FET Forum Energy Technologies Inc

DESCRIPTION OF THE NEW NOTES

Forum Energy Technologies, Inc. (the “Issuer”) will issue the 9.00% convertible senior secured notes due 2025 (the “Notes”) under an Indenture (the “Indenture”), to be dated as of the Issue Date, among the Issuer, the Guarantors and U.S. Bank National Association, as trustee (in such capacity, the “Trustee”) and as collateral agent (in such capacity, the “Notes Collateral Agent”). The terms of the Notes include those set forth in (i) the Indenture, including those terms made part of the Indenture by reference to the Trust Indenture Act (the “TIA”), (ii) the Security Documents and (iii) the Intercreditor Agreement. You may obtain a copy of the Indenture, the Security Documents and the Intercreditor Agreement from the Issuer at its address set forth elsewhere in this Prospectus. In this “Description of the New Notes,” the term “Issuer” refers to Forum Energy Technologies, Inc. and not to any of its subsidiaries.

The following is a summary of the material terms and provisions of the Notes, the Indenture, the Security Documents and the Intercreditor Agreement. The following summary does not purport to be a complete description of the Notes, the Indenture, the Security Documents and the Intercreditor Agreement, and is subject to the detailed provisions of, and qualified in its entirety by reference to, the Notes, the Indenture, the Security Documents and the Intercreditor Agreement. You can find definitions of certain terms used in this description under the heading “—Certain Definitions.”

The registered Holder of a Note will be treated as the owner of it for all purposes. Only registered Holders will have rights under the Indenture.

Brief Description of the Notes and the Note Guarantees

The Notes

The Notes will be:

Substantially all of the personal property, subject to certain exceptions, of the Issuer and the Guarantors will be pledged to secure our obligations under the Notes and our obligations under our Credit Agreement, and certain real property interests will also be pledged to secure our obligations under the Notes. See “—Security” below.

The Note Guarantees

On the Issue Date, the Issuer’s obligations under the Notes and the Indenture will be jointly and severally guaranteed, on a senior basis, by each of the Issuer’s direct and indirect Domestic Subsidiaries that guarantees any Indebtedness of the Issuer under the Credit Agreement. After the Issue Date, the Notes will be unconditionally guaranteed by certain of the Issuer’s direct and indirect Domestic Subsidiaries (other than Excluded Subsidiaries). See “—Certain Covenants—Additional Guarantees.” Not all of the Issuer’s Domestic Subsidiaries will guarantee the Notes. In the event of a bankruptcy, liquidation or reorganization of any of these non-Guarantor Subsidiaries, the non-Guarantor Subsidiaries will pay the holders of their debt and their trade

58

creditors before they will be able to distribute any of their assets to the Issuer. For the three months ended March 31, 2020, the Issuer’s non-Guarantor Subsidiaries accounted for approximately 28.6% and 4.9% of the Issuer’s revenue and operating loss, respectively. As of March 31, 2020, the Issuer’s non-Guarantor Subsidiaries accounted for approximately 27.4% of the Issuer’s consolidated assets and approximately 13.6% of the Issuer’s consolidated liabilities.

Although the Indenture contains limitations on the amount of additional secured Indebtedness that the Issuer and the Subsidiaries may incur, under certain circumstances, the amount of this Indebtedness could be substantial. See “—Certain Covenants—Limitation on Additional Indebtedness” and “—Certain Covenants—Limitation on Liens.”

Each Note Guarantee of a Guarantor will be:

The Note Guarantees will be joint and several obligations of the Guarantors. The obligations of each Guarantor under its Note Guarantee will be limited as necessary to prevent that Note Guarantee from constituting a fraudulent conveyance or fraudulent transfer or unlawful financial assistance under applicable law. See “Risk Factors—Risks Related to the New Notes—Federal and state statutes allow courts, under specific circumstances, to void guarantees and the related security interests, and require debtholders to return payments received or prevent debtholders from receiving payments.”

The Note Guarantee of a Guarantor will be automatically released and discharged:

(1)    in connection with any sale, disposition or transfer of all or substantially all of the assets of that Guarantor (including by way of merger, amalgamation or consolidation) to a Person that is not (either before or after giving effect to such transaction) the Issuer or a Subsidiary of the Issuer, if the sale, disposition or transfer does not violate the “Asset Sale” provisions of the Indenture;

(2)    in connection with any sale, exchange, disposition or transfer of all of the Equity Interests of that Guarantor to a Person that is not (either before or after giving effect to such transaction) the Issuer or a Subsidiary of the Issuer, if the sale, exchange, disposition or transfer does not violate the “Asset Sale” provisions of the Indenture;

(3)    [reserved];

(4)    [reserved];

(5)    upon legal or covenant defeasance or satisfaction and discharge of the Indenture as provided below under “—Legal Defeasance and Covenant Defeasance” and “—Satisfaction and Discharge”; or

(6)    upon a dissolution of such Guarantor that is permitted under the Indenture.

Principal, Maturity and Interest

The Notes will mature on August 4, 2025, provided that if more than $16.5 million in aggregate principal amount of Old Notes remain outstanding as of June 30, 2021, the Notes will mature on June 30, 2021. The Notes

59

will bear interest at 9.00% per annum, payable semi-annually in arrears on April 1 and October 1 of each year, commencing on October 1, 2020, to Holders of record at the close of business on March 15 or September 15, as the case may be (whether or not a Business Day), immediately preceding the related interest payment date. Interest will be payable, at the election of the Issuer (made by delivering a notice to the Trustee prior to the record date for the next interest payment date), (i) entirely in cash (“Cash Interest”) or (ii) by paying 6.25% per annum as Cash Interest and 2.75% per annum by increasing the principal amount of the outstanding Notes or by issuing additional Notes (“PIK Interest Notes”) having a principal amount equal to the amount of interest so paid (“PIK Interest”). Interest on the Notes will accrue from the date of original issuance or, if interest has already been paid, from and including the most recent date to which interest has been paid. Interest on the Notes will be computed on the basis of a 360-day year of twelve 30-day months.

Notwithstanding anything to the contrary, the payment of accrued interest in connection with any redemption or purchase of Notes, as described under “—Optional Redemption,” “—Change of Control” or “—Certain Covenants—Limitation on Asset Sales,” will be made solely in cash.

If a scheduled payment date falls on a day that is not a Business Day, the payment to be made on such payment date will be made on the next succeeding Business Day with the same force and effect as if made on such payment date, and no additional interest will accrue solely as a result of such delayed payment. Interest on overdue principal and interest will accrue at the applicable interest rate on the Notes.

The Notes will be issued in registered form, without coupons, and in denominations of $1.00 and integral multiples of $1.00 in excess thereof.

We may issue additional Notes having identical terms and conditions to the Notes offered hereby, except for issue date, issue price and first interest payment date, in an unlimited aggregate principal amount (the “Additional Notes”), subject to compliance with the covenant described under “—Certain Covenants—Limitation on Additional Indebtedness.” Any Additional Notes will be part of the same issue and will be treated as one class with the Notes, including for purposes of voting, redemptions and offers to purchase. For purposes of this “Description of the New Notes,” references to the Notes include Additional Notes, if any.

In connection with the payment of PIK Interest in respect of the Notes, the Issuer will, without the consent of the Holders (and without regard to any restrictions or limitations set forth under “—Certain Covenants—Limitation on Additional Indebtedness” and “—Certain Covenants—Limitation on Liens”), either increase the outstanding principal amount of the Notes or issue PIK Interest Notes under the Indenture having the same terms as the Notes (in each case, a “PIK Payment”).

Methods of Receiving Payments on the Notes

The Issuer will make payments in respect of global Notes by wire transfer of immediately available funds to the accounts specified by DTC or its Nominee. If a Holder of at least $1.0 million principal amount of certificated Notes has given wire transfer instructions to the Issuer at least ten Business Days prior to the applicable payment date, the Issuer will make all payments on such Holder’s Notes by wire transfer of immediately available funds to the account in the City and State of New York specified in those instructions. Otherwise, payments on the Notes will be made at the office or agency of the paying agent (the “Paying Agent”) and registrar (the “Registrar”) for the Notes in the City and State of New York unless the Issuer elects to make interest payments by check mailed to the Holders at their addresses set forth in the register of Holders. The Issuer has designated the Trustee to act as Paying Agent and Registrar. The Issuer may change the Paying Agent or Registrar without prior notice to the Holders, and the Issuer and/or any Subsidiary may act as Paying Agent or Registrar.

