation by Investors
LLC of the transactions contemplated hereby does not conflict with, or result in
a breach of, any law or regulation of any governmental authority applicable to
Investors LLC or any material agreement to which Investors LLC is a party.

     Section 2.3. Representations and Warranties of Employee Parties. Each
Employee Party for itself severally and not jointly hereby represents and
warrants to the other parties as follows:

     (a) Authority. Such Employee Party has all requisite power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been duly executed and delivered by such Employee
Party and constitutes a valid and binding obligation of such Employee Party
enforceable against such Employee Party in accordance with its terms. No
consent, approval, order or authorization of, or registration, declaration or
filing with, any court, administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, is required by,
or with respect to, such Employee Party in connection with the execution and
delivery of this Agreement by such Employee Party or the consummation by such
Employee Party of the transactions contemplated hereby. The execution and
delivery by such Employee Party of this Agreement and the consummation by such
Employee Party of the transactions contemplated hereby does not conflict with,
or result in a breach of, any law or regularities of any governmental authority
applicable to such Employee Party or any material agreement to which Employee
Party is a party.



                                      -11-
<PAGE>   15

     (b) Shares. Schedule 2.3 sets forth the ownership of the Shares held by
such Employee Party as of the Initial Execution Date, and which Schedule also
indicates the Shares acquired by the Employee Party pursuant to the exercise of
options or rights which became exercisable (or, vested by reason of the
elimination of restrictions which were cancelled) by reason of the execution or
consummation of the Stock Purchase Agreement.

                                   ARTICLE III
                 CORPORATE GOVERNANCE; certain corporate actions

     Section 3.1. Voting of Shares. (a) From and after the Initial Execution
Date, each Investors LLC Party shall vote all Shares of Common Stock owned or
controlled by it and take all other necessary or desirable actions within its
control (including, without limitation, attendance at meetings in person or by
proxy for purposes of obtaining a quorum and execution of written consents in
lieu of meetings), to effectuate the provisions of this Agreement.

     (b) From and after the Initial Execution Date, each Employee Party shall
vote all of its Shares of Common Stock owned or controlled by it and take all
other necessary or desirable actions within its control (including, without
limitation, attendance at meetings in person or by proxy for purposes of
obtaining a quorum and execution of written consents in lieu of meetings), to
effectuate the provisions of this Agreement.

     (c) From and after the Initial Execution Date, the Company and its
Subsidiaries shall take all necessary or desirable actions within its control
(including, without limitation, calling special board and stockholder meetings)
to effectuate the provisions of this Agreement.

     Section 3.2. Composition of the Board of Directors. (a) Investors LLC
covenants to the Employee Parties that it shall take whatever actions are
required so that from and after the Initial Execution Date, and prior to the
consummation of the IPO at least two members of the board of directors of the
Company shall be individuals that are Investors LLC Parties who are not also
officers or employees of AEA.

     (b) Investors LLC hereby covenants to Covalt (and not to the other Employee
Parties) that: prior to the consummation of the IPO if and so long as the Covalt
Family Group beneficially owns at least 5% of the Shares then outstanding on a
fully diluted basis (excluding stock options) then Covalt (personally and with
no right of substitution) shall be designated to serve on the board of directors
of the Company and the board of directors of any Subsidiary of the Company
(provided that so long as he is employed by the Company he shall be Chairman of
the Board and Chief Executive




                                      -12-
<PAGE>   16

Officer of the Company and Chairman of the Board of each domestic Subsidiary of
the Company) and at each meeting of shareholders at which the election of
directors is on the agenda, the Company shall recommend to the shareholders of
the Company Covalt's election as director and the Investors LLC Parties shall
vote their Shares in favor of such election. Notwithstanding the foregoing, at
such time as Covalt shall no longer be employed by the Company, Covalt will be
removed from the Board of Directors and all boards of any Subsidiary of the
Company and shall no longer have any rights pursuant to this Section 3.2 if
either (X) Covalt is Terminated by the Company for Cause, (Y) Covalt is in
Competition or (Z) all of the directors of the Board of Directors who are
Investors LLC Parties shall unanimously vote for the removal of his right to be
a director.

     Section 3.3. Certain Transactions. Investors LLC agrees with Covalt that so
long as the Covalt Family Group owns at least 5% of the Shares then outstanding
on a fully diluted basis (excluding Stock Options) from time to time and Covalt
agrees with Investors LLC that:

     (a) Transactions (i) except with the written consent of Covalt, between the
Company and the Investors LLC Parties and their Affiliates and (ii) except with
the written consent of Investors, between the Company and Covalt and his
Affiliates, shall, in each case, not be on terms more favorable to such party
(other than the Company) than would be obtained by an unaffiliated third party.
This provision shall only be enforceable by or give any rights to Covalt or
Investors LLC Parties.

     (b) Notwithstanding the foregoing, Section 3.3(a) shall not restrict (i)
the payment of (x) any management fees payable to Investor LLC Parties or their
Affiliates in an annual amount of up to $1.6 million which cap may be increased
from time to time by the Company's Board of Directors to proportionately reflect
the expansion of the Company including the expansion of the equity
capitalization of the Company or (y) any transaction or financing fees to
Investors or its Affiliates, which fees shall be customary, taking into account
any fees paid to third party service providers in any such transaction, as well
as, in the case of clauses (x) and (y) any related out of pocket expenses, (ii)
compensation arrangements with officers, directors and employees of the Company
and its Subsidiaries, (iii) the granting or exercise of stock options to
directors, employees or consultants of the Company and its Subsidiaries in an
aggregate amount not to exceed 15% of the Shares outstanding on a fully diluted
basis (giving effect to stock options) from time to time, (iv) purchase of
Shares by employees under employee stock purchase plans or otherwise, (v)
registration rights granted by the Company to shareholders or Affiliates of
shareholders, (vi) customary director and officer indemnification or matters
relating thereto, and (vii) the redemption or purchase of Shares by the Company
from the Investors LLC Parties and their Affiliates in connection with employee
stock purchases.



                                      -13-
<PAGE>   17

     (c) The parties hereto acknowledge that the Company may from time to time
grant registration rights and other shareholder rights to Persons that are or
become shareholders of the Company, including the payment of expenses of such
shareholders. The parties hereto consent to the payment of expenses by the
Company in connection therewith and the payment of the fees and expenses set
forth under Section 3.3(b) above.

     Section 3.4. Books, Records and Reports. (a) The Company shall cause to be
kept on an appropriate basis, and each shareholder of the Company shall have
access to, appropriate books, records and accounts. The books and records of the
Company shall each be audited as of the end of each calendar year by a firm of
independent public accountants of national standing selected by the Company.

     (b) Within 90 days of the end of each fiscal year, the Company shall mail
to each of its shareholders a report setting forth an audited balance sheet as
at the end of such fiscal year and audited statements of income and source and
use of funds for such fiscal year of the Company, and any other information the
Company deems necessary or desirable;

     (c) Notwithstanding the foregoing, the Company shall not be required to
provide any information to any Person who is in Competition.

                                   ARTICLE IV
                                    TRANSFER

     Section 4.1. Transfer Restrictions. (a) The Investors LLC Parties and the
Employee Parties shall not Transfer all or part of any Shares owned of record by
them in violation of the provisions of this Article IV. Any Transfer in
violation of the provisions of this Article IV shall have no effect and be null
and void. No direct or indirect transaction whose primary purpose is to subvert
the provisions of this Section 4.1 shall be permitted.

     (b) The parties hereby acknowledge and agree that, so long as such
restriction is applicable hereunder or by law, each of the certificates
representing the Shares held by the parties hereto shall be subject to stop
transfer instructions and shall include the following legend, except for Shares
held by Employees on the Initial Execution Date, which shall bear the
restrictive legend fixed by the provisions of Section 4(b) of the Initial
Agreement, unless and until the certificates evidencing such Shares shall be
replaced for any reason, at which time any replacement certificates shall bear
the following restrictive legend:

                  THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
                  REGISTERED UNDER THE



                                      -14-
<PAGE>   18

                  SECURITIES ACT OF 1933 AND MAY BE OFFERED OR SOLD OR
                  OTHERWISE DISPOSED OF ONLY IF REGISTERED UNDER THE
                  SECURITIES ACT OF 1933 OR IF AN EXEMPTION FROM REGISTRATION
                  IS AVAILABLE. THESE SHARES ARE SUBJECT TO CERTAIN
                  LIMITATIONS ON TRANSFER AND TO CERTAIN VOTING AGREEMENTS AND
                  OBLIGATIONS AS ARE SET FORTH IN A SHAREHOLDERS AGREEMENT,
                  DATED AS OF MAY 11, 2000, BY AND AMONG SOVEREIGN SPECIALTY
                  CHEMICALS, INC., SSCI INVESTORS LLC AND THE OTHER PARTIES
                  THERETO, AS AMENDED FROM TIME TO TIME INCLUDING, BUT NOT
                  LIMITED TO, RESTRICTIONS ON THEIR SALE, TRANSFER, PLEDGE OR
                  OTHER DISPOSITION AND VOTING OBLIGATIONS TO EFFECT CERTAIN
                  TRANSACTIONS. A COPY OF SUCH AGREEMENT IS ON FILE WITH THE
                  SECRETARY OF SOVEREIGN SPECIALTY CHEMICALS, INC. SUCH
                  TRANSFER RESTRICTIONS AND VOTING OBLIGATIONS SHALL BE
                  BINDING ON FUTURE TRANSFEREES AND HOLDERS.

Each stock certificate evidencing any of the Shares described above in this
Section 4.1(b) which bears the legend set forth above is hereinafter referred to
as a "Restricted Certificate."

     (c) Each holder of a Restricted Certificate, by acceptance thereof, agrees,
prior to any offer to sell, sale or other disposition or Transfer of part or all
of the securities evidenced by such Restricted Certificate, to give written
notice to the Company of such holder's intention to effect such sale or other
disposition or Transfer. Each such notice shall describe the manner and
circumstances of the proposed sale or other disposition or Transfer in
sufficient detail and may be accompanied by an opinion of counsel to such
holder. Promptly upon receipt of such notice, the Company shall present a copy
thereof (together with any accompanying opinion of counsel to such holder) to
its counsel, and the following provisions shall apply:

             (i) If, in the opinion of counsel to such holder, satisfactory in
form and substance to the Company and its counsel, or if such notice was not
accompanied by an opinion of counsel to such holder, then, if, in the opinion of
counsel to the Company, the proposed sale or other disposition or Transfer may
be effected without registering the securities involved under the Securities
Act, such holder shall, subject to Section 4.1(d)



                                      -15-
<PAGE>   19

and Section 5.3, be entitled to Transfer such securities in accordance with the
terms of the notice delivered to the Company. The Company will advise such
holder, within 10 Business Days after submission of such notice, whether such
holder is entitled to so Transfer the securities. If such holder is entitled to
so Transfer, he shall submit the Restricted Certificate to the Company in proper
form for Transfer and accompanied by appropriate instruments of Transfer. Such
Restricted Certificate shall also be accompanied by an undertaking in writing by
the transferee to be bound by all the terms of this Agreement. Each Restricted
Certificate thus transferred (and each of the stock certificates evidencing any
untransferred balance of the securities evidenced by such Restricted
Certificate) shall bear the restrictive legend set forth in Section 4.1(b),
unless, in the opinion of both such counsel (or counsel to the Company if such
holder did not present an opinion of his counsel), such legend is not required
by the applicable provisions of the Securities Act.

             (ii) If in the opinion of either of such counsel (or counsel to the
Company if such holder did not present an opinion of his counsel), the proposed
sale or other disposition or Transfer cannot be effected without registering the
securities involved under the Securities Act, such holder shall not offer to
sell, sell or otherwise dispose of or Transfer such securities unless and until
such securities have been registered under the Securities Act for such purpose
or an exemption becomes available.

     (d) Except as permitted by Sections 4.2 through 4.6 or Article V of this
Agreement, each Employee Party shall not, at any time from the Initial Execution
Date until the earlier of (x) the IPO and (y) the fifth anniversary of, in the
case of Employees that executed this Agreement on the Initial Execution Date,
that date, and in the case of Employees that executed this Agreement subsequent
to the Initial Execution Date, the date the Employee executes this Agreement
(the "Restricted Period"), without the consent of the Company and Investors
Transfer any Shares owned by him ("Restricted Shares"), provided that in no
event shall any Employee Party transfer any Shares to J. P. Morgan or its
assignees or affiliates without the prior consent of Investors.

     (e) Notwithstanding any provision to the contrary contained in this
Agreement and upon compliance with Section 4.1(c):

             (i) An Employee Party may Transfer Restricted Shares to: (1) a
spouse or any lineal ancestor or descendant; (2) the trustee or trustees of a
trust or trusts at any time established for the primary benefit of the Employee
or the spouse or any lineal ancestor or descendant of the Employee, provided
that each and every trustee who may vote any Restricted Shares shall be the
Employee or a person referred to in this Section 4.1(e)(i) or a bank or trust
company; and (3) a partnership or partnerships, all of the general and limited
partners of which are the Employee and/or one or more of the



                                      -16-
<PAGE>   20

persons referred to with respect to such Employee in this Section 4.1(e) (other
than a bank or trust company); provided that (x) any such trust or partnership
shall have no terms inconsistent with the obligations of an Employee under this
Agreement, and (y) as a condition of Transfer, any Permissible Transferee shall
execute and deliver to the Company an agreement in form and substance reasonably
satisfactory to the Company pursuant to which the Permissible Transferee agrees
to be bound by all of the provisions of this Agreement. If any Restricted Shares
are transferred to a Permissible Transferee, such Permissible Transferee shall
take and hold such Restricted Shares, and such Restricted Shares shall be,
subject to this Agreement and to the rights, obligations and restrictions
provided herein with respect to the original Employee of such Restricted Shares
as of the date of this Agreement (or, in the case of Employees that executed
this Agreement subsequent to the Initial Execution Date, the date such Employee
executes this Agreement), as if such Permissible Transferee were such original
Employee.

             (ii) Any Transfer of Restricted Shares otherwise permitted by this
Section 4.1(e) shall not be made unless in compliance with all applicable laws,
including, without limitation, the securities laws of the United States and the
states thereof.

     (f) No purported Transfer of any Restricted Shares or the shares
represented by Restricted Certificates in violation of this Agreement shall be
of any force or effect, and no such Transfer shall be made or recorded on the
books of the Company.

     Section 4.2. Take Along Rights. If, prior to an IPO, the Investors LLC
Parties desire to Transfer or exchange directly or indirectly (by merger or
otherwise), at least 50% of the Shares beneficially owned by the Investors LLC
Parties (any such transaction being referred to herein as an "Exit Sale") to any
Person who is not an Affiliate of the transferring Investors LLC Party or an
Affiliate of Investors, Investors may require, pursuant to a written notice
delivered to the Employee Parties at least 20 days prior to the closing of the
proposed Exit Sale, that each Employee Party sell to the prospective purchaser,
concurrently with and on the terms (including price) and subject to the
conditions of the Exit Sale, up to that number of Shares owned by each Employee
Party as shall equal the product of (x) a fraction, the numerator of which is
the number of Shares held by the Investors LLC Parties proposed to be
transferred in the Exit Sale and the denominator of which is the number of
Shares owned by the Investors LLC Parties, and (y) the number of Shares owned by
such Employee Party. If the Investors LLC Parties propose the Transfer of all or
substantially all of the assets or business, (whether by merger, sale or
otherwise) of the Company, then Investors and the Company shall have the right
to require the Employee Parties to take promptly all action necessary or
appropriate (including voting their Shares in favor of such transaction) in
order to effect such transaction. Each of the Employee Parties covenants and
agrees that it shall take such actions as are necessary to consummate the
transactions contemplated by this





                                      -17-
<PAGE>   21

Section 4.2. Any indemnification provided in connection with any Transfer made
pursuant to this Section 4.2 shall be on a several and not joint basis and any
such indemnification shall be pro-rata in accordance with the number of Shares
Transferred or proceeds received and any such indemnification shall be limited
to the proceeds received by such Employee Party in connection with the
transaction.

     Section 4.3. Tag Along Rights. If, prior to an IPO, the Investors LLC
Parties desire to Transfer (other than Transfer to any other Investors LLC Party
or Related Party) directly or indirectly Shares, the Investors LLC Parties shall
provide the Employee Parties with written notice (the "Tag Along Notice") (which
may, but need not be, incorporated into the notice required pursuant to Section
4.2) setting forth:

             (i) the number and class of Shares proposed to be Transferred;

             (ii) the identity of the prospective purchaser;

             (iii) all material terms and conditions of such proposed
transaction; and

             (iv) that the party transferring Shares requiring a tag-along
notice (the "Transferring Party") is offering the Employee Parties (the
"Non-Transferring Party") the right to participate in such Transfer on a pro
rata basis on the same terms and conditions as are applicable to the
Transferring Party, provided that the Investors LLC Parties may Transfer (x) up
to 15% of the Shares beneficially owned by them in the aggregate as of the
Closing without complying with this Section 4.3 and (y) to other Investors LLC
Parties or the Related Parties. This Section shall not apply to any redemption
or Transfer of Shares made in connection with any employee stock purchase plans.
Tag-Along rights shall not apply, and the 15% computation referred to in the
preceding clause (x) shall exclude, Shares sold to Employees of the Company by
any Investors LLC Party or its Affiliates within 365 days after the Initial
Execution Date.

             Within 10 Business Days following the delivery of the Tag Along
Notice, the Non-Transferring Party shall, by notice in writing to the
Transferring Party, have the opportunity to sell to the prospective purchaser
(upon the same terms and conditions as the Transferring Party) up to that number
of Shares of the class or classes specified in the Tag Along Notice owned by
such Non-Transferring Party as shall equal the product of (x) a fraction, the
numerator of which is the number of Shares of the class or classes specified in
the Tag Along Notice owned by the Non-Transferring Party as of the date of such
proposed sale and the denominator of which is the aggregate number of Shares of
the class or classes specified in the Tag Along Notice owned as of the date of
such Tag Along Notice by Investors LLC Parties and the Non-Transferring Party
and any other participating Person, and (y) the number of Shares proposed to be
sold. The




                                      -18-
<PAGE>   22

amount of Shares to be sold by the Transferring Party shall be reduced if and to
the extent necessary to provide for such sale of Shares by the Non-Transferring
Party. If the Non-Transferring Party does not elect to participate in such sale
within the 10 Business Day period referred to above, the Transferring Party
shall be entitled to consummate such sale without the participation of the
Non-Transferring Party.

     Section 4.4. Permitted Transfers. The provisions of Sections 4.1, 4.2 and
4.3 shall not apply to any Transfer of Shares made pursuant to Article V.

     Section 4.5. Certain Consequences of Termination of Employee's Employment
or Competition. (a) If at any time an Employee shall cease to be employed by the
Company or any Subsidiary as a result of a Termination by the Company or any
Subsidiary for Cause, or the Employee violates any non-compete covenant with the
Company or any Subsidiary, subject to the provisions of paragraph (e) and
paragraph (f), the Company shall have the right (a "Call Option") to purchase
all but not less than all of the Call Option Shares owned by such Employee and
such Employee's Permitted Transferees at a price per share equal to the lesser
of (x) the Cost of the Call Option Shares or (y) 80% of the Fair Market Value on
the Applicable Valuation Date. In addition, any unexercised Stock Options will
be cancelled.

     (b) If at any time an Employee shall cease to be employed by the Company or
any Subsidiary other than as a result of a Termination by the Company for Cause
and other than when the Employee violates any non-compete covenant with the
Company or any Subsidiary, subject to the provisions of paragraph (e) and
paragraph (f), the Company shall have the right to purchase all but not less
than all the Call Option Shares not otherwise ineligible for repurchase under
Section 4.5(e) hereof owned by such Employee or such Employee's Permitted
Transferees at a price per Call Option Share equal to the Fair Market Value on
the Applicable Valuation Date.

     (c) If, prior to the IPO, but before the later of (x) the fifth anniversary
of the date of this Agreement in the case of Employees that executed this
Agreement as of the Initial Execution Date, and, in the case of Employees that
executed this Agreement subsequent to the Initial Execution Date, the date the
Employee executes this Agreement or (y) the third anniversary of the Employee's
termination of his employment by the Company, the Employee is in Competition
(other than as provided in paragraph (a) above) subject to the provisions of
paragraph (e) and paragraph (f), the Company shall have the right to purchase
all but not less than all of the Call Option Shares not otherwise ineligible for
repurchase under Section 4.5(e) hereof held by such Employee and such Employee's
Permitted Transferees at a price per Call Option Share equal to the Fair Market
Value at the Applicable Valuation Date, provided further that if the Company is
unable to exercise the Call Option provided by this Section 4.5(c) due to
restrictions





                                      -19-
<PAGE>   23

contained in debt or other agreements or due to limitations imposed by local
law, then the Company shall provide such Employee with reasonably prompt written
notice of such limitation and the time period provided in the first sentence of
this Section 4.5(c) shall be extended until 30 days beyond, as applicable, the
expiration of the relevant provision in the debt or other agreement or the
limitations imposed by local law.

     (d) If the Company desires to exercise a Call Option, it shall give written
notice thereof (which shall disclose the Equity Value of the Company, the
aggregate sum of the exercise prices of all issued and outstanding Stock
Options, the aggregate sum of the conversion prices of all issued and
outstanding Convertible Securities and the number of Shares of Common Stock
outstanding on a fully-diluted basis, all as of the Applicable Valuation Date,
without giving effect to "out-of-the money" Stock Options and "out-of-the money"
Convertible Securities, all as used to determine Fair Market Value) (a "Call
Option Notice") to the Employee and the Permitted Transferees of such Employee
within 60 days of the latest of: (x) in the case of Call Option Shares that are
Option Shares, the six month anniversary of the exercise of the Stock Option
resulting in the issuance of the Option Shares with respect to which the Company
desires to exercise the Call Option; (y) the occurrence of the event giving rise
to such Call Option, unless the Call Option occurs because the Employee is
engaged in Competition; and (z) if the event giving rise to the Call Option is
the Employee's engagement in Competition, the six month anniversary of the date
the Company obtains actual knowledge that such Employee was engaged in
Competition (whether or not by its receipt of written notification from the
Employee of such Competition); such Call Option shall expire if such notice is
not given within such period. The Employee and the Permissible Transferees of
such Employee shall deliver to the Company certificates representing the Call
Option Shares, free and clear of all claims, liens, or encumbrances, together
with blank stock powers, duly executed with all signature guarantees at a
closing at the principal office of the Company on the seventh day after the Call
Option Notice has been given to the Employee, or at such other place and time
and in such manner as may be mutually agreed to by the Employee and the Company.
The proceeds from the purchase of the Call Option Shares pursuant to the Call
Option (the "Call Option Proceeds") shall be paid by a check, which shall be
delivered to the Employee Party at the closing of such purchase.

     (e) Notwithstanding any other provision of this Section 4.5, the Company's
Call Option may not be exercised with respect to any Option Shares prior to the
six month anniversary of the exercise of the Stock Option resulting in the
issuance of the Option Shares subject to the Call Option.

     (f) Notwithstanding any other provision of this Section 4.5, if an
Employee's Option Shares which are subject to a Call Option include Option
Shares acquired by the Employee pursuant to two or more separate Stock Option
exercises, for


                                      -20-
<PAGE>   24

purposes of paragraph (d) hereof all of the Call Option Shares owned by that
Employee shall be deemed to have been purchased by that Employee pursuant to the
last exercise of a Stock Option made by that Employee.

     Section 4.6. Employee Offer Proposal Rights. (a) Prior to an IPO, if an
Employee's employment is terminated on account of his death, Total Disability,
Termination by the Company Without Cause or Resignation with Good Grounds, then
the Employee (or his or her personal representative as the case may be) shall
have the right, subject to the last sentence of paragraph (b), to offer to the
Company the opportunity to purchase up to two-thirds of the Rollover Shares of
such Employee and his Permitted Transferees (an "Employee Offer Proposal"), the
number of Rollover Shares being proposed for purchase by the Company being
herein referred to as the "Offered Rollover Shares". The price which the Company
shall pay the Employee (or his or her personal representative, as the case may
be) and such Employee's Permitted Transferees (collectively, the "Offering
Employee") for such Offered Rollover Shares shall be a price per Share equal to
the lesser of (x) the Cost of the Shares or (y) 80% of the Fair Market Value at
the Applicable Valuation Date.

     (b) If an Offering Employee desires to make an Employee Offer Proposal,
such Offering Employee shall give written notice thereof (an "Offer Proposal
Notice") to the Company within 60 days of the occurrence of the event giving
rise to such Offering Employee's right to make an Employee Offer Proposal;
provided that the right to make an Employee Offer Proposal shall expire if such
Offer Proposal Notice is not furnished to the Company within such 60-day period.
Subject to the first sentence of paragraph (c) and the provisions of paragraph
(d), within fifteen (15) days following receipt of such Offer Proposal Notice,
the Company will furnish written notice to the Offering Employee (the "Offer
Price Notice") advising the Offering Employee of (x) the number of Offered
Rollover Shares, if any, the Company wishes to purchase, (y) the per Share price
to be paid therefore, which price shall be calculated in accordance with the
provisions of Section 4.6(a), and (z) the Equity Value of the Company, the
aggregate sum of the exercise prices of all issued and outstanding Stock
Options, the aggregate sum of the conversion prices of all issued and
outstanding Convertible Securities and the number of Shares of Common Stock
outstanding on a fully-diluted basis, all as of the Applicable Valuation Date,
without giving effect to "out-of-the money" Stock Options and "out-of-the money"
Convertible Securities, all as used to determine Fair Market Value. Within seven
(7) days following the receipt of an Offer Price Notice, the Offering Employee
may confirm his or her offer to sell the Offered Rollover Shares the Company
wishes to purchase to the Company by sending written notice of the Offering
Employee's election to do so. If the Offering Employee does not so elect in
writing to sell such Offered Rollover Shares within the said seven (7) day
period, the Employee Offer Proposal and the Offer Price Notice will expire.


                                      -21-
<PAGE>   25

     (c) If an Offering Employee confirms his or her Employee Offer Proposal,
the Company shall, if it determines that it is commercially reasonable to do so,
use its best efforts to accommodate the Employee Offer Proposal and to agree to
purchase all of the Offered Rollover Shares the Company indicates it desires to
purchase in the Offer Price Notice; if the Company agrees to purchase such
Offered Rollover Shares, the purchase price due therefore shall be paid in five
equal installments. The first installment shall be made 60 days after the
Employee Offer Proposal Notice and shall be paid by check delivered to the
Employee. The other installments shall be paid pursuant to an installment
promissory note containing customary terms, and which shall be pre-payable at
par, providing for the payment of the Employee Offer Proposal price in four
annual installments with one installment to be made on each of the four
subsequent anniversaries of the first installment date. All installments other
than the first installment shall bear interest on the principal balance from
time to time outstanding calculated at the prime rate of J. P. Morgan and its
Affiliates compounded annually (which interest rate shall be fixed each year
with respect to the rate to be paid for the following year, on the date of the
payment of each annual installment).

     (d) Notwithstanding the foregoing, the Company shall not be required to
accept or fulfill any Employee Offer Proposal to the extent the payment of the
full Employee Offer Proposal price or any installment thereof would not be
permissible under (i) clause (2) of the second to last paragraph of Section 4.06
of the Indenture, (ii) Section 5.02(h) of the Bank Credit Agreement, (iii) any
loan or debt agreement the Company and its Subsidiaries may enter into from time
to time or (iv) the provisions of any applicable law. If the acceptance of the
Employee Offer Proposal is not permissible at the time of the Offer Proposal
Notice, the exercise of such Employee Offer Proposal shall be void, provided
that the Company shall promptly provide such Offering Employee who had
previously provided an Offer Proposal Notice which was not fully satisfied due
to the restrictions described in this Section 4.6(d), written notice if the
exercise of the Employee Offer Proposal becomes permissible (the "Employee Offer
Proposal Permissibility Notice") whereupon the Employee Party shall, for a
period of 60 days following the receipt of the Employee Offer Proposal
Permissibility Notice, have the right to re-make the Employee Offer Proposal and
if such Employee Offer Proposal is not re-made it will terminate. If 80% of the
Fair Market Value of the Shares pursuant to the provisions of Section 4.6(a) was
less than the Cost of the Shares which were to have been the subject of the
Employee Offer Proposal, then the Fair Market Value of the Shares shall be
re-determined on the basis of an Applicable Valuation Date which shall be the
last day of the month preceding the date of the Employee Offer Proposal
Permissibility Notice, and such Employee Offer Proposal Permissibility Notice
shall indicate the price which the Company would be required to purchase the
Shares pursuant to the Employee Offer Proposal. If any installment is deferred
as set forth above, such installment will be paid (together with accrued
interest) at the earliest time such payment is permitted.



                                      -22-
<PAGE>   26

                                    ARTICLE V
                               REGISTRATION RIGHTS

     Section 5.1. Piggyback Registrations.

     (a) Right to Piggyback. If (x) in connection with the IPO, Shares are
proposed to be sold by shareholders of the Company other than Employee Parties
or (y) after the completion of the IPO, whenever the Company proposes to
register any of its equity securities under the Securities Act (other than a
registration on Form S-4 or Form S-8 or any successor or similar forms) and the
registration form to be used may be used for the registration of Registrable
Securities (a "Piggyback Registration"), whether or not for sale for its own
account, the Company will give prompt written notice to Employee Parties and the
Investors LLC Parties of its intention to effect such a registration and will
include in such registration all Registrable Securities with respect to which
the Company has received written requests for inclusion therein within 15 days
after the receipt of the Company's notice. Any Piggyback Registration may be
abandoned at any time without prejudice to the Company or any shareholder of the
Company. The Company may elect to terminate any Piggyback Registration rights of
the Employee Parties in connection with the IPO or any Piggyback Registration as
determined by the Board of Directors in good faith (it being understood that the
Board of Directors can exercise such termination right when the sale by Employee
Parties could adversely affect an offering of Shares), provided, however, that,
except as provided in Section 5.1(b) or 5.1(c) so long as the Covalt Family
Group owns 5% of the Shares then outstanding on a fully diluted basis (excluding
Stock Options) from time to time the Company may not terminate (i) any Piggyback
Registration rights of a member of the Covalt Family Group at a time that Covalt
is not an employee, officer or director of the Company and (ii) any Piggyback
Registration rights of the Covalt Family Group (other than Covalt) to extent
that Covalt was not required to be disclosed as the beneficial owner of such
Shares in the registration statement for the Piggyback Registration.

     (b) Priority on Primary Registrations. If a Piggyback Registration is an
underwritten primary registration under the Securities Act on behalf of the
Company, and the managing underwriters or the Company determines that the number
of securities requested to be included in such registration exceeds the number
which can be sold in such offering within a price range reasonably acceptable to
the Company, the Company will include in such registration (i) first, the
securities the Company proposes to sell and (ii) second, all other securities
(including the Registrable Securities and securities held by holders other than
the shareholders a party hereto) requested to be included in such registration,
pro rata among the respective holders thereof on the basis of the number of
securities owned by each such holder subject to registration rights with the
Company.


                                      -23-
<PAGE>   27

     (c) Priority on Secondary Registrations. If a Piggyback Registration is an
underwritten secondary registration under the Securities Act on behalf of
holders of the Company's securities, and the managing underwriters or the
Company determines that the number of securities requested to be included in
such registration exceeds the number which can be sold in such offering within a
price range reasonably acceptable to such holders or Investors, the Company will
include in such registration the securities (including the Registrable
Securities and securities held by holders other than the shareholders a party
hereto) requested to be included in such registration, pro rata among the
respective holders thereof on the basis of the number of securities owned by
each such holder subject to registration rights with the Company.

     (d) Subject to the last sentence of paragraph (a), each Employee Party
shall only be able to include Registrable Securities in any Piggyback
Registration to the extent that such Employee Party requires registration under
the Securities Act to sell its Registrable Securities.

     Section 5.2. Demand Registration. As soon as practicable after receipt by
the Company of each Qualified Request (as defined in subparagraph (i) below)
from one or more holders of Registrable Securities to register under the
Securities Act part or all of the Restricted Securities held by such holder or
holders, the Company will cause a Registration Statement on Form S-1 (or on Form
S-2 or Form S-3 if either such form can be used) under the Securities Act, or
any comparable form then in force, to be filed and shall use its best efforts to
cause the registration statement to become effective, subject to the following:

             (i) Prior to an IPO, a Qualified Request shall be a written request
or requests to the Company from Investors LLC or one or more persons that are
Investors LLC Parties and members of the Covalt Family Group (subject to clause
(iii) below) who hold Registrable Securities evidencing securities which
aggregate at least 51% of the sum of all outstanding shares of the Common Stock
which are then Registrable Securities held by Investors LLC Parties and the
Covalt Family Group (subject to clause (iii) below). After the IPO, a Qualified
Request shall be a written request or requests to the Company from Investors LLC
or one or more persons that are Investors LLC Parties and members of Covalt
Family Group (subject to clause (iii) below) who hold Registrable Securities
evidencing securities which aggregate at least 25% of the sum of all outstanding
shares of the Common Stock which are then Registrable Securities held by
Investors LLC Parties and members of Covalt Family Group (subject to clause
(iii) below) and which have an estimated value of no less than $5,000,000. The
Company agrees to promptly furnish to Covalt written notice of any Qualified
Request delivered pursuant to this Section 5.2(i) and the Covalt Family Group
shall have 10 days to notify the Company that it is joining in such request; and


                                      -24-
<PAGE>   28

             (ii) The Company shall not be required to file any such
registration statement within six months after the effective date of any earlier
registration statement pursuant to this Section 5.2 or any Piggyback
Registration, nor shall it be required to file a total of more than three
registration statements pursuant to this Section 5.2.

             (iii) The provisions of Section 5.2 (i) and (ii) above shall apply
to members of the Covalt Family Group so long as the Covalt Family Group owns 5%
of the Shares then outstanding on a fully diluted basis (excluding Stock
Options) from time to time and then only, (x) with respect to Registrable
Securities owned by Covalt, at such time as Covalt is not an employee, officer
or director of the Company, and (y) with respect to the Registrable Securities
owned by Covalt's Permitted Transferees, to the extent that Covalt was not
required to be disclosed as the beneficial owner of such Permitted Transferee's
Registrable Securities in the registration statement for the Demand
Registration, of the Registerable Securities owned by Covalt and/or such
Permitted Transferee, as the case may be, provided further that no member of the
Covalt Family Group shall solicit requests or otherwise seek approval of other
members of the Investors LLC Parties.

     Section 5.3. Holdback. Each shareholder party hereto agrees that, if
requested by the Company or the managing underwriters, if any, in writing, it
will not directly or indirectly (x) offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant for the sale of or otherwise dispose of or
transfer any shares of Common Stock or securities convertible into or
exchangeable or exercisable for shares of Common Stock or (y) enter into any
swap or other agreement that transfers, in whole or in part, the economic
consequence of ownership of the shares whether any such swap or transaction is
to be settled by delivery of shares of Common Stock or other securities, in cash
or otherwise (other than securities, if any, of such party included in such
Secondary Offering), during the time period requested in such written request,
not to exceed a period beginning 7 days before and ending two years after the
date the registration statement for any offering of Common Stock is declared
effective. Requests under this section need not be uniformly applied to all
shareholders.

     Section 5.4. Registration Procedures. Whenever the parties hereto have
requested that any Registrable Securities be registered in a Piggyback
Registration pursuant to Section 5.1 or a Demand Registration has been requested
pursuant to Section 5.2, the Company will use its reasonable efforts to effect
the registration and the sale of such Registrable Securities in accordance with
the intended method of disposition thereof, and pursuant thereto the Company
will as expeditiously as possible:


                                      -25-
<PAGE>   29

     (a) prepare and file with the Commission a registration statement with
respect to such Registrable Securities and thereafter use its reasonable efforts
to cause such registration statement to become effective (provided that, before
filing a registration statement or prospectus or any amendments or supplements
thereto, the Company will furnish to the counsel selected by the holders of a
majority of the Registrable Securities covered by such registration statement
copies of all such documents proposed to be filed, which documents will be
subject to review of such counsel);

     (b) prepare and file with the Commission such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective for a period of
either (i) not less than six months (subject to extension pursuant to Section
5.7(b)) or, if such registration statement relates to an underwritten offering,
such longer period as in the opinion of counsel for the underwriters a
prospectus is required by law to be delivered in connection with sales of
Registrable Securities by an underwriter or dealer or (ii) such shorter period
as will terminate when all of the securities covered by such registration
statement have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof set forth in such registration
statement (but in any event not before the expiration of any longer period
required under the Securities Act), and to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement until such time as all of such securities have been
disposed of in accordance with the intended methods of disposition by the seller
or sellers thereof set forth in such registration statement;

     (c) furnish to each seller of Registrable Securities such number of copies
of such registration statement, each amendment and supplement thereto, the
prospectus included in such registration statement (including each preliminary
prospectus) and such other documents as such seller may reasonably request in
order to facilitate the disposition of the Registrable Securities owned by such
seller;

     (d) use its reasonable efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any seller reasonably requests and do any and all other acts and things which
may be reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
seller (provided that the Company will not be required to (i) qualify generally
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this subparagraph, (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any such
jurisdiction);


                                      -26-
<PAGE>   30

     (e) notify each seller of such Registrable Securities, at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, upon discovery that, or upon the discovery of the happening of any event as
a result of which, the prospectus included in such registration statement
contains an untrue statement of a material fact or omits any fact necessary to
make the statements therein not misleading in the light of the circumstances
under which they were made, and, at the request of any such seller, the Company
will prepare and furnish to such seller a reasonable number of copies of a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Securities, such prospectus will not contain
an untrue statement of a material fact or omit to state any fact necessary to
make the statements therein not misleading in the light of the circumstances
under which they were made;

     (f) cause all such Registrable Securities to be listed on each securities
exchange on which similar securities issued by the Company are then listed;

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

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

     (i) make available for inspection by any seller of Registrable Securities,
any underwriter participating in any disposition pursuant to such registration
statement, and any attorney, accountant or other agent retained by any such
seller or underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors, employees and independent accountants to supply all information
reasonably requested by any such seller, underwriter, attorney, accountant or
agent in connection with such registration statement;

     (j) otherwise use its reasonable efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering the
period of at least twelve months beginning with the first day of the Company's
first full calendar quarter after the effective date of the registration
statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act and Rule 158 thereunder;


                                      -27-
<PAGE>   31

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

     (l) obtain a cold comfort letter, dated the effective date of such
registration statement (and, if such registration includes an underwritten
public offering, dated the date of the closing under the underwriting
agreement), signed by the Company's independent public accountants in customary
form and covering such matters of the type customarily covered by cold comfort
letters as the holders of a majority of the Registrable Securities being sold
reasonably request (provided that such Registrable Securities constitute at
least 10% of the securities covered by such registration statement); and

     (m) provide a legal opinion of the Company's outside counsel, dated the
effective date of such registration statement (and, if such registration
includes an underwritten public offering, dated the date of the closing under
the underwriting agreement), with respect to the registration statement, each
amendment and supplement thereto, the prospectus included herein (including the
preliminary prospectus) and such other documents relating thereto in customary
form and covering such matters of the type customarily covered by legal opinions
of such nature.

The Company may require each seller of Registrable Securities as to which any
registration is being effected to furnish the Company such information regarding
such seller and the distribution of such securities as the Company may from time
to time reasonably request in writing.

     Section 5.5. Registration Expenses. (a) The Company shall pay all
Registration Expenses relating to any registration of Registrable Securities
hereunder. "Registration Expenses" shall mean any and all fees and expenses
incident to the Company's performance of or compliance with this Article V,
including, without limitation: (i) Commission, stock exchange or National
Association of Securities Dealers, Inc. registration and filing fees and all
listing fees and fees with respect to the inclusion of securities on the Nasdaq
National Market, (ii) fees and expenses of compliance with state securities or
"blue sky" laws and in connection with the preparation of a "blue sky" survey,
including, without limitation, reasonable fees and expenses of blue sky counsel,
(iii) printing expenses, (iv) messenger and delivery expenses, (v) fees and
disbursements of counsel for the Company, (vi) with respect to each
registration, reasonable fees and disbursements of one counsel for the selling
holders of Shares (selected by the holders of a majority of the Shares included
in such registration),



                                      -28-
<PAGE>   32

(vii) fees and disbursements of all independent public accountants (including
the expenses of any audit and/or "cold comfort" letter) and fees and expenses of
other persons, including special experts, retained by the Company, and (viii)
any other fees and disbursements of underwriters, if any, customarily paid by
issuers or sellers of securities.

     (b) Notwithstanding the foregoing, (i) the provisions of this Section 5.5
shall be deemed amended to the extent necessary to cause these expense
provisions to comply with "blue sky" laws of each state in which the offering is
made and (ii) in connection with any registration hereunder, each holder of
Registrable Securities being registered shall pay all underwriting discounts and
commissions and transfer taxes, if any, attributable to the Registrable
Securities included in the offering by such holder.

     Section 5.6. Indemnification. (a) The Company agrees to indemnify and hold
harmless, to the extent permitted by law, each holder of Registrable Securities,
its officers, directors, members, general or limited partners and each Person
who controls such holder (within the meaning of the Securities Act) against any
losses, claims, damages, liabilities, joint or several, to which such holder or
any such director, officer, member, general or limited partners or controlling
person may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon (i)
any untrue or alleged untrue statement of a material fact contained (A) in any
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or (B) in any application or other document or
communication (in this Section 5.6 collectively called an "application")
executed by or on behalf of the Company or based upon written information
furnished by or on behalf of the Company filed in any jurisdiction in order to
qualify any securities covered by such registration statement under the "blue
sky" or securities laws thereof, or (ii) any omission or alleged omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and the Company will reimburse such holder and each such
director, officer, member, general or limited partner and controlling person for
any legal or any other expenses incurred by them in connection with
investigating or defending any such loss, claim, liability, action or
proceeding; provided that the Company shall not be liable in any such case to
the extent that any such loss, claim, damage, liability (or action or proceeding
in respect thereof) or expense arises out of or is based upon an untrue
statement or alleged untrue statement, or omission or alleged omission, made in
such registration statement, any such prospectus or preliminary prospectus or
any amendment or supplement thereto, or in any application, in reliance upon and
in conformity with written information prepared and furnished to the Company by
such holder expressly for use therein or by such holder's failure to deliver a
copy of the registration statement or prospectus or any amendments or
supplements thereto after


                                      -29-
<PAGE>   33

the Company has furnished such holder with a sufficient number of copies of the
same. In connection with an underwritten offering, the Company will indemnify
such underwriters, their officers and directors and each Person who controls
such underwriters (within the meaning of the Securities Act) to the same extent
as provided above with respect to the indemnification of the holders of
Registrable Securities.

     (b) In connection with any registration statement in which a holder of
Registrable Securities is participating, each such holder will furnish to the
Company in writing such information and documents regarding such holder and such
holder's intended method of distribution or otherwise required by the Securities
Act as the Company reasonably requests for use in connection with any such
registration statement or prospectus and, to the extent permitted by law, will
indemnify and hold harmless the Company, its directors and officers and each
other Person who controls the Company (within the meaning of the Securities Act)
against any losses, claims, damages, liabilities, joint or several, to which the
Company or any such director or officer or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon (i) any untrue or alleged untrue
statement of a material fact contained in the registration statement, prospectus
or preliminary prospectus or any amendment thereof or supplement thereto or in
any application or (ii) any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or omission is
made in such registration statement, any such prospectus or preliminary
prospectus or any amendment or supplement thereto, or in any application, in
reliance upon and in conformity with written information prepared and furnished
to the Company by such holder expressly for use therein, and such holder will
reimburse the Company and each such director, officer and controlling person for
any legal or any other expenses incurred by them in connection with
investigating or defending any such loss, claim, liability, action or
proceeding; provided that the obligation to indemnify will be individual to each
holder and will be limited to the net amount of proceeds received by such holder
from the sale of Registrable Securities pursuant to such registration statement.
In connection with an underwritten offering, the holders of Registrable
Securities will indemnify such underwriters, their officers and directors and
each Person who controls such underwriters (within the meaning of the Securities
Act) to the same extent as provided above with respect to the indemnification of
the Company.

     (c) Any Person entitled to indemnification hereunder will (i) give prompt
written notice to the indemnifying party of any claim with respect to which it
seeks indemnification and (ii) unless in such indemnified party's reasonable
judgment



                                      -30-
<PAGE>   34

a conflict of interest between such indemnified and indemnifying parties may
exist with respect to such claim, permit such indemnifying party to assume the
defense of such claim with counsel reasonably satisfactory to the indemnified
party. If such defense is assumed, the indemnifying party will not be subject to
any liability for any settlement made by the indemnified party without its
consent. An indemnifying party who is not entitled to, or elects not to, assume
the defense of a claim will not be obligated to pay the fees and expenses of
more than one counsel for all parties indemnified by such indemnifying party
with respect to such claim, unless in the reasonable judgment of any indemnified
party a conflict of interest may exist between such indemnified party and any
other of such indemnified parties with respect to such claim.

     (d) The indemnification provided for under this Agreement will remain in
full force and effect regardless of any investigation made by or on behalf of
the indemnified party or any officer, member, director or controlling Person of
such indemnified party and will survive the transfer of securities by any holder
thereof. The Company also agrees to make such provisions, as are reasonably
requested by any indemnified party, for contribution to such party in the event
the Company's indemnification is unavailable for any reason.

     Section 5.7. Participation in Underwritten Registrations. (a) In the case
of a registration pursuant to Section 5.1 or 5.2 hereof, if the Company shall
have determined to enter into any underwriting agreements in connection
therewith, all of the holders' Registrable Securities to be included in such
registration shall be subject to such underwriting agreement. Such underwriting
agreement shall also contain such representations, warranties, indemnities and
contributions by the participating holders as are customary in agreements of
that type.

     (b) Each Person that is participating in any registration hereunder agrees
that, upon receipt of any notice from the Company of the happening of any event
of the kind described in Section 5.4(e) above, such Person will forthwith
discontinue the disposition of its Registrable Securities pursuant to the
registration statement until such Person's receipt of the copies of a
supplemented or amended prospectus as contemplated by such Section 5.4(e). In
the event the Company shall give any such notice, the applicable time period
mentioned in Section 5.4(b) during which a registration statement is to remain
effective shall be extended by the number of days during the period from and
including the date of the giving of such notice pursuant to this paragraph to
and including the date when each seller of a Registrable Security covered by
such registration statement shall have received the copies of the supplemented
or amended prospectus contemplated by Section 5.4 (e).



                                      -31-
<PAGE>   35

     Section 5.8. Pre-Emptive Rights. Prior to the occurrence of an IPO in the
event that the Company desires to issue any Shares or any securities convertible
into or exchangeable or exercisable for Shares in an offering or placement that
is not required to be registered under the Securities Act (a "Private
Offering"), the Company must first offer to sell such securities proposed to be
issued in such Private Offering in accordance with this Section 5.8 on the same
terms and conditions as the sale of such securities in such proposed Private
Offering.

     The offer (the "Pre-emptive Right Notice") shall be made by the Company to
each Employee Party who owns of record at least 5% of the Shares then
outstanding on a fully diluted basis (excluding Stock Options) from time to time
determined as of the date of the Pre-emptive Right Notice and to Investors LLC
(a "Notified Shareholder"), and shall be dated, shall be in writing and shall
set forth the terms of the proposed Private Offering, including, but not limited
to, the consideration to be paid, and all other terms and conditions related to
the proposed Private Offering.

     From and after the time that the Notified Shareholders receive the
Pre-emptive Right Notice, each Notified Shareholder shall have the right,
exercisable by giving written notice to the Company of such Notified
Shareholder's intent to exercise such right within 10 Business Days of the
Pre-emptive Right Notice, to subscribe for and purchase a number of securities
subject to the Pre-emptive Right Notice, on the terms set forth in the
Pre-emptive Right Notice, such that, after giving effect to the issuance of
securities subject to the Pre-emptive Right Notice and the exercise of the
rights of each Notified Shareholder set forth in this Section 5.8 (including,
for the purpose of this calculation, the issuance of Common Stock upon
conversion, exchange or exercise of any securities convertible, exchangeable or
exercisable into shares of Common Stock to be issued in such Private Offering),
the shares of Common Stock owned by such Notified Shareholder (assuming the
conversion of any securities held by such Notified Shareholder convertible into
Common Stock (whether or not then convertible) and the exercise of any options
owned by such Notified Shareholder exercisable for Common Stock but taking
appropriate account of the exercise price of any stock options or warrants)
shall represent the same percentage of the outstanding shares of Common Stock
owned by such Notified Shareholder prior to the consummation of such Private
Offering (assuming the conversion of any securities held by such Notified
Shareholder (whether or not then convertible) convertible into Common Stock and
the exercise of any option owned by such Notified Shareholder exercisable for
Common Stock but taking appropriate account of the exercise price of any stock
options or warrants). Any Notified Shareholder will be entitled at its option to
purchase non-voting securities in place of voting securities pursuant to a
Pre-emptive Right Notice. If any Notified Shareholder fails to give written
notice of such Notified Shareholder's election to exercise the rights of such
Notified Shareholder set forth in this Section 5.8 within 10 Business Days of
the date of Pre-emptive Right Notice,



                                      -32-
<PAGE>   36

such Notified Shareholder shall be deemed to have waived the rights granted to
such Notified Shareholder under this Section 5.8 with respect to the securities
so offered under such Pre-emptive Right Notice.

     Each Notified Shareholder that has exercised its rights to purchase
securities pursuant to this Section 5.8 shall, within 10 Business Days from the
date of the Pre-emptive Right Notice (such period to be extended as may be
required in order for necessary regulatory approvals to be obtained) purchase
the securities or other securities subject to the Pre-emptive Right Notice in
accordance with the terms of this Section 5.8.

     Notwithstanding the foregoing, the rights provided for in this Section 5.8
shall not apply (i) to any issuance to employees, directors or consultants of
the Company or its Subsidiary of securities or options to purchase securities
under an employee stock purchase plan or employee benefits plan adopted by the
Board of Directors of the Company, (ii) to any dividend paid in securities or
any subdivision or combination of securities, (iii) to the issuance of
securities in consideration for any acquisition by the Company and (iv) the
issuance of equity or equity equivalents as ancillary parts of a debt financing
transaction.


                                   ARTICLE VI
                               GENERAL PROVISIONS

     Section 6.1. Notices. Any notice required to be given hereunder shall be
sufficient if in writing, and sent by facsimile transmission and by courier
service (with proof of service), hand delivery or certified or registered mail
(return receipt requested and first-class postage prepaid), addressed as
follows:

     If to the Company:

     Sovereign Specialty Chemicals, Inc.
     Suite 2200
     225 West Washington Street
     Chicago, IL 60606
     Attn. Chief Executive Officer


     With a copy to:

     Timothy E. Peterson
     Fried, Frank, Harris, Shriver & Jacobson




                                      -33-
<PAGE>   37

     4 Chiswell Street
     London EC1Y 4UP
     Facsimile: (020 7) 972 9602

     With a copy to:

     Christine J. Smith, Esq.
     AEA Investors Inc.
     65 East 55th Street
     New York, NY 10022
     Facsimile:  (212) 888-1459




                                      -34-
<PAGE>   38


     If to Investors LLC:

     Christine J. Smith, Esq.
     AEA Investors Inc.
     65 East 55th Street
     New York, NY  10022
     Facsimile:  (212) 888-1459


     With a copy to:

     Timothy E. Peterson
     Fried, Frank, Harris, Shriver & Jacobson
     4 Chiswell Street
     London EC1Y 4UP
     Facsimile:  (020 7) 972 9602

     If to an Employee:

     To the address of Employee's place of business for the Company or any
Subsidiary.

or to such other address as any party shall specify by written notice so given
(if no address has been provided, the notice can be sent to the last known
address,) and such notice shall be deemed to have been delivered as of the date
so telecommunicated, personally delivered or mailed two business days following
the post-marked date.

     Section 6.2. Assignment; Binding Effect; Benefit; Additional Signatories.
Neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned by any of the parties hereto (whether by operation of law or
otherwise) without the prior written consent of the other parties, except by an
Investors LLC Party to any other Investors LLC Party. Subject to the preceding
sentence, this Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns. Notwithstanding
anything contained in this Agreement to the contrary, nothing in this Agreement,
express or implied, is intended to confer on any person other than the parties
hereto or their respective heirs, successors, executors, administrators and
assigns any rights, remedies, obligations or liabilities under or by reason of
this Agreement. In connection with certain share purchases or Stock Option
grants, additional employees may become party to this Agreement by executing the
Agreement and by being added to Schedule I hereof and shall be fully bound by,
and


                                      -35-
<PAGE>   39

subject to, all of the covenants, terms and conditions of the Agreement as
though original parties hereto and shall be deemed Employees for all purposes
hereof.

     Section 6.3. Entire Agreement. This Agreement constitutes the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings (oral and written) among the
parties with respect thereto.

     Section 6.4. Amendment. This Agreement may be amended by the parties hereto
at any time, provided that no amendment shall be made which by law requires the
further approval of stockholders of the Company without obtaining such further
approval (provided that each Employee Party accepts and agrees that Covalt may
enter into additional agreements with the Company and Investors LLC which may
modify his rights and obligations hereunder.) This Agreement may not be amended
or modified except by an instrument in writing signed by or on behalf of the
Company, Investors LLC (or if Investors LLC is not a shareholder of the Company,
Investors LLC Parties constituting a majority of the Shares held by the
Investors LLC Parties) and Persons representing a majority of the Shares held by
the Employee Parties.

     Section 6.5. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without regard to
its rules of conflict of laws. Each of the Employee Parties hereby irrevocably
and unconditionally consents to submit to the exclusive jurisdiction of the
courts of the State of Delaware and of the United States of America located in
the State of Delaware for any litigation arising out of or relating to this
Agreement and the transactions contemplated hereby (and agrees not to commence
any litigation relating thereto except in such courts), waives any objection to
the laying of venue of any such litigation in such Delaware courts and agrees
not to plead or claim that such litigation brought in any such Delaware court
has been brought in an inconvenient forum.

     Section 6.6. Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies of
this Agreement, each of which may be signed by less than all of the parties
hereto, but together all such copies are signed by all of the parties hereto.

     Section 6.7. Headings. Headings of the Articles and Sections of this
Agreement are for the convenience of the parties only and shall be given no
substantive or interpretive effect whatsoever.



                                      -36-
<PAGE>   40

     Section 6.8. Interpretation. In this Agreement, unless the context
otherwise requires, words describing the singular number shall include the
plural and vice versa, "including" shall mean including, without limitation, and
words denoting any gender shall include all genders and words denoting natural
persons shall include corporations and partnerships and vice versa.

     Section 6.9. Incorporation of Exhibits and Schedules. All exhibits and
schedules hereto are hereby incorporated herein and made a part hereof for all
purposes as if fully set forth herein.

     Section 6.10. Third Party Beneficiary. Investors is a third party
beneficiary under this Agreement.

     Section 6.11. Severability. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or otherwise affecting the validity or enforceability of any of the
terms or provisions of this Agreement in any other jurisdiction. If any
provision of this Agreement is so broad as to be unenforceable, the provision
shall be interpreted to be only so broad as is enforceable.

     Section 6.12. Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any Delaware court, this
being in addition to any other remedy to which they may be entitled at law or in
equity.

     Section 6.13. Termination. The provision of Sections 3.1, 3.2, 3.3, 3.4,
4.1(d) and (e), 4.2, 4.3, 4.5, 4.6 and 5.8 shall terminate and shall cease to be
binding on the parties hereto upon an IPO. The rights and obligations of the
Covalt Family Group under Sections 5.1 to 5.5 shall terminate and shall cease to
be binding on the parties hereto at such time as less than 1% of the then
outstanding Shares on a fully diluted basis (excluding stock options) are owned
by the Covalt Family Group.



                                      -37-
<PAGE>   41



     IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf as of the day and year first written
above.

                         SSCI INVESTORS LLC
                         By:  SSCI Investors LP
                         By:  AEA SSC Investors Inc.
                              Its General Partner


                         By:      /s/ Brian R. Hoesterey
                                  ---------------------------------------------
                         Name:        Brian R. Hoesterey
                                  ---------------------------------------------
                         Title:       Vice President
                                  ---------------------------------------------



                         SOVEREIGN SPECIALTY CHEMICALS, INC

                         By:      /s/ Robert Covalt
                                  ---------------------------------------------
                         Name:        Robert Covalt
                                  ---------------------------------------------
                         Title:       Chairman, President, Chief Executive
                                        Officer
                                  ---------------------------------------------


                         /s/ Robert Covalt
                         ------------------------------------------------------
                         Robert Covalt


                         /s/ Robert Covalt
                         ------------------------------------------------------
                         Tregooden Partners, L.P.


                         /s/ Robert Covalt
                         ------------------------------------------------------
                         Nautical Partners, L.P.


                         /s/ Robert Covalt
                         ------------------------------------------------------
                         Serendipity Partners, L.P.




                                      -38-
<PAGE>   42
                         /s/ Louis Pace
                         ------------------------------------------------------
                         Louis Pace



                         ------------------------------------------------------
                         Martyn Howell-Jones



                         ------------------------------------------------------
                         Gerard A. Loftus



                         ------------------------------------------------------
                         Paul Gavlinski



                         ------------------------------------------------------
                         Stephan Zavodny



                         ------------------------------------------------------
                         Richard W. Johnston



                         ------------------------------------------------------
                         Richard Bashford



                         ------------------------------------------------------
                         Peter Longo





                                      -39-
<PAGE>   43

                         ------------------------------------------------------
                         Mark Longo



                         ------------------------------------------------------
                         Karen Kempa Seeberg



                         ------------------------------------------------------
                         Frederick Quinn


                         /s/ John R. Mellett
                         ------------------------------------------------------
                         John R. Mellett



                         ------------------------------------------------------
                         Anshyang Albert Lin



                         ------------------------------------------------------
                         Terence Cadby



                         ------------------------------------------------------
                         Gary Cassata



                         ------------------------------------------------------
                         Susan Cooper





                                      -40-
<PAGE>   44

                         ------------------------------------------------------
                         Brian Dorrenkott



                         ------------------------------------------------------
                         Kevin Johnston



                         ------------------------------------------------------
                         Richard Lawrence



                         ------------------------------------------------------
                         Robert D. Richardson



                         ------------------------------------------------------
                         Ashok Shah


                         /s/ Patrick W. Stanton
                         ------------------------------------------------------
                         Patrick W. Stanton



                         ------------------------------------------------------
                         Paul Szabo



                         ------------------------------------------------------
                          George Noggle





                                      -41-
<PAGE>   45

                         /s/ R. THURGOOD
                         ------------------------------------------------------
                         R. Thurgood





                                      -42-



<PAGE>   1
                                                                     EXHIBIT 4.4

================================================================================




                                    INDENTURE



                           DATED AS OF MARCH 29, 2000


                                      AMONG


                 SOVEREIGN SPECIALTY CHEMICALS, INC., AS ISSUER,


                           THE GUARANTORS NAMED HEREIN


                                       AND


                        THE BANK OF NEW YORK, AS TRUSTEE


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

                               UP TO $200,000,000



              11 7/8% SENIOR SUBORDINATED NOTES DUE 2010, SERIES A
              11 7/8% SENIOR SUBORDINATED NOTES DUE 2010, SERIES B




================================================================================

<PAGE>   2
                             CROSS-REFERENCE TABLE

<TABLE>
<CAPTION>
TRUST INDENTURE                                                                      INDENTURE
   ACT SECTION                                                                        SECTION
- ----------------                                                                     ---------
<S>                                                                                  <C>
ss.310(a)(1)....................................................................     7.10
      (a)(2)....................................................................     7.10
      (a)(3)....................................................................     N.A.
      (a)(4)....................................................................     N.A.
      (a)(5)....................................................................     7.08, 7.10.
      (b).......................................................................     7.08; 7.10; 13.02
      (c).......................................................................     N.A.
ss.311(a).......................................................................     7.11
      (b).......................................................................     7.11
      (c).......................................................................     N.A.
ss.312(a).......................................................................     2.05
      (b).......................................................................     13.03
      (c).......................................................................     13.03
ss.313(a).......................................................................     7.06
      (b)(1)....................................................................     7.06
      (b)(2)....................................................................     7.06
      (c).......................................................................     7.06; 13.02
      (d).......................................................................     7.06
ss.314(a).......................................................................     4.11; 4.12; 13.02
      (b).......................................................................     N.A.
      (c)(1)....................................................................     13.04; 13.05
      (c)(2)....................................................................     13.04; 13.05
      (c)(3)....................................................................     N.A.
      (d).......................................................................     N.A.
      (e).......................................................................     13.05
      (f).......................................................................     N.A.
ss.315(a).......................................................................     7.01(b)
      (b).......................................................................     7.05; 13.02
      (c).......................................................................     7.01(a)
      (d).......................................................................     7.01(c)
      (e).......................................................................     6.11
ss.316(a)(last sentence)........................................................     2.09
      (a)(1)(A).................................................................     6.05
      (a)(1)(B).................................................................     6.04
      (a)(2)....................................................................     10.02
      (b).......................................................................     6.07
      (c).......................................................................     10.04
ss.317(a)(1)....................................................................     6.08
      (a)(2)....................................................................     6.09
      (b).......................................................................     2.04
ss.318(a).......................................................................     13.01
</TABLE>

- ----------------
N.A. means Not Applicable.
NOTE:   This Cross-Reference Table shall not, for any purpose, be deemed to be a
        part of the Indenture.


