Exhibit 10.9

 

Note Purchase Agreement dated as of July 31, 2008

among the Company, as issuer, and certain of its subsidiaries

as guarantors, The Note Purchasers, Sankaty Advisors, LLC, as collateral agent

and Crystal Capital Fund Management, L.P. as syndication agent

 

EXECUTION

 

NOTE PURCHASE AGREEMENT

 

dated as of July 31, 2008

 

among

 

THE CHILDREN’S PLACE RETAIL STORES, INC., as Issuer

 

and

 

THE GUARANTORS LISTED HEREIN,

 

THE NOTE PURCHASERS LISTED HEREIN,

 

SANKATY ADVISORS, LLC, as Collateral Agent

 

and

 

CRYSTAL CAPITAL FUND MANAGEMENT, L.P., as Syndication Agent

 

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

 

$85,000,000 IN AGGREGATE PRINCIPAL AMOUNT

OF SENIOR SECURED SECOND LIEN NOTES DUE JULY 31, 2013

 

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

 

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

 

TABLE OF CONTENTS

 

 

 

 

 

 

Page

 

 

 

 

 

SECTION 1. DEFINITIONS

 

1

 

 

 

 

 

1.1

 

Certain Defined Terms; Rules of Construction

 

1

 

 

 

 

 

1.2

 

Accounting Terms

 

2

 

 

 

 

 

SECTION 2. PURCHASE AND SALE OF THE NOTES

 

2

 

 

 

 

 

2.1

 

Purchase and Sale of the Notes

 

2

 

 

 

 

 

2.2

 

The Closing

 

3

 

 

 

 

 

2.3

 

Payment of Purchase Price

 

3

 

 

 

 

 

2.4

 

Use of Proceeds

 

3

 

 

 

 

 

SECTION 3. TERMS OF THE NOTES

 

3

 

 

 

 

 

3.1

 

Interest on the Notes

 

3

 

 

 

 

 

3.2

 

Payment of Notes

 

3

 

 

 

 

 

3.3

 

Prepayment Procedures

 

6

 

 

 

 

 

3.4

 

Taxes

 

7

 

 

 

 

 

3.5

 

Manner and Time of Payment

 

8

 

 

 

 

 

SECTION 4. REPRESENTATIONS AND WARRANTIES OF NOTE PURCHASERS

 

9

 

 

 

 

 

4.1

 

Legal Capacity; Due Authorization

 

9

 

 

 

 

 

4.2

 

Restrictions on Transfer

 

9

 

 

 

 

 

4.3

 

Accredited Investor, etc.

 

9

 

 

 

 

 

4.4

 

No Advertisement

 

9

 

 

 

 

 

SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE NOTE PARTIES

 

9

 

 

 

 

 

5.1

 

Existence, Qualification and Power

 

9

 

 

 

 

 

5.2

 

Authorization; No Contravention

 

10

 

 

 

 

 

5.3

 

Governmental Authorization; Other Consents

 

10

 

 

 

 

 

5.4

 

Binding Effect

 

10

 

 

 

 

 

5.5

 

Financial Statements; No Material Adverse Effect

 

10

 

 

 

 

 

5.6

 

Litigation

 

11

 

 

 

 

 

5.7

 

No Default

 

11

 

 

 

 

 

5.8

 

Ownership of Property; Liens; Lease Agreements

 

11

 

 

 

 

 

5.9

 

Environmental Compliance

 

13

 

i

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

 

5.10

 

Insurance

 

13

 

 

 

 

 

5.11

 

Taxes

 

13

 

 

 

 

 

5.12

 

ERISA Compliance

 

14

 

 

 

 

 

5.13

 

Subsidiaries; Equity Interests

 

14

 

 

 

 

 

5.14

 

Margin Regulations; Investment Company Act

 

15

 

 

 

 

 

5.15

 

Disclosure

 

15

 

 

 

 

 

5.16

 

Compliance with Laws

 

15

 

 

 

 

 

5.17

 

Intellectual Property; Licenses, Etc.

 

15

 

 

 

 

 

5.18

 

Labor Matters

 

16

 

 

 

 

 

5.19

 

Collateral Documents

 

17

 

 

 

 

 

5.20

 

Solvency

 

17

 

 

 

 

 

5.21

 

Deposit Accounts; Credit Card Arrangements

 

17

 

 

 

 

 

5.22

 

Brokers

 

17

 

 

 

 

 

5.23

 

Customer and Trade Relations

 

17

 

 

 

 

 

5.24

 

Material Contracts

 

17

 

 

 

 

 

5.25

 

Casualty

 

18

 

 

 

 

 

5.26

 

Anti-Terrorism Laws

 

18

 

 

 

 

 

5.27

 

Valid Issuance of the Notes

 

19

 

 

 

 

 

5.28

 

Private Placement

 

19

 

 

 

 

 

5.29

 

Transition Services Agreement

 

19

 

 

 

 

 

5.30

 

New Headquarters

 

19

 

 

 

 

 

5.31

 

Stock Options

 

19

 

 

 

 

 

5.32

 

License Agreements

 

19

 

 

 

 

 

5.33

 

Hoop Expenses

 

19

 

 

 

 

 

5.34

 

Product Recall

 

19

 

 

 

 

 

SECTION 6. CLOSING CONDITIONS

 

20

 

 

 

 

 

6.1

 

Representations and Warranties; No Default

 

20

 

 

 

 

 

6.2

 

Use of Proceeds

 

20

 

 

 

 

 

6.3

 

Delivery of Documents

 

20

 

 

 

 

 

6.4

 

Corporate/Capital Structure

 

22

 

 

 

 

 

6.5

 

Authorizations, Consents and Approvals

 

22

 

 

 

 

 

6.6

 

No Material Adverse Effect

 

22

 

 

 

 

 

6.7

 

Litigation

 

23

 

ii

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

 

6.8

 

Disclosure

 

23

 

 

 

 

 

6.9

 

Due Diligence

 

23

 

 

 

 

 

6.10

 

Hoop Bankruptcy

 

23

 

 

 

 

 

6.11

 

Transition Services Agreement and HOOP Sale

 

23

 

 

 

 

 

6.12

 

New Headquarters

 

23

 

 

 

 

 

6.13

 

Stock Options

 

23

 

 

 

 

 

6.14

 

Other Fees and Expenses

 

23

 

 

 

 

 

6.15

 

Ancillary Documents

 

23

 

 

 

 

 

6.16

 

Senior Credit

 

24

 

 

 

 

 

6.17

 

Closing Date Total Leverage Ratio

 

24

 

 

 

 

 

6.18

 

Existing Indebtedness

 

24

 

 

 

 

 

6.19

 

Perfection of Security

 

24

 

 

 

 

 

6.20

 

Monitoring Fee

 

24

 

 

 

 

 

SECTION 7. affirmative COVENANTS

 

24

 

 

 

 

 

7.1

 

Payment of Note Obligations

 

24

 

 

 

 

 

7.2

 

Financial Statements

 

24

 

 

 

 

 

7.3

 

Certificates; Other Information

 

26

 

 

 

 

 

7.4

 

Other Information; Audit

 

28

 

 

 

 

 

7.5

 

Notices

 

28

 

 

 

 

 

7.6

 

Payment of Liabilities

 

29

 

 

 

 

 

7.7

 

Preservation of Existence, Etc.