60

At all times, PIK Interest on the Notes will be payable:

(i)    in respect of global Notes, by increasing the aggregate principal amount of the outstanding global Notes by an amount equal to the amount of PIK Interest for the applicable interest period (rounded down to the nearest whole dollar) as provided in writing by the Issuer to the Trustee; and

(ii)    in respect of certificated Notes, by issuing PIK Interest Notes in certificated form in an aggregate principal amount equal to the amount of PIK Interest for the applicable interest period (rounded down to the nearest whole dollar), and the Trustee will, at the written request of the Issuer, authenticate and deliver such PIK Interest Notes in certificated form for original issuance to the registered Holders on the relevant record date, as shown by the records of the register of Holders.

Following an increase in the principal amount of the outstanding global notes as a result of a PIK Payment, the global notes will bear interest on such increased principal amount from and after the interest payment date related to such PIK Payment. Any PIK Interest Notes issued in certificated form will be dated as of the applicable interest payment date and will bear interest from and after such date. All Notes issued pursuant to a PIK Payment will be subject to the Indenture and will have the same terms as Notes issued on the Issue Date.

Optional Redemption

General

Subject to the rights of Holders described in “—Conversion Rights—Optional Conversion,” at any time or from time to time on or after August 4, 2022, the Issuer, at its option, may redeem the Notes, in whole or in part, at the redemption prices (expressed as percentages of principal amount of the Notes to be redeemed) set forth below, together with accrued and unpaid interest to, but not including, the redemption date (subject to the right of the Holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the 12-month period beginning August 4 of the years indicated:

Redemption at Applicable Premium

Subject to the rights of Holders described in “—Conversion Rights—Optional Conversion,” the Notes may also be redeemed, in whole or in part, at any time or from time to time prior to August 4, 2022 at the option of the Issuer, at a redemption price equal to 100.0% of the principal amount of the Notes redeemed plus the Applicable Premium as of, and accrued and unpaid interest to, the applicable 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).

“Applicable Premium” means, with respect to any Note on any applicable redemption date, the greater of:

(1)    1.0% of the principal amount of such Note; and

(2)    the excess, if any, of:

(a)    the present value at such redemption date of (i) the redemption price of such Note at August 4, 2022 (such redemption price being set forth in the table appearing above under the caption “—Optional Redemption—General”) plus (ii) all required interest payments (excluding accrued and unpaid interest to such redemption date) due on such Note through August 4, 2022, computed using a discount rate equal to the Treasury Rate as of such redemption date plus 50 basis points; over

(b)    the principal amount of such Note.

61

“Treasury Rate” means, as of any redemption date, the yield to maturity at the time of computation of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) which has become publicly available at least two Business Days prior to the redemption date (or, if such Statistical Release is no longer published, any publicly available source or similar market data)) most nearly equal to the period from the redemption date to August 4, 2022; provided, however, that if the period from the redemption date to August 4, 2022 is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given, except that if the period from the redemption date to August 4, 2022 is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used.

The Issuer will calculate the Treasury Rate and Applicable Premium and, prior to the redemption date, file an Officers’ Certificate with the Trustee setting forth the Treasury Rate and Applicable Premium and showing the calculation of each in reasonable detail.

Notwithstanding anything to the contrary herein, the Notes may not be redeemed or called for redemption, in whole or in part, at any time prior to the time that the Required Stockholder Approval shall have been obtained. The Issuer may acquire Notes by means other than a redemption, whether pursuant to a tender offer, open market purchase, negotiated transaction or otherwise, in accordance with applicable securities laws.

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, the Trustee will select the Notes for redemption 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 security exchange, on a pro rata basis or by lot (except that any Notes represented by a global Note will be redeemed by such method as the DTC may require); provided, however, that no Notes of a principal amount of $1.00 in original principal amount or less shall be redeemed in part.

Notice of redemption will be delivered to the Holders at least 30 days, but not more than 60 days, before the date of redemption, except that redemption notices may be delivered more than 60 days prior to a redemption date if the notice is issued in connection with a defeasance of the Notes or a satisfaction and discharge of the Indenture. Notices of redemption shall be irrevocable and may not be conditional; provided, however, that notices of redemption may be subject to the sole condition that less than 100% in aggregate principal of all outstanding Notes are tendered in the related Optional Conversion Offer and, upon the settlement of any Optional Conversion Offer related to such notice of redemption, the Issuer shall be entitled to amend any notice of redemption to reduce the principal amount of Notes to be redeemed in proportion to the amount of Notes tendered in such Optional Conversion Offer. The notice of redemption with respect to a redemption described under “—Optional Redemption—Redemption at Applicable Premium” need not set forth the Applicable Premium but only the manner of calculation thereof. If any Note is to be redeemed in part only, the notice of redemption that relates to that Note will state the portion of the principal amount of the Note to be redeemed. A new Note in a principal amount equal to the unredeemed portion of the Note will be issued in the name of the Holder of the Note upon cancellation of the original Note. On and after the applicable date of redemption, interest will cease to accrue on Notes or portions thereof called for redemption so long as the Issuer has deposited with the Paying Agent for the Notes funds in satisfaction of the applicable redemption price (including accrued and unpaid interest on the Notes to be redeemed) pursuant to the Indenture.

Security

The obligations of the Issuer with respect to the Notes, the obligations of the Guarantors under their respective Note Guarantees, and the performance of all other obligations of the Issuer and the Guarantors under

62

or relating to the Note Documents will be secured by the following, whether now owned or hereafter acquired or arising and wherever located (in each case, other than Excluded Property and subject to Permitted Liens), and in each case, subject to the rights of the ABL Facility Collateral Agent described in the Intercreditor Agreement and the ABL Security Documents: (i) a second-priority security interest in the ABL Priority Collateral, (ii) a first-priority security interest in all of the following assets of the Issuer and the Guarantors: (a) Intellectual Property; (b) all of the capital stock and other Equity Interests of each Subsidiary owned by the Issuer or a Guarantor and any other Investment Property; (c) Equipment; (d) Fixtures; (e) all Farm Products; (f) all cash and Cash Equivalents that are, and all Deposit Accounts and Securities Accounts that contain only, proceeds of the foregoing items (a) through (e); (g) to the extent related to, substituted or exchanged for, evidencing, supporting or arising from any of the items referred to in the preceding clauses (a) through (f), all General Intangibles, Chattel Paper, documents, letter of credit rights, Instruments and rights to payment evidenced thereby, Payment Intangibles, Supporting Obligations and Books and records, including customer lists; (h) to the extent attributed or pertaining to any Notes Priority Collateral, all Commercial Tort Claims; (i) all substitutions, replacements, accessions, products, or proceeds of any of the foregoing, in any form, including insurance proceeds and all claims against third parties for loss or damage to, or destruction of, or other involuntary conversion and (j) all other assets or property of the Issuer or any Guarantor that are subject to a Note Lien that are not otherwise set forth in items (a) through (i) above or clause (iii) below to the extent that such items do not constitute ABL Priority Collateral (the items described in the foregoing clause (ii) being referred to as the “Notes Priority Collateral”) and (iii) a first-priority security interest in all of the Material Real Property of the Issuer and the Guarantors (the “Notes Separate Collateral,” and together with the ABL Priority Collateral and the Notes Priority Collateral, the “Collateral”). Notwithstanding anything else herein to the contrary, the Notes Priority Collateral shall not include any identifiable proceeds of any ABL Priority Collateral.

The following assets constitute “Excluded Property,” solely to the extent a Lien is not granted on the same to secure any obligations of the Issuer or any Guarantor under any Credit Facility (including the Credit Agreement):

(i)    voting Equity Interests of any CFC or FSHCO to the extent that such voting Equity Interests represent more than 65% of the outstanding voting Equity Interests of such CFC or FSHCO, in each case, to the extent that (i) such CFC or FSHCO is not organized in a Material Foreign Jurisdiction or (ii) the granting of a security interest with respect to such Equity Interests (x) would reasonably be expected to result in material and adverse tax consequences to the Issuer or any of its Subsidiaries or other material payments required under applicable local law by the Issuer or any of its Subsidiaries, or (y) would be prohibited by applicable law or otherwise would require the consent of Governmental Authorities;

(ii)    any rights or interest in any contract, agreement, lease, permit, license, charter or license agreement covering real or personal property of the Issuer or any Guarantor if under the terms of such contract, lease, permit, license, or license agreement, or applicable law with respect thereto, the grant of a security interest in, pledge of, or charge, mortgage or lien upon such property is prohibited as a matter of law or under the terms of such contract, agreement, lease, permit, license, charter or license agreement (each of the foregoing, an “Excluded Contract”) (provided that (1) the foregoing exclusions of this clause (i) shall in no way be construed (x) to apply to the extent that any described prohibition or restriction is ineffective or unenforceable under Section 9-406, 9-407, 9-408, or 9-409 of the applicable Uniform Commercial Code or other applicable law or (y) to apply to the extent that any consent or waiver has been obtained by the Issuer or applicable Guarantor that would permit the Notes Collateral Agent’s security interest and lien to attach notwithstanding the prohibition or restriction on the pledge of such Excluded Contract and (2) the foregoing exclusions of clause (i) shall in no way be construed to limit, impair, or otherwise affect any of the Notes Collateral Agent’s or the other secured parties’ continuing security interests in and liens upon any rights or interests of the Issuer and any Guarantor in or to (x) monies due or to become due to the Issuer or such Guarantor under or in connection with any Excluded Contract or (y) any proceeds received by the Issuer or such Guarantor from the sale, license, lease, or other dispositions of any such Excluded Contract);