<PAGE>   3
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                            Page
                                                                                                            ----
                                                              ARTICLE ONE

                                               DEFINITIONS AND INCORPORATION BY REFERENCE

<S>     <C>                                                                                                  <C>
SECTION 1.01.           Definitions...........................................................................1
SECTION 1.02.           Incorporation by Reference of Trust Indenture Act....................................29
SECTION 1.03.           Rules of Construction................................................................29

                                   ARTICLE TWO

                                    THE NOTES

SECTION 2.01.           Form and Dating......................................................................30
SECTION 2.02.           Execution and Authentication.........................................................31
SECTION 2.03.           Registrar and Paying Agent...........................................................32
SECTION 2.04.           Paying Agent To Hold Assets in Trust.................................................33
SECTION 2.05.           Holder Lists.........................................................................33
SECTION 2.06.           Transfer and Exchange................................................................33
SECTION 2.07.           Replacement Notes....................................................................34
SECTION 2.08.           Outstanding Notes....................................................................34
SECTION 2.09.           Treasury Notes.......................................................................35
SECTION 2.10.           Temporary Notes......................................................................35
SECTION 2.11.           Cancellation.........................................................................35
SECTION 2.12.           Defaulted Interest...................................................................36
SECTION 2.13.           CUSIP Number.........................................................................36
SECTION 2.14.           Deposit of Moneys....................................................................36
SECTION 2.15.           Book-Entry Provisions for Global Notes...............................................37
SECTION 2.16.           Registration of Transfers and Exchanges..............................................38

                                                           ARTICLE THREE

                                                             REDEMPTION

SECTION 3.01.           Notices to Trustee...................................................................43
SECTION 3.02.           Selection of Notes To Be Redeemed....................................................43
SECTION 3.03.           Notice of Redemption.................................................................44
SECTION 3.04.           Effect of Notice of Redemption.......................................................45
SECTION 3.05.           Deposit of Redemption Price..........................................................45
SECTION 3.06.           Notes Redeemed in Part...............................................................45
</TABLE>



                                      -i-
<PAGE>   4

<TABLE>
<CAPTION>
                                                                                                            Page
                                                                                                            ----

                                                          ARTICLE FOUR

                                                           COVENANTS
<S>     <C>                                                                                                 <C>
SECTION 4.01.           Payment of Notes.....................................................................45
SECTION 4.02.           Maintenance of Office or Agency......................................................46
SECTION 4.03.           Transactions with Affiliates.........................................................46
SECTION 4.04.           Limitation on Indebtedness...........................................................47
SECTION 4.05.           Disposition of Proceeds of Asset Sales...............................................50
SECTION 4.06.           Limitation on Restricted Payments....................................................52
SECTION 4.07.           Corporate Existence..................................................................56
SECTION 4.08.           Payment of Taxes and Other Claims....................................................56
SECTION 4.09.           Notice of Defaults...................................................................57
SECTION 4.10.           Maintenance of Properties and Insurance..............................................57
SECTION 4.11.           Compliance Certificate...............................................................58
SECTION 4.12.           Provision of Financial Information...................................................58
SECTION 4.13.           Waiver of Stay, Extension or Usury Laws..............................................59
SECTION 4.14.           Change of Control....................................................................59
SECTION 4.15.           Limitation on Layering...............................................................60
SECTION 4.16.           Limitations on Dividend and Other Payment Restrictions Affecting Restricted
                           Subsidiaries......................................................................61
SECTION 4.17.           Designation of Unrestricted Subsidiaries.............................................62
SECTION 4.18.           Limitation on Liens..................................................................63
SECTION 4.19.           Guaranty of Notes by Restricted Subsidiaries.........................................63
SECTION 4.20.           Limitation on the Sale or Issuance of Preferred Equity Interests of Restricted
                           Subsidiaries......................................................................64

                                                        ARTICLE FIVE

                         MERGERS; SUCCESSOR CORPORATION

SECTION 5.01.           Mergers, Sale of Assets, etc.........................................................64
SECTION 5.02.           Successor Corporation Substituted....................................................66

                                                        ARTICLE SIX

                                                   DEFAULT AND REMEDIES

SECTION 6.01.           Events of Default....................................................................66
SECTION 6.02.           Acceleration.........................................................................68
SECTION 6.03.           Other Remedies.......................................................................69
SECTION 6.04.           Waiver of Past Default...............................................................70
SECTION 6.05.           Control by Majority..................................................................70
</TABLE>


                                      -ii-
<PAGE>   5

<TABLE>
<CAPTION>
                                                                                                            Page
                                                                                                            ----
<S>                     <C>                                                                                 <C>
SECTION 6.06.           Limitation on Suits..................................................................70
SECTION 6.07.           Rights of Holders To Receive Payment.................................................71
SECTION 6.08.           Collection Suit by Trustee...........................................................71
SECTION 6.09.           Trustee May File Proofs of Claim.....................................................72
SECTION 6.10.           Priorities...........................................................................72
SECTION 6.11.           Undertaking for Costs................................................................72

                                                           ARTICLE SEVEN

                                                              TRUSTEE

SECTION 7.01.           Duties of Trustee....................................................................73
SECTION 7.02.           Rights of Trustee....................................................................74
SECTION 7.03.           Individual Rights of Trustee.........................................................75
SECTION 7.04.           Trustee's Disclaimer.................................................................75
SECTION 7.05.           Notice of Defaults...................................................................76
SECTION 7.06.           Reports by Trustee to Holders........................................................76
SECTION 7.07.           Compensation and Indemnity...........................................................76
SECTION 7.08.           Replacement of Trustee...............................................................78
SECTION 7.09.           Successor Trustee by Merger, etc.....................................................79
SECTION 7.10.           Eligibility; Disqualification........................................................79
SECTION 7.11.           Preferential Collection of Claims Against Company....................................79

                                                           ARTICLE EIGHT

                                                       SUBORDINATION OF NOTES

SECTION 8.01.           Notes Subordinated to Senior Indebtedness............................................79
SECTION 8.02.           No Payment on Notes in Certain Circumstances.........................................80
SECTION 8.03.           Payment Over of Proceeds upon Dissolution, etc.......................................81
SECTION 8.04.           Subrogation..........................................................................82
SECTION 8.05.           Obligations of Company Unconditional.................................................83
SECTION 8.06.           Notice to Trustee....................................................................83
SECTION 8.07.           Reliance on Judicial Order or Certificate of Liquidating Agent.......................84
SECTION 8.08.           Trustee's Relation to Senior Indebtedness............................................85
SECTION 8.09.           Subordination Rights Not Impaired by Acts or Omissions of the Company or Holders of
                           Senior Indebtedness...............................................................85
SECTION 8.10.           Holders Authorize Trustee To Effectuate Subordination of Notes.......................85
SECTION 8.11.           This Article Not To Prevent Events of Default........................................86
SECTION 8.12.           Trustee's Compensation Not Prejudiced................................................86
SECTION 8.13.           No Waiver of Subordination Provisions................................................86
</TABLE>


                                     -iii-
<PAGE>   6

<TABLE>
<CAPTION>
                                                                                                            Page
                                                                                                            ----
<S>     <C>                                                                                                 <C>
SECTION 8.14.           Subordination Provisions Not Applicable to Money Held in Trust for Holders; Payments
                           May Be Paid Prior to Dissolution..................................................86
SECTION 8.15.           Acceleration of Notes................................................................87

                                                            ARTICLE NINE

                                                       DISCHARGE OF INDENTURE

SECTION 9.01.           Termination of Company's Obligations.................................................87
SECTION 9.02.           Application of Trust Money...........................................................89
SECTION 9.03.           Repayment to Company.................................................................89
SECTION 9.04.           Reinstatement........................................................................89

                                                            ARTICLE TEN

                                                AMENDMENTS, SUPPLEMENTS AND WAIVERS

SECTION 10.01.          Without Consent of Holders...........................................................90
SECTION 10.02.          With Consent of Holders..............................................................91
SECTION 10.03.          Compliance with Trust Indenture Act..................................................92
SECTION 10.04.          Revocation and Effect of Consents....................................................93
SECTION 10.05.          Notation on or Exchange of Notes.....................................................93
SECTION 10.06.          Trustee To Sign Amendments, etc......................................................93

                                                           ARTICLE ELEVEN

                                                              GUARANTY

SECTION 11.01.          Unconditional Guaranty...............................................................94
SECTION 11.02.          Severability.........................................................................95
SECTION 11.03.          Release of a Guarantor...............................................................95
SECTION 11.04.          Limitation of Guarantor's Liability..................................................96
SECTION 11.05.          Contribution.........................................................................96
SECTION 11.06.          Execution of Note Guarantee..........................................................96
SECTION 11.07.          Subordination of Subrogation and Other Rights........................................97

                                                           ARTICLE TWELVE

                                                     SUBORDINATION OF GUARANTY

SECTION 12.01.          Guaranty Obligations Subordinated to Guarantor Senior Indebtedness...................97
</TABLE>


                                      -iv-
<PAGE>   7

<TABLE>
<CAPTION>
                                                                                                            Page
                                                                                                            ----
<S>     <C>                                                                                                 <C>
SECTION 12.02.          Payment Over of Proceeds upon Dissolution, etc.......................................97
SECTION 12.03.          Subrogation..........................................................................99
SECTION 12.04.          Obligations of Guarantors Unconditional..............................................99
SECTION 12.05.          Notice to Trustee...................................................................100
SECTION 12.06.          Reliance on Judicial Order or Certificate of Liquidating Agent......................101
SECTION 12.07.          Trustee's Relation to Guarantor Senior Indebtedness.................................101
SECTION 12.08.          Subordination Rights Not Impaired by Acts or Omissions of the Guarantors or Holders
                           of Guarantor Senior Indebtedness.................................................102
SECTION 12.09.          Holders Authorize Trustee To Effectuate Subordination of Guaranty...................102
SECTION 12.10.          This Article Not To Prevent Events of Default.......................................102
SECTION 12.11.          Trustee's Compensation Not Prejudiced...............................................102
SECTION 12.12.          No Waiver of Guaranty Subordination Provisions......................................102
SECTION 12.13.          Payments May Be Paid Prior to Dissolution...........................................103

                                                          ARTICLE THIRTEEN

                                                           MISCELLANEOUS

SECTION 13.01.          Trust Indenture Act Controls........................................................103
SECTION 13.02.          Notices.............................................................................104
SECTION 13.03.          Communications by Holders with Other Holders........................................105
SECTION 13.04.          Certificate and Opinion as to Conditions Precedent..................................105
SECTION 13.05.          Statements Required in Certificate or Opinion.......................................106
SECTION 13.06.          Rules by Trustee, Paying Agent, Registrar...........................................106
SECTION 13.07.          Governing Law.......................................................................106
SECTION 13.08.          No Recourse Against Others..........................................................106
SECTION 13.09.          Successors..........................................................................107
SECTION 13.10.          Counterpart Originals...............................................................107
SECTION 13.11.          Severability........................................................................107
SECTION 13.12.          No Adverse Interpretation of Other Agreements.......................................107
SECTION 13.13.          Legal Holidays......................................................................107

SIGNATURES..................................................................................................S-1

EXHIBIT A          Form of Series A Note....................................................................A-1
EXHIBIT B          Form of Series B Note....................................................................B-1
EXHIBIT C          Form of Legend for Global Notes..........................................................C-1
EXHIBIT D          Form of Transfer Certificate.............................................................D-1
EXHIBIT E          Form of Certificate for Regulation S Transfers...........................................E-1
</TABLE>

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

NOTE:   This Table of Contents shall not, for any purpose, be deemed to be a
        part of the Indenture.

                                      -v-


<PAGE>   8


     INDENTURE dated as of March 29, 2000, among SOVEREIGN SPECIALTY CHEMICALS,
INC., a Delaware corporation (the "Company"), the GUARANTORS named herein and
THE BANK OF NEW YORK, a New York banking corporation, as trustee (the
"Trustee").

     Each party hereto agrees as follows for the benefit of each other party and
for the equal and ratable benefit of the Holders of the Notes:


                                   ARTICLE ONE

                   DEFINITIONS AND INCORPORATION BY REFERENCE


SECTION 1.01.  Definitions.

     "Accounts Receivable Subsidiary" means any Subsidiary of the Company that
is, directly or indirectly, wholly owned by the Company (other than directors'
qualifying shares) and engaged solely in (1) purchasing, financing and
collecting accounts receivable obligations of customers of the Company or its
Subsidiaries, (2) the sale or financing of such accounts receivable or interest
therein and (3) other activities incident thereto.

     "Acquired Indebtedness" means Indebtedness of a Person (1) assumed in
connection with an Acquisition from such Person or (2) existing at the time such
Person becomes a Restricted Subsidiary or is merged or consolidated with or into
the Company or any Restricted Subsidiary.

     "Acquired Person" means, with respect to any specified Person, any other
Person which merges with or into or becomes a Subsidiary of such specified
Person.

     "Acquisition" means (1) any capital contribution (by means of transfers of
cash or other property to others or payments for property or services for the
account or use of others, or otherwise) by the Company or any Restricted
Subsidiary to any other Person, or any acquisition or purchase of Equity
Interests of any other Person by the Company or any Restricted Subsidiary, in
either case pursuant to which such Person shall become a Restricted Subsidiary
or shall be consolidated with or merged into the Company or any Restricted
Subsidiary or (2) any acquisition by the Company or any Restricted Subsidiary of
the assets of any Person which constitute substantially all of an operating unit
or line of business of such Person or which is otherwise outside of the ordinary
course of business.

     "Additional Interest" has the meaning provided in the Registration Rights
Agreement.


<PAGE>   9
                                      -2-

     "Additional Notes" see Section 2.02.

     "AEA" means AEA Investors Inc., a Delaware corporation, or any legal
successor thereto as a result of a reorganization thereof that does not involve
any change in control thereof.

     "Affiliate" of any specified person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided, however,
that (i) only for purposes of compliance with Section 4.03, beneficial ownership
of 15.0% or more of the then outstanding Equity Interests of a Person shall be
deemed to be control; and (ii) no individual, other than a director of the
Company or an officer of the Company with a policy making function, shall be
deemed an Affiliate of the Company or any of its Subsidiaries, solely by reason
of such individual's employment, position or responsibilities by or with respect
to the Company or any of its Subsidiaries.

     "Affiliate Transaction" see Section 4.03.

     "Agent" means any Registrar, Paying Agent or co-Registrar.

     "Asset Sale" means any direct or indirect sale, conveyance, transfer, lease
(that has the effect of a disposition) or other disposition (including, without
limitation, any merger, consolidation or sale-leaseback transaction) to any
Person other than the Company or a Wholly Owned Restricted Subsidiary, in one
transaction or a series of related transactions, of (1) any Equity Interest of
any Restricted Subsidiary; (2) any material license, franchise or other
authorization of the Company or any Restricted Subsidiary; (3) any assets of the
Company or any Restricted Subsidiary which constitute substantially all of an
operating unit or line of business of the Company or any Restricted Subsidiary;
or (4) any other property or asset of the Company or any Restricted Subsidiary
outside of the ordinary course of business (including the receipt of proceeds
paid on account of the loss of or damage to any property or asset and awards of
compensation for any asset taken by condemnation, eminent domain or similar
proceedings). For the purposes of this definition, the term "Asset Sale" shall
not include (A) any transaction consummated in compliance with Section 5.01 and
the creation of any Lien not prohibited by Section 4.18; provided, however, that
any transaction consummated in compliance with Section 5.01 involving a sale,
conveyance, assignment, transfer, lease or other disposal of less than all of
the properties or assets of the Company shall be deemed to be an Asset Sale with
respect to the properties or assets of the Company and the


<PAGE>   10

                                      -3-

Restricted Subsidiaries that are not so sold, conveyed, assigned, transferred,
leased or otherwise disposed of in such transaction; (B) sales of property or
equipment that has become worn out, obsolete or damaged or otherwise unsuitable
for use in connection with the business of the Company or any Restricted
Subsidiary; (C) any transaction consummated in compliance with Section 4.06; (D)
sales of accounts receivable for cash at Fair Market Value; (E) any sale,
conveyance or transfer of accounts receivable in the ordinary course of business
to an Accounts Receivable Subsidiary or to third parties that are not Affiliates
of the Company or any Subsidiary of the Company; (F) any transaction or series
of related transactions involving assets with a Fair Market Value not in excess
of $500,000; (G) the sale of equipment to the extent that such equipment is
exchanged for credit against the purchase price of similar replacement
equipment, or the proceeds of such sale are reasonably promptly applied to the
purchase price of similar replacement equipment; (H) in the ordinary course of
business, the license of patents, trademarks, copyrights and know-how to third
Persons; (I) a Restricted Payment that is permitted by Section 4.06; and (J) the
sale, conveyance, transfer or disposition by the Company or a Restricted
Subsidiary (1) constituting or pursuant to a Permitted Lien or (2) of Equity
Interests in an Unrestricted Subsidiary.

     "Bankruptcy Law" see Section 6.01.

     "Board of Directors" means the Board of Directors of the Company or any
Guarantor, as the case may be, or any authorized committee of such Board of
Directors.

     "Board Resolution" means, with respect to any Person, a duly adopted
resolution of the Board of Directors of such Person.

     "Business Day" means a day that is not a Saturday, a Sunday or a day on
which banking institutions in New York, New York or the State of Illinois are
not required to be open.

     "Capital Expenditure Indebtedness" means any Indebtedness of the Company or
any Restricted Subsidiary (whether consisting of Capital Lease Obligations,
Purchase Money Indebtedness or otherwise) incurred (x) for the purpose of
refinancing all or any part of the purchase price, cost of construction or
improvement of any fixed or capital assets used in a Related Business and (y) no
later than 180 days after the date of such acquisition or the date of completion
of such construction or improvement.

     "Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be so required to be capitalized on the balance sheet in accordance
with GAAP.


<PAGE>   11

                                      -4-

     "Cash Equivalents" means: (1) U.S. dollars and any other currency that is
convertible into U.S. dollars without legal restrictions and which is utilized
by the Company or any of the Restricted Subsidiaries in the ordinary course of
its business; (2) securities issued or directly and fully guarantied or insured
by the U.S. government or any agency or instrumentality thereof having
maturities of not more than one year from the date of acquisition; (3)
certificates of deposit and time deposits with maturities of one year or less
from the date of acquisition, bankers' acceptances with maturities not exceeding
one year and overnight bank deposits, in each case with any commercial bank
having capital and surplus in excess of $500.0 million (or the foreign currency
equivalent thereof); (4) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in clauses (2) and
(3) above entered into with any financial institution meeting the qualifications
specified in clause (3) above; (5) commercial paper rated P-1, A-1 or the
equivalent thereof by Moody's Investors Service, Inc. or Standard & Poor's
Ratings Group, respectively, and in each case maturing within one year after the
date of acquisition; (6) any money market deposit accounts issued or offered by
a financial institution meeting the qualifications specified in clause (3)
above; (7) investments in funds investing primarily in investments of the type
described in clauses (1) through (6); and (8) other short-term investments
utilized by Foreign Subsidiaries in accordance with normal investment practices
for cash management not exceeding a dollar equivalent amount of $1,000,000 in
the aggregate principal amount outstanding at any time.

     "Clearstream" means Clearstream Banking, societe anonyme.

     "Change of Control" means the occurrence of any of the following events
(whether or not approved by the Board of Directors of the Company): (1) any
Person (as such term is used in Sections 13(d) and 14(d) of the Exchange Act,
including any group acting for the purpose of acquiring, holding or disposing of
securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act), other
than one or more Permitted Holders, is or becomes the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person
shall be deemed to have "beneficial ownership" of all shares that any such
Person has the right to acquire, whether such right is exercisable immediately
or only after the passage of time), directly or indirectly, of more than 50% of
the total voting power of the then outstanding Voting Equity Interests of the
Company or, so long as Holdings owns a majority of the Voting Equity Interests
of the Company, Holdings (or, for so long as Holdings is a limited liability
company, its managing member); (2) the Company consolidates with, or merges with
or into, another Person (other than a Guarantor which is a Wholly Owned
Restricted Subsidiary) or the Company or the Restricted Subsidiaries sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially all
of the assets of the Company and the Restricted Subsidiaries (determined on a
consolidated basis) to any Person (other than the Company or a Guarantor which
is a Wholly Owned Restricted Subsidiary), other than any such transaction


<PAGE>   12

                                      -5-

where immediately after such transaction the Person or Persons that
"beneficially owned" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a Person shall be deemed to have "beneficial ownership" of all
securities that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time) immediately prior to
such transaction, directly or indirectly, the then outstanding Voting Equity
Interests of the Company "beneficially own" (as so determined), directly or
indirectly, a majority of the total voting power of the then outstanding Voting
Equity Interests of the surviving or transferee Person; or (3) following the
first public offering of Voting Equity Interests of the Company, during any
period of two consecutive years, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the shareholders of the Company was approved by a vote of a majority
of the directors of the Company then still in office who were either directors
at the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors of the Company then in office.

     "Change of Control Date" see Section 4.14.

     "Company" means the Person named as the "Company" in the first paragraph of
this Indenture until a successor shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor.

     "Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board, its Vice
Chairman of the Board, its President, a Vice President or its Treasurer, and by
an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered
to the Trustee.

     "Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of Consolidated EBITDA for the four quarter
period of the most recent four consecutive fiscal quarters ending prior to the
date of such determination (the "Four Quarter Period") to (ii) Consolidated
Interest Expense for such Four Quarter Period; provided, however, that (1) if
the Company or any Restricted Subsidiary has incurred any Indebtedness since the
beginning of such Four Quarter Period that remains outstanding on such date of
determination or if the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio is an Incurrence of Indebtedness, Consolidated
EBITDA and Consolidated Interest Expense for such Four Quarter Period shall be
calculated after giving effect on a pro forma basis to such Indebtedness as if
such Indebtedness had been Incurred on the first day of such Four Quarter Period
and the discharge of any other Indebtedness repaid, repurchased or otherwise
discharged with the proceeds of such new Indebtedness as if such discharge had
occurred on the first day of such Four Quarter Period, (2) if the Company or any
Restricted Subsidiary has repaid, repurchased, defeased, retired or otherwise
discharged (a "Discharge") any


<PAGE>   13

                                      -6-

Indebtedness since the beginning of such Four Quarter Period that no longer
remains outstanding on such date of determination or if the transaction giving
rise to the need to calculate the Consolidated Coverage Ratio involves a
Discharge of Indebtedness, Consolidated EBITDA and Consolidated Interest Expense
for such Four Quarter Period shall be calculated after giving effect on a pro
forma basis to such Discharge of Indebtedness, including with the proceeds of
any new Indebtedness, as if such Discharge (and Incurrence of new Indebtedness,
if any) had occurred on the first day of such Four Quarter Period, (3) if since
the beginning of such Four Quarter Period the Company or any Restricted
Subsidiary shall have disposed of any business or group of assets in any Asset
Sale, the Consolidated EBITDA for such Four Quarter Period shall be reduced by
an amount equal to the Consolidated EBITDA (if positive) directly attributable
to the assets that are the subject of such Asset Sale for such Four Quarter
Period or increased by an amount equal to the Consolidated EBITDA (if negative)
directly attributable thereto for such Four Quarter Period and Consolidated
Interest Expense for such Four Quarter Period shall be reduced by an amount
equal to the Consolidated Interest Expense directly attributable to any
Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased or
otherwise discharged with respect to the Company and its continuing Restricted
Subsidiaries in connection with such Asset Sale for such Four Quarter Period
(or, if the Equity Interests of any Restricted Subsidiary are sold, the
Consolidated Interest Expense for such Four Quarter Period directly attributable
to the Indebtedness of such Restricted Subsidiary to the extent the Company and
its continuing Restricted Subsidiaries are no longer liable for such
Indebtedness after such sale), (4) if since the beginning of such Four Quarter
Period the Company or any Restricted Subsidiary (by merger or otherwise) shall
have made an Investment in any Restricted Subsidiary (or any Person that becomes
a Restricted Subsidiary) or an acquisition of assets, including any acquisition
of assets occurring in connection with a transaction causing a calculation to be
made hereunder, which constitutes all or substantially all of an operating unit
of a business, Consolidated EBITDA and Consolidated Interest Expense for such
Four Quarter Period shall be calculated after giving pro forma effect thereto
(including the Incurrence of any Indebtedness) as if such Investment or
acquisition occurred on the first day of such Four Quarter Period and (5) if
since the beginning of such Four Quarter Period any Person (that subsequently
became a Restricted Subsidiary or was merged with or into the Company or any
Restricted Subsidiary since the beginning of such Four Quarter Period) shall
have made any Asset Sale or any Investment or acquisition of assets that would
have required an adjustment pursuant to clause (3) or (4) above if made by the
Company or a Restricted Subsidiary during such Four Quarter Period, Consolidated
EBITDA and Consolidated Interest Expense for such Four Quarter Period shall be
calculated after giving pro forma effect thereto as if such Asset Sale,
Investment or acquisition of assets occurred on, with respect to any Investment
or acquisition, the first day of such Four Quarter Period and, with respect to
any Asset Sale, the day prior to the first day of such Four Quarter Period. For
purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets, the amount of income or earnings and any cost savings
relating thereto and the amount of


<PAGE>   14

                                      -7-

Consolidated Interest Expense associated with any Indebtedness Incurred in
connection therewith, the pro forma calculations shall be determined in good
faith by a responsible financial or accounting officer of the Company. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest expense on such Indebtedness shall be calculated as if the
rate in effect on the date of determination had been the applicable rate for the
entire period (taking into account any agreement under which Hedging Obligations
relating to interest are outstanding applicable to such Indebtedness if such
agreement under which such Hedging Obligations are outstanding has a remaining
term as at the date of determination in excess of 12 months).

     "Consolidated EBITDA" means, for any period, the Consolidated Net Income
for such period, minus any non-cash item increasing Consolidated Net Income
during such period, plus the following to the extent deducted in calculating
such Consolidated Net Income: (1) Consolidated Income Tax Expense for such
period; (2) Consolidated Interest Expense for such period; (3) depreciation
expense for such period; (4) amortization expense for such period; and (5) all
other non-cash items reducing Consolidated Net Income for such period (other
than any non-cash item requiring an accrual or a reserve for cash disbursements
in any future period (other than non-cash, non-recurring items related to
restructuring operations (including severance payments) of the Company or any
Restricted Subsidiary ("restructuring charges") provided that any cash
disbursements relating to any such restructuring charges shall (notwithstanding
GAAP or any other provision of this Indenture), without duplication, reduce
Consolidated EBITDA when made)).

     "Consolidated Income Tax Expense" means, with respect to the Company for
any period, the provision for Federal, state, local and foreign income taxes
payable by the Company and the Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP.

     "Consolidated Interest Expense" means, with respect to the Company for any
period, without duplication, the sum of (1) the interest expense of the Company
and the Restricted Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP, including, without limitation, (a) the net cost
under Hedging Obligations relating to interest, (b) the interest portion of any
deferred payment obligation, (c) all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance financing
and (d) all capitalized interest and all accrued interest, but excluding (I)
amortization of fees and expenses incurred in connection with the Company
entering into a new credit agreement at the time of the acquisition by Holdings
of approximately 75% of the Company's capital stock or the offering of the
Notes, (II) interest expense on deferred compensation or customer deposits and
(III) amortization of deferred financing costs, discounts and other non-cash
interest expense; (2) the interest component of Capital Lease Obligations paid,
accrued and/or scheduled to be paid or accrued by the Company and the Restricted
Sub-


<PAGE>   15
                                      -8-

sidiaries during such period as determined on a consolidated basis in accordance
with GAAP and (3) dividends and distributions in respect of Disqualified Equity
Interests of the Company (other than dividends or distributions consisting
solely of Qualified Equity Interests) during such period as determined on a
consolidated basis in accordance with GAAP.

     "Consolidated Leverage Ratio" means, on any date of determination, the
ratio of (i) the aggregate amount of Indebtedness of the Company and the
Restricted Subsidiaries on a consolidated basis outstanding on such date to (ii)
the aggregate amount of Consolidated EBITDA for the then most recent Four
Quarter Period; provided, however, that (1) if since the beginning of such Four
Quarter Period the Company or any Restricted Subsidiary shall have disposed of
any business or group of assets in any Asset Sale, the Consolidated EBITDA for
such Four Quarter Period shall be reduced by an amount equal to the Consolidated
EBITDA (if positive) directly attributable to the assets that are the subject of
such Asset Sale for such Four Quarter Period or increased by an amount equal to
the Consolidated EBITDA (if negative) directly attributable thereto for such
Four Quarter Period, (2) if since the beginning of such Four Quarter Period the
Company or any Restricted Subsidiary (by merger or otherwise) shall have made an
Investment in any Restricted Subsidiary (or any Person that becomes a Restricted
Subsidiary) or an acquisition of assets, including any acquisition of assets
occurring in connection with a transaction causing a calculation to be made
hereunder, which constitutes all or substantially all of an operating unit of a
business, Consolidated EBITDA for such Four Quarter Period shall be calculated
after giving pro forma effect thereto as if such Investment or acquisition
occurred on the first day of such Four Quarter Period and (3) if since the
beginning of such Four Quarter Period any Person (that subsequently became a
Restricted Subsidiary or was merged with or into the Company or any Restricted
Subsidiary since the beginning of such Four Quarter Period) shall have made any
Asset Sale or any Investment or acquisition of assets that would have required
an adjustment pursuant to clause (1) or (2) above if made by the Company or a
Restricted Subsidiary during such Four Quarter Period, Consolidated EBITDA for
such Four Quarter Period shall be calculated after giving pro forma effect
thereto as if such Asset Sale, Investment or acquisition of assets occurred on,
with respect to any Investment or acquisition, the first day of such Four
Quarter Period and, with respect to any Asset Sale, the day prior to the first
day of such Four Quarter Period. For purposes of this definition, whenever pro
forma effect is to be given to an acquisition of assets, the amount of income or
earnings and any cost savings relating thereto the pro forma calculations shall
be determined in good faith by a responsible financial or accounting officer of
the Company.

     "Consolidated Net Income" means, for any period, the consolidated net
income (loss) of the Company and the Restricted Subsidiaries; provided, however,
that there shall not be included in such Consolidated Net Income: (1) any net
income (loss) of any Person if such Person is not the Company or a Restricted
Subsidiary, except that subject to the limitations


<PAGE>   16

                                      -9-

contained in clause (4) below, the Company's equity in the net income of any
such Person for such period shall be included in such Consolidated Net Income up
to the aggregate amount of cash actually distributed by such Person during such
period to the Company or a Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution to a
Restricted Subsidiary, to the limitations contained in clause (3) below); (2)
any net income (loss) of any person acquired by the Company or a Restricted
Subsidiary in a pooling of interests transaction for any period prior to the
date of such acquisition; (3) any net income (loss) of any Restricted Subsidiary
if such Restricted Subsidiary is subject to restrictions, directly or
indirectly, on the payment of dividends or the making of distributions by such
Restricted Subsidiary, directly or indirectly, to the Company except that
subject to the limitations contained in clause (4) below, the Company's equity
in the net income of any such Restricted Subsidiary for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash that
could have been distributed by such Restricted Subsidiary during such period to
the Company or another Restricted Subsidiary as a dividend (subject, in the case
of a dividend that could have been made to another Restricted Subsidiary, to the
limitation contained in this clause); (4) any gain or loss realized upon the
sale or other disposition of any asset of the Company or the Restricted
Subsidiaries (including pursuant to any sale/leaseback transaction) that is not
sold or otherwise disposed of in the ordinary course of business and any gain or
loss realized upon the sale or other disposition of any Equity Interests of any
Person; (5) any extraordinary gain or loss; (6) the cumulative effect of a
change in accounting principles; (7) all deferred financing costs written off in
connection with the early extinguishment of Indebtedness under the Company's
former credit agreement that was repaid and terminated on December 30, 1999, the
Company's 9 1/2% notes due 2007, the Senior Credit Agreement or the Notes as
recorded on the statement of operations in accordance with GAAP; (8)
non-recurring charges related to any Acquisition by the Company or any
Restricted Subsidiary occurring after the Issue Date as recorded on the
statement of operations in accordance with GAAP; (9) non-cash, non-recurring
charges as recorded on the statement of operations in accordance with GAAP; (10)
unrealized gains or losses in respect of Hedge Agreements permitted by clause
(7) of Section 4.04 as recorded on the statement of operations in accordance
with GAAP; and (11) unrealized foreign currency transaction gains or losses in
respect of Indebtedness of any Person denominated in a currency other than the
functional currency of such Person and permitted to be Incurred by Section 4.04
as recorded on the statement of operations in accordance with GAAP; provided
that in the case of clauses (7), (8), (9), (10) and (11) such amount or charge
shall be net of any tax or tax benefit to the Company or any of its consolidated
Subsidiaries resulting therefrom.

     "Consolidated Net Tangible Assets" means, with respect to any Person, the
total assets minus unamortized deferred tax assets, goodwill, patents,
trademarks, service marks, trade names, copyrights and all other items which
would be treated as intangibles, in each case


<PAGE>   17

                                      -10-

on the most recent consolidated balance sheet of such Person and its Restricted
Subsidiaries prepared in accordance with GAAP.

     "Contingent Note" means the $7.5 million subordinated note issued by
Holdings to Sovereign Specialty Chemicals, L.P., payable upon the acquisition of
all or substantially all of the assets described therein and upon the conditions
described therein as in effect on the Issue Date.

     "Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 13.02 or such other address as the Trustee may give
notice to the Company.

     "Custodian" see Section 6.01.

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

     "Defeasance Trust Payment" see Section 8.02.

     "Depository" means, with respect to the Notes issued in the form of one or
more Global Notes, The Depository Trust Company or another Person designated as
Depository by the Company, which must be a clearing agency registered under the
Exchange Act.

     "Designated Senior Indebtedness" means (1) any Indebtedness outstanding
under the Senior Credit Facility and (2) any other Senior Indebtedness which, at
the time of determination, has an aggregate principal amount outstanding,
together with any commitments to lend additional amounts, of at least $15.0
million, if the instrument governing such Senior Indebtedness expressly states
that such Indebtedness is "Designated Senior Indebtedness" for purposes of this
Indenture and a Board Resolution setting forth such designation by the Company
has been filed with the Trustee.

     "Designation" see Section 4.17.

     "Designation Amount" see Section 4.17.

     "Disposition" means, with respect to any Person, any merger, consolidation
or other business combination involving such Person (whether or not such Person
is the Surviving Person) or the sale, assignment, transfer, lease, conveyance or
other disposition of all or substantially all of such Person's assets.

     "Disqualified Equity Interest" means any Equity Interest which, by its
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable at


<PAGE>   18

                                      -11-

the option of the holder thereof), or upon the happening of any event, matures
or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or redeemable, at the option of the holder thereof, in whole or in
part, or exchangeable into Indebtedness on or prior to the Maturity Date of the
Notes; provided that any Equity Interest that would not constitute Disqualified
Equity Interests but for provisions thereof giving holders thereof the right to
require the issuer to purchase or redeem such Equity Interests upon the
occurrence of an "asset sale" or "change of control" occurring prior to the
Maturity Date of the Notes shall not constitute Disqualified Equity Interests if
(1) the "asset sale" or "change of control" provisions applicable to such Equity
Interest are not more favorable in any respect to the holders of such Equity
Interests than the terms applicable to the Notes and described in Sections 4.05
and 4.14 and (2) any such requirement only becomes operative after compliance
with such terms applicable to the Notes, including the purchase of any Notes
tendered in respect of any Offer.

     "Equity Interest" in any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited, in
such Person, including any Preferred Equity Interests.

     "Equity Offering" means, with respect to the Company, (1) an underwritten
primary public or private offering of Qualified Equity Interests of the Company
or (2) a purchase of Qualified Equity Interests of the Company which results in
net cash proceeds to the Company of at least $25.0 million by any Person which
(A) has a common equity market capitalization in excess of $500 million and (B)
is engaged in a Related Business.

     "Euroclear" means Morgan Guaranty Trust Company of New York (Brussels
office) as operator of the Euroclear System.

     "Event of Default" see Section 6.01.

     "Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the SEC thereunder.

     "Exchange Notes" means the 11 7/8% Senior Subordinated Notes due 2010,
Series B, to be issued in exchange for the Initial Notes pursuant to the
Registration Rights Agreement.

     "Existing Indebtedness" means any Indebtedness of the Company and the
Restricted Subsidiaries in existence on the Issue Date until such amounts are
repaid; provided that Existing Indebtedness shall not include Indebtedness
repurchased or repaid with the proceeds of the offering of the Notes.


<PAGE>   19

                                      -12-

     "Expiration Date" has the meaning set forth in the definition of "Offer to
Purchase" below.

     "Fair Market Value" means, with respect to any asset, the price (after
taking into account any liabilities relating to such assets) which could be
negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing and able buyer, neither of which is under any
compulsion to complete the transaction; provided, however, that the Fair Market
Value of any such asset or assets shall be determined conclusively by the Board
of Directors of the Company acting in good faith, and shall be evidenced by
resolutions of the Board of Directors of the Company delivered to the Trustee.

     "Foreign Subsidiary" means any Restricted Subsidiary of the Company that is
not organized under the laws of the United States of America or any state
thereof or the District of Columbia.

     "Four Quarter Period" has the meaning set forth in the definition of
"Consolidated Coverage Ratio" above.

     "Funding Guarantor" see Section 11.05.

     "GAAP" means, at any date of determination, generally accepted accounting
principles in effect in the United States which are applicable at the date of
determination and which are consistently applied for all applicable periods.

     "Global Notes" means one or more Regulation S Global Notes and 144A Global
Notes.

     "Guarantor" means (1) each of the Subsidiaries of the Company (other than
Foreign Subsidiaries) as of the Issue Date and their respective successors, and
(2) each other Restricted Subsidiary, formed, created or acquired before or
after the Issue Date, required to become a Guarantor after the Issue Date
pursuant to Section 4.19.

     "Guarantor Senior Indebtedness" means, with respect to any Guarantor, at
any date, (1) all Obligations of such Guarantor under the Senior Credit
Facility; (2) all Hedging Obligations of such Guarantor; (3) to the extent that
it may constitute Indebtedness, Obligations of such Guarantor under standby
letters of credit; and (4) all other Indebtedness of such Guarantor for borrowed
money, including principal, premium, if any, and interest (including
Post-Petition Interest) on such Indebtedness unless the instrument under which
such Indebtedness of such Guarantor for money borrowed is Incurred expressly
provides that such Indebtedness for money borrowed is not senior or superior in
right of payment to such Guarantor's Guaranty of the Notes, and all renewals,
extensions, modifications, amendments or refi-

<PAGE>   20

                                      -13-

nancings thereof. Notwithstanding the foregoing, Guarantor Senior Indebtedness
shall not include (A) to the extent that it may constitute Indebtedness, any
Obligation for federal, state, local or other taxes; (B) any Indebtedness among
or between such Guarantor and any Subsidiary of such Guarantor; (C) to the
extent that it may constitute Indebtedness, any Obligation in respect of any
trade payable Incurred for the purchase of goods or materials, or for services
obtained, in the ordinary course of business; (D) Indebtedness evidenced by such
Guarantor's Guaranty of the Notes; (E) Indebtedness of such Guarantor that is
expressly subordinate or junior in right of payment to any other Indebtedness of
such Guarantor; (F) to the extent that it may constitute Indebtedness, any
obligation owing under leases (other than Capital Lease Obligations) or
management agreements; and (G) any obligation that by operation of law is
subordinate to any general unsecured obligations of such Guarantor.

     "guaranty" means, as applied to any obligation, (1) a guaranty (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), direct or indirect, in any manner, of any part or all of such
obligation and (2) an agreement, direct or indirect, contingent or otherwise,
the practical effect of which is to assure in any way the payment or performance
(or payment of damages in the event of non-performance) of all or any part of
such obligation, including, without limiting the foregoing, the payment of
amounts drawn down by letters of credit. A guaranty shall include, without
limitation, any agreement to maintain or preserve any other Person's financial
condition or to cause any other Person to achieve certain levels of operating
results.

     "Guaranty" means the guaranty of the Notes by each Guarantor under this
Indenture.

     "Hedging Obligations" means, with respect to any Person, the Obligations of
such Person under (1) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements, (2) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates and (3) foreign currency or commodity hedge, exchange or similar
protection agreements (agreements referred to in this definition being referred
to herein as "Hedging Agreements").

     "Holder" means the registered holder of any Note.

     "Holdings" means SSCI Investors LLC, a Delaware limited liability company,
and its successors.

     "Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guaranty or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obli-


<PAGE>   21
                                      -14-

gation on the balance sheet of such Person (and "Incurrence," "Incurred" and
"Incurring" shall have meanings correlative to the foregoing). Indebtedness of
any Acquired Person or any of its Subsidiaries existing at the time such
Acquired Person becomes a Restricted Subsidiary (or is merged into or
consolidated with the Company or any Restricted Subsidiary), whether or not such
Indebtedness was Incurred in connection with, as a result of, or in
contemplation of, such Acquired Person becoming a Restricted Subsidiary (or
being merged into or consolidated with the Company or any Restricted
Subsidiary), shall be deemed Incurred at the time any such Acquired Person
becomes a Restricted Subsidiary or merges into or consolidates with the Company
or any Restricted Subsidiary.

     "Indebtedness" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and whether
or not contingent, (1) every obligation of such Person for money borrowed; (2)
every obligation of such Person evidenced by bonds, debentures, notes or other
similar instruments, including obligations incurred in connection with the
acquisition of property, assets or businesses; (3) every reimbursement
obligation of such Person with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such Person; (4)
every obligation of such Person issued or assumed as the deferred purchase price
of property or services (but excluding (A) earnout or other similar obligations
until such time as the amount of such obligation is capable of being determined
and its payment is probable, (B) trade accounts payable incurred in the ordinary
course of business and payable in accordance with industry practices, or (C)
other accrued liabilities arising in the ordinary course of business which are
not overdue or which are being contested in good faith); (5) every Capital Lease
Obligation of such Person; (6) every net obligation under Hedging Agreements of
such Person; (7) every obligation of the type referred to in clauses (1) through
(6) of another Person and all dividends of another Person the payment of which,
in either case, such Person has guarantied or is responsible or liable for,
directly or indirectly, as obligor, guarantor or otherwise; and (8) any and all
deferrals, renewals, extensions and refundings of, or amendments, modifications
or supplements to, any liability of the kind described in any of the preceding
clauses (1) through (7) above. Indebtedness (A) shall never be calculated taking
into account any cash and Cash Equivalents held by such Person; (B) shall not
include obligations of any Person (1) arising from the honoring by a bank or
other financial institution of a check, draft or similar instrument
inadvertently drawn against insufficient funds in the ordinary course of
business, provided that such obligations are extinguished within two Business
Days of their incurrence, (2) resulting from the endorsement of negotiable
instruments for collection in the ordinary course of business and consistent
with past business practices and (3) under stand-by letters of credit to the
extent collateralized by cash or Cash Equivalents; (C) which provides that an
amount less than the principal amount thereof shall be due upon any declaration
of acceleration thereof shall be deemed to be incurred or outstanding in an
amount equal to the accreted value thereof at the date of determination; (D)
shall include the liquidation preference and any mandatory re-


<PAGE>   22

                                      -15-

demption payment obligations in respect of any Disqualified Equity Interests of
the Company or any Preferred Equity Interest of any Restricted Subsidiary; and
(E) shall not include obligations under performance bonds, performance
guaranties, surety bonds and appeal bonds, letters of credit or similar
obligations, incurred in the ordinary course of business. For purposes of
determining compliance with any U.S. dollar-denominated restriction on the
Incurrence of Indebtedness denominated in a foreign currency, the U.S.
dollar-equivalent principal amount of such Indebtedness Incurred pursuant
thereto shall be calculated based on the relevant currency exchange rate in
effect on the date that such Indebtedness was Incurred if such Indebtedness is
Incurred to refinance other Indebtedness denominated in a foreign currency, and
such refinancing would cause the applicable U.S. dollar-denominated restriction
to be exceeded if calculated at the relevant currency exchange rate in effect on
the date of such refinancing, such U.S. dollar-denominated restriction shall be
deemed not to have been exceeded so long as the principal amount of such
refinancing Indebtedness does not exceed the principal amount of such
Indebtedness being refinanced. The principal amount of any Indebtedness Incurred
to refinance other Indebtedness, if Incurred in a different currency from the
Indebtedness being refinanced, shall be calculated based on the currency
exchange rate applicable to the currencies in which such respective Indebtedness
is denominated that is in effect on the date of such refinancing.

     In addition, for the purpose of avoiding duplication in calculating the
outstanding principal amount of Indebtedness for purposes of Section 4.04,
Indebtedness arising solely by reason of the existence of a Lien permitted under
Section 4.18 to secure other Indebtedness permitted to be Incurred under Section
4.04 will not be considered to be incremental Indebtedness.

     "Indenture" means this Indenture, as amended or supplemented from time to
time.

     "Independent Financial Advisor" means a nationally recognized, accounting,
appraisal, investment banking firm or consultant that is, in the judgment of the
Company's Board of Directors, qualified to perform the task for which it has
been engaged (1) which does not, and whose directors, officers and employees or
Affiliates do not, have a direct or indirect financial interest in the Company
and (2) which, in the judgment of the Board of Directors of the Company, is
otherwise independent and qualified to perform the task for which it is to be
engaged.

     "Initial Notes" means the 11 7/8% Senior Subordinated Notes due 2010,
Series A, of the Company.

     "Initial Purchasers" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated, J.P. Morgan Securities Inc. and Chase Securities Inc.


<PAGE>   23
                                      -16-

     "Insolvency or Liquidation Proceeding" means, with respect to any Person,
any liquidation, dissolution or winding up of such Person, or any bankruptcy,
reorganization, insolvency, receivership or similar proceeding with respect to
such Person, whether voluntary or involuntary.

     "interest" means, with respect to the Notes, the sum of any cash interest
and any Additional Interest on the Notes.

     "Interest Payment Date" means each semiannual interest payment date on
March 15 and September 15 of each year, commencing September 15, 2000.

     "Interest Record Date" for the interest payable on any Interest Payment
Date (except a date for payment of defaulted interest) means the March 1 or
September 1 (whether or not a Business Day), as the case may be, immediately
preceding such Interest Payment Date.

     "Investment" means, with respect to any Person, any direct or indirect
loan, advance, guaranty or other extension of credit or capital contribution to
(by means of transfers of cash or other property or assets to others or payments
for property or services for the account or use of others, or otherwise), or
purchase or acquisition of capital stock, bonds, notes, debentures or other
securities or evidences of Indebtedness issued by, any other Person. The amount
of any Investment shall be the original cost of such Investment, plus the cost
of all additions thereto, and minus the amount of any portion of such Investment
repaid to such Person in cash as a repayment of principal or a return of
capital, as the case may be, but without any other adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to such
Investment. In determining the amount of any Investment involving a transfer of
any property or asset other than cash, such property shall be valued at its fair
market value at the time of such transfer, as determined in good faith by the
Board of Directors (or comparable body) of the Person making such transfer.
Investments shall not include loans and advances made to employees to the extent
such loan or advance is used to purchase Qualified Equity Interests from the
Company (provided that any such purchase shall be excluded from clause (III)(B)
of the first paragraph of Section 4.06 until such loan or advance has been
repaid in cash by such employee).

     "Issue Date" means the original issue date of the Notes.

                  "Junior Subordinated Seller Notes" means the $3.0 million
aggregate principal amount 8% Note due 2002 issued by the Company held by
Laporte plc, the $900,000 aggregate principal amount Note due 2000 issued by
Pierce & Stevens held by K.J. Quinn & Co., Inc., and the related obligation to
pay $100,000 to K.J. Quinn & Co. Inc. under the noncompetition agreement entered
into by K.J. Quinn & Co., Inc.


<PAGE>   24
                                      -17-

     "Lien" means any lien, mortgage, charge, security interest, hypothecation,
assignment for security or encumbrance of any kind (including any conditional
sale or capital lease or other title retention agreement, any lease in the
nature thereof and any agreement to give any security interest).

     "Management Agreement" means the Management Agreement dated as of March 9,
2000, between AEA and the Company, as amended or renewed to the extent permitted
under this Indenture.

     "Maturity Date" means March 15, 2010.

     "Net Cash Proceeds" means the aggregate proceeds in the form of cash or
Cash Equivalents received by the Company or any Restricted Subsidiary in respect
of any Asset Sale, including all cash or Cash Equivalents received upon any
sale, liquidation or other exchange of proceeds of Asset Sales received in a
form other than cash or Cash Equivalents, net of (1) the direct costs relating
to such Asset Sale (including, without limitation, legal, accounting and
investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof; (2) taxes paid or payable as a result thereof; (3)
amounts required to be applied to the repayment of Indebtedness secured by a
Lien on the asset or assets that were the subject of such Asset Sale; (4)
amounts deemed, in good faith, appropriate by the Board of Directors of the
Company to be provided as a reserve, in accordance with GAAP, against any
liabilities associated with such assets which are the subject of such Asset Sale
(provided that the amount of any such reserves shall be deemed to constitute Net
Cash Proceeds at the time such reserves shall have been released or are not
otherwise required to be retained as a reserve); and (5) cash payments
attributable to Persons owning an interest in the assets subject to the Asset
Sale.

     "Notes" means, collectively, the Initial Notes, the Additional Notes, the
Private Exchange Notes and the Unrestricted Notes treated as a single class of
securities, as amended or supplemented from time to time in accordance with the
terms of this Indenture.

     "Obligations" means any principal, interest (including, without limitation,
Post-Petition Interest), penalties, fees, indemnifications, reimbursement
obligations, damages and other liabilities payable under the documentation
governing any Indebtedness.

     "Offer" has the meaning set forth in the definition of "Offer to Purchase"
below.

     "Offer to Purchase" means a written offer (the "Offer") sent by or on
behalf of the Company by first-class mail, postage prepaid, to each Holder at
his address appearing in the register for the Notes on the date of the Offer
offering to purchase up to the principal


<PAGE>   25

                                      -18-

amount of Notes specified in such Offer at the purchase price specified in such
Offer (as determined pursuant to this Indenture). Unless otherwise required by
applicable law, the Offer shall specify an expiration date (the "Expiration
Date") of the Offer to Purchase, which shall be not less than 20 Business Days
nor more than 60 days after the date of such Offer, and a settlement date (the
"Purchase Date") for purchase of Notes to occur no later than 5 Business Days
after the Expiration Date. The Company shall notify the Trustee at least 5
Business Days (or such shorter period as is acceptable to the Trustee) prior to
the mailing of the Offer of the Company's obligation to make an Offer to
Purchase, and the Offer shall be mailed by the Company or, at the Company's
request, by the Trustee in the name and at the expense of the Company. The Offer
shall contain all the information required by applicable law to be included
therein. The Offer shall also contain information concerning the business of the
Company and its Subsidiaries which the Company in good faith believes will
enable such Holders to make an informed decision with respect to the Offer to
Purchase which at a minimum will include (1) the most recent annual and
quarterly financial statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained in the documents
required to be filed with the Trustee pursuant to this Indenture (which
requirements may be satisfied by delivery of such documents together with the
Offer), (2) a description of material developments in the Company's business
subsequent to the date of the latest of such financial statements referred to in
clause (1) (including a description of the events requiring the Company to make
the Offer to Purchase), (3) if applicable, appropriate pro forma financial
information concerning the Offer to Purchase and the events requiring the
Company to make the Offer to Purchase and (4) any other information required by
applicable law to be included therein. The Offer shall contain all instructions
and materials necessary to enable such Holders to tender Notes pursuant to the
Offer to Purchase. The Offer shall also state: (1) the Section of this Indenture
pursuant to which the Offer to Purchase is being made; (2) the Expiration Date
and the Purchase Date; (3) the aggregate principal amount of the outstanding
Notes offered to be purchased by the Company pursuant to the Offer to Purchase
(including, if less than 100%, the manner by which such amount has been
determined pursuant to the Section of this Indenture requiring the Offer to
Purchase) (the "Purchase Amount"); (4) the purchase price to be paid by the
Company for each $1,000 aggregate principal amount of Notes accepted for payment
(as specified pursuant to this Indenture) (the "Purchase Price"); (5) that the
Holder may tender all or any portion of the Notes registered in the name of such
Holder and that any portion of a Note tendered must be tendered in an integral
multiple of $1,000 principal amount; (6) the place or places where Notes are to
be surrendered for tender pursuant to the Offer to Purchase; (7) that interest
on any Note not tendered or tendered but not purchased by the Company pursuant
to the Offer to Purchase will continue to accrue; (8) that on the Purchase Date
the Purchase Price will become due and payable upon each Note being accepted for
payment pursuant to the Offer to Purchase and that interest thereon shall cease
to accrue on and after the Purchase Date; (9) that each Holder electing to
tender all or any portion of a Note pursuant to the Offer to Purchase will be
required to sur-


<PAGE>   26
                                      -19-

render such Note at the place or places specified in the Offer prior to the
close of business on the Expiration Date (such Note being, if the Company or the
Trustee so requires, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Trustee duly executed by,
the Holder thereof or his attorney duly authorized in writing); (10) that
Holders will be entitled to withdraw all or any portion of Notes tendered if the
Company (or its Paying Agent) receives, not later than the close of business on
the Expiration Date, a telegram, telex, facsimile transmission or letter setting
forth the name of the Holder, the principal amount of the Note the Holder
tendered, the certificate number of the Note the Holder tendered and a statement
that such Holder is withdrawing all or a portion of his tender; (11) that (a) if
Notes in an aggregate principal amount less than or equal to the Purchase Amount
are duly tendered and not withdrawn pursuant to the Offer to Purchase, the
Company shall purchase all such Notes and (b) if Notes in an aggregate principal
amount in excess of the Purchase Amount are tendered and not withdrawn pursuant
to the Offer to Purchase, the Company shall purchase Notes having an aggregate
principal amount equal to the Purchase Amount on a pro rata basis (with such
adjustments as may be deemed appropriate so that only Notes in denominations of
$1,000 principal amount or integral multiples thereof shall be purchased); and
(12) that in the case of any Holder whose Note is purchased only in part, the
Company shall execute and the Trustee shall authenticate and deliver to the
Holder of such Note without service charge, a new Note or Notes, of any
authorized denomination as requested by such Holder, in an aggregate principal
amount equal to and in exchange for the unpurchased portion of the Note so
tendered.

     An Offer to Purchase shall be governed by and effected in accordance with
the provisions above pertaining to any Offer.

     "Officer" means the Chairman, any Vice Chairman, the President, any Vice
President, the Chief Financial Officer, the Treasurer, or the Secretary of the
Company.

     "Officers' Certificate" means a certificate signed by two Officers or by
one Officer and an Assistant Treasurer or Assistant Secretary of the Company
complying with Sections 13.04 and 13.05.

     "144A Global Note" means a permanent global Note in registered form
representing the aggregate principal amount of Notes sold in reliance on Rule
144A.

     "Opinion of Counsel" means a written opinion from legal counsel. The
counsel may be an employee of or counsel to the Company or the Trustee.

     "Pari Passu Debt" means Indebtedness of the Company or any Guarantor that
neither constitutes Senior Indebtedness or Guarantor Senior Indebtedness, as
applicable, or Subordinated Indebtedness.


<PAGE>   27

                                      -20-

     "Pari Passu Debt Pro Rata Share" means the amount of the applicable Net
Cash Proceeds obtained by multiplying the amount of such Net Cash Proceeds by a
fraction, (1) the numerator of which is the aggregate accreted value and/or
principal amount, as the case may be, of all Pari Passu Debt outstanding at the
time of the applicable Asset Sale with respect to which the Company is required
to use Net Cash Proceeds to repay or make an offer to purchase or repay and (2)
the denominator of which is the sum of (a) the aggregate principal amount of all
Notes outstanding at the time of the applicable Asset Sale and (b) the aggregate
principal amount or the aggregate accreted value, as the case may be, of all
Pari Passu Debt outstanding at the time of the applicable Offer to Purchase with
respect to which the Company is required to use the applicable Net Cash Proceeds
to offer to repay or make an offer to purchase or repay.

     "Participants" has the meaning set forth in Section 2.15.

     "Paying Agent" has the meaning provided in Section 2.03.

     "Payment Blockage Notice" see Section 8.02(a).

     "Payment Blockage Period" see Section 8.02(a).

     "Permitted Holder" means AEA and its current and future employees,
stockholders, directors and officers, Robert B. Covalt and the officers of the
Company, (i) trusts for the benefit of such Persons or the spouses, issue,
parents or other relatives of such Persons, (ii) entities controlling or
controlled by such Persons and (iii) in the event of the death of any such
individual Person, heirs or testamentary legatees of such Person.

     "Permitted Indebtedness" see Section 4.04.

     "Permitted Investments" means (1) Cash Equivalents; (2) Investments in
prepaid expenses, negotiable instruments held for collection and lease, utility
and workers' compensation, performance and other similar deposits; (3) loans and
advances to employees made in the ordinary course of business not to exceed $2.0
million in the aggregate at any one time outstanding; (4) Hedging Obligations;
(5) bonds, notes, debentures or other securities received as a result of Asset
Sales in compliance with Section 4.05 and any "earnout" or similar right
permitted under Section 4.05; (6) transactions with officers, directors and
employees of the Company or any Restricted Subsidiary entered into in the
ordinary course of business (including compensation, employee benefit or
indemnity arrangements with any such officer, director or employee) and
consistent with past business practices; (7) Investments in existence or made
pursuant to written commitments existing as of the Issue Date and any amendment,
extension, renewal or modification thereof to the extent that any such
amendment, extension, renewal or modification complies with the terms of this
Indenture; (8) any Investment to the


<PAGE>   28

                                      -21-

extent that the consideration therefor consists of Qualified Equity Interests of
the Company; (9) any Investment consisting of a guaranty by a Guarantor of
Senior Indebtedness or any guaranty permitted under clause (6) of the second
paragraph of Section 4.04; (10) Investments in Persons primarily engaged in a
Related Business in an aggregate amount not to exceed $15.0 million; (11)
Investments in the form of the sale (on a "true sale" non-recourse basis) or the
servicing of receivables transferred from the Company or any Restricted
Subsidiary, or transfers of cash, to an Accounts Receivable Subsidiary as a
capital contribution or in exchange for Indebtedness of such Accounts Receivable
Subsidiary or cash, in each case in the ordinary course of business; (12)
Investments consisting of non-cash consideration received in the form of
securities, notes or similar obligations in connection with dispositions of
obsolete or worn out assets permitted pursuant to this Indenture not at any time
exceeding, in the case of all such notes and similar obligations, the amount of
$5.0 million; (13) advances, loans or extensions of credit to suppliers in the
ordinary course of business by the Company or any Restricted Subsidiary
consistent with past practice as of the Issue Date; and (14) Investments
(including debt obligations) received in connection with the bankruptcy or
reorganization of suppliers and customers and in settlement of delinquent
obligations of, and other disputes with, customers and suppliers arising in the
ordinary course of business.

