Collateral Sharing Agreement

EXECUTION COPY


COLLATERAL SHARING AGREEMENT


COLLATERAL SHARING AGREEMENT dated as of February 24, 2004, among BANK ONE, NA, having its principal office in Chicago, Illinois ("Bank One"), as Collateral Agent, Wells Fargo Bank, National Association, as Trustee for the benefit of the holders of the Notes (such term and each other capitalized term used herein having the meanings set forth in Section 1 below), Bank One, as Administrative Agent for the benefit of the lenders under the Existing Credit Agreement, and ROTO-ROOTER, INC.


W I T N E S S E T H:


WHEREAS, the Company, certain lenders, and the Administrative Agent, are parties to the Credit Agreement dated as of February 24, 2004 (as amended, restated, supplemented or otherwise modified from time to time, the "Existing Credit Agreement");


WHEREAS, the Company, the Trustee and the Guarantors have entered into the Indenture dated as of February 24, 2004 (as amended, supplemented or otherwise modified from time to time, the "Indenture"), pursuant to which the Company intends to issue the Notes; and


WHEREAS, pursuant to the Security Documents, the Company and each of the other Grantors have granted a security interest in certain of their respective assets to the Collateral Agent for the equal and ratable benefit of the Secured Parties.


NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and obligations herein set forth and for other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:


SECTION 1. DEFINITIONS AND TERMS GENERALLY.


1.1. Definitions. As used in this Agreement, the following terms have the meanings specified below:


"Administrative Agent" means Bank One, NA, in its capacity as the administrative agent under the Existing Credit Agreement.


"Affiliate" means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, controls or is controlled by or is under common control with the Person specified. Notwithstanding the foregoing, no individual shall be deemed to be an Affiliate of a Person solely by reason of his or her being an officer or director of such Person.


"Aggregate Credit Agreement Exposure" means at any time, without duplication, the aggregate amount of Credit Agreement Obligations outstanding plus the amount of all commitments of the Senior Lenders under the Senior Loan Documents to extend credit (whether by making loans or providing or participating in letters of credit or otherwise), but excluding any letters of credit or obligations owing in respect of letters of credit to the extent the same are secured in accordance with the Senior Credit Agreement by property that does not secure the Notes.


"Applicable Secured Documents" means (a) in respect of any Noteholder Claims, the Noteholder Documents and (b) in respect of any Senior Lender Claims, the relevant Senior Loan Documents.


"Bankruptcy Law" means Title 11 of the United States Code and any similar Federal, state or foreign law for the relief of debtors.


"Business Day" means any day other than a Saturday, a Sunday or a day that is a legal holiday under the laws of the State of New York or the State of Illinois or on which banking institutions in the State of New York or the State of Illinois are required or authorized by law or other governmental action to close.


"Collateral" means all assets or property of the Grantors, now owned or hereafter acquired, upon which a Lien is purported to be created by any Security Document.


"Collateral Account" has the meaning set forth in Section 4.1.


"Collateral Agent" means Bank One, NA, in its capacity as collateral agent under the Security Documents and this Agreement.


"Collateral Agent Fees" means all fees, costs and expenses of, and other amounts owing to, the Collateral Agent of the types referred to in Section 2.4.


"Collateral Estate" has the meaning set forth in Section 2.1(b).


"Company" means Roto-Rooter, Inc., a Delaware corporation.


"Credit Agreement" means the Existing Credit Agreement together with any guarantees, collateral documents, instruments and agreements executed in connection therewith, in each case as amended, restated, supplemented, waived, replaced (whether or not upon termination, and whether with the original lenders or otherwise), refinanced, restructured, or otherwise modified from time to time (except to the extent that any such amendment, restatement, supplement, waiver, replacement, refinancing, restructuring or other modification thereto would be prohibited by the terms of the Indenture, unless otherwise agreed to by the Noteholders of a least a majority in aggregate principal amount of Notes at the time outstanding).