63

(iii)    any United States intent-to-use trademark applications to the extent that, and solely during the period in which, the grant of a security interest therein would impair the validity or enforceability of such intent-to-use trademark applications under applicable federal law; provided that upon submission and acceptance by the United States Patent and Trademark Office of an amendment to allege use pursuant to 15 U.S.C. Section 1060(a) (or any successor provision), such intent-to-use trademark application shall be considered Collateral;

(iv)    the Equity Interests owned by the Issuer or any Guarantor in a joint venture to the extent (but only to the extent) (a) the organizational documents of such joint venture (to the extent such joint venture is not wholly-owned, directly or indirectly, by the Issuer) prohibits the granting of a Lien on such Equity Interests or (b) such Equity Interests of such joint venture are otherwise pledged as collateral to secure (to the extent permitted by the Indenture) (i) obligations to the other holders of the Equity Interests in such joint venture (other than a holder that is a Subsidiary of the Issuer) or (ii) Indebtedness of such joint venture that is non-recourse to the Issuer and the Guarantors or any of their respective assets and other property (each of the foregoing, “Excluded Equity Interests”); provided, however, that, if any of the foregoing conditions cease to be in effect for any reason, then the Equity Interest in such joint venture shall cease to be an Excluded Equity Interest and shall automatically be subject to the security interest granted to the Notes Collateral Agent and shall be considered Collateral; provided further, that any proceeds received by the Issuer or any Guarantor from the sale, transfer or other disposition of Excluded Equity Interests shall constitute Collateral unless any property constituting such proceeds are themselves subject to the exclusions set forth above;

(v)    any consent, or approval of any governmental authority to the extent (but only to the extent) that the Issuer or any Guarantor is prohibited from granting a security interest in, pledge of, or charge, mortgage or lien upon any such property by reason of (a) a negative pledge, anti-assignment provision or other contractual restriction or (b) applicable law to which the Issuer or such Guarantor or such property is subject (each of the foregoing, “Excluded Governmental Approvals”); provided, however, to the extent that (i) either of the prohibitions discussed in clause (a) and (b) above is ineffective or subsequently rendered ineffective or unenforceable under Sections 9-406, 9-407, 9-408 or 9-409 of the applicable Uniform Commercial Code or under any other applicable law or is otherwise no longer in effect or enforceable, or (ii) the Issuer or such Guarantor has obtained the consent of the applicable governmental authority to the creation of a lien and security interest in, such Excluded Governmental Approval, then such approval or consent shall cease to be an Excluded Governmental Approval and shall automatically be subject to the security interest granted to the Notes Collateral Agent and shall be considered Collateral; provided, further, that any proceeds received by the Issuer or any Guarantor from the sale, transfer or other disposition of Excluded Governmental Approvals shall constitute Collateral unless any property constituting such proceeds are themselves subject to the exclusions set forth above or otherwise constitute Excluded Property;

(vi)    any property and proceeds thereof (including insurance proceeds) of the Issuer or any Guarantor that at any time subject to a Lien securing Purchase Money Indebtedness (or Refinancing Indebtedness in respect thereof) or a Capitalized Lease Obligation to the extent (and only to the extent) that (a) the Indebtedness associated with such Lien is permitted under clauses (8), (11) or (15) of the definition of “Permitted Indebtedness,” and (b) the documents evidencing such Indebtedness or Capitalized Lease Obligations prohibit or restrict the granting of a Lien in such property (each of the foregoing, “Excluded PMSI Collateral”); provided, however, to the extent that either of the prohibitions discussed in clause (a) and (b) above is ineffective or subsequently rendered ineffective or unenforceable under Sections 9-406, 9-407, 9-408 or 9-409 of the applicable Uniform Commercial Code or under any other applicable law or is otherwise no longer in effect, then such property and proceeds thereof shall cease to be Excluded PMSI Collateral and shall automatically be subject to the lien and security interests granted to the Notes Collateral Agent and shall be considered Collateral; provided, further, that any proceeds received by the Issuer or any Guarantor from the sale, transfer or other disposition of Excluded PMSI Collateral shall constitute Collateral unless any property constituting such proceeds are themselves subject to the exclusions set forth above or otherwise constitute Excluded Property; and

(vii)    all leased Real Property (including all leases relating thereto) of the Issuer or any Guarantor and all insurance proceeds thereof.

64

The Liens on, and security interests in, the Collateral granted to the Notes Collateral Agent will be subject to the “Pledged ULC Share Limitation” set forth in the following paragraph.

Notwithstanding any provisions to the contrary contained in the Guaranty and Security Agreement, the Indenture or any of the other Note Documents or any other document or agreement among all or some of the parties to the Guaranty and Security Agreement, the Issuer and each Guarantor will be, as of the Issue Date, the sole registered and beneficial owner of all the shares and other Equity Interests which are shares in the capital stock or other Equity Interests of any unlimited company, unlimited liability company, or unlimited liability corporation or any similar entity existing under the laws of any province or territory of Canada (such entity, a “ULC”) and, where context permits, includes Proceeds of Collateral which are shares in the capital stock or other Equity Interests in such ULC (such shares, “ULC Shares”), if any, which form part of the Pledged Interests (as defined in the Guaranty and Security Agreement) (the “Pledged ULC Shares”), and will remain so until such time as such Pledged ULC Shares are fully and effectively transferred into the name of Notes Collateral Agent, any other secured party or any other Person on the books and records of the ULC which has issued such ULC Shares. Nothing in the Guaranty and Security Agreement, the Indenture or any other document or agreement delivered among all or some of the parties to the Guaranty and Security Agreement is intended or shall constitute the Notes Collateral Agent, any other secured party or any Person other than the Issuer or any Guarantor to be a member or shareholder of any ULC until such time as written notice is given to the Issuer or the applicable Guarantor and all further steps are taken so as to register the Notes Collateral Agent, such other secured party, or other Person as holder of all Pledged ULC Shares. The granting of the security interest pursuant to Guaranty and Security Agreement is not intended to make the Notes Collateral Agent, or any other secured party a successor to the Issuer or any Guarantor as a member or shareholder of any ULC, and neither the Notes Collateral Agent, nor any other secured party nor any of their respective successors and assigns under the Guaranty and Security Agreement shall be deemed to become a member or shareholder of any ULC by accepting Guaranty and Security Agreement or exercising any right granted therein unless and until such time, if any, when the Notes Collateral Agent, or other secured party or any successor or assign expressly becomes a registered member or shareholder of any ULC. Under the Guaranty and Security Agreement, the Issuer and each Guarantor shall be entitled to receive and retain for its own account any dividends or other distributions, if any, in respect of the Pledged ULC Shares, and shall have the right to vote such Pledged ULC Shares and to control the direction, management and policies of the ULC issuing such Pledged ULC Shares to the same extent as the Issuer or such Guarantor would if such Pledged ULC Shares were not pledged to the Notes Collateral Agent. To the extent any provision of the Guaranty and Security Agreement would have the effect of constituting the Notes Collateral Agent, or any other secured party to be a member or shareholder of the ULC prior to such time, such provision shall be severed from the Guaranty and Security Agreement and be ineffective with respect to the relevant Pledged ULC Shares without otherwise invalidating or rendering unenforceable the Guaranty and Security Agreement or invalidating or rendering unenforceable such provision insofar as it relates to Pledged Interests other than Pledged ULC Shares. Notwithstanding anything to the contrary in the Guaranty and Security Agreement (except to the extent, if any, that the Notes Collateral Agent, or any other secured party or any of their respective successors or assigns expressly becomes a registered member or shareholder of any ULC after the Issue Date), neither the Notes Collateral Agent, nor any other secured party, nor any of their respective successors or assigns shall be deemed to have assumed or otherwise become liable for any debts or obligations of any ULC. Except upon the exercise by the Notes Collateral Agent or other Persons, of rights to sell or otherwise dispose of Pledged ULC Shares or other remedies following the occurrence and during the continuance of an Event of Default (as defined in the Guaranty and Security Agreement), neither the Issuer nor any Guarantor shall cause or permit, or enable any ULC in which it holds Pledged ULC Shares to cause or permit, the Notes Collateral Agent, or any other secured party to: (a) be registered as a member or shareholder of such ULC, (b) have any notation entered in its favor in the share register of such ULC, (c) be held out as a member or shareholder of such ULC, (d) receive, directly or indirectly, any dividends, property or other distributions from such ULC by reason of the Notes Collateral Agent, or any other secured party holding a security interest in the Pledged ULC Shares, or (e) act as a member or shareholder of such ULC, or exercise any rights of a member or shareholder of such ULC, including the right to attend a meeting of such ULC or vote the shares of such ULC.