     "Permitted Junior Securities" means any securities of the Company or any
other Person that are (i) equity securities without special covenants or (ii)
subordinated in right of payment to all Senior Indebtedness that may at the time
be outstanding, to substantially the same extent as, or to a greater extent
than, the Notes are subordinated as provided in this Indenture, in any event
pursuant to a court order so providing and as to which (a) the rate of interest
on such securities shall not exceed the effective rate of interest on the Notes
on the date of this Indenture, (b) 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 of
this Indenture and (c) such securities shall not provide for amortization
(including sinking fund and mandatory prepayment provisions) commencing prior to
the date six months following the final scheduled maturity date of the Senior
Indebtedness (as modified by the plan of reorganization or readjustment pursuant
to which such securities are issued).

     "Permitted Liens" means (1) Liens on property of a Person existing at the
time such Person is merged into or consolidated with the Company or any
Restricted Subsidiary; provided, however, that such Liens were in existence
prior to the contemplation of such merger or consolidation and do not secure any
property or assets of the Company or any Restricted Subsidiary other than the
property or assets subject to the Liens prior to such merger or consolidation;
(2) Liens imposed by law such as carriers', warehousemen's and mechanics' Liens
and other similar Liens arising in the ordinary course of business which secure
payment of obligations not more than 60 days past due or which are being
contested in good faith and


<PAGE>   29
                                      -22-

by appropriate proceedings; (3) Liens existing on the Issue Date; (4) Liens
securing only the Notes; (5) Liens in favor of the Company or any Restricted
Subsidiary; (6) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded; provided,
however, that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor; (7) easements, reservation
of rights of way, restrictions and other similar easements, licenses,
restrictions on the use of properties, or minor imperfections of title that in
the aggregate are not material in amount and do not in any case materially
detract from the properties subject thereto or interfere with the ordinary
conduct of the business of the Company and the Restricted Subsidiaries; (8)
Liens resulting from the deposit of cash or notes in connection with contracts,
tenders or expropriation proceedings, or to secure workers' compensation, surety
or appeal bonds, costs of litigation when required by law and public and
statutory obligations or obligations under franchise arrangements entered into
in the ordinary course of business; (9) Liens securing Indebtedness consisting
of Capital Lease Obligations, Purchase Money Indebtedness, mortgage financings,
industrial revenue bonds or other monetary obligations, in each case incurred
solely for the purpose of financing all or any part of the purchase price or
cost of construction or installation of assets used in the business of the
Company or the Restricted Subsidiaries, or repairs, additions or improvements to
such assets, provided, however, that (I) such Liens secure Indebtedness in an
amount not in excess of the original purchase price or the original cost of any
such assets or repair, addition or improvement thereto (plus an amount equal to
the reasonable fees and expenses in connection with the incurrence of such
Indebtedness), (II) such Liens do not extend to any other assets of the Company
or the Restricted Subsidiaries (and, in the case of repair, addition or
improvements to any such assets, such Lien extends only to the assets (and
improvements thereto or thereon) repaired, added to or improved), (III) the
Incurrence of such Indebtedness is permitted by Section 4.04 and (IV) such Liens
attach within 180 days of such purchase, construction, installation, repair,
addition or improvement; (10) Liens to secure any refinancings, renewals,
extensions, modifications or replacements (collectively, "refinancing") (or
successive refinancings), in whole or in part, of any Indebtedness secured by
Liens referred to in the clauses above so long as such Lien does not extend to
any other property (other than improvements thereto); (11) Liens securing
letters of credit entered into in the ordinary course of business and consistent
with past business practice; (12) Liens on and pledges of the Equity Interests
of any Unrestricted Subsidiary securing any Indebtedness of such Unrestricted
Subsidiary; (13) Liens securing money borrowed (or any securities purchased
therewith) which is (or are, in the case of securities) set aside at the time of
the Incurrence of any Indebtedness permitted to be Incurred by Section 4.04 in
order to prefund the payment of interest on such Indebtedness; (14) Liens
arising solely by virtue of any statutory or common law provision relating to
bankers' liens, rights of set-off or similar rights and remedies as to deposit
accounts or other funds maintained with a credit or depository institution;
provided that (A) such deposit account is not a dedicated cash collateral
account and is


<PAGE>   30
                                      -23-

not subject to restrictions against access by the Company or any Subsidiary in
excess of those set forth by regulations promulgated by the Federal Reserve
Board, and (B) such deposit account is not intended by the Company or any
Subsidiary to provide collateral to the depository institution; (15) Liens
evidenced by UCC financing statements regarding operating leases permitted by
this Indenture or in respect of consigned goods; (16) Liens consisting of
judgment or judicial attachments liens (including prejudgment attachment);
provided that the enforcement of such Liens is effectively stayed or payment of
which is covered in full (subject to customary deductibles) by insurance or
which do not otherwise result in an Event of Default; (17) Liens securing debt
of Foreign Subsidiaries to the extent such Indebtedness is permitted by Section
4.04; (18) any encumbrances or restriction (including any put and call
arrangements) with respect to the Equity Interests of any joint venture
agreement to which the Company or any of its Restricted Subsidiaries is a party;
(19) Liens securing Hedging Agreements permitted under this Indenture; and (20)
Liens to secure Indebtedness or other obligations of any Accounts Receivable
Subsidiary.

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

     "Physical Notes" means one or more certificated Notes in registered form.

     "Post-Petition Interest" means, with respect to any Indebtedness of any
Person, all interest accrued or accruing on such Indebtedness after the
commencement of any Insolvency or Liquidation Proceeding against such Person in
accordance with and at the contract rate (including, without limitation, any
rate applicable upon default) specified in the agreement or instrument creating,
evidencing or governing such Indebtedness, whether or not, pursuant to
applicable law or otherwise, the claim for such interest is allowed as a claim
in such Insolvency or Liquidation Proceeding.

     "Preferred Equity Interest," in any Person, means an Equity Interest of any
class or classes (however designated) which is preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over Equity
Interests of any other class in such Person.

     "principal" of a debt security means the principal of the security, plus,
when appropriate, the premium, if any, on the security.

     "Private Exchange Notes" have the meaning provided in Section 1 of the
Registration Rights Agreement.


<PAGE>   31
                                      -24-

     "Private Placement Legend" means the legend initially set forth on the
Initial Notes in the form set forth on Exhibit A hereto.

     "Purchase Agreement" means the Purchase Agreement dated as of March 24,
2000 by and among the Company, the Guarantors and the Initial Purchasers.

     "Purchase Amount" has the meaning set forth in the definition of "Offer to
Purchase" above.

     "Purchase Date" has the meaning set forth in the definition of "Offer to
Purchase" above.

     "Purchase Money Indebtedness" means Indebtedness of the Company or any
Restricted Subsidiary Incurred for the purpose of financing all or any part of
the purchase price or the cost of construction or improvement of any property;
provided that the aggregate principal amount of such Indebtedness does not
exceed the lesser of the Fair Market Value of such property or such purchase
price or cost, including any refinancing of such Indebtedness that does not
increase the aggregate principal amount (or accreted amount, if less) thereof as
of the date of refinancing.

     "Purchase Price" has the meaning set forth in the definition of "Offer to
Purchase" above.

     "Qualified Equity Interest" in any Person means any Equity Interest in such
Person other than any Disqualified Equity Interest.

     "QIB" means a "qualified institutional buyer" as that term is defined in
Rule 144A under the Securities Act.

     "Redemption Date" when used with respect to any Note to be redeemed, means
the date fixed for such redemption pursuant to this Indenture.

     "redemption price" when used with respect to any Note to be redeemed, means
the price fixed for such redemption pursuant to this Indenture as set forth in
the form of Note annexed hereto as Exhibit A.

     "Registrar" see Section 2.03.

     "Registration" means a registered exchange offer for the Notes by the
Company or other registration of the Notes under the Securities Act pursuant to
and in accordance with the terms of the Registration Rights Agreement.


<PAGE>   32
                                      -25-

     "Registration Rights Agreement" means the Registration Rights Agreement to
be dated as of March 29, 2000.

     "Regulation S" means Regulation S under the Securities Act.

     "Regulation S Global Note" means the Regulation S Temporary Global Note and
the Regulation S Permanent Global Note.

     "Regulation S Permanent Global Note" means a permanent global note in
registered form representing the outstanding principal amount of the Regulation
S Temporary Global Note upon expiration of the Restricted Period.

     "Regulation S Temporary Global Note" means a temporary global note in
registered form representing the aggregate principal amount of Notes sold in
reliance on Regulation S.

     "Related Business" means (1) those businesses in which the Company or any
of the Restricted Subsidiaries is engaged on the date of this Indenture or that
are reasonably related, ancillary, incidental or complementary thereto and (2)
any business which forms a part of a business (the "Acquired Business") which is
acquired by the Company or any of the Restricted Subsidiaries if the primary
intent of the Company or such Restricted Subsidiary was to acquire that portion
of the Acquired Business which meets the requirements of clause (1) of this
definition.

     "Required Filing Dates" see Section 4.12.

     "Restricted Note" has the meaning set forth in Rule 144(a)(3) under the
Securities Act; provided, however, that the Trustee shall be entitled to request
and conclusively rely upon an Opinion of Counsel with respect to whether any
Note is a Restricted Note.

     "Restricted Payments" see Section 4.06.

     "Restricted Period" means the "distribution compliance period" applicable
to the Company described in Regulation S.

     "Restricted Subsidiary" means any Subsidiary of the Company that has not
been designated by the Board of Directors of the Company, by a Resolution of the
Board of Directors of the Company delivered to the Trustee, as an Unrestricted
Subsidiary pursuant to Section 4.17. Any such designation may be revoked by a
Resolution of the Board of Directors of the Company delivered to the Trustee,
subject to the provisions of Section 4.17.

     "Revocation" see Section 4.17.


<PAGE>   33
                                      -26-

     "Rule 144A" means Rule 144A under the Securities Act.

     "SEC" means the Securities and Exchange Commission.

     "Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated by the SEC thereunder.

     "Senior Credit Facility" means the Credit Agreement, dated as of December
29, 1999, between the Company, the lenders named therein, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, as Joint Lead Arranger, Joint Book Manager and
Syndication Agent, J.P. Morgan Securities Inc., as Joint Lead Arranger, Joint
Book Manager and Documentation Agent, and The Chase Manhattan Bank, as
Administrative Agent, including any deferrals, renewals, extensions,
replacements (which need not be in lieu of a corresponding reduction in
commitments under the aforementioned Credit Agreement), refinancings or
refundings thereof, or amendments, modifications or supplements thereto and any
agreement providing therefor (including any restatements thereof and any
increases in the amount of commitments thereunder), whether by or with the same
or any other lender, creditor, or any one or more groups of lenders or group of
creditors (whether or not including any or all of the financial institutions
party to the aforementioned Credit Agreement), and including related notes,
guaranty and note agreements and other instruments and agreements executed in
connection therewith.

     "Senior Indebtedness" means, at any date, (1) all Obligations of the
Company under the Senior Credit Facility; (2) all Hedging Obligations of the
Company; (3) all Obligations of the Company under stand-by letters of credit;
and (4) all other Indebtedness of the Company for borrowed money, including
principal, premium, if any, and interest (including Post-Petition Interest) on
such Indebtedness, unless the instrument under which such Indebtedness of the
Company for money borrowed is Incurred expressly provides that such Indebtedness
for money borrowed is not senior or superior in right of payment to the Notes,
and all renewals, extensions, modifications, amendments or refinancings thereof.
Notwithstanding the foregoing, Senior Indebtedness shall not include (a) to the
extent that it may constitute Indebtedness, any Obligation for federal, state,
local or other taxes; (b) any Indebtedness among or between the Company and any
Subsidiary of the Company, unless and for so long as such Indebtedness has been
pledged to secure Obligations under the Senior Credit Facility; (c) to the
extent that it may constitute Indebtedness, any Obligation in respect of any
trade payable Incurred for the purchase of goods or materials, or for services
obtained, in the ordinary course of business; (d) Indebtedness evidenced by the
Notes; (e) Indebtedness of the Company that is expressly pari passu with or
subordinate or junior in right of payment to any other Indebtedness of the
Company; (f) to the extent that it may constitute Indebtedness, any obligation
owing under leases (other than Capital Lease Obligations) or management
agreements;

<PAGE>   34

                                      -27-

and (g) any obligation that by operation of law is subordinate to any general
unsecured obligations of the Company.

     "Significant Restricted Subsidiary" means, at any date of determination,
(1) any Restricted Subsidiary that, together with its Subsidiaries that
constitute Restricted Subsidiaries, (A) for the most recent fiscal year of the
Company accounted for more than 5.0% of the consolidated revenues of the Company
and the Restricted Subsidiaries or (B) as of the end of such fiscal year, owned
more than 5.0% of the consolidated assets of the Company and the Restricted
Subsidiaries, all as set forth on the consolidated financial statements of the
Company and the Restricted Subsidiaries for such year prepared in conformity
with GAAP, and (2) any Restricted Subsidiary which, when aggregated with all
other Restricted Subsidiaries that are not otherwise Significant Restricted
Subsidiaries and as to which any event described in clause (6), (7) or (8) of
Section 6.01 has occurred, would constitute a Significant Restricted Subsidiary
under clause (1) of this definition.

     "Specified Indebtedness" means (1) any Indebtedness of the Company or any
Guarantor that is Pari Passu Debt or Subordinated Indebtedness or (2) any
Indebtedness of any Restricted Subsidiary that is subordinated to any other
Indebtedness of such Restricted Subsidiary, provided, however, that Specified
Indebtedness shall never include any Obligation arising under the Senior Credit
Facility or otherwise constituting Guarantor Senior Indebtedness or Senior
Indebtedness.

     "Stated Maturity," when used with respect to any Note or any installment of
interest thereon, means the date specified in such Note as the fixed date on
which the principal of such Note or such installment of interest is due and
payable.

     "Subordinated Indebtedness" means, with respect to the Company or any
Guarantor, the Junior Subordinated Seller Notes and any Indebtedness of the
Company or such Guarantor, as the case may be, which is expressly subordinated
in right of payment to the Notes or such Guarantor's Guaranty, as the case may
be.

     "Subsidiary" means, with respect to any Person, (a) any corporation of
which the outstanding Voting Equity Interests having at least a majority of the
votes entitled to be cast in the election of directors shall at the time be
owned, directly or indirectly, by such Person, or (b) any other Person of which
at least a majority of Voting Equity Interests are at the time, directly or
indirectly, owned by such first named Person.

     "Surviving Person" means, with respect to any Person involved in or that
makes any Disposition, the Person formed by or surviving such Disposition or the
Person to which such Disposition is made.

<PAGE>   35
                                      -28-

     "TIA" means the Trust Indenture Act of 1939 (15 U.S. Code ss.ss.
77aaa-77bbbb), as amended, as in effect on the date of this Indenture (except as
provided in Section 10.03) until such time as this Indenture is qualified under
the TIA, and thereafter as in effect on the date on which this Indenture is
qualified under the TIA.

     "Trustee" means the party named as such in the first paragraph of this
Indenture until a successor replaces it in accordance with the provisions of
this Indenture and thereafter means such successor.

     "Trust Officer" means any officer within the corporate trust department (or
any successor group of the Trustee) including any vice president, assistant vice
president, assistant secretary or any other officer or assistant officer of the
Trustee customarily performing functions similar to those performed by the
persons who at that time shall be such officers, and also means, with respect to
a particular corporate trust matter, any other officer to whom such trust matter
is referred because of his knowledge of and familiarity with the particular
subject and who has direct responsibility for the administration of this
Indenture.

     "United States Government Obligations" means direct non-callable
obligations of the United States for the payment of which the full faith and
credit of the United States is pledged.

     "Unrestricted Notes" means one or more Notes that do not and are not
required to bear the Private Placement Legend in the form set forth in Exhibit A
hereto, including, without limitation, the Exchange Notes and any Notes
registered under the Securities Act pursuant to and in accordance with the
Registration Rights Agreement.

     "Unrestricted Subsidiary" means any Subsidiary of the Company designated as
such pursuant to Section 4.17. Any such designation may be revoked by a
Resolution of the Board of Directors of the Company delivered to the Trustee,
subject to the provisions of Section 4.17.

     "Unutilized Net Cash Proceeds" see Section 4.05(a).

     "Voting Equity Interests" means Equity Interests in a corporation or other
Person with voting power under ordinary circumstances entitling the holders
thereof to elect the Board of Directors or other governing body of such
corporation or Person.

     "Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (1) the sum of the
products obtained by multiplying (A) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment of final maturity, in re-


<PAGE>   36
                                      -29-

spect thereof, by (B) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such payment,
by (2) the then outstanding aggregate principal amount of such Indebtedness.

     "Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary all of
the outstanding Voting Equity Interests (other than directors' qualifying
shares) of which are owned, directly or indirectly, by the Company.

SECTION 1.02.  Incorporation by Reference of Trust Indenture Act.

     Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:

     "indenture securities" means the Notes and the Guaranties.

     "indenture security holder" means a Holder.

     "indenture to be qualified" means this Indenture.

     "indenture trustee" or "institutional trustee" means the Trustee.

     "obligor" on the indenture securities means the Company, a Guarantor or any
other obligor on the Notes.

     All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule and not
otherwise defined herein have the meanings assigned to them therein.

SECTION 1.03.  Rules of Construction.

     Unless the context otherwise requires:

     (1) a term has the meaning assigned to it;

     (2) an accounting term not otherwise defined has the meaning assigned to it
  in accordance with generally accepted accounting principles in effect from
  time to time, and any other reference in this Indenture to "generally accepted
  accounting principles" refers to GAAP;

     (3) "or" is not exclusive;
<PAGE>   37

                                      -30-


     (4) words in the singular include the plural, and words in the plural
         include the singular;

     (5) provisions apply to successive events and transactions; and

     (6) "herein," "hereof" and other words of similar import refer to this
         Indenture as a whole and not to any particular Article, Section or
         other subdivision.


                                   ARTICLE TWO

                                    THE NOTES


SECTION 2.01.  Form and Dating.

     The Initial Notes and the Trustee's certificate of authentication thereof
shall be substantially in the form of Exhibit A hereto, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted hereby, which is hereby incorporated in and expressly made a part of
this Indenture. The Exchange Notes and the Trustee's certificate of
authentication thereof shall be substantially in the form of Exhibit B hereto,
with such appropriate insertions, omissions, substitutions and other variations
as are required or permitted hereby, which is hereby incorporated in and
expressly made a part of this Indenture. The Notes may have notations, legends
or endorsements (including the Note Guarantee) required by law, stock exchange
rule or usage, any organizational document or governing instrument, or as may,
consistently herewith, be determined by the officers executing such Notes, as
evidenced by their execution of the Notes. The Company and the Trustee shall
approve the form of the Notes and any notation, legend or endorsement (including
the Note Guarantee) on them. Each Note shall be dated the date of its
authentication.

     Notes offered and sold in reliance on Rule 144A shall be issued initially
in the form of one or more Rule 144A Global Securities and Notes offered and
sold in reliance on Regulation S shall be issued initially in the form of one or
more Regulation S Temporary Global Notes, each substantially in the form set
forth in Exhibit A hereto, deposited with the Trustee, as custodian for the
Depository, duly executed by the Company and authenticated by the Trustee as
hereinafter provided with the Guaranties of the Guarantors endorsed thereon and
shall bear the legend set forth in Exhibit C hereto. The aggregate principal
amount of the Global Notes may from time to time be increased or decreased by
adjustments made on the records of the Trustee, as custodian for the Depository,
as hereinafter provided.

     Following the termination of the Restricted Period, beneficial interests in
the Regulation S Temporary Global Note shall be exchanged for beneficial
interests in the Regu-


<PAGE>   38
                                      -31-


lation S Permanent Global Note. Simultaneously with the authentication of the
Regulation S Permanent Global Note, the Trustee shall cancel the Regulation S
Temporary Global Note. The aggregate principal amount of the Regulation S
Temporary Global Note and the Regulation S Permanent Global Note may from time
to time be increased or decreased by adjustments made on the records of the
Trustee and the Depository or its nominee, as the case may be, in connection
with transfers of interest as hereinafter provided.

     The provisions of the "Operating Procedures of the Euroclear System" and
"Terms and Conditions Governing Use of Euroclear" and the "General Terms and
Conditions of Cedel Bank" and "Customer Handbook" of Cedel Bank shall be
applicable to transfers of beneficial interests in the Regulation S Temporary
Global Note and the Regulation S Permanent Global Note that are held by
participants through Euroclear or Cedel Bank.

SECTION 2.02.  Execution and Authentication.

     Two Officers, or an Officer and an Assistant Secretary, shall sign, or one
Officer shall sign and one Officer or an Assistant Secretary (each of whom
shall, in each case, have been duly authorized by all requisite corporate
actions) shall attest to such Officer's signature, the Notes for the Company by
manual or facsimile signature.

     If an Officer or an Assistant Secretary whose signature is on a Note was an
Officer or an Assistant Secretary, as the case may be, at the time of such
execution but no longer holds that office at the time the Trustee authenticates
the Note, the Note shall be valid nevertheless.

     A Note shall not be valid until an authorized signatory of the Trustee
manually signs the certificate of authentication on the Note. The signature
shall be conclusive evidence that the Note has been authenticated under this
Indenture.

     The Trustee shall authenticate (i) Initial Notes for original issue in an
aggregate principal amount not to exceed $150,000,000, (ii) Private Exchange
Notes from time to time only in exchange for a like principal amount of Initial
Notes and (iii) Unrestricted Notes from time to time in exchange for (A) a like
principal amount of Initial Notes or (B) a like principal amount of Private
Exchange Notes, in each case upon a written order of the Company in the form of
an Officers' Certificate. Each such written order shall specify the amount of
Notes to be authenticated and the date on which the Notes are to be
authenticated, whether the Notes are to be Initial Notes, Private Exchange Notes
or Unrestricted Notes and whether the Notes are to be issued as Physical Notes
or Global Notes and such other information as the Trustee may reasonably
request. Additional amounts may be issued in one or more series from time to
time (the "Additional Notes"), subject to Section 4.04, which Additional Notes
shall be authenticated by the Trustee upon receipt of a Company Order. The
aggregate principal


<PAGE>   39
                                      -32-


amount of Notes outstanding at any time may not exceed $200,000,000, except as
provided in Sections 2.07 and 2.08.

     Notwithstanding the foregoing, all Notes issued under this Indenture shall
vote and consent together on all matters (as to which any of such Notes may vote
or consent) as one class and no series of Notes will have the right to vote or
consent as a separate class on any matter.

     The Trustee may appoint an authenticating agent reasonably acceptable to
the Company to authenticate Notes. Unless otherwise provided in the appointment,
an authenticating agent may authenticate Notes whenever the Trustee may do so.
Each reference in this Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating agent shall have the same rights
as an Agent to deal with the Company and Affiliates of the Company.

     The Notes shall be issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof.

SECTION 2.03.  Registrar and Paying Agent.

     The Company shall maintain an office or agency in the Borough of Manhattan,
The City of New York, where (a) Notes may be presented or surrendered for
registration of transfer or for exchange (the "Registrar"), (b) Notes may be
presented or surrendered for payment (the "Paying Agent") and (c) notices and
demands in respect of the Notes and this Indenture may be served. The Registrar
shall keep a register of the Notes and of their transfer and exchange. The
Company, upon notice to the Trustee, may appoint one or more co-Registrars and
one or more additional Paying Agents. The term "Paying Agent" includes any
additional Paying Agent. Except as provided herein, the Company or any Guarantor
may act as Paying Agent, Registrar or co-Registrar.

     If the Company shall enter into an agency agreement with any Agent not a
party to this Indenture, such agreement shall implement the provisions of this
Indenture that relate to such Agent. The Company shall notify the Trustee of the
name and address of any such Agent. If the Company fails to maintain a Registrar
or Paying Agent, or fails to give the foregoing notice, the Trustee shall act as
such and shall be entitled to appropriate compensation in accordance with
Section 7.07.

     The Company initially appoints the Trustee as Registrar and Paying Agent
until such time as the Trustee has resigned or a successor has been appointed.


<PAGE>   40

                                      -33-


SECTION 2.04.  Paying Agent To Hold Assets in Trust.

     The Company shall require each Paying Agent other than the Trustee to agree
in writing that each Paying Agent shall hold in trust for the benefit of Holders
or the Trustee all assets held by the Paying Agent for the payment of principal
of, or interest on, the Notes, and shall notify the Trustee of any Default by
the Company in making any such payment. The Company at any time may require a
Paying Agent to distribute all assets held by it to the Trustee and account for
any assets disbursed and the Trustee may at any time during the continuance of
any payment Default, upon written request to a Paying Agent, require such Paying
Agent to distribute all assets held by it to the Trustee and to account for any
assets distributed. Upon distribution to the Trustee of all assets that shall
have been delivered by the Company to the Paying Agent (if other than the
Company), the Paying Agent shall have no further liability for such assets. If
the Company, any Guarantor or any of their respective Affiliates acts as Paying
Agent, it shall, on or before each due date of the principal of or interest on
the Notes, segregate and hold in trust for the benefit of the Persons entitled
thereto a sum sufficient to pay the principal or interest so becoming due until
such sums shall be paid to such Persons or otherwise disposed of as herein
provided and will promptly notify the Trustee of its action or failure so to
act.

SECTION 2.05.  Holder Lists.

     The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders. If the Trustee is not the Registrar, the Company shall furnish to the
Trustee before each Interest Record Date and at such other times as the Trustee
may request in writing a list as of such date and in such form as the Trustee
may reasonably require of the names and addresses of Holders, which list may be
conclusively relied upon by the Trustee.

SECTION 2.06.  Transfer and Exchange.

     Subject to the provisions of Sections 2.15 and 2.16, when Notes are
presented to the Registrar or a co-Registrar with a request to register the
transfer of such Notes or to exchange such Notes for an equal principal amount
of Notes of other authorized denominations of the same series, the Registrar or
co-Registrar shall register the transfer or make the exchange as requested if
its requirements for such transaction are met; provided, however, that the Notes
surrendered for transfer or exchange shall be duly endorsed or accompanied by a
written instrument of transfer in form satisfactory to the Company and the
Registrar or co-Registrar, duly executed by the Holder thereof or his attorney
duly authorized in writing. To permit registrations of transfers and exchanges,
the Company shall execute and the Trustee shall authenticate Notes at the
Registrar's or co-Registrar's written request. No service charge shall be made
for any registration of transfer or exchange, but the Company may require
pay-


<PAGE>   41

                                      -34-


ment of a sum sufficient to cover any transfer tax or similar governmental
charge payable in connection therewith (other than any such transfer taxes or
other governmental charge payable upon exchanges or transfers pursuant to
Section 2.02, 2.10, 3.06, 4.05, 4.14, or 10.05). The Registrar or co-Registrar
shall not be required to register the transfer or exchange of any Note (i)
during a period beginning at the opening of business 15 days before the mailing
of a notice of redemption of Notes and ending at the close of business on the
day of such mailing and (ii) selected for redemption in whole or in part
pursuant to Article Three hereof, except the unredeemed portion of any Note
being redeemed in part.

     Prior to the registration of any transfer by a Holder as provided herein,
the Company, the Trustee and any Agent of the Company shall treat the person in
whose name the Note is registered as the owner thereof for all purposes whether
or not the Note shall be overdue, and neither the Company, the Trustee nor any
such Agent shall be affected by notice to the contrary. Any Holder of a
beneficial interest in a Global Note shall, by acceptance of such beneficial
interest in a Global Note, agree that transfers of beneficial interests in such
Global Note may be effected only through a book-entry system maintained by the
Depository (or its agent), and that ownership of a beneficial interest in a
Global Note shall be required to be reflected in a book entry.

SECTION 2.07.  Replacement Notes.

     If a mutilated Note is surrendered to the Trustee or if the Holder of a
Note claims that the Note has been lost, destroyed or wrongfully taken, the
Company shall issue and the Trustee shall authenticate a replacement Note if the
Trustee's requirements for replacement of Notes are met. If required by the
Company or the Trustee, such Holder must provide an indemnity bond or other
indemnity, sufficient to protect the Company, the Trustee and any Agent from any
loss which any of them may suffer if a Note is replaced. The Company may charge
such Holder for its reasonable out-of-pocket expenses in replacing a Note,
including reasonable fees and expenses of counsel.

     Every replacement Note is an additional obligation of the Company.

SECTION 2.08.  Outstanding Notes.

     Notes outstanding at any time are all the Notes that have been
authenticated by the Trustee except those cancelled by it, those delivered to it
for cancellation and those described in this Section 2.08 as not outstanding.
Subject to Section 2.09, a Note does not cease to be outstanding because the
Company or any of its Affiliates holds the Note.

     If a Note is replaced pursuant to Section 2.07 (other than a mutilated Note
surrendered for replacement), it ceases to be outstanding unless the Trustee
receives proof satis-


<PAGE>   42
                                      -35-


factory to it that the replaced Note is held by a bona fide purchaser. A
mutilated Note ceases to be outstanding upon surrender of such Note and
replacement thereof pursuant to Section 2.07.

     If on a Redemption Date, Purchase Date or the Final Maturity Date the
Paying Agent holds money sufficient to pay all of the principal and interest due
on the Notes payable on that date, and is not prohibited from paying such money
to the Holders pursuant to the terms of this Indenture, then on and after that
date such Notes cease to be outstanding and interest on them ceases to accrue.

SECTION 2.09.  Treasury Notes.

     In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company, the Guarantors or any of their respective Affiliates shall be
disregarded, except that, for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Notes that a Trust Officer of the Trustee actually knows are so owned shall be
disregarded.

     The Company shall notify the Trustee, in writing, when it, any Guarantor or
any of its Affiliates repurchases or otherwise acquires Notes, of the aggregate
principal amount of such Notes so repurchased or otherwise acquired.

SECTION 2.10.  Temporary Notes.

     Until definitive Notes are ready for delivery, the Company may prepare and
the Trustee shall authenticate temporary Notes upon receipt of a written order
of the Company in the form of an Officers' Certificate. The Officers'
Certificate shall specify the amount of temporary Notes to be authenticated and
the date on which the temporary Notes are to be authenticated.

     Temporary Notes shall be substantially in the form of definitive Notes but
may have variations that the Company considers appropriate for temporary Notes.
Without unreasonable delay, the Company shall prepare and the Trustee shall
authenticate upon receipt of a written order of the Company pursuant to Section
2.02 definitive Notes in exchange for temporary Notes.

SECTION 2.11.  Cancellation.

     The Company at any time may deliver Notes to the Trustee for cancellation.
The Registrar and the Paying Agent shall forward to the Trustee any Notes
surrendered to them for transfer, exchange or payment. The Trustee, or at the
direction of the Trustee, the


<PAGE>   43
                                      -36-


Registrar or the Paying Agent, and no one else, shall cancel, and at the written
direction of the Company, dispose of and deliver evidence of such disposal of
all Notes surrendered for transfer, exchange, payment or cancellation. Subject
to Section 2.07, the Company may not issue new Notes to replace Notes that it
has paid or delivered to the Trustee for cancellation. If the Company or any
Guarantor shall acquire any of the Notes, such acquisition shall not operate as
a redemption or satisfaction of the Indebtedness represented by such Notes
unless and until the same are surrendered to the Trustee for cancellation
pursuant to this Section 2.11.

SECTION 2.12.  Defaulted Interest.

     The Company shall pay interest on overdue principal from time to time on
demand at the rate of interest then borne by the Notes. The Company shall, to
the extent lawful, pay interest on overdue installments of interest (without
regard to any applicable grace periods) from time to time on demand at the rate
of interest then borne by the Notes.

     If the Company defaults in a payment of interest on the Notes, it shall pay
the defaulted interest, plus (to the extent lawful) any interest payable on the
defaulted interest to the Persons who are Holders on a subsequent special record
date, which date shall be the fifteenth day preceding the date fixed by the
Company for the payment of defaulted interest or the next succeeding Business
Day if such date is not a Business Day. At least 15 days before the subsequent
special record date, the Company shall mail to each Holder, with a copy to the
Trustee, a notice that states the subsequent special record date, the payment
date and the amount of defaulted interest, and interest payable on such
defaulted interest, if any, to be paid.

     Notwithstanding the foregoing, any interest which is paid prior to the
expiration of the 30-day period set forth in Section 6.01(2) shall be paid to
Holders as of the Interest Record Date for the Interest Payment Date for which
interest has not been paid.

SECTION 2.13.  CUSIP Number.

     The Company in issuing the Notes will use a "CUSIP" number and the Trustee
shall use the CUSIP number in notices of redemption or exchange as a convenience
to Holders; provided , however, that any such notice may state that no
representation is made as to the correctness or accuracy of the CUSIP number
printed in the notice or on the Notes, and that reliance may be placed only on
the other identification numbers printed on the Notes. The Company shall
promptly notify the Trustee of any changes in CUSIP numbers.

SECTION 2.14.  Deposit of Moneys.

     Prior to 11:00 a.m. New York City time on each Interest Payment Date,
Redemption Date, Purchase Date and the Final Maturity Date, the Company shall
deposit with

<PAGE>   44

                                      -37-


the Paying Agent in immediately available funds money sufficient to make cash
payments, if any, due on such Interest Payment Date, Redemption Date, Purchase
Date or Final Maturity Date, as the case may be, in a timely manner which
permits the Paying Agent to remit payment to the Holders on such Interest
Payment Date, Redemption Date, Purchase Date or Final Maturity Date, as the case
may be.

SECTION 2.15.  Book-Entry Provisions for Global Notes.

     (a) The Global Notes initially shall (i) be registered in the name of the
Depository or the nominee of such Depository, (ii) be delivered to the Trustee
as custodian for such Depository and (iii) bear legends as set forth in Exhibit
C.

     Members of, or participants in, the Depository ("Participants") shall have
no rights under this Indenture with respect to any Global Note held on their
behalf by the Depository, or the Trustee as its custodian, or under the Global
Note, and the Depository may be treated by the Company, the Trustee and any
agent of the Company or the Trustee as the absolute owner of the Global Note for
all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall
prevent the Company, the Trustee or any agent of the Company or the Trustee from
giving effect to any written certification, proxy or other authorization
furnished by the Depository or impair, as between the Depository and
Participants, the operation of customary practices governing the exercise of the
rights of a Holder of any Note.

     (b) Transfers of Global Notes shall be limited to transfers in whole, but
not in part, to the Depository, its successors or their respective nominees.
Interests of beneficial owners in the Global Notes may be transferred or
exchanged for Physical Notes in accordance with the rules and procedures of the
Depository and the provisions of Section 2.16; provided, however, that Physical
Notes shall be transferred to all beneficial owners in exchange for their
beneficial interests in Global Notes only if (i) the Company notifies the
Trustee in writing that DTC is no longer willing or able to act as a depositary
or DTC ceases to be registered as a clearing agency under the Exchange Act and a
successor depositary is not appointed within 90 days of such notice or cessation
or (ii) an Event of Default has occurred and is continuing and the Registrar has
received a request from the Depository to issue Physical Notes; provided that in
no event shall the Regulation S Temporary Global Note be exchanged by the
Company for Physical Notes prior to (x) the expiration of the Restricted Period
and (y) the receipt by the Registrar of any certificates required pursuant to
Rule 903 under the Securities Act as stated in an Opinion of Counsel.

     (c) In connection with the transfer of Global Notes as an entirety to
beneficial owners pursuant to paragraph (b) of this Section 2.15, the Global
Notes shall be deemed to be surrendered to the Trustee for cancellation, and the
Company shall execute, and the Trustee shall upon written instructions from the
Company authenticate and deliver, to each beneficial

<PAGE>   45

                                      -38-


owner identified by the Depository in exchange for its beneficial interest in
the Global Notes, an equal aggregate principal amount of Physical Notes of
authorized denominations.

     (d) Any Physical Note constituting a Restricted Note delivered in exchange
for an interest in a Global Note pursuant to paragraph (c) of this Section 2.15
shall, except as otherwise provided by Section 2.16, bear the Private Placement
Legend.

     (e) The Holder of any Global Note may grant proxies and otherwise authorize
any Person, including Participants and Persons that may hold interests through
Participants, to take any action which a Holder is entitled to take under this
Indenture or the Notes.

SECTION 2.16.  Registration of Transfers and Exchanges.

     (a) Transfer and Exchange of Physical Notes. When Physical Notes are
presented to the Registrar or co-Registrar with a request:

     (i)  to register the transfer of the Physical Notes; or

     (ii) to exchange such Physical Notes for an equal principal amount of
   Physical Notes of other authorized denominations,

the Registrar or co-Registrar shall register the transfer or make the exchange
as requested if the requirements under this Indenture as set forth in this
Section 2.16 for such transactions are met; provided, however, that the Physical
Notes presented or surrendered for Registration of transfer or exchange:

     (I)  shall be duly endorsed or accompanied by a written instrument of
   transfer in form satisfactory to the Registrar or co-Registrar, duly executed
   by the Holder thereof or his attorney duly authorized in writing; and

     (II) in the case of Physical Notes the offer and sale of which have not
   been registered under the Securities Act, such Physical Notes shall be
   accompanied, in the sole discretion of the Company, by the following
   additional information and documents, as applicable:

     (A)  if such Physical Note is being delivered to the Registrar or
          co-Registrar by a Holder in connection with a Registration pursuant to
          which such Holder will exchange an Initial Note for an Unrestricted
          Note, a certification from such Holder to that effect (substantially
          in the form of Exhibit D hereto); or

<PAGE>   46

                                      -39-


     (B)  if such Physical Note is being transferred to a QIB in accordance with
          Rule 144A, a certification to that effect (substantially in the form
          of Exhibit D hereto); or

     (C)  if such Physical Note is being transferred in reliance on Regulation
          S, delivery of a certification to that effect (substantially in the
          form of Exhibit D hereto) and a transferor certificate for Regulation
          S transfer substantially in the form of Exhibit E hereto and, at the
          option of the Company, an Opinion of Counsel reasonably satisfactory
          to the Company to the effect that such transfer is in compliance with
          the Securities Act; or

     (D)  if such Physical Note is being transferred in reliance on Rule 144
          under the Securities Act, delivery of a certification to that effect
          (substantially in the form of Exhibit D hereto) and, at the option of
          the Company, an Opinion of Counsel reasonably satisfactory to the
          Company to the effect that such transfer is in compliance with the
          Securities Act; or

     (E)  if such Physical Note is being transferred in reliance on another
          exemption from the registration requirements of the Securities Act, a
          certification to that effect (substantially in the form of Exhibit D
          hereto) and, at the option of the Company, an Opinion of Counsel
          reasonably acceptable to the Company to the effect that such transfer
          is in compliance with the Securities Act.

     (b) Restrictions on Transfer of a Physical Note for a Beneficial Interest
in a Global Note. A Physical Note the offer and sale of which has not been
registered under the Securities Act may not be exchanged for a beneficial
interest in a Global Note except upon satisfaction of the requirements set forth
below. Upon receipt by the Registrar or co-Registrar of a Physical Note, duly
endorsed or accompanied by appropriate instruments of transfer, in form
satisfactory to the Registrar or co-Registrar, together with:

 (A) certification, substantially in the form of Exhibit D hereto, that such
     Physical Note is being transferred (I) to a QIB, (II) in an offshore
     transaction in reliance on Regulation S and, with respect to (II), at the
     option of the Company, an Opinion of Counsel reasonably acceptable to the
     Company to the effect that such transfer is in compliance with the
     Securities Act or (III) without transfer, in an exchange of a Physical Note
     for a beneficial interest in a Global Note; and

 (B) written instructions directing the Registrar or co-Registrar to make, or
     to direct the Depository to make, an endorsement on the applicable Global
     Note to re-

<PAGE>   47

                                      -40-


     flect an increase in the aggregate amount of the Notes represented by the
     Global Note,

then the Registrar or co-Registrar shall cancel such Physical Note and cause, or
direct the Depository to cause, in accordance with the standing instructions and
procedures existing between the Depository and the Registrar or co-Registrar,
the principal amount of Notes represented by the applicable Global Note to be
increased accordingly. If no 144A Global Note or Regulation S Global Note, as
the case may be, is then outstanding, the Company shall, unless either of the
events in the proviso to Section 2.15(b) have occurred and are continuing, issue
and the Trustee shall, upon written instructions from the Company in accordance
with Section 2.02, authenticate such a Global Note in the appropriate principal
amount.

     (c) Transfer and Exchange of Global Notes. The transfer and exchange of
Global Notes or beneficial interests therein shall be effected through the
Depository in accordance with this Indenture (including the restrictions on
transfer set forth herein) and the procedures of the Depository therefor;
provided, however, that prior to the expiration of the Restricted Period,
transfers of beneficial interests in the Regulation S Temporary Global Note may
not be made to a U.S. Person or for the account or benefit of a U.S. Person.
Upon receipt by the Registrar or Co-Registrar of (a) written instructions, or
such other instruction as is customary for the Depository, from the Depository
or its nominee, requesting the Registration of transfer of an interest in a 144A
Global Note or a Regulation S Global Note, as the case may be, to another type
of Global Note, together with the applicable Global Notes (or, if the applicable
type of Global Note required to represent the interest as requested to be
transferred is not then outstanding, only the Global Note representing the
interest being transferred), and (b) a certificate substantially in the form of
Exhibit D hereto, the Registrar or Co-Registrar shall cancel such Global Notes
(or Global Note) and the Company shall issue and the Trustee shall, upon written
instructions from the Company in accordance with Section 2.02, authenticate new
Global Notes of the types so cancelled (or the type so cancelled and applicable
type required to represent the interest as requested to be transferred)
reflecting the applicable increase and decrease of the principal amount of Notes
represented by such types of Global Notes, giving effect to such transfer. If
the applicable type of Global Note required to represent the interest as
requested to be transferred is not outstanding at the time of such request, the
Company shall issue and the Trustee shall, upon written instructions from the
Company in accordance with Section 2.02, authenticate a new Global Note of such
type in principal amount equal to the principal amount of the interest requested
to be transferred.

     (d) Transfer of a Beneficial Interest in a Global Note for a Physical Note.
Subject to Section 2.15(b):

     (i) Any Person having a beneficial interest in a Global Note may upon
   request exchange such beneficial interest for a Physical Note; provided,
   however, that

<PAGE>   48

                                      -41-


   prior to the Registration, a transferee that is a QIB may not exchange a
   beneficial interest in Global Note for a Physical Note; provided, further
   that in no event shall Physical Notes be issued upon the transfer or exchange
   of beneficial interests in the Regulation S Temporary Global Note prior to
   (x) the expiration of the Restricted Period and (y) the receipt by the
   Registrar of any certificates required pursuant to Rule 903 under the
   Securities Act as stated in an Opinion of Counsel. Upon receipt by the
   Registrar or co-Registrar of written instructions, or such other form of
   instructions as is customary for the Depository, from the Depository or its
   nominee on behalf of any Person (subject to the previous sentence) having a
   beneficial interest in a Global Note and upon receipt by the Trustee of a
   written order or such other form of instructions as is customary for the
   Depository or the Person designated by the Depository as having such a
   beneficial interest containing registration instructions and, in the case of
   any such transfer or exchange of a beneficial interest in Notes the offer and
   sale of which have not been registered under the Securities Act, the
   following additional information and documents:

         (A)  if such beneficial interest is being transferred in reliance on
              Rule 144 under the Securities Act, delivery of a certification to
              that effect (substantially in the form of Exhibit D hereto) and,
              at the option of the Company, an Opinion of Counsel reasonably
              satisfactory to the Company to the effect that such transfer is in
              compliance with the Securities Act; or

         (B)  if such beneficial interest is being transferred in reliance on
              another exemption from the registration requirements of the
              Securities Act, a certification to that effect (substantially in
              the form of Exhibit D hereto) and, at the option of the Company,
              an Opinion of Counsel reasonably satisfactory to the Company to
              the effect that such transfer is in compliance with the Securities
              Act,

   then the Registrar or co-Registrar will cause, in accordance with the
   standing instructions and procedures existing between the Depository and the
   Registrar or co-Registrar, the aggregate principal amount of the applicable
   Global Note to be reduced and, following such reduction, the Company will
   execute and, upon receipt of an authentication order in the form of an
   Officers' Certificate in accordance with Section 2.02, the Trustee will
   authenticate and deliver to the transferee a Physical Note in the appropriate
   principal amount.

         (ii)  Notes issued in exchange for a beneficial interest in a Global
   Note pursuant to this Section 2.16(d) shall be registered in such names and
   in such authorized denominations as the Depository, pursuant to instructions
   from its direct or indirect

<PAGE>   49

                                      -42-


   participants or otherwise, shall instruct the Registrar or co-Registrar in
   writing. The Registrar or co-Registrar shall deliver such Physical Notes to
   the Persons in whose names such Physical Notes are so registered.

     (e) Restrictions on Transfer and Exchange of Global Notes. Notwithstanding
any other provisions of this Indenture, a Global Note may not be transferred as
a whole except by the Depository to a nominee of the Depository or by a nominee
of the Depository to the Depository or another nominee of the Depository or by
the Depository or any such nominee to a successor Depository or a nominee of
such successor Depository.

     (f) Private Placement Legend. Upon the transfer, exchange or replacement of
Notes not bearing the Private Placement Legend, the Registrar or co-Registrar
shall deliver Notes that do not bear the Private Placement Legend. Upon the
transfer, exchange or replacement of Notes bearing the Private Placement Legend,
the Registrar or co-Registrar shall deliver only Notes that bear the Private
Placement Legend unless, and the Trustee is hereby authorized to deliver Notes
without the Private Placement Legend if, (i) there is delivered to the Trustee
an Opinion of Counsel reasonably satisfactory to the Company and the Trustee to
the effect that neither such legend nor the related restrictions on transfer are
required in order to maintain compliance with the provisions of the Securities
Act;(ii) such Note has been sold pursuant to an effective registration statement
under the Securities Act (including pursuant to a Registration); or (iii) the
date of such transfer, exchange or replacement is two years after the later of
(x) the Issue Date and (y) the last date that the Company or any affiliate (as
defined in Rule 144 under the Securities Act) of the Company was the owner of
such Notes (or any predecessor thereto).

     (g) General. By its acceptance of any Note bearing the Private Placement
Legend, each Holder of such a Note acknowledges the restrictions on transfer of
such Note set forth in this Indenture and in the Private Placement Legend and
agrees that it will transfer such Note only as provided in this Indenture.

     The Trustee shall have no obligation or duty to monitor, determine or
inquire as to compliance with any restrictions on transfer imposed under this
Indenture or under applicable law with respect to any transfer of any interest
in any Note (including any transfers between or among Participants or beneficial
owners of interest in any Global Note) other than to require delivery of such
certificates and other documentation or evidence as are expressly required by,
and to do so if and when expressly required by the terms of, this Indenture, and
to examine the same to determine substantial compliance as to form with the
express requirements hereof.

     The Registrar shall retain copies of all letters, notices and other written
communications received pursuant to Section 2.15 or this Section 2.16. The
Company shall have

<PAGE>   50
                                      -43-


the right to inspect and make copies of all such letters, notices or other
written communications at any reasonable time upon the giving of reasonable
written notice to the Registrar


                                  ARTICLE THREE

                                   REDEMPTION


SECTION 3.01.  Notices to Trustee.

     If the Company wants to redeem Notes pursuant to paragraph 5 or 6 of the
Notes at the applicable redemption price set forth thereon, it shall notify the
Trustee in writing of the Redemption Date and the principal amount of Notes to
be redeemed. The Company shall give such notice to the Trustee at least 45 days
before the Redemption Date (unless a shorter notice shall be agreed to by the
Trustee in writing), together with an Officers' Certificate stating that such
redemption will comply with the conditions contained herein.

SECTION 3.02.  Selection of Notes To Be Redeemed.

     In the event that less than all of the Notes are to be redeemed at any time
pursuant to an optional redemption, selection of such Notes for redemption will
be made by the Trustee in compliance with the requirements of the principal
national securities exchange, if any, on which the Notes are listed or, if the
Notes are not then listed on a national securities exchange, on a pro rata
basis, by lot or by such method as the Trustee shall deem fair and appropriate;
provided, however, that no Notes of a principal amount of $1,000 or less shall
be redeemed in part; provided, further, however, that if a partial redemption is
made with the net cash proceeds of an Equity Offering by the Company pursuant to
paragraph 6 of the Notes, selection of the Notes or portions thereof for
redemption shall be made by the Trustee only on a pro rata basis or on as nearly
a pro rata basis as is practicable (subject to the procedures of the
Depository), unless such method is otherwise prohibited. The Trustee shall make
the selection from the Notes then outstanding, subject to redemption and not
previously called for redemption.

     The Trustee may select for redemption pursuant to paragraph 5 or 6 of the
Notes portions of the principal amount of Notes that have denominations equal to
or larger than $1,000 principal amount. Notes and portions of them the Trustee
so selects shall be in amounts of $1,000 principal amount or integral multiples
thereof. Provisions of this Indenture that apply to Notes called for redemption
also apply to portions of Notes called for redemption.

<PAGE>   51

                                      -44-


SECTION 3.03.  Notice of Redemption.

     At least 30 days but not more than 60 days before a Redemption Date, the
Company shall mail a notice of redemption by first-class mail to each Holder
whose Notes are to be redeemed at such Holder's registered address; provided,
however, that notice of a redemption pursuant to paragraph 6 of the Notes shall
be mailed to each Holder whose Notes are to be redeemed no later than 60 days
after the date of the Closing of the relevant Equity Offering of Holdings or the
Company.

     Each notice of redemption shall identify the Notes to be redeemed
(including the CUSIP number thereon) and shall state:

     (1) the Redemption Date;

     (2) the redemption price;

     (3) the name and address of the Paying Agent to which the Notes are to be
         surrendered for redemption;

     (4) that Notes called for redemption must be surrendered to the Paying
         Agent to collect the redemption price;

     (5) that, unless the Company defaults in making the redemption payment,
         interest on Notes called for redemption ceases to accrue on and after
         the Redemption Date and the only remaining right of the Holders is to
         receive payment of the redemption price upon surrender to the Paying
         Agent; and

     (6) in the case of any redemption pursuant to paragraph 5 or 6 of the
         Notes, if any Note is being redeemed in part, the portion of the
         principal amount of such Note to be redeemed and that, after the
         Redemption Date, upon surrender of such Note, a new Note or Notes in
         principal amount equal to the unredeemed portion thereof will be
         issued.

     At the Company's request, the Trustee shall give the notice of redemption
on behalf of the Company, in the Company's name and at the Company's expense.

     The notice if mailed in the manner herein provided shall be conclusively
presumed to have been given, whether or not the Holder receives such notice. In
any case, failure to give such notice by mail or any defect in the notice to the
Holder of any Notes designated for redemption as a whole or in part shall not
affect the validity of the procedures for the redemption of any other Note.

<PAGE>   52
                                      -45-


SECTION 3.04.  Effect of Notice of Redemption.

     Once a notice of redemption is mailed, Notes called for redemption become
due and payable on the Redemption Date and at the redemption price. Upon
surrender to the Paying Agent, such Notes shall be paid at the redemption price,
plus accrued interest thereon, if any, to the Redemption Date, but interest
installments whose maturity is on or prior to such Redemption Date shall be
payable to the Holders of record at the close of business on the relevant
Interest Record Date and after such date such Notes shall cease to bear
interest.

SECTION 3.05.  Deposit of Redemption Price.

     On or prior to the Redemption Date, the Company shall deposit with the
Paying Agent (or if the Company is its own Paying Agent, shall, on or before the
Redemption Date, segregate and hold in trust) money sufficient to pay the
redemption price of and accrued interest, if any, on all Notes to be redeemed on
that date other than Notes or portions thereof called for redemption on that
date which have been delivered by the Company to the Trustee for cancellation.
All money, if any, earned on funds held in trust by the Paying Agent shall be
remitted to the Company.

     If any Note surrendered for redemption in the manner provided in the Notes
shall not be so paid on the Redemption Date due to the failure of the Company to
deposit with the Paying Agent money sufficient to pay the redemption price
thereof, the principal and accrued and unpaid interest, if any, thereon shall,
until paid or duly provided for, bear interest as provided in Sections 2.12 and
4.01 with respect to any payment default.

SECTION 3.06.  Notes Redeemed in Part.

     Upon surrender of a Note that is redeemed in part, the Trustee shall
authenticate for the Holder a new Note equal in principal amount to the
unredeemed portion of the Note surrendered.


                                  ARTICLE FOUR

                                    COVENANTS


SECTION 4.01.  Payment of Notes.

     The Company shall pay the principal of and interest on the Notes in the
manner provided in the Notes and the Registration Rights Agreement. An
installment of principal or interest shall be considered paid on the date due if
the Trustee or Paying Agent (other than the

<PAGE>   53

                                      -46-


Company, a Guarantor or any of their respective Affiliates) holds on that date
money designated for and sufficient to pay the installment in full and is not
prohibited from paying such money to the Holders of the Notes pursuant to the
terms of this Indenture.

     The Company shall pay cash interest on overdue principal at the same rate
per annum borne by the Notes. The Company shall pay cash interest on overdue
installments of interest at the same rate per annum borne by the Notes, to the
extent lawful, as provided in Section 2.12.

SECTION 4.02.  Maintenance of Office or Agency.

     The Company shall maintain in the Borough of Manhattan, The City of New
York, the office or agency required under Section 2.03. The Company shall give
prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the address of the Trustee set forth in Section 13. The
Company hereby initially designates the Trustee at its address set forth in
Section 13.02 as its office or agency in The Borough of Manhattan, The City of
New York, for such purposes.

SECTION 4.03.  Transactions with Affiliates.

     The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, directly or indirectly, conduct any business or enter into any
transaction (or series of related transactions) with or for the benefit of any
of their respective Affiliates (each an "Affiliate Transaction"), unless (1)
such Affiliate Transaction, taken as a whole, is on terms which are no less
favorable to the Company or such Restricted Subsidiary, as the case may be, than
would be available in a comparable transaction with an unaffiliated third party
and (2) if such Affiliate Transaction or series of related Affiliate
Transactions (other than any such Affiliate Transactions between the Company or
a Restricted Subsidiary and an Unrestricted Subsidiary or an Accounts Receivable
Subsidiary in the ordinary course of business) involves aggregate payments or
other consideration having a Fair Market Value in excess of $5.0 million, such
Affiliate Transaction is in writing and a majority of the disinterested members
of the Board of Directors of the Company shall have approved such Affiliate
Transaction and determined that such Affiliate Transaction complies with the
foregoing provisions, or, in the event that there are no independent directors,
the Trustee has received a written opinion from an Independent Financial Advisor
stating that the terms of such Affiliate Transaction are fair, from a financial
point of view, to the Company or the Restricted Subsidiary involved in such
Affiliate Transaction, as the case may be.

<PAGE>   54

                                      -47-


     In addition, any Affiliate Transaction (other than an Affiliate Transaction
between the Company or a Restricted Subsidiary and an Unrestricted Subsidiary or
an Accounts Receivable Subsidiary in the ordinary course of business) involving
aggregate payments or other consideration having a Fair Market Value in excess
of $10.0 million will also require a written opinion from an Independent
Financial Advisor (filed with the Trustee) stating that the terms of such
Affiliate Transaction are fair, from a financial point of view, to the Company
or the Restricted Subsidiary involved in such Affiliate Transaction, as the case
may be.

     Notwithstanding the foregoing, the restrictions set forth in this Section
4.03 shall not apply to (1) transactions with or among the Company and any
Restricted Subsidiary or between or among Restricted Subsidiaries; (2) customary
directors' fees, indemnification and similar arrangements, consulting fees,
employee salaries, bonuses or employment agreements, compensation or employee
benefit arrangements and incentive arrangements with any officer, director or
employee of the Company or any Restricted Subsidiary entered into in the
ordinary course of business (including customary benefits thereunder) and
payments under any indemnification arrangements permitted by applicable law; (3)
any transactions undertaken pursuant to any contractual obligations in existence
on the Issue Date (as renewed or amended from time to time in a manner not
adverse to the Holders of Notes); (4) the issue and sale by the Company to its
stockholders of Qualified Equity Interests; (5) any Restricted Payments made in
compliance with Section 4.06; (6) loans and advances to officers, directors and
employees of the Company or any Restricted Subsidiary for travel, entertainment,
moving and other relocation expenses, in each case made in the ordinary course
of business; (7) the Incurrence of intercompany Indebtedness permitted pursuant
to clause (5) of the second paragraph of Section 4.04; (8) the pledge of Equity
Interests of Unrestricted Subsidiaries to support the Indebtedness thereof; (9)
the payment to AEA of fees in an aggregate amount not to exceed $1.6 million in
any fiscal year, the reimbursement of reasonable out-of-pocket expenses incurred
by AEA and payments to AEA in respect of indemnification obligations under
existing agreements or agreements permitted to be entered into in accordance
with this Indenture, in each case in connection with its performance of services
pursuant to the Management Agreement; (10) shareholders and registration rights
agreements among the Company and its shareholders; and (11) any transaction in
the ordinary course of business or approved by a majority of the disinterested
directors between the Company or any Restricted Subsidiary and any Affiliate of
the Company controlled by the Company that is a joint venture or similar entity
primarily engaged in a Related Business.

SECTION 4.04.  Limitation on Indebtedness.

     The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, directly or indirectly, Incur any Indebtedness (including
Acquired Indebtedness) or issue any Disqualified Equity Interests, except for
Permitted Indebtedness; provided, however, that (1) the Company and any
Restricted Subsidiary may Incur Indebtedness (other than Dis-


<PAGE>   55

                                      -48-


qualified Equity Interests) and (2) the Company may issue Disqualified Equity
Interests if, in any such case, at the time of and immediately after giving pro
forma effect to such Incurrence of Indebtedness or issuance of Disqualified
Equity Interests and the application of the proceeds therefrom, the Consolidated
Coverage Ratio of the Company would be greater than 2.0 to 1.0.