 

30

 

 

 

 

 

7.8

 

Maintenance of Properties

 

30

 

 

 

 

 

7.9

 

Maintenance of Insurance

 

30

 

 

 

 

 

7.10

 

Compliance with Laws

 

31

 

 

 

 

 

7.11

 

Books and Records; Accountants

 

32

 

 

 

 

 

7.12

 

Inspection Rights; Appraisal Rights

 

32

 

 

 

 

 

7.13

 

Use of Proceeds

 

32

 

 

 

 

 

7.14

 

Formation of Subsidiaries

 

33

 

 

 

 

 

7.15

 

Information Regarding the Collateral

 

33

 

 

 

 

 

7.16

 

Financial Covenants

 

34

 

 

 

 

 

7.17

 

Physical Inventories

 

34

 

 

 

 

 

7.18

 

Environmental Laws

 

34

 

 

 

 

 

7.19

 

Further Assurances

 

34

 

iii

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

 

7.20

 

Compliance with Terms of Leaseholds

 

34

 

 

 

 

 

7.21

 

Material Contracts

 

35

 

 

 

 

 

7.22

 

ERISA

 

35

 

 

 

 

 

7.23

 

Monitoring Fee

 

36

 

 

 

 

 

7.24

 

Senior Debt Document Terms

 

36

 

 

 

 

 

7.25

 

Post-Closing Matters

 

36

 

 

 

 

 

SECTION 8. NEGATIVE COVENANTS

 

36

 

 

 

 

 

8.1

 

Liens

 

36

 

 

 

 

 

8.2

 

Investments

 

37

 

 

 

 

 

8.3

 

Indebtedness

 

37

 

 

 

 

 

8.4

 

Fundamental Changes

 

37

 

 

 

 

 

8.5

 

Dispositions

 

37

 

 

 

 

 

8.6

 

Restricted Payments

 

37

 

 

 

 

 

8.7

 

Payments and Prepayments of Indebtedness

 

38

 

 

 

 

 

8.8

 

Change in Nature of Business

 

38

 

 

 

 

 

8.9

 

Transactions with Affiliates

 

38

 

 

 

 

 

8.10

 

Burdensome Agreements

 

38

 

 

 

 

 

8.11

 

Use of Proceeds

 

39

 

 

 

 

 

8.12

 

Amendment of Material Documents

 

39

 

 

 

 

 

8.13

 

Corporate Name; Fiscal Year

 

39

 

 

 

 

 

8.14

 

Consignments

 

39

 

 

 

 

 

8.15

 

Antilayering

 

39

 

 

 

 

 

8.16

 

Capital Expenditures

 

40

 

 

 

 

 

8.17

 

Change of Control

 

40

 

 

 

 

 

8.18

 

No Amendment To Transition Services Agreement

 

40

 

 

 

 

 

8.19

 

New Headquarters

 

40

 

 

 

 

 

8.20

 

Stock Options

 

40

 

 

 

 

 

8.21

 

Licensing

 

40

 

 

 

 

 

8.22

 

Leases

 

40

 

 

 

 

 

8.23

 

Hoop Expenses

 

40

 

 

 

 

 

8.24

 

Foreign Transfers

 

40

 

 

 

 

 

SECTION 9. EVENTS OF DEFAULT

 

41

 

 

 

 

 

9.1

 

Payment Default

 

41

 

iv

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

 

9.2

 

Certain Covenants

 

41

 

 

 

 

 

9.3

 

Reporting Default

 

41

 

 

 

 

 

9.4

 

Other Defaults

 

41

 

 

 

 

 

9.5

 

Attachments

 

41

 

 

 

 

 

9.6

 

Insolvency Proceeding, etc.

 

42

 

 

 

 

 

9.7

 

Judgments

 

42

 

 

 

 

 

9.8

 

Payment Default on Other Indebtedness

 

42

 

 

 

 

 

9.9

 

Breach of Representations or Warranties

 

42

 

 

 

 

 

9.10

 

Guaranty

 

42

 

 

 

 

 

9.11

 

Enforceability of Note Documents

 

43

 

 

 

 

 

9.12

 

Material Adverse Effect

 

43

 

 

 

 

 

9.13

 

Governmental Action

 

43

 

 

 

 

 

9.14

 

Employee Plans

 

43

 

 

 

 

 

9.15

 

Business Interruption

 

43

 

 

 

 

 

9.16

 

Restatements

 

44

 

 

 

 

 

SECTION 10. RESTRICTIONS ON TRANSFER; LEGENDS

 

44

 

 

 

 

 

10.1

 

Assignments

 

44

 

 

 

 

 

10.2

 

Restrictive Legend

 

45

 

 

 

 

 

10.3

 

Termination of Restrictions

 

45

 

 

 

 

 

SECTION 11. GUARANTEE

 

45

 

 

 

 

 

11.1

 

Guarantee of Note Obligations

 

45

 

 

 

 

 

11.2

 

Continuing Obligation

 

47

 

 

 

 

 

11.3

 

Waivers with Respect to Note Obligations

 

48

 

 

 

 

 

11.4

 

Note Purchasers’ Power to Waive, etc.

 

50

 

 

 

 

 

11.5

 

Information Regarding the Issuer, etc.

 

50

 

 

 

 

 

11.6

 

Certain Guarantor Representations

 

51

 

 

 

 

 

11.7

 

Subrogation

 

51

 

 

 

 

 

11.8

 

Subordination

 

52

 

 

 

 

 

11.9

 

Limitation on Guaranty

 

53

 

 

 

 

 

SECTION 12. COLLATERAL AGENT

 

53

 

 

 

 

 

12.1

 

Collateral Agent’s Authority to Act, etc.

 

53

 

 

 

 

 

12.2

 

Collateral Agent’s Resignation

 

53

 

 

 

 

 

12.3

 

Concerning the Collateral Agent

 

54

 

v

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

 

12.4

 

Indemnification

 

55

 

 

 

 

 

12.5

 

Assumption of Collateral Agent’s Rights

 

55

 

 

 

 

 

SECTION 13. MISCELLANEOUS

 

55

 

 

 

 

 

13.1

 

Expenses

 

55

 

 

 

 

 

13.2

 

Indemnity

 

56

 

 

 

 

 

13.3

 

[INTENTIONALLY OMITTED]

 

57

 

 

 

 

 

13.4

 

Intercreditor Agreement

 

57

 

 

 

 

 

13.5

 

Amendments and Waivers

 

57

 

 

 

 

 

13.6

 

Independence of Covenants

 

57

 

 

 

 

 

13.7

 

Notices

 

57

 

 

 

 

 

13.8

 

Survival of Warranties and Certain Agreements

 

59

 

 

 

 

 

13.9

 

Failure or Indulgence Not Waiver; Remedies Cumulative

 

59

 

 

 

 

 

13.10

 

Severability

 

60

 

 

 

 

 

13.11

 

Heading

 

60

 

 

 

 

 

13.12

 

Applicable Law

 

60

 

 

 

 

 

13.13

 

Successors and Assigns; Subsequent Holders

 

60

 

 

 

 

 

13.14

 

CONSENT TO JURISDICTION AND SERVICE OF PROCESS

 

60

 

 

 

 

 

13.15

 

WAIVER OF JURY TRIAL

 

60

 

 

 

 

 

13.16

 

Counterparts; Effectiveness

 

61

 

 

 

 

 

13.17

 

Confidentiality

 

61

 

 

 

 

 

13.18

 

USA PATRIOT ACT

 

61

 

 

 

 

 

13.19

 

Entirety

 

62

 

vi

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

 

SCHEDULES AND EXHIBITS

 

Schedule

 

 

I

 

Note Purchasers and Purchase Price of Notes

II

 

Wire Instructions of the Note Purchasers

2.4

 

Use of Proceeds – Hoop Cash Costs

5.1

 

Note Parties Organizational Information

5.6

 

Litigation

5.8.2(1)

 

Owned Real Estate

5.8.2(2)

 

Leased Real Estate

5.8.3

 

Existing Liens

5.8.4

 

Existing Investments

5.8.5

 

Existing Indebtedness

5.9

 

Environmental Matters

5.10

 

Insurance

5.13

 

Subsidiaries; Other Equity Investments

5.17

 

Intellectual Property

5.18(1)

 

Collective Bargaining Agreements

5.18(2)

 

Employees

5.18(3)

 

Collective Bargaining Agreement and Certain Employee Agreements

5.18(4)

 

Employees Party to Employment Agreements

5.21.1

 

DDAs

5.21.2

 

Credit Card Arrangements

5.22

 

Brokerage Fees

5.24

 

Material Contracts

5.33

 

Hoop Expenses

7.3

 

Financial and Collateral Reporting

7.16

 

Financial Covenants

7.16(a)

 

Closing Date EBITDA

7.16(b)

 

Closing Date Total Leverage Ratio

7.16(g)

 

EBITDA – New Headquarters Related Charges

7.16(h)

 

EBITDA – Stock Options Related Charges

T-1

 

Letters of Credit

 

 

 

Exhibit

 

 

A

 

Form of Senior Secured Second Lien Note

B

 

Form of Intercreditor Agreement

C

 

Form of Security Agreement

 

vii

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

 

NOTE PURCHASE AGREEMENT

 

This NOTE PURCHASE AGREEMENT (this “Agreement”) is dated as of July     , 2008
and is entered into by and among The Children’s Place Retail Stores, Inc.  (the
“Issuer”), a corporation incorporated under the laws of Delaware, as issuer, the
parties listed as Guarantors on the signature pages hereto (the Guarantors and
the Issuer being referred to collectively as the “Note Parties”, and each such
Person a “Note Party”), Sankaty Advisors, LLC as Collateral Agent for the Note
Purchasers, Crystal Capital Fund Management, L.P. as Syndication Agent for the
Note Purchasers, and each Note Purchaser listed on Schedule I attached hereto
(collectively, the “Note Purchasers”).