65

The Collateral will be pledged, subject to the Intercreditor Agreement, pursuant to the Guaranty and Security Agreement and other Security Documents by and among the Issuer, the Guarantors and the Notes Collateral Agent executed and delivered by the Issuer or the applicable Guarantor to the Notes Collateral Agent for the benefit of the Notes Collateral Agent, the Trustee and the Holders of the Notes; provided that (i) no control agreements with respect to any Deposit Accounts or Securities Accounts that constitute Notes Priority Collateral that exist on the Issue Date shall be required to be executed and delivered to the Notes Collateral Agent until the date that is 60 days after the Issue Date, (ii) no deeds of trust, trust deeds, mortgages or similar instruments with respect to Material Real Property in existence on the Issue Date shall be required to be executed, delivered to the Notes Collateral Agent or filed until the date that is 90 days after the Issue Date and (iii) no pledges of any Equity Interests of any CFC or FSHCO that are not then subject to a pledge pursuant to the Credit Agreement shall be required to be delivered until the date that is 60 days after the Issue Date.

So long as no Event of Default shall have occurred and be continuing, and subject to certain terms and conditions, including the terms and conditions of the Indenture and the Guaranty and Security Agreement, the Issuer and the Guarantors are entitled to exercise any voting and other consensual rights pertaining to all Equity Interests pledged pursuant to the Guaranty and Security Agreement and to remain in possession and retain exclusive control over the Collateral (other than as set forth in the Security Documents), to operate the Collateral, to alter or repair the Collateral and to collect, invest and dispose of any income thereon.

Upon the occurrence and during the continuance of an Event of Default following notice by the Notes Collateral Agent to the Issuer and the Guarantors, the Notes Collateral Agent will be permitted, subject to applicable law, to exercise remedies and sell the Collateral under the Security Documents at the written direction of the Holders of a majority of the Notes.

Subject to certain limitations and exceptions, the Indenture and the Security Documents require that the Issuer and the Guarantors grant to the Notes Collateral Agent, for the benefit of the Trustee and the Holders of the Notes, a first-priority lien (subject to Permitted Liens) on all property acquired after the Issue Date of the kinds described above as Notes Priority Collateral or Notes Separate Collateral (other than Excluded Property) and a second-priority Lien (subject to Permitted Liens) on property acquired after the Issue Date on property of the type covered by the definition of “ABL Priority Collateral” (other than Excluded Property). If the Issuer or any Guarantor creates any additional security interest upon any property or asset that would constitute Collateral to secure any ABL Obligations, it must concurrently grant (i) a first priority perfected security interest (subject to Permitted Liens) upon any such Notes Priority Collateral and (ii) a second priority perfected security interest (subject to Permitted Liens) upon any such ABL Priority Collateral, as security for the Note Obligations.

The proceeds from the sale of the Collateral may not be sufficient to satisfy the obligations owed to the Holders. By its nature some or all of the Collateral is and will be illiquid and may have no readily ascertainable market value. Accordingly, the Collateral may not be able to be sold in a short period of time, if salable. See “Risk Factors—Risks Related to the Collateral Securing the New Notes—It may be difficult to realize the value of the collateral securing the New Notes.”

The Issuer and the Guarantors are and will be able to incur additional Indebtedness in the future which could share in the Collateral. The amount of such additional Indebtedness will be limited by the covenant described under “—Certain Covenants—Limitation on Liens” and the covenant described under “—Certain Covenants—Limitation on Additional Indebtedness.” Under certain circumstances, the amount of any such additional Indebtedness could be significant.

After Acquired Property

Upon forming or acquiring any new direct or indirect Domestic Subsidiary that becomes or is required to become a Guarantor as set forth under “—Additional Guarantees,” the Issuer shall, at the Issuer’s expense:

66

Upon the acquisition of any Material Real Property by the Issuer or any Guarantor, if such property shall not already be subject to a perfected first priority security interest (subject to Permitted Liens) in favor of the Notes Collateral Agent for the benefit of the Holders, then the Issuer shall, at the Issuer’s expense:

67

The Issuer will, and will cause each of the other Guarantors to, at any time upon the reasonable request of the Notes Collateral Agent (acting at the direction of Holders holding a majority in aggregate principal amount of the outstanding Notes), execute or deliver to the Notes Collateral Agent any and all financing statements, fixture filings, Security Documents, Opinions of Counsel, documents or instruments and take all other actions that the Notes Collateral Agent may reasonably request to create, perfect, continue perfected or to further perfect the Notes Collateral Agent’s Liens in all of the assets of each of the Issuer and the Guarantors that constitute Collateral to the extent contemplated by the Indenture or the Security Documents; provided that no Security Document, document or instrument delivered after the Issue Date shall be materially more burdensome upon the Issuer or its Subsidiaries than the Security Documents, documents and instruments executed and delivered by the Issuer and the Guarantors in connection with the Issue Date, so long as the corresponding Security Document for the Credit Agreement is similarly not materially more burdensome upon the Issuer or its Subsidiaries. To the extent that any Lien on any ABL Priority Collateral is perfected by the possession or control of such Collateral or of any account in which such Collateral is held, and if such Collateral or any such account is in fact in the possession or under the control of the ABL Facility Collateral Agent, or of agents or bailees of the ABL Facility Collateral Agent, any requirement for perfection or control of such Collateral under the Indenture or the Security Documents shall be deemed to have been satisfied.

Intercreditor Agreement

The statements under this section are summaries of the material terms and provisions of the Intercreditor Agreement described below. They do not purport to be complete and are qualified in their entirety by reference to all the provisions in the Intercreditor Agreement.

The Notes Priority Collateral will serve as collateral to secure the Notes Obligations on a first-priority Lien basis and to secure the ABL Obligations on a second-priority Lien basis (in each case, subject to Permitted Liens) and the ABL Priority Collateral will serve as collateral to secure the ABL Obligations on a first-priority Lien basis and to secure the Note Obligations on a second-priority Lien basis (in each case, subject to Permitted Liens).

On the Issue Date, the Notes Collateral Agent, on behalf of the Holders of the Notes, will enter into an intercreditor agreement with the Issuer, the Guarantors, and the ABL Facility Collateral Agent, on behalf of lenders and other secured parties under the Credit Agreement (the “Intercreditor Agreement”). The Intercreditor Agreement governs the relationship of the Holders of the Notes (and the Notes Collateral Agent), on the one hand, and the secured parties under the Credit Agreement, on the other hand, with respect to the Notes Priority Collateral, the Notes Separate Collateral, the ABL Priority Collateral and certain other matters. Although the Holders of the Notes are not party to the Intercreditor Agreement, by their acceptance of the Notes such Holders agree to be bound thereby and the Holders of the Notes also specifically authorize the Notes Collateral Agent to enter into the Intercreditor Agreement on their behalf and to take all actions provided for under the terms of the Intercreditor Agreement and the Holders of the Notes (and the Notes Collateral Agent) will be bound by such actions. Pursuant to the terms of the Intercreditor Agreement, the Notes Collateral Agent (acting in accordance with the Notes Documents) will determine the time and method by which the security interests in the Notes Priority Collateral and the Note Separate Collateral will be enforced and the ABL Facility Collateral Agent will determine the time and method by which the security interests in the ABL Priority Collateral will be enforced.

The Intercreditor Agreement provides, in addition to other things, the following:

first, to the payment of costs and expenses (including reasonable attorneys’ fees and expenses and court costs) of the Senior Secured Parties in connection with such enforcement action,

68

second, to the payment of the Senior Obligations in accordance with the Senior Documents until the Senior Obligations Payment Date,

third, to the payment of the Junior Obligations in accordance with the Junior Documents until the Junior Obligations Payment Date, and

fourth, the balance, if any, to the Issuer or any Guarantor or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct.