     The foregoing limitations will not apply to the Incurrence of any of the
following (collectively, "Permitted Indebtedness"), each of which shall be given
independent effect:

         (1) Indebtedness under the Notes issued on the date of this Indenture
     in the aggregate principal amount of $150.0 million principal amount under
     the Notes, the Guaranties and this Indenture;

         (2) Existing Indebtedness;

         (3) Indebtedness of the Company and any Guarantor pursuant to the
     Senior Credit Facility in an aggregate principal amount at any one time
     outstanding not to exceed (A) the sum of (i) the greater of (a) $50.0
     million and (b) the sum of 85% of the net book value of the accounts
     receivable of the Company and the Restricted Subsidiaries on a consolidated
     basis in accordance with GAAP plus 50% of the net book value of the
     inventory of the Company and the Restricted Subsidiaries on a consolidated
     basis in accordance with GAAP with respect to revolving loans thereunder
     plus (ii) $75.0 million with respect to term loans, additional revolving
     loans or other loans Incurred on or prior to March 31, 2002; provided that,
     in the case of this subclause (A)(ii), at the time of and after giving pro
     forma effect to any Incurrence of such Indebtedness and the application of
     the proceeds therefrom, the Consolidated Leverage Ratio of the Company
     would be less than or equal to 5.15:1.00, less (B) amounts Incurred and
     outstanding pursuant to clause (4) below; provided that the calculation
     under subclause (A)(i)(b) shall exclude the net book value of accounts
     receivable sold to or financed through any Accounts Receivable Subsidiary
     and the net book value of the accounts receivable and inventory of Foreign
     Subsidiaries to the extent of Indebtedness Incurred by any Foreign
     Subsidiary pursuant to clause (11)(A) below;

         (4) Indebtedness Incurred on or prior to March 31, 2002 by Foreign
     Subsidiaries in an aggregate principal amount at any one time outstanding
     not to exceed $60.0 million; provided that, at the time of and after giving
     pro forma effect to any Incurrence of such Indebtedness and the application
     of the proceeds therefrom, the Consolidated Leverage Ratio of the Company
     would be less than or equal to 5.15:1.00, less amounts Incurred and
     outstanding pursuant to clause (3)(A)(ii) above in excess of $15.0 million;


<PAGE>   56
                                      -49-



         (5) Indebtedness of any Restricted Subsidiary owed to and held by the
     Company or any Restricted Subsidiary and Indebtedness of the Company owed
     to and held by any Restricted Subsidiary, which Indebtedness is unsecured
     and subordinated in right of payment to the payment and performance of the
     Company's obligations under any Senior Indebtedness, this Indenture and the
     Notes; provided, however, that an Incurrence of Indebtedness that is not
     permitted by this clause (5) shall be deemed to have occurred upon (i) any
     sale or other disposition of any Indebtedness of the Company or any
     Restricted Subsidiary referred to in this clause (5) to a Person (other
     than the Company or any Restricted Subsidiary), and (ii) the designation of
     a Restricted Subsidiary which holds Indebtedness of the Company or any
     other Restricted Subsidiary as an Unrestricted Subsidiary;

         (6) the Guaranties and guaranties by the Company or any Restricted
     Subsidiary of Indebtedness permitted to be Incurred under this covenant to
     the extent such Indebtedness could have itself been Incurred by such
     Person;

         (7) Hedging Obligations of the Company and the Restricted Subsidiaries;

         (8) Indebtedness of the Company or any Restricted Subsidiary consisting
     of Purchase Money Indebtedness, Capital Expenditure Indebtedness and
     Capital Lease Obligations (and refinancings thereof) in an aggregate
     principal amount which, when aggregated with the principal amount of all
     other Indebtedness then outstanding and Incurred pursuant to this clause
     (8), does not exceed the greater of (A) 10.0% of Consolidated Net Tangible
     Assets at the time of Incurrence and (B) $25.0 million;

         (9) Indebtedness of the Company or a Restricted Subsidiary to the
     extent representing a replacement, renewal, refinancing or extension
     (collectively, a "refinancing") of outstanding Indebtedness Incurred in
     compliance with the Consolidated Coverage Ratio of the first paragraph of
     this covenant or clause (1) or clause (2) or, after March 31, 2002,
     subclause (A)(ii) of clause (3) and clause (4) of this paragraph of this
     Section 4.04; provided, however, that (A) any such refinancing shall not
     exceed the sum of the principal amount (or accreted amount (determined in
     accordance with GAAP), if less) of the Indebtedness or Disqualified Equity
     Interests being refinanced, plus the amount of accrued interest or
     dividends thereon, plus the amount of any reasonably determined prepayment
     premium necessary to accomplish such refinancing and such reasonable fees
     and expenses incurred in connection therewith; (B) Indebtedness
     representing a refinancing of Indebtedness other than Senior Indebtedness
     shall have a Weighted Average Life to Maturity equal to or greater than the
     Weighted Average Life to Maturity of the Indebtedness being refinanced; (C)
     Indebtedness that is pari passu with the Notes may only be refinanced with
     Indebtedness that is made pari passu with or subordinate in right of
     payment to the

<PAGE>   57

                                      -50-


     Notes and Subordinated Indebtedness may only be refinanced with
     Subordinated Indebtedness or Disqualified Equity Interests and Disqualified
     Equity Interests may only be refinanced with other Disqualified Equity
     Interests; and (D) refinancing Indebtedness incurred by a Restricted
     Subsidiary which is not a Guarantor may only be used to refinance
     Indebtedness of a Restricted Subsidiary which is not a Guarantor;

         (10) in addition to the items referred to in clauses (1) through (9)
     above and clauses (11) through (12) below, Indebtedness of the Company or
     any Restricted Subsidiary (including any Indebtedness under the Senior
     Credit Facility that utilizes this subparagraph (10)) having an aggregate
     principal amount not to exceed $15.0 million at any time outstanding;

         (11) Indebtedness of Foreign Subsidiaries (which may be Incurred under
     the Senior Credit Facility or otherwise) (A) in an aggregate principal
     amount at any one time outstanding not to exceed the sum of (a) 85% of the
     net book value of the accounts receivable of such Foreign Subsidiaries in
     accordance with GAAP and (b) 50% of the net book value of the inventory of
     such Foreign Subsidiaries in accordance with GAAP (provided that the
     calculation under this clause (A) shall exclude the net book value of
     accounts receivable and inventory sold to or financed through any Accounts
     Receivable Subsidiary) or (B) representing guaranties of Indebtedness of
     another Foreign Subsidiary incurred pursuant to subclause (A) of this
     clause (11); and

         (12) unsecured Indebtedness Incurred by the Company to former employees
     in connection with the purchase or redemption of Equity Interests of the
     Company not to exceed in the aggregate $2.0 million.

     For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Indebtedness described in clauses (1) through (12) above
(other than Indebtedness under the Senior Credit Agreement outstanding on the
Issue Date, which will be deemed to have been Incurred under clause (3)) or is
entitled to be Incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify or reclassify such item of
Indebtedness in any manner that complies with this covenant and such item of
Indebtedness will be treated as having been Incurred pursuant to only one of
such clauses or pursuant to the first paragraph hereof.

SECTION 4.05.  Disposition of Proceeds of Asset Sales.

     (a) The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, directly or indirectly, make any Asset Sale, unless (1) the
Company or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale

<PAGE>   58

                                      -51-


at least equal to the Fair Market Value of the assets sold or otherwise disposed
of and (2) at least 75% of such consideration consists of (A) cash or Cash
Equivalents, (B) properties and capital assets to be used in a Related Business,
(C) Equity Interests in any Person which thereby becomes a Wholly Owned
Restricted Subsidiary whose assets consist primarily of properties and capital
assets used in a Related Business or (D) "earn out" or similar rights providing
for a cash payment contingent upon operating results or the financial condition
of the business and/or Person subject to such Asset Sale. The amount of any (i)
Indebtedness (other than any Subordinated Indebtedness) of the Company or any
Restricted Subsidiary that is actually assumed by the transferee in such Asset
Sale and from which the Company and the Restricted Subsidiaries are fully
released shall be deemed to be cash for purposes of determining the percentage
of cash consideration received by the Company or the Restricted Subsidiaries and
(ii) notes, securities or other similar obligations received by the Company or
the Restricted Subsidiaries from such transferee that are immediately converted,
sold or exchanged (or are converted, sold or exchanged within thirty days of the
related Asset Sale) by the Company or the Restricted Subsidiaries into cash
shall be deemed to be cash, in an amount equal to the net cash proceeds realized
upon such conversion, sale or exchange for purposes of determining the
percentage of cash consideration received by the Company or the Restricted
Subsidiaries.

     The Company or such Restricted Subsidiary, as the case may be, may (1)
apply the Net Cash Proceeds of any Asset Sale within 365 days of receipt thereof
to repay Senior Indebtedness, (2) commit in writing to acquire, construct or
improve properties and capital assets to be used in a Related Business and so
apply such Net Cash Proceeds within 365 days after the receipt thereof or (3)
apply the Net Cash Proceeds of any Asset Sale within 365 days of receipt thereof
or commence an offer or otherwise become obligated to repay Pari Passu Debt not
exceeding the Pari Passu Debt Pro Rata Share; provided that the Company or such
Restricted Subsidiary may use up to $15.0 million of aggregate Net Cash Proceeds
from Asset Sales for any purpose not prohibited by this Indenture.

     To the extent all or part of the Net Cash Proceeds of any Asset Sale are
not applied or committed within 365 days of such Asset Sale as described in
clause (1), (2) or (3) or the proviso of the immediately preceding paragraph
(such Net Cash Proceeds, the "Unutilized Net Cash Proceeds"), the Company shall,
within 20 days after such 365th day, make an Offer to Purchase all outstanding
Notes up to a maximum principal amount (expressed as a multiple of $1,000) of
Notes equal to such Unutilized Net Cash Proceeds, at a purchase price in cash
equal to 100% of the principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the Purchase Date; provided, however, that the Offer to
Purchase may be deferred until there are aggregate Unutilized Net Cash Proceeds
equal to or in excess of $15.0 million, at which time the entire amount of such
Unutilized Net Cash Proceeds, and not just the amount in excess of $15.0
million, shall be applied as required pursuant to this paragraph.

<PAGE>   59

                                      -52-


     (b) With respect to any Offer to Purchase effected pursuant to this Section
4.05, among the Notes, to the extent the aggregate principal amount of Notes
tendered pursuant to such Offer to Purchase exceeds the Unutilized Net Cash
Proceeds to be applied to the repurchase thereof, such Notes shall be purchased
pro rata based on the aggregate principal amount of such Notes tendered by each
Holder. To the extent the Unutilized Net Cash Proceeds exceed the aggregate
amount of Notes tendered by the Holders of the Notes pursuant to such Offer to
Purchase, the Company may retain and utilize any portion of the Unutilized Net
Cash Proceeds not applied to repurchase the Notes for any general corporate
purposes. Upon the completion of an Offer to Purchase pursuant to this covenant,
the amount of unutilized Net Cash Proceeds shall be reset to zero.

     (c) In the event that the Company makes an Offer to Purchase the Notes, the
Company shall comply with any applicable securities laws and regulations,
including any applicable requirements of Section 14(e) of, and Rule 14e-1 under,
the Exchange Act, and any violation of the provisions of this Indenture relating
to such Offer to Purchase occurring as a result of such compliance shall not be
deemed a Default or an event that with the passing of time or giving of notice,
or both, would constitute an Event of Default.

     (d) Each Holder shall be entitled to tender all or any portion of the Notes
owned by such Holder pursuant to the Offer to Purchase, subject to the
requirement that any portion of a Note tendered must be tendered in an integral
multiple of $1,000 principal amount and subject to any proration among tendering
Holders as described above.

SECTION 4.06.  Limitation on Restricted Payments.

     The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, directly or indirectly:

         (1) declare or pay any dividend or any other distribution on any Equity
     Interests of the Company or any Restricted Subsidiary or make any payment
     or distribution to the direct or indirect holders (in their capacities as
     such) of Equity Interests of the Company or any Restricted Subsidiary
     (other than any dividends, distributions and payments made to the Company
     or any Restricted Subsidiary and dividends or distributions payable to any
     Person solely in Qualified Equity Interests of the Company or in options,
     warrants or other rights to purchase Qualified Equity Interests of the
     Company);

         (2) purchase, redeem or otherwise acquire or retire for value any
     Equity Interests of the Company or any Restricted Subsidiary (other than
     any such Equity Interests owned by the Company or any Restricted
     Subsidiary);


<PAGE>   60

                                      -53-


         (3) purchase, redeem, defease or retire for value, or make any
     principal payment on, prior to any scheduled maturity, scheduled repayment
     or scheduled sinking fund payment, any Subordinated Indebtedness (other
     than any Subordinated Indebtedness held by the Company or any Restricted
     Subsidiary); or

         (4) make any Investment (other than Permitted Investments) in any
     Person (other than in the Company, any Restricted Subsidiary or a Person
     that becomes a Restricted Subsidiary, or is merged with or into or
     consolidated with the Company or a Restricted Subsidiary (provided the
     Company or a Restricted Subsidiary is the survivor), as a result of or in
     connection with such Investment)

(any such payment or any other action (other than any exception thereto)
described in (1), (2), (3) or (4) above is each a "Restricted Payment"), unless:

         (I)   no Default shall have occurred and be continuing at the time or
     immediately after giving effect to such Restricted Payment;

         (II)  immediately after giving effect to such Restricted Payment, the
     Company would be able to Incur $1.00 of additional Indebtedness (other than
     Permitted Indebtedness) under the Consolidated Coverage Ratio of the first
     paragraph of Section 4.04; and

         (III) immediately after giving effect to such Restricted Payment, the
     aggregate amount of all Restricted Payments declared or made on or after
     the Issue Date does not exceed an amount equal to the sum of (A) 50% of
     cumulative Consolidated Net Income determined for the period (taken as one
     period) from the beginning of the first fiscal quarter commencing after the
     Issue Date and ending on the last day of the most recent fiscal quarter
     immediately preceding the date of such Restricted Payment for which
     consolidated financial information of the Company is available (or if such
     cumulative Consolidated Net Income shall be a loss, minus 100% of such
     loss), plus (B) the aggregate net cash proceeds received by the Company
     either (i) as capital contributions to the Company after the Issue Date or
     (ii) from the issue and sale (other than to a Restricted Subsidiary) of its
     Qualified Equity Interests after the Issue Date (excluding the net proceeds
     from any issuance and sale of Qualified Equity Interests financed, directly
     or indirectly, using funds borrowed from the Company or any Restricted
     Subsidiary until and to the extent such borrowing is repaid), plus (C) the
     principal amount (or accreted amount (determined in accordance with GAAP),
     if less) of any Indebtedness of the Company or any Restricted Subsidiary
     Incurred after the Issue Date which has been converted into or exchanged
     for Qualified Equity Interests of the Company, plus (D) in the case of the
     disposition or repayment of any Investment constituting a Restricted
     Payment made after the Issue Date, an amount (to the extent not

<PAGE>   61

                                      -54-


     included in the computation of Consolidated Net Income) equal to the lesser
     of: (i) the return of capital with respect to such Investment and (ii) the
     amount of such Investment which was treated as a Restricted Payment, in
     either case, less the cost of the disposition of such Investment and net of
     taxes, plus (E) so long as the Designation thereof was treated as a
     Restricted Payment made after the Issue Date, with respect to any
     Unrestricted Subsidiary that has been redesignated as a Restricted
     Subsidiary after the Issue Date in accordance with Section 4.17, the
     Company's proportionate interest in an amount equal to the excess of (i)
     the total assets of such Subsidiary, valued on an aggregate basis at Fair
     Market Value, over (ii) the total liabilities of such Subsidiary,
     determined in accordance with GAAP (and provided that such amount shall not
     in any case exceed the Designation Amount with respect to such Restricted
     Subsidiary upon its Designation), plus (F) to the extent not included in
     the computation of Consolidated Net Income, the amount of cash dividends or
     cash distributions (other than to pay taxes) received from any Unrestricted
     Subsidiary since the Issue Date, minus (G) the greater of (i) $0 and (ii)
     the Designation Amount (measured as of the date of Designation) with
     respect to any Subsidiary of the Company which has been designated as an
     Unrestricted Subsidiary after the Issue Date in accordance with Section
     4.17

     The foregoing provisions will not prevent (1)(A) the payment of any
dividend or distribution on, or redemption of, Equity Interests within 60 days
after the date of declaration of such dividend or distribution or the giving of
formal notice of such redemption, if at the date of such declaration or giving
of such formal notice such payment or redemption would comply with the
provisions of this Indenture or (B) the payment of any dividend or distribution
on a pro rata basis to holders of minority Equity Interests in a Restricted
Subsidiary out of the net income from the Issue Date of such Restricted
Subsidiary; (2) the purchase, redemption, retirement or other acquisition of any
Equity Interests of the Company in exchange for, or out of the net cash proceeds
of (or the payment of a dividend or distribution to Holdings out of the net cash
proceeds of) the substantially concurrent issue and sale (other than to a
Restricted Subsidiary) of, other Equity Interests of the Company (other than
Disqualified Equity Interests, in the case of any such purchase, redemption,
retirement or other acquisition of Qualified Equity Interests); provided,
however, that any such net cash proceeds and the value of any Qualified Equity
Interests issued in exchange for such retired Equity Interests are excluded from
clause (III)(B) of the preceding paragraph (and were not included therein at any
time); (3) the purchase, redemption, retirement, defeasance or other acquisition
of Subordinated Indebtedness, or any other payment thereon, made in exchange
for, or out of the net cash proceeds of, a substantially concurrent issue and
sale (other than to a Restricted Subsidiary) of (A) Qualified Equity Interests
of the Company; provided, however, that any such net cash proceeds and the value
of any Qualified Equity Interests issued in exchange for Subordinated
Indebtedness are excluded from clauses (III)(B) and (III)(C) of the preceding
paragraph (and were not included therein at any time) or (B) other Subordinated
Indebtedness

<PAGE>   62

                                      -55-


having no stated maturity for the payment of principal thereof prior to the
final stated maturity of the Notes; (4) any Investment to the extent that it is
funded with the net cash proceeds of the substantially concurrent issue and sale
(other than to a Restricted Subsidiary) of Qualified Equity Interests of the
Company; provided, however, that any such net cash proceeds are excluded from
clause (III)(B) of the preceding paragraph (and were not included therein at any
time); (5) the purchase, redemption or other acquisition, cancellation or
retirement for value of Equity Interests, or options, warrants, equity
appreciation rights or other rights to purchase or acquire Equity Interests, of
the Company or any Restricted Subsidiary, or similar securities, held by
officers or employees or former officers or employees of the Company or any
Restricted Subsidiary (or their estates or beneficiaries under their estates),
upon death, disability, retirement or termination of employment, or otherwise
held pursuant to any employee equity subscription agreement, stock option
agreement or stock ownership arrangement or dividends by the Company to Holdings
to effect the same in respect of its Equity Interests held by officers or
employees or former officers or employees of the Company or any Restricted
Subsidiary (or their estates or beneficiaries under their estates), upon death,
disability, retirement or termination of employment or otherwise held pursuant
to any employee equity subscription agreement, stock option agreement or stock
ownership arrangement, not to exceed $2.0 million per fiscal year; provided that
if the full $2.0 million is not utilized in any fiscal year, such unutilized
portion may be so utilized in any subsequent fiscal year; and provided, further,
that in no fiscal year shall such payments exceed $6.0 million; (6) Restricted
Payments not to exceed $4.0 million in the aggregate since the Issue Date; (7)
payments to Holdings and/or AEA to pay general and administrative expenses of
Holdings and/or AEA not to exceed $375,000 in any fiscal year plus actual fees,
expenses and indemnity payments incurred by its officers and directors; (8) any
purchase or repayment of Subordinated Indebtedness upon a Change of Control or
an Asset Sale to the extent required by the agreement governing such
Subordinated Indebtedness but only if: (A) in the case of a Change of Control,
the Company shall have complied with all of its obligations under Section 4.14
and purchased all the Notes tendered pursuant to the Offer to Purchase required
thereby prior to purchasing or repaying such Subordinated Indebtedness or (B) in
the case of an Asset Sale, the Company shall have applied the Net Cash Proceeds
from such Asset Sale in accordance with Section 4.05; provided that (a) in
either case the purchase price (stated as a percentage of principal amount or
issue price plus accrued original discount, if less) of such Subordinated
Indebtedness shall not be greater than the price (stated as a percentage of
principal amount) of the Notes pursuant to any Offer to Purchase and (b) in the
case of an Asset Sale, the aggregate amount of such Subordinated Indebtedness
that the Company may purchase or repay shall not exceed the amount of Unutilized
Net Cash Proceeds, if any, remaining after the Company has purchased all Notes
tendered pursuant to such Offer to Purchase; (9) the payment of principal and
interest on the Junior Subordinated Notes in accordance with the terms thereof;
and (10) payments to Holdings in an amount necessary to permit the payment by
Holdings of principal on the Contingent Note in accordance with the terms
thereof; provided that (i) the contingency that would give

<PAGE>   63

                                      -56-


rise to any obligations in respect of the Contingent Note shall have been
satisfied in accordance with its terms on or prior to December 31, 2000 and (ii)
Holdings immediately uses such amount for such purpose; provided, however, that
in the case of each of clauses (2), (3), (5), (7), (8) and (10) no Default shall
have occurred and be continuing or would arise therefrom.

     In determining the amount of Restricted Payments permissible under this
Section 4.06, amounts expended pursuant to clauses (1), (5), (6), (8) and (10)
of the immediately preceding paragraph shall be included as Restricted Payments
and amounts expended pursuant to clauses (2), (3), (4), (7) and (9) shall be
excluded. The amount of any non-cash Restricted Payment shall be deemed to be
equal to the Fair Market Value thereof at the date of the making of such
Restricted Payment.

SECTION 4.07.  Corporate Existence.

     Except as permitted by Article Five, the Company shall do or shall cause to
be done all things necessary to preserve and keep in full force and effect its
corporate existence and the corporate, partnership or other existence of each
Restricted Subsidiary in accordance with the respective organizational documents
of each such Restricted Subsidiary and the rights (charter and statutory) and
material franchises of the Company and the Restricted Subsidiaries; provided,
however, that the Company shall not be required to preserve any such right or
franchise, or the corporate existence of any Restricted Subsidiary, if the Board
of Directors of the Company shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Company and the
Restricted Subsidiaries, taken as a whole and that the loss thereof could not
reasonably be expected to have a material adverse effect on the ability of the
Company to perform its obligations hereunder; provided, further, however, that a
determination of the Board of Directors of the Company shall not be required in
the event of a merger of one or more Wholly Owned Restricted Subsidiaries of the
Company with or into another Wholly Owned Restricted Subsidiary of the Company
or another Person, if the surviving Person is a Wholly Owned Restricted
Subsidiary of the Company organized under the laws of the United States or a
State thereof or of the District of Columbia.

SECTION 4.08.  Payment of Taxes and Other Claims.

     The Company shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (1) all taxes, assessments and
governmental charges levied or imposed upon the Company or any Restricted
Subsidiary or upon the income, profits or property of the Company or any
Restricted Subsidiary if failure to pay or discharge the same could reasonably
be expected to have a material adverse effect on the ability of the Company or
any Restricted Subsidiary to perform its obligations hereunder and (2) all
lawful claims for labor, materials and supplies which, in each case, if unpaid,
might by law become a material

<PAGE>   64

                                      -57-


liability, or Lien upon the property, of the Company or any Restricted
Subsidiary except for any Lien permitted to be incurred under Section 4.18, if
failure to pay or discharge the same could reasonably be expected to have a
material adverse effect on the ability of the Company or any Restricted
Subsidiary to perform its obligations hereunder; provided, however, that the
Company shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is being contested in good faith by appropriate proceedings and for
which appropriate provision has been made.

SECTION 4.09.  Notice of Defaults.

     (a) In the event that any Indebtedness of the Company or any of its
Subsidiaries is declared due and payable before its maturity because of the
occurrence of any default (or any event which, with notice or lapse of time, or
both, would constitute such a default) under such Indebtedness, the Company
shall promptly give written notice to the Trustee of such declaration, the
status of such default or event and what action the Company is taking or
proposes to take with respect thereto.

     (b) Upon becoming aware of any Default or Event of Default, the Company
shall promptly, and in any event within 30 days, deliver an Officers'
Certificate to the Trustee specifying the Default or Event of Default and what
action the Company proposes to take with respect thereto to the extent then
determined.

SECTION 4.10.  Maintenance of Properties and Insurance.

     (a) The Company shall cause all material properties owned by or leased to
it or any Restricted Subsidiary and used or useful in the conduct of its
business or the business of any Restricted Subsidiary to be maintained and kept
in normal condition, repair and working order (ordinary wear and tear excepted)
and supplied with all necessary equipment and shall cause to be made all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the judgment of the Company may be necessary, so that the business
carried on in connection therewith may be properly conducted at all times;
provided, however, that nothing in this Section 4.10 shall prevent the Company
or any Restricted Subsidiary from discontinuing the use, operation or
maintenance of any of such properties, or disposing of any of them, if such
discontinuance or disposal is, in the judgment of the Board of Directors or of
the board of directors of the Restricted Subsidiary concerned, or of an officer
(or other agent employed by the Company or of any Restricted Subsidiary) of the
Company or such Restricted Subsidiary having managerial responsibility for any
such property, desirable in the reasonable conduct of the business of the
Company or any Restricted Subsidiary; provided, however, that the foregoing
shall not prohibit a sale, transfer or conveyance to a Restricted Subsidiary or
any of its properties or assets in compliance with the terms of this Indenture.

<PAGE>   65

                                      -58-


     (b) The Company shall maintain, and shall cause the Restricted Subsidiaries
to maintain, insurance with carriers believed to be responsible against such
risks and in such amounts, and with such deductibles, retentions, self-insured
amounts and co-insurance provisions, as are customarily carried by similar
businesses of similar size and owning like properties in the same general
geographic areas in which the Company and its Restricted Subsidiaries operate,
including property and casualty loss, and workers' compensation insurance except
where the failure to do so could not reasonably be expected to have a material
adverse effect on the condition (financial or otherwise), earnings, business
affairs or prospects of the Company and its Restricted Subsidiaries, taken as a
whole.

SECTION 4.11.  Compliance Certificate.

     The Company shall deliver to the Trustee within 100 days after the close of
each fiscal year a certificate signed by the principal executive officer,
principal financial officer or principal accounting officer stating that a
review of the activities of the Company has been made under the supervision of
the signing officers with a view to determining whether a Default or Event of
Default has occurred and whether or not the signers know of any Default or Event
of Default by the Company that occurred during such fiscal year. If they do know
of such a Default or Event of Default, the certificate shall describe all such
Defaults or Events of Default, their status and the action the Company is taking
or proposes to take with respect thereto. The first certificate to be delivered
by the Company pursuant to this Section 4.11 shall be for the fiscal year ending
December 31, 2000.

SECTION 4.12.  Provision of Financial Information.

     Whether or not the Company is subject to Section 13(a) or 15(d) of the
Exchange Act, or any successor provision thereto, the Company shall file with
the SEC (if permitted by SEC practice and applicable law and regulations) the
annual reports, quarterly reports and other documents which the Company would
have been required to file with the SEC pursuant to such Section 13(a) or 15(d)
(each, an "Exchange Act Report") or any successor provision thereto if the
Company were so subject, such documents to be filed with the SEC on or prior to
the respective dates (the "Required Filing Dates") by which the Company would
have been required so to file such documents if the Company were so subject. If,
at any time prior to the consummation of the exchange offer required pursuant to
the Registration Rights Agreement when the Company is not subject to such
Section 13(a) or 15(d), the information which would be required in an Exchange
Act Report is included in a public filing of the Company under the Securities
Act at the applicable Required Filing Date, such public filing shall fulfill the
filing requirement with the SEC with respect to the applicable Exchange Act
Report. The Company shall also in any event (1) within 15 days of each Required
Filing Date (whether or not permitted or required to be filed with the SEC) file
with the Trustee, copies of the annual reports, quarterly reports and other
documents which the Company is required to

<PAGE>   66

                                      -59-


file with the SEC pursuant to the preceding sentence, or, if such filing is not
so permitted (or, prior to the consummation of the exchange offer required
pursuant to the Registration Rights Agreement, when the Company is not subject
to Section 13(a) or 15(d) of the Exchange Act), information and data of a
similar nature, and (2) if, notwithstanding the preceding clause (1), filing
such documents by the Company with the SEC is not permitted by SEC practice or
applicable law or regulations, promptly upon written request supply copies of
such documents to any Holder. In addition, for so long as any Notes remain
outstanding, the Company will furnish to the Holders and to securities analysts
and prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act, and, to any
beneficial holder of Notes, if not obtainable from the SEC, information of the
type that would be filed with the SEC pursuant to the foregoing provisions, upon
the request of any such holder. Delivery of such reports, information and
documents to the Trustee is for informational purposes only and the Trustee's
receipt of such shall not constitute constructive notice of any information
contained therein or determinable from information contained therein, including
the Company's compliance with any of its covenants hereunder (as to which the
Trustee is entitled to rely exclusively on Officers' Certificates).

SECTION 4.13.  Waiver of Stay, Extension or Usury Laws.

     Each of the Company and the Guarantors covenants (to the extent that it may
lawfully do so) that it shall not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other law, which would prohibit or forgive the
Company or such Guarantor from paying all or any portion of the principal of
and/or interest, if any, on the Notes as contemplated herein, wherever enacted,
now or at any time hereafter in force, or which may affect the covenants or the
performance of this Indenture; and (to the extent that it may lawfully do so)
the Company and each Guarantor hereby expressly waives all benefit or advantage
of any such law, and covenants that it shall not hinder, delay or impede the
execution of any power herein granted to the Trustee, but shall suffer and
permit the execution of every such power as though no such law had been enacted.

SECTION 4.14.  Change of Control.

     (a) In the event of the occurrence of a Change of Control (the date of such
occurrence being the "Change of Control Date"), the Company shall notify the
Holders of the Notes of such occurrence in the manner prescribed by this
Indenture and shall, within 20 days after the Change of Control Date (or, at the
Company's option, prior to such Change of Control Date), make an Offer to
Purchase all Notes then outstanding, and shall purchase all Notes validly
tendered, at a purchase price in cash equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest thereon, if any, to the
Purchase Date (subject to the right of Holders of record on the relevant record
date to receive interest due on the relevant

<PAGE>   67

                                      -60-


interest payment date); provided, that any Offer to Purchase made prior to any
Change of Control Date shall be made only in the reasonable anticipation of such
Change of Control, and provided, further, that the Company shall not purchase
any Notes tendered pursuant to such Offer to Purchase if such Change of Control
does not occur.

     (b) If a Change of Control occurs which also constitutes an event of
default under the Senior Credit Facility, the lenders under the Senior Credit
Facility would be entitled to exercise the remedies available to a secured
lender under applicable law and pursuant to the terms of the Senior Credit
Facility. Accordingly, any claims of such lenders with respect to the assets of
the Company will be prior to any claim of the Holders of the Notes with respect
to such assets.

     (c) If an Offer to Purchase is made, the Company may not have available
funds sufficient to pay for all of the Notes that might be tendered by Holders
of Notes seeking to accept the Offer to Purchase. If the Company fails to
repurchase all of the Notes tendered for purchase, such failure will constitute
an Event of Default under Section 6.01.

     (d) If the Company makes an Offer to Purchase, the Company will comply with
all applicable tender offer laws and regulations, including, to the extent
applicable, Section 14(e) and Rule 14e-1 under the Exchange Act, and any other
applicable federal or state securities laws and regulations and any applicable
requirements of any securities exchange on which the Notes are listed, and any
violation of the provisions of this Indenture relating to such Offer to Purchase
occurring as a result of such compliance shall not be deemed an Event of Default
or an event that, with the passing of time or giving of notice, or both, would
constitute an Event of Default.

SECTION 4.15.  Limitation on Layering.

     (1) The Company shall not, directly or indirectly, Incur any Indebtedness
that by its terms would expressly rank senior in right of payment to the Notes
and expressly rank subordinate in right of payment to any other Indebtedness of
the Company; provided, that the foregoing restriction shall not apply to
distinctions between categories of Indebtedness that exist solely by reason or
Liens of Guaranties arising or created in respect of some but not all such
Indebtedness.

     (2) The Company shall not permit any Guarantor to, and no Guarantor shall,
directly or indirectly, Incur any Indebtedness that by its terms would expressly
rank senior in right of payment to the Guaranty of such Guarantor and expressly
rank subordinate in right of payment to any Guarantor Senior Indebtedness of
such Guarantor; provided, that the foregoing restriction shall not apply to
distinctions between categories of Indebtedness

<PAGE>   68

                                      -61-


that exist solely by reason or Liens of Guaranties arising or created in respect
of some but not all such Indebtedness.

SECTION 4.16.  Limitations on Dividend and Other Payment Restrictions Affecting
               Restricted Subsidiaries.

     The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to: (A) pay dividends or make any other distributions to
the Company or any other Restricted Subsidiary on its Equity Interests or with
respect to any other interest or participation in, or measured by, its profits,
or pay any Indebtedness owed to the Company or any other Restricted Subsidiary,
(B) make loans or advances to, or guaranty any Indebtedness or other obligations
of, the Company or any other Restricted Subsidiary or (C) transfer any of its
properties or assets to the Company or any other Restricted Subsidiary, except
for such encumbrances or restrictions existing under or by reason of (1) the
Senior Credit Facility, or any other agreement of the Company or the Restricted
Subsidiaries outstanding on the Issue Date, in each case as in effect on the
Issue Date, and any amendments, restatements, renewals, replacements or
refinancings thereof; provided, however, that any such amendment, restatement,
renewal, replacement or refinancing is no more restrictive in the aggregate with
respect to such encumbrances or restrictions than those contained in the
agreement being amended, restated, renewed, replaced or refinanced; (2)
applicable law; (3) any instrument of an Acquired Person acquired by the Company
or any Restricted Subsidiary as in effect at the time of such acquisition
(except to the extent such instrument was entered into by such Acquired Person
in connection with, as a result of or in contemplation of such acquisition);
provided, however, that such encumbrances and restrictions are not applicable to
any Restricted Subsidiary, or the properties or assets of any Restricted
Subsidiary, other than the Acquired Person; (4) customary non-assignment
provisions in leases, licenses or contracts; (5) Purchase Money Indebtedness and
Capital Lease Obligations for property acquired in the ordinary course of
business that only imposes encumbrances and restrictions on the property so
acquired; (6) any agreement for the sale or disposition of the Equity Interests
or assets of any Restricted Subsidiary; provided, however, that such
encumbrances and restrictions described in this clause (6) are only applicable
to such Restricted Subsidiary or assets, as applicable, and any such sale or
disposition is made in compliance with Section 4.05 to the extent applicable
thereto; (7) refinancing Indebtedness permitted under clause (9) of the second
paragraph of Section 4.04; provided, however, that such encumbrances and
restrictions contained in the agreements governing such Indebtedness are no more
restrictive in the aggregate than those contained in the agreements governing
the Indebtedness being refinanced immediately prior to such refinancing; (8)
this Indenture; (9) contained in any other indenture governing debt securities
that are no more restrictive than those contained in this Indenture; (10)
customary restrictions in

<PAGE>   69

                                      -62-


any instrument governing Indebtedness of a Foreign Subsidiary permitted to be
Incurred pursuant to Section 4.04; provided that the aggregate Consolidated
EBITDA for the four quarter period of the most recent four consecutive fiscal
quarters ending prior to the date such Indebtedness is Incurred of all Foreign
Subsidiaries subject to such restrictions shall not exceed 30% of the
Consolidated EBITDA for such four quarter period of the Company; provided,
further, that Consolidated EBITDA shall be calculated after giving effect on a
pro forma basis to any transactions which would require adjustment pursuant to
the calculation described under the definition of "Consolidated Coverage Ratio"
as if such transaction had occurred on the first day of such four quarter
period; or (11) any restriction contained in any security agreement or mortgage
securing Indebtedness of any Restricted Subsidiary to the extent such
restriction restricts the transfer of the property subject to such security
agreement or mortgage.

SECTION 4.17.  Designation of Unrestricted Subsidiaries.

     (a) The Company may designate after the Issue Date any Subsidiary of the
Company as an "Unrestricted Subsidiary" under this Indenture (a "Designation")
only if:

     (1) no Default or Event of Default shall have occurred and be continuing at
   the time of or after giving effect to such Designation;

     (2) at the time of and after giving effect to such Designation, the Company
   could Incur $1.00 of additional Indebtedness (other than Permitted
   Indebtedness) under the Consolidated Coverage Ratio of the first paragraph of
   Section 4.04; and

     (3) assuming the effectiveness of such Designation, the Designation and an
   Investment (other than a Permitted Investment (except for Investments
   described in clauses (10) and (11) of the definition of "Permitted
   Investments")) in an amount (the "Designation Amount") equal to the Fair
   Market Value of the Company's aggregate Investment in such Subsidiary on such
   date could be made in compliance with the first paragraph of Section 4.06.

     Neither the Company nor any Restricted Subsidiary shall at any time (A)
provide credit support for, subject any of its property or assets (other than
the Equity Interests of any Unrestricted Subsidiary) to the satisfaction of, or
guarantee, any Indebtedness of any Unrestricted Subsidiary (including any
undertaking, agreement or instrument evidencing such Indebtedness), (B) be
directly or indirectly liable for any Indebtedness of any Unrestricted
Subsidiary, or (C) be directly or indirectly liable for any Indebtedness which
provides that the holder thereof may (upon notice, lapse of time or both)
declare a default thereon or cause the payment thereof to be accelerated or
payable prior to its final scheduled maturity upon the occurrence of a default
with respect to any Indebtedness of any Unrestricted Subsidiary, except for any
non-recourse guarantee given solely to support the pledge by the Company

<PAGE>   70

                                      -63-


or any Restricted Subsidiary of the capital stock of any Unrestricted
Subsidiary. All Subsidiaries of Unrestricted Subsidiaries shall be automatically
deemed to be Unrestricted Subsidiaries.

     (b) The Company may revoke any Designation of a Subsidiary as an
Unrestricted Subsidiary (a "Revocation") if:

     (1) no Default or Event of Default shall have occurred and be continuing at
   the time of and after giving effect to such Revocation; and

     (2) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding
   immediately following such Revocation would, if Incurred at such time, have
   been permitted to be Incurred for all purposes of this Indenture.

     All Designations and Revocations must be evidenced by resolutions of the
Board of Directors of the Company, delivered to the Trustee certifying
compliance with the foregoing provisions.

SECTION 4.18.  Limitation on Liens.

     The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, directly or indirectly, Incur or suffer to exist any Liens (other
than Permitted Liens) against or upon any of their respective properties or
assets now owned or hereafter acquired, or any proceeds therefrom or any income
or profits therefrom, to secure any Specified Indebtedness unless
contemporaneously therewith effective provision is made, in the case of the
Company, to secure the Notes and all other amounts due under this Indenture, and
in the case of a Restricted Subsidiary which is a Guarantor, to secure such
Restricted Subsidiary's Guaranty of the Notes and all other amounts due under
this Indenture, equally and ratably with such Indebtedness (or, in the event
that such Indebtedness is subordinated in right of payment to the Notes or such
Guarantor's Guaranty, prior to such Indebtedness) with a Lien on the same
properties and assets securing such Indebtedness for so long as such
Indebtedness is secured by such Lien.

SECTION 4.19.  Guaranty of Notes by Restricted Subsidiaries.

     The Company shall cause each Subsidiary, other than a Guarantor, an
Unrestricted Subsidiary or a Foreign Subsidiary formed or acquired after the
Issue Date, to guarantee all of the Company's Obligations under the Notes and
this Indenture on the terms set forth in Article Eleven; provided that Foreign
Subsidiaries shall also be required to be Guarantors to the extent such Foreign
Subsidiaries guarantee Indebtedness of the Company or of any Subsidiary which is
not a Foreign Subsidiary in a principal amount equal to or greater

<PAGE>   71

                                      -64-


than $25.0 million in the aggregate for all Foreign Subsidiaries; provided,
however, that the guarantee of such Subsidiary shall be subordinated in right of
payment to all Guarantor Senior Indebtedness of such Subsidiary pursuant to the
subordination provisions of Article Twelve.

     The Company shall cause each such Restricted Subsidiary to (i) execute and
deliver to the Trustee a supplemental indenture in form reasonably satisfactory
to the Trustee pursuant to which such Restricted Subsidiary shall become a party
to this Indenture as a Guarantor and thereby unconditionally guarantee all of
the Company's Obligations under the Notes and this Indenture on the terms set
forth in Article Eleven and Article Twelve hereof, (ii) execute and deliver to
the Trustee a Note Guarantee in accordance with Section 11.06 and (iii) deliver
to the Trustee an opinion of counsel that each of such supplemental indenture
and Note Guarantee has been duly authorized, executed and delivered by such
Restricted Subsidiary and constitutes a legal, valid, binding and enforceable
obligation of such Restricted Subsidiary (which opinion may be subject to
customary assumptions and qualifications). Thereafter, such Restricted
Subsidiary shall (unless released in accordance with the terms of this
Indenture) be a Guarantor for all purposes of this Indenture.

SECTION 4.20.  Limitation on the Sale or Issuance of Preferred Equity Interests
               of Restricted Subsidiaries.

     The Company shall not sell any Preferred Equity Interest of a Restricted
Subsidiary, and shall not cause or permit any Restricted Subsidiary to issue any
of its Preferred Equity Interests or sell any Preferred Equity Interests of
another Restricted Subsidiary (other than to the Company or a Wholly Owned
Restricted Subsidiary or to the directors as director's qualifying shares to the
extent required by applicable law, or if, immediately after giving effect to
such issuance or sale, such Restricted Subsidiary would no longer constitute a
Restricted Subsidiary).


                                  ARTICLE FIVE

                         MERGERS; SUCCESSOR CORPORATION


SECTION 5.01.  Mergers, Sale of Assets, etc.

     (a) The Company shall not consolidate with or merge with or into (whether
or not the Company is the Surviving Person) any other entity and the Company
shall not and shall not cause or permit any Restricted Subsidiary to, sell,
convey, assign, transfer, lease or otherwise dispose of all or substantially all
of the Company's and the Restricted Subsidiaries' properties and assets
(determined on a consolidated basis for the Company and the Restricted

<PAGE>   72

                                      -65-


Subsidiaries) to any entity in a single transaction or series of related
transactions, unless: (1) either (A) the Company shall be the Surviving Person
or (B) the Surviving Person (if other than the Company) shall be a corporation
organized and validly existing under the laws of the United States of America or
any State thereof or the District of Columbia, and shall, in any such case,
expressly assume by a supplemental indenture, the due and punctual payment of
the principal of, premium, if any, and interest on all the Notes and the
performance and observance of every covenant of this Indenture and the
Registration Rights Agreement to be performed or observed on the part of the
Company; (2) immediately thereafter, on a pro forma basis after giving effect to
such transaction as if it had occurred at the beginning of the four quarter
period immediately preceding such transaction for which consolidated financial
statements of the Company are available, no Default or Event of Default shall
have occurred and be continuing; (3) immediately after giving effect to any such
transaction including the Incurrence by the Company or any Restricted
Subsidiary, directly or indirectly, of additional Indebtedness (and treating any
Indebtedness not previously an obligation of the Company or any Restricted
Subsidiary in connection with or as a result of such transaction as having been
Incurred at the time of such transaction), the Surviving Person could Incur, on
a pro forma basis after giving effect to such transaction as if it had occurred
at the beginning of the four quarter period immediately preceding such
transaction for which consolidated financial statements of the Company are
available, at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under the Consolidated Coverage Ratio of the first paragraph of
Section 4.04; and (4) the Company will have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with this Indenture.

     Notwithstanding the foregoing clause (3) of the immediately preceding
paragraph, any Restricted Subsidiary may consolidate with, merge into or
transfer all or part of its properties and assets to the Company.

     For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all the properties and assets of one or more Restricted
Subsidiaries the Equity Interests of which constitute all or substantially all
the properties and assets of the Company shall be deemed to be the transfer of
all or substantially all the properties and assets of the Company.

     (b) No Guarantor (other than a Guarantor whose Guaranty is to be released
in accordance with the terms of its Guaranty and Section 11.03) shall
consolidate with or merge with or into another Person, whether or not such
Person is affiliated with such Guarantor and whether or not such Guarantor is
the Surviving Person, unless (A) the Surviving Person (if other than such
Guarantor) is a corporation organized and validly existing under the laws of the
United States, any State thereof or the District of Columbia; (B) the Surviving
Person (if other than such Guarantor) expressly assumes by a supplemental
indenture all the obligations

<PAGE>   73

                                      -66-


of such Guarantor under its Guaranty of the Notes and the performance and
observance of every covenant of this Indenture and the Registration Rights
Agreement to be performed or observed by such Guarantor; (C) at the time of and
immediately after such Disposition, on a pro forma basis after giving effect to
such transaction as if it had occurred at the beginning of the four quarter
period immediately preceding such transaction for which consolidated financial
statements of the Company are available, no Default or Event of Default shall
have occurred and be continuing; and (D) the Company will have delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel, each stating that
such consolidation, merger or transfer and such supplemental indenture (if any)
comply with this Indenture.

SECTION 5.02.  Successor Corporation Substituted.

     In the event of any transaction (other than a lease) described in and
complying with the conditions listed in Section 5.01 in which the Company or a
Guarantor, as the case may be, is not the Surviving Person and the Surviving
Person is to assume all the Obligations of the Company under the Notes, this
Indenture and the Registration Rights Agreement or of such Guarantor under its
Guaranty, this Indenture and the Registration Rights Agreement, as the case may
be, pursuant to a supplemental indenture, such Surviving Person shall succeed
to, and be substituted for, and may exercise every right and power of, the
Company or such Guarantor, as the case may be, and the Company shall be
discharged from its Obligations under this Indenture and the Notes or such
Guarantor shall be discharged from its Obligations under this Indenture and its
Guaranty.


                                   ARTICLE SIX

                              DEFAULT AND REMEDIES


SECTION 6.01.  Events of Default.

     Each of the following shall be an "Event of Default" for purposes of this
Indenture:

     (1) failure to pay principal of (or premium, if any, on) any Note when due
   (whether or not prohibited by the provisions of Article Eight);

     (2) failure to pay any interest on any Note when due, continued for 30 days
   or more (whether or not prohibited by the provisions of Article Eight);

     (3) default in the payment of principal of or interest on any Note required
   to be purchased pursuant to any Offer to Purchase required by this Indenture
   when due

<PAGE>   74

                                      -67-


   and payable or failure to pay on the Purchase Date the Purchase Price for any
   Note validly tendered pursuant to any Offer to Purchase (whether or not
   prohibited by the provisions of Article Eight);

     (4) failure to perform or comply with any of the provisions of Section
   5.01;

     (5) failure to perform any other covenant, warranty or agreement of the
   Company under this Indenture or in the Notes or of the Guarantors under this
   Indenture or in the Guaranties continued for 30 days or more after written
   notice to the Company by the Trustee or to the Trustee and the Company by
   Holders of at least 25% in aggregate principal amount of the outstanding
   Notes;

     (6) default or defaults under the terms of one or more instruments
   evidencing or securing Indebtedness of the Company or any of its Significant
   Restricted Subsidiaries having an outstanding principal amount of greater
   than $10.0 million individually or in the aggregate that have resulted in the
   acceleration of the payment of such Indebtedness or failure by the Company or
   any of its Significant Restricted Subsidiaries to pay principal when due at
   the stated maturity of any such Indebtedness;

     (7) the rendering of a final judgment or judgments (not subject to appeal)
   against the Company or any of its Significant Restricted Subsidiaries in an
   amount of greater than $10.0 million (net of any amounts covered by reputable
   and creditworthy insurance companies) which remains undischarged or unstayed
   for a period of 60 days after the date on which the right to appeal has
   expired;

     (8) the Company or any Significant Restricted Subsidiary pursuant to or
   within the meaning of any Bankruptcy Law: (i) admits in writing its inability
   to pay its debts generally as they become due; (ii) commences a voluntary
   case or proceeding; (iii) consents to the entry of an order for relief
   against it in an involuntary case or proceeding; (iv) consents to the
   institution of a bankruptcy or insolvency proceeding against it; (v) consents
   to the appointment of a Custodian of it or for all or substantially all of
   its property; or (vi) makes a general assignment for the benefit of its
   creditors, or any of them takes any action to authorize or effect any of the
   foregoing;

     (9) a court of competent jurisdiction enters an order or decree under any
   Bankruptcy Law that: (i) is for relief against the Company or any Significant
   Restricted Subsidiary in an involuntary case or proceeding; (ii) appoints a
   Custodian of the Company or any Significant Restricted Subsidiary for all or
   substantially all of its property; or (iii) orders the liquidation of the
   Company or any Significant Restricted Subsidiary; and in each case the order
   or decree remains unstayed and in effect for 60 days; provided, however, that
   if the entry of such order or decree is appealed and dis-

<PAGE>   75

                                      -68-


   missed on appeal, then the Event of Default hereunder by reason of the entry
   of such order or decree shall be deemed to have been cured; or

     (10) other than as provided in or pursuant to any Guaranty or this
   Indenture, any Guaranty ceases to be in full force and effect or is declared
   null and void and unenforceable or found to be invalid or any Guarantor
   denies its liability under its Guaranty (other than by reason of a release of
   such Guarantor from its Guaranty in accordance with the terms of this
   Indenture and such Guaranty).

     The term "Bankruptcy Law" means Title 11, U.S. Code or any similar federal,
state or foreign law for the relief of debtors. The term "Custodian" means any
receiver, trustee, assignee, liquidator, sequestrator or similar official under
any Bankruptcy Law.

     A Default under clause (5) of this Section 6.01 is not an Event of Default
until the Trustee notifies the Company, or the Holders of at least 25% in
principal amount of the outstanding Notes notify the Company and the Trustee, of
the Default in writing and the Company does not cure the Default within 30 days
after receipt of the notice. The notice must specify the Default, demand that it
be remedied and state that the notice is a "Notice of Default." Such notice
shall be given by the Trustee if so requested by the Holders of at least 25% in
principal amount of the Notes then outstanding. When a Default is cured, it
ceases.

SECTION 6.02.  Acceleration.

     If an Event of Default with respect to the Notes (other than an Event of
Default with respect to the Company described in clause (8) or (9) of Section
6.01) occurs and is continuing, the Trustee or the Holders of at least 25% in
aggregate principal amount of the outstanding Notes, by notice in writing to the
Trustee and the Company, may declare the unpaid principal of (and premium, if
any) and accrued interest to the date of acceleration on all outstanding Notes
to be due and payable immediately and, upon any such declaration, such principal
amount (and premium, if any) and accrued interest, notwithstanding anything
contained in this Indenture or the Notes to the contrary, shall become
immediately due and payable; provided, however, that so long as the Senior
Credit Facility shall be in full force and effect, if an Event of Default shall
have occurred and be continuing (other than an Event of Default with respect to
the Company described in clause (8) or (9) of Section 6.01), the Notes shall not
become due and payable until the earlier to occur of (A) five Business Days
following delivery of a written notice of such acceleration of the Notes to the
agent under the Senior Credit Facility and (B) the acceleration (ipso facto or
otherwise) of any Indebtedness under the Senior Credit Facility.

<PAGE>   76

                                      -69-


     If an Event of Default with respect to the Company described in clause (8)
or (9) of Section 6.01 occurs, the Notes will ipso facto become immediately due
and payable without any declaration or other act on the part of the Trustee or
any Holder of the Notes.

     Notwithstanding the foregoing, in the event of a declaration of
acceleration in respect of the Notes because an Event of Default specified in
clause (6) of Section 6.01 shall have occurred and be continuing, such
declaration of acceleration of the Notes and such Event of Default shall be
automatically annulled and rescinded and be of no further effect if the
Indebtedness that is the subject of such Event of Default has been discharged or
paid in full or such Event of Default shall have been cured or waived by holders
of such Indebtedness and if such Indebtedness or such Event of Default shall
have been accelerated, then the holders thereof have rescinded their declaration
of acceleration in respect of such Indebtedness and written notice of such
discharge, cure or waiver and rescission, as the case may be, shall have been
given to the Trustee within 60 days after such declaration of acceleration in
respect of the Notes by the Company or by the requisite holders of such
Indebtedness or a trustee, fiduciary or agent for such holders or other evidence
satisfactory to the Company of such events is provided to the Trustee and no
other Event of Default shall have occurred which has not been cured or waived
during such 60-day period.

     After a declaration of acceleration, but before a judgment or decree of the
money due in respect of the Notes has been obtained, the Holders of not less
than a majority in aggregate principal amount of the Notes then outstanding by
written notice to the Trustee may rescind an acceleration and its consequences
if all existing Events of Default (other than the nonpayment of principal of and
interest on the Notes which has become due solely by virtue of such
acceleration) have been cured or waived and if the rescission would not conflict
with any judgment or decree. No such rescission shall affect any subsequent
Default or impair any right consequent thereto.

SECTION 6.03.  Other Remedies.

     If an Event of Default occurs and is continuing, the Trustee may pursue any
available remedy by proceeding at law or in equity to collect the payment of
principal of or interest on the Notes or to enforce the performance of any
provision of the Notes or this Indenture.

     The Trustee may maintain a proceeding even if it does not possess any of
the Notes or does not produce any of them in the proceeding. A delay or omission
by the Trustee or any Holder in exercising any right or remedy maturing upon an
Event of Default shall not impair the right or remedy or constitute a waiver of
or acquiescence in the Event of Default. No remedy is exclusive of any other
remedy. All available remedies are cumulative to the extent permitted by law.

<PAGE>   77

                                      -70-


SECTION 6.04.  Waiver of Past Default.

     Subject to Sections 2.09, 6.07 and 10.02, prior to the declaration of
acceleration of the Notes, the Holders of not less than a majority in aggregate
principal amount of the outstanding Notes by written notice to the Trustee may
waive an existing Default or Event of Default and its consequences, except a
Default in the payment of principal of or interest on any Note as specified in
clauses (1), (2) and (3) of Section 6.01 or a Default in respect of any term or
provision of this Indenture that may not be amended or modified without the
consent of each Holder affected as provided in Section 10.02. The Company shall
deliver to the Trustee an Officers' Certificate stating that the requisite
percentage of Holders have consented to such waiver and attaching copies of such
consents. In case of any such waiver, the Company, the Trustee and the Holders
shall be restored to their former positions and rights hereunder and under the
Notes, respectively. This paragraph of this Section 6.04 shall be in lieu of ss.
316(a)(1)(B) of the TIA and such ss. 316(a)(1)(B) of the TIA is hereby expressly
excluded from this Indenture and the Notes, as permitted by the TIA.

     Upon any such waiver, such Default shall cease to exist and be deemed to
have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured and not to have occurred for every
purpose of this Indenture and the Notes, but no such waiver shall extend to any
subsequent or other Default or Event of Default or impair any right consequent
thereon.

SECTION 6.05.  Control by Majority.

     Subject to Section 2.09, the Holders of a majority in principal amount of
the outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on it. However, the Trustee may refuse to follow any direction
that conflicts with law or this Indenture that the Trustee determines may be
unduly prejudicial to the rights of another Holder, or that may involve the
Trustee in personal liability; provided, however, that the Trustee may take any
other action deemed proper by the Trustee which is not inconsistent with such
direction. In the event the Trustee takes any action or follows any direction
pursuant to this Indenture, the Trustee shall be entitled to indemnification
satisfactory to it in its sole discretion against any loss or expense caused by
taking such action or following such direction. This Section 6.05 shall be in
lieu of ss. 316(a)(1)(A) of the TIA, and such ss. 316(a)(1)(A) of the TIA is
hereby expressly excluded from this Indenture and the Notes, as permitted by the
TIA.

SECTION 6.06.  Limitation on Suits.

     A Holder may not pursue any remedy with respect to this Indenture or the
Notes unless:

<PAGE>   78

                                      -71-


     (i)   the Holder gives to the Trustee written notice of a continuing Event
   of Default;

     (ii)  the Holders of at least 25% in aggregate principal amount of the
   outstanding Notes make a written request to the Trustee to pursue a remedy;

     (iii) such Holder or Holders offer and, if requested, provide to the
   Trustee indemnity satisfactory to the Trustee against any loss, liability or
   expense;

     (iv)  the Trustee does not comply with the request within 60 days after
   receipt of the request and the offer and, if requested, the provision of
   indemnity; and

     (v)   during such 60-day period the Holders of a majority in principal
   amount of the outstanding Notes do not give the Trustee a direction which is
   inconsistent with the request.

     A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over such other Holder.

SECTION 6.07.  Rights of Holders To Receive Payment.

     Notwithstanding any other provision of this Indenture, the right of any
Holder to receive payment of principal of and premium, if any or interest on a
Note, on or after the respective due dates expressed in the Note, or to bring
suit for the enforcement of any such payment on or after such respective dates,
shall not be impaired or affected without the consent of the Holder.

SECTION 6.08.  Collection Suit by Trustee.

     If an Event of Default in payment of principal or interest specified in
Section 6.01(1), (2) or (3) occurs and is continuing, the Trustee may recover
judgment in its own name and as trustee of an express trust against the Company
or any other obligor on the Notes for the whole amount of principal and accrued
interest remaining unpaid, together with interest overdue on principal and to
the extent that payment of such interest is lawful, interest on overdue
installments of interest, in each case at the rate per annum borne by the Notes
and such further amount as shall be sufficient to cover the costs and expenses
of collection, including the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel.

<PAGE>   79

                                      -72-


SECTION 6.09.  Trustee May File Proofs of Claim.

     The Trustee may file such proofs of claim and other papers or documents as
may be necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel) and the Holders allowed in
any judicial proceedings relative to the Company (or any other obligor upon the
Notes), its creditors or its property and shall be entitled and empowered to
collect and receive any monies or other property payable or deliverable on any
such claims and to distribute the same, and any Custodian in any such judicial
proceedings is hereby authorized by each Holder to make such payments to the
Trustee and, in the event that the Trustee shall consent to the making of such
payments directly to the Holders, to pay to the Trustee any amount due to it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agent and counsel, and any other amounts due the Trustee under
Section 7.07. Nothing herein contained shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Holder any plan
of reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof, or to authorize the Trustee to vote in respect
of the claim of any Holder in any such proceeding.

SECTION 6.10.  Priorities.

     If the Trustee collects any money or property pursuant to this Article Six,
it shall pay out the money or property, subject to applicable law, in the
following order:

     First: to the Trustee for amounts due under Section 7.07;

     Second: to Holders for amounts due and unpaid on the Notes for principal
   and interest, ratably, without preference or priority of any kind, according
   to the amounts due and payable on the Notes for principal and interest,
   respectively; and

     Third: to the Company.

     The Trustee, upon prior written notice to the Company, may fix a record
date and payment date for any payment to Holders pursuant to this Section 6.10.

SECTION 6.11.  Undertaking for Costs.

     In any suit for the enforcement of any right or remedy under this Indenture
or in any suit against the Trustee for any action taken or omitted by it as
Trustee, a court in its discretion may require the filing by any party litigant
in the suit of an undertaking to pay the costs of the suit, and the court in its
discretion may assess reasonable costs, including reasonable attorneys' fees and
expenses, against any party litigant in the suit, having due regard to
<PAGE>   80

                                     - 73-



the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 shall not apply to a suit by the Trustee, a suit by a Holder
or group of Holders of more than 10% in aggregate principal amount of the
outstanding Notes, or to any suit instituted by any Holder for the enforcement
or the payment of the principal or interest on any Notes on or after the
respective due dates expressed in the Note.


                                  ARTICLE SEVEN

                                     TRUSTEE


SECTION 7.01. Duties of Trustee.

     (a) If a Default has occurred and is continuing, the Trustee shall exercise
such of the rights and powers vested in it by this Indenture and use the same
degree of care and skill in their exercise as a prudent person would exercise or
use under the circumstances in the conduct of such person's own affairs.

     (b) Except during the continuance of a Default:

     (1) The Trustee shall not be liable except for the performance of such
   duties as are specifically set forth herein; and

     (2) 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 conforming to the
   requirements of this Indenture; however, in the case of any such certificates
   or opinions which by any provision hereof are specifically required to be
   furnished to the Trustee, the Trustee shall examine such certificates and
   opinions to determine whether or not they conform to the requirements of this
   Indenture (but need not confirm or investigate the accuracy of any
   mathematical calculations or other facts stated therein).

     (c) The Trustee shall not be relieved from liability for its own negligent
action, its own negligent failure to act, or its own willful misconduct, except
that:

     (1) This paragraph does not limit the effect of paragraph (b) of this
   Section 7.01;

     (2) The Trustee shall not be liable for any error of judgment made in good
   faith by a Trust Officer, unless it is proved that the Trustee was negligent
   in ascertaining the pertinent facts; and

<PAGE>   81

                                     - 74-

     (3) The Trustee shall not be liable with respect to any action it takes or
   omits to take in good faith in accordance with a direction received by it
   pursuant to Section 6.05.

     (d) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur any financial liability in the performance
of any of its duties hereunder or to take or omit to take any action under this
Indenture or take any action at the request or direction of Holders if it shall
have reasonable grounds for believing that repayment of such funds is not
assured to it or it does not receive from such Holders an indemnity satisfactory
to it in its sole discretion against such risk, liability, loss, fee or expense
which might be incurred by it in compliance with such request or direction.

     (e) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.01.

     (f) The Trustee shall not be liable for interest on any money received by
it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.

SECTION 7.02. Rights of Trustee.

     Subject to Section 7.01:

     (a) The Trustee may conclusively rely on any document reasonably 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 any
   such document.

     (b) Before the Trustee acts or refrains from acting, it may require an
   Officers' Certificate and/or an Opinion of Counsel, which shall conform to
   the provisions of Section 13.05. The Trustee shall not be liable for any
   action it takes or omits to take in good faith in reliance on such
   certificate or opinion.

     (c) The Trustee may act through attorneys and agents of its selection and
   shall not be responsible for the misconduct or negligence of any agent or
   attorney (other than an agent who is an employee of the Trustee) appointed
   with due care.

     (d) The Trustee shall not be liable for any action it takes or omits to
   take in good faith which it reasonably believes to be authorized or within
   its rights or powers other than any liabilities arising out of the gross
   negligence, bad faith or willful misconduct of the Trustee.


<PAGE>   82

                                     - 75-

     (e) The Trustee may consult with counsel of its selection and the advice or
   opinion of such counsel as to matters of law shall be full and complete
   authorization and protection from liability in respect of any action taken,
   omitted or suffered by it hereunder in good faith and in accordance with the
   advice or opinion of such counsel.