"Credit Agreement Obligations" means (i) all Indebtedness outstanding under the Senior Credit Agreement, (ii) all other obligations (not constituting Indebtedness) of the Company or any Grantor under the Senior Credit Agreement, and (iii) all other obligations of the Company or any Grantor in connection with Hedging Obligations owing to any Senior Lender under the Senior Credit Agreement or any affiliate of such Senior Lender, unless the Company and such Senior Lender mutually agree that such Hedging Obligation does not constitute a "Secured Obligation" under and as defined in the Senior Credit Agreement.


"Credit Facilities" means one or more debt facilities (including the Credit Agreement) or commercial paper facilities providing for revolving credit loans, term loans,


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receivables financing (including through the sale of receivables to lenders or to special purpose entities formed to borrow from lenders against such receivables) or letters of credit, or any debt securities or other form of debt financing (including convertible or exchangeable debt instruments), in each case, as amended, supplemented, modified, extended, renewed, restated or refunded in whole or in part from time to time.


"Discharge of Senior Credit Agreement Claims" means, except to the extent otherwise provided in Section 5.2, payment in full in cash of (a) the principal of and interest and premium, if any, on all Indebtedness outstanding under the Senior Credit Agreement constituting Senior Lender Claims or, with respect to letters of credit outstanding thereunder, delivery of cash collateral or backstop letters of credit in respect thereof in compliance with the Senior Credit Agreement, in each case after or concurrently with termination of all commitments to extend credit thereunder and (b) any other Senior Lender Claims that are due and payable or otherwise accrued and owing under the Senior Credit Agreement at or prior to the time such principal, interest and premium, if any, are paid.


"Discharge of Credit Agreement Obligations" means payment in full in cash of (a) the principal of and interest and premium, if any, on all Indebtedness outstanding under the Credit Agreement or, with respect to Hedging Obligations that are Credit Agreement Obligations, or with respect to letters of credit outstanding thereunder, delivery of cash collateral or backstop letters of credit in respect thereof in compliance with the Senior Credit Agreement, in each case after or concurrently with termination of all commitments to extend credit thereunder and (b) payment in full of any other Credit Agreement Obligations that are due and payable or otherwise accrued and owing at or prior to the time such principal, interest and premium, if any, are paid.


"Distribution Date" means each date fixed by the Collateral Agent in its sole discretion for a distribution pursuant to the applicable provisions of this Agreement of any funds held in the Collateral Account.


"Existing Credit Agreement" has the meaning set forth in the recitals hereto.


"First-Lien Credit Facilities" means (a) the Credit Facilities provided pursuant to the Credit Agreement and (b) any other Credit Facility (other than the Notes), that, in the case of both clauses (a) and (b), is secured by the Collateral pursuant to a Permitted Lien (as defined in the Indenture) described in clause (7), (12) or (13) of the definition thereof and (except for the Credit Facilities provided pursuant to the Existing Credit Agreement) is designated by the Company as a "First-Lien Credit Facility" for purposes of this Agreement.


"Future First-Lien Credit Facility" means any First-Lien Credit Facility (other than the Existing Credit Agreement), provided that the Required Lenders under any Senior Credit Agreement then in effect have consented to the designation of such Credit Facility as a "First-Lien Credit Facility".


"Future Other First-Lien Obligations" means all Obligations of the Company or any other Grantor, to a creditor under a First-Lien Credit Facility, in respect of Hedging Obligations that are designated by the Company as "Credit Agreement Obligations" for purposes


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of the Indenture; provided that the Required Lenders under any Senior Credit Agreement then in effect have consented to such designation.


"Grantors" means each of the Company and the Subsidiaries that has executed and delivered a Security Document.


"Guarantors" means each of the Grantors other than the Company.


"Guaranty" means any guaranty entered into by any Subsidiary of the Company in favor of any Secured Party guaranteeing the repayment of the Secured Obligations.


"Hedging Obligations" means, with respect to any Person, the Obligations of such Person in respect of (a) any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement or (b) any foreign exchange contract, currency swap agreements or other similar agreement or arrangement.


"Indebtedness" means and includes all obligations that constitute "Indebtedness" within the meaning of the Indenture or the Senior Credit Agreement.


"Indenture" has the meaning set forth in the recitals hereto.