Notwithstanding anything to the contrary contained above or in the definition of ABL Priority Collateral or Notes Priority Collateral, in the event that proceeds of Collateral are received from (or are otherwise attributable to the value of) a sale or other disposition of Collateral that involves a combination of ABL Priority Collateral and Notes Priority Collateral where the respective values are not otherwise agreed among the parties, the portion of such proceeds that shall be allocated as proceeds of ABL Priority Collateral for purposes of the Intercreditor Agreement shall be an amount equal to the market value of such ABL Priority Collateral (except in the case of Accounts, credit card receivables, letter of credit rights, Supporting Obligations, Payment Intangibles, Chattel Paper, cash or securities in Deposit Accounts and Securities Accounts constituting ABL Priority Collateral, and any other ABL Priority Collateral where the face amount of such Collateral is readily determinable, which amounts shall be equal to the face amount of such Accounts, credit card receivables, letter of credit rights, Supporting Obligations, Payment Intangibles, Chattel Paper or such cash or securities). In addition, notwithstanding anything to the contrary contained above or in the definition of the ABL Priority Collateral or Notes Priority Collateral, to the extent proceeds of Collateral are proceeds received from (or are otherwise attributable to the value of) the sale or disposition of all or substantially all of the Equity Interests of any Subsidiary of the Issuer which is a Guarantor or all or substantially all of the assets of any such Subsidiary where the respective values are not otherwise agreed among the parties, such proceeds shall constitute (1) first, in an amount equal to the face amount of: Accounts, credit card receivables, letter of credit rights, Supporting Obligations, Payment Intangibles, Chattel Paper, cash or securities in Deposit Accounts and Securities Accounts constituting ABL Priority Collateral, and any other ABL Priority Collateral where the face amount of such Collateral is readily determinable, and the book value of all other ABL Priority Collateral owned by such Subsidiary at the time of such sale, ABL Priority Collateral and (2) second, to the extent in excess of the amounts described in preceding clause (1), Notes Priority Collateral.

The Notes Collateral Agent, on behalf of itself and the Holders of the Notes, shall agree in connection with the execution of the Intercreditor Agreement to the application, prior to the commencement of an enforcement action by the Notes Collateral Agent, of cash or other proceeds of ABL Priority Collateral deposited or held in the Issuer’s or its Subsidiaries’ accounts to the repayment of ABL Obligations, unless the ABL Facility Collateral Agent has actual knowledge that such cash or proceeds constitute Notes Priority Collateral or result from the sale or other disposition of Notes Priority Collateral or Notes Separate Collateral.

69

70

71

72

73

74

75

76

Use of Collateral

Unless an Event of Default shall have occurred and be continuing, subject to the terms of the Indenture and the Guaranty and Security Agreement, the Issuer and the Guarantors have the right to remain in possession and retain exclusive control of the Collateral, to freely operate the Collateral, to collect, invest and dispose of any income thereon and to effect transactions permitted under “—Certain Covenants—Limitation on Asset Sales” or under “—Certain Covenants—Limitation on Mergers, Consolidations, Etc.”

Release of Collateral

Subject to applicable law, the Indenture and the Security Documents provide that the Liens on the Collateral securing the Notes and the Note Guarantees will automatically and without the need for any further action by any Person be released:

(1)    in whole or in part, as applicable, as to all or any portion of the property subject to such Liens which has been taken by eminent domain, condemnation or other similar circumstances in accordance with the terms of the Indenture as provided under “—Certain Covenants—Limitation on Asset Sales”;

(2)    in whole upon:

(a)    payment in full of the principal of, together with the Applicable Premium (if any) and accrued and unpaid interest, if any, on the Notes and all other Obligations under the Indenture, the Note Guarantees and the Security Documents that are due and payable at or prior to the time such principal, together with the Applicable Premium, if any, and accrued and unpaid interest, if any, are paid;

(b)    satisfaction and discharge of the Indenture as set forth below under “—Satisfaction and Discharge”; or

(c)    a legal defeasance or covenant defeasance of the Indenture as set forth below under “—Legal Defeasance and Covenant Defeasance”;

(3)    in part, as to any property that (a) is sold, transferred or otherwise disposed of by the Issuer or any Guarantor (other than to the Issuer or another Guarantor) in a transaction not prohibited by the Indenture at the time of such sale, transfer or disposition, including, without limitation, as a result of a transaction of the type permitted under “—Certain Covenants—Limitation on Asset Sales” or under “—Certain Covenants—Limitation on Mergers, Consolidations, Etc.” or (b) is owned or at any time acquired by a Guarantor that has been released from its Note Guarantee in accordance with the Indenture, concurrently with the release of such Note Guarantee;

(4)    as to property that constitutes (i) less than all or substantially all of the Collateral securing the Notes, with the consent of the Holders of at least a majority of the aggregate principal amount of Notes (including, without limitation, consents obtained in connection with a tender offer or exchange offer for, or purchase of, Notes), and (ii) all or substantially all of the Collateral securing the Notes, with the consent of the Holders of at least 66 2/3% of the aggregate principal amount of Notes (including, without limitation, consents obtained in connection with a tender offer or exchange offer for, or purchase of, Notes); and

(5)    in part, in accordance with the applicable provisions of the Security Documents, the Indenture and the Intercreditor Agreement.

Certain Bankruptcy Limitations

The right of the Notes Collateral Agent to take possession and dispose of the Collateral following an Event of Default is likely to be significantly impaired (or at a minimum delayed) by applicable bankruptcy law if a bankruptcy proceeding were to be commenced by or against the Issuer or the Guarantors prior to the Notes Collateral Agent having taken possession and disposed of the Collateral. Under the Bankruptcy Code, a secured creditor is generally prohibited, absent bankruptcy court approval following notice and a hearing (which approval

77

may not be given under the circumstances), from taking its security from a debtor in a bankruptcy case, or from disposing of security previously taken from such debtor. Moreover, the Bankruptcy Code permits the debtor in certain circumstances to continue to retain and to use collateral owned as of the date of the bankruptcy filing (and the proceeds, products, offspring, rents or profits of such collateral) even though the debtor is in default under the applicable debt instruments; provided that the secured creditor is given “adequate protection.” The meaning of the term “adequate protection” may vary according to circumstances. In view of the lack of a precise definition of the term “adequate protection” and the broad discretionary powers of a bankruptcy court, it is impossible to predict whether or when payments under the notes could be made (or the length of any delay, if made) following the commencement of a bankruptcy case, whether or when the Notes Collateral Agent could repossess or dispose of the Collateral, the value of the Collateral as of the date of the commencement of a bankruptcy case, or whether or to what extent Holders would be compensated for any delay in payment or loss of value of the Collateral.

Furthermore, in the event a bankruptcy court determines the value of the Collateral is not sufficient to repay all amounts due on the Notes (after taking into account the first-priority ABL Liens on the ABL Priority Collateral securing the ABL Obligations), the Holders of the Notes would generally hold secured claims to the extent of the value of the Collateral, and would hold unsecured claims with respect to any shortfall. Applicable Federal bankruptcy laws do not permit the payment and/or accrual of post-petition interest during a debtor’s bankruptcy case unless the claims are oversecured or the debtor is solvent at the time of reorganization. The potential consequences of a finding of under-collateralization would include, among other things, a lack of entitlement on the part of the notes to receive post-petition interest and a lack of entitlement on the part of the unsecured portion of the notes to receive “adequate protection” under the Bankruptcy Code. In addition, if the Issuer or the Guarantors were to become the subject of a bankruptcy case, the bankruptcy court, among other things, may avoid certain prepetition transfers made by the entity that is the subject of the bankruptcy filing, including, without limitation, transfers held to be preferences or fraudulent conveyances.

Change of Control

Upon the occurrence of any Change of Control, unless the Issuer has previously or concurrently exercised its right to redeem all of the Notes as described under “—Optional Redemption,” each Holder will have the right, except as provided below, to require that the Issuer purchase all or any portion (equal to $1.00 or an integral multiple of $1.00 in excess thereof) of that Holder’s Notes for a cash price (the “Change of Control Purchase Price”) equal to 101.0% of the principal amount of the Notes to be purchased, plus accrued and unpaid interest thereon to the date of purchase.

Not later than 30 days following any Change of Control, the Issuer will deliver, or cause to be delivered, to the Holders, with a copy to the Trustee, a notice:

(1)    describing the transaction or transactions that constitute the Change of Control;

(2)    offering to purchase, pursuant to the procedures required by the Indenture and described in the notice (a “Change of Control Offer”), on a date specified in the notice, which shall be a Business Day not earlier than 30 days, nor later than 60 days, from the date the notice is delivered (the “Change of Control Payment Date”), and for the Change of Control Purchase Price, all Notes properly tendered by such Holder pursuant to such Change of Control Offer prior to 5:00 p.m. New York time on the second Business Day preceding the Change of Control Payment Date; and

(3)    describing the procedures, as determined by the Issuer, consistent with the Indenture, that Holders must follow to accept the Change of Control Offer.

On or before the Change of Control Payment Date, the Issuer will, to the extent lawful, deposit with the Paying Agent an amount equal to the Change of Control Purchase Price in respect of the Notes or portions of Notes properly tendered.