     (f) Any request or direction of the Company mentioned herein shall be
   sufficiently evidenced by a Company Request or Company Order and any
   resolution of the Board of Directors may be sufficiently evidenced by a Board
   Resolution.

     (g) The Trustee shall be under no obligation to exercise any of the rights
   or powers vested in it by this Indenture at the request or direction of any
   of the Holders pursuant to this Indenture, unless such Holders shall have
   offered to the Trustee reasonable security or indemnity satisfactory to it
   against the costs, expenses and liabilities which might be incurred by it in
   compliance with such request or direction.

     (h) 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, in its discretion, may make such further inquiry or investigation
   into such facts or matters as it may reasonably see fit, and, if the Trustee
   shall determine to make such further inquiry or investigation, it shall be
   entitled to examine the books, records and premises of the Company,
   personally or by agent or attorney at the expense of the Company, and shall
   incur no liability or additional liability of any kind by reason of such
   inquiry or investigation.

     (i) The Trustee shall not be deemed to have notice of any Event of Default
   unless a Trust Officer of the Trustee has actual knowledge thereof or unless
   the Trustee shall have received written notice thereof at the Corporate Trust
   Office of the Trustee, and such notice references the Notes and this
   Indenture.

SECTION 7.03. Individual Rights of Trustee.

     The Trustee in its individual or any other capacity may become the owner or
pledgee of Notes and may otherwise deal with the Company or its Affiliates with
the same rights it would have if it were not Trustee, subject to Section 7.10
hereof. Any Agent may do the same with like rights. However, the Trustee is
subject to Sections 7.10 and 7.11.

SECTION 7.04. Trustee's Disclaimer.

     The Trustee shall not be responsible for and makes no representation as to
the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Com-


<PAGE>   83

                                     - 76-

pany's use of the proceeds from the Notes, and it shall not be responsible for
any statement of the Company in this Indenture or any document issued in
connection with the sale of Notes or any statement in the Notes other than the
Trustee's certificate of authentication and the Statement on Eligibility and
Qualification on Form T-1 to be filed in connection with the Registration of the
Notes.

SECTION 7.05. Notice of Defaults.

     If a Default or an Event of Default occurs and is continuing and the
Trustee knows of such Defaults or Events of Default, the Trustee shall mail to
each Holder notice of the Default or Event of Default within 30 days after the
occurrence thereof. Except in the case of a Default or an Event of Default in
payment of principal of or interest on any Note or a Default or Event of Default
in complying with Section 5.01, the Trustee may withhold the notice if and so
long as a committee of its Trust Officers in good faith determines that
withholding the notice is in the interest of Holders. This Section 7.05 shall be
in lieu of the proviso to ss. 315(b) of the TIA and such proviso to ss. 315(b)
of the TIA is hereby expressly excluded from this Indenture and the Notes, as
permitted by the TIA.

SECTION 7.06. Reports by Trustee to Holders.

     If required by TIA ss. 313(a), within 60 days after each May 15 beginning
with the May 15 following the date of this Indenture, the Trustee shall mail to
each Holder a report dated as of such May 15 that complies with TIA ss. 313(a).
The Trustee also shall comply with TIA ss. 313(b), (c) and (d).

     A copy of each such report at the time of its mailing to Holders shall be
filed with the SEC and each stock exchange, if any, on which the Notes are
listed.

     The Company shall promptly notify the Trustee in writing if the Notes
become listed on any stock exchange or of any delisting thereof.

SECTION 7.07. Compensation and Indemnity.

     The Company shall pay to the Trustee from time to time such compensation as
the Company and the Trustee shall from time to time agree in writing for its
services. 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 upon request for all reasonable disbursements, expenses and advances
(including fees, disbursements and expenses of its agents and counsel) incurred
or made by it in addition to the compensation for its services except any such
disbursements, expenses and advances as may be attributable to the Trustee's
negligence, willful misconduct or bad faith. Such expenses shall include the
reasonable compensation,



<PAGE>   84

                                     - 77-

disbursements and expenses of the Trustee's agents, accountants, experts and
counsel and any taxes or other expenses incurred by a trust created pursuant to
Section 9.01 hereof.

     The Company shall indemnify the Trustee for, and hold it harmless against
any and all loss, damage, claims, liability or expense, including taxes (other
than franchise taxes imposed on the Trustee and taxes based upon, measured by or
determined by the income of the Trustee), arising out of or in connection with
the acceptance or administration of the trust or trusts hereunder, including the
costs and expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers or duties
hereunder, except to the extent that such loss, damage, claim, liability or
expense is due to its own negligence, willful misconduct or bad faith. The
Trustee shall notify the Company promptly of any claim asserted against the
Trustee for which it may seek indemnity. However, the 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 (and may employ its own counsel) at the Company's expense; provided,
however, that the Company's reimbursement obligation with respect to counsel
employed by the Trustee will be limited to the reasonable fees and expenses of
such counsel.

     The Company need not pay for any settlement made without its written
consent, which consent shall not be unreasonably withheld. The Company need not
reimburse any expense or indemnify against any loss or liability incurred by the
Trustee as a result of the violation of this Indenture by the Trustee.

     To secure the Company's payment obligations in this Section 7.07, the
Trustee shall have a Lien prior to the Notes against all money or property held
or collected by the Trustee, in its capacity as Trustee, except money or
property held in trust to pay principal of or interest on particular Notes or
the Purchase Price or redemption price of any Notes to be purchased pursuant to
an Offer to Purchase or redeemed.

     When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(8) or (9) occurs, the expenses (including the
reasonable fees and expenses of its agents and counsel) and the compensation for
the services shall be preferred over the status of the Holders in a proceeding
under any Bankruptcy Law and are intended to constitute expenses of
administration under any Bankruptcy Law. The Company's obligations under this
Section 7.07 and any claim arising hereunder shall survive the resignation or
removal of any Trustee, the discharge of the Company's obligations pursuant to
Article Nine and any rejection or termination under any Bankruptcy Law.


<PAGE>   85

                                     - 78-

SECTION 7.08. Replacement of Trustee.

     The Trustee may resign at any time by so notifying the Company in writing.
The Holders of a majority in principal amount of the outstanding Notes may
remove the Trustee by so notifying the Trustee and the Company in writing no
later than 20 Business Days prior to the proposed date of resignation and may
appoint a successor Trustee with the Company's consent. The Company may remove
the Trustee if:

     (a) the Trustee fails to comply with Section 7.10;

     (b) the Trustee is adjudged a bankrupt or an insolvent under any Bankruptcy
   Law;

     (c) a custodian or other public officer takes charge of the Trustee or its
   property; or

     (d) 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 Trustee in such event being referred to herein as
the retiring Trustee), the Company shall promptly appoint a successor Trustee.
Within one year after the successor Trustee takes office, the Holders of a
majority in principal amount of the Notes may appoint a successor Trustee to
replace the successor Trustee appointed by the Company.

     A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. As promptly as practicable after
that, the retiring Trustee shall transfer, after payment of all sums then owing
to the Trustee pursuant to Section 7.07, all property held by it as Trustee to
the successor Trustee, subject to the Lien provided in Section 7.07, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have the rights, powers and duties of the Trustee under
this Indenture. A successor Trustee shall mail notice of its succession to each
Holder.

     If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in principal amount of the outstanding Notes may
petition, at the expense of the Company, any court of competent jurisdiction for
the appointment of a successor Trustee.

     If the Trustee fails to comply with Section 7.10, any Holder may petition
any court of competent jurisdiction for the removal of the Trustee and the
appointment of a successor Trustee.

<PAGE>   86


                                     - 79-

     Notwithstanding replacement of the Trustee pursuant to this Section 7.08,
the Company's obligations under Section 7.07 shall continue for the benefit of
the retiring Trustee.

SECTION 7.09. Successor Trustee by Merger, etc.

     If the Trustee consolidates with, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation or
banking corporation, the resulting, surviving or transferee corporation or
banking corporation without any further act shall be the successor Trustee so
long as it meets the requirements of Section 7.10.

SECTION 7.10. Eligibility; Disqualification.

     This Indenture shall always have a Trustee which shall be eligible to act
as Trustee under TIA ss.ss. 310(a)(1) and 310(a)(2). The Trustee shall have a
combined capital and surplus of at least $150,000,000 as set forth in its most
recent published annual report of condition. If the Trustee has or shall acquire
any "conflicting interest" within the meaning of TIA ss. 310(b), the Trustee and
the Company shall comply with the provisions of TIA ss. 310(b); provided,
however, that there shall be excluded from the operation of TIA ss. 310(b)(1)
any indenture or indentures under which other securities or certificates of
interest or participation in other securities of the Company are outstanding if
the requirements for such exclusion set forth in TIA ss. 310(b)(1) are met. If
at any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section 7.10, the Trustee shall resign immediately in the
manner and with the effect hereinbefore specified in this Article Seven.

SECTION 7.11. Preferential Collection of Claims Against Company.

     The Trustee shall comply with TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). A Trustee who has resigned or been
removed shall be subject to TIA ss. 311(a) to the extent indicated therein.


                                  ARTICLE EIGHT

                             SUBORDINATION OF NOTES


SECTION 8.01. Notes Subordinated to Senior Indebtedness.

     The Company covenants and agrees, and the Trustee and each Holder of the
Notes by his acceptance thereof likewise covenant and agree, that all Notes
shall be issued subject to the provisions of this Article Eight; and each person
holding any Note, whether

<PAGE>   87

                                     - 80-

upon original issue or upon transfer, assignment or exchange thereof, accepts
and agrees that all payments of the principal of and interest on the Notes by
the Company shall, to the extent and in the manner set forth in this Article
Eight, be subordinated and junior in right of payment to the prior payment in
full in cash of all amounts payable under Senior Indebtedness.

SECTION 8.02. No Payment on Notes in Certain Circumstances.

     (a) No direct or indirect payment (excluding any payment or distribution of
Permitted Junior Securities and excluding any payment from funds held in trust
for the benefit of the Holders pursuant to Article Nine (a "Defeasance Trust
Payment")) by or on behalf of the Company or any Subsidiary of the Company of
principal of, premium, if any, or interest on the Notes, whether pursuant to the
terms of the Notes, upon acceleration, pursuant to an Offer to Purchase or
otherwise, will be made if, at the time of such payment, there exists a default
in the payment of all or any portion of the obligations on any Designated Senior
Indebtedness, whether at maturity, on account of mandatory redemption or
prepayment, acceleration or otherwise, and such default shall not have been
cured or waived or the benefits of this sentence waived by or on behalf of the
holders of such Designated Senior Indebtedness. In addition, during the
continuance of any non-payment event of default with respect to any Designated
Senior Indebtedness pursuant to which the maturity thereof may be immediately
accelerated, and upon receipt by the Trustee of written notice (a "Payment
Blockage Notice") from the holder or holders of such Designated Senior
Indebtedness or the trustee or agent acting on behalf of the holders of such
Designated Senior Indebtedness, then, unless and until such event of default has
been cured or waived or has ceased to exist or such Designated Senior
Indebtedness has been discharged or repaid in full in cash or the benefits of
these provisions have been waived by the holders of such Designated Senior
Indebtedness, no direct or indirect payment (excluding any payment or
distribution of Permitted Junior Securities and excluding any Defeasance Trust
Payment) will be made by or on behalf of the Company or any Subsidiary of the
Company of principal of, premium, if any, or interest on the Notes, to such
Holders, during a period (a "Payment Blockage Period") commencing on the date of
receipt of such notice by the Trustee and ending 179 days thereafter.

     Notwithstanding anything in the subordination provisions of this Indenture
or the Notes to the contrary, (1) in no event will a Payment Blockage Period
extend beyond 179 days from the date the Payment Blockage Notice in respect
thereof was given, (2) there shall be a period of at least 181 consecutive days
in each 360-day period when no Payment Blockage Period is in effect and (3) not
more than one Payment Blockage Period may be commenced with respect to the Notes
during any period of 360 consecutive days. No event of default that existed or
was continuing on the date of commencement of any Payment Blockage Period with
respect to the Designated Senior Indebtedness initiating such Payment Blockage
Period (to the extent the holder of Designated Senior Indebtedness, or trustee
or agent, giving notice commencing such Payment Blockage Period had knowledge of
such existing or con-

<PAGE>   88

                                     - 81-

tinuing event of default) may be, or be made, the basis for the commencement of
any other Payment Blockage Period by the holder or holders of such Designated
Senior Indebtedness or the trustee or agent acting on behalf of such Designated
Senior Indebtedness, whether or not within a period of 360 consecutive days,
unless such event of default has been cured or waived for a period of not less
than 90 consecutive days.

     (b) In the event that, notwithstanding the foregoing, any payment shall be
received by the Trustee or any Holder when such payment is prohibited by Section
8.02(a), such payment shall be held in trust for the benefit of, and shall be
paid over or delivered to, the holders of Designated Senior Indebtedness or
their respective representatives, or to the trustee or trustees under any
indenture pursuant to which any of such Designated Senior Indebtedness may have
been issued, as their respective interests may appear, but only to the extent
that, upon notice from the Trustee to the holders of Designated Senior
Indebtedness that such prohibited payment has been made, the holders of the
Designated Senior Indebtedness (or their representative or representatives or a
trustee or trustees) notify the Trustee in writing of the amounts then due and
owing on the Designated Senior Indebtedness, if any, and only the amounts
specified in such notice to the Trustee shall be paid to the holders of
Designated Senior Indebtedness.

SECTION 8.03. Payment Over of Proceeds upon Dissolution, etc.

     (a) Upon any payment or distribution of assets or securities of the Company
of any kind or character, whether in cash, property or securities (excluding any
payment or distribution of Permitted Junior Securities and excluding Defeasance
Trust Payment), upon any dissolution or winding-up or total liquidation or
reorganization of the Company, whether voluntary or involuntary or in
bankruptcy, insolvency, receivership or other proceedings, all Senior
Indebtedness shall first be paid in full in cash before the Holders of the Notes
or the Trustee on behalf of such Holders shall be entitled to receive any
payment by the Company of the principal of, premium, if any, or interest on the
Notes, or any payment by the Company to acquire any of the Notes for cash,
property or securities, or any distribution by the Company with respect to the
Notes of any cash, property or securities (excluding any payment or distribution
of Permitted Junior Securities and excluding any Defeasance Trust Payment).
Before any payment may be made by, or on behalf of, the Company of the principal
of, premium, if any, or interest on the Notes upon any such dissolution or
winding-up or total liquidation or reorganization, any payment or distribution
of assets or securities of the Company of any kind or character, whether in
cash, property or securities (excluding any payment or distribution of Permitted
Junior Securities and excluding any Defeasance Trust Payment), to which the
Holders of the Notes or the Trustee on their behalf would be entitled, but for
the subordination provisions of this Indenture, shall be made by the Company or
by any receiver, trustee in bankruptcy, liquidation trustee, agent or other
Person making such payment or distribution, directly to the holders of the
Senior Indebtedness (pro rata to such holders on the basis of the

<PAGE>   89

                                     - 82-


respective amounts of Senior Indebtedness held by such holders) or their
representatives or to the trustee or trustees or agent or agents under any
agreement or indenture pursuant to which any of such Senior Indebtedness may
have been issued, as their respective interests may appear, to the extent
necessary to pay all such Senior Indebtedness in full in cash after giving
effect to any prior or concurrent payment, distribution or provision therefor to
or for the holders of such Senior Indebtedness.

     (b) In the event that, notwithstanding the foregoing provision prohibiting
such payment or distribution, any payment or distribution of assets or
securities of the Company of any kind or character, whether in cash, property or
securities (excluding any payment or distribution of Permitted Junior Securities
and excluding any Defeasance Trust Payment), shall be received by the Trustee or
any Holder of Notes at a time when such payment or distribution is prohibited by
Section 8.03(a) and before all obligations in respect of Senior Indebtedness are
paid in full in cash, such payment or distribution shall be received and held in
trust for the benefit of, and shall be paid over or delivered to, the holders of
Senior Indebtedness (pro rata to such holders on the basis of the respective
amounts of Senior Indebtedness held by such holders) or their respective
representatives, or to the trustee or trustees or agent or agents under any
indenture pursuant to which any of such Senior Indebtedness may have been
issued, as their respective interests may appear, for application to the payment
of Senior Indebtedness remaining unpaid until all such Senior Indebtedness has
been paid in full in cash after giving effect to any prior or concurrent
payment, distribution or provision therefor to or for the holders of such Senior
Indebtedness.

     The consolidation of the Company with, or the merger of the Company with or
into, another corporation or the liquidation or dissolution of the Company
following the conveyance or transfer of its property as an entirety, or
substantially as an entirety, to another corporation upon the terms and
conditions provided in Article Five shall not be deemed a dissolution,
winding-up, liquidation or reorganization for the purposes of this Section 8.03
if such other corporation shall, as a part of such consolidation, merger,
conveyance or transfer, comply with the conditions stated in Article Five.

SECTION 8.04. Subrogation.

     Upon the payment in full in cash of all Senior Indebtedness, or provision
for payment, the Holders of the Notes shall be subrogated to the rights of the
holders of Senior Indebtedness to receive payments or distributions of cash,
property or securities of the Company made on such Senior Indebtedness until the
principal of and interest on the Notes shall be paid in full in cash; and, for
the purposes of such subrogation, no payments or distributions to the holders of
the Senior Indebtedness of any cash, property or securities to which the Holders
of the Notes or the Trustee on their behalf would be entitled except for the
provisions of this Article Eight, and no payment over pursuant to the provisions
of this Article Eight to

<PAGE>   90

                                     - 83-

the holders of Senior Indebtedness by Holders of the Notes or the Trustee on
their behalf shall, as between the Company, its creditors other than holders of
Senior Indebtedness, and the Holders of the Notes, be deemed to be a payment by
the Company to or on account of the Senior Indebtedness. It is understood that
the provisions of this Article Eight are and are intended solely for the purpose
of defining the relative rights of the Holders of the Notes, on the one hand,
and the holders of the Senior Indebtedness, on the other hand.

     If any payment or distribution to which the Holders of the Notes would
otherwise have been entitled but for the provisions of this Article Eight shall
have been applied, pursuant to the provisions of this Article Eight, to the
payment of all amounts payable under Senior Indebtedness, then and in such case,
the Holders of the Notes shall be entitled to receive from the holders of such
Senior Indebtedness any payments or distributions received by such holders of
Senior Indebtedness in excess of the amount required to make payment in full in
cash of such Senior Indebtedness.

SECTION 8.05. Obligations of Company Unconditional.

     Nothing contained in this Article Eight or elsewhere in this Indenture or
in the Notes is intended to or shall impair, as among the Company and the
Holders of the Notes, the obligation of the Company, which is absolute and
unconditional, to pay to the Holders of the Notes the principal of and interest
on the Notes as and when the same shall become due and payable in accordance
with their terms, or is intended to or shall affect the relative rights of the
Holders of the Notes and creditors of the Company other than the holders of the
Senior Indebtedness, nor shall anything herein or therein prevent the Holder of
any Note or the Trustee on their behalf from exercising all remedies otherwise
permitted by applicable law upon default under this Indenture, subject to the
rights, if any, under this Article Eight of the holders of the Senior
Indebtedness in respect of cash, property or securities of the Company received
upon the exercise of any such remedy.

     Without limiting the generality of the foregoing, nothing contained in this
Article Eight shall restrict the right of the Trustee or the Holders of Notes to
take any action to declare the Notes to be due and payable prior to their stated
maturity pursuant to Section 6.01 or to pursue any rights or remedies hereunder;
provided, however, that all Senior Indebtedness then due and payable shall first
be paid in full in cash before the Holders of the Notes or the Trustee are
entitled to receive any direct or indirect payment from the Company of principal
of or interest on the Notes.

SECTION 8.06. Notice to Trustee.

     The Company shall give prompt written notice to the Trustee of any fact
known to the Company which would prohibit the making of any payment to or by the
Trustee

<PAGE>   91

                                     - 84-

in respect of the Notes pursuant to the provisions of this Article Eight. The
Trustee shall not be charged with knowledge of the existence of any event of
default with respect to any Senior Indebtedness or of any other facts which
would prohibit the making of any payment to or by the Trustee unless and until
the Trustee shall have received notice in writing at its Corporate Trust Office
to that effect signed by an Officer of the Company, or by a holder of Senior
Indebtedness or trustee or agent therefor; and prior to the receipt of any such
written notice, the Trustee shall, subject to Article Seven, be entitled to
assume that no such facts exist; provided, however, that if the Trustee shall
not have received the notice provided for in this Section 8.06 at least two
Business Days prior to the date upon which by the terms of this Indenture any
moneys shall become payable for any purpose (including, without limitation, the
payment of the principal of or interest on any Note), then, regardless of
anything herein to the contrary, the Trustee shall have full power and authority
to receive any moneys from the Company and to apply the same to the purpose for
which they were received, and shall not be affected by any notice to the
contrary which may be received by it on or after such prior date. Nothing
contained in this Section 8.06 shall limit the right of the holders of Senior
Indebtedness to recover payments as contemplated by Section 8.03. The Trustee
shall be entitled to rely on the delivery to it of a written notice by a Person
representing himself or itself to be a holder of any Senior Indebtedness (or a
trustee on behalf of, or other representative of, such holder) to establish that
such notice has been given by a holder of such Senior Indebtedness or a trustee
or representative on behalf of any such holder.

     In the event that the Trustee determines in good faith that any evidence is
required with respect to the right of any Person as a holder of Senior
Indebtedness to participate in any payment or distribution pursuant to this
Article Eight, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such Person, the extent to which such Person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
such Person under this Article Eight, and if such evidence is not furnished, the
Trustee may defer any payment to such Person pending judicial determination as
to the right of such Person to receive such payment.

SECTION 8.07. Reliance on Judicial Order or Certificate of Liquidating Agent.

     Upon any payment or distribution of assets or securities referred to in
this Article Eight, the Trustee and the Holders of the Notes shall be entitled
to rely upon any order or decree made by any court of competent jurisdiction in
which bankruptcy, dissolution, winding-up, liquidation or reorganization
proceedings are pending, or upon a certificate of the receiver, trustee in
bankruptcy, liquidating trustee, agent or other person making such payment or
distribution, delivered to the Trustee or to the Holders of the Notes for the
purpose of ascertaining the persons entitled to participate in such
distribution, the holders of the Senior Indebtedness and other indebtedness of
the Company, the amount thereof or payable thereon,

<PAGE>   92

                                     - 85-

the amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article Eight.

SECTION 8.08. Trustee's Relation to Senior Indebtedness.

     The Trustee and any Paying Agent shall be entitled to all the rights set
forth in this Article Eight with respect to any Senior Indebtedness which may at
any time be held by it in its individual or any other capacity to the same
extent as any other holder of Senior Indebtedness, and nothing in this Indenture
shall deprive the Trustee or any Paying Agent of any of its rights as such
holder.

     With respect to the holders of Senior Indebtedness, the Trustee undertakes
to perform or to observe only such of its covenants and obligations as are
specifically set forth in this Article Eight, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness (except as provided in
Section 8.03(b)). The Trustee shall not be liable to any such holders if the
Trustee shall in good faith mistakenly pay over or distribute to Holders of
Notes or to the Company or to any other person cash, property or securities to
which any holders of Senior Indebtedness shall be entitled by virtue of this
Article Eight or otherwise.

SECTION 8.09. Subordination Rights Not Impaired by Acts or Omissions of the
              Company or Holders of Senior Indebtedness.

     No right of any present or future holders of any Senior Indebtedness to
enforce subordination as provided herein shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms of this Indenture, regardless of any
knowledge thereof which any such holder may have or otherwise be charged with.
The provisions of this Article Eight are intended to be for the benefit of, and
shall be enforceable directly by, the holders of Senior Indebtedness.

SECTION 8.10. Holders Authorize Trustee To Effectuate Subordination of Notes.

     Each Holder of Notes by his acceptance of such Notes authorizes and
expressly directs the Trustee on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this
Article Eight, and appoints the Trustee his attorney-in-fact for such purposes,
including, in the event of any dissolution, winding-up, total liquidation or
reorganization of the Company (whether in bankruptcy, insolvency, receivership,
reorganization or similar proceedings or upon an assignment for the benefit of
creditors or

<PAGE>   93

                                     - 86-

otherwise) tending towards liquidation of the business and assets of the
Company, the filing of a claim for the unpaid balance of its or his Notes in the
form required in those proceedings.

SECTION 8.11. This Article Not To Prevent Events of Default.

     The failure to make a payment on account of principal of or interest on the
Notes by reason of any provision of this Article Eight shall not be construed as
preventing the occurrence of an Event of Default specified in clauses (1), (2)
or (3) of Section 6.01.

SECTION 8.12. Trustee's Compensation Not Prejudiced.

     Nothing in this Article Eight shall apply to amounts due to the Trustee
pursuant to other sections in this Indenture.

SECTION 8.13. No Waiver of Subordination Provisions.

     Without in any way limiting the generality of Section 8.09, the holders of
Senior Indebtedness may, at any time and from time to time, without the consent
of or notice to the Trustee or the Holders of the Notes, without incurring
responsibility to the Holders of the Notes and without impairing or releasing
the subordination provided in this Article Eight or the obligations hereunder of
the Holders of the Notes to the holders of Senior Indebtedness, do any one or
more of the following: (a) change the manner, place or terms of payment or
extend the time of payment of, or renew or alter, Senior Indebtedness or any
instrument evidencing the same or any agreement under which Senior Indebtedness
is outstanding or secured; (b) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing Senior Indebtedness; (c)
release any Person liable in any manner for the collection of Senior
Indebtedness; and (d) exercise or refrain from exercising any rights against the
Company and any other Person.

SECTION 8.14. Subordination Provisions Not Applicable to Money Held in Trust for
              Holders; Payments May Be Paid Prior to Dissolution.

     All money and United States Government Obligations deposited in trust with
the Trustee pursuant to and in accordance with Article Nine shall be for the
sole benefit of the Holders and shall not be subject to this Article Eight.

     Nothing contained in this Article Eight or elsewhere in this Indenture
shall prevent (i) the Company, except under the conditions described in Section
8.02, from making payments of principal of and interest on the Notes or from
depositing with the Trustee any moneys for such pay

<PAGE>   94

                                      -87-


ments or from effecting a termination of the Company's and the Guarantors'
obligations under the Notes and this Indenture as provided in Article Nine, or
(ii) the application by the Trustee of any moneys deposited with it for the
purpose of making such payments of principal of and interest on the Notes, to
the holders entitled thereto unless at least two Business Days prior to the date
upon which such payment becomes due and payable, the Trustee shall have received
the written notice provided for in Section 8.02(b) or in Section 8.06. The
Company shall give prompt written notice to the Trustee of any dissolution,
winding-up, liquidation or reorganization of the Company.

SECTION 8.15. Acceleration of Notes.

     If payment of the Notes is accelerated because of an Event of Default, the
Company shall promptly notify holders of the Senior Indebtedness of the
acceleration.


                                  ARTICLE NINE

                             DISCHARGE OF INDENTURE


SECTION 9.01. Termination of Company's Obligations.

     Subject to the provisions of Article Eight, this Indenture will be
discharged and the Company's and the Guarantors' substantive obligations in
respect of the Notes will cease when either: (1)(A) all Notes theretofor
authenticated and delivered have been delivered to the Trustee for cancellation
or (B) all Notes not theretofor delivered to the Trustee for cancellation (i)
have become due and payable, (ii) will become due and payable at their Stated
Maturity within one year or (iii) are to be called for redemption within one
year under arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense of, the Company; and
(2) the Company has deposited or caused to be deposited with the Trustee, in
trust for the benefit of the holders of the Notes, all sums payable by it on
account of principal of, premium, if any, and interest on all Notes (except
lost, stolen or destroyed Notes which have been replaced or paid) or otherwise,
together with irrevocable instructions from the Company directing the Trustee to
apply such funds to the payment thereof at the Stated Maturity or redemption
date, as the case may be by delivering all outstanding Notes to the Trustee for
cancellation and paying all sums payable by it on account of principal of and
interest on all Notes or otherwise. In addition to the foregoing, subject to the
provisions of Article Eight with respect to the creation of the defeasance trust
provided for in the following clause (1), the Company may, provided that no
Default or Event of Default has occurred and is continuing or would arise
therefrom (or, with respect to a Default or Event of Default specified in
Section 6.01(8) or (9), occurs at any time on or prior to the 91st calendar day
after the date of the Company deposits with the Trustee all sums payable by it
on account of principal of, premium, if any, and interest on all Notes or
otherwise (it being understood that this condition shall not be deemed satisfied
until after such 91st day)) and

<PAGE>   95

                                      -88-

provided that no default under any Senior Indebtedness would result therefrom,
terminate its and the Guarantors' substantive obligations in respect of Article
Four (other than Sections 4.01, 4.02, 4.07, 4.09 and 4.11) and Article Five
hereof and any Event of Default specified in Section 6.01 (4) or (5) by (1)
depositing with the Trustee, under the terms of an irrevocable trust agreement,
money or United States Government Obligations sufficient to pay all remaining
Indebtedness on the Notes, (2) delivering to the Trustee either an Opinion of
Counsel or a ruling directed to the Trustee from the Internal Revenue Service to
the effect that the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such deposit and termination of obligations
and (3) delivering to the Trustee an Officers' Certificate and an Opinion of
Counsel each stating compliance with all conditions precedent provided for
herein. In addition, subject to the provisions of Article Eight with respect to
the creation of the defeasance trust provided for in the following clause (1),
the Company may, provided that no Default or Event of Default has occurred and
is continuing or would arise therefrom (or, with respect to a Default or Event
of Default specified in Section 6.01(8) or (9), occurs at any time on or prior
to the 91st calendar day after the date of such deposit (it being understood
that this condition shall not be deemed satisfied until after such 91st day))
and provided that no default under any Senior Indebtedness would arise
therefrom, terminate all of its and the Guarantors' substantive obligations in
respect of the Notes (including its obligations to pay the principal of and
interest on the Notes and the Guarantors' Guaranty thereof) by (1) depositing
with the Trustee, under the terms of an irrevocable trust agreement, money or
United States Government Obligations sufficient to pay all remaining
Indebtedness on the Notes, (2) delivering to the Trustee either a ruling
directed to the Trustee from the Internal Revenue Service to the effect that the
Holders of the Notes will not recognize income, gain or loss for federal income
tax purposes as a result of such deposit and termination of obligations or an
Opinion of Counsel addressed to the Trustee based upon such a ruling or based on
a change in the applicable Federal tax law since the date of this Indenture to
such effect and (3) delivering to the Trustee an Officers' Certificate and an
Opinion of Counsel each stating compliance with all conditions precedent
provided for herein.

     Notwithstanding the foregoing paragraph, the Company's obligations in
Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.10, 2.12, 2.13 and 4.01 (but not
with respect to termination of substantive obligations pursuant to the third
sentence of the foregoing paragraph), 4.02, 7.07, 7.08, 9.03 and 9.04 shall
survive until the Notes are no longer outstanding. Thereafter the Company's
obligations in Sections 7.07, 9.03 and 9.04 shall survive.

     After such delivery or irrevocable deposit and delivery of an Officers'
Certificate and Opinion of Counsel, the Trustee upon request shall acknowledge
in writing the discharge of the Company's and the Guarantors' obligations under
the Notes and this Indenture except for those surviving obligations specified
above.

<PAGE>   96

                                      -89-

     The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the United States Government
Obligations deposited pursuant to this Section 9.01 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 outstanding Notes.

SECTION 9.02. Application of Trust Money.

     The Trustee shall hold in trust money or United States Government
Obligations deposited with it pursuant to Section 9.01, and shall apply the
deposited money and the money from United States Government Obligations in
accordance with this Indenture solely to the payment of principal of and
interest on the Notes.

SECTION 9.03. Repayment to Company.

     Subject to Sections 7.07 and 9.01, the Trustee shall promptly pay to the
Company upon written request any excess money held by it at any time. The
Trustee shall pay to the Company upon written request any money held by it for
the payment of principal or interest that remains unclaimed for two years;
provided, however, that the Trustee before being required to make any payment
may at the expense of the Company cause to be published once in a newspaper of
general circulation in The City of New York or mail to each Holder entitled to
such money notice that such money remains unclaimed and that, after a date
specified therein which shall be at least 30 days from the date of such
publication or mailing, any unclaimed balance of such money then remaining shall
be repaid to the Company. After payment to the Company, Holders entitled to
money must look to the Company for payment as general creditors unless an
applicable abandoned property law designates another person and all liability of
the Trustee or Paying Agent with respect to such money shall thereupon cease.

SECTION 9.04. Reinstatement.

     If the Trustee is unable to apply any money or United States Government
Obligations in accordance with Section 9.01 by reason of any legal proceeding or
by reason of any order or judgment of any court or governmental authority
enjoining, restraining or otherwise prohibiting such application, the Company's
and the Guarantors' obligations under this Indenture and the Notes shall be
revived and reinstated as though no deposit had occurred pursuant to Section
9.01 until such time as the Trustee is permitted to apply all such money or
United States Government Obligations in accordance with Section 9.01; provided,
however, that if the Company has made any payment of interest on or principal of
any Notes because of 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 or United States Government Obligations held by the Trustee.



<PAGE>   97

                                      -90-

                                   ARTICLE TEN

                       AMENDMENTS, SUPPLEMENTS AND WAIVERS


SECTION 10.01. Without Consent of Holders.

     The Company and the Guarantors, when authorized by a resolution of their
respective Boards of Directors, and the Trustee may amend or supplement this
Indenture or the Notes without notice to or consent of any Holder:

     (a) to cure any ambiguity, defect or inconsistency; provided, however, that
   such amendment or supplement does not adversely affect the rights of any
   Holder;

     (b) to effect the assumption by a successor Person of all obligations of
   the Company under the Notes and his Indenture in connection with any
   transaction complying with Article Five of this Indenture;

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

     (d) to comply with any requirements of the SEC in order to effect or
   maintain the qualification of this Indenture under the TIA;

     (e) to make any change that would provide any additional benefit or rights
   to the Holders;

     (f) to make any other change that does not adversely affect the rights of
   any Holder under this Indenture;

     (g) to evidence the succession of another Person to any Guarantor and the
   assumption by any such successor of the covenants of such Guarantor herein
   and in the Guaranty in connection with any transaction complying with Article
   Five of this Indenture;

     (h) to add to the covenants of the Company or the Guarantors for the
   benefit of the Holders, or to surrender any right or power herein conferred
   upon the Company or any Guarantor;

     (i) to secure the Notes pursuant to the requirements of Section 4.18 or
   otherwise; or


<PAGE>   98

                                      -91-

     (j) to reflect the release of a Guarantor from its obligations with respect
   to its Guaranty in accordance with the provisions of Section 11.03 and to add
   a Guarantor pursuant to the requirements of Section 4.19;

provided, however, that the Company has delivered to the Trustee an Opinion of
Counsel stating that such amendment or supplement complies with the provisions
of this Section 10.01.

SECTION 10.02. With Consent of Holders.

     Subject to Section 6.07, the Company and the Guarantors, when authorized by
a resolution of their respective Boards of Directors, and the Trustee may amend
or supplement this Indenture or the Notes with the written consent of the
Holders of at least a majority in principal amount of the outstanding Notes.
Subject to Section 6.07, the Holders of a majority in principal amount of the
outstanding Notes may waive compliance by the Company or any Guarantor with any
provision of this Indenture or the Notes. However, without the consent of each
Holder affected, an amendment, supplement or waiver, including a waiver pursuant
to Section 6.04, may not:

     (a) change the maturity of the principal of or any installment of interest
   on any such Note or alter the optional redemption or repurchase provisions of
   any such Note or this Indenture in a manner materially adverse to the Holders
   of the Notes;

     (b) reduce the principal amount (or the premium) of any such Note;

     (c) reduce the rate of or extend the time for payment of interest on any
   such Note;

     (d) change the currency of payment of principal of (or premium) or interest
   on any such Note;

     (e) impair the right of the Holders of Notes to institute suit for the
   enforcement of any payment on or with respect to any such Note or any
   Guaranty in respect thereof;

     (f) reduce the percentage of the principal amount of outstanding Notes
   necessary for amendment to or waiver of compliance with any provision of this
   Indenture or the Notes or for waiver of any Default in respect thereof;

     (g) waive a Default in the payment of the principal of, interest on, or
   redemption payment with respect to, the Notes (except a rescission of
   acceleration of the

<PAGE>   99

                                      -92-

   Notes by the Holders as provided in Section 6.02 and a waiver of the
   payment default that resulted from such acceleration);

     (h) modify the ranking or priority of any Note or the Guaranty in respect
   thereof of any Guarantor or modify the definition of Senior Indebtedness or
   Guarantor Senior Indebtedness or amend or modify any of the provisions of
   Article Eight or Article Twelve in any manner adverse to the Holders of the
   Notes;

     (i) modify the provisions of any covenant (or the related definitions) in
   the Indenture requiring the Company to make an Offer to Purchase following an
   event or circumstance which may give rise to the requirement to make an Offer
   to Purchase in a manner materially adverse tot he Holders of the Notes
   affected thereby otherwise than in accordance with the Indenture; or

     (j) release any Guarantor from any of its obligations under its Guaranty or
   this Indenture otherwise than in accordance with this Indenture.

     An amendment under this Section 10.02 may not make any change under Article
Eight or Article Twelve hereof that adversely affects in any material respect
the rights of any holder of Senior Indebtedness or Guarantor Senior
Indebtedness, as the case may be, then outstanding unless the holders of such
Senior Indebtedness or Guarantor Senior Indebtedness, as the case may be, (or
any representative thereof authorized to give a consent) shall have consented to
such change.

     It shall not be necessary for the consent of the Holders under this Section
10.02 to approve the particular form of any proposed amendment, supplement or
waiver, but it shall be sufficient if such consent approves the substance
thereof.

     After an amendment, supplement or waiver under this Section 10.02 becomes
effective, the Company shall mail to the Holders affected thereby a notice
briefly describing the amendment, supplement or waiver. Any failure of the
Company to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such amendment, supplement or waiver.

SECTION 10.03. Compliance with Trust Indenture Act.

     Every amendment to or supplement of this Indenture or the Notes shall
comply with the TIA as then in effect.


<PAGE>   100

                                      -93-


SECTION 10.04. Revocation and Effect of Consents.

     Until an amendment or waiver becomes effective, a consent to it by a Holder
is a continuing consent by the Holder and every subsequent Holder of that Note
or portion of that Note that evidences the same debt as the consenting Holder's
Note, even if notation of the consent is not made on any Note. Subject to the
following paragraph, any such Holder or subsequent Holder may revoke the consent
as to such Holder's Note or portion of such Note by notice to the Trustee or the
Company received before the date on which the Trustee receives an Officers'
Certificate certifying that the Holders of the requisite principal amount of
Notes have consented (and not theretofore revoked such consent) to the
amendment, supplement or waiver.

     The Company may, but shall not be obligated to, fix a record date for the
purpose of determining the Holders of Notes entitled to consent to any
amendment, supplement or waiver. If a record date is fixed, then,
notwithstanding the last sentence of the immediately preceding paragraph, those
persons who were Holders of Notes at such record date (or their duly designated
proxies), and only those persons, shall be entitled to consent to such
amendment, supplement or waiver or to revoke any consent previously given,
whether or not such persons continue to be Holders of such Notes after such
record date. No such consent shall be valid or effective for more than 90 days
after such record date.

     After an amendment, supplement or waiver becomes effective, it shall bind
every Holder, unless it makes a change described in any of clauses (a) through
(j) of Section 10.02. In that case the amendment, supplement or waiver shall
bind each Holder of a Note who has consented to it and every subsequent Holder
of a Note or portion of a Note that evidences the same debt as the consenting
Holder's Note.

SECTION 10.05. Notation on or Exchange of Notes.

     If an amendment, supplement or waiver changes the terms of a Note, the
Trustee may require the Holder of the Note to deliver it to the Trustee. The
Trustee may place an appropriate notation on the Note about the changed terms
and return it to the Holder. Alternatively, if the Company or the Trustee so
determines, the Company in exchange for the Note shall issue and the Trustee
shall authenticate a new Note that reflects the changed terms. Failure to make
the appropriate notation or issue a new Note shall not affect the validity and
effect of such amendment, supplement or waiver.

SECTION 10.06. Trustee To Sign Amendments, etc.

     The Trustee shall be entitled to receive, and shall be fully protected in
relying upon, an Opinion of Counsel stating that the execution of any amendment,
supplement or

<PAGE>   101

                                      -94-

waiver authorized pursuant to this Article Ten is authorized or permitted by
this Indenture and that such amendment, supplement or waiver constitutes the
legal, valid and binding obligation of the Company and the Guarantors,
enforceable in accordance with its terms (subject to customary exceptions). The
Trustee may, but shall not be obligated to, execute any such amendment,
supplement or waiver which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise. In signing any amendment,
supplement or waiver, the Trustee shall be entitled to receive an indemnity
reasonably satisfactory to it.


                                 ARTICLE ELEVEN

                                    GUARANTY


SECTION 11.01. Unconditional Guaranty.

     Each Guarantor hereby unconditionally, jointly and severally, guarantees
(each, a "Guaranty" or "Note Guarantee") to each Holder of a Note authenticated
by the Trustee and to the Trustee and its successors and assigns that: the
principal of and interest on the Notes will be promptly paid in full when due,
subject to any applicable grace period, whether at maturity, by acceleration or
otherwise, and interest on the overdue principal and interest on any overdue
interest on the Notes and all other obligations of the Company to the Holders or
the Trustee hereunder or under the Notes will be promptly paid in full or
performed, all in accordance with the terms hereof and thereof; subject,
however, to the limitations set forth in Section 11.04. Each Guarantor hereby
agrees that its obligations hereunder shall be unconditional, irrespective of
the validity, regularity or enforceability of the Notes or this Indenture, the
absence of any action to enforce the same, any waiver or consent by any Holder
of the Notes with respect to any provisions hereof or thereof, the recovery of
any judgment against the Company, any action to enforce the same or any other
circumstance which might otherwise constitute a legal or equitable discharge or
defense of a Guarantor. Each Guarantor hereby waives diligence, presentment,
demand of payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Company, any right to require a proceeding first against the
Company, protest, notice and all demands whatsoever and covenants that the
Guaranty will not be discharged except by complete performance of the
obligations contained in the Notes, this Indenture, and this Guaranty. If any
Holder or the Trustee is required by any court or otherwise to return to the
Company, any Guarantor, or any custodian, trustee, liquidator or other similar
official acting in relation to the Company or any Guarantor, any amount paid by
the Company or any Guarantor to the Trustee or such Holder, this Guaranty, to
the extent theretofore discharged, shall be reinstated in full force and effect.
Each Guarantor further agrees that, as between each Guarantor, on the one hand,
and the Holders and the Trustee, on the other hand, (x) the maturity of the
obligations guaranteed hereby may


<PAGE>   102

                                      -95-

be accelerated as provided in Article Six for the purpose of this Guaranty,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the obligations guaranteed hereby, and (y) in the
event of any acceleration of such obligations as provided in Article Six, such
obligations (whether or not due and payable) shall forth become due and payable
by each Guarantor for the purpose of this Guaranty.

SECTION 11.02. Severability.

     In case any provision of this Guaranty shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.

SECTION 11.03. Release of a Guarantor.

     If the Notes are defeased in accordance with the terms of this Indenture,
or if Section 5.01(b) is complied with, or if, subject to the requirements of
Section 5.01(a), all or substantially all of the assets of any Guarantor or all
of the Equity Interests of any Guarantor are sold (including by issuance or
otherwise) by the Company in a transaction constituting an Asset Sale and (x)
the Net Cash Proceeds from such Asset Sale are used in accordance with Section
4.05 or (y) the Company delivers to the Trustee an Officers' Certificate to the
effect that the Net Cash Proceeds from such Asset Sale shall be used in
accordance with Section 4.05 and within the time limits specified by Section
4.05, then each Guarantor (in the case of defeasance) or such Guarantor (in the
case of compliance with Section 5.01(b) or in the event of a sale or other
disposition of all of the Equity Interests of such Guarantor) or the corporation
acquiring such assets (in the event of a sale or other disposition of all or
substantially all of the assets of such Guarantor) shall be released and
discharged from all obligations under this Article Eleven without any further
action required on the part of the Trustee or any Holder. The Trustee shall, at
the sole cost and expense of the Company and upon receipt at the reasonable
request of the Trustee of an Opinion of Counsel that the provisions of this
Section 11.03 have been complied with, deliver an appropriate instrument
evidencing such release upon receipt of a request by the Company accompanied by
an Officers' Certificate certifying as to the compliance with this Section
11.03. Any Guarantor not so released remains liable for the full amount of
principal of and interest on the Notes and the other obligations of the Company
hereunder as provided in this Article Eleven.

     Any Guarantor that is designated an Unrestricted Subsidiary pursuant to and
in accordance with Section 4.17 shall upon such Designation be released and
discharged of its Guaranty obligations in respect of this Indenture and the
Notes and any Unrestricted Subsidiary (other than a Foreign Subsidiary) whose
Designation is revoked pursuant to Section 4.17 will be required to become a
Guarantor in accordance with Section 4.19.


<PAGE>   103


                                      -96-

SECTION 11.04. Limitation of Guarantor's Liability.

     Each Guarantor, and by its acceptance hereof each Holder and the Trustee,
hereby confirms that it is the intention of all such parties that the guarantee
by such Guarantor pursuant to its Guaranty not constitute a fraudulent transfer
or conveyance for purposes of title 11 of the United States Code, as amended,
the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or
any similar U.S. federal or state or other applicable law. To effectuate the
foregoing intention, the Holders and each Guarantor hereby irrevocably agree
that the obligations of each Guarantor under its Guaranty shall be limited to
the maximum amount as will, after giving effect to all other contingent and
fixed liabilities of such Guarantor (including any Senior Indebtedness incurred
after the Issue Date) and after giving effect to any collections from or
payments made by or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under its Guaranty or pursuant to Section
11.05, result in the obligations of such Guarantor under its Guaranty not
constituting such a fraudulent transfer or conveyance.

SECTION 11.05. Contribution.

     In order to provide for just and equitable contribution among the
Guarantors, the Guarantors agree, inter se, that in the event any payment or
distribution is made by any Guarantor (a "Funding Guarantor") under the
Guaranty, such Funding Guarantor shall be entitled to a contribution from all
other Guarantors in a pro rata amount, based on the net assets of each Guarantor
(including the Funding Guarantor), determined in accordance with GAAP, subject
to Section 11.04, for all payments, damages and expenses incurred by such
Funding Guarantor in discharging the Company's obligations with respect to the
Notes or any other Guarantor's obligations with respect to the Guaranty.

SECTION 11.06. Execution of Note Guarantee.

     To further evidence their Guaranty to the Holders, each of the Guarantors
hereby agree to execute a Note Guarantee to be endorsed on each Note ordered to
be authenticated and delivered by the Trustee. Each Guarantor hereby agrees that
its Guaranty set forth in Section 11.01 shall remain in full force and effect
notwithstanding any failure to endorse on each Note a Note Guarantee. Each such
Note Guarantee shall be signed on behalf of each Guarantor by its Chairman of
the Board, its President or one of its Vice Presidents prior to the
authentication of the Note on which it is endorsed, and the delivery of such
Note by the Trustee, after the authentication thereof hereunder, shall
constitute due delivery of such Note Guarantee on behalf of such Guarantor. Such
signature upon the Note Guarantee may be manual or facsimile signature of such
officer and may be imprinted or otherwise reproduced on the Note Guarantee, and
in case such officer who shall

<PAGE>   104

                                      -97-

have signed the Note Guarantee shall cease to be such officer before the Note on
which such Note Guarantee is endorsed shall have been authenticated and
delivered by the Trustee or disposed of by the Company, such Note nevertheless
may be authenticated and delivered or disposed of as though the Person who
signed the Note Guarantee had not ceased to be such officer of such Guarantor.

SECTION 11.07. Subordination of Subrogation and Other Rights.

     Each Guarantor hereby agrees that any claim against the Company that arises
from the payment, performance or enforcement of such Guarantor's obligations
under its Guaranty or this Indenture, including, without limitation, any right
of subrogation, shall be subject and subordinate to, and no payment with respect
to any such claim of such Guarantor shall be made before, the payment in full in
cash of all outstanding Notes in accordance with the provisions provided
therefor in this Indenture.


                                 ARTICLE TWELVE

                            SUBORDINATION OF GUARANTY


SECTION 12.01. Guaranty Obligations Subordinated to Guarantor Senior
               Indebtedness.

     Each Guarantor covenants and agrees, and the Trustee and each Holder of the
Notes by his acceptance thereof likewise covenant and agree, that the Guaranty
of such Guarantor shall be issued subject to the provisions of this Article
Twelve; and each person holding any Note, whether upon original issue or upon
transfer, assignment or exchange thereof, accepts and agrees that all payments
of the principal of and interest on the Notes pursuant to the Guaranty made by
or on behalf of any Guarantor shall, to the extent and in the manner set forth
in this Article Twelve, be subordinated and junior in right of payment to the
prior payment in full in cash of all amounts payable under Guarantor Senior
Indebtedness of such Guarantor.

SECTION 12.02. Payment Over of Proceeds upon Dissolution, etc.

     (a) Upon any payment or distribution of assets or securities of any
Guarantor of any kind or character, whether in cash, property or securities
(excluding any payment or distribution of Permitted Junior Securities), upon any
dissolution or winding-up or total liquidation or reorganization of such
Guarantor, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all Guarantor Senior Indebtedness of such
Guarantor shall first be paid in full in cash before the Holders of the Notes or
the Trustee on behalf of such Holders shall be entitled to receive any payment
by such Guarantor of the principal of, premium, if any, or interest on the Notes
pursuant to such Guarantor's Guaranty,

<PAGE>   105

                                      -98-


or any payment to acquire any of the Notes for cash, property or securities, or
any distribution with respect to the Notes of any cash, property or securities
(excluding any payment or distribution of Permitted Junior Securities). Before
any payment may be made by, or on behalf of, any Guarantor of the principal of,
premium, if any, or interest on the Notes upon any such dissolution or
winding-up or total liquidation or reorganization, any payment or distribution
of assets or securities of such Guarantor of any kind or character, whether in
cash, property or securities (excluding any payment or distribution of Permitted
Junior Securities), to which the Holders of the Notes or the Trustee on their
behalf would be entitled, but for the subordination provisions of this
Indenture, shall be made by such Guarantor or by any receiver, trustee in
bankruptcy, liquidation trustee, agent or other Person making such payment or
distribution, directly to the holders of the Guarantor Senior Indebtedness of
such Guarantor (pro rata to such holders on the basis of the respective amounts
of such Guarantor Senior Indebtedness held by such holders) or their
representatives or to the trustee or trustees or agent or agents under any
agreement or indenture pursuant to which any of such Guarantor Senior
Indebtedness may have been issued, as their respective interests may appear, to
the extent necessary to pay all such Guarantor Senior Indebtedness in full in
cash after giving effect to any prior or concurrent payment, distribution or
provision therefor to or for the holders of such Guarantor Senior Indebtedness.

     (b) In the event that, notwithstanding the foregoing provision prohibiting
such payment or distribution, any payment or distribution of assets or
securities of any Guarantor of any kind or character, whether in cash, property
or securities (excluding any payment or distribution of Permitted Junior
Securities), shall be received by the Trustee or any Holder of Notes at a time
when such payment or distribution is prohibited by Section 12.02(a) and before
all obligations in respect of the Guarantor Senior Indebtedness of such
Guarantor are paid in full in cash, such payment or distribution shall be
received and held in trust for the benefit of, and shall be paid over or
delivered to, the holders of such Guarantor Senior Indebtedness (pro rata to
such holders on the basis of the respective amounts of such Guarantor Senior
Indebtedness held by such holders) or their respective representatives, or to
the trustee or trustees or agent or agents under any indenture pursuant to which
any of such Guarantor Senior Indebtedness may have been issued, as their
respective interests may appear, for application to the payment of such
Guarantor Senior Indebtedness remaining unpaid until all such Guarantor Senior
Indebtedness has been paid in full in cash after giving effect to any prior or
concurrent payment, distribution or provision therefor to or for the holders of
such Guarantor Senior Indebtedness.

     The consolidation of any Guarantor with, or the merger of any Guarantor
with or into, another corporation or the liquidation or dissolution of any
Guarantor following the conveyance or transfer of its property as an entirety,
or substantially as an entirety, to another corporation upon the terms and
conditions provided in Article Five shall not be deemed a dis-

<PAGE>   106

                                      -99-

solution, winding-up, liquidation or reorganization for the purposes of this
Section 12.02 if such other corporation shall, as a part of such consolidation,
merger, conveyance or transfer, comply with the conditions stated in Article
Five.

SECTION 12.03. Subrogation.

     Upon the payment in full in cash of all Guarantor Senior Indebtedness of a
Guarantor, or provision for payment, the Holders of the Notes shall be
subrogated to the rights of the holders of such Guarantor Senior Indebtedness to
receive payments or distributions of cash, property or securities of such
Guarantor made on such Guarantor Senior Indebtedness until the principal of and
interest on the Notes shall be paid in full in cash; and, for the purposes of
such subrogation, no payments or distributions to the holders of such Guarantor
Senior Indebtedness of any cash, property or securities to which the Holders of
the Notes or the Trustee on their behalf would be entitled except for the
provisions of this Article Twelve, and no payment over pursuant to the
provisions of this Article Twelve to the holders of such Guarantor Senior
Indebtedness by Holders of the Notes or the Trustee on their behalf shall, as
between such Guarantor, its creditors other than holders of such Guarantor
Senior Indebtedness, and the Holders of the Notes, be deemed to be a payment by
such Guarantor to or on account of such Guarantor Senior Indebtedness. It is
understood that the provisions of this Article Twelve are and are intended
solely for the purpose of defining the relative rights of the Holders of the
Notes, on the one hand, and the holders of Guarantor Senior Indebtedness of each
Guarantor, on the other hand.

     If any payment or distribution to which the Holders of the Notes would
otherwise have been entitled but for the provisions of this Article Twelve shall
have been applied, pursuant to the provisions of this Article Twelve, to the
payment of all amounts payable under Guarantor Senior Indebtedness, then and in
such case, the Holders of the Notes shall be entitled to receive from the
holders of such Guarantor Senior Indebtedness any payments or distributions
received by such holders of Guarantor Senior Indebtedness in excess of the
amount required to make payment in full in cash of such Guarantor Senior
Indebtedness.

SECTION 12.04. Obligations of Guarantors Unconditional.

     Subject to Sections 11.04 and 8.02, nothing contained in this Article
Twelve or elsewhere in this Indenture or in the Notes or the Guaranties is
intended to or shall impair, as among each of the Guarantors and the Holders of
the Notes, the obligation of each Guarantor, which is absolute and
unconditional, to pay to the Holders of the Notes the principal of and interest
on the Notes as and when the same shall become due and payable in accordance
with the terms of the Guaranty of such Guarantor, or is intended to or shall
affect the relative rights of the Holders of the Notes and creditors of any
Guarantor other than the holders of Guarantor Senior Indebtedness of such
Guarantor, nor shall anything herein or therein prevent the


<PAGE>   107


                                     -100-


Holder of any Note or the Trustee on their behalf from exercising all remedies
otherwise permitted by applicable law upon default under this Indenture, subject
to the rights, if any, under this Article Twelve of the holders of Guarantor
Senior Indebtedness in respect of cash, property or securities of any Guarantor
received upon the exercise of any such remedy.

     Without limiting the generality of the foregoing, nothing contained in this
Article Twelve shall restrict the right of the Trustee or the Holders of Notes
to take any action to declare the Notes to be due and payable prior to their
stated maturity pursuant to Section 6.01 or to pursue any rights or remedies
hereunder; provided, however, that all Guarantor Senior Indebtedness of any
Guarantor then due and payable shall first be paid in full in cash before the
Holders of the Notes or the Trustee are entitled to receive any direct or
indirect payment from such Guarantor of principal of or interest on the Notes
pursuant to such Guarantor's Guaranty.

SECTION 12.05. Notice to Trustee.

     The Company shall give prompt written notice to the Trustee of any fact
known to the Company or any Guarantor which would prohibit the making of any
payment to or by the Trustee in respect of the Notes pursuant to the provisions
of this Article Twelve. The Trustee shall not be charged with knowledge of the
existence of any event of default with respect to any Guarantor Senior
Indebtedness or of any other facts which would prohibit the making of any
payment to or by the Trustee unless and until the Trustee shall have received
notice in writing at its Corporate Trust Office to that effect signed by an
Officer of the Company or such Guarantor, or by a holder of Guarantor Senior
Indebtedness or trustee or agent therefor; and prior to the receipt of any such
written notice, the Trustee shall, subject to Article Seven, be entitled to
assume that no such facts exist; provided, however, that if the Trustee shall
not have received the notice provided for in this Section 12.05 at least two
Business Days prior to the date upon which by the terms of this Indenture any
moneys shall become payable for any purpose (including, without limitation, the
payment of the principal of or interest on any Note), then, regardless of
anything herein to the contrary, the Trustee shall have full power and authority
to receive any moneys from any Guarantor and to apply the same to the purpose
for which they were received, and shall not be affected by any notice to the
contrary which may be received by it on or after such prior date. Nothing
contained in this Section 12.05 shall limit the right of the holders of
Guarantor Senior Indebtedness to recover payments as contemplated by Section
12.02. The Trustee shall be entitled to rely on the delivery to it of a written
notice by a Person representing himself or itself to be a holder of any
Guarantor Senior Indebtedness (or a trustee on behalf of, or other
representative of, such holder) to establish that such notice has been given by
a holder of such Guarantor Senior Indebtedness or a trustee or representative on
behalf of any such holder.


<PAGE>   108

                                     -101-

     In the event that the Trustee determines in good faith that any evidence is
required with respect to the right of any Person as a holder of Guarantor Senior
Indebtedness to participate in any payment or distribution pursuant to this
Article Twelve, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Guarantor Senior
Indebtedness held by such Person, the extent to which such Person is entitled to
participate in such payment or distribution and any other facts pertinent to the
rights of such Person under this Article Twelve, and if such evidence is not
furnished, the Trustee may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such payment.

SECTION 12.06. Reliance on Judicial Order or Certificate of Liquidating Agent.

     Upon any payment or distribution of assets or securities of a Guarantor
referred to in this Article Twelve, the Trustee and the Holders of the Notes
shall be entitled to rely upon any order or decree made by any court of
competent jurisdiction in which bankruptcy, dissolution, winding-up, liquidation
or reorganization proceedings are pending, or upon a certificate of the
receiver, trustee in bankruptcy, liquidating trustee, agent or other person
making such payment or distribution, delivered to the Trustee or to the Holders
of the Notes for the purpose of ascertaining the persons entitled to participate
in such distribution, the holders of Guarantor Senior Indebtedness of such
Guarantor and other indebtedness of such Guarantor, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article Twelve.

SECTION 12.07. Trustee's Relation to Guarantor Senior Indebtedness.

     The Trustee and any Paying Agent shall be entitled to all the rights set
forth in this Article Twelve with respect to any Guarantor Senior Indebtedness
which may at any time be held by it in its individual or any other capacity to
the same extent as any other holder of Guarantor Senior Indebtedness, and
nothing in this Indenture shall deprive the Trustee or any Paying Agent of any
of its rights as such holder.

     With respect to the holders of Guarantor Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article Twelve, and no implied covenants
or obligations with respect to the holders of Guarantor Senior Indebtedness
shall be read into this Indenture against the Trustee. The Trustee shall not be
deemed to owe any fiduciary duty to the holders of Guarantor Senior Indebtedness
(except as provided in Section 12.02(b)). The Trustee shall not be liable to any
such holders if the Trustee shall in good faith mistakenly pay over or
distribute to Holders of Notes or to the Company or to any other person cash,
property or securities to which any holders of Guarantor Senior Indebtedness
shall be entitled by virtue of this Article Twelve or otherwise.


<PAGE>   109

                                     -102-

SECTION 12.08. Subordination Rights Not Impaired by Acts or Omissions of the
               Guarantors or Holders of Guarantor Senior Indebtedness.