 

RECITALS

 

WHEREAS, the Issuer will issue to the Note Purchasers Senior Secured Second Lien
Notes (the “Notes”) in the aggregate original principal amount of $85,000,000 in
the form attached as Exhibit A hereto in order to finance the working capital,
capital expenditures, certain obligations owed by the Issuer to third parties as
a result of the Hoop bankruptcy, the repayment of the outstanding balance under
the Issuer’s Existing Credit Agreement, and for general corporate purposes and
fees and expenses in relation to the Issuer’s business.

 

WHEREAS, on or around the date hereof, the Issuer will enter into a revolving
credit agreement with Wells Fargo Retail Finance, LLC, the borrowings in respect
of which are also to be used in order to finance the working capital, capital
expenditures, certain obligations owed by the Issuer to third parties as a
result of the Hoop bankruptcy, and for general corporate purposes and fees and
expenses in relation to the Issuer’s business.

 

WHEREAS, pursuant to certain collateral documents dated on or around the date
hereof, the Note Parties will grant in favor of the Collateral Agent, for the
benefit of each of the Note Purchasers, liens in respect of the collateral
described in the Collateral Documents, to secure the Note Parties’ obligations
in respect of the Notes .

 

WHEREAS, in order to, among other things, govern the priority of the liens held
by the Revolving Agent and the Collateral Agent, the Revolving Agent and the
Collateral Agent will enter into that certain Intercreditor Agreement (as
amended, modified or supplemented from time to time, the “Intercreditor
Agreement”), in substantially the form attached as Exhibit B.

 

NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Note Parties and the Note Purchasers agree as follows:

 

SECTION 1.  DEFINITIONS.

 

1.1                                 Certain Defined Terms; Rules of
Construction.  Capitalized terms used in this Agreement have the meanings set
forth in Annex I hereto.  Except as otherwise explicitly specified to the
contrary or unless the context clearly requires otherwise, (a) the capitalized
term “Section” refers to sections of this Agreement, (b) the capitalized term
“Exhibit” refers to exhibits to this Agreement, (c) the capitalized term
“Schedules” refers to schedules to this Agreement, (d) references to a
particular Section include all subsections thereof, (e) the word “including”
shall be construed as “including without limitation”, (f) references to a
particular statute or regulation include all rules and regulations thereunder
and any successor statute, regulation or rules, in each

 

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

 

case as from time to time in effect, (g) references to a particular Person or
entity include such Person’s or entity’s successors and assigns to the extent
not prohibited by this Agreement, (h) references to “$”, “cash”, “dollars” or
similar references means United States dollars, paid in cash or other
immediately available funds.  References to “the date hereof” mean the date
first set forth above and (i) any reference in this Agreement to any agreement,
instrument, or document shall include all alterations, amendments, changes,
extensions, modifications, renewals, replacements, substitutions, joinders, and
supplements, thereto and thereof, as applicable (subject to any restrictions on
such alterations, amendments, changes, extensions, modifications, renewals,
replacements, substitutions, joinders, and supplements set forth herein).

 

1.2                                 Accounting Terms.  Unless otherwise
specifically provided herein, any accounting term used in the Agreement shall
have the meaning customarily given such term in accordance with GAAP, and all
financial computations hereunder shall be computed in accordance with GAAP
consistently applied using the Issuer’s historical accounting practices.  That
certain items or computations are explicitly modified by the phrase “in
accordance with GAAP” shall in no way be construed to limit the foregoing.  If
any “Accounting Changes” (as defined below) occur and such changes result in a
change in the calculation of the financial covenants, standards or terms used in
the Agreement or any other Note Document, then the Issuer and the Note
Purchasers agree to enter into negotiations in order to amend such provisions of
the Agreement so as to equitably reflect such Accounting Changes with the
desired result that the criteria for evaluating the financial condition of the
Issuer and its Subsidiaries shall be the same after such Accounting Changes as
if such Accounting Changes had not been made; provided, however, that the
agreement of the Required Purchasers to any required amendments of such
provisions shall be sufficient to bind all of the Note Purchasers.  “Accounting
Changes” means (i) changes in accounting principles required by the promulgation
of any rule, regulation, pronouncement or opinion by the Financial Accounting
Standards Board or the American Institute of Certified Public Accountants (or
successor thereto or any agency with similar functions), (ii) changes in
accounting principles concurred in by the Issuer’s certified public accountants;
and (iii) purchase accounting adjustments under FASB 141 or 142 and EITF 88-16,
and the application of the accounting principles set forth in FASB 109,
including the establishment of reserves pursuant thereto and any subsequent
reversal (in whole or in part) of such reserves.  All such adjustments resulting
from expenditures made subsequent to the Closing Date (including capitalization
of costs and expenses or payment of pre-Closing Date liabilities) shall be
treated as expenses in the period the expenditures are made and deducted as part
of the calculation of EBITDA in such period.  If the Issuer and the Required
Purchasers agree upon the required amendments, then after appropriate amendments
have been executed and the underlying Accounting Change with respect thereto has
been implemented, any reference to GAAP contained in the Agreement or in any
other Note Document shall, only to the extent of such Accounting Change, refer
to GAAP, consistently applied after giving effect to the implementation of such
Accounting Change.  If the Issuer and the Required Purchasers cannot agree upon
the required amendments within 30 days following the date of implementation of
any Accounting Change, then all financial statements delivered and all
calculations of financial covenants and other standards and terms in accordance
with the Agreement and the other Note Documents shall be prepared, delivered and
made without regard to the underlying Accounting Change.

 

SECTION 2.  PURCHASE AND SALE OF THE NOTES.

 

2.1                                 Purchase and Sale of the Notes.  Subject to
the terms and conditions of this Agreement and on the basis of the
representations and warranties set forth herein, the Issuer hereby agrees to
sell to each Note Purchaser, and each such Note Purchaser agrees to purchase
from the

 

2

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

 

Issuer, at the Closing, a Note in the original principal amount and purchase
price set forth on Schedule I.

 

2.2                                 The Closing.  The purchase and sale of the
Notes will occur at a closing (the “Closing”) to be held on July     , 2008, at
10:00 a.m. (New York time), at the offices of Gibson, Dunn & Crutcher LLP, 200
Park Ave., New York, NY 10166, or at such other date, time and/or location as
may be agreed upon by the parties hereto.

 

2.3                                 Payment of Purchase Price.  At the Closing,
against payment by the Note Purchasers by wire transfer of immediately available
funds in the purchase price set forth on Schedule I, the Issuer will deliver
Notes registered in the names of the Note Purchasers in the principal amounts
set forth on Schedule I.

 

2.4                                 Use of Proceeds.  The proceeds of the sale
by the Issuer of the Notes hereunder shall be used solely to provide financing
for working capital; Capital Expenditures; expenses related to the Disney Store
Termination Agreements; certain obligations owed by the Issuer to third parties
as a result of the Hoop bankruptcy in an aggregate amount not to exceed
$20,000,000 (net of receipts from Disney), as more fully described on Schedule
2.4 attached hereto; the repayment of the outstanding balance under the Issuer’s
Existing Credit Agreement; and general corporate purposes and fees and expenses.