"Insolvency or Liquidation Proceeding" means (a) any voluntary or involuntary case or proceeding under any Bankruptcy Law with respect to any Grantor, (b) any other voluntary or involuntary insolvency, reorganization or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding with respect to any Grantor or with respect to any of their respective assets, (c) any liquidation, dissolution, reorganization or winding up of any Grantor whether voluntary or involuntary and whether or not involving insolvency or bankruptcy or (d) any assignment for the benefit of creditors or any other marshalling of assets and liabilities of any Grantor.


"Instructing Group" means (i) until the Discharge of Credit Agreement Obligations has occurred and so long as no Insolvency or Liquidation Proceeding is continuing, the Required Lenders, and (ii) after the Discharge of Credit Agreement Obligations has occurred or during the continuance of any Insolvency or Liquidation Proceeding, the Majority Secured Parties.


"Lien" means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities.


"Majority Secured Parties" means, at any time, the Secured Party or Secured Parties, acting through its (or their) respective Representative, holding more than 50% of the aggregate amount of the Secured Obligations then outstanding. In calculating the aggregate


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amount of the Secured Obligations then outstanding represented by each Representative, (a) the amount of Indebtedness outstanding shall be that reflected on the applicable debtor's balance sheet, as determined in accordance with GAAP, (b) the amount outstanding in respect of a letter of credit shall be the face amount of such letter of credit less the amount of any property that secures the repayment of such letter of credit (and not the Notes) in accordance with the Senior Loan Documents, and (c) the amount outstanding in respect of Hedging Obligations shall be the amount which would be due and payable to a Secured Party holding such Hedging Obligations if such Hedging Obligations were then terminated.


"Noteholder Claims" means all Obligations in respect of the Notes and the guarantees of the Notes or arising under the Noteholder Documents or any of them. Noteholder Claims shall include all interest accrued or accruing (or which would, absent the commencement of any Insolvency or Liquidation Proceeding, accrue) after the commencement of any Insolvency or Liquidation Proceeding in accordance with and at the rate specified in the relevant Noteholder Document whether or not the claim for such interest is allowed as a claim in such Insolvency or Liquidation Proceeding. To the extent any payment with respect to the Noteholder Claims (whether by or on behalf of any Grantor, as proceeds of security, enforcement of any right of set-off or otherwise) is declared to be fraudulent or preferential in any respect, set aside or required to be paid to a debtor in possession, trustee, receiver or similar Person, then the obligation or part thereof originally intended to be satisfied shall be deemed to be reinstated and outstanding as if such payment had not occurred.


"Noteholder Documents" means (a) the Indenture and the Notes and (b) any other related document or instrument executed and delivered pursuant to or in connection with any Noteholder Document described in clause (a) above evidencing or governing any Obligations thereunder. Notwithstanding the foregoing, for purposes of this Agreement, "Noteholder Documents" shall be deemed to exclude the Security Documents.


"Noteholders" means the Persons holding Noteholder Claims.


"Notes" means (a) the Floating Rate Senior Secured Notes due 2010 to be issued by the Company, (b) the exchange notes issued in exchange therefor as contemplated by the Registration Rights Agreement dated as of February 24, 2004, among the Company, the Guarantors and the "Purchasers" (as defined therein) and (c) any additional notes issued under the Indenture by the Company, to the extent permitted by the Indenture and the Senior Credit Agreement.


"Obligations" means any and all obligations with respect to the payment of (a) any principal of or interest (including interest accruing on or after the commencement of any Insolvency or Liquidation Proceeding, whether or not a claim for post-filing interest is allowed in such proceeding) or premium on any Indebtedness, including any unpaid reimbursement obligation in respect of any letter of credit, (b) any fees, indemnification obligations, expense reimbursement obligations or other liabilities payable under the documentation governing any Indebtedness, (c) any obligation to post cash collateral or other property in respect of letters of credit and any other obligations or (d) any Hedging Obligations.


"Other Secured Parties" means the Secured Parties holding Secured Obligations


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other than Secured Obligations under the Senior Credit Agreement.