     No right of any present or future holders of any Guarantor Senior
Indebtedness to enforce subordination as provided herein shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
any Guarantor or by any act or failure to act, in good faith, by any such
holder, or by any noncompliance by any Guarantor with the terms of this
Indenture, regardless of any knowledge thereof which any such holder may have or
otherwise be charged with. The provisions of this Article Twelve are intended to
be for the benefit of, and shall be enforceable directly by, the holders of
Guarantor Senior Indebtedness.

SECTION 12.09. Holders Authorize Trustee To Effectuate Subordination of
               Guaranty.

     Each Holder of Notes by his acceptance of such Notes authorizes and
expressly directs the Trustee on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this
Article Twelve, and appoints the Trustee his attorney-in-fact for such purposes,
including, in the event of any dissolution, winding-up, total liquidation or
reorganization of any Guarantor (whether in bankruptcy, insolvency,
receivership, reorganization or similar proceedings or upon an assignment for
the benefit of creditors or otherwise) tending towards liquidation of the
business and assets of such Guarantor, the filing of a claim for the unpaid
balance of its or his Notes in the form required in those proceedings.

SECTION 12.10. This Article Not To Prevent Events of Default.

     The failure to make a payment on account of principal of or interest on the
Notes by reason of any provision of this Article Twelve shall not be construed
as preventing the occurrence of an Event of Default specified in clauses (1),
(2) or (3) of Section 6.01.

SECTION 12.11. Trustee's Compensation Not Prejudiced.

     Nothing in this Article Twelve shall apply to amounts due to the Trustee
pursuant to other sections in this Indenture.

SECTION 12.12. No Waiver of Guaranty Subordination Provisions.

     Without in any way limiting the generality of Section 12.08, the holders of
Guarantor Senior Indebtedness may, at any time and from time to time, without
the consent of or notice to the Trustee or the Holders of the Notes, without
incurring responsibility to the Holders of the Notes and without impairing or
releasing the subordination provided in this Article Twelve or the obligations
hereunder of the Holders of the Notes to the holders of Guarantor Senior
Indebtedness, do any one or more of the following: (a) change the manner,


<PAGE>   110

                                     -103-


place or terms of payment or extend the time of payment of, or renew or alter,
Guarantor Senior Indebtedness or any instrument evidencing the same or any
agreement under which Guarantor Senior Indebtedness is outstanding or secured;
(b) sell, exchange, release or otherwise deal with any property pledged,
mortgaged or otherwise securing Guarantor Senior Indebtedness; (c) release any
Person liable in any manner for the collection of Guarantor Senior Indebtedness;
and (d) exercise or refrain from exercising any rights against any Guarantor and
any other Person.

SECTION 12.13. Payments May Be Paid Prior to Dissolution.

     Nothing contained in this Article Twelve or elsewhere in this Indenture
shall prevent (i) a Guarantor, except under the conditions described in Section
12.02, from making payments of principal of and interest on the Notes, or from
depositing with the Trustee any moneys for such payments, or (ii) the
application by the Trustee of any moneys deposited with it for the purpose of
making such payments of principal of and interest on the Notes, to the holders
entitled thereto unless at least two Business Days prior to the date upon which
such payment becomes due and payable, the Trustee shall have received the
written notice provided for in Section 12.06. The Guarantors shall give prompt
written notice to the Trustee of any dissolution, winding-up, liquidation or
reorganization of such Guarantor.


                                ARTICLE THIRTEEN

                                  MISCELLANEOUS


SECTION 13.01. Trust Indenture Act Controls.

     This Indenture is subject to the provisions of the TIA that are required to
be a part of this Indenture, and shall, to the extent applicable, be governed by
such provisions. If any provision of this Indenture modifies any TIA provision
that may be so modified, such TIA provision shall be deemed to apply to this
Indenture as so modified. If any provision of this Indenture excludes any TIA
provision that may be so excluded, such TIA provision shall be excluded from
this Indenture.

     The provisions of TIA ss.ss. 310 through 317 that impose duties on any
Person (including the provisions automatically deemed included unless expressly
excluded by this Indenture) are a part of and govern this Indenture, whether or
not physically contained herein.



<PAGE>   111

                                     -104-

SECTION 13.02. Notices.

     Any notice or communication shall be sufficiently given if in writing and
delivered in person, by facsimile and confirmed by overnight courier, or mailed
by first-class mail addressed as follows:

                  if to the Company or to the Guarantors:

                           Sovereign Specialty Chemicals, Inc.
                           225 West Washington Street
                           Suite 2200
                           Chicago, Illinois  60606

                           Attention:    John R. Mellett

                           Facsimile:    (312) 419-4034
                           Telephone:    (312) 419-4035

                  with a copy to:

                           SSCI Investors LLC
                           c/o AEA Investors Inc.
                           65 East 55th Street, 27th Floor
                           New York, New York  10022

                           Attention:  Christine J. Smith

                           Facsimile:    (212) 702-0518
                           Telephone:    (212) 702-0513

                                          and

                           Fried, Frank, Harris, Shriver & Jacobson
                           One New York Plaza
                           New York, New York  10004

                           Attention:    John M. Bibona, Esq.

                           Facsimile:    (212) 859-8585
                           Telephone:    (212) 859-8000



<PAGE>   112

                                     -105-

                  if to the Trustee:

                           The Bank of New York
                           101 Barclay Street, Floor 21 West
                           New York, New York  10286

                           Attention:    Corporate Trust Administration

                           Facsimile:    (212) 815-5915
                           Telephone:    (212) 815-5783

     The Company or the Trustee by notice to the other may designate additional
or different addresses for subsequent notices or communications.

     Any notice or communication mailed, first-class, postage prepaid, to a
Holder including any notice delivered in connection with TIA ss. 310(b), TIA ss.
313(c), TIA ss. 314(a) and TIA ss. 315(b), shall be mailed to him at his address
as set forth on the Note Register and shall be sufficiently given to him if so
mailed within the time prescribed. To the extent required by the TIA, any notice
or communication shall also be mailed to any Person described in TIA ss. 313(c).

     Failure to mail a notice or communication to a Holder or any defect in it
shall not affect its sufficiency with respect to other Holders. Except for a
notice to the Trustee, which is deemed given only when received, if a notice or
communication is mailed in the manner provided above, it is duly given, whether
or not the addressee receives it.

SECTION 13.03. Communications by Holders with Other Holders.

     Holders may communicate pursuant to TIA ss. 312(b) with other Holders with
respect to their rights under this Indenture or the Notes. The Company, the
Trustee, the Registrar and any other person shall have the protection of TIA ss.
312(c).

SECTION 13.04. Certificate and Opinion as to Conditions Precedent.

     Upon any request or application by the Company to the Trustee to take or
refrain from taking any action under this Indenture, the Company shall furnish
to the Trustee at the request of the Trustee:

     (1) an Officers' Certificate in form and substance satisfactory to the
   Trustee stating that, in the opinion of the signers, all conditions
   precedent, if any, provided for in this Indenture relating to the proposed
   action have been complied with; and


<PAGE>   113

                                     -106-

     (2) an Opinion of Counsel in form and substance satisfactory to the Trustee
   stating that, in the opinion of such counsel, all such conditions precedent
   have been complied with.

SECTION 13.05. Statements Required in Certificate or Opinion.

     Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:

     (1) a statement that the person making such certificate or opinion has read
   such covenant or condition;

     (2) a brief statement as to the nature and scope of the examination or
   investigation upon which the statements or opinions contained in such
   certificate or opinion are based;

     (3) a statement that, in the opinion of such person, he has made such
   examination or investigation as is necessary to enable him to express an
   informed opinion as to whether or not such covenant or condition has been
   complied with; and

     (4) a statement as to whether or not, in the opinion of such person, such
   condition or covenant has been complied with; provided, however, that with
   respect to matters of fact an Opinion of Counsel may rely on an Officers'
   Certificate or certificates of public officials.

SECTION 13.06. Rules by Trustee, Paying Agent, Registrar.

     The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Paying Agent or Registrar may make reasonable rules for its
functions.

SECTION 13.07. Governing Law.

     THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN THIS INDENTURE, THE NOTES
AND THE NOTE GUARANTEES WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.

SECTION 13.08. No Recourse Against Others.

     A director, officer, employee, incorporator or stockholder, as such, of the
Company, any Guarantor or any of its Affiliates shall not have any liability for
any obligations of the Company or any Guarantor under the Notes, the Guaranty of
such Guarantor or this Indenture or for any claim based on, in respect of or by
reason of such obligations or their
<PAGE>   114

                                     -107-


creation. Each Holder by accepting a Note waives and releases all such
liability. This waiver and release are part of the consideration for the
issuance of the Notes and the Guaranties.

SECTION 13.09. Successors.

     All agreements of the Company in this Indenture and the Notes shall bind
its successor. All agreements of each Guarantor in this Indenture and such
Guarantor's Guaranty shall bind its successor. All agreements of the Trustee in
this Indenture shall bind its successor.

SECTION 13.10. Counterpart Originals.

     The parties may sign any number of copies of this Indenture. Each signed
copy shall be an original, but all of them together represent the same
agreement.

SECTION 13.11. Severability.

     In case any provision in this Indenture, in the Notes or in the Guaranty
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby, and a Holder shall have no claim therefor against any party
hereto.

SECTION 13.12. No Adverse Interpretation of Other Agreements.

     This Indenture may not be used to interpret another indenture, loan or debt
agreement of the Company or a Subsidiary. Any such indenture, loan or debt
agreement may not be used to interpret this Indenture.

SECTION 13.13. Legal Holidays.

     If a payment date is not a Business Day or not a business day at a place of
payment, payment may be made at that place on the next succeeding Business Day,
and no interest shall accrue for the intervening period.


                            [Signature Pages Follow]


<PAGE>   115


                                       S-1

                                   SIGNATURES


     IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed as of the date first written above.


                                SOVEREIGN SPECIALTY CHEMICALS, INC.


                                By:    /s/Robert B. Covalt
                                       ----------------------------------------
                                       Name:    Robert B. Covalt
                                       Title:   Chairman, President and
                                                Chief Executive Officer


                                PIERCE & STEVENS CORP.,
                                     as Guarantor


                                By:    /s/Robert B. Covalt
                                       ----------------------------------------
                                       Name:    Robert B. Covalt
                                       Title:   Chairman


                                SIA ADHESIVES, INC.,
                                     as Guarantor


                                By:    /s/Robert B. Covalt
                                       ----------------------------------------
                                       Name:    Robert B. Covalt
                                       Title:   Chairman


                                OSI SEALANTS, INC.,
                                     as Guarantor


                                By:    /s/Robert B. Covalt
                                       ----------------------------------------
                                       Name:    Robert B. Covalt
                                       Title:   Chairman


                                TANNER CHEMICALS, INC.,
                                     as Guarantor


                                By:    /s/Robert B. Covalt
                                       ----------------------------------------
                                       Name:    Robert B. Covalt
                                       Title:   Chairman

                                THE BANK OF NEW YORK,
                                    as Trustee

                                By:    /s/Mary La Gumina
                                       ----------------------------------------
                                       Name:    Mary La Gumina
                                       Title:   Assistant Vice President
<PAGE>   116
                                                                      EXHIBIT A


THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER SECURITIES LAWS.
NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED,
SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS THE TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.

THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT), OR (B) IT IS NOT A U.S. PERSON AND IS AQUIRING THIS NOTE IN AN OFFSHORE
TRANSACTION, (2) AGREES THAT IT WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO
YEARS (OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144(k) UNDER THE
SECURITIES ACT OR ANY SUCCESSOR PROVISION THEREUNDER) AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF (OR OF ANY PREDECESSOR OF THIS NOTE) OR THE LAST DAY
ON WHICH EITHER THE ISSUER OR ANY AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS
NOTE OR ANY PREDECESSOR OF THIS NOTE AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE
REQUIRED BY APPLICABLE LAWS (THE "RESALE RESTRICTION TERMINATION DATE"), OFFER,
SELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE SOVEREIGN SPECIALTY
CHEMICALS, INC. OR ANY OF ITS SUBSIDIARIES, (B) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO
LONG AS THE NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT
OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144A, OR (D) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3)
AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; PROVIDED THAT THE COMPANY AND
THE TRUSTEE SHALL HAVE THE RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (I)
PURSUANT TO CLAUSE (D) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (II) IN
EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATION OF TRANSFER IN THE
FORM APPEARING IN THE INDENTURE IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO

                                      A-1



<PAGE>   117

THE TRUSTEE. AS USED HEREIN, THE TERMS "U.S. PERSON" AND "OFFSHORE TRANSACTION"
SHALL HAVE THE MEANINGS ASSIGNED TO THEM BY REGULATION S UNDER THE SECURITIES
ACT. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE
RESTRICTION TERMINATION DATE.





                                      A-2
<PAGE>   118


                       SOVEREIGN SPECIALTY CHEMICALS, INC.
                        11 7/8% Senior Subordinated Note
                          due March 15, 2010, Series A

                                                               CUSIP No.: [    ]

No. [ ]                                                                  $[    ]

     SOVEREIGN SPECIALTY CHEMICALS, INC., a Delaware corporation (the "Company,"
which term includes any successor corporation), for value received, promises to
pay to CEDE & CO. or registered assigns the principal sum of [        ] DOLLARS,
on March 15, 2010.

     Interest Payment Dates: March 15 and September 15, commencing on September
15, 2000.

     Interest Record Dates: March 1 and September 1

     Reference is made to the further provisions of this Note contained herein,
which will for all purposes have the same effect as if set forth at this place.

     IN WITNESS WHEREOF, the Company has caused this Note to be signed manually
or by facsimile by its duly authorized officer.

                                  SOVEREIGN SPECIALTY CHEMICALS, INC.


                                  By:
                                     -------------------------------------
                                        Name:
                                       Title:


                                  By:
                                     -------------------------------------
                                        Name:
                                       Title:

Dated:[      ]



                                      A-3

<PAGE>   119


                [FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]

     This is one of the 11 7/8% Senior Subordinated Notes due March 15, 2010,
Series A, described in the within-mentioned Indenture.

Dated:[      ]
                                THE BANK OF NEW YORK,
                                   as Trustee


                                By:
                                   -----------------------------------
                                    Authorized Signatory







                                      A-4
<PAGE>   120


                                (REVERSE OF NOTE)

                       SOVEREIGN SPECIALTY CHEMICALS, INC.


                        11 7/8% Senior Subordinated Note
                          due March 15, 2010, Series A


1. Interest.

     SOVEREIGN SPECIALTY CHEMICALS, INC., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Note at the
rate per annum shown above. Cash interest on the Notes will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from March 29, 2000. The Company will pay interest semi-annually in arrears on
each Interest Payment Date, commencing September 15, 2000. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.

     The Company shall pay interest on overdue principal from time to time on
demand and on overdue installments of interest (without regard to any applicable
grace periods) to the extent lawful from time to time on demand, in each case at
the rate borne by the Notes

2. Method of Payment.

     The Company shall pay interest on the Notes (except defaulted interest) to
the persons who are the registered Holders at the close of business on the
Interest Record Date immediately preceding the Interest Payment Date even if the
Notes are cancelled on registration of transfer or registration of exchange
after such Interest Record Date. Holders must surrender Notes to a Paying Agent
to collect principal payments. The Company shall pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts ("U.S. Legal Tender"). However, the Company
may pay principal and interest by wire transfer of federal funds (provided that
the Paying Agent shall have received wire instructions on or prior to the
relevant Interest Record Date), or interest by check payable in such U.S. Legal
Tender. The Company may deliver any such interest payment to the Paying Agent or
to a Holder at the Holder's registered address.

3. Paying Agent and Registrar.

     Initially, The Bank of New York (the "Trustee") will act as Paying Agent
and Registrar. The Company may change any Paying Agent or Registrar without
notice to the Holders. The Company or any of its Subsidiaries may, subject to
certain exceptions, act as Registrar.




                                      A-5
<PAGE>   121

4. Indenture and Guarantees.

     The Company issued the Notes under an Indenture, dated as of March 29, 2000
(the "Indenture"), by and among the Company, the Guarantors and the Trustee.
Capitalized terms herein are used as defined in the Indenture unless otherwise
defined herein. This Note is one of a duly authorized issue of Notes of the
Company designated as its 11 7/8% Senior Subordinated Notes due 2010, Series A
(the "Initial Notes"). Initial Notes in an aggregate principal amount of
$150,000,000 are being issued on March 29, 2000. Additional Notes may be issued
subject to Section 4.04 of the Indenture. The Notes are limited (except as
provided in the Indenture) to an aggregate principal amount of $200,000,000. The
Notes include the Initial Notes, the Private Exchange Notes (as defined in the
Indenture), the Unrestricted Notes (as defined below) issued in exchange for the
Initial Notes pursuant to the Registration Rights Agreement and any Additional
Notes. The Notes are treated as a single class of securities under the
Indenture. The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of 1939
(15 U.S.C. ss.ss. 77aaa-77bbbb) (the "TIA"), as in effect on the date of the
Indenture (except as otherwise indicated in the Indenture) until such time as
the Indenture is qualified under the TIA, and thereafter as in effect on the
date on which the Indenture is qualified under the TIA. Notwithstanding anything
to the contrary herein, the Notes are subject to all such terms, and holders of
Notes are referred to the Indenture and the TIA for a statement of them. The
Notes are general unsecured obligations of the Company. The Notes are
subordinated in right of payment to all Senior Indebtedness of the Company to
the extent and in the manner provided in the Indenture. Each Holder of a Note,
by accepting a Note, agrees to such subordination, authorizes the Trustee to
give effect to such subordination and appoints the Trustee as attorney-in-fact
for such purpose.

     Payment on the Notes is guaranteed (each, a "Guaranty"), on a senior
subordinated basis, jointly and severally, by each Restricted Subsidiary (other
than Foreign Subsidiaries) of the Company existing on the Issue Date (each, a
"Guarantor") pursuant to Article Eleven and Article Twelve of the Indenture. In
addition, the Indenture requires the Company to cause each Subsidiary other than
an existing Guarantor, an Unrestricted Subsidiary or a Foreign Subsidiary formed
or acquired after the Issue Date to become a party to the Indenture as a
Guarantor and guarantee payment on the Notes pursuant to Article Eleven and
Article Twelve of the Indenture; provided that Foreign Subsidiaries shall also
be required to be Guarantors to the extent such Foreign Subsidiaries guarantee
Indebtedness of the Company or of any Subsidiary which is not a Foreign
Subsidiary in a principal amount equal to or greater than $25.0 million in the
aggregate for all Foreign Subsidiaries. In certain circumstances, the Guaranties
may be released.

5. Optional Redemption.

     The Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after March 15, 2005, at the redemption prices
(expressed as a percent


                                      A-6
<PAGE>   122

age of principal amount) set forth below, plus accrued and unpaid interest
thereon, if any, to the redemption date (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
interest payment date), if redeemed during the twelve-month period beginning on
March 15 of the years indicated below:

                                              REDEMPTION
                       YEAR                     PRICE
          -----------------------------       ----------
          2005                                 105.938%
          2006                                 103.958%
          2007                                 101.979%
          2008 and thereafter                  100.000%

6. Optional Redemption upon Equity Offerings.

     In addition, at any time and from time to time on or prior to March 15,
2003, the Company may redeem in the aggregate up to 35% of the original
aggregate principal amount of the Notes (calculated after giving effect to the
original issuance of Additional Notes, if any) with the net cash proceeds of one
or more Equity Offerings by the Company, at a redemption price in cash equal to
111.875% of the principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the date of redemption (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date); provided, however, that at least 65% original aggregate
principal amount of the Notes (calculated after giving effect to the original
issuance of Additional Notes, if any) must remain outstanding immediately after
giving effect to each such redemption (excluding any Notes held by the Company
or any of its Affiliates). Notice of any such redemption must be given within 60
days after the date of the closing of the relevant Equity Offering of the
Company.

7. Notice of Redemption.

     Notice of redemption will be mailed by first-class mail at least 30 days
but not more than 60 days before the Redemption Date to each Holder of Notes to
be redeemed at its registered address. The Trustee may select for redemption
portions of the principal amount of Notes that have denominations equal to or
larger than $1,000 principal amount. Notes and portions of them the Trustee so
selects shall be in amounts of $1,000 principal amount or integral multiples
thereof.

     If any Note is to be redeemed in part only, the notice of redemption that
relates to such Note shall state the portion of the principal amount thereof to
be redeemed. A new Note in a principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Note. On and after the Redemption Date, interest will cease to
accrue on Notes or portions thereof called for redemption so long as the Company
has deposited with the Paying Agent for the Notes funds in satisfaction of the



                                      A-7
<PAGE>   123

redemption price pursuant to the Indenture and the Paying Agent is not
prohibited from paying such funds to the Holders pursuant to the terms of the
Indenture.

8. Change of Control Offer.

     In the event of the occurrence of a Change of Control (the date of such
occurrence being the "Change of Control Date"), the Company shall, within 20
days after the Change of Control Date (or, at the Company's option, prior to
such Change of Control Date), make an Offer to Purchase all Notes then
outstanding at a purchase price in cash equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest thereon, if any, to the
Purchase Date (subject to the right of Holders of record on the relevant
Interest Record Date to receive interest due on the relevant Interest Payment
Date); provided, that any Offer to Purchase made prior to any Change of Control
Date shall be made only in the reasonable anticipation of such Change of
Control, and provided, further, that the Company shall not purchase any Notes
tendered pursuant to such Offer to Purchase if such Change of Control does not
occur.

9. Limitation on Disposition of Assets.

     The Company is, subject to certain conditions, obligated to make an Offer
to Purchase Notes at a purchase price equal to 100% of the principal amount
thereof, plus accrued and unpaid interest thereon, if any, to the Purchase Date
(subject to the right of Holders of record on the Interest Relevant Record Date
to receive interest due on the relevant Interest Payment Date) with the proceeds
of certain asset dispositions.

10. Denominations; Transfer; Exchange.

     The Notes are in registered form, without coupons, in denominations of
$1,000 and integral multiples of $1,000. A Holder shall register the transfer of
or exchange Notes in accordance with the Indenture. The Registrar may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and to pay certain transfer taxes or similar governmental charges
payable in connection therewith as permitted by the Indenture. The Registrar
need not register the transfer of or exchange any Notes or portions thereof
selected for redemption, except the unredeemed portion of any Note being
redeemed in part.

11. Persons Deemed Owners.

     The registered Holder of a Note shall be treated as the owner of it for all
purposes.

12. Unclaimed Funds.

     If funds for the payment of principal or interest remain unclaimed for two
years, the Trustee and the Paying Agent will repay the funds to the Company at
its written re-


                                      A-8
<PAGE>   124

quest. After that, all liability of the Trustee and such Paying Agent with
respect to such funds shall cease.

13. Legal Defeasance and Covenant Defeasance.

     The Company and the Guarantors may be discharged from their obligations
under the Indenture, the Notes and the Guaranties, except for certain provisions
thereof, and may be discharged from obligations to comply with certain covenants
contained in the Indenture, the Notes and the Guaranties, in each case upon
satisfaction of certain conditions specified in the Indenture.

14. Amendment; Supplement; Waiver.

     Subject to certain exceptions, the Indenture, the Notes and the Guaranties
may be amended or supplemented with the written consent of the Holders of at
least a majority in aggregate principal amount of the Notes then outstanding,
and any existing Default or Event of Default or compliance with any provision
may be waived with the consent of the Holders of a majority in aggregate
principal amount of the Notes then outstanding. Without notice to or consent of
any Holder, the parties thereto may amend or supplement the Indenture, the Notes
and the Guaranties to, among other things, cure any ambiguity, defect or
inconsistency, provide for uncertificated Notes in addition to or in place of
certificated Notes or comply with any requirements of the SEC in connection with
the qualification of the Indenture under the TIA, or make any other change that
does not materially adversely affect the rights of any Holder of a Note.

15. Restrictive Covenants.

     The Indenture contains certain covenants that, among other things, limit
the ability of the Company and the Restricted Subsidiaries to make restricted
payments, to incur indebtedness, to create liens, to sell assets, to permit
restrictions on dividends and other payments by Restricted Subsidiaries to the
Company, to consolidate, merge or sell all or substantially all of its assets,
to engage in transactions with affiliates or certain other related persons or to
engage in certain businesses. The limitations are subject to a number of
important qualifications and exceptions. The Company must report annually to the
Trustee on compliance with such limitations.

16. Defaults and Remedies.

     If an Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in aggregate principal amount of Notes then outstanding may
declare all the Notes to be due and payable immediately in the manner and with
the effect provided in the Indenture. Holders of Notes may not enforce the
Indenture, the Notes or the Guaranties except as provided in the Indenture. The
Trustee is not obligated to enforce the Indenture, the Notes or the Guaranties
unless it has received indemnity satisfactory to it. The Indenture permits,
sub-


                                      A-9
<PAGE>   125

ject to certain limitations therein provided, Holders of a majority in aggregate
principal amount of the Notes then outstanding to direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of Notes
notice of certain continuing Defaults or Events of Default if it determines that
withholding notice is in their interest.

17. Trustee Dealings with Company.

     The Trustee under the Indenture, in its individual or any other capacity,
may become the owner or pledgee of Notes and may otherwise deal with the
Company, its Subsidiaries or their respective Affiliates as if it were not the
Trustee, subject to certain exceptions.

18. No Recourse Against Others.

     No stockholder, director, officer, employee or incorporator, as such, of
the Company or any Guarantor shall have any liability for any obligation of the
Company or any Guarantor under the Notes, the Guaranty of such Guarantor or the
Indenture or for any claim based on, in respect of or by reason of, such
obligations or their creation. Each Holder of a Note by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes and the Guaranties.

19. Authentication.

     This Note shall not be valid until the Trustee or authenticating agent
signs the certificate of authentication on this Note.

20. Abbreviations and Defined Terms.

     Customary abbreviations may be used in the name of a Holder of a Note or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors
Act).

21. CUSIP Numbers.

     Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Notes as a convenience to the Holders of the Notes. No
representation is made as to the accuracy of such numbers as printed on the
Notes and reliance may be placed only on the other identification numbers
printed hereon.

22. Registration Rights.

     Pursuant to the Registration Rights Agreement, the Company will be
obligated upon the occurrence of certain events to consummate an exchange offer
pursuant to which the





                                      A-10
<PAGE>   126

Holder of this Note shall have the right to exchange this Note for an 11 7/8%
Senior Subordinated Note due 2010, Series B, of the Company (an "Unrestricted
Note") which have been registered under the Securities Act, in like principal
amount and having terms identical in all material respects to the Initial Notes
except (x) for the transfer restrictions relating to the Notes, (y) the
provisions relating to an increase in the rate of interest discussed in the
following sentence and (z) interest thereon will accrue from the last date
interest was paid on the Notes or, if no interest has been paid, from the Issue
Date. The Holders shall be entitled to receive certain additional interest
payments in the event such exchange offer is not consummated and upon certain
other conditions, all pursuant to and in accordance with the terms of the
Registration Rights Agreement.

23. Governing Law.

     The laws of the State of New York shall govern the Indenture, this Note and
any Guaranty thereof without regard to principles of conflicts of laws.





                                      A-11



<PAGE>   127





                             [FORM OF NOTE GUARANTY]

                          SENIOR SUBORDINATED GUARANTY

     The Guarantor (as defined in the Indenture referred to in the Note upon
which this notation is endorsed) hereby unconditionally guarantees on a senior
subordinated basis (such guaranty by the Guarantor being referred to herein as
the "Guaranty") the due and punctual payment of the principal of, premium, if
any, and interest on the Notes, whether at maturity, by acceleration or
otherwise, the due and punctual payment of interest on the overdue principal,
premium and interest on the Notes, and the due and punctual performance of all
other obligations of the Company to the Holders or the Trustee, all in
accordance with the terms set forth in Article Eleven of the Indenture.

     The obligations of the Guarantor to the Holders of Notes and to the Trustee
pursuant to the Guaranty and the Indenture are expressly set forth, and are
expressly subordinated and subject in right of payment to the prior payment in
full of all Guarantor Senior Indebtedness (as defined in the Indenture) of such
Guarantor, to the extent and in the manner provided in Article Eleven and
Article Twelve of the Indenture, and reference is hereby made to such Indenture
for the precise terms of the Guaranty therein made.

     This Note Guarantee shall not be valid or obligatory for any purpose until
the certificate of authentication on the Notes upon which this Note Guarantee is
noted shall have been executed by the Trustee under the Indenture by the manual
signature of one of its authorized officers.

     This Note Guarantee shall be governed by and construed in accordance with
the laws of the State of New York without regard to principles of conflicts of
law.

     This Note Guarantee is subject to release upon the terms set forth in the
Indenture.

                                PIERCE & STEVENS CORP.


                                By:
                                   ---------------------------------------
                                      Name:
                                      Title:


<PAGE>   128


                                SIA ADHESIVES, INC.


                                By:
                                   ---------------------------------------
                                      Name:
                                     Title:


                                OSI SEALANTS, INC.


                                By:
                                   ---------------------------------------
                                      Name:
                                     Title:


                                TANNER CHEMICALS, INC.


                                By:
                                   ---------------------------------------
                                      Name:
                                     Title:




<PAGE>   129




                                 ASSIGNMENT FORM


I or we assign and transfer this Note to


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


- --------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee or transferee)


- --------------------------------------------------------------------------------
(Insert Social Security or other identifying number of assignee or transferee)

and irrevocably appoint
agent to transfer this Note on the books of the Company.  The agent may
substitute another to act for him.


Dated:                                     Signed:
      --------------------------           ------------------------------------

                                             (Signed exactly as name appears
                                             on the other side of this Note)

Signature Guarantee:

- -------------------------
                         Participant in a recognized Signature Guarantee
                         Medallion Program (or other signature guarantor program
                         reasonably acceptable to the Trustee)



<PAGE>   130


                       OPTION OF HOLDER TO ELECT PURCHASE


     If you want to elect to have this Note purchased by the Company pursuant to
Section 4.05 or Section 4.14 of the Indenture, check the appropriate box:

Section 4.05 [      ]
Section 4.14 [      ]

                  If you want to elect to have only part of this Note purchased
by the Company pursuant to Section 4.05 or Section 4.14 of the Indenture, state
the amount: $_____________

Dated:                             Your Signature:
      --------------------                        ---------------------------
                                                 (Signed exactly as name appears
                                                 on the other side of this Note)

Signature Guarantee:

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


                               SIGNATURE GUARANTEE


Signatures must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or such
other "signature guarantee program" as may be determined by the Registrar in
addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.



<PAGE>   131



                                                                       EXHIBIT B


                             [FORM OF SERIES B NOTE]

                       SOVEREIGN SPECIALTY CHEMICALS, INC.
                        11 7/8% Senior Subordinated Note
                          due March 15, 2010, Series B

                                                               CUSIP No.: [    ]

No. [  ]                                                                 $[    ]

     SOVEREIGN SPECIALTY CHEMICALS, INC., a Delaware corporation (the "Company,"
which term includes any successor corporation), for value received, promises to
pay to CEDE & CO. or registered assigns the principal sum of [        ] DOLLARS,
on March 15, 2010.

     Interest Payment Dates: March 15 and September 15, commencing on September
15, 2000.

     Interest Record Dates: March 1 and September 1

     Reference is made to the further provisions of this Note contained herein,
which will for all purposes have the same effect as if set forth at this place.

     IN WITNESS WHEREOF, the Company has caused this Note to be signed manually
or by facsimile by its duly authorized officer.

                                SOVEREIGN SPECIALTY CHEMICALS, INC.


                                By:
                                   -----------------------------------
                                     Name:
                                     Title:


                                By:
                                   -----------------------------------
                                      Name:
                                     Title:

Dated:[    ]





                                      B-1
<PAGE>   132


                [FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]

     This is one of the 11 7/8% Senior Subordinated Notes due March 15, 2010,
Series B, described in the within-mentioned Indenture.

Dated: [       ]
                                THE BANK OF NEW YORK,
                                   as Trustee


                                By:
                                   --------------------------------------
                                       Authorized Signatory




                                      B-2
<PAGE>   133



                                (REVERSE OF NOTE)

                       SOVEREIGN SPECIALTY CHEMICALS, INC.


                        11 7/8% Senior Subordinated Note
                          due March 15, 2010, Series B


1. Interest.

     SOVEREIGN SPECIALTY CHEMICALS, INC., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Note at the
rate per annum shown above. Cash interest on the Notes will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from March 29, 2000. The Company will pay interest semi-annually in arrears on
each Interest Payment Date, commencing September 15, 2000. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.

     The Company shall pay interest on overdue principal from time to time on
demand and on overdue installments of interest (without regard to any applicable
grace periods) to the extent lawful from time to time on demand, in each case at
the rate borne by the Notes

2. Method of Payment.

     The Company shall pay interest on the Notes (except defaulted interest) to
the persons who are the registered Holders at the close of business on the
Interest Record Date immediately preceding the Interest Payment Date even if the
Notes are cancelled on registration of transfer or registration of exchange
after such Interest Record Date. Holders must surrender Notes to a Paying Agent
to collect principal payments. The Company shall pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts ("U.S. Legal Tender"). However, the Company
may pay principal and interest by wire transfer of federal funds (provided that
the Paying Agent shall have received wire instructions on or prior to the
relevant Interest Record Date), or interest by check payable in such U.S. Legal
Tender. The Company may deliver any such interest payment to the Paying Agent or
to a Holder at the Holder's registered address.

3. Paying Agent and Registrar.

     Initially, The Bank of New York (the "Trustee") will act as Paying Agent
and Registrar. The Company may change any Paying Agent or Registrar without
notice to the Holders. The Company or any of its Subsidiaries may, subject to
certain exceptions, act as Registrar.




                                      B-3
<PAGE>   134

4. Indenture and Guarantees.

     The Company issued the Notes under an Indenture, dated as of March 29, 2000
(the "Indenture"), by and among the Company, the Guarantors and the Trustee.
Capitalized terms herein are used as defined in the Indenture unless otherwise
defined herein. This Note is one of a duly authorized issue of Notes of the
Company designated as its 11 7/8% Senior Subordinated Notes due 2010, Series B
(the "Unrestricted Notes"). Unrestricted Notes in an aggregate principal amount
of $[ ] are being issued in the Exchange Offer in exchange for Initial Notes.
Additional Notes may be issued subject to Section 4.04 of the Indenture. The
Notes are limited (except as permitted in the Indenture) to an aggregate
principal amount of $200,000,000. The Notes include the 11 7/8% Senior
Subordinated Notes due 2010, Series A (the "Initial Notes"), the Private
Exchange Notes (as defined in the Indenture), the Unrestricted Notes and the
Additional Notes. The Notes are treated as a single class of securities under
the Indenture. The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of 1939
(15 U.S.C. ss.ss. 77aaa-77bbbb) (the "TIA"), as in effect on the date of the
Indenture (except as otherwise indicated in the Indenture) until such time as
the Indenture is qualified under the TIA, and thereafter as in effect on the
date on which the Indenture is qualified under the TIA. Notwithstanding anything
to the contrary herein, the Notes are subject to all such terms, and holders of
Notes are referred to the Indenture and the TIA for a statement of them. The
Notes are general unsecured obligations of the Company. The Notes are
subordinated in right of payment to all Senior Indebtedness of the Company to
the extent and in the manner provided in the Indenture. Each Holder of a Note,
by accepting a Note, agrees to such subordination, authorizes the Trustee to
give effect to such subordination and appoints the Trustee as attorney-in-fact
for such purpose.

     Payment on the Notes is guaranteed (each, a "Guaranty"), on a senior
subordinated basis, jointly and severally, by each Restricted Subsidiary (other
than Foreign Subsidiaries) of the Company existing on the Issue Date (each, a
"Guarantor") pursuant to Article Eleven and Article Twelve of the Indenture. In
addition, the Indenture requires the Company to cause each Subsidiary other than
an existing Guarantor, an Unrestricted Subsidiary or a Foreign Subsidiary formed
or acquired after the Issue Date to become a party to the Indenture as a
Guarantor and guarantee payment on the Notes pursuant to Article Eleven and
Article Twelve of the Indenture; provided that Foreign Subsidiaries shall also
be required to be Guarantors to the extent such Foreign Subsidiaries guarantee
Indebtedness of the Company or of any Subsidiary which is not a Foreign
Subsidiary in a principal amount equal to or greater than $25.0 million in the
aggregate for all Foreign Subsidiaries. In certain circumstances, the Guaranties
may be released.

5. Optional Redemption.

     The Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after March 15, 2005, at the redemption prices
(expressed as a percent-


                                      B-4
<PAGE>   135

age of principal amount) set forth below, plus accrued and unpaid interest
thereon, if any, to the redemption date (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
interest payment date), if redeemed during the twelve-month period beginning on
March 15 of the years indicated below:

                                                       REDEMPTION
                        YEAR                             PRICE
           -----------------------------               ---------
           2005                                         105.938%
           2006                                         103.958%
           2007                                         101.979%
           2008 and thereafter                          100.000%

6. Optional Redemption upon Equity Offerings.

     In addition, at any time and from time to time on or prior to March 15,
2003, the Company may redeem in the aggregate up to 35% of the original
aggregate principal amount of the Notes (calculated after giving effect to
original issuance of Additional Notes, if any) with the net cash proceeds of one
or more Equity Offerings by the Company, at a redemption price in cash equal to
111.875% of the principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the date of redemption (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date); provided, however, that at least 65% original aggregate
principal amount of the Notes (calculated after giving effect to original
issuance of Additional Notes, if any) must remain outstanding immediately after
giving effect to each such redemption (excluding any Notes held by the Company
or any of its Affiliates). Notice of any such redemption must be given within 60
days after the date of the closing of the relevant Equity Offering of the
Company.

7. Notice of Redemption.

     Notice of redemption will be mailed by first-class mail at least 30 days
but not more than 60 days before the Redemption Date to each Holder of Notes to
be redeemed at its registered address. The Trustee may select for redemption
portions of the principal amount of Notes that have denominations equal to or
larger than $1,000 principal amount. Notes and portions of them the Trustee so
selects shall be in amounts of $1,000 principal amount or integral multiples
thereof.

     If any Note is to be redeemed in part only, the notice of redemption that
relates to such Note shall state the portion of the principal amount thereof to
be redeemed. A new Note in a principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Note. On and after the Redemption Date, interest will cease to
accrue on Notes or portions thereof called for redemption so long as the Company
has deposited with the Paying Agent for the Notes funds in satisfaction of the





                                      B-5
<PAGE>   136

redemption price pursuant to the Indenture and the Paying Agent is not
prohibited from paying such funds to the Holders pursuant to the terms of the
Indenture.

8. Change of Control Offer.

     In the event of the occurrence of a Change of Control (the date of such
occurrence being the "Change of Control Date"), the Company shall, within 20
days after the Change of Control Date (or, at the Company's option, prior to
such Change of Control Date), make an Offer to Purchase all Notes then
outstanding at a purchase price in cash equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest thereon, if any, to the
Purchase Date (subject to the right of Holders of record on the relevant
Interest Record Date to receive interest due on the relevant Interest Payment
Date); provided, that any Offer to Purchase made prior to any Change of Control
Date shall be made only in the reasonable anticipation of such Change of
Control; and provided, further, that the Company shall not purchase any Notes
tendered pursuant to such Offer to Purchase if such Change of Control does not
occur.

9. Limitation on Disposition of Assets.

     The Company is, subject to certain conditions, obligated to make an Offer
to Purchase Notes at a purchase price equal to 100% of the principal amount
thereof, plus accrued and unpaid interest thereon, if any, to the Purchase Date
(subject to the right of Holders of record on the Interest Relevant Record Date
to receive interest due on the relevant Interest Payment Date) with the proceeds
of certain asset dispositions.

10. Denominations; Transfer; Exchange.

     The Notes are in registered form, without coupons, in denominations of
$1,000 and integral multiples of $1,000. A Holder shall register the transfer of
or exchange Notes in accordance with the Indenture. The Registrar may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and to pay certain transfer taxes or similar governmental charges
payable in connection therewith as permitted by the Indenture. The Registrar
need not register the transfer of or exchange any Notes or portions thereof
selected for redemption, except the unredeemed portion of any Note being
redeemed in part.

11. Persons Deemed Owners.

     The registered Holder of a Note shall be treated as the owner of it for all
purposes.

12. Unclaimed Funds.

     If funds for the payment of principal or interest remain unclaimed for two
years, the Trustee and the Paying Agent will repay the funds to the Company at
its written re-


                                      B-6
<PAGE>   137

quest. After that, all liability of the Trustee and such Paying Agent with
respect to such funds shall cease.

13. Legal Defeasance and Covenant Defeasance.

     The Company and the Guarantors may be discharged from their obligations
under the Indenture, the Notes and the Guaranties, except for certain provisions
thereof, and may be discharged from obligations to comply with certain covenants
contained in the Indenture, the Notes and the Guaranties, in each case upon
satisfaction of certain conditions specified in the Indenture.

14. Amendment; Supplement; Waiver.

     Subject to certain exceptions, the Indenture, the Notes and the Guaranties
may be amended or supplemented with the written consent of the Holders of at
least a majority in aggregate principal amount of the Notes then outstanding,
and any existing Default or Event of Default or compliance with any provision
may be waived with the consent of the Holders of a majority in aggregate
principal amount of the Notes then outstanding. Without notice to or consent of
any Holder, the parties thereto may amend or supplement the Indenture, the Notes
and the Guaranties to, among other things, cure any ambiguity, defect or
inconsistency, provide for uncertificated Notes in addition to or in place of
certificated Notes or comply with any requirements of the SEC in connection with
the qualification of the Indenture under the TIA, or make any other change that
does not materially adversely affect the rights of any Holder of a Note.

15. Restrictive Covenants.

     The Indenture contains certain covenants that, among other things, limit
the ability of the Company and the Restricted Subsidiaries to make restricted
payments, to incur indebtedness, to create liens, to sell assets, to permit
restrictions on dividends and other payments by Restricted Subsidiaries to the
Company, to consolidate, merge or sell all or substantially all of its assets,
to engage in transactions with affiliates or certain other related persons or to
engage in certain businesses. The limitations are subject to a number of
important qualifications and exceptions. The Company must report annually to the
Trustee on compliance with such limitations.

16. Defaults and Remedies.

     If an Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in aggregate principal amount of Notes then outstanding may
declare all the Notes to be due and payable immediately in the manner and with
the effect provided in the Indenture. Holders of Notes may not enforce the
Indenture, the Notes or the Guaranties except as provided in the Indenture. The
Trustee is not obligated to enforce the Indenture, the Notes or the Guaranties
unless it has received indemnity satisfactory to it. The Indenture permits,
sub-


                                      B-7
<PAGE>   138

ject to certain limitations therein provided, Holders of a majority in aggregate
principal amount of the Notes then outstanding to direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of Notes
notice of certain continuing Defaults or Events of Default if it determines that
withholding notice is in their interest.

17. Trustee Dealings with Company.

     The Trustee under the Indenture, in its individual or any other capacity,
may become the owner or pledgee of Notes and may otherwise deal with the
Company, its Subsidiaries or their respective Affiliates as if it were not the
Trustee, subject to certain exceptions.

18. No Recourse Against Others.

     No stockholder, director, officer, employee or incorporator, as such, of
the Company or any Guarantor shall have any liability for any obligation of the
Company or any Guarantor under the Notes, the Guaranty of such Guarantor or the
Indenture or for any claim based on, in respect of or by reason of, such
obligations or their creation. Each Holder of a Note by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes and the Guaranties.

19. Authentication.

     This Note shall not be valid until the Trustee or authenticating agent
signs the certificate of authentication on this Note.

20. Abbreviations and Defined Terms.

     Customary abbreviations may be used in the name of a Holder of a Note or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors
Act).

21. CUSIP Numbers.

     Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Notes as a convenience to the Holders of the Notes. No
representation is made as to the accuracy of such numbers as printed on the
Notes and reliance may be placed only on the other identification numbers
printed hereon.

22. Governing Law.

     The laws of the State of New York shall govern the Indenture, this Note and
any Guaranty thereof without regard to principles of conflicts of laws.




                                      B-8
<PAGE>   139





                             [FORM OF NOTE GUARANTY]

                          SENIOR SUBORDINATED GUARANTY

     The Guarantor (as defined in the Indenture referred to in the Note upon
which this notation is endorsed) hereby unconditionally guarantees on a senior
subordinated basis (such guaranty by the Guarantor being referred to herein as
the "Guaranty") the due and punctual payment of the principal of, premium, if
any, and interest on the Notes, whether at maturity, by acceleration or
otherwise, the due and punctual payment of interest on the overdue principal,
premium and interest on the Notes, and the due and punctual performance of all
other obligations of the Company to the Holders or the Trustee, all in
accordance with the terms set forth in Article Eleven of the Indenture.

     The obligations of the Guarantor to the Holders of Notes and to the Trustee
pursuant to the Guaranty and the Indenture are expressly set forth, and are
expressly subordinated and subject in right of payment to the prior payment in
full of all Guarantor Senior Indebtedness (as defined in the Indenture) of such
Guarantor, to the extent and in the manner provided in Article Eleven and
Article Twelve of the Indenture, and reference is hereby made to such Indenture
for the precise terms of the Guaranty therein made.

     This Note Guarantee shall not be valid or obligatory for any purpose until
the certificate of authentication on the Notes upon which this Note Guarantee is
noted shall have been executed by the Trustee under the Indenture by the manual
signature of one of its authorized officers.

     This Note Guarantee shall be governed by and construed in accordance with
the laws of the State of New York without regard to principles of conflicts of
law.

     This Note Guarantee is subject to release upon the terms set forth in the
Indenture.

                                PIERCE & STEVENS CORP.


                                By:
                                   ------------------------------------
                                      Name:
                                     Title:


<PAGE>   140

                                SIA ADHESIVES, INC.


                                By:
                                   ------------------------------------
                                      Name:
                                     Title:


                                OSI SEALANTS, INC.


                                By:
                                   ------------------------------------
                                      Name:
                                     Title:


                                TANNER CHEMICALS, INC.


                                By:
                                   ------------------------------------
                                      Name:
                                     Title:




<PAGE>   141




                                 ASSIGNMENT FORM


I or we assign and transfer this Note to


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



- --------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee or transferee)


- --------------------------------------------------------------------------------
(Insert Social Security or other identifying number of assignee or transferee)

and irrevocably appoint
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him.


Dated:                                        Signed:
      -------------------                            -----------------------
                                                (Signed exactly as name appears
                                                 on the other side of this Note)

Signature Guarantee:

- -------------------
                     Participant in a recognized Signature Guarantee
                     Medallion Program (or other signature guarantor program
                     reasonably acceptable to the Trustee)



<PAGE>   142


                       OPTION OF HOLDER TO ELECT PURCHASE


     If you want to elect to have this Note purchased by the Company pursuant to
Section 4.05 or Section 4.14 of the Indenture, check the appropriate box:

Section 4.05 [      ]
Section 4.14 [      ]

                  If you want to elect to have only part of this Note purchased
by the Company pursuant to Section 4.05 or Section 4.14 of the Indenture, state
the amount: $

Dated:                                     Your Signature:
      -----------------                                   --------------------
                                                 (Signed exactly as name appears
                                                 on the other side of this Note)

Signature Guarantee:


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


                               SIGNATURE GUARANTEE


Signatures must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or such
other "signature guarantee program" as may be determined by the Registrar in
addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.



<PAGE>   143



                                                                       EXHIBIT C


                         FORM OF LEGEND FOR GLOBAL NOTES

     Any Global Note authenticated and delivered hereunder shall bear a legend
(which would be in addition to any other legends required in the case of a
Restricted Note) in substantially the following form:

     THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER
REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE OF A
DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS NOTE IS NOT EXCHANGEABLE FOR NOTES
REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE
EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER
OF THIS NOTE (OTHER THAN A TRANSFER OF THIS NOTE AS A WHOLE BY THE DEPOSITORY TO
A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY
OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE.

     UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN
PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S
NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO
TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.16 OF
THE INDENTURE.


                                      C-1


<PAGE>   144



                                                                       EXHIBIT D


                    CERTIFICATE TO BE DELIVERED UPON EXCHANGE
                      OR REGISTRATION OF TRANSFER OF NOTES

         Re:      11 7/8% Senior Subordinated Notes due 2010
                  (the "Notes") of Sovereign Specialty Chemicals, Inc.

     This Certificate relates to $        principal amount of Notes held in the
form of*      a beneficial interest in a Global Note or*          Physical Notes
by         (the "Transferor").

The Transferor:*

     |_| has requested by written order that the Registrar deliver in exchange
for its beneficial interest in the Global Note held by the Depositary a Physical
Note or Physical Notes in definitive, registered form of authorized
denominations and an aggregate number equal to its beneficial interest in such
Global Note (or the portion thereof indicated above);

     |_| has directed in writing that the Registrar make, or direct the
Depository to make, an endorsement on the applicable Global Note to reflect an
increase in the aggregate amount of the Notes represented by the Global Note; or

     |_| has requested that the Registrar by written order to exchange or
register the transfer of a Physical Note or Physical Notes.

     In connection with such request and in respect of each such Note, the
Transferor does hereby certify that the Transferor is familiar with the
Indenture relating to the above captioned Notes and the restrictions on
transfers thereof as provided in Section 2.16 of such Indenture, and that the
transfer of the Notes does not require Registration under the Securities Act of
1933, as amended (the "Act"), because*:

     |_| Such Note is being acquired for the Transferor's own account, without
transfer (in satisfaction of Section 2.16 of the Indenture).

     |_| Such Note is being transferred to a "qualified institutional buyer" (as
defined in Rule 144A under the Act), in reliance on Rule 144A.

     |_| Such Note is being transferred in reliance on Rule 144 under the Act.



                                       D-1


<PAGE>   145

     |_| Such Note is being transferred in reliance on and in compliance with an
exemption from the Registration requirements of the Act other than Rule 144A.
[An Opinion of Counsel to the effect that such transfer does not require
Registration under the Act accompanies this certification.]

                                      --------------------------------
                                      [INSERT NAME OF TRANSFEROR]


                                       By:
                                          ----------------------------------
                                           [Authorized Signatory]


Date:
     ----------------------------
        *Check applicable box.






                                      D-2


<PAGE>   146

                                                                       EXHIBIT E


                            Form of Certificate To Be
                             Delivered in Connection
                           with Regulation S Transfers


                                                           ---------------, ----


SOVEREIGN SPECIALTY CHEMICALS, INC.
c/o THE BANK OF NEW YORK
101 Barclay Street, Floor 21 West
New York, New York  10286

         Re:      SOVEREIGN SPECIALTY CHEMICALS, INC.
                  (the "Company") 11 7/8% Senior Subordinated
                  Notes due 2010 (the "Notes")

Ladies and Gentlemen:

     In connection with our proposed sale of $              aggregate principal
amount of the Notes, we confirm that such sale has been effected pursuant to and
in accordance with Regulation S under the Securities Act of 1933, as amended
(the "Securities Act"), and, accordingly, we represent that:

     (1)  we are not a distributor of the Notes, an affiliate of the Company or
          any such distributor or person acting on behalf of the foregoing;

     (2)  the offer of the Notes was not made to a person in the United States
          or specifically targeted at an identifiable group of U.S. citizens
          abroad;

     (3)  either (a) at the time the buy offer was originated, the transferee
          was outside the United States or we and any person acting on our
          behalf reasonably believed that the transferee was outside the United
          States, or (b) the transaction was executed in, on or through the
          facilities of a designated off-shore securities market and neither we
          nor any person acting on our behalf knows that the transaction has
          been prearranged with a buyer in the United States;

     (4)  no directed selling efforts have been made in the United States in
          contravention of the requirements of Rule 903(b) or Rule 904(b) of
          Regulation S, as applicable;

                                      E-1

<PAGE>   147


     (5)  the transaction is not part of a plan or scheme to evade the
          registration requirements of the Securities Act; and

     (6)  we have advised the transferee of the transfer restrictions applicable
          to the Notes.

     You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Defined terms used herein without
definition have the respective meanings provided in Regulation S.

                                Very truly yours,

                               [Name of Transferor]


                                By:  _________________________
                                      [Authorized Signatory]







                                      E-2

<PAGE>   1

                                                                     EXHIBIT 4.7

                       SOVEREIGN SPECIALTY CHEMICALS, INC.

                                  $150,000,000

                   11-7/8% Senior Subordinated Notes due 2010

                          REGISTRATION RIGHTS AGREEMENT


                                                                  March 29, 2000
MERRILL LYNCH & CO.
     Merrill Lynch, Pierce, Fenner & Smith
     Incorporated
J.P. MORGAN SECURITIES INC
CHASE SECURITIES INC.
c/o Merrill Lynch, Pierce, Fenner & Smith Incorporated
World Financial Center
North Tower
New York, New York  10281


Ladies and Gentlemen:

                  Sovereign Specialty Chemicals, Inc., a Delaware corporation
(the "Company"), proposes to issue and sell to Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities Inc. and
Chase Securities Inc. (collectively, the "Initial Purchasers"), upon the terms
and subject to the conditions set forth in a purchase agreement dated March 24,
2000 (the "Purchase Agreement") among the Company, the Initial Purchasers, and
the subsidiaries of the Company party thereto (the "Guarantors" and, together
with the Company, the "Issuers"), $150,000,000 aggregate principal amount of its
11-7/8% Senior Subordinated Notes due 2010 (the "Notes"). The Notes will be
unconditionally guaranteed (the "Guaranties" and, together with the Notes, the
"Securities") by each of the Guarantors pursuant to the terms of the Indenture.
Capitalized terms used but not defined herein shall have the meanings given to
such terms in the Purchase Agreement.

                  As an inducement to the Initial Purchasers to enter into the
Purchase Agreement and in satisfaction of a condition to the obligations of the
Initial Purchasers thereunder, the Issuers agree with the Initial Purchasers,
for the benefit of the holders (including the Initial Purchasers) of the
Securities, the Exchange Securities (as defined herein) and the Private Exchange
Securities (as defined herein) (collectively, the "Holders"), as follows:

                  1. Registered Exchange Offer. The Issuers shall (i) prepare
and, not later than 60 days following the date of original issuance of the
Securities (the "Issue Date"), file with the Commission a registration statement
(the "Exchange Offer Registration Statement") on an appropriate form under the
Securities Act with respect to a proposed offer to the Holders of the Securities
(the "Registered Exchange Offer") to issue and deliver to such Holders, in



<PAGE>   2
                                      -2-



exchange for the Securities, a like aggregate principal amount of debt
securities of the Company that are identical in all material respects to the
Securities and are guaranteed by the Guarantors with terms identical in all
material respects with the Guaranties (the "Exchange Securities"), except (x)
for the transfer restrictions relating to the Securities, (y) the provisions
relating to an increase in the rate of interest discussed in section 7 below
will be eliminated and (z) interest thereon will accrue from the last date which
interest was paid on the Securities or if no such interest has been paid, from
the date of their original issue, (ii) use their reasonable best efforts to
cause the Exchange Offer Registration Statement to become effective under the
Securities Act no later than 180 days after the Issue Date and the Registered
Exchange Offer to be consummated no later than 210 days after the Issue Date and
(iii) keep the Exchange Offer Registration Statement effective for not less than
30 days (or longer, if required by applicable law) after the date on which
notice of the Registered Exchange Offer is mailed to the Holders (such period
being called the "Exchange Offer Registration Period"). The Exchange Securities
will be issued under the Indenture or an indenture (the "Exchange Securities
Indenture") between the Issuers and the Trustee or such other bank or trust
company that is reasonably satisfactory to the Initial Purchasers, as trustee
(the "Exchange Securities Trustee"), such indenture to be identical in all
material respects to the Indenture, except for the transfer restrictions
relating to the Securities (as described above).

                  Upon the effectiveness of the Exchange Offer Registration
Statement, the Issuers shall promptly commence the Registered Exchange Offer, it
being the objective of such Registered Exchange Offer to enable each Holder
electing to exchange Securities for Exchange Securities (assuming that such
Holder (a) is not an affiliate of the Company or any of the Guarantors within
the meaning of Rule 405 under the Securities Act or an Exchanging Dealer (as
defined herein) not complying with the requirements of the next sentence, (b) is
not an Initial Purchaser holding Securities that have, or that are reasonably
likely to have, the status of an unsold allotment in an initial distribution,
(c) acquires the Exchange Securities in the ordinary course of such Holder's
business and (d) has no arrangements or understandings with any person to
participate in the distribution of the Exchange Securities) and to trade such
Exchange Securities from and after their receipt without any limitations or
restrictions under the Securities Act and without material restrictions under
the securities laws of a substantial portion of the several states of the United
States. The Initial Purchasers and each Exchanging Dealer acknowledge that,
pursuant to current interpretations by the Commission's staff of Section 5 of
the Securities Act, each Holder that is a broker-dealer electing to exchange
Securities, acquired for its own account as a result of market-making activities
or other trading activities, for Exchange Securities (an "Exchanging Dealer"),
is required to deliver a prospectus containing substantially the information set
forth in Annexes A, B and C hereto in connection with a sale of any such
Exchange Securities received by such Exchanging Dealer pursuant to the
Registered Exchange Offer.

                  If, prior to the consummation of the Registered Exchange
Offer, any Holder holds any Securities acquired by it that have, or that are
reasonably likely to be determined to have, the status of an unsold allotment in
an initial distribution, or any Holder is not entitled to



<PAGE>   3
                                      -3-



participate in the Registered Exchange Offer, the Issuers shall, upon the
request of any such Holder, simultaneously with the delivery of the Exchange
Securities in the Registered Exchange Offer, issue and deliver to any such
Holder, in exchange for the Securities held by such Holder (the "Private
Exchange"), a like aggregate principal amount of debt securities of the Company
that are identical in all material respects to the Exchange Securities and are
guaranteed by the Guarantors with terms identical in all material respects to
the Guaranties (the "Private Exchange Securities"). The Private Exchange
Securities will be issued under the same indenture as the Exchange Securities,
and the Company shall use its commercially reasonable efforts to cause the
Private Exchange Securities to bear the same CUSIP number as the Exchange
Securities.

                  In connection with the Registered Exchange Offer, the Issuers
shall:

                  (a) mail to each Holder a copy of the prospectus forming part
         of the Exchange Offer Registration Statement, together with an
         appropriate letter of transmittal and related documents;

                  (b) keep the Registered Exchange Offer open for not less than
         20 business days (or longer, if required by applicable law) after the
         date on which notice of the Registered Exchange Offer is mailed to the
         Holders;

                   (c) utilize the services of a depositary for the Registered
         Exchange Offer with an address in the Borough of Manhattan, The City of
         New York;

                  (d) permit Holders to withdraw tendered Securities at any time
         prior to the close of business, New York City time, on the last
         business day on which the Registered Exchange Offer shall remain open;
         and

                   (e) otherwise comply in all respects with all laws that are
         applicable to the Registered Exchange Offer.

                  As soon as practicable after the close of the Registered
Exchange Offer and any Private Exchange, as the case may be, the Issuers shall:

                   (a) accept for exchange all Securities tendered and not
         validly withdrawn pursuant to the Registered Exchange Offer and the
         Private Exchange in accordance and with the terms thereof;

                   (b) deliver to the Trustee for cancellation all Securities so
         accepted for exchange; and

                   (c) cause the Trustee or the Exchange Securities Trustee, as
         the case may be, promptly to authenticate and deliver to each Holder,
         Exchange Securities or Pri-



<PAGE>   4
                                      -4-




         vate Exchange Securities, as the case may be, equal in principal amount
         to the Securities of such Holder so accepted for exchange.

                  Each of the Issuers shall use its reasonable best efforts to
keep the Exchange Offer Registration Statement effective and to amend and
supplement the prospectus contained therein in order to permit such prospectus
to be used by all persons subject to the prospectus delivery requirements of the
Securities Act for such period of time as such persons must comply with such
requirements in order to resell the Exchange Securities; provided that (i) in
the case where such prospectus and any amendment or supplement thereto must be
delivered by an Exchanging Dealer, such period shall be the lesser of 180 days
and the date on which all Exchanging Dealers have sold all Exchange Securities
held by them and (ii) the Issuers shall make such prospectus and any amendment
or supplement thereto available to any broker-dealer for use in connection with
any resale of any Exchange Securities for a period of not less than 180 days
after the consummation of the Registered Exchange Offer.