 

SECTION 3.  TERMS OF THE NOTES

 

3.1                                 Interest on the Notes.  The Notes shall bear
interest at a rate equal to the respective Applicable Rate for such Notes on the
unpaid principal amount thereof (and on any interest or other amount owing
hereunder that is not paid when due, to the extent permitted by applicable law)
from and including the Closing Date (or as applicable, a Supplemental Closing
Date) until the principal amount shall have been paid in full.  During the
pendency of any Event of Default, the interest rate on the Notes shall be
increased by 2% per annum over the then Applicable Rate.

 

3.1.1.                                             Interest Payment Dates.  All
accrued interest on the Notes shall be payable, in arrears, in cash, on the last
Business Day of each month (each an “Interest Payment Date”).

 

3.1.2.                                             Calculation of Interest. 
Interest on the Notes shall be computed on the basis of the actual number of
days elapsed over a 360-day year.  In computing such interest, the date or dates
of the making of the Notes shall be included and the date of payment shall be
excluded.

 

3.2                            Payment of Notes.

 

3.2.1.                                             Payment at Maturity.  The
entire principal amount of the Notes then outstanding, any accrued and unpaid
interest on the Notes and all other Note Obligations (except for contingent
obligations for which no demand has been made) shall be due and payable on, and
shall be paid in full in cash on, the Maturity Date of the Notes.  The Issuer
understands and acknowledges that it is obligated for the entire principal
amount of the Notes issued by it, any accrued and unpaid interest on such Notes
and all other Note Obligations.

 

3.2.2.                                             Voluntary Prepayments.  The 
Notes may be prepaid at the Issuer’s option, at any time, and from time to time,
in whole or in part (in a minimum amount and in

 

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increments of $1,000,000, or such lesser amount as is then outstanding), on
5 Business Days’ prior notice to the respective Note Purchasers whose Notes are
to be prepaid; provided, that any such voluntary prepayment of Notes shall
include the Applicable Premium on the amount so prepaid.

 

3.2.3.                                             Offer to Repurchase Upon a
Change of Control.

 

3.2.3.1.                                     Condition to Issuer Action.  Not
later than 5 Business Days prior to a Change of Control, the Issuer shall give
to each holder of Notes written notice containing and constituting an offer to
prepay Notes as described in Section 3.2.3.2, accompanied by the certificate
described in Section 3.2.3.5.

 

3.2.3.2.                                     Offer to Prepay Notes.  Any offer
to prepay Notes contemplated by Section 3.2.3.1 or Sections 3.2.4.1 through
3.2.4.3 shall be an offer by the Issuer to prepay, in accordance with and
subject to this Section 3.2.3 the Notes (and in the case of Section 3.2.3.1,
all, and not less than all, of the Notes) of the Issuer held by each holder (in
this case only, “holder” in respect of any Note registered in the name of a
nominee for a disclosed beneficial owner shall mean such beneficial owner) on
the date specified in such offer (the “Proposed Prepayment Date”) that is not
less than 30 days and not more than 60 days after the date of such offer (if the
Proposed Prepayment Date shall not be specified in such offer, the Proposed
Prepayment Date shall be the first Business Day which is at least 45 days after
the date of such offer).

 

3.2.3.3.                                     Acceptance; Rejection.  A holder of
Notes may accept the offer to prepay made pursuant to this Section 3.2.3 by
causing a notice of such acceptance to be delivered to the Issuer at least 10
days prior to the Proposed Prepayment Date.

 

3.2.3.4.                                     Prepayment.  Prepayment of the
Notes to be prepaid pursuant to this Section 3.2.3 shall be at 100% of the
principal amount of such Notes, together with interest on such Notes accrued to
the date of prepayment plus the Applicable Premium if any.  All prepayments
pursuant to this Section 3.2.3 are subject to the terms and conditions set forth
in the Intercreditor Agreement and Section 3.2.4.5 and shall only be required to
be made to the extent expressly permitted to be made pursuant to the terms and
conditions of the Intercreditor Agreement.  The Issuer shall give the Collateral
Agent prior written notice of making a mandatory prepayment pursuant to
Section 2.05(d) of the Revolving Loan Agreement.

 

3.2.3.5.                                     Officer’s Certificate.  Each offer
of the Issuer to prepay Notes pursuant to this Section 3.2.3 shall be
accompanied by a certificate, executed by a senior financial officer of the
Issuer and dated the date of such offer, specifying: (i) the Proposed Prepayment
Date; (ii) that such offer is made pursuant to this Section 3.2.3 (or 3.2.4.1
through 3.2.4.3 as applicable); (iii) the principal amount of each Note offered
to be prepaid (which shall be 100% of the principal amount of such Note);
(iv) the interest that would be due on each Note offered to be prepaid, accrued
to the Proposed Prepayment Date; (v) the amount of the Applicable Premium, if
any (vi) that the conditions of this Section 3.2.3 have been fulfilled; and
(vii) in reasonable detail, the nature and date of the Change of Control, if
applicable.

 

3.2.4.                                             Other Mandatory Prepayments.

 

3.2.4.1.                                     Promptly upon the receipt by any
Note Party of the proceeds of any voluntary or involuntary Disposition by any
Note Party of property or assets (including casualty losses or condemnations but
excluding Dispositions which qualify as Permitted Dispositions;

 

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provided, however, that to the extent that Permitted Dispositions (other than
under clause (a), (c) or (d) of the definition of Permitted Dispositions),
exceed $4,000,000 per Fiscal Year, then any such amount in excess of $4,000,000
per Fiscal Year shall not constitute Permitted Dispositions for the purposes of
this Section 3.2.4), the Issuer shall make an offer to prepay the outstanding
principal amount of the Note Obligations in accordance with Sections 3.2.3.2
through 3.2.3.5 (including, without limitation, to the payment of the Applicable
Premium on the amount so prepaid) in an amount equal to 100% of the Net Cash
Proceeds (including condemnation awards and payments in lieu thereof) received
by such Person in connection with such Dispositions; provided that, so long as
(A) no Default or Event of Default shall have occurred and is continuing,
(B) the Issuer shall have given the Collateral Agent prior written notice of the
Issuer’s intention to apply such monies to the costs of replacement of the
properties or assets that are the subject of such Disposition and (C) the Note
Parties complete such replacement, purchase, or construction within 180 days
after the initial receipt of such monies, the Note Parties shall have the option
to apply up to $5,000,000 per Fiscal Year (not to exceed $15,000,000 in the
aggregate for all Fiscal Years without consent of the Required Purchasers and in
no event shall such amount include Net Cash Proceeds from any sale and
lease-back by any Note Party) of such monies to the costs of replacement of the
property or assets that are the subject of such Disposition unless and to the
extent that such applicable period shall have expired without such replacement,
purchase or construction being made or completed, in which case, any such
amounts shall be paid to the Collateral Agent and applied in accordance with
Section 3.2.3.4.  Nothing contained in this Section 3.2.4.1 shall permit any
Note Party to Dispose of any property or assets other than in accordance with
Section 8.5.

 

3.2.4.2.                                     Promptly upon the receipt by any
Note Party of any Extraordinary Receipts, the Issuer shall offer to prepay the
outstanding principal amount of the Note Obligations in accordance with Sections
3.2.3.2 through 3.2.3.5 in an amount equal to 100% of the Net Cash Proceeds of
such Extraordinary Receipts.

 

3.2.4.3.                                    Promptly upon the issuance or
incurrence by any Note Party of any Indebtedness (other than Indebtedness
permitted under Section 8.3), or any equity issuance by a Note Party, the Issuer
shall offer to prepay the outstanding principal amount of the Note Obligations
in accordance with Sections 3.2.3.2 through 3.2.3.5 (including, without
limitation, to the payment of the Applicable Premium on the amount so prepaid)
in an amount equal to 100% of the Net Cash Proceeds received by such Person in
connection with such issuance or incurrence.  The provisions of this
Section 3.2.4.3 shall not be deemed to be implied consent to any such issuance
or incurrence otherwise prohibited by the terms and conditions of this
Agreement.