"Permitted Investments" means:


(a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America);


(b) investments in commercial paper maturing not more than one year after the date of acquisition thereof and having, at such date of acquisition, one of the two highest credit ratings obtainable from Standard & Poor's Rating Service or from Moody's Investor Service, Inc.;


(c) investments in certificates of deposit, banker's acceptances and time deposits maturing not more than one year after the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts and overnight bank deposits issued or offered by, any commercial bank organized under the laws of the United States of America or any state thereof or any foreign country recognized by the United States of America that has a combined capital and surplus and undivided profits of not less than $250,000,000 (or the foreign-currency equivalent thereof);


(d) fully collateralized repurchase agreements with a term of not more than thirty (30) days for securities described in clause (a) above or clause (e) or (f) below and entered into with a financial institution satisfying the criteria described in clause (c) above;


(e) securities issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof having maturities of not more than six months from the date of acquisition thereof and, at the time of acquisition, having one of the two highest credit ratings obtainable from Standard & Poor's Rating Service or from Moody's Investor Service, Inc.;


(f) securities issued by any foreign government or any political subdivision of any foreign government or any public instrumentality thereof having maturities of not more than six months from the date of acquisition thereof and, at the time of acquisition, having one of the two highest credit ratings obtainable from Standard & Poor's Rating Service or from Moody's Investor Service, Inc.; and


(g) investments in funds that invest solely in one or more types of securities described in clauses (a), (e) and (f) above.


"Person" means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, entity or other party, including any government and any political subdivision, agency or instrumentality thereof.


"Pledged Collateral" means (a) the "Pledged Securities" under, and as defined in, the Pledge and Security Agreement (as defined in the Existing Credit Agreement), and (b) any other Collateral in the possession of the Collateral Agent (or its agents or bailees), to the extent that possession thereof is necessary to perfect a Lien thereon under the Uniform Commercial Code.


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"Recovery" has the meaning set forth in Section 6.2 hereof.


"Related Parties" means, with respect to any specified Person, such Person's Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person's Affiliates.


"Representatives" means (a) in respect of any of the Senior Lender Claims under the Existing Credit Agreement, the Administrative Agent, (b) in respect of any other Senior Lender Claims, the agent or trustee in respect thereof (or, if there is no agent or trustee, the holder or holders thereof) and (c) in respect of any of the Noteholder Claims, the Trustee.


"Required Lenders" means, with respect to any amendment, modification, termination, waiver, consent, direction or other action, those Senior Credit Agreement Lenders the approval of which is required pursuant to the Senior Credit Agreement or the Senior Loan Documents related thereto to approve such amendment, modification, termination, waiver, consent, direction or other action.


"Required Noteholders" means, with respect to any amendment, modification, termination, waiver, consent, direction or other action, those Noteholders, if any, the approval of which is required pursuant to the Indenture to approve such amendment, modification, termination, waiver, consent, direction or other action.


"Secured Obligations" means, without duplication, (a) the Senior Lender Claims and (b) the Noteholder Claims.


"Secured Parties" means (a) the Senior Lenders, (b) the Administrative Agent, (c) the Collateral Agent, and (d) the Trustee, for the benefit of the holders from time to time of the Noteholder Claims.


"Security Documents" means the Collateral Documents (as defined in the Existing Credit Agreement and the Indenture) and any other agreement, document or instrument pursuant to which a Lien is granted securing any Senior Lender Claims or Noteholder Claims or under which rights or remedies with respect to such Liens are governed.


"Senior Credit Agreement" means the Existing Credit Agreement; provided that if at any time a Discharge of Credit Agreement Obligations occurs with respect to the Existing Credit Agreement (without giving effect to Section 5.2), then, to the extent provided in Section 5.2, the term "Senior Credit Agreement" means the Future First-Lien Credit Facility designated by the Company as the "Senior Credit Agreement" in accordance with such Section.


"Senior Credit Agreement Lender" means any Senior Lender that holds any Senior Lender Claim under the Senior Credit Agreement.