78

On the Change of Control Payment Date, the Issuer will, to the extent lawful:

(1)    accept for payment all Notes or portions of Notes (of $1.00 or integral multiples of $1.00 in excess thereof) properly tendered pursuant to the Change of Control Offer; and

(2)    deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers’ Certificate stating the aggregate principal amount of Notes or portions of Notes being purchased by the Issuer.

The Paying Agent will promptly deliver to each Holder who has so tendered Notes the Change of Control Purchase Price for such Notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book-entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes so tendered, if any; provided that each such new Note will be in a principal amount of $1.00 or integral multiples of $1.00 in excess thereof.

If the Change of Control Payment Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest, if any, will be paid on the relevant interest payment date to the Person in whose name a Note is registered at the close of business on such record date.

A Change of Control Offer will be required to remain open for at least 20 Business Days or for such longer period as is required by law. The Issuer will publicly announce the results of the Change of Control Offer on or as soon as practicable after the date of purchase.

If a Change of Control Offer is made, there can be no assurance that the Issuer will have available funds sufficient to pay for all or any of the Notes that might be delivered by Holders seeking to accept the Change of Control Offer. See “Risk Factors—Risks Related to the New Notes—We may be unable to repurchase the New Notes in the event of a change of control as required by the New Notes Indenture.” In addition, in the event of a Change of Control the Issuer may not be able to obtain the consents necessary to consummate a Change of Control Offer from the lenders under agreements governing outstanding Indebtedness which may prohibit the offer. If the Issuer fails to repurchase all of the Notes tendered for purchase upon a Change of Control, such failure will constitute an Event of Default. In addition, the occurrence of certain of the events which would constitute a Change of Control may constitute an event of default under the Credit Agreement and may constitute an event of default under other existing or future Indebtedness. Moreover, the exercise by the Holders of their right to require the Issuer to purchase the Notes could cause a default under such Indebtedness, even if the Change of Control itself does not, due to the financial effect of the repurchase on the Issuer. Finally, the Issuer’s ability to pay cash to the Holders upon a Change of Control may be limited by its then existing financial resources.

The provisions described above that require the Issuer to make a Change of Control Offer following a Change of Control will be applicable regardless of whether any other provisions of the Indenture are applicable to the transaction giving rise to the Change of Control. The Change of Control purchase feature of the Notes may in certain circumstances make more difficult or discourage a sale or takeover of the Issuer and, thus, the removal of incumbent management. The Change of Control purchase feature is a result of negotiations between the Issuer and the initial purchasers. The Issuer does not have the present intention to engage in a transaction involving a Change of Control, although it is possible that the Issuer could decide to do so in the future. Subject to the limitations discussed below, the Issuer could, in the future, enter into certain transactions, including acquisitions, refinancings or other recapitalizations, that would not constitute a Change of Control under the Indenture, but that could increase the amount of Indebtedness outstanding at such time or otherwise effect the Issuer’s capital structure or credit ratings. Restrictions on the Issuer’s ability to incur additional Indebtedness are contained in the covenants described under “—Certain Covenants—Limitation on Additional Indebtedness” and “—Certain Covenants—Limitation on Liens.” Except as described above with respect to a Change of Control, the Indenture does not contain provisions that permit the Holders to require that the Issuer purchase or redeem the Notes in the event of a takeover, recapitalization or similar transaction.

79

The Issuer will not be required to make a Change of Control Offer upon a Change of Control if (i) a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Issuer and purchases all Notes properly tendered and not withdrawn under such Change of Control Offer or (ii) in connection with or in contemplation of any publicly announced Change of Control, the Issuer has made an offer to purchase (an “Alternate Offer”) any and all Notes validly tendered at a cash price equal to or higher than the Change of Control Purchase Price and has purchased all Notes properly tendered in accordance with the terms of the Alternate Offer.

If Holders of not less than 90.0% in aggregate principal amount of the outstanding Notes validly tender and do not withdraw such Notes in a Change of Control Offer or Alternate Offer and the Issuer, or any third party making a Change of Control Offer in lieu of the Issuer as described above, purchases all of the Notes validly tendered and not withdrawn by such Holders, the Issuer will have the right, upon not less than 30 days’ nor more than 60 days’ prior notice, given not more than 30 days following such purchase pursuant to the Change of Control Offer or Alternate Offer, as applicable, to redeem all Notes that remain outstanding following such purchase at a redemption price in cash equal to the applicable Change of Control Purchase Price or Alternate Offer price, as applicable, plus, to the extent not included in the Change of Control Purchase Price or Alternate Offer price, as applicable, accrued and unpaid interest, if any, to the date of redemption.

With respect to any disposition of assets, the phrase “all or substantially all” as used in the Indenture (including as set forth under the definition of “Change of Control” and “—Certain Covenants—Limitation on Mergers, Consolidations, Etc.” below) varies according to the facts and circumstances of the subject transaction, has no clearly established meaning under New York law (which governs the Notes and the Indenture) and is subject to judicial interpretation. Accordingly, there may be a degree of uncertainty in ascertaining whether a particular transaction would involve a disposition of “all or substantially all” of the assets of the Issuer and the Subsidiaries, and therefore it may be unclear as to whether a Change of Control has occurred and whether the Holders have the right to require the Issuer to purchase Notes.

In connection with the purchase of Notes pursuant to a Change of Control Offer, the Issuer will (i) comply with all applicable securities legislation in the United States, including, without limitation, the tender offer rules under the Exchange Act that may then be applicable and (ii) file a Schedule TO or any other required schedules under the Exchange Act; in each case, so as to permit the rights and obligations under this section to be exercised in the time and in the manner specified in this section. To the extent that the provisions of any applicable securities laws or regulations conflict with the “Change of Control” provisions of the Indenture, the Issuer shall comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the “Change of Control” provisions of the Indenture by virtue of such compliance.

The provisions under the Indenture relating to the Issuer’s obligation to make a Change of Control Offer may be waived, modified or terminated with the written consent of the Holders of a majority in principal amount of the Notes then outstanding. Notwithstanding anything to the contrary contained herein, a Change of Control Offer may be made in advance of a Change of Control, conditional upon such Change of Control, if a definitive agreement is in place for the Change of Control at the time of making of the Change of Control Offer.

Conversion Rights

Optional Conversion

Pursuant to the procedures set forth in this section and in the Indenture, (i) on the second scheduled Trading Day prior to the date of any redemption as described under “—Optional Redemption,” each Holder shall have the right, at such Holder’s option, to convert the Applicable Percentage of such Holder’s Notes that have been called for redemption (or a portion thereof if the portion to be converted is $1.00 in principal amount or an integral multiple thereof) into Common Stock and (ii) on the second scheduled Trading Day prior to the maturity date of

80

the Notes, each Holder shall have the right, at such Holder’s option, to convert the Applicable Percentage of such Holder’s outstanding Notes (or a portion thereof if the portion to be converted is $1.00 in principal amount or an integral multiple thereof) into Common Stock (any conversion pursuant to clause (i) or clause (ii) of this paragraph, an “Optional Conversion” and the date of any such conversion, an “Optional Conversion Date”); in each case, at a conversion rate (subject to adjustment as described below, the “Conversion Rate”) of 740.7407 shares of Common Stock per $1,000 principal amount of Notes (equal to an initial Conversion Price of $1.35 per share of Common Stock).

At least 30 days prior to any Optional Conversion Date, the Issuer will deliver, or cause to be delivered, to the Holders, with a copy to the Trustee and the Conversion Agent (if other than the Trustee), a notice (an “Optional Conversion Notice”):

(1)    offering to exchange, pursuant to the procedures required by the Indenture and described in the Optional Conversion Notice (an “Optional Conversion Offer”), on the Optional Conversion Date, all Notes properly tendered by any Holder pursuant to such Optional Conversion Offer prior to 5:00 p.m. New York time on the second scheduled Trading Day immediately preceding the Optional Conversion Date for:

(a)    in the case of an Optional Conversion in connection with a redemption,

(i)    in respect of the Applicable Percentage of the principal amount of any such tendered Notes that were called for redemption, a number of shares of Common Stock per $1,000 principal amount of such Notes equal to the Conversion Rate then in effect (plus cash in lieu of fractional shares);

(ii)    an amount of cash equal to the redemption price of (A) the principal amount of any such tendered Notes that were called for redemption, minus (B) the principal amount of Notes for which Common Stock shall be issued pursuant to clause (a)(i) above;

(iii)    new Notes equal in principal amount to any such tendered Notes that were not called for redemption; and

(iv)    an amount of cash equal to accrued and unpaid interest on such tendered Notes that were called for redemption to, but not including, the date of redemption; provided, that if the redemption date occurs on or after an interest record date but on or prior to the related interest payment date, then accrued and unpaid interest through the related interest payment date, if any, shall not be paid in connection with the Optional Conversion but shall be paid to the Person in whose name such Note was registered at the close of business on such record date; and

(b)    in the case of an Optional Conversion at the maturity of the Notes,

(i)    in respect of the Applicable Percentage of the principal amount of such tendered Notes, a number of shares of Common Stock per $1,000 principal amount of such Notes equal to the Conversion Rate then in effect (plus cash in lieu of fractional shares);

(ii)    an amount of cash equal to (A) the principal amount of such tendered Notes, minus (B) the principal amount of Notes for which Common Stock shall be issued pursuant to clause (b)(i) above; and

(iii)    to the extent no interest payment will be made on such tendered Notes on the maturity date of the Notes, an amount of cash equal to accrued and unpaid interest to, but not including, the maturity date of the Notes;

(2)    describing the procedures, as determined by the Issuer, consistent with the Indenture and the applicable procedures of DTC, that Holders must follow to accept the Optional Conversion Offer; and

(3)    stating that interest shall cease to accrue on any Notes that are called for redemption on the applicable Optional Conversion Date.