 

3.2.4.4.                                    Within 10 days of the earlier of
(A) delivery to the Note Purchasers of a certificate of a Responsible Officer of
the Issuer containing the calculations for Excess Cash Flow for any measurement
period ending on or after January 31, 2009, or (B) (i) delivery to the Note
Purchasers of audited annual financial statements pursuant to Section 7.2.1,
commencing with the delivery to the Note Purchasers of financial statements for
Fiscal Year ended January 31, 2009 or, (ii) if such financial statements are not
delivered to Note Purchasers on the date such reports are required to be
delivered pursuant to Section 7.2.1, the date such reports are required to be
delivered to the Note Purchasers pursuant to Section 7.2.1, the Note Parties
shall prepay the outstanding principal amount of the Note Obligations in
accordance with Section 3.3 in an amount equal to (X) with respect to such
payment due in respect of Fiscal Year ended January 31, 2009, 50% of the
aggregate Excess Cash Flow of the Note Parties for the Fiscal Year ending on
January 31, 2009 and (Y) with respect to each payment due in respect of each
Fiscal Year thereafter, 50% of the Excess Cash Flow of the Note Parties for such
Fiscal Year; provided, that, the Note Parties shall be

 

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permitted to prepay an additional amount equal to 25% of the Excess Cash Flow of
the Note Parties for each such Fiscal Year in clause (A) and (B), which
prepayment, for the avoidance of doubt, shall not require the payment of any
Applicable Premium.

 

3.2.4.5.                                     All prepayments pursuant to this
Section 3.2.4 are subject to the terms and conditions set forth in the
Intercreditor Agreement and shall only be required to be made to the extent
expressly permitted to be made pursuant to the terms and conditions of the
Intercreditor Agreement.  The Issuer shall give the Collateral Agent prior
written notice of making a mandatory prepayment pursuant to Section 2.05(d) of
the Revolving Loan Agreement.

 

3.2.4.6.                                     AHYDO.  Notwithstanding anything to
the contrary contained in Section 3 above, if (1) the Notes remain outstanding
after the fifth anniversary of the initial issuance thereof and (2) the
aggregate amount of the accrued but unpaid interest on the Notes (including
interest paid in kind and any amounts treated as interest for U.S. federal
income tax purposes, such as “original issue discount”) as of any Testing Date
occurring after such fifth anniversary exceeds an amount equal to the Maximum
Accrual, then all such accrued but unpaid interest on the Notes (including any
amounts treated as interest for federal income tax purposes, such as “original
issue discount”) as of such time in excess of an amount equal to the Maximum
Accrual shall be paid in cash by the Issuer (or its successors) to the holders
thereof before the end of such Testing Date, it being the intent of the parties
hereto that the deductibility of interest under the Notes shall not be limited
or deferred by reason of Section 163(i) of the Code.  For these purposes, the
“Maximum Accrual” is an amount equal to the product of such Notes’ issue price
(as defined in Code Sections 1273(b) and 1274(a)) and their yield to maturity,
and a “Testing Date” is any Interest Payment Date and the date on which any
“accrual period” (within the meaning of Section 1272(a)(5) of the Code) closes.

 

3.3                            Prepayment Procedures.

 

3.3.1.                                             If fewer than all of the
Notes are to be paid or prepaid, the Issuer shall pay or prepay the Notes on a
pro rata basis.

 

3.3.2.                                             Upon surrender of a Note that
is paid or prepaid in part, the Issuer shall, at the request of the applicable
Note Purchaser, promptly execute and deliver to the holder (at the expense of
the Issuer) a new Note equal in principal amount to the unpaid portion of the
Note surrendered.

 

3.3.3.                                             Each Note Purchaser agrees
that before disposing of the Note held by it, or any part thereof (other than by
granting participations therein), such Note Purchaser will make a notation
thereon of all principal payments previously made thereon and of the date to
which interest thereon has been paid and will notify the Issuer of the name and
address of the transferee of that Note; provided, that the failure to make (or
any error in the making of) a notation of the payments made under such Note or
to notify the Issuer of the name and address of a transferee shall not limit or
otherwise affect the obligation of the Issuer hereunder or under such Note.

 

3.3.4.                                             All payments or prepayments
(whether voluntary or mandatory) shall include the payment of accrued and unpaid
interest to, but not including, the date of such prepayment on the principal
amount of the Notes so prepaid.

 

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3.3.5.                                             All prepayments pursuant to
this Section 3.3 are subject to the terms and conditions set forth in the
Intercreditor Agreement and shall only be required to be made to the extent
expressly permitted to be made pursuant to the terms and conditions of the
Intercreditor Agreement.  The Issuer shall give the Collateral Agent prior
written notice of making a mandatory prepayment pursuant to Section 2.05(d) of
the Revolving Loan Agreement.

 

3.4                            Taxes.

 

3.4.1.                                             Subject to Section 3.3.4, any
and all payments by the Issuer hereunder or with respect to any Note or Note
Guarantee shall be made free and clear of and without deduction for any and all
present or future taxes, levies, imposts, deductions, charges or withholdings in
any such case imposed by the United States or any political subdivision thereof,
excluding taxes imposed or based on the recipient Note Purchaser’s overall net
income, and franchise or capital taxes imposed on it in lieu of net income taxes
(all such non-excluded taxes, levies, imposts, deductions, charges, withholdings
and liabilities in respect of payments hereunder or under the Notes being
hereinafter referred to as “Taxes”).  If the Issuer or any Guarantor shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder or under any Note to any Note Purchaser, (i) the sum payable shall be
increased as may be reasonably necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 3.4) such Note Purchaser receives an amount equal to the sum it
would have received had no such deductions been made, (ii) the Issuer or
Guarantor shall make such deductions and (iii) the Issuer or Guarantor shall
remit the full amount deducted to the relevant taxation authority or other
authority in accordance with applicable law.  Within 30 days after the date of
any payment of Taxes, the Issuer or Guarantor shall furnish to such Note
Purchaser the original or certified copy of a receipt evidencing payment
thereof.

 

3.4.2.                                             In addition, the Issuer and
the Guarantors agrees to pay any present or future stamp or documentary taxes or
any other excise or property taxes, charges or similar levies which arise from
any payment made hereunder or from the execution, delivery or registration of,
performance under, or otherwise with respect to, this Agreement or the Notes
(hereinafter referred to as “Other Taxes”).

 

3.4.3.                                             Each Note Purchaser of Notes
organized under the laws of a jurisdiction outside the United States, prior to
its receipt of any payment on the Notes, shall provide the Issuer with
(i) Internal Revenue Service Form W-8ECI, W-8BEN, W-8EXP or W-8IMY, as
appropriate, or any successor form prescribed by the Internal Revenue Service,
certifying that such Note Purchaser is entitled to benefits under an income tax
treaty to which the United States is a party, which exempts the recipient from
United States withholding tax on payments of interest or certifying that the
income receivable pursuant to this Agreement is effectively connected with the
conduct of a trade or business in the United States, (ii) Internal Revenue
Service Form W-8 or W-9, as appropriate, or any successor form prescribed by the
Internal Revenue Service, and (iii) any other form or certificate required by
any taxing authority (including any certificate required by Sections 871(h) and
881(c) of the Code), certifying that such Note Purchaser is entitled to an
exemption from United States withholding tax on interest payments made pursuant
to this Agreement.

 

3.4.4.                                             For any period with respect
to which a Note Purchaser has failed to provide the Issuer with the appropriate
form pursuant to Section 3.4.3, such Note Purchaser shall not be entitled to any
additional amounts or indemnification under this Section 3.4 with respect to
Taxes imposed by the United States; provided, however, that should a Note
Purchaser which is otherwise

 

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exempt from Taxes become subject to Taxes because of its failure to deliver a
form required hereunder, the Issuer shall take such steps as such Note Purchaser
shall reasonably request to assist such Note Purchaser to recover such Taxes.

 

3.4.5.                                             The Issuer and the Guarantors
will indemnify each Note Purchaser for the full amount of Taxes or Other Taxes
as provided in Sections 3.4.1 and 3.4.2 (to the extent not previously paid under
Section 3.4.1 or 3.4.2 above) imposed on such Note Purchaser and any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto.  Payment in respect of any such indemnification shall be made within 30
days from the date such Note Purchaser makes written demand therefor.