"Senior Lender Claims" means (a) all Indebtedness outstanding under one or more of the Senior Loan Documents plus all unfunded commitments to extend credit (including commitments to issue letters of credit) thereunder, including any Future First-Lien Credit


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Facilities, the Indebtedness under each of which (i) is permitted by the Indenture and (ii) is secured by the Collateral pursuant to a Permitted Lien (as defined in the Indenture) described in clause (7), (12) or (13) of the definition thereof, (b) all other Obligations of the Company or any Grantor under the Senior Loan Documents or any such other Future First-Lien Credit Facility, including all Senior Lender Hedging Obligations and (c) all Future Other First-Lien Obligations. Senior Lender Claims shall include all interest accrued or accruing (or which would, absent the commencement of any Insolvency or Liquidation Proceeding, accrue) after the commencement of any Insolvency or Liquidation Proceeding in accordance with and at the rate specified in the relevant Senior Loan Document whether or not the claim for such interest is allowed as a claim in such Insolvency or Liquidation Proceeding. To the extent any payment with respect to the Senior Lender Claims (whether by or on behalf of any Grantor, as proceeds of security, enforcement of any right of set-off or otherwise) is declared to be fraudulent or preferential in any respect, set aside or required to be paid to a debtor in possession, trustee, receiver or similar Person, then the obligation or part thereof originally intended to be satisfied shall be deemed to be reinstated and outstanding as if such payment had not occurred. Notwithstanding anything to the contrary contained in the first sentence of this definition, any Obligation under the Senior Loan Documents or any Future First-Lien Credit Facility (including any Hedging Obligations) shall constitute a "Senior Lender Claim" if the Collateral Agent or the relevant Senior Lender or Senior Lenders shall have received a written representation from the Company in or in connection with the execution of such Senior Loan Documents evidencing such Obligation that such Obligation constitutes a "Credit Agreement Obligation" under and as defined in the Indenture (whether or not such Obligation is at any time determined not to have been permitted to be incurred under the Indenture).


"Senior Lender Hedging Obligations" means any Hedging Obligations secured by any Collateral under the Security Documents.


"Senior Lenders" means the Persons holding Senior Lender Claims.


"Senior Loan Documents" means the Senior Credit Agreement, and each of the other agreements, documents and instruments (including each agreement, document or instrument providing for or evidencing a Senior Lender Hedging Obligation) providing for or evidencing any other Obligation under the Credit Agreement or any Future First-Lien Credit Facility or any Future Other First-Lien Obligations, and any other related document or instrument executed or delivered pursuant to any Senior Loan Document at any time or otherwise evidencing any Senior Lender Claims. Notwithstanding the foregoing, for purposes of this Agreement, "Senior Loan Documents" shall be deemed to exclude the Security Documents.


"Subsidiary" means any "Subsidiary" of the Company, as defined in the Indenture or the Senior Credit Agreement.


"Trustee" means Wells Fargo Bank, National Association, in its capacity as trustee under the Indenture.


"Uniform Commercial Code" or "UCC" means the Uniform Commercial Code as from time to time in effect in the State of New York.


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1.2. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified, (b) any reference herein to any Person shall be construed to include such Person's successors and assigns, (c) the words "herein", "hereof" and "hereunder", and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Sections shall be construed to refer to Sections of this Agreement and (e) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.


SECTION 2. THE COLLATERAL AGENT.


2.1. General Authority of the Collateral Agent over the Collateral.


(a) By acceptance of the benefits of this Agreement and the Security Documents, each Secured Party shall be deemed irrevocably (i) to consent to the appointment of the Collateral Agent as its agent hereunder and under the Security Documents, (ii) to confirm that the Collateral Agent shall have the authority to act as the exclusive agent of such Secured Party for executing and delivering any amendments to the Security Documents and enforcement of any provisions of this Agreement and the Security Documents against any Grantor or the exercise of remedies hereunder or thereunder, in accordance with and to the extent consistent with this Agreement and the Security Documents, (iii) to agree, except as provided in this Agreement and the Security Documents, that such Secured Party shall not take any action (other than through the Collateral Agent) to enforce any provisions of this Agreement or any Security Document against any Grantor or to exercise any remedy hereunder or thereunder and (iv) to agree to be bound by the terms of this Agreement and the Security Documents. Each Representative of the Other Secured Parties, for itself and on behalf of such Other Secured Parties, hereby irrevocably constitutes and appoints the Collateral Agent and any officer or agent of the Collateral Agent, with full power of ...