81

For purposes of this section, in determining (i) whether the Issuer is required to make an Optional Conversion Offer or (ii) the portion of any tendered Notes that have been called for redemption, a pro rata portion of all outstanding Notes (based on the aggregate principal amount of Notes for which the Issuer has delivered a notice of redemption) shall be deemed to have been called for redemption.

On or before the Optional Conversion Date, the Issuer will deposit with the Paying Agent an amount equal to the cash consideration to be paid in respect of the Notes or portions of Notes properly tendered.

On the Optional Conversion Date, the Issuer will:

(1)    accept for exchange all Notes or portions of Notes (of $1.00 or integral multiples of $1.00 in excess thereof) properly tendered pursuant to the Optional Conversion Offer;

(2)    deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers’ Certificate stating the aggregate principal amount of Notes or portions of Notes being exchanged by the Issuer; and

(3)    deliver to each Holder who has so tendered Notes, through the Issuer’s transfer agent, a number of shares of Common Stock calculated as set forth in the Optional Conversion Notice.

The Paying Agent will promptly deliver to each Holder who has so tendered Notes an amount of cash calculated as set forth in the Optional Conversion Notice and the Trustee will promptly authenticate and mail (or cause to be transferred by book-entry) to each Holder a new Note in a principal amount calculated as set forth in the Optional Conversion Notice; provided that each such new Note will be in a principal amount of $1.00 or integral multiples of $1.00 in excess thereof.

An Optional Conversion Offer will be required to remain open for at least 20 Business Days or for such longer period as is required by law.

In connection with the exchange of Notes pursuant to an Optional Conversion Offer, the Issuer will (i) comply with all applicable securities legislation in the United States, including, without limitation, the tender offer rules under the Exchange Act that may then be applicable and (ii) file a Schedule TO or any other required schedules under the Exchange Act; in each case, so as to permit the rights and obligations under this section to be exercised in the time and in the manner specified in this section. To the extent that the provisions of any applicable securities laws or regulations conflict with the “Optional Conversion” provisions of the Indenture, the Issuer shall comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the “Optional Conversion” provisions of the Indenture by virtue of such compliance.

The Issuer will not issue fractional shares of Common Stock upon an Optional Conversion. Instead, the Issuer will pay the cash value of such fractional shares based upon the closing sale price of the Common Stock on the Trading Day immediately preceding the Optional Conversion Date as set forth in clauses (1)(a)(i) and (1)(b)(i) of the second paragraph of this section.

Mandatory Conversion

Subject to the satisfaction of the Equity Conditions, the Issuer shall convert (a “Mandatory Conversion”) a principal amount of Notes equal to the Applicable Percentage of the aggregate principal amount of Notes then outstanding, on a pro rata basis among all outstanding Notes, into a number of shares of Common Stock per $1,000 principal amount of Notes to be converted equal to the Conversion Rate then in effect (plus cash in lieu of fractional shares) if the average of the Daily VWAPs of the Common Stock for any 20 consecutive Trading Day period exceeds or is equal to the Threshold Price then in effect (a “Mandatory Conversion Event”). Upon the occurrence of a Mandatory Conversion Event, the Issuer shall deliver a notice (a “Mandatory Conversion Notice”) to the Holders, the Trustee and the Conversion Agent (if other than the Trustee) not later than the open

82

of business on the second Business Day following such Mandatory Conversion Event, which notice shall specify the date on which the Mandatory Conversion shall occur, which date shall not be later than the second Business Day following delivery of such Mandatory Conversion Notice (the “Mandatory Conversion Date”).

Notwithstanding the foregoing, a Mandatory Conversion shall not occur if, as evidenced by an Officers’ Certificate delivered to the Trustee and the Conversion Agent (if other than the Trustee) on the Mandatory Conversion Date, all of the conditions listed below (the “Equity Conditions”) are not satisfied on each day during the period (x) commencing on, and including, the date of the Mandatory Conversion Notice and (y) ending on, and including, the Mandatory Conversion Date. The Equity Conditions are as follows:

(a) either (i) all shares of Common Stock issuable upon conversion of the Notes and held by a non-Affiliate of the Issuer shall be eligible for resale without the need for registration under any applicable federal or state securities laws or (ii) a shelf registration statement registering the resale of the shares of Common Stock issuable upon conversion of the Notes has been filed by the Issuer and been declared effective by the SEC or is automatically effective and is available for use, and the Issuer expects such shelf registration statement to remain effective and available for use from the Mandatory Conversion Date until thirty days following the Mandatory Conversion Date;

(b) the Common Stock to be delivered on such conversion is listed or traded on The New York Stock Exchange, The NASDAQ Global Select Market, The NASDAQ Global Market, or any of their respective successors (each, an “Eligible Market”) and shall not then be suspended from trading on such Eligible Market;

(c) at or prior to the Mandatory Conversion Date, for any Notes validly surrendered for Optional Conversion on or prior to the date of the Mandatory Conversion Notice, the Issuer shall have delivered the number of shares of Common Stock and paid the amount of cash, if any, due upon conversion of such Notes to the applicable Holders; and

(d) no Event of Default shall have occurred and be continuing.

The Issuer will not issue fractional shares of Common Stock upon a Mandatory Conversion. Instead, the Issuer will pay the cash value of such fractional shares based upon the closing sale price of the Common Stock on the Trading Day immediately preceding the Mandatory Conversion Date.

Interest shall cease to accrue on any Notes that are converted on the Mandatory Conversion Date.

In connection with a Mandatory Conversion, the Issuer shall deliver to the Holder of the Notes, through the Issuer’s transfer agent, a number of shares of Common Stock per $1,000 of principal amount of Notes being converted equal to the Conversion Rate in effect on the applicable Mandatory Conversion Date (plus cash in lieu of fractional shares). Accrued and unpaid interest to, but not including, the Mandatory Conversion Date with respect to Notes that are converted will be payable in cash on the settlement date of the conversion; provided that if a Mandatory Conversion Date for any Notes that are converted occurs during the period from the close of business on the record date for any interest payment to the open of business on the immediately following interest payment date, then (i) accrued and unpaid interest, if any, on such Notes will not be payable in cash on the settlement date of such conversion, (ii) the Issuer shall reduce the number of shares of Common Stock otherwise deliverable to the Holder of such Notes as a result of such conversion by a number of shares of Common Stock equal in value to the amount of interest that would have accrued on such Notes for the period commencing on such Mandatory Conversion Date to (but not including) the immediately following interest payment date if such Notes had not been converted and remained outstanding during such period (the value of a share of Common Stock for purposes of determining such number of shares of Common Stock to be equal to the average of the Daily VWAPs of the Common Stock for the 20 consecutive Trading Day period ending on the date on which the applicable Mandatory Conversion Event occurs), and (iii) the full amount of interest payable with respect to such Notes (assuming that such Notes remained outstanding to such interest payment date) will be payable in full in cash on such interest payment date to the Holder in whose name such Notes are registered at the

83

close of business on such record date. Settlement shall occur on the second Business Day immediately following the applicable Mandatory Conversion Date.

General

The Trustee will initially act as conversion agent with respect to the Notes (the “Conversion Agent”). Neither the Trustee nor the Conversion Agent (if other than the Trustee) shall have any duty to determine or verify the Issuer’s determination of whether any of the conditions to conversion have been satisfied.

The Issuer shall pay any documentary, stamp or similar issue or transfer tax or duty due on the issue, if any, of the Common Stock upon the conversion of a Note. However, such Holder shall pay any such tax or duty that is due because such shares are issued in a name other than such Holder’s name. The Conversion Agent may refuse to deliver a certificate representing the Common Stock to be issued in a name other than such Holder’s name until the Conversion Agent receives a sum sufficient to pay any tax or duty which will be due because such shares are to be issued in a name other than such Holder’s name.