 

3.4.6.                                             In the event that the Issuer
or a Guarantor makes an additional payment under Section 3.4.1, 3.4.2 or 3.4.5
for the account of any Note Purchaser and such Note Purchaser, in its sole
opinion and absolute discretion, determines that it has finally and irrevocably
received or been granted a credit against, or relief or remission from, or
repayment of, any tax paid or payable by it in respect of or calculated with
reference to the deduction or withholding giving rise to such additional
payment, such Note Purchaser shall, to the extent that it determines that it can
do so without prejudice to the retention of the amount of such credit, relief,
remission or repayment, pay to the Issuer or Guarantor, as applicable, such
amount as such Note Purchaser shall, in its sole opinion, have determined is
attributable to such deduction or withholding and will leave such Note Purchaser
(after such payment) in no worse position than it would have been had the Issuer
or Guarantor not been required to make such deduction or withholding.  Nothing
contained herein shall (i) interfere with the right of a Note Purchaser to
arrange its tax affairs in whatever manner it thinks fit or (ii) oblige any Note
Purchaser to claim any tax credit or to disclose any information relating to its
tax affairs or any computations in respect thereof or (iii) require any Note
Purchaser to take or refrain from taking any action that would prejudice its
ability to benefit from any other credits, reliefs, remissions or repayments to
which it may be entitled.

 

3.4.7.                                             Without prejudice to the
survival of any other agreement hereunder, the agreements and obligations
contained in this Section 3.4 shall survive the payment in full of principal and
interest under the Notes.

 

3.5                            Manner and Time of Payment.

 

3.5.1.                                             All payments with respect to
any Notes shall be made pro rata to the Note Purchasers without defense, set off
or counterclaim in same day funds and shall be made by wire transfer to the Note
Purchasers’ respective accounts designated in Schedule II hereto (or such other
account or address or to the attention of such other Person as the applicable
Note Purchaser shall have specified by prior written notice to the Issuer) so as
to be actually received not later than 3:00 p.m. (Boston time) on the date such
payment is due; provided that funds received by such Note Purchasers after
3:00 p.m. (Boston time) shall be deemed to have been paid on the next succeeding
Business Day.

 

3.5.2.                                             Whenever any payment to be
made hereunder or under the Notes shall be stated to be due on a day which is
not a Business Day, the payment shall be made on the next succeeding Business
Day and such additional period shall be included in the computation of the
payment of interest hereunder or under the Notes.

 

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SECTION 4.  REPRESENTATIONS AND WARRANTIES OF NOTE PURCHASERS.

 

In order to induce the Issuer to enter into this Agreement, each Note Purchaser
individually (but not on behalf of any other Note Purchaser) represents and
warrants for the benefit of the other Note Purchasers and the Issuer that, as of
the Closing Date:

 

4.1                                 Legal Capacity; Due Authorization.  Such
Note Purchaser has full legal capacity, power and authority to execute and
deliver this Agreement and to perform its obligations hereunder and that this
Agreement has been duly executed and delivered by such Note Purchaser and is the
legal, valid and binding obligation of such Note Purchaser enforceable against
it in accordance with the terms hereof.

 

4.2                                 Restrictions on Transfer.  Such Note
Purchaser has been advised that the Notes have not been registered under the
Securities Act or any state securities laws and, therefore, cannot be resold
unless they are registered under the Securities Act and applicable state
securities laws or unless an exemption from such registration requirements is
available, and that the Notes may have to be held by such Note Purchaser for an
indefinite period of time.  Such Note Purchaser is aware that the Issuer is not
under any obligation to effect any such registration with respect to the Notes
or to file for or comply with any exemption from registration.  Such Note
Purchaser is purchasing the Notes to be acquired by such Note Purchaser
hereunder for its own account and not with a view to, or for resale in
connection with, the distribution thereof in violation of the Securities Act;
provided, however, that except as provided in Section 10 of this Agreement, the
disposition of such Note Purchaser’s property shall at all times be and remain
in its control and sole discretion.

 

4.3                                 Accredited Investor, etc.  Such Note
Purchaser has such knowledge and experience in financial and business matters so
as to be capable of evaluating the merits and risks of such investment, is able
to incur a complete loss of such investment and to bear the economic risk of
such investment for an indefinite period of time.  Such Note Purchaser (i) is an
“accredited investor” as that term is defined in Regulation D under the
Securities Act and (ii) has been represented by counsel in the purchase of the
Notes to be purchased by it and is aware of the limitations of state and federal
securities laws with respect to the disposition of the Notes.  Such Note
Purchaser acknowledges that such Note Purchaser has had an opportunity to
examine the financial and business affairs of the Issuer and the Note Parties
and an opportunity to ask questions of and receive answers from the Issuer’s and
the Note Parties’ management.

 

4.4                                 No Advertisement.  There has been no
advertisement by such Note Purchaser of the Notes in printed public media,
radio, television or telecommunications, including electronic display (for the
avoidance of doubt, after the Closing Date the Note Purchasers may advertise
entering into the transactions contemplated by this Agreement).

 

SECTION 5.  REPRESENTATIONS AND WARRANTIES OF THE NOTE PARTIES.

 

In order to induce each Note Purchaser to enter into this Agreement and to
purchase the Notes to be purchased by such Note Purchaser hereunder, each Note
Party represents and warrants to the Collateral Agent and each Note Purchaser
that:

 

5.1                                 Existence, Qualification and Power.  Each
Note Party and each Subsidiary thereof: (a) is a corporation, limited liability
company, partnership or limited partnership, duly organized or formed, validly
existing and, where applicable, in good standing under the Laws of the
jurisdiction

 

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of its incorporation or organization; (b) has all requisite power and authority
and all requisite governmental licenses, permits, authorizations, consents and
approvals to (i) own or lease its assets and carry on its business as currently
conducted or as proposed to be conducted and (ii) execute, deliver and perform
its obligations under the Note Documents to which it is a party; and (c) is duly
qualified and is licensed and, where applicable, in good standing under the Laws
of each jurisdiction where its ownership, lease or operation of properties or
the conduct of its business requires such qualification or license; except in
each case referred to in clause (b)(i) or (c), to the extent that failure to do
so could not reasonably be expected to have a Material Adverse Effect.  Schedule
5.1 annexed hereto sets forth, as of the Closing Date, each Note Party’s name as
it appears in official filings in its state of incorporation or organization and
the name under which each Note Party conducts its business (if different), its
state of incorporation or organization, organization type, organization number,
if any, issued by its state of incorporation or organization, its federal
employer identification number and the address of its chief executive office and
principal place of business.

 

5.2                                 Authorization; No Contravention.  The
execution, delivery and performance by each Note Party of each Note Document to
which such Person is, or is to be, a party has been duly authorized by all
necessary corporate or other organizational action and does not and will not:
(a) contravene the terms of any of such Person’s Governing Documents;
(b) conflict in any material respect with, or result in any breach, termination,
or contravention of, or constitute a default under, or require any payment to be
made under (i) any Material Contract or any Material Indebtedness to which such
Person is a party or affecting such Person or the properties of such Person or
any of its Subsidiaries, (ii) any order, injunction, writ or decree of any
Governmental Authority or any arbitral award to which such Person or its
property is subject, or (iii) any governmental licenses, permits,
authorizations, consents and approvals, except in each case referred to in this
clause (b), to the extent that any such conflict, breach, termination,
contravention or default could not reasonably be expected to have a Material
Adverse Effect; (c) result in or require the creation of any Lien upon any asset
of any Note Party (other than Liens in favor of the Collateral Agent under the
Collateral Documents); or (d) violate any Law.

 

5.3                                 Governmental Authorization; Other Consents. 
No approval, consent, exemption, authorization, or other action by, or notice
to, or filing with, any Governmental Authority or any other Person is necessary
or required in connection with the execution, delivery or performance by, or
enforcement against, any Note Party of this Agreement or any other Note
Document, except for (a) the perfection or maintenance of the Liens created
under the Collateral Documents (having the priority set forth in the
Intercreditor Agreement), or (b) such as have been obtained or made and are in
full force and effect.

 

5.4                                 Binding Effect.  This Agreement has been,
and each other Note Document, when delivered, will have been, duly executed and
delivered by each Note Party that is party thereto.  This Agreement constitutes,
and each other Note Document when so delivered will constitute, a legal, valid
and binding obligation of such Note Party, enforceable against each Note Party
that is party thereto in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other laws affecting
creditors’ rights generally and subject to general principles of equity,
regardless of whether considered in a proceeding in equity or at law.