                  The Indenture or the Exchange Securities Indenture, as the
case may be, shall provide that the Securities, the Exchange Securities and the
Private Exchange Securities shall vote and consent together on all matters as
one class and that none of the Securities, the Exchange Securities or the
Private Exchange Securities will have the right to vote or consent as a separate
class on any matter.

                  Interest on each Exchange Security and Private Exchange
Security issued pursuant to the Registered Exchange Offer and in the Private
Exchange will accrue from the last interest payment date on which interest was
paid on the Securities surrendered in exchange therefor or, if no interest has
been paid on the Securities, from the Issue Date.

                  Each Holder participating in the Registered Exchange Offer
shall be required to represent to the Company that at the time of the
consummation of the Registered Exchange Offer (i) any Exchange Securities
received by such Holder will be acquired in the ordinary course of business,
(ii) such Holder will have no arrangements or understanding with any person to
participate in the distribution of the Securities or the Exchange Securities
within the meaning of the Securities Act and (iii) such Holder is not an
affiliate (as defined in Rule 405 under the Securities Act) of the Company, if
it is such an affiliate, such Holder will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent applicable,
and shall have made such other representations as may be reasonably necessary
under applicable Commission rules, regulations or interpretations.

                  Notwithstanding any other provisions hereof, the Issuers will
use their best efforts to ensure that (i) any Exchange Offer Registration
Statement and any amendment thereto and any prospectus forming part thereof and
any supplement thereto complies in all material respects with the Securities Act
and the rules and regulations of the Commission thereunder, (ii) any Exchange
Offer Registration Statement and any amendment thereto does not, when it becomes
effective, contain an untrue statement of a material fact or omit to state a
material



<PAGE>   5
                                      -5-




fact required to be stated therein or necessary to make the statements therein
not misleading and (iii) any prospectus forming part of any Exchange Offer
Registration Statement, and any supplement to such prospectus, does not, as of
the consummation of the Registered Exchange Offer, include an untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading.

                  2. Shelf Registration. If (i) because of any change in law or
applicable interpretations thereof by the Commission's staff the Issuers are not
permitted to effect the Registered Exchange Offer as contemplated by Section 1
hereof, or (ii) any Securities validly tendered pursuant to the Registered
Exchange Offer are not exchanged for Exchange Securities within 300 days after
the Issue Date, or (iii) any Initial Purchaser so requests with respect to
Securities or Private Exchange Securities not eligible to be exchanged for
Exchange Securities in the Registered Exchange Offer and held by it following
the consummation of the Registered Exchange Offer, or (iv) any applicable law or
interpretations thereof by the Commission's staff do not permit any Holder to
participate in the Registered Exchange Offer, or (v) any Holder that
participates in the Registered Exchange Offer does not receive freely
transferable Exchange Securities in exchange for tendered Securities (other than
due solely to the status of a Holder (other than an Initial Purchaser) as an
affiliate of any of the Issuers within the meaning of the Securities Act, and
other than any state securities law restrictions which, individually or in the
aggregate, do not materially adversely affect the ability of any such Holder to
resell the securities held by such Holder), or (vi) the Company so elects, then
the following provisions shall apply:

                  (a) Each of the Issuers shall use its reasonable best efforts
to file as promptly as practicable (but in no event more than 30 days after so
required or requested pursuant to this Section 2) with the Commission, and
thereafter shall use its reasonable best efforts to cause to be declared
effective, a shelf registration statement on an appropriate form under the
Securities Act relating to the offer and sale of the Transfer Restricted
Securities (as defined below) by the Holders thereof from time to time in
accordance with the methods of distribution set forth in such registration
statement (hereafter, a "Shelf Registration Statement" and, together with any
Exchange Offer Registration Statement, a "Registration Statement").

                  (b) Each of the Issuers shall use its reasonable best efforts
to keep the Shelf Registration Statement continuously effective in order to
permit the prospectus forming part thereof to be used by Holders of Transfer
Restricted Securities for a period ending on the earlier of (i) two years from
the Issue Date or such shorter period that will terminate when all the Transfer
Restricted Securities covered by the Shelf Registration Statement have been sold
pursuant thereto or cease to be outstanding and (ii) the date on which the
Securities become eligible for resale without volume restrictions pursuant to
Rule 144 under the Securities Act or otherwise cease to be Transfer Restricted
Securities (in any such case, such period being called the "Shelf Registration
Period"). An Issuer shall be deemed not to have used its reasonable best efforts
to keep the Shelf Registration Statement effective during the requisite pe-



<PAGE>   6
                                      -6-




riod if it voluntarily takes any action that would result in Holders of Transfer
Restricted Securities covered thereby not being able to offer and sell such
Transfer Restricted Securities during that period, unless such action is
required by applicable law; provided, however, that the foregoing shall not
apply to actions taken by the Company and the Subsidiary Guarantors in good
faith and for valid business reasons (not including avoidance of their
obligations hereunder), including, without limitation, the acquisition or
divestiture of assets, so long as the Company within 45 days thereafter complies
with the requirements of Section 4(j) hereof. Any such period during which the
Company fails to keep the registration statement effective and usable for offers
and sales of Securities and Exchange Securities is referred to as a "Suspension
Period." A Suspension Period shall commence on and include the date that the
Company gives notice to the Holders to the effect that, in the reasonable
judgment of the Company, the use of the Shelf Registration Statement would
materially interfere with a valid business purpose of the Company and the
Guarantors and that the Shelf Registration Statement is no longer effective or
the prospectus included therein is no longer usable for offers and sales of
Securities and Exchange Securities and shall end on the date when each Holder of
Securities and Exchange Securities covered by such registration statement either
receives the copies of the supplemented or amended prospectus contemplated by
Section 4(j) hereof or is advised in writing by the Company that use of the
prospectus may be resumed. If one or more Suspension Periods occur, the two year
time period referenced above shall be extended by the number of days included in
each such Suspension Period; provided that the Company may only suspend the
availability of the Shelf Registration Statement for up to two periods of up to
45 consecutive days (except for the 45-day period immediately prior to maturity
of the Securities).

                  (c) Notwithstanding any other provisions hereof, the Issuers
will use their best efforts to ensure that (i) any Shelf Registration Statement
and any amendment thereto and any prospectus forming part thereof and any
supplement thereto complies in all material respects with the Securities Act and
the rules and regulations of the Commission thereunder, (ii) any Shelf
Registration Statement and any amendment thereto (in either case, other than
with respect to information included therein in reliance upon or in conformity
with written information furnished to the Company by or on behalf of any Holder
specifically for use therein (the "Holders' Information")) does not contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading and
(iii) any prospectus forming part of any Shelf Registration Statement, and any
supplement to such prospectus (in either case, other than with respect to
Holders' Information), does not include an untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.

                  3. Additional Interest. (a) The parties hereto agree that the
Holders of Transfer Restricted Securities will suffer damages if the Issuers
fail to fulfill their obligations under Section 1 or Section 2, as applicable,
and that it would not be feasible to ascertain the extent of such damages.
Accordingly, if (i) the applicable Registration Statement is not filed


<PAGE>   7
                                      -7-



with the Commission on or prior to 60 days after the Issue Date, (ii) the
Exchange Offer Registration Statement or the Shelf Registration Statement, as
the case may be, is not declared effective within 180 days after the Issue Date,
(iii) the Registered Exchange Offer is not consummated on or prior to 210 days
after the Issue Date, or (iv) the Shelf Registration Statement is filed and
declared effective within 180 days after the Issue Date but shall thereafter
cease to be effective (at any time that the Issuers are obligated to maintain
the effectiveness thereof) without being succeeded within 60 days by an
additional Registration Statement filed and declared effective (each such event
referred to in clauses (i) through (iv), a "Registration Default"), the interest
rate borne by the Transfer Restricted Securities shall be increased ("Additional
Interest") by one-quarter of one percent per annum upon the occurrence of each
Registration Default, which rate (as so increased) will increase by one quarter
of one percent each 90-day period that such Additional Interest continues to
accrue under any such circumstance, provided that the maximum aggregate increase
in the interest rate will in no event under this Agreement exceed one percent
(1%) per annum. Immediately following the cure of a Registration Default the
accrual of Additional Interest with respect to that particular Registration
Default will cease. As used herein, the term "Transfer Restricted Securities"
means each Security until the earliest of (i) the date on which such Security
has been exchanged for a freely transferable Exchange Security in the Registered
Exchange Offer, (ii) the date on which it has been effectively registered under
the Securities Act and disposed of in accordance with the Shelf Registration
Statement or (iii) the date on which it is distributed to the public pursuant to
Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under
the Securities Act. Notwithstanding anything to the contrary in this Section
3(a), the Issuers shall not be required to pay Additional Interest to a Holder
of Transfer Restricted Securities if such Holder failed to comply with its
obligations to make the representations set forth in the last paragraph of
Section 1 or failed to provide the information required to be provided by it, if
any, pursuant to Section 4(n). Additional interest shall not accrue during any
Suspension Period permitted pursuant to Section 2(b).

                  (b) The Company shall notify the Trustee and the Paying Agent
under the Indenture within three business days after the happening of each and
every Registration Default. The Issuers shall pay the Additional Interest due on
the Transfer Restricted Securities by depositing with the Paying Agent (which
may not be an Issuer for these purposes), in trust, for the benefit of the
Holders thereof, prior to 10:00 a.m., New York City time, on the next interest
payment date specified by the Indenture and the Securities, sums sufficient to
pay the Additional Interest then due. The Additional Interest due shall be
payable on each interest payment date specified by the Indenture and the
Securities to the record holder entitled to receive the interest payment to be
made on such date. Each obligation to pay Additional Interest shall be deemed to
accrue from and including the date of the applicable Registration Default.

                  (c) The parties hereto agree that the Additional Interest
provided for in this Section 3 constitute a reasonable estimate of and are
intended to constitute the sole damages that will be suffered by Holders of
Transfer Restricted Securities by reason of the failure of (i)


<PAGE>   8
                                      -8-




the Shelf Registration Statement or the Exchange Offer Registration Statement to
be filed, (ii) the Shelf Registration Statement to remain effective or (iii) the
Exchange Offer Registration Statement to be declared effective and the
Registered Exchange Offer to be consummated, in each case to the extent required
by this Agreement.

                  4.       Registration Procedures.  In connection with any
Registration Statement, the following provisions shall apply:

                  (a) The Issuers shall (i) furnish to each Initial Purchaser,
prior to the filing thereof with the Commission, a copy of the Registration
Statement and each amendment thereof and each supplement, if any, to the
prospectus included therein and shall use its reasonable best efforts to reflect
in each such document, when so filed with the Commission, such comments as any
Initial Purchaser may reasonably propose; and (ii) in the case of the Exchange
Offer Registration Statement (x) include in the Exchange Offer Registration
Statement a section entitled "Plan of Distribution" which section shall contain
the substance of Annex C hereto or otherwise be acceptable to Merrill Lynch and
(y) include in the transmittal letter or similar documentation to be executed by
exchange offerees in order to participate in the Registered Exchange Offer, a
provision containing the substance of Annex D hereto.

                  (b) The Company shall advise each Exchanging Dealer and the
Holders of Transfer Restricted Securities and, if requested by any such person,
confirm such advice in writing (which advice pursuant to clauses (ii)-(v) hereof
shall be accompanied by an instruction to suspend the use of the prospectus
until the requisite changes have been made):

                            (i) when any Registration Statement and any
         amendment thereto has been filed with the Commission and when such
         Registration Statement or any post-effective amendment thereto has
         become effective;

                           (ii) of any request by the Commission for post
         effective amendments or supplements to any Registration Statement or
         the prospectus included therein or for additional information after the
         Registration Statement has become effective;

                          (iii)     of the issuance by the Commission of any
         stop order suspending the effectiveness of any Registration Statement
         or the initiation of any proceedings for that purpose;

                           (iv) of the receipt by the Issuers of any
         notification with respect to the suspension of the qualification of the
         Securities, the Exchange Securities or the Private Exchange Securities
         for sale in any jurisdiction or the initiation or threatening of any
         proceeding for such purpose; and

                            (v) of the happening of any event that requires the
         making of any changes in any Registration Statement or the prospectus
         included therein in order that


<PAGE>   9
                                      -9-




         the statements therein are not misleading and do not omit to state a
         material fact required to be stated therein or necessary to make the
         statements therein not misleading.

                  (c) The Issuers will make every reasonable effort to obtain
the withdrawal at the earliest possible time of any order suspending the
effectiveness of any Registration Statement.

                  (d) The Issuers will furnish to each Holder of Transfer
Restricted Securities included within the coverage of any Shelf Registration
Statement, without charge, at least one conformed copy of such Shelf
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules and, if any such Holder so requests in
writing, all exhibits thereto (including those, if any, incorporated by
reference).

                  (e) The Issuers will, during the Shelf Registration Period,
promptly deliver to each Holder of Transfer Restricted Securities included
within the coverage of any Shelf Registration Statement, without charge, as many
copies of the prospectus (including each preliminary prospectus) included in
such Shelf Registration Statement and any amendment or supplement thereto as
such Holder may reasonably request; and each Issuer consents to the use of such
prospectus or any amendment or supplement thereto by each of the selling Holders
of Transfer Restricted Securities in connection with the offer and sale of the
Transfer Restricted Securities covered by such prospectus or any amendment or
supplement thereto.

                  (f) The Issuers will furnish to each Initial Purchaser and
each Exchanging Dealer, and to any other Holder who so requests, without charge,
at least one conformed copy of the Exchange Offer Registration Statement and any
post-effective amendment thereto, including financial statements and schedules
and, if any Initial Purchaser or Exchanging Dealer or any such Holder so
requests in writing, all exhibits thereto (including those, if any, incorporated
by reference).

                  (g) The Issuers will, during the Exchange Offer Registration
Period or the Shelf Registration Period, as applicable, promptly deliver to each
Exchanging Dealer and such other persons that are required to deliver a
prospectus following the Registered Exchange Offer, without charge, as many
copies of the final prospectus included in the Exchange Offer Registration
Statement or the Shelf Registration Statement and any amendment or supplement
thereto as such Exchanging Dealer or other persons may reasonably request; and
each of the Issuers consents to the use of such prospectus or any amendment or
supplement thereto by any such Initial Purchaser, Exchanging Dealer or other
persons, as applicable, as aforesaid.

                  (h) Prior to the effective date of any Registration Statement,
each of the Issuers will use its reasonable best efforts to register or qualify,
or cooperate with the Holders of Securities, Exchange Securities or Private
Exchange Securities included therein and their respective counsel in connection
with the registration or qualification of, such Securities, Exchange Securities
or Private Exchange Securities for offer and sale under the securities or blue
sky laws of such jurisdictions as any such Holder reasonably requests in writing
and do any


<PAGE>   10
                                      -10-




and all other acts or things necessary or advisable to enable the offer and sale
in such jurisdictions of the Securities, Exchange Securities or Private Exchange
Securities covered by such Registration Statement; provided that none of the
Issuers will be required to qualify generally to do business or as a dealer in
Securities in any jurisdiction where it is not then so qualified or to take any
action which would subject it to general service of process or to taxation in
any such jurisdiction where it is not then so subject.

                  (i) In connection with the filing of a Shelf Registration
Statement, the Issuers will cooperate with the Holders of Securities or Private
Exchange Securities to facilitate the timely preparation and delivery of
certificates representing Securities or Private Exchange Securities to be sold
pursuant to such Registration Statement free of any restrictive legends and in
such denominations (consistent with the provisions of the Indenture) and
registered in such names as the Holders thereof may reasonably request in
writing prior to sales of Securities or Private Exchange Securities pursuant to
such Registration Statement.

                  (j) If any event contemplated by Section 4(b)(ii) through (v)
occurs during the period for which the Issuers are required to maintain an
effective Registration Statement, the Issuers will as promptly as practicable
prepare and file with the Commission a post-effective amendment to the
Registration Statement or a supplement to the related prospectus or file any
other required document so that, as thereafter delivered to purchasers of the
Securities, Exchange Securities or Private Exchange Securities from a Holder,
the prospectus will not include an untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.

                  (k) Not later than the effective date of the applicable
Registration Statement, the Issuers will provide a CUSIP number for the
Securities, the Exchange Securities and the Private Exchange Securities, as the
case may be, and provide the applicable trustee with printed certificates for
the Securities, the Exchange Securities or the Private Exchange Securities, as
the case may be, in a form eligible for deposit with The Depository Trust
Company.

                  (l) The Issuers will comply with all applicable rules and
regulations of the Commission and the Company will make generally available to
its security holders as soon as reasonably practicable after the effective date
of the applicable Registration Statement an earning statement satisfying the
provisions of Section 11(a) of the Securities Act.

                  (m) The Issuers will cause the Indenture or the Exchange
Securities Indenture, as the case may be, to be qualified under the Trust
Indenture Act as required by applicable law in a timely manner.

                  (n) The Issuers may require each Holder of Transfer Restricted
Securities to be registered pursuant to any Shelf Registration Statement to
furnish to the Company such information concerning the Holder and the
distribution of such Transfer Restricted Securities as the Issuers may from time
to time reasonably require for inclusion in such Shelf Registra-


<PAGE>   11
                                      -11-




tion Statement, and the Issuers may exclude from such registration the Transfer
Restricted Securities of any Holder that fails to furnish such information
within a reasonable time after receiving such request.

                  (o) In the case of a Shelf Registration Statement, each Holder
of Transfer Restricted Securities to be registered pursuant thereto agrees by
acquisition of such Transfer Restricted Securities that, upon receipt of any
notice from the Company pursuant to Section 4(b)(ii) through (v), such Holder
will discontinue disposition of such Transfer Restricted Securities until such
Holder's receipt of copies of the supplemental or amended prospectus
contemplated by Section 4(j) or until advised in writing (the "Advice") by the
Company that the use of the applicable prospectus may be resumed and if so
directed by the Company, such Holder will deliver to the Company (at the
Company's expense) all copies in such Holder's possession of the prospectus
covering such Transfer Restricted Securities. If the Company shall give any
notice under Section 4(b)(ii) through (v) during the period that the Issuers are
required to maintain an effective Registration Statement (the "Effectiveness
Period"), such Effectiveness Period shall be extended by the number of days
during such period from and including the date of the giving of such notice to
and including the date when each seller of Transfer Restricted Securities
covered by such Registration Statement shall have received (x) the copies of the
supplemental or amended prospectus contemplated by Section 4(j) (if an amended
or supplemental prospectus is required) or (y) the Advice (if no amended or
supplemental prospectus is required).

                  (p) In the case of a Shelf Registration Statement, the Issuers
shall enter into such customary agreements (including, if requested, an
underwriting agreement in customary form) and take all such other customary
action, if any, as Holders of a majority in aggregate principal amount of the
Securities, and Private Exchange Securities being sold or the managing
underwriters (if any) shall reasonably request in order to facilitate any
disposition of such Securities pursuant to such Shelf Registration Statement.

                  (q) In the case of a Shelf Registration Statement, the Issuers
shall (i) make reasonably available for inspection by a representative of, and
Special Counsel (as defined below) acting for, Holders of a majority in
aggregate principal amount of the Securities and Private Exchange Securities
being sold and any underwriter participating in any disposition of Securities or
Private Exchange Securities pursuant to such Shelf Registration Statement, all
relevant financial and other records, pertinent corporate documents and
properties of the Company and its subsidiaries and (ii) use its reasonable best
efforts to have its officers, directors, employees, accountants and counsel
supply all relevant information reasonably requested by such representative,
Special Counsel or any such underwriter (an "Inspector") in connection with such
Shelf Registration Statement.

                  (r) In the case of an underwritten Shelf Registration
Statement, the Issuers shall, if requested by Holders of a majority in aggregate
principal amount of the Securities and Private Exchange Securities being sold,
their Special Counsel or the managing underwriters in


<PAGE>   12
                                      -12-



connection with such Shelf Registration Statement, use their reasonable best
efforts to cause (i) their counsel to deliver an opinion relating to the Shelf
Registration Statement and the Securities or Private Exchange Securities, as
applicable, in customary form, (ii) their officers to execute and deliver all
customary documents and certificates requested by Holders of a majority in
aggregate principal amount of the Securities and Private Exchange Securities
being sold, their Special Counsel or the managing underwriters (if any) and
(iii) their independent public accountants to provide a comfort letter or
letters in customary form, in form and substance reasonably satisfactory to the
managing underwriters subject to receipt of appropriate documentation as
contemplated, and only if permitted, by Statement of Auditing Standards No. 72.

                  5. Registration Expenses. The Issuers will bear all expenses
incurred in connection with the performance of its obligations under Sections 1,
2, 3 and 4 and the Issuers will reimburse the Holders of Transfer Restricted
Securities hereof for the reasonable fees and disbursements of one firm of
attorneys (in addition to any local counsel) chosen by the Holders of a majority
in aggregate principal amount of the Securities and the Private Exchange
Securities to be sold pursuant to each Registration Statement under Section 2
hereof (the "Special Counsel") acting for the Initial Purchasers or Holders in
connection therewith.

                  6. Indemnification. (a) In the event of a Shelf Registration
Statement or in connection with any prospectus delivery pursuant to an Exchange
Offer Registration Statement by an Initial Purchaser or Exchanging Dealer, as
applicable, the Issuers shall jointly and severally, indemnify and hold harmless
each Holder (including, without limitation, any such Initial Purchaser or
Exchanging Dealer), its affiliates, their respective officers, directors,
employees, representatives and agents, and each person, if any, who controls
such Holder within the meaning of the Securities Act or the Exchange Act
(collectively referred to for purposes of this Section 6 and Section 7 as a
Holder) from and against any loss, claim, damage or liability, joint or several,
or any action in respect thereof (including, without limitation, any loss,
claim, damage, liability or action relating to purchases and sales of
Securities, Exchange Securities or Private Exchange Securities), to which that
Holder may become subject, whether commenced or threatened, under the Securities
Act, the Exchange Act, any other federal or state statutory law or regulation,
at common law or otherwise, insofar as such loss, claim, damage, liability or
action arises out of, or is based upon, (i) any untrue statement or alleged
untrue statement of a material fact contained in any such Registration Statement
or any prospectus forming part thereof or in any amendment or supplement thereto
or (ii) the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, and shall reimburse each Holder promptly upon demand for any legal
or other expenses reasonably incurred by that Holder in connection with
investigating or defending or preparing to defend against or appearing as a
third party witness in connection with any such loss, claim, damage, liability
or action as such expenses are incurred; provided, however, that the Issuers
shall not be liable in any such case to the extent that any such loss, claim,
damage, liability or action arises out of, or is based upon, an untrue statement
or al-



<PAGE>   13
                                      -13-



leged untrue statement in or omission or alleged omission from any of such
documents in reliance upon and in conformity with any Holders' Information; and
provided, further, that with respect to any untrue statement in or omission from
any related preliminary prospectus, the indemnity agreement contained in this
Section 6(a) shall not inure to the benefit of any Holder from whom the person
asserting any such loss, claim, damage, liability or action received Securities,
Exchange Securities or Private Exchange Securities to the extent that such loss,
claim, damage, liability or action of or with respect to such Holder results
from the fact that both (A) a copy of the final prospectus was not sent or given
to such person at or prior to the written confirmation of the sale of such
Securities, Exchange Securities or Private Exchange Securities to such person
and (B) the untrue statement in or omission from the related preliminary
prospectus was corrected in the final prospectus unless, in either case, such
failure to deliver the final prospectus was a result of non-compliance by the
Company with Section 4(e), or 4(g).

                  (b) In the event of a Shelf Registration Statement, each
Holder, severally and not jointly, shall indemnify and hold harmless the
Issuers, their affiliates, their respective officers, directors, employees,
representatives and agents, and each person, if any, who controls the Issuers
within the meaning of the Securities Act or the Exchange Act (collectively
referred to for purposes of this Section 6(b) and Section 7 as the Issuers),
from and against any loss, claim, damage or liability, joint or several, or any
action in respect thereof, to which the Issuers may become subject, whether
commenced or threatened, under the Securities Act, the Exchange Act, any other
federal or state statutory law or regulation, at common law or otherwise,
insofar as such loss, claim, damage, liability or action arises out of, or is
based upon, (i) any untrue statement or alleged untrue statement of a material
fact contained in any such Registration Statement or any prospectus forming part
thereof or in any amendment or supplement thereto or (ii) the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, but in each case only
to the extent that the untrue statement or alleged untrue statement or omission
or alleged omission was made in reliance upon and in conformity with any
Holders' Information furnished to the Issuers by such Holder, and shall
reimburse the Issuers upon demand for any legal or other expenses reasonably
incurred by the Issuers in connection with investigating or defending or
preparing to defend against or appearing as a third party witness in connection
with any such loss, claim, damage, liability or action as such expenses are
incurred; provided, however, that no such Holder shall be liable for any
indemnity claims hereunder in excess of the amount of net proceeds received by
such Holder from the sale of Securities, Exchange Securities or Private Exchange
Securities pursuant to such Shelf Registration Statement.

                  (c) Promptly after receipt by an indemnified party under this
Section 6 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party pursuant to Section 6(a) or 6(b), notify the indemnifying
party in writing of the claim or the commencement of that action; provided,
however, that the failure to notify the indemnifying party shall not relieve it


<PAGE>   14
                                      -14-




from any liability which it may have under this Section 6 except to the extent
that it has been materially prejudiced (through the forfeiture of substantive
rights or defenses) by such failure; and provided, further, that the failure to
notify the indemnifying party shall not relieve it from any liability which it
may have to an indemnified party otherwise than under this Section 6. If any
such claim or action shall be brought against an indemnified party, and it shall
notify the indemnifying party thereof, the indemnifying party shall be entitled
to participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 6 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than the reasonable costs of investigation; provided, however,
that an indemnified party shall have the right to employ its own counsel in any
such action, but the fees, expenses and other charges of such counsel for the
indemnified party will be at the expense of such indemnified party unless (1)
the employment of counsel by the indemnified party has been authorized in
writing by the indemnifying party, (2) the indemnified party has reasonably
concluded (based upon advice of counsel to the indemnified party) that there may
be legal defenses available to it or other indemnified parties that are
different from or in addition to those available to the indemnifying party, (3)
a conflict or potential conflict exists (based upon advice of counsel to the
indemnified party) between the indemnified party and the indemnifying party (in
which case the indemnifying party will not have the right to direct the defense
of such action on behalf of the indemnified party) or (4) the indemnifying party
has not in fact employed counsel reasonably satisfactory to the indemnified
party to assume the defense of such action within a reasonable time after
receiving notice of the commencement of the action, in each of which cases the
reasonable fees, disbursements and other charges of counsel will be at the
expense of the indemnifying party or parties. It is understood that the
indemnifying party or parties shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable fees,
disbursements and other charges of more than one separate firm of attorneys (in
addition to any local counsel) at any one time for all such indemnified party or
parties. Each indemnified party, as a condition of the indemnity agreements
contained in Sections 6(a) and 6(b), shall use all reasonable efforts to
cooperate with the indemnifying party in the defense of any such action or
claim. No indemnifying party shall be liable for any settlement of any such
action effected without its written consent (which consent shall not be
unreasonably withheld), but if settled with its written consent or if there be a
final judgment for the plaintiff in any such action, the indemnifying party
agrees to indemnify and hold harmless any indemnified party from and against any
loss or liability by reason of such settlement or judgment. No indemnifying
party shall, without the prior written consent of the indemnified party (which
consent shall not be unreasonably withheld), effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such proceeding.


<PAGE>   15
                                      -15-




                  7. Contribution. If, other than in accordance with its terms,
the indemnification provided for in Section 6 is unavailable or insufficient to
hold harmless an indemnified party under Section 6(a) or 6(b), then each
indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, (i) in
such proportion as shall be appropriate to reflect the relative benefits
received by the Company from the offering and sale of the Securities, on the one
hand, and a Holder with respect to the sale by such Holder of Securities,
Exchange Securities or Private Exchange Securities, on the other, or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Issuers on
the one hand and such Holder on the other with respect to the statements or
omissions that resulted in such loss, claim, damage or liability, or action in
respect thereof, as well as any other relevant equitable considerations. The
relative benefits received by the Issuers on the one hand and a Holder on the
other with respect to such offering and such sale shall be deemed to be in the
same proportion as the total net proceeds from the offering of the Securities
(before deducting expenses) received by or on behalf of the Issuers as set forth
in the table on the cover of the Offering Memorandum, on the one hand, bear to
the total proceeds received by such Holder with respect to its sale of
Securities, Exchange Securities or Private Exchange Securities, on the other.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to the Issuers or
information supplied by the Issuers on the one hand or to any Holders'
Information supplied by such Holder on the other, the intent of the parties and
their relative knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The parties hereto agree that it
would not be just and equitable if contributions pursuant to this Section 7 were
to be determined by pro rata allocation or by any other method of allocation
that does not take into account the equitable considerations referred to herein.
The amount paid or payable by an indemnified party as a result of the loss,
claim, damage or liability, or action in respect thereof, referred to above in
this Section 7 shall be deemed to include, for purposes of this Section 7, any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending or preparing to defend any such
action or claim. Notwithstanding the provisions of this Section 7, an
indemnifying party that is a Holder of Securities, Exchange Securities or
Private Exchange Securities shall not be required to contribute any amount in
excess of the amount by which the total price at which the Securities, Exchange
Securities or Private Exchange Securities sold by such indemnifying party to any
purchaser exceeds the amount of any damages which such indemnifying party has
otherwise paid or become liable to pay by reason of any untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.

                  8. Rules 144 and 144A. Each of the Issuers shall, for so long
as it is subject to the reporting requirements of the Exchange Act, use its
reasonable best efforts to file




<PAGE>   16
                                      -16-




the reports required to be filed by it under the Securities Act and the Exchange
Act in a timely manner and, if at any time the Issuers are not required to file
such reports, they shall, upon the written request of any Holder of Transfer
Restricted Securities, provide other information so long as necessary to permit
sales of such Holder's securities pursuant to Rules 144 and 144A. Each of the
Issuers covenants that it will take such further reasonable action as any Holder
of Transfer Restricted Securities may reasonably request, all to the extent
required from time to time to enable such Holder to sell Transfer Restricted
Securities without registration under the Securities Act within the limitation
of the exemptions provided by Rules 144 and 144A (including, without limitation,
the requirements of Rule 144A(d)(4)). Notwithstanding the foregoing, nothing in
this Section 8 shall be deemed to require the Issuers to register any of their
securities pursuant to the Exchange Act.

                  9. Underwritten Registrations. If any of the Transfer
Restricted Securities covered by any Shelf Registration Statement are to be sold
in an underwritten offering, the investment banker or investment bankers and
manager or managers that will administer the offering will be selected by the
Holders of a majority in aggregate principal amount of such Transfer Restricted
Securities included in such offering, subject to the consent of the Company
(which shall not be unreasonably withheld or delayed), and such Holders shall be
responsible for all underwriting commissions and discounts in connection
therewith.

                  No person may participate in any underwritten registration
hereunder unless such person (i) agrees to sell such person's Transfer
Restricted Securities on the basis reasonably provided in any underwriting
arrangements approved by the persons entitled hereunder to approve such
arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.

                  10. Miscellaneous. (a) Amendments and Waivers. The provisions
of this Agreement may not be amended, modified or supplemented, and waivers or
consents to departures from the provisions hereof may not be given, unless the
Company has obtained the written consent of Holders of a majority in aggregate
principal amount of the Securities, the Exchange Securities and the Private
Exchange Securities, taken as a single class. Notwithstanding the foregoing, a
waiver or consent to depart from the provisions hereof with respect to a matter
that relates exclusively to the rights of Holders whose Securities, Exchange
Securities or Private Exchange Securities are being sold pursuant to a
Registration Statement and that does not directly or indirectly materially
affect the rights of other Holders may be given by Holders of a majority in
aggregate principal amount of the Securities, the Exchange Securities and the
Private Exchange Securities being sold by such Holders pursuant to such
Registration Statement.

                  (b) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, first-class
mail, telecopier or air courier guaranteeing next-day delivery:


<PAGE>   17
                                      -17-



                     (1) if to a Holder, at the most current address given by
         such Holder to the Company in accordance with the provisions of this
         Section 10(b), which address initially is, with respect to each Holder,
         the address of such Holder maintained by the Registrar under the
         Indenture, with a copy in like manner to Merrill Lynch & Co., J.P.
         Morgan Securities Inc. and Chase Securities Inc.;

                     (2) if to an Initial Purchaser, initially at its address
         set forth in the Purchase Agreement; and

                     (3) if to the Issuers, initially at the address of the
         Company set forth in the Purchase Agreement.

                  All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; one business
day after being delivered to a next-day air courier; five business days after
being deposited in the mail; and when receipt is acknowledged by the recipient's
telecopier machine, if sent by telecopier.

                  (c)      Successors And Assigns.  This Agreement shall be
binding upon the Issuers and their successors and assigns.

                  (d) Counterparts. This Agreement may be executed in any number
of counterparts (which may be delivered in original form or by telecopier) 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.

                  (e) Definition of Terms. For purposes of this Agreement, (a)
the term "business day" means any day on which the New York Stock Exchange, Inc.
is open for trading, (b) the term "subsidiary" has the meaning set forth in Rule
405 under the Securities Act and (c) except where otherwise expressly provided,
the term "affiliate" has the meaning set forth in Rule 405 under the Securities
Act.

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

                  (g) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.

                  (h) Remedies. In the event of a breach by the Issuers or by
any Holder of any of their obligations under this Agreement, each Holder or the
Issuers, as the case may be, in addition to being entitled to exercise all
rights granted by law, including recovery of damages (other than the recovery of
damages for a breach by the Issuers of their obligations under Sections 1 or 2
hereof for which Additional Interest has been paid pursuant to Section 3
hereof), will be entitled to specific performance of its rights under this
Agreement. The Issuers and each Holder agree that monetary damages would not be
adequate compensation for


<PAGE>   18
                                      -18-



any loss incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agree that, in the event of any action for specific
performance in respect of such breach, it shall waive the defense that a remedy
at law would be adequate.

                  (i) No Inconsistent Agreements. Each of the Issuers
represents, warrants and agrees that (i) it has not entered into, shall not, on
or after the date of this Agreement, enter into any agreement that is
inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof, (ii) it has not previously
entered into any agreement which remains in effect granting any registration
rights with respect to any of its debt securities to any person (except for the
registration rights agreement in connection with the Old Notes (as defined in
the Purchase Agreement) and (iii) without limiting the generality of the
foregoing, without the written consent of the Holders of a majority in aggregate
principal amount of the then outstanding Transfer Restricted Securities, it
shall not grant to any person the right to request the Issuers to register any
debt securities of the Issuers under the Securities Act unless the rights so
granted are not in conflict or inconsistent with the provisions of this
Agreement.

                  (j) No Piggyback on Registrations. Neither the Issuers nor any
of their security holders (other than the Holders of Transfer Restricted
Securities in such capacity) shall have the right to include any securities of
the Issuers in any Shelf Registration or Registered Exchange Offer other than
Transfer Restricted Securities.

                  (k) Severability. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law. If any term, provision,
covenant or restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions set forth herein shall remain in
full force and effect and shall in no way be affected, impaired or invalidated,
and the parties hereto shall use their reasonable best efforts to find and
employ an alternative means to achieve the same or substantially the same result
as that contemplated by such term, provision, covenant or restriction. It is
hereby stipulated and declared to be the intention of the parties that they
would have executed the remaining terms, provisions, covenants and restrictions
without including any of such that may be hereafter declared invalid, illegal,
void or unenforceable.


<PAGE>   19
                                      -19-



                  Please confirm that the foregoing correctly sets forth the
agreement among the Issuers and the Initial Purchasers.

                                             Very truly yours,

                                             SOVEREIGN SPECIALTY CHEMICALS, INC.



                                             By: /s/  Robert B. Covalt
                                                 -------------------------------
                                                 Name:  Robert B. Covalt
                                                 Title: Chairman and Chief
                                                          Executive Officer





<PAGE>   20
                                      -20-




Accepted:

MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED


By:  /s/ Lex Maultsby
     --------------------------------
         Authorized Signatory


J.P. MORGAN SECURITIES INC.


By:  /s/ Jose Briones
- -------------------------------------
         Authorized Signatory


CHASE SECURITIES INC.


By:  /s/ Gerald Murray
- -------------------------------------
         Authorized Signatory


<PAGE>   21
                                      -21-



                  Each of the Subsidiaries specified below agrees to become a
party to this Agreement as a Guarantor as of the date hereof:

                                             OSI SEALANTS, INC.



                                             By:    /s/ Robert B. Covalt
                                                    ----------------------------
                                                    Name:  Robert B. Covalt
                                                    Title: Chairman


                                             PIERCE & STEVENS CORP.



                                             By:    /s/ Robert B. Covalt
                                                    ----------------------------
                                                    Name:  Robert B. Covalt
                                                    Title: Chairman


                                             SIA ADHESIVES, INC.



                                             By:    /s/ Robert B. Covalt
                                                    ----------------------------
                                                    Name:  Robert B. Covalt
                                                    Title: Chairman


                                             TANNER CHEMICALS, INC.



                                             By:    /s/ Robert B. Covalt
                                                    ----------------------------
                                                    Name:  Robert B. Covalt
                                                    Title: Chairman




<PAGE>   22




                                                                         ANNEX A


                  Each broker-dealer that receives Exchange Securities for its
own account pursuant to the Registered Exchange Offer must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange
Securities. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Securities received in
exchange for Securities where such Securities were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 180 days after the
Expiration Date (as defined herein), it will make this Prospectus available to
any broker-dealer for use in connection with any such resale. See "Plan of
Distribution."



<PAGE>   23


                                                                         ANNEX B


                  Each broker-dealer that receives Exchange Securities for its
own account in exchange for Securities, where such Securities were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Securities. See "Plan of Distribution".



<PAGE>   24


                                                                         ANNEX C


                              PLAN OF DISTRIBUTION


                  Each broker-dealer that receives Exchange Securities for its
own account pursuant to the Registered Exchange Offer must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange
Securities. This Prospectus, as it may be amended or supplemented from time to
time, may be used by a broker-dealer in connection with resales of Exchange
Securities received in exchange for Securities where such Securities were
acquired as a result of market-making activities or other trading activities.
The Issuers have agreed that, for a period of 180 days after the Expiration
Date, they will make this prospectus, as amended or supplemented, available to
any broker-dealer for use in connection with any such resale. In addition, until
_______________, 2000, all dealers effecting transactions in the Exchange
Securities may be required to deliver a prospectus.

                  The Issuers will not receive any proceeds from any sale of
Exchange Securities by broker-dealers. Exchange Securities received by
broker-dealers for their own account pursuant to the Registered Exchange Offer
may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the Exchange Securities or a combination of such methods of resale,
at market prices prevailing at the time of resale, at prices related to such
prevailing market prices or at negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such Exchange Securities. Any
broker-dealer that resells Exchange Securities that were received by it for its
own account pursuant to the Registered Exchange Offer and any broker or dealer
that participates in a distribution of such Exchange Securities may be deemed to
be an "underwriter" within the meaning of the Securities Act and any profit on
any such resale of Exchange Securities and any commission or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Letter of Transmittal states that, by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.

                  For a period of 180 days after the Expiration Date the Issuers
will promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Issuers have agreed to pay all expenses
incident to the Registered Exchange Offer other than commissions or concessions
of any broker-dealers and will indemnify the Holders of the Securities




<PAGE>   25



(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.



<PAGE>   26


                                                                         ANNEX D


          [ ]  CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
               ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY
               AMENDMENTS OR SUPPLEMENTS THERETO.

               Name:
               Address:





If the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of Exchange
Securities. If the undersigned is a broker-dealer that will receive Exchange
Securities for its own account in exchange for Securities that were acquired as
a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Securities; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.


<PAGE>   1
                                                                     EXHIBIT 5.1

                    Fried, Frank, Harris, Shriver & Jacobson
                               One New York Plaza
                            New York, New York 10004








                                                               (212) 859-8000
May 12, 2000                                                 (FAX: 212-859-4000)


Sovereign Specialty Chemicals, Inc.
225 West Washington Street
Suite 2200
Chicago, Illinois 60606

Ladies and Gentlemen:

         We are acting as special counsel for Sovereign Specialty Chemicals,
Inc., a Delaware corporation (the "Company"), and each of the guarantors listed
on Schedule 1 hereto (the "Guarantors", and together with the Company, the
"Issuers") in connection with the offer by the Company to exchange up to
$150,000,000 aggregate principal amount of the Company's 117/8% Senior
Subordinated Notes due 2010, Series B (the "Exchange Notes"), which will be
registered under the Securities Act of 1933, as amended (the "Securities Act"),
for a like principal amount of the Company's issued and outstanding 117/8%
Senior Subordinated Notes due 2010, Series A (the "Old Notes") pursuant to the
Registration Statement on Form S-4 filed on May 12, 2000, as amended (the
"Registration Statement"). The Old Notes are, and the Exchange Notes will be,
unconditionally guaranteed (the "Guarantees", and together with the Notes, the
"Securities") by the Guarantors. All capitalized terms used in this letter that
are defined in the Registration Statement have the respective meanings specified
therein unless such term is otherwise defined herein. With your permission, all
assumptions and statements of reliance herein have been made without any
independent investigation or verification on our part except to the extent
otherwise expressly stated, and we express no opinion with respect to the
subject matter or accuracy of such assumptions or items relied upon.

         In connection with this opinion, we have (i) investigated such
questions of law, (ii) examined originals or certified, conformed or
reproduction copies of such agreements, instruments, documents and records of
the Issuers, such certificates of public officials and such other documents
(collectively, the "Documents"), and (iii) received


<PAGE>   2
                                      -2-                           May 12, 2000

such information from officers and representatives of the Issuers and others as
we have deemed necessary or appropriate for the purposes of this opinion. We
have examined, among other Documents, the following:

         (a) the Indenture, dated March 29, 2000, between the Issuers and The
             Bank of New York, as Trustee (the "Indenture");

         (b) Forms of the Exchange Notes; and

         (c) Forms of the Guarantees.

         The documents described in subsections (a) - (c) above are referred to
herein collectively as the "Transaction Documents."

         In all such examinations, we have assumed the legal capacity of all
natural persons, the genuineness of all signatures, the authenticity of original
and certified documents and the conformity to original or certified documents of
all copies submitted to us as conformed or reproduction copies. As to various
questions of fact relevant to the opinions expressed herein, we have relied
upon, and assume the accuracy of, representations and warranties contained in
the Documents and certificates and oral or written statements and other
information of or from representatives of the Issuers and others and assume
compliance on the part of all parties to the Documents with their covenants and
agreements contained therein.

         To the extent it may be relevant to the opinion expressed herein, we
have assumed that:

             (i) the parties to the Transaction Documents other than the Company
         and each Guarantor that is a Delaware or New York corporation (each a
         "Covered Subsidiary") have the power and authority to enter into and
         perform the Transaction Documents and to consummate the transactions
         contemplated thereby,

             (ii) that such Transaction Documents have been duly authorized,
         executed and delivered by and constitute valid and binding obligations
         of such other parties and are enforceable against such parties other
         than the Company and the Covered Subsidiaries in accordance with their
         terms,

             (iii) that such parties will comply with all of their obligations
         under the Transaction Documents and laws applicable thereto and

             (iv) the Securities have been duly authenticated and delivered by
         the Trustee.


<PAGE>   3
                                      -3-                           May 12, 2000

         Based upon the foregoing, and subject to the limitations,
qualifications and assumptions set forth herein, we are of the opinion that:

         (1) The Exchange Notes have been duly and validly authorized by the
Company, and when duly executed by the proper officers of the Company and issued
in exchange for the Old Notes as contemplated by the Registration Statement,
will constitute valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms.

         (2) The Guarantees of the Exchange Notes by the Covered Subsidiaries
have been duly authorized by the Covered Subsidiaries and, when the Exchange
Notes have been duly executed and the Guarantees have been duly executed in
accordance with the terms of the Indenture, will constitute valid and binding
obligations of the Covered Subsidiaries, enforceable against each Covered
Subsidiary in accordance with their terms.

         The opinions set forth above are subject to the following
qualifications:

         (A) Our opinions above are subject to (i) applicable bankruptcy,
insolvency, reorganization, moratorium, or other similar laws (and related
judicial doctrines) of general application affecting creditors' rights generally
and (ii) general principles of equity (including, without limitation, standards
of materiality, good faith, fair dealing and reasonableness, equitable defenses
and limits as to the availability of equitable remedies), whether such
principles are considered in a proceeding at law or in equity.

         (B) We have not been requested to express and with your permission we
do not express an opinion as to the application of, and our opinions above are
subject to, the effect, if any, of, any applicable fraudulent conveyance,
fraudulent transfer, fraudulent obligation or preferential transfer law and any
law governing the liquidation or dissolution of, or the distribution of assets
of, any person or entity (including, without limitation, any law relating to the
payment of dividends or other distributions on capital stock or the repurchase
of capital stock).

         In addition to the foregoing, our opinion in paragraph 2 above is
subject to the following qualifications:

             (a) Provisions in the Guarantees or the Indenture that provide that
         the Guarantors' liability thereunder shall not be affected by actions
         or failures to act on the part of the recipient of the Guarantees or
         the Trustee or by amendments or waivers of provisions of documents
         governing the guaranteed obligations might not be enforceable under
         circumstances and in the event of actions that change the essential
         nature of the terms and conditions of the guaranteed obligations.


<PAGE>   4
                                      -4-                           May 12, 2000

             (b) We have assumed consideration that is fair and sufficient to
         support the agreements of each Guarantor under the Guarantees and
         Article 11 of the Indenture has been, and would be deemed by a court of
         competent jurisdiction to have been, duly received by each Guarantor.

         The opinion expressed herein is limited to the federal laws of the
United States of America and the laws of the State of New York and, to the
extent relevant hereto, the General Corporation Law of the State of Delaware as
currently in effect together with applicable provisions of the Constitution of
the State of Delaware and relevant decisional law. The opinion expressed herein
is given as of the date hereof, and we undertake no obligation to supplement
this letter if any applicable laws change after the date hereof or if we become
aware of any facts that might change the opinion expressed herein after the date
hereof or for any other reason.

         We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus that is included in the Registration
Statement. In giving this consent, we do not hereby admit that we are in the
category of persons whose consent is required under section 7 of the Securities
Act.

         The opinion expressed herein is solely for your benefit in connection
with the Registration Statement and may not be relied on in any manner or for
any purpose by any other person or entity without our prior written consent.



                                     Very truly yours,

                                     FRIED, FRANK, HARRIS, SHRIVER & JACOBSON



                                     By:  /s/John M. Bibona
                                         ------------------------------------
                                             John M. Bibona








<PAGE>   5

                                                                      Schedule 1


                                   GUARANTORS


SIA Adhesives, Inc., a Delaware corporation

Pierce & Stevens Corp., a New York corporation

OSI Sealants, Inc., an Illinois corporation

Tanner Chemicals, Inc., a New Hampshire corporation







<PAGE>   1
                                                                     EXHIBIT 5.2

                             McBride Baker & Coles
                              500 West Madison St.
                            Chicago, Illinois 60661


                                  May 12, 2000


Sovereign Specialty Chemicals, Inc. and
  OSI Sealants, Inc.
225 West Washington Street
Suite 2200
Chicago, IL 60606



Ladies and Gentlemen:

         We have acted as special counsel for OSI Sealants, Inc., an Illinois
corporation (the "Guarantor") a wholly-owned subsidiary of Sovereign Specialty
Chemicals, Inc., a Delaware Corporation (the "Issuer"), in connection with the
offer by the Issuer to exchange up to $150,000,000 aggregate principal amount of
the Issuer's 11-7/8% Senior Subordinated Notes due 2010, Series B (the "Exchange
Notes") which will be registered under the Securities Act of 1933, as amended
(the "Securities Act") for a like principal amount of the Issuer's issued and
outstanding 11-7/8% Senior Subordinated Notes due 2010, Series A (the "Old
Notes") pursuant to a Registration Statement on Form S-4, as amended, (the
"Registration Statement"). The Old Notes are, and the Exchange Notes will be,
unconditionally guaranteed by the Guarantor (said Notes being the "Securities").

         In connection with rendering this opinion, we have examined copies
identified to our satisfaction, of the following documents:

         (a) the Indenture by and among the Issuer, SIA Adhesives, Inc., a
Delaware corporation ("SIA"), Pierce & Stevens Corp., a New York corporation
("P&S"), the Guarantor, Tanner Chemicals, Inc., a New Hampshire corporation
("Tanner"), and The Bank of New York, as Trustee dated March 29, 2000 (the
"Indenture");

         (b) the form of Exchange Note; and

         (c) the form of the Guaranty included in the Indenture.

The documents described in the foregoing clauses (a) through (c) are hereinafter
collectively referred to as the "Documents."

<PAGE>   2
May 12, 2000
Page 2


         In addition, we have examined the originals or copies of such other
corporate records of the Guarantor, certificates of public officials and
agreements, instruments and other documents as we have deemed necessary as a
basis for the opinions expressed below. As to certain matters of fact material
to the opinions expressed herein, we have relied on certificates of public
officials. In particular, we have not searched the dockets or records of any
court, government agency or other office in any jurisdiction.

         In rendering the opinion set forth in paragraph 1 below with respect to
the good standing of the Guarantor in Illinois, we have relied solely upon a
certificate received from the Secretary of State of Illinois.

         In addition, we have assumed with your permission and without any
investigation or independent confirmation:

         (1) the genuineness of all signatures on behalf of all parties;

         (2) the authenticity and accuracy of all materials examined by us;

         (3) the copies of all documents submitted to us are accurate and
complete and conform to originals;

         (4) each party to the Documents (other than the Guarantor) has the
power and authority to enter into the Documents and to consummate the
transactions contemplated thereby;

         (5) each party to the Documents (other than the Guarantor) has
satisfied those legal requirements that are applicable to it, to the extent
necessary to make the Documents enforceable against it in accordance with their
terms, and each party to the Documents (other than the Guarantor) has complied
with all legal requirements pertaining to its status as such status relates to
its rights to enforce the Documents against any other party to the Documents;

         (6) all official public records (including their proper indexing and
filing) are accurate and complete;

         (7) each party to the Documents (other than the Guarantor) will comply
with their obligations under the Documents and the laws applicable thereto;

         (8) contracts relevant to this opinion other than the Documents, to
which Guarantor is a party or by which its property is bound (collectively
"Other Agreements"), and court and administrative orders, writs, judgments and
decrees that name the Guarantor and are specifically addressed to it or its
property (collectively a "Court Order") would be enforced as written.

         Based upon the foregoing, and subject to the assumptions,
qualifications, and limitations set forth herein, we are of the opinion that:


<PAGE>   3
May 12, 2000
Page 3


         1. The Guarantor is an Illinois corporation that has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the State of Illinois, has corporate power and authority to own, lease
and operate its properties and to conduct its business and is duly qualified as
a foreign corporation to transact business and is in good standing in each
jurisdiction set forth on Schedule I hereto.

         2. The Guaranty of the Exchange Notes is in the form contemplated by
the Indenture and has been duly authorized by the Guarantor and, when the
Exchange Notes have been duly executed and the Guaranty has been duly executed
by the Guarantor in the manner provided in the Indenture, the Guaranty will
constitute the valid and binding obligation of the Guarantor enforceable against
the Guarantor in accordance with its terms, except as the enforcement thereof
may be limited by bankruptcy, insolvency (including, without limitation, all
laws relating to fraudulent transfers), reorganization, moratorium, or other
similar laws relating to or affecting enforcement of creditor's rights
generally, or by general principles of equity (regardless of whether enforcement
is considered in a proceeding in equity or at law).

         In addition to the foregoing, our opinion in paragraph 2 above is
subject to the following qualifications:

         (a) Provisions in the Guaranty or the Indenture that provide that the
Guarantor's liability thereunder shall not be affected by actions or failures to
act on the part of the recipient of the guaranty or the Trustee or by amendments
or waivers of provisions of documents governing the guaranteed obligations might
not be enforceable under circumstances and in the event of actions that change
the essential nature of the terms and conditions of the guarantee obligations.

         (b) We have assumed consideration that is fair and sufficient to
support the agreement of the Guarantor under the Guaranty and Article 11 of the
Indenture has been, and would be deemed by a court of competent jurisdiction to
have been, duly received by the Guarantor.

         The opinion expressed herein is limited to the laws of the State of
Illinois as currently in effect together with applicable decisional law.

         We note that any opinion set forth in this letter expresses our
professional judgment as to the legal issues explicitly addressed, and that any
such opinion is effective as of, and is based upon, the facts as recited herein
as of the date hereof and may not be expanded by implication otherwise. We do
not undertake to advise you of any matter within the scope of this letter that
comes to our attention after the date of this letter, and disclaim any
responsibility to advise you of any future changes in law or fact that may
affect any opinion set forth herein. By rendering the opinion set forth in this
letter, we are not serving as an insurer or guarantor (i) of the transaction
opined upon, or (ii) of the future performance of the parties to the
transaction; nor does the rendering of this opinion constitute a guarantee of
the outcome of any legal dispute that may rise out of the transaction.


<PAGE>   4
May 12, 2000
Page 2


         We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus that is included in the Registration
Statement. In giving this consent, we do not hereby admit that we are in the
category of persons whose consent is required under section 7 of the Securities
Act.

         The opinion expressed herein is solely for your benefit in connection
with the Registration Statement and may not be relied on in any manner or for
any purpose by any other person or entity without our prior written consent.

                                Very truly yours,

                                /S/McBride Baker & Coles

                                McBRIDE BAKER & COLES

MLW:mt


<PAGE>   5



                                   SCHEDULE I


                  California
                  Georgia
                  New York
                  Ohio
                  Pennsylvania
                  Texas


<PAGE>   1
                                                                     EXHIBIT 5.3


                              Wiggin & Nourie, P.A.
                                20 Market Street
                                  P.O. Box 808
                         Manchester, New Hampshire 03105

                                  May 12, 2000

To Sovereign Specialty Chemicals, Inc.

         RE:      SOVEREIGN CHEMICALS, INC. (THE "ISSUER") AND
                  TANNER CHEMICALS, INC. (THE "GUARANTOR")

Ladies and Gentlemen:

         We have acted as special New Hampshire counsel to the Guarantor in
connection with the that certain Purchase Agreement dated as of March 24, 2000
(the "Purchase Agreement"), among Sovereign Specialty Chemicals, Inc., a
Delaware corporation and Tanner Chemicals, Inc., New Hampshire corporation, as
guarantor, and have been asked to render an opinion to you in connection with
the preparation, execution and delivery thereof and the consummation of the
transactions contemplated thereunder. Pursuant to the "Exchange Offer for
$150,000,000 11 7/8% Senior Subordinated Notes Due 2010" (the "Exchange Offer"),
the Notes issued pursuant the Purchase Agreement will be exchanged for notes
registered under federal securities laws (the "Exchange Notes"). Unless
otherwise defined herein, capitalized terms defined in the Purchase Agreement
are used herein as therein defined.

         In our capacity as special local New Hampshire counsel to the
Guarantor, and for the purposes of this opinion, we have examined the following
documents, all dated as of even date herewith unless otherwise noted:

         (a) the Purchase Agreement;

         (b) the Registration Rights Agreement dated March 29, 2000;

         (c) the Indenture among the Issuer, OSI Sealants, Inc. SIA Adhesives,
Inc., Pierce & Stevens Corp, the Guarantor, and the Trustee dated March 29, 2000
(the "Indenture");


         (d) the Note Guarantee issued by the Guarantor pursuant to Section
11.06 of the Indenture (the "Guarantee");

         (e) the Offering Memorandum issued by Issuer (the "Offering
Memorandum");





               An Independent Member of Commercial Law Affiliates
  A worldwide affiliation of business and litigation law firms with offices in
                 more than 270 cities and 70 foreign countries.

<PAGE>   2
         (f) The Exchange Offer;

         (g) the Articles of Agreement and By-Laws of Guarantor;

         (h) Certificate of Good Standing from the State of New Hampshire dated
as of March 7, 2000 to the effect that Guarantor is a corporation existing under
and by virtue of the laws of the State of New Hampshire;

         (i) Certificate of Authorization from the State of South Carolina dated
as of March 9, 2000 to the effect that Guarantor is a corporation authorized to
transact business in the State of South Carolina;

         (j) Certificates from Guarantor certifying as to the adoption of the
corporate resolutions of Guarantor to enter into the Purchase Agreement and the
Indenture, and such other documents required by the Initial Purchasers in
connection therewith (attached hereto as Exhibit A); and

         (k) such other documents and matters as we have deemed necessary and
appropriate to render the opinions set forth in this letter, subject to the
limitations, assumptions, and qualifications noted below.

         The documents described in the foregoing clauses (a) through (f) are
collectively referred to herein as the "Transaction Documents".

         In basing the opinions and other matters set forth herein on "our
knowledge", the words "our knowledge" signify that, in the course of our
representation of the Guarantor in matters with respect to which we have been
engaged by the Guarantor as special New Hampshire counsel, no information has
come to our attention that would give us actual knowledge or actual notice that
any such opinions or other matters are not accurate or that any of the foregoing
documents, certificates, reports, and information on which we have relied are
not accurate and complete, and we accept no responsibility for any matters about
which we arguably should have known as the result of such substantive
representation but with respect to which we had no actual knowledge.
Furthermore, it should be noted that our engagement is limited to those specific
matters as to which we have been consulted by the Guarantor in connection with
this transaction. Except as otherwise stated herein, we have undertaken no
independent investigation or verification of such matters. The words "our
knowledge" and similar language used herein are intended to be limited to the
knowledge of the lawyers within our firm who have recently worked on matters on
behalf of the Guarantor.

         We express no opinion as to the application of any securities or tax
laws to the transactions contemplated by the Transaction Documents.


<PAGE>   3

         In reaching the opinions set forth below, we have assumed, and to our
knowledge there are no facts inconsistent with, the following:

         (a) each of the parties thereto (other than the Guarantor) has duly and
validly executed and delivered each instrument, document, and agreement executed
in connection with the Transaction Documents to which such party is a signatory
and such party's obligations set forth therein are its legal, valid and binding
obligations, enforceable in accordance with their respective terms;

         (b) each person executing any such instrument, document, or agreement
on behalf of any such party (other than the Guarantor) is duly authorized to do
so;

         (c) there are no oral or written modifications of or amendments to the
Transaction Documents, and there has been no waiver of any of the provisions of
the Transaction Documents, by actions or conduct of the parties or otherwise;

         (d) all documents submitted to us as originals are authentic, all
documents submitted to us as certified or photostatic copies conform to the
original documents, all signatures on all documents submitted to us for
examination are genuine, and all public records reviewed are accurate and
complete;

         (e) the accuracy of all statements contained in any agreements,
certificates, documents, instruments, and records provided to us, and the
accuracy of all factual information provided to us by the Guarantor in
connection with the rendering of this opinion, including representations and
warranties of the Guarantor in the Transaction Documents; and

         (f) Guarantor has received good and valuable consideration sufficient
to support the obligations undertaken by Guarantor pursuant to the Transaction
Documents.

         Based solely upon and subject to the foregoing and the qualifications
set forth in this opinion, and having regard for legal considerations which we
deem relevant, we are of the opinion that as of the date of this letter:

         (1) The Guarantee of the Exchange Notes by the Guarantor has been duly
authorized by the Guarantor and, when the Exchange Notes have been duly executed
and the Guarantee has been duly executed in accordance with the terms of the
Indenture, will constitute a valid and binding obligation of the Guarantor,
enforceable against the Guarantor in accordance with its terms.

         We are not admitted to practice in any jurisdiction other than the
State of New Hampshire. We have made such examination of New Hampshire and
United States laws

<PAGE>   4


as we have deemed relevant for the purposes of this opinion. We have not made an
independent review of the laws of any other state nor of the laws of any foreign
country, and, accordingly, we express no opinion thereon and opine only with
respect to New Hampshire and United States federal law. We assume no obligation
to supplement this opinion if any applicable laws change after the date hereof
or if we become aware of any facts that might change the opinions expressed
herein after the date hereof.

         This opinion is an opinion of counsel only; it is not a guaranty. This
opinion is for your benefit, and may be relied upon by you, and may not be
relied upon in any manner whatsoever by any other person or entity. This opinion
may be filed by the Issuer with the U.S. Securities and Exchange Commission as
part of the Form S-4 Registration Statement for registration of the Exchange
Notes and this firm's name may be used in such Form S-4. This opinion is based
on the state of laws and facts as of the date hereof and are limited to the
matters set forth in this letter, and no other opinions should be inferred
beyond the matters expressly stated.