The converting holder shall also provide or cause to be provided to the Trustee and the Conversion Agent (if other than the Trustee) all information necessary to allow the Trustee and the Conversion Agent (if other than the Trustee) to comply with any applicable tax reporting obligations, including without limitation any cost basis reporting obligations under Internal Revenue Code Section 6045. The Trustee and the Conversion Agent (if other than the Trustee) may rely on information provided to it and shall have no responsibility whatsoever to verify or ensure the accuracy of such information.

Adjustments to Conversion Rate

The Conversion Rate will be adjusted as described below, except that the Issuer will not make any adjustments to the Conversion Rate if Holders participate (other than in the case of (x) a share split or share combination or (y) a tender or exchange offer), at the same time and upon the same terms as holders of the Common Stock and solely as a result of holding the Notes, in any of the transactions described below without having to convert their Notes as if they held a number of shares of Common Stock equal to the Conversion Rate, multiplied by the principal amount (expressed in thousands) of Notes held by such Holder.

(1)    If the Issuer exclusively issues shares of Common Stock as a dividend or distribution on shares of the Common Stock, or if the Issuer effects a share split or share combination, the Conversion Rate will be adjusted based on the following formula:

84

Any adjustment made under this clause (1) shall become effective immediately after the open of business on the Ex-Dividend Date for such dividend or distribution, or immediately after the open of business on the effective date for such share split or share combination, as applicable. If any dividend or distribution of the type described in this clause (1) is declared but not so paid or made, the Conversion Rate shall be immediately readjusted, effective as of the date the Board of Directors of the Issuer or a committee thereof determines not to pay such dividend or distribution, to the Conversion Rate that would then be in effect if such dividend or distribution had not been declared.

(2) If the Issuer distributes to all or substantially all holders of the Common Stock any rights, options or warrants (other than pursuant to a stockholder rights plan) entitling them, for a period of not more than 60 calendar days after the announcement date of such distribution, to subscribe for or purchase shares of the Common Stock at a price per share that is less than the average of the last reported sale prices of the Common Stock for the 10 consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the date of announcement of such distribution, the Conversion Rate will be increased based on the following formula:

Any increase made under this clause (2) will be made successively whenever any such rights, options or warrants are distributed and shall become effective immediately after the open of business on the Ex-Dividend Date for such distribution. To the extent that shares of Common Stock are not delivered after the expiration of such rights, options or warrants, the Conversion Rate shall be decreased to the Conversion Rate that would then be in effect had the increase with respect to the distribution of such rights, options or warrants been made on the basis of delivery of only the number of shares of Common Stock actually delivered. If such rights, options or warrants are not so distributed, the Conversion Rate shall be decreased to the Conversion Rate that would then be in effect if such Ex-Dividend Date for such distribution had not occurred.

For the purpose of this clause (2), in determining whether any rights, options or warrants entitle holders of Common Stock to subscribe for or purchase shares of Common Stock at a price per share that is less than the average of the last reported sales prices of the Common Stock for the 10 consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the announcement of the distribution of such rights, options or warrants, and in determining the aggregate price payable to exercise such rights, options or warrants, there shall be taken into account any consideration received by the Issuer for such rights, options or warrants and any amount payable on exercise or conversion thereof, the value of such consideration, if other than cash, to be determined by the Issuer in good faith.

85

(3) If the Issuer distributes shares of its Capital Stock, evidences of its indebtedness, other assets or property of the Issuer or rights, options or warrants to acquire its Capital Stock or other securities, to all or substantially all holders of the Common Stock, excluding:

then the Conversion Rate will be increased based on the following formula:

Any increase made under the portion of this clause (3) above will become effective immediately after the open of business on the Ex-Dividend Date for such distribution. If such distribution is not so paid or made, the Conversion Rate shall be decreased to be the Conversion Rate that would then be in effect if such distribution had not been declared.

Notwithstanding the foregoing, if “FMV” (as defined above) is equal to or greater than “SP0” (as defined above), in lieu of the foregoing increase, each Holder shall receive, in respect of the Applicable Percentage of each $1,000 principal amount of Notes held by such Holder, at the same time and upon the same terms as holders of the Common Stock, the amount and kind of the Issuer’s Capital Stock, evidences of indebtedness, other assets or property or rights, options or warrants to acquire the Issuer’s Capital Stock or other securities that such Holder would have received if such Holder owned a number of shares of Common Stock equal to the Conversion Rate in effect on the Ex-Dividend Date for the distribution.

With respect to an adjustment pursuant to this clause (3) where there has been a payment of a dividend or other distribution on the Common Stock of shares of Capital Stock of any class or series, or similar Equity Interests, of or relating to a subsidiary or other business unit of the Issuer, that are, or, when issued, will be, listed

86

or admitted for trading on a U.S. national securities exchange (a “Spin-Off”), the Conversion Rate will be increased based on the following formula:

The increase to the Conversion Rate under the preceding paragraph will occur at the close of business on the last trading day of the Valuation Period; provided that if the relevant Conversion Date occurs during the Valuation Period, the reference to “10” in the preceding paragraph shall be deemed replaced with such lesser number of Trading Days as have elapsed from, and including, the Ex-Dividend Date for such Spin-Off to, but excluding, such Conversion Date in determining the Conversion Rate. If any dividend or distribution that constitutes a Spin-Off is declared but not so paid or made, the Conversion Rate shall be immediately decreased, effective as of the date the Board of Directors of the Issuer or a committee thereof determines not to pay or make such dividend or distribution, to the Conversion Rate that would then be in effect if such dividend or distribution had not been declared or announced.

(4) If the Issuer makes any cash dividend or distribution to all or substantially all holders of the Common Stock, the Conversion Rate will be increased based on the following formula:

Any increase made under this clause (4) shall become effective immediately after the open of business on the Ex-Dividend Date for such dividend or distribution. If such dividend or distribution is not so paid, the Conversion Rate shall be decreased, effective as of the date the Board of Directors of the Issuer or a committee thereof determines not to make or pay such dividend or distribution, to be the Conversion Rate that would then

87

be in effect if such dividend or distribution had not been declared. Notwithstanding the foregoing, if “C” (as defined above) is equal to or greater than “SP0” (as defined above), in lieu of the foregoing increase, each Holder shall receive, for the Applicable Percentage of each $1,000 principal amount of Notes it holds, at the same time and upon the same terms as holders of shares of the Common Stock, the amount of cash that such Holder would have received if such Holder owned a number of shares of the Common Stock equal to the Conversion Rate in effect on the Ex-Dividend Date for such cash dividend or distribution.

(5) If the Issuer or any of its Subsidiaries make a payment in respect of a tender or exchange offer for the Common Stock that is subject to the then applicable tender offer rules under the Exchange Act (other than any odd lot tender offer pursuant to Rule 13e-4(h)(5) under the Exchange Act), and the cash and value of any other consideration included in the payment per share of Common Stock exceeds the average of the Daily VWAPs of the Common Stock over the 10 consecutive Trading Day period commencing on, and including, the Trading Day next succeeding the last date on which tenders or exchanges may be made pursuant to such tender or exchange offer, the Conversion Rate will be increased based on the following formula:

The increase to the Conversion Rate under the preceding paragraph will occur at the close of business on the 10th Trading Day immediately following, and including, the Trading Day next succeeding the date such tender or exchange offer expires; provided that if the relevant Conversion Date occurs during the 10 Trading Days immediately following, and including, the Trading Day next succeeding the expiration date of any tender or exchange offer, references to “10” or “10th” in the preceding paragraph shall be deemed replaced with such lesser number of Trading Days as have elapsed from, and including, the Trading Day next succeeding such expiration date of such tender or exchange offer to, but excluding, such Conversion Date in determining the Conversion Rate.

If the Issuer is obligated to purchase shares of Common Stock pursuant to any such tender or exchange offer described in clause (5) above but is permanently prevented by applicable law from effecting any such purchase or all such purchases are rescinded, the Conversion Rate will be readjusted to be the Conversion Rate that would

88

then be in effect if such tender or exchange offer had not been made or had been made only in respect of the purchases that have been made.

Notwithstanding the foregoing, if a Conversion Rate adjustment becomes effective on any Ex-Dividend Date as described above, and a Holder that has converted its Notes on or after such Ex-Dividend Date and on or prior to the related Record Date would be treated as the record holder of shares of Common Stock as of the related Conversion Date based on an adjusted Conversion Rate for such Ex-Dividend Date, then, notwithstanding the foregoing Conversion Rate adjustment provisions, the Conversion Rate adjustment relating to such Ex-Dividend Date will not be made for such converting Holder. Instead, such Holder will be treated as if such Holder were the record owner of the shares of Common Stock on an unadjusted basis and participate in the related dividend, distribution or other event giving rise to such adjustment.