 

5.5                                 Financial Statements; No Material Adverse
Effect.

 

5.5.1.                                             The audited consolidated,
balance sheet of the Note Parties and their Subsidiaries as at February 2, 2008,
and the audited statements of income and related cash flows of

 

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each such Persons for the Fiscal Year then ended (i) were prepared in accordance
with GAAP consistently applied throughout the period covered thereby, except as
otherwise expressly noted therein; (ii) fairly present the financial condition
of the Issuer and its Subsidiaries as of the date thereof and their results of
operations for the period covered thereby in accordance with GAAP consistently
applied throughout the period covered thereby, except as otherwise expressly
noted therein; and (iii) show all Material Indebtedness and other liabilities,
direct or contingent, of the Issuer and its Subsidiaries as of the date thereof,
including liabilities for taxes, material commitments and Indebtedness.

 

5.5.2.                                             The unaudited Consolidated
balance sheet of the Issuer and its Subsidiaries dated May, 2008, and the
related Consolidated statements of income or operations, Shareholders’ Equity
and cash flows for the Fiscal Month ended on that date (i) were prepared in
accordance with GAAP consistently applied throughout the period covered thereby,
except as otherwise expressly noted therein, and (ii) fairly present the
financial condition of the Issuer and its Subsidiaries as of the date thereof
and their results of operations for the period covered thereby, subject, in the
case of clauses (i) and (ii), to the absence of footnotes and to normal year-end
audit adjustments.

 

5.5.3.                                             Projections for the Note
Parties and their Subsidiaries for the five year period ended on or around
January 31, 2012 (the “Projections”).  The Projections are based upon estimates
and assumptions stated therein, all of which the Issuer believes to be
reasonable and fair in light of reasonably foreseeable business conditions and
current facts known to the Issuer and, as of the Closing Date, reflects the
Issuer’s good faith and reasonable estimate of the future financial performance
of the Note Parties and of the other information projected therein for the
period set forth therein, it being recognized by the Note Purchasers that such
projections as they relate to future events are not to be viewed as fact and
that actual results during the period or periods covered by such Projections may
differ from the projected results set forth therein.

 

5.5.4.                                             Since February 2, 2008, there
has been no event or circumstance, either individually or in the aggregate, that
has had or could reasonably be expected to have a Material Adverse Effect.

 

5.6                            Litigation.  Except as otherwise set forth in
Schedule 5.6, there are no actions, suits, judgments, proceedings, claims or
disputes pending or, to the knowledge of the Note Parties after due and diligent
investigation, threatened or contemplated, at law, in equity, in arbitration or
before any Governmental Authority, by or against any Note Party or any of its
Subsidiaries or against any of its properties or revenues that (a) purport to
affect or pertain to this Agreement or any other Note Document, or any of the
transactions contemplated hereby, or (b) either individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.

 

5.7                            No Default.  No Note Party or any Subsidiary is
in default under or with respect to, or party to, any Material Contract or any
Material Indebtedness.  No Default has occurred and is continuing or would
result from the consummation of the transactions contemplated by this Agreement
or any other Note Document.

 

5.8                            Ownership of Property; Liens; Lease Agreements.

 

5.8.1.                                             Each of the Note Parties and
each Subsidiary thereof has good record and marketable title in fee simple to
all real property owned by such Person necessary or used in the

 

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ordinary conduct of its business, free and clear of all Liens, other than
Permitted Encumbrances.  Each of the Note Parties and each Subsidiary thereof
has valid leasehold interests in at least 95% of all the real property leased by
such Person necessary or used in the ordinary conduct of its business, free and
clear of all Liens, other than Permitted Encumbrances and, as to the remaining
5% of such leased property, there are no defaults under such leasehold
interests, except for such defaults that could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.  Each of
the Note Parties and each Subsidiary has good and marketable title to or a valid
leasehold interest in all personal property and assets necessary or used in to
the ordinary conduct of its business (excluding Intellectual Property) as
currently conducted or as proposed to be conducted, free and clear of all Liens,
other than Permitted Encumbrances, except for such defects in title and
leasehold interests as could not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect.  Each of the Note Parties and
each Subsidiary has good and marketable title to, valid leasehold interests in,
or valid licenses to use, all Intellectual Property necessary or used in the
ordinary conduct of its business as currently conducted or as proposed to be
conducted, free and clear of all Liens, other than Permitted Encumbrances

 

5.8.2.                                             Schedule 5.8.2(1) sets forth
the address (including street address, county and state) of all Real Estate that
is owned by the Note Parties, together with a list of the holders of any
mortgage or other Lien thereon as of the Closing Date.  Each Note Party and each
of its Subsidiaries has good, marketable and insurable fee simple title to the
real property owned by such Note Party or such Subsidiary, free and clear of all
Liens, other than Permitted Encumbrances, except for such defects in title as
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.  Schedule 5.8.2(2) sets forth the address (including
street address, county and state) of all Leases of the Note Parties, together
with a list of the lessor and its contact information with respect to each such
Lease as of the Closing Date.  At least 95% of the aggregate number of Leases
are in full force and effect as of the Closing Date and the Note Parties are not
in default of the terms of such Leases. There is no current litigation,
threatened litigation or material disputes in respect of any of the Leases;
except, in each case, as could not reasonably be expected to have a Material
Adverse Effect.  None of the Leases are part of a master lease agreement.

 

5.8.3.                                             Schedule 5.8.3 sets forth a
complete and accurate list of all Liens on the property or assets of each Note
Party and each of its Subsidiaries, showing as of the date hereof the lienholder
thereof, the property or assets of such Note Party or such Subsidiary subject
thereto and for each Lien that secures Indebtedness in excess of $1,000,000, the
principal amount of the obligations secured thereby.  The property of each Note
Party and each of its Subsidiaries is subject to no Liens, other than Liens set
forth on Schedule 5.8.3, and Permitted Encumbrances; provided, that, the
aggregate amount of Indebtedness secured by the Liens set forth on Schedule
5.8.3 shall not exceed $3,000,000.

 

5.8.4.                                             Schedule 5.8.4 sets forth a
complete and accurate list of all Investments held by any Note Party or any
Subsidiary of a Note Party on the date hereof, showing as of the date hereof the
amount, obligor or issuer and maturity, if any, thereof.

 

5.8.5.                                             Schedule 5.8.5 sets forth a
complete and accurate list of all Indebtedness of each Note Party or any
Subsidiary of a Note Party as of the Closing Date, showing as of the Closing
Date the amount, obligor or issuer and maturity thereof and Schedule T-1 sets
forth a complete and accurate list of all letters of credit of the Note
Parties.  As of the Closing Date, after giving effect to the transactions
contemplated hereby, the Note Parties have no Indebtedness except for the Note
Obligations, the Indebtedness set forth on Schedule 5.8.5 and Permitted
Indebtedness.

 

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5.9                            Environmental Compliance.

 

5.9.1.                                             No Note Party or any
Subsidiary thereof (i) has failed to comply with any Environmental Law or to
obtain, maintain or comply with any permit, license or other approval required
under any Environmental Law, (ii) has become subject to any Environmental
Liability, (iii) has received notice of any claim with respect to any
Environmental Liability or (iv) knows of any basis for any Environmental
Liability, except in each case, as could not, individually or in the aggregate
be expected to have a Material Adverse Effect.

 

5.9.2.                                             Except as otherwise set forth
in Schedule 5.9, to the knowledge of the Note Parties, none of the properties
currently or formerly owned or operated by any Note Party or any Subsidiary
thereof is listed or proposed for listing on the NPL or on the CERCLIS or any
analogous foreign, state or local list or is adjacent to any such property;
there are no and never have been any underground or above-ground storage tanks
or any surface impoundments, septic tanks, pits, sumps or lagoons in which
Hazardous Materials are being or have been treated, stored or disposed on any
property currently owned or operated by any Note Party or any Subsidiary thereof
or, to the best of the knowledge of the Note Parties, on any property formerly
owned or operated by any Note Party or Subsidiary thereof; there is no asbestos
or asbestos-containing material on any property currently owned or operated by
any Note Party or Subsidiary thereof; and Hazardous Materials have not been
released, discharged or disposed of on any property currently or formerly owned
or operated by any Note Party or any Subsidiary thereof.

 

5.9.3.                                             Except as otherwise set forth
on Schedule 5.9, no Note Party or any Subsidiary thereof is undertaking, and no
Note Party or any Subsidiary thereof has completed, either individually or
together with other potentially responsible parties, any investigation or
assessment or remedial or response action relating to any actual or threatened
release, discharge or disposal of Hazardous Materials at any site, location or
operation, either voluntarily or pursuant to the order of any Governmental
Authority or the requirements of any Environmental Law; and all Hazardous
Materials generated, used, treated, handled or stored at, or transported to or
from, any property currently or formerly owned or operated by any Note Party or
any Subsidiary thereof have been disposed of in a manner not reasonably expected
to result in material liability to any Note Party or any Subsidiary thereof.

 

5.10                      Insurance.  The properties of the Note Parties and
their Subsidiaries are insured with financially sound and reputable insurance
companies which are not Affiliates of the Note Parties, in such amounts, with
such deductibles and covering such risks (including, without limitation,
workmen’s compensation, public liability, business interruption and property
damage insurance) as are customarily carried by companies engaged in similar
businesses and owning similar properties in localities where the Note Parties or
the applicable Subsidiary operates.  Schedule 5.10 sets forth a description of
all insurance maintained by or on behalf of the Note Parties as of the Closing
Date. Each insurance policy listed on Schedule 5.10 is in full force and effect
and all premiums in respect thereof that are due and payable have been paid.

 

5.11                           Taxes.  The Note Parties and their Subsidiaries
have filed all Federal, state and other material tax returns and reports
required to be filed, and have paid all Federal, state and other material taxes,
assessments, fees and other governmental charges levied or imposed upon them or
their properties, income or assets otherwise due and payable, except those which
are being contested in good faith by appropriate proceedings being diligently
conducted, for which adequate reserves have been provided in accordance with
GAAP, as to which Taxes no Lien has been filed and which

 

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contest effectively suspends the collection of the contested obligation and the
enforcement of any Lien securing such obligation.  There is no proposed tax
assessment against any Note Party or any Subsidiary that would, if made, have a
Material Adverse Effect.  No Note Party or any Subsidiary thereof is a party to
any tax sharing agreement.

 

5.12                      ERISA Compliance.

 

5.12.1.                                       Each Plan is in compliance in all
material respects with the applicable provisions of ERISA, the Code and other
Federal or state Laws.  Each Plan that is intended to qualify under
Section 401(a) of the Code has received a favorable determination letter from
the Internal Revenue Service or an application for such a letter is currently
being processed by the Internal Revenue Service with respect thereto and, to the
best knowledge of the Issuer, nothing has occurred which would prevent, or cause
the loss of, such qualification.  The Note Parties and each ERISA Affiliate have
made all required contributions to each Plan subject to Section 412 of the Code,
and no application for a funding waiver or an extension of any amortization
period pursuant to Section 412 of the Code has been made with respect to any
Plan.  No Lien imposed under the Code or ERISA exists or, to the knowledge of
the Issuer, is likely to arise on account of any Plan.

 

5.12.2.                                       There are no pending or, to the
best knowledge of the Issuer, threatened claims, actions or lawsuits, or action
by any Governmental Authority, with respect to any Plan.  To the best knowledge
of the Issuer, there has been no prohibited transaction or violation of the
fiduciary responsibility rules with respect to any Plan.

 

5.12.3.                                       Except as could not reasonably be
expected to have a Material Adverse Effect, individually or in the aggregate:
(i) No ERISA Event has occurred or is reasonably expected to occur; (ii) no
Pension Plan has any Unfunded Pension Liability; (iii) neither any Note Party
nor any ERISA Affiliate has incurred, or reasonably expects to incur, any
liability under Title IV of ERISA with respect to any Pension Plan (other than
premiums due and not delinquent under Section 4007 of ERISA); (iv) neither any
Note Party nor any ERISA Affiliate has incurred, or reasonably expects to incur,
any liability (and no event has occurred which, with the giving of notice under
Section 4219 of ERISA, would result in such liability) under Sections 4201 or
4243 of ERISA with respect to a Multiemployer Plan; and (v) neither any Note
Party nor any ERISA Affiliate has engaged in a transaction that could be subject
to Sections 4069 or 4212(c) of ERISA.

 

5.13                      Subsidiaries; Equity Interests.  The Note Parties have
no Subsidiaries other than those specifically disclosed in Part (a) of Schedule
5.13, which Schedule sets forth the legal name, jurisdiction of incorporation or
formation and authorized Equity Interests of each such Subsidiary, listed by
class, and setting forth the number and percentage of the outstanding Equity
Interests of each such class owned directly or indirectly by the applicable Note
Party.  All of the outstanding Equity Interests in such Subsidiaries have been
validly issued, are fully paid and non-assessable and are owned by a Note Party
(or a Subsidiary of a Note Party) in the amounts specified on Part (a) of
Schedule 5.13, free and clear of all Liens except for those created under the
Security Documents and the Collateral Documents.  The Note Parties have no
equity investments in any other corporation or entity other than those
specifically disclosed in Part (b) of Schedule 5.13.  Part (c) of Schedule 5.13
is a complete and accurate description of the authorized Equity Interests of
each Note Party, by class, and a description of the number of shares of each
such class that are issued and outstanding.  All of the outstanding Equity
Interests in the Note Parties have been validly issued, and are fully paid and
non-assessable and, other than with respect to the Issuer, are owned in the
amounts specified on Part (c) of Schedule 5.13, free and clear of all Liens
except for those created under the

 

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Security Documents and the Collateral Documents.  Except as set forth in
Schedule 5.13, there are no subscriptions, options, warrants, or calls relating
to any shares of any Note Party’s Equity Interests, including any right of
conversion or exchange under any outstanding security or other instrument.  No
Note Party is subject to any obligation (contingent or otherwise) to repurchase
or otherwise acquire or retire any shares of its Equity Interests or any
security convertible into or exchangeable for any of its Equity Interests.  The
copies of the Governing Documents of each Note Party and each amendment thereto
provided pursuant to Section 6.3 are true and correct copies of each such
document, each of which is valid and in full force and effect.

 

5.14                      Margin Regulations; Investment Company Act.

 

5.14.1.                                       No Note Party is engaged or will
be engaged, principally or as one of its important activities, in the business
of purchasing or carrying margin stock (within the meaning of Regulation U
issued by the FRB), or extending credit for the purpose of purchasing or
carrying margin stock.  None of the proceeds from the sale of the Notes shall be
used directly or indirectly for the purpose of purchasing or carrying any margin
stock, for the purpose of reducing or retiring any Indebtedness that was
originally incurred to purchase or carry any margin stock or for any other
purpose that might cause any of the sale of the Notes to be considered a
“purpose credit” within the meaning of Regulations T, U, or X issued by the FRB.

 

5.14.2.                                       None of the Note Parties, any
Person Controlling any Note Party, or any Subsidiary is or is required to be
registered as an “investment company” under the Investment Company Act of 1940.

 

5.15                      Disclosure.  Each Note Party has disclosed to the
Collateral Agent and the Note Purchasers all agreements, instruments and
corporate or other restrictions to which it or any of its Subsidiaries is
subject, and all other matters known to it, that, individually or in the
aggregate, could reasonably be expected to result in a Material Adverse Effect. 
No report, financial statement, certificate or other information furnished
(whether in writing or orally) by or on behalf of any Note Party to the
Collateral Agent or any Note Purchasers in connection with the transactions
contemplated hereby and the negotiation of this Agreement or delivered hereunder
or under any other Note Document (in each case, as modified or supplemented by
other information so furnished), contains any material misstatement of fact or
omits to state any material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
provided that, with respect to projected financial information, the Note Parties
represent only that such information was prepared in good faith based upon
assumptions believed to be reasonable at the time.

 

5.16                      Compliance with Laws.  Each of the Note Parties and
each Subsidiary is in compliance in all respects with the requirements of all
applicable Laws and all orders, writs, injunctions and decrees applicable to it
or to its properties, except in such instances in which (a) such requirement of
Law or order, writ, injunction or decree is being contested in good faith by
appropriate proceedings diligently conducted or