                                         Very truly yours,

                                         /s/Wiggin & Nourie, P.A.

                                         Wiggin & Nourie, P.A.







<PAGE>   1
EXHIBIT 12 :  COMPUTATION OF EARNINGS TO FIXED CHARGES


<TABLE>
<CAPTION>
                                      PREDECESSOR                                           THE COMPANY
                              ------------------------------    ------------------------------------------------------------------
                               Year Ended     Period Ended        Period Ended
                              December 31,     March 31,          December 31,      Year Ended     Year Ended        Year Ended
                                  1995            1996                1996             1997            1998             1999
                              ------------   --------------     ---------------    ------------   ---------------  ---------------
<S>                          <C>             <C>                <C>                <C>            <C>              <C>
Fixed charges:
   Interest expense             $     --        $     --           $  1,666          $  9,080        $ 14,712         $ 15,076

   Interest portion of rental
     expense                           4               2                 13               117             213              184
                                --------        --------           --------          --------        --------         --------
Total fixed charges             $      4        $      2           $  1,679          $  9,197        $ 14,925         $ 15,260
                                ========        ========           ========          ========        ========         ========

Earnings:
   Income (loss) before
     income taxes and
     extraordinary item         $  1,762        $    227           $   (124)         $  2,508        $  5,141         $ (2,721)
   Fixed charges                       4               2              1,679             9,197          14,925           15,260
                                --------        --------           --------          --------        --------         --------
Total earnings                  $  1,766        $    229           $  1,555          $ 11,705        $ 20,066         $ 12,539
                                ========        ========           ========          ========        ========         ========

Ratio of earnings to fixed
     charges                       441.5           114.5                  *               1.3             1.3                *
Excess of fixed charges over
     earnings                   $     --        $     --           $    124          $     --        $     --         $  2,721
</TABLE>

* Earnings are inadequate to cover fixed charges



<PAGE>   1
                                                                    EXHIBIT 23.1



                         Consent of Independent Auditors

We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 25, 2000, with respect to the consolidated
financial statements and schedule of Sovereign Specialty Chemicals, Inc.,
included in this Registration Statement (Form S-4 No. 333- ) and related
Prospectus of Sovereign Specialty Chemicals, Inc. for the Registration of
$150,000,000 of 11 7/8% Senior Subordinated Notes due 2010.

                                                       /s/ ERNST & YOUNG LLP

Chicago, Illinois
May 12, 2000

<PAGE>   1


                                                                    EXHIBIT 25.1


================================================================================

                                    FORM T-1

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                            STATEMENT OF ELIGIBILITY
                   UNDER THE TRUST INDENTURE ACT OF 1939 OF A
                    CORPORATION DESIGNATED TO ACT AS TRUSTEE

                      CHECK IF AN APPLICATION TO DETERMINE
                      ELIGIBILITY OF A TRUSTEE PURSUANT TO
                             SECTION 305(b)(2) |__|
                           ---------------------------

                              THE BANK OF NEW YORK
               (Exact name of trustee as specified in its charter)

New York                                                     13-5160382
(State of incorporation                                      (I.R.S. employer
if not a U.S. national bank)                                 identification no.)

One Wall Street, New York, N.Y.                              10286
(Address of principal executive offices)                     (Zip code)

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

                       SOVEREIGN SPECIALTY CHEMICALS, INC.
               (Exact name of obligor as specified in its charter)

Delaware                                                     36-4176637
(State or other jurisdiction of                              (I.R.S. employer
incorporation or organization)                               identification no.)

225 West Washington Street
Suite 2200
Chicago, Illinois                                            60606
(Address of principal executive offices)                     (Zip code)


<PAGE>   2


                             Pierce & Stevens Corp.
               (Exact name of obligor as specified in its charter)

New York                                                     16-0951610
(State or other jurisdiction of                              (I.R.S. employer
incorporation or organization)                               identification no.)

710 Ohio Street
Buffalo, NY                                                  14203
(Address of principal executive offices)                     (Zip code)

                               SIA Adhesives, Inc.
               (Exact name of obligor as specified in its charter)

Delaware                                                     31-1557383
(State or other jurisdiction of                              (I.R.S. employer
incorporation or organization)                               identification no.)

123 West Burtges Street
Akron, OH                                                    44311
(Address of principal executive offices)                     (Zip code)

                               OSI Sealants, Inc.
               (Exact name of obligor as specified in its charter)

Illinois                                                     36-2361148
(State or other jurisdiction of                              (I.R.S. employer
incorporation or organization)                               identification no.)

7405 Production Drive
Mentor, OH                                                   44060
(Address of principal executive offices)                     (Zip code)


                                      -2-
<PAGE>   3


                             Tanner Chemicals, Inc.
               (Exact name of obligor as specified in its charter)

New Hampshire                                                02-0352196
(State or other jurisdiction of                              (I.R.S. employer
incorporation or organization)                               identification no.)

9 Furman Hall Court
Greenville, SC                                               29609
(Address of principal executive offices)                     (Zip code)

                   11-7/8% Senior Subordinated Notes due 2010
                       (Title of the indenture securities)


================================================================================


                                      -3-
<PAGE>   4


1.       GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE
         TRUSTEE:

         (a)      NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO
                  WHICH IT IS SUBJECT.


<TABLE>
<CAPTION>
                       Name                                     Address
                       ----                                     -------
<S>                                                 <C>
        Superintendent of Banks of the State of     2 Rector Street, New York, N.Y.
        New York                                    10006, and Albany, N.Y. 12203

        Federal Reserve Bank of New York            33 Liberty Plaza, New York, N.Y.
                                                    10045

        Federal Deposit Insurance Corporation       Washington, D.C.  20429

        New York Clearing House Association         New York, N.Y.  10005
</TABLE>

         (b)      WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.

         Yes.

2.       AFFILIATIONS WITH OBLIGOR.

         IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
         AFFILIATION.

         None.

16.      LIST OF EXHIBITS.

         EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION,
         ARE INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO
         RULE 7a-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17
         C.F.R. 229.10(d).

         1.       A copy of the Organization Certificate of The Bank of New York
                  (formerly Irving Trust Company) as now in effect, which
                  contains the authority to commence business and a grant of
                  powers to exercise corporate trust powers. (Exhibit 1 to
                  Amendment No. 1 to Form T-1 filed with Registration Statement
                  No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with
                  Registration Statement No. 33-21672 and Exhibit 1 to Form T-1
                  filed with Registration Statement No. 33-29637.)

         4.       A copy of the existing By-laws of the Trustee. (Exhibit 4 to
                  Form T-1 filed with Registration Statement No. 33-31019.)


                                      -4-
<PAGE>   5


         6.       The consent of the Trustee required by Section 321(b) of the
                  Act. (Exhibit 6 to Form T-1 filed with Registration Statement
                  No. 33-44051.)

         7.       A copy of the latest report of condition of the Trustee
                  published pursuant to law or to the requirements of its
                  supervising or examining authority.



                                      -5-
<PAGE>   6


                                    SIGNATURE


         Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 11th day of April, 2000.


                                     THE BANK OF NEW YORK


                                     By:   /s/MARY LAGUMINA
                                        ----------------------------------------
                                         Name: MARY LAGUMINA
                                         Title: ASSISTANT VICE PRESIDENT



                                      -6-
<PAGE>   7


                       Consolidated Report of Condition of

                              THE BANK OF NEW YORK

                    of One Wall Street, New York, N.Y. 10286
                     And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business December 31,
1999, published in accordance with a call made by the Federal Reserve Bank of
this District pursuant to the provisions of the Federal Reserve Act.

<TABLE>
<CAPTION>
ASSETS                                                             Dollar Amounts
                                                                    In Thousands
<S>                                                                <C>
Cash and balances due from depository institutions:
   Noninterest-bearing balances and currency and coin ........     $  3,247,576
   Interest-bearing balances .................................        6,207,543
Securities:
   Held-to-maturity securities ...............................          827,248
   Available-for-sale securities .............................        5,092,464
Federal funds sold and Securities purchased under
   agreements to resell.......................................        5,306,926
Loans and lease financing receivables:
   Loans and leases, net of unearned income ..................       37,734,000
   LESS: Allowance for loan and lease losses .................          575,224
   LESS: Allocated transfer risk reserve .....................           13,278
   Loans and leases, net of unearned income,
     allowance, and reserve...................................       37,145,498
Trading Assets ...............................................        8,573,870
Premises and fixed assets (including capitalized
   leases)....................................................          723,214
Other real estate owned ......................................           10,962
Investments in unconsolidated subsidiaries and
   associated companies.......................................          215,006
Customers' liability to this bank on acceptances
   outstanding................................................          682,590
Intangible assets ............................................        1,219,736
Other assets .................................................        2,542,157
                                                                   ------------
Total assets .................................................     $ 71,794,790
                                                                   ============
</TABLE>


                                      -7-
<PAGE>   8


<TABLE>
<S>                                                                <C>
LIABILITIES
Deposits:
   In domestic offices .......................................     $ 27,551,017
   Noninterest-bearing .......................................       11,354,172
   Interest-bearing ..........................................       16,196,845
   In foreign offices, Edge and Agreement subsidiaries,
     and IBFs.................................................       27,950,004
   Noninterest-bearing .......................................          639,410
   Interest-bearing ..........................................       27,310,594
Federal funds purchased and Securities sold under
   agreements to repurchase ..................................        1,349,708
Demand notes issued to the U.S.Treasury ......................          300,000
Trading liabilities ..........................................        2,339,554
Other borrowed money:
   With remaining maturity of one year or less ...............          638,106
   With remaining maturity of more than one year
     through three years......................................              449
   With remaining maturity of more than three years ..........           31,080
Bank's liability on acceptances executed and outstanding......          684,185
Subordinated notes and debentures ............................        1,552,000
Other liabilities ............................................        3,704,252
                                                                   ------------
Total liabilities ............................................     $ 66,100,355
                                                                   ============
EQUITY CAPITAL
Common stock .................................................        1,135,284
Surplus ......................................................          866,947
Undivided profits and capital reserves .......................        3,765,900
Net unrealized holding gains (losses) on
   available-for-sale securities..............................          (44,599)
Cumulative foreign currency translation adjustments...........          (29,097)
Total equity capital .........................................        5,694,435
                                                                   ------------
Total liabilities and equity capital .........................     $ 71,794,790
                                                                   ============
</TABLE>


         I, Thomas J. Mastro, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance


                                      -8-
<PAGE>   9


with the instructions issued by the Board of Governors of the Federal Reserve
System and is true to the best of my knowledge and belief.


                                                       Thomas J. Mastro

         We, the undersigned directors, attest to the correctness of this Report
of Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.

Thomas A. Renyi                              Directors
Alan R. Griffith
Gerald L. Hassell


                                      -9-
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<TABLE> <S> <C>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SOVEREIGN
SPECIALTY CHEMICALS INC.'S DECEMBER 31, 1999 FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S>                             <C>
<PERIOD-TYPE>                   12-MOS
<FISCAL-YEAR-END>                          DEC-31-1999
<PERIOD-END>                               DEC-31-1999
<CASH>                                          17,005
<SECURITIES>                                         0
<RECEIVABLES>                                   38,756
<ALLOWANCES>                                         0
<INVENTORY>                                     26,028
<CURRENT-ASSETS>                                86,172
<PP&E>                                          63,861
<DEPRECIATION>                                (12,336)
<TOTAL-ASSETS>                                 257,839
<CURRENT-LIABILITIES>                           68,861
<BONDS>                                              0
                                0
                                          0
<COMMON>                                            22
<OTHER-SE>                                      56,594
<TOTAL-LIABILITY-AND-EQUITY>                   257,839
<SALES>                                        237,408
<TOTAL-REVENUES>                               237,408
<CGS>                                          162,550
<TOTAL-COSTS>                                  162,550
<OTHER-EXPENSES>                                62,503
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                              15,076
<INCOME-PRETAX>                                (2,721)
<INCOME-TAX>                                     4,218
<INCOME-CONTINUING>                            (6,939)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                (1,055)
<CHANGES>                                            0
<NET-INCOME>                                   (7,994)
<EPS-BASIC>                                       0.00
<EPS-DILUTED>                                     0.00


</TABLE>

<PAGE>   1

                             LETTER OF TRANSMITTAL

                             TO TENDER FOR EXCHANGE
                   11 7/8% SENIOR SUBORDINATED NOTES DUE 2010
                                       OF

                      SOVEREIGN SPECIALTY CHEMICALS, INC.

             PURSUANT TO THE PROSPECTUS DATED                , 2000

              THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE
                       AT 5:00 P.M., NEW YORK CITY TIME,
                    ON              , 2000 UNLESS EXTENDED.

                 THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:

                              THE BANK OF NEW YORK

<TABLE>
<S>                                            <C>
                   By Mail:                               Facsimile Transmission:
             The Bank of New York                     (for eligible institutions only)
              101 Barclay Street                               (212) 815-6339
           New York, New York 10286                        Confirm by Telephone:
                    Attn:                                      (212) 815-6331
            Reorganization Section
</TABLE>

                          By Hand/Overnight Delivery:
                              The Bank of New York
                               101 Barclay Street
                            New York, New York 10286
                         Attn:
                             Reorganization Section

     DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA A FACSIMILE
TRANSMISSION TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.

     The undersigned hereby acknowledges receipt of the prospectus, dated
            , 2000, of Sovereign Specialty Chemicals, Inc. which, together with
this letter of transmittal, constitute Sovereign's offer to exchange $1,000
principal amount of 11 7/8% Senior Subordinated Notes due 2010, Series B, which
have been registered under the Securities Act of 1933, as amended, of Sovereign,
for each $1,000 principal amount of outstanding 11 7/8% Senior Subordinated
Notes due 2010, Series A, of Sovereign, of which $150,000,000 aggregate
principal amount is outstanding.

     IF YOU DESIRE TO EXCHANGE YOUR 11 7/8% SENIOR SUBORDINATED NOTES DUE 2010,
SERIES A, FOR AN EQUAL AGGREGATE PRINCIPAL AMOUNT OF 11 7/8% SENIOR SUBORDINATED
NOTES DUE 2010, SERIES B, YOU MUST VALIDLY TENDER (AND NOT VALIDLY WITHDRAW)
YOUR NOTES TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE OF THE EXCHANGE
OFFER.

     YOU MUST SIGN THIS LETTER OF TRANSMITTAL WHERE INDICATED BELOW. PLEASE READ
THE INSTRUCTIONS SET FORTH BELOW CAREFULLY BEFORE COMPLETING THIS LETTER OF
TRANSMITTAL.

     This letter of transmittal is to be completed by holders of Sovereign's
outstanding notes either if certificates representing such notes are to be
forwarded herewith or, unless an agent's message is utilized,
<PAGE>   2

tenders of such notes are to be made by book-entry transfer to an account
maintained by the exchange agent at The Depository Trust Company pursuant to the
procedures set forth in the prospectus under the heading "The Exchange
Offer -- Book-Entry Transfer."

     The undersigned has completed, executed and delivered this letter of
transmittal to indicate the action the undersigned desires to take with respect
to the exchange offer.

     Holders that are tendering by book-entry transfer to the exchange agent's
account at DTC can execute the tender though the DTC Automated Tender Offer
Program, for which the exchange offer is eligible. DTC participants that are
tendering pursuant to the exchange offer must transmit their acceptance through
the Automated Tender Offer Program to DTC, which will edit and verify the
acceptance and send an agent's message to the exchange agent for its acceptance.

     In order to properly complete this letter of transmittal, a holder of
outstanding notes must:

          (1) complete the box entitled "Description of Notes,"

          (2) if appropriate, check and complete the boxes relating to
     guaranteed delivery, Special Issuance Instructions and Special Delivery
     Instructions,

          (3) sign the letter of transmittal, and

          (4) complete Substitute Form W-9.

     If a holder desires to tender notes pursuant to the exchange offer and (1)
certificates representing such notes are not immediately available, (2) time
will not permit this letter of transmittal, certificates representing such notes
or other required documents to reach the exchange offer on or prior to the
expiration date, or (3) the procedures for book-entry transfer (including
delivery of an agent's message) cannot be completed on or prior to the
expiration date, such holder may nevertheless tender such notes with the effect
that such tender will be deemed to have been received on or prior to the
expiration date if the guaranteed delivery procedures described in the
prospectus under "The Exchange Offer -- Guaranteed Delivery Procedures" are
followed. See Instruction 1 below.

     PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL, INCLUDING THE INSTRUCTIONS,
AND THE PROSPECTUS CAREFULLY BEFORE COMPLETING THIS LETTER OF TRANSMITTAL OR
CHECKING ANY BOX BELOW. The instructions included with this letter of
transmittal must be followed. Questions and requests for assistance or for
additional copies of the prospectus and this letter of transmittal, the Notice
of Guaranteed Delivery and related documents may be directed to The Bank of New
York, at the address and telephone number set forth on the cover page of this
letter of transmittal. See instruction 11 below.

                                        2
<PAGE>   3

     List below the outstanding notes to which this letter of transmittal
relates. If the space provided is inadequate, list the certificate numbers and
principal amounts on a separately executed schedule and affix the schedule to
this letter of transmittal. Tenders of outstanding notes will be accepted only
in principal amounts equal to $1,000 or integral multiples of $1,000.

<TABLE>
<S>                                                          <C>                 <C>                 <C>
- ------------------------------------------------------------------------------------------------------------------------

                                                  DESCRIPTION OF NOTES
- ------------------------------------------------------------------------------------------------------------------------
                 NAME(S) AND ADDRESS(ES) OF                                      AGGREGATE PRINCIPAL
                    REGISTERED HOLDER(S)                         CERTIFICATE           AMOUNT         PRINCIPAL AMOUNT
                      (PLEASE FILL IN)                            NUMBER(S)         REPRESENTED**        TENDERED**
- ------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

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

- ------------------------------------------------------------------------------------------------------------------------
  TOTAL PRINCIPAL AMOUNT OF NOTES
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

   * Need not be completed by holders delivering by book-entry transfer (see
     below).

  ** Unless otherwise indicated in the column "Principal Amount Tendered" and
     subject to the terms and conditions of the exchange offer, the holder
     will be deemed to have tendered the entire aggregate principal amount
     represented by each note listed above and delivered to the exchange
     agent. See Instruction 4.

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

                                        3
<PAGE>   4

PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING THE
BOXES BELOW

  [ ] CHECK HERE IF CERTIFICATES FOR TENDERED OUTSTANDING NOTES ARE ENCLOSED
      HEREWITH.

  [ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
      MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE DTC AND
      COMPLETE THE FOLLOWING:

      Name of Tendering Institution:
                                    --------------------------------------------

      Account Number with DTC:
                              --------------------------------------------------

      Transaction Code Number:
                              --------------------------------------------------

  [ ] CHECK HERE IF YOU TENDERED BY BOOK-ENTRY TRANSFER AND DESIRE ANY
      NON-EXCHANGED NOTES TO BE RETURNED TO YOU BY CREDITING THE BOOK-ENTRY
      TRANSFER FACILITY ACCOUNT NUMBER SET FORTH ABOVE.

                           USE OF GUARANTEED DELIVERY
                              (SEE INSTRUCTION 1)

[ ]  To be completed only if tendered notes are being delivered pursuant to a
     notice of guaranteed delivery previously sent to the exchange agent.
     Complete the following (please enclose a photocopy of such notice of
     guaranteed delivery):

     Name of Registered Holder(s):
                                  -------------------------------------------

     Window Ticket Number (if any):
                                   ------------------------------------------

     Date of Execution of the Notice of Guaranteed Delivery:
                                                            -----------------

     Name of Eligible Institution that Guaranteed Delivery:
                                                           ------------------

          If Delivered By Book-Entry Transfer, Complete The Following:

     Name of Tendering Institution:
                                   ------------------------------------------

     Account Number at DTC:
                           --------------------------------------------------

     Transaction Code Number:
                             ------------------------------------------------

                              BROKER-DEALER STATUS

[ ]  Check here if you are a broker-dealer that acquired your tendered notes for
     your own account as a result of market making or other trading activities
     and wish to receive 10 additional copies of the prospectus and any
     amendments or supplements thereto.

     Name:
          -------------------------------------------------------------------

     Address:
             ----------------------------------------------------------------

                      NOTE: SIGNATURES MUST BE PROVIDED BELOW

                                        4
<PAGE>   5

              PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY

Ladies and Gentlemen:

     Upon the terms and subject to the conditions of the exchange offer, the
undersigned hereby tenders to Sovereign the principal amount of outstanding
notes described above. Subject to, and effective upon, the acceptance for
exchange of the outstanding notes tendered herewith, the undersigned hereby
sells, assigns and transfers to, or upon the order of, Sovereign all right,
title and interest in and to such outstanding notes.

     The undersigned hereby irrevocably constitutes and appoints the exchange
agent as the true and lawful agent and attorney-in-fact of the undersigned (with
full knowledge that the exchange agent also acts as the agent of Sovereign and
as trustee under the indenture relating to the outstanding notes) with respect
to such tendered notes, with full power of substitution and resubstitution (such
power of attorney being deemed to be an irrevocable power coupled with an
interest) to (1) deliver certificates representing such tendered notes, or
transfer ownership of such notes, on the account books maintained by DTC, and to
deliver all accompanying evidence of transfer and authenticity to, or upon the
order of, Sovereign upon receipt by the exchange agent, as the undersigned's
agent, of the exchange notes to which the undersigned is entitled upon the
acceptance by Sovereign of such outstanding notes for exchange pursuant to the
exchange offer, (2) receive all benefits and otherwise to exercise all rights of
beneficial ownership of such outstanding notes, all in accordance with the terms
of the exchange offer, and (3) present such outstanding notes for transfer on
the relevant security register.

     The undersigned hereby represents and warrants that the undersigned (1)
owns the notes tendered and is entitled to tender such notes, and (2) has full
power and authority to tender, sell, exchange, assign and transfer the
outstanding notes and to acquire exchange notes issuable upon the exchange of
such tendered notes, and that, when the same are accepted for exchange,
Sovereign will acquire good and marketable title to the tendered notes, free and
clear of all liens, restrictions, charges and encumbrances and not subject to
any adverse claim or right or restriction of any kind. The undersigned also
warrants that it will, upon request, execute and deliver any additional
documents deemed by the exchange agent or Sovereign to be necessary or desirable
to complete the sale, exchange, assignment and transfer of tendered notes or to
transfer ownership of such notes on the account books maintained by DTC.

     The undersigned understands that tenders of the outstanding notes pursuant
to any one of the procedures described in the prospectus under the caption "The
Exchange Offer -- Procedures for Tendering Outstanding Notes" and in the
instructions to this letter of transmittal will, upon Sovereign's acceptance of
the notes for exchange, constitute a binding agreement between the undersigned
and Sovereign in accordance with the terms and subject to the conditions of the
exchange offer.

     The exchange offer is subject to the conditions set forth in the prospectus
under the caption "The Exchange Offer -- Conditions to the Exchange Offer." The
undersigned recognizes that as a result of these conditions (which may be
waived, in whole or in part, by Sovereign) as more particularly set forth in the
prospectus, Sovereign may not be required to exchange any of the outstanding
notes tendered by this letter of transmittal and, in such event, the outstanding
notes not exchanged will be returned to the undersigned at the address shown
below the signature of the undersigned.

     The undersigned hereby represents and warrants that:

     - the undersigned (or the person or entity receiving notes pursuant to this
       letter of transmittal) is acquiring the offered notes in the ordinary
       course of business of the undersigned (or such other person);

     - neither the undersigned nor any such person or entity is engaging in or
       intends to engage in a distribution of the offered notes within the
       meaning of the federal securities laws;

     - neither the undersigned nor any such person or entity has an arrangement
       or understanding with any person or entity to participate in a
       distribution of the offered notes;

                                        5
<PAGE>   6

     - neither the undersigned nor any such person or entity is an "affiliate,"
       as such term is defined under Rule 405 promulgated under the Securities
       Act of 1933, of Sovereign; and

     - the undersigned is not acting on behalf of any person or entity who could
       not truthfully make the foregoing representations.

     If the undersigned is a broker-dealer that will receive offered notes for
its own account in exchange for outstanding notes that were acquired as a result
of market-making activities or other trading activities, it acknowledges that it
will deliver a prospectus in connection with any resale of such offered notes,
however, by so acknowledging and delivering a prospectus, the undersigned will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.

     All authority herein conferred or agreed to be conferred shall not be
affected by, and shall survive the death, bankruptcy or incapacity of the
undersigned and every obligation of the undersigned hereunder shall be binding
upon the heirs, personal representatives, executors, administrators, successors,
assigns, trustees in bankruptcy and other legal representatives of the
undersigned.

     Tendered outstanding notes may be withdrawn at any time prior to 5:00 p.m.,
New York City time on             , 2000 or on such later date or time to which
Sovereign may extend the exchange offer.

     Unless otherwise indicated herein under the box entitled "Special Issuance
Instructions" below, exchange notes, and outstanding notes not tendered or
accepted for exchange, will be issued in the name of the undersigned. Similarly,
unless otherwise indicated under the box entitled "Special Delivery
Instructions" below, exchange notes, and outstanding notes not tendered or
accepted for exchange, will be delivered to the undersigned at the address shown
below the signature of the undersigned. In the case of a book-entry delivery of
notes, the exchange agent will credit the account maintained by DTC with any
notes not tendered. The undersigned recognizes that Sovereign has no obligation
pursuant to the "Special Issuance Instructions" to transfer any outstanding
notes from the name of the registered holder thereof if Sovereign does not
accept for exchange any of the principal amount of such outstanding notes so
tendered.

     The exchange notes will bear interest from the most recent interest payment
date to which interest has been paid on the notes, or if no interest has been
paid, from March 29, 2000. Interest on the outstanding notes accepted for
exchange will cease to accrue upon the issuance of the exchange notes.

                                        6
<PAGE>   7

                                PLEASE SIGN HERE

  (TO BE COMPLETED BY ALL TENDERING HOLDERS OF OUTSTANDING NOTES REGARDLESS OF
                                 WHETHER NOTES
ARE BEING PHYSICALLY DELIVERED HEREWITH, UNLESS AN AGENT'S MESSAGE IS DELIVERED
            IN CONNECTION WITH A BOOK-ENTRY TRANSFER OF SUCH NOTES)

This letter of transmittal must be signed by the registered holder(s) of
outstanding notes exactly as their name(s) appear(s) on certificate(s) for
outstanding notes or on a security position listing, or by person(s) authorized
to become registered holder(s) by endorsements and documents transmitted with
this letter of transmittal. If the signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer or other person acting in a
fiduciary or representative capacity, such person must set forth his or her full
title below under "Capacity" and submit evidence satisfactory to the exchange
agent of such person's authority to so act. See Instruction 5 below.

If the signature appearing below is not of the registered holder(s) of the
outstanding notes, then the registered holder(s) must sign a valid power of
attorney.

X ------------------------------------------------------------------------------

X ------------------------------------------------------------------------------
               SIGNATURE(S) OF HOLDER(S) OR AUTHORIZED SIGNATORY

Dated:
- --------------------------- , 2000

Name(s)

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

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

Capacity

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

Address

- --------------------------------------------------------------------------------
                              (INCLUDING ZIP CODE)

Area Code and Telephone No.
                        --------------------------------------------------------

                   PLEASE COMPLETE SUBSTITUTE FORM W-9 HEREIN

                              SIGNATURE GUARANTEE
                (IF REQUIRED -- SEE INSTRUCTIONS 2 AND 5 BELOW)
         CERTAIN SIGNATURES MUST BE GUARANTEED BY A SIGNATURE GUARANTOR

- --------------------------------------------------------------------------------
             (NAME OF SIGNATURE GUARANTOR GUARANTEEING SIGNATURES)

- --------------------------------------------------------------------------------
  (ADDRESS (INCLUDING ZIP CODE) AND TELEPHONE NUMBER (INCLUDING AREA CODE) OF
                                     FIRM)

- --------------------------------------------------------------------------------
                             (AUTHORIZED SIGNATURE)

- --------------------------------------------------------------------------------
                                 (PRINTED NAME)

- --------------------------------------------------------------------------------
                                    (TITLE)

Dated:
- --------------------------- , 2000

                                        7
<PAGE>   8

<TABLE>
<S>                                                         <C>
SPECIAL ISSUANCE INSTRUCTIONS                               SPECIAL DELIVERY INSTRUCTIONS
To be completed ONLY if certificates for                    To be completed ONLY if certificates for
outstanding notes in a principal amount not                 outstanding notes in a principal amount not
tendered are to be issued in the name of, or                tendered, or exchange notes, are to be sent to
exchange notes issued pursuant to the exchange              someone other than the person or persons whose
offer are to be issued in the name of, someone              name(s) appear(s) within this letter of transmittal
other than the person or persons whose name(s)              to an address different from that shown in the box
appear(s) within this letter of transmittal or              entitled "Description of Notes" within this letter
issued to an address different from that shown in           of transmittal.
the box entitled "Description of Notes" within this
letter of transmittal.
Issue:  [ ] Exchange Notes                                  Deliver:  [ ] Exchange Notes
        [ ] Outstanding Notes                                         [ ] Outstanding Notes
        (Complete as applicable)                                      (Complete as applicable)

Name -------------------------------------------            Name -------------------------------------------
                  (PLEASE PRINT)                                              (PLEASE PRINT)

Address -----------------------------------------           Address -----------------------------------------
                  (PLEASE PRINT)                                              (PLEASE PRINT)

- ---------------------------------------------------         ---------------------------------------------------
                    (ZIP CODE)                                                  (ZIP CODE)

- ---------------------------------------------------         ---------------------------------------------------
   TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER
         (SEE SUBSTITUTE FORM W-9 HEREIN)
Credit outstanding notes not tendered, but                  Is this a permanent address change?
represented by certificates tendered by this letter         [ ]  Yes      [ ]  No (check one box)
of transmittal, by book-entry transfer to:

[ ]  The Depository Trust Company

[ ]
    ----------------------------------------------
Account Number
               -----------------------------------
Credit exchange notes issued pursuant to the
exchange offer by book-entry transfer to:
[ ]  The Depository Trust Company
Account Number
               -----------------------------------
</TABLE>

                                        8
<PAGE>   9

                     INSTRUCTIONS TO LETTER OF TRANSMITTAL
                    FORMING PART OF THE TERMS AND CONDITIONS
                             OF THE EXCHANGE OFFER

     1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND NOTES. This letter of
transmittal is to be completed by holders of outstanding notes if certificates
representing such notes are to be forwarded herewith, or, unless an agent's
message is utilized, if delivery of such certificates is to be made by
book-entry transfer to the account maintained by DTC, pursuant to the procedures
set forth in the prospectus under "The Exchange Offer -- Procedures for
Tendering Outstanding Notes." For a holder to properly tender notes pursuant to
the exchange offer, a properly completed and duly executed letter of transmittal
(or a manually signed facsimile thereof), together with any signature guarantees
and any other documents required by these Instructions, or a properly
transmitted agent's message in the case of a book-entry transfer, must be
received by the exchange agent at its address set forth herein on or prior to
the expiration date, and either (1) certificates representing such notes must be
received by the exchange agent at its address, or (2) such notes must be
transferred pursuant to the procedures for book-entry transfer described in the
prospectus under "The Exchange Offer -- Book-Entry Transfer" and a book-entry
confirmation must be received by the exchange agent on or prior to the
expiration date. A holder who desires to tender notes and who cannot comply with
procedures set forth herein for tender on a timely basis or whose notes are not
immediately available must comply with the guaranteed delivery procedures
discussed below.

     THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE OUTSTANDING NOTES
AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND
SOLE RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, HOLDERS SHOULD USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, HOLDERS SHOULD ALLOW FOR
SUFFICIENT TIME TO ENSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION
OF THE EXCHANGE OFFER. HOLDERS MAY REQUEST THEIR BROKER, DEALER, COMMERCIAL
BANK, TRUST COMPANY OR NOMINEE TO EFFECT THESE TRANSACTIONS FOR SUCH HOLDER.
HOLDERS SHOULD NOT SEND ANY NOTE, LETTER OF TRANSMITTAL OR OTHER REQUIRED
DOCUMENT TO SOVEREIGN.

     If a holder desires to tender notes pursuant to the exchange offer and (1)
certificates representing such notes are not immediately available, (2) time
will not permit such holder's letter of transmittal, certificates representing
such notes or other required documents to reach the exchange agent on or prior
to the expiration date, or (3) the procedures for book-entry transfer (including
delivery of an agent's message) cannot be completed on or prior to the
expiration date, such holder may nevertheless tender such notes with the effect
that such tender will be deemed to have been received on or prior to the
expiration date if the guaranteed delivery procedures set forth in the
prospectus under "The Exchange Offer -- Guaranteed Delivery Procedures" are
followed. Pursuant to such procedures, (1) the tender must be made by or through
an eligible guarantor institution (as defined in Instruction 2 below), (2) a
properly completed and duly executed notice of guaranteed delivery,
substantially in the form provided by Sovereign herewith, or an agent's message
with respect to a guaranteed delivery that is accepted by Sovereign, must be
received by the exchange agent on or prior to the expiration date, and (3) the
certificates for the tendered notes, in proper form for transfer (or a
book-entry confirmation of the transfer of such notes into the exchange agent's
account at DTC as described in the prospectus) together with a letter of
transmittal (or manually signed facsimile thereof) properly completed and duly
executed, with any required signature guarantees and any other documents
required by the letter of transmittal, or a properly transmitted agent's
message, must be received by the exchange agent within three New York Stock
Exchange, Inc. trading days after the execution of the notice of guaranteed
delivery.

     Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to holders who wish to tender their outstanding notes according to the
guaranteed delivery procedures set forth above.

     2. GUARANTEE OF SIGNATURES. Signatures on this letter of transmittal must
be guaranteed by a member of or participant in the Securities Transfer Agents
Medallion Program, the New York Stock Exchange, Inc. Medallion Signature Program
or the Stock Exchange Medallion Program or by an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 promulgated under the Securities
Exchange Act of 1934, as amended (banks; brokers and dealers; credit unions;
national securities exchanges;

                                        9
<PAGE>   10

registered securities associations; learning agencies; and savings associations)
unless the notes tendered hereby are tendered (1) by a registered holder of
notes (or by a participant in DTC whose name appears on a security position
listing as the owner of such notes) who has not completed any of the boxes
entitled "Special Issuance Instructions" or "Special Delivery Instructions," on
the letter of transmittal, or (2) for the account of an "eligible guarantor
institution." If the notes are registered in the name of a person other than the
signer of the letter of transmittal or if notes not tendered are to be returned
to, or are to be issued to the order of, a person other than the registered
holder or if notes not tendered are to be sent to someone other than the
registered holder, then the signature on this letter of transmittal accompanying
the tendered notes must be guaranteed as described above. Beneficial owners
whose notes are registered in the name of a broker, dealer, commercial bank,
trust company or other nominee must contact such broker, dealer, commercial
bank, trust company or other nominee if they desire to tender notes. See "The
Exchange Offer -- Procedures for Tendering Outstanding Notes," in the
prospectus.

     3. WITHDRAWAL OF TENDERS. Except as otherwise provided in the prospectus,
tenders of notes may be withdrawn at any time on or prior to the expiration
date. For a withdrawal of tendered notes to be effective, a written or facsimile
transmission notice of withdrawal must be received by the exchange agent on or
prior to the expiration date at its address set forth on the cover of this
letter of transmittal. Any such notice of withdrawal must (1) specify the name
of the person who tendered the notes to be withdrawn, (2) identify the notes to
be withdrawn, including the certificate number or numbers shown on the
particular certificates evidencing such notes (unless such notes were tendered
by book-entry transfer) and the aggregate principal amount represented by such
notes, and (3) be signed by the holder of such notes in the same manner as the
original signature on the letter of transmittal by which such notes were
tendered (including any required signature guarantees), or be accompanied by (i)
documents of transfer sufficient to have the trustee register the transfer of
the notes into the name of the person withdrawing such notes, and (ii) a
properly completed irrevocable proxy authorizing such person to effect such
withdrawal on behalf of such holder. If the notes to be withdrawn have been
delivered or otherwise identified to the exchange agent, a signed notice of
withdrawal is effective immediately upon written or facsimile notice of such
withdrawal even if physical release is not yet effected.

     Any permitted withdrawal of notes may not be rescinded. Any notes properly
withdrawn will thereafter be deemed not validly tendered for purposes of the
exchange offer. However, properly withdrawn notes may be retendered by following
one of the procedures described in the prospectus under the caption "The
Exchange Offer -- Procedures for Tendering Outstanding Notes" at any time prior
to the expiration date.

     4. PARTIAL TENDERS. Tenders of notes pursuant to the exchange offer will be
accepted only in principal amounts equal to $1,000 or integral multiples of
$1,000. If less than the entire principal amount of any notes evidenced by a
submitted certificate is tendered, the tendering holder must fill in the
principal amount tendered in the last column of the box entitled "Description of
Notes" herein. The entire principal amount represented by the certificates for
all notes delivered to the exchange agent will be deemed to have been tendered
unless otherwise indicated. If the entire principal amount of all notes held by
the holder is not tendered, certificates for the principal amount of notes not
tendered and exchange notes issued in exchange for any notes tendered and
accepted will be sent (or, if tendered by book-entry transfer, returned by
credit to the account at DTC designated herein) to the holder unless otherwise
provided in the appropriate box on this letter of transmittal (see Instruction
6), as soon as practicable following the expiration date.

     5. SIGNATURE ON THIS LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES. If this letter of transmittal is signed by the
registered holder(s) of the outstanding notes tendered hereby, the signature
must correspond with the name(s) as written on the face of certificates without
alteration, enlargement or change whatsoever. If this letter of transmittal is
signed by a participant in DTC whose name is shown as the owner of the notes
tendered hereby, the signature must correspond with the name shown on the
security position listing the owner of the notes.

                                       10
<PAGE>   11

     If any of the notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this letter of transmittal. If any
tendered notes are registered in different names on several certificates, it
will be necessary to complete, sign and submit as many copies of this letter of
transmittal and any necessary accompanying documents as there are different
names in which certificates are held.

     If this letter of transmittal is signed by the holder, and the certificates
for any principal amount of notes not tendered are to be issued (or if any
principal amount of notes that is not tendered is to be reissued or returned) to
or, if tendered by book-entry transfer, credited to the account of DTC of the
registered holder, and exchange notes exchanged for outstanding notes in
connection with the exchange offer are to be issued to the order of the
registered holder, then the registered holder need not endorse any certificates
for tendered notes nor provide a separate bond power. In any other case
(including if this letter of transmittal is not signed by the registered
holder), the registered holder must either properly endorse the certificates for
notes tendered or transmit a separate properly completed bond power with this
letter of transmittal (in either case, executed exactly as the name(s) of the
registered holder(s) appear(s) on such notes, and, with respect to a participant
in DTC whose name appears on a security position listing as the owner of notes,
exactly as the name(s) of the participant(s) appear(s) on such security position
listing), with the signature on the endorsement or bond power guaranteed by a
signature guarantor or an eligible guarantor institution, unless such
certificates or bond powers are executed by an eligible guarantor institution.
See Instruction 2.

     Endorsements on certificates for notes and signatures on bond powers
provided in accordance with this Instruction 5 by registered holders not
executing this letter of transmittal must be guaranteed by an eligible
institution. See Instruction 2.

     If this letter of transmittal or any certificates representing notes or
bond powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and
proper evidence satisfactory to the exchange agent of their authority so to act
must be submitted with this letter of transmittal.

     6. SPECIAL ISSUANCE AND SPECIAL DELIVERY INSTRUCTIONS. Tendering holders
should indicate in the applicable box or boxes the name and address to which
notes for principal amounts not tendered or exchange notes exchanged for
outstanding notes in connection with the exchange offer are to be issued or
sent, if different from the name and address of the holder signing this letter
of transmittal. In the case of issuance in a different name, the
taxpayer-identification number of the person named must also be indicated. If no
instructions are given, notes not tendered will be returned to the registered
holder of the notes tendered. For holders of notes tendered by book-entry
transfer, notes not tendered will be returned by crediting the account at DTC
designated above.

     7. TAXPAYER IDENTIFICATION NUMBER AND SUBSTITUTE FORM W-9. Each tendering
holder is required to provide the exchange agent with its correct taxpayer
identification number, which, in the case of a holder who is an individual, is
his or her social security number. If the exchange agent is not provided with
the correct taxpayer identification number, the holder may be subject to backup
withholding and a $50 penalty imposed by the Internal Revenue Service. If
withholding results in an over-payment of taxes, a refund may be obtained.
Certain holders (including, among others, all corporations and certain foreign
individuals) are not subject to these backup withholding and reporting
requirements. See the enclosed "Guidelines for Certification of Taxpayer
Identification Number on substitute Form W-9" for additional instructions.

     To prevent backup withholding, each holder tendering outstanding notes must
provide such holder's correct taxpayer identification number by completing the
Substitute Form W-9, certifying that the taxpayer identification number provided
is correct (or that such holder is awaiting a taxpayer identification number),
and that (i) the holder has not been notified by the Internal Revenue Service
that such holder is subject to backup withholding as a result of failure to
report all interest or dividends or (ii) the Internal Revenue Service has
notified the holder that such holder is no longer subject to backup withholding.
If the outstanding notes are registered in more than one name or are not in the
name of the actual owner, consult the "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for information on which tax payer
identification number to report.
                                       11
<PAGE>   12

     Sovereign reserves the right in its sole discretion to take whatever steps
are necessary to comply with its obligation regarding backup withholding.

     8. TRANSFER TAXES. Sovereign will pay all transfer taxes, if any, required
to be paid by Sovereign in connection with the exchange of the outstanding notes
for the exchange notes. If, however, exchange notes, or outstanding notes for
principal amounts not tendered or accepted for exchange, are to be delivered to,
or are to be issued in the name of, any person other than the registered holder
of the outstanding notes tendered, or if a transfer tax is imposed for any
reason other than the exchange of the outstanding notes in connection with the
exchange offer, then the amount of any transfer tax (whether imposed on the
registered holder or any other persons) will be payable by the tendering holder.
If satisfactory evidence of payment of the transfer taxes or exemption therefrom
is not submitted with the letter of transmittal, the amount of such transfer
taxes will be billed directly to the tendering holder.

     9. MUTILATED, LOST, STOLEN OR DESTROYED OUTSTANDING NOTES. Any holder whose
exchange notes have been mutilated, lost, stolen or destroyed should contact the
exchange agent at the address indicated above for further instructions.

     10. IRREGULARITIES. All questions as to the validity, form, eligibility,
time of receipt, acceptance and withdrawal of any tenders of notes pursuant to
the procedures described in the prospectus and the form and validity of all
documents will be determined by Sovereign, in its sole discretion, which
determination shall be final and binding on all parties. Sovereign reserves the
absolute right, in its sole discretion, to reject any or all tenders of any
notes determined by it not to be in proper form or the acceptance of which may,
in the opinion of Sovereign's counsel, be unlawful. Sovereign also reserves the
absolute right, in its sole discretion, to waive or amend any of the conditions
of the exchange offer or to waive any defect or irregularity in the tender of
any particular notes, whether or not similar defects or irregularities are
waived in the case of other tenders. Sovereign's interpretations of the terms
and conditions of the exchange offer (including, without limitation, the
instructions in this letter of transmittal) shall be final and binding. No
alternative, conditional or contingent tenders will be accepted. Unless waived,
any irregularities in connection with tenders must be cured within such time as
Sovereign shall determine. None of Sovereign, the exchange agent or any other
person will be under any duty to give notification of any defects or
irregularities in such tenders or will incur any liability to holders for
failure to give such notification. Tenders of such notes shall not be deemed to
have been made until such irregularities have been cured or waived. Any notes
received by the exchange agent that are not properly tendered and as to which
the irregularities have not been cured or waived will be returned by the
exchange agent to the tendering holders, unless such holders have otherwise
provided herein, promptly following the expiration date.

     11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the
procedure for tendering, as well as requests for assistance or additional copies
of the prospectus and this letter of transmittal, may be directed to the
exchange agent at the address and telephone number set forth above. Holders may
also contact their broker, dealer, commercial bank, trust company or other
nominee for assistance concerning the exchange offer.

     IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE THEREOF (TOGETHER WITH
CERTIFICATES FOR OUTSTANDING NOTES AND ALL OTHER REQUIRED DOCUMENTS) OR A NOTICE
OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO
5:00 P.M., NEW YORK CITY TIME ON THE EXPIRATION DATE.

                                       12
<PAGE>   13

<TABLE>
<S>                                   <C>                                    <C>                                  <C>
- ---------------------------------------------------------------------------------------------------------------------
                                         PAYER'S NAME: THE BANK OF NEW YORK
- ---------------------------------------------------------------------------------------------------------------------
  SUBSTITUTE                          PART 1 -- PLEASE PROVIDE YOUR TIN
                                      IN THE BOX AT RIGHT AND CERTIFY BY     -----------------------------------
  FORM W-9                            SIGNING AND DATING BELOW.              Social Security Number(s)
                                                                             OR
                                                                             Employer Identification Number(s)
- ---------------------------------------------------------------------------------------------------------------------
  DEPARTMENT OF THE TREASURY          PART 2 -- CERTIFICATION -- UNDER       PART 3 --
                                      PENALTIES OF PERJURY, I CERTIFY
                                      THAT:                                  Awaiting TIN  [ ]
  INTERNAL REVENUE SERVICE            (1) The number shown on this form
                                      is my correct taxpayer
  PAYER'S REQUEST FOR                     identification number (or I am
  TAXPAYER IDENTIFICATION                 waiting for a number to be
  NUMBER ("TIN")                          issued to me), and
                                      (2) I am not subject to backup
                                          withholding because: (a) I am
                                          exempt from backup withholding,
                                          (b) I have not been notified by
                                          the Internal Revenue Service
                                          (the "IRS") that I am subject
                                          to backup withholding as a
                                          result of a failure to report
                                          all interest or dividends, or
                                          (c) the IRS has notified me
                                          that I am no longer subject to
                                          backup withholding.
- ---------------------------------------------------------------------------------------------------------------------
  CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if you have been notified by the IRS that you
  are subject to backup withholding because of underreporting interest or dividends on your tax return. However,
  if after being notified by the IRS that you are subject to backup withholding you receive another notification
  from the IRS stating that you are no longer subject to backup withholding, do not cross out item (2).

  SIGNATURE                                                                  DATE                              , 2000
           -----------------------------------------------------------------      -----------------------------


  NAME (please print) --------------------------------------------------------------

- ---------------------------------------------------------------------------------------------------------------------
</TABLE>

               YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU
              CHECKED THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9

             CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
- --------------------------------------------------------------------------------

I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (1) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration office, or (2) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of payment, 31% of all
reportable cash payments made to me thereafter will be withheld until I provide
a taxpayer identification number to the payer and that, if I do not provide my
taxpayer identification number within sixty days, such retained amounts shall be
remitted to the IRS as backup withholding.

SIGNATURE                                            DATE
         -------------------------------------------     -----------------, 2000


NAME (please print)
- --------------------------------------------------------------------------------

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

  NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM W-9 MAY RESULT IN BACKUP
        WITHHOLDING AND A $50 PENALTY IMPOSED BY THE INTERNAL REVENUE SERVICE.
        PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
        IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.

                                       13

<PAGE>   1

                         NOTICE OF GUARANTEED DELIVERY

                             TO TENDER FOR EXCHANGE
                   11 7/8% SENIOR SUBORDINATED NOTES DUE 2010

                                       OF

                      SOVEREIGN SPECIALTY CHEMICALS, INC.

             PURSUANT TO THE PROSPECTUS DATED                , 2000

              THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE
                       AT 5:00 P.M., NEW YORK CITY TIME,
                    ON              , 2000, UNLESS EXTENDED.

                 THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:

                              THE BANK OF NEW YORK

<TABLE>
<S>                                            <C>
                   By Mail:                               Facsimile Transmission:
             The Bank of New York                     (for eligible institutions only)
              101 Barclay Street                               (212) 815-6339
           New York, New York 10286                        Confirm by Telephone:
                    Attn:                                      (212) 815-6331
            Reorganization Section
</TABLE>

                          By Hand/Overnight Delivery:
                              The Bank of New York
                               101 Barclay Street
                           New York, New York 100286
                         Attn:
                             Reorganization Section

     DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA A
FACSIMILE TRANSMISSION TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT
CONSTITUTE A VALID DELIVERY.

     Outstanding notes must be received by the exchange agent within three New
York Stock Exchange, Inc. Trading days after the date of this notice of
guaranteed delivery.

     As set forth in the prospectus, dated                     , 2000, of
Sovereign Specialty Chemicals, Inc. under "The Exchange Offer -- Guaranteed
Delivery Procedures," and in the instructions of the letter of transmittal, this
form, or one substantially equivalent hereto, or an agent's message relating to
guaranteed delivery, must be used to accept Sovereign's offer to exchange $1,000
principal amount of 11 7/8% Senior Subordinated Notes due 2010, Series B, of
Sovereign, for each $1,000 principal amount of outstanding 11 7/8% Senior
Subordinated Notes due 2010, Series A, of Sovereign, if certificates
representing such notes are not immediately available, time will not permit the
letter of transmittal, certificates representing such notes or other required
documents to reach the exchange agent, or the procedures for book-entry transfer
(including a properly transmitted agent's message with respect thereto) cannot
be completed, on or prior to the expiration date.

     This form is not to be used to guarantee signatures. If a signature on the
letter of transmittal is required to be guaranteed by signature guarantor under
the instructions thereto, such signature guarantee must appear in the applicable
space provided in the letter of transmittal.
<PAGE>   2

Ladies and Gentlemen:

     The undersigned hereby tender(s) to Sovereign Specialty Chemicals, Inc.,
upon the terms and subject to the conditions set forth in the prospectus and the
letter of transmittal, receipt of which is hereby acknowledged, the aggregate
principal amount of outstanding notes set forth below pursuant to the guaranteed
delivery procedures set forth in the prospectus under the caption "The Exchange
Offer -- Guaranteed Delivery Procedures." The undersigned hereby authorizes the
exchange agent to deliver this notice of guaranteed delivery to Sovereign with
respect to the outstanding notes tendered pursuant to the exchange offer.

     The undersigned understands that tenders of the outstanding notes will be
accepted only in principal amounts equal to $1,000 or integral multiples
thereof. The undersigned also understands that tenders of the outstanding notes
pursuant to the exchange offer may be withdrawn at any time prior to the
expiration date. For a withdrawal of a tender of notes to be effective, it must
be made in accordance with the procedures set forth in the prospectus under "The
Exchange Offer -- Withdrawal Rights."

     The undersigned understands that the exchange of any exchange notes for
outstanding notes will be made only after timely receipt by the exchange agent
of (i) the certificates of the tendered notes, in proper form for transfer (or a
book-entry confirmation of the transfer of such notes into the exchange agent's
account at The Depository Trust Company), and (ii) a letter of transmittal (or a
manually signed facsimile thereof) properly completed and duly executed with any
required signature guarantees, together with any other documents required by the
letter of transmittal (or a properly transmitted agent's message), within three
New York Stock Exchange, Inc. trading days after the execution hereof.

     The undersigned hereby represents and warrants that the undersigned (1)
accepts the terms and conditions of exchange offer as set forth in the
prospectus and the letter of transmittal, (2) is entitled to tender such notes,
and (3) has full power and authority to tender, sell, exchange, assign and
transfer the outstanding notes and to acquire exchange notes issuable upon
exchange of such tendered notes, and that when the same are accepted for
exchange, Sovereign will acquire good and marketable title thereto, free and
clear of all liens, restrictions, charges and encumbrances and not subject to
any adverse claim or right or restriction of any kind. The undersigned will,
upon request, execute and deliver any additional documents deemed by the
exchange agent or Sovereign to be necessary or desirable to complete the
exchange, assignment and transfer of the notes tendered.

     All authority herein conferred or agreed to be conferred by this notice of
guaranteed delivery shall not be affected by, and shall survive, the death or
incapacity of the undersigned, and every obligation of the undersigned under
this notice of guaranteed delivery shall be binding upon the heirs, personal
representatives, executors, administrators, successors, assigns, trustees in
bankruptcy and other legal representatives of the undersigned.

     In the event of a termination of the exchange offer, the notes tendered
pursuant to the exchange offer will be returned to the tendering holders
promptly (or, in the case of notes tendered by book-entry transfer, such notes
will be credited to the account maintained at The Depository Trust Company from
which such notes were delivered).

                                        2
<PAGE>   3

                            PLEASE SIGN AND COMPLETE
- --------------------------------------------------------------------------------

<TABLE>
<S>                                                  <C>
Signature(s) of Registered Holder(s) or              Date:
Authorized Signatory:                                      --------------------------------------------
                     ------------------------------  Address:
- ---------------------------------------------------          ------------------------------------------
                                                     --------------------------------------------------
Name(s) of Registered Holder(s):                     Area Code and Telephone No.
                                -------------------                             -----------------------
- ---------------------------------------------------  If Notes will be delivered by book-entry transfer,
                                                     provide information below:
Principal Amount of Notes Tendered:
                                   ----------------  Name of Tendering
Certificate No.(s) of Notes                          Institution:
(if available)                                                   --------------------------------------
              -------------------------------------  Depositary
                                                     Account No. with DTC:
                                                                          -----------------------------
                                                     Transaction Code Number
                                                                            ---------------------------
</TABLE>

This notice of guaranteed delivery must be signed by the holder(s) exactly as
their name(s) appear(s) on certificate(s) for notes or on a security position
listing as the owner of notes, or by person(s) authorized to become holder(s) by
endorsements and documents transmitted with this notice of guaranteed delivery.
If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information:

                      PLEASE PRINT NAME(S) AND ADDRESS(ES)

Name(s):
        ------------------------------------------------------------------------

- --------------------------------------------------------------------------------
Capacity:
         -----------------------------------------------------------------------

Address(es):
            --------------------------------------------------------------------

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

     DO NOT SEND NOTES WITH THIS FORM. NOTES SHOULD BE SENT TO THE EXCHANGE
AGENT TOGETHER WITH A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL
OR PROPERLY TRANSMITTED AGENT'S MESSAGE.

                                        3
<PAGE>   4

                     THE GUARANTEE BELOW MUST BE COMPLETED

                                   GUARANTEE
                    (NOT TO BE USED FOR SIGNATURE GUARANTEE)

     The undersigned, an "eligible guarantor institution" within the meaning of
Rule 17Ad-15 promulgated under the Securities Exchange Act of 1934, as amended,
hereby guarantees that the notes to be tendered hereby are in proper form for
transfer (pursuant to the procedures set forth in the prospectus under "The
Exchange Offer -- Guaranteed Delivery Procedures"), and that the exchange agent
will receive (a) such notes, or a book-entry confirmation of the transfer of
such notes into the exchange agent's account at The Depository Trust Company,
and (b) a properly completed and duly executed letter of transmittal (or
facsimile thereof) with any required signature guarantees and any other
documents required by the letter of transmittal, or a properly transmitted
agent's message, within three New York Stock Exchange, Inc. trading days after
the date of execution hereof.

     The eligible guarantor institution that completes this form must
communicate the guarantee to the exchange agent and must deliver the letter of
transmittal, or a properly transmitted agent's message, and notes, or a
book-entry confirmation in the case of a book-entry transfer, to the exchange
agent within the time period described above. Failure to do so could result in a
financial loss to such eligible guarantor institution.

<TABLE>
<S>                                              <C>
Name of Firm:
             --------------------------------    ---------------------------------------------
                                                 AUTHORIZED SIGNATURE

Address:
        -------------------------------------    Name:
                                                      ----------------------------------------

- ---------------------------------------------
                                   (Zip Code)    Title:
                                                       ---------------------------------------

Area Code and
Telephone Number:
                 ----------------------------
                                                 Dated:           , 2000
                                                       -----------
</TABLE>

                                        4

<PAGE>   1

                    INSTRUCTION TO REGISTERED HOLDER AND/OR
                    BOOK-ENTRY TRANSFER FACILITY PARTICIPANT
                             FROM BENEFICIAL OWNER

                                       OF

                      SOVEREIGN SPECIALTY CHEMICALS, INC.
                   11 7/8% SENIOR SUBORDINATED NOTES DUE 2010

To Registered Holders and/or Participant of the Book-Entry Transfer Facility:

     The undersigned hereby acknowledges receipt of the prospectus, dated
       , 2000, of Sovereign Specialty Chemicals, Inc. and accompanying letter of
transmittal, that together constitute Sovereign's offer to exchange $1,000
principal amount of 11 7/8% Senior Subordinated Notes due 2010, Series B, which
have been registered under the Securities Act of 1933, as amended, of Sovereign
for each $1,000 principal amount of outstanding 11 7/8% Senior Subordinated
Notes due 2010, Series A, of Sovereign, of which $150,000,000 aggregate
principal amount is outstanding.

     This will instruct you, the registered holder and/or book-entry transfer
facility participant, as to the action to be taken by you relating to the
exchange offer with respect to the outstanding notes held by you for the account
of the undersigned.

     The aggregate face amount of the outstanding notes held by you for the
account of the undersigned is (FILL IN AMOUNT):

     $       of 11 7/8% Senior Subordinated Notes due 2010.

     With respect to the exchange offer, the undersigned hereby instructs you
(CHECK APPROPRIATE BOX):

     [ ] To TENDER ALL of the outstanding notes held by you for the account of
         the undersigned.

     [ ] To TENDER the following outstanding notes held by you for the account
         of the undersigned (INSERT PRINCIPAL AMOUNT OF OUTSTANDING NOTES TO BE
         TENDERED (IF ANY)): $     of 11 7/8% Senior Subordinated Notes due
         2010.

     [ ] NOT to TENDER any outstanding notes held by you for the account of the
         undersigned.

     If the undersigned instructs you to tender outstanding notes held by you
for the account of the undersigned, it is understood that you are authorized to
make, on behalf of the undersigned (and the undersigned, by its signature below,
hereby makes to you), the representations and warranties contained in the letter
of transmittal that are to be made with respect to the undersigned as a
beneficial owner, including but not limited to the representations, that (1) the
exchange notes acquired pursuant to the exchange offer are being acquired in the
ordinary course of business of the undersigned, (2) the undersigned is not
engaging in and does not intend to engage in a distribution of the exchange
notes, (3) the undersigned does not have an arrangement or understanding with
any person to participate in the distribution of such exchange notes, (4) the
undersigned is not an "affiliate" of Sovereign or the guarantors within the
meaning of Rule 405 under the Securities Act of 1933, as amended, and (5) the
undersigned is not acting on behalf of any person who could not truthfully make
the foregoing representations. If the undersigned is a broker-dealer that will
receive exchange notes for its own account in exchange for outstanding notes
that were acquired as a result of market-making activities or other trading
activities, it acknowledges that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
exchange notes. By acknowledging that it will deliver and by delivering a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such exchange notes, the undersigned is not deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
<PAGE>   2

     The undersigned acknowledges that if an executed copy of this letter of
transmittal is returned, the entire principal amount of outstanding notes held
for the undersigned's account will be tendered unless otherwise specified above.

     The undersigned hereby represents and warrants that the undersigned (1)
owns the notes tendered and is entitled to tender such notes, and (2) has full
power and authority to tender, sell, exchange, assign and transfer the
outstanding notes and to acquire exchange notes issuable upon the exchange of
such tendered notes, and that, when the same are accepted for exchange,
Sovereign will acquire good and marketable title to the tendered notes, free and
clear of all liens, restrictions, charges and encumbrances and not subject to
any adverse claim or right or restriction of any kind.

                                   SIGN HERE

Name of beneficial owner(s)(please print):
- --------------------------------------------------------------------------------

Signature(s):
- --------------------------------------------------------------------------------

Address:
- --------------------------------------------------------------------------------

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

Telephone Number:
- --------------------------------------------------------------------------------

Taxpayer Identification Number or Social Security Number:
- --------------------------------------------------------------------------------

Date:
- --------------------------------------------------------------------------------

                                        2


© 2022 IncJournal is not affiliated with or endorsed by the U.S. Securities and Exchange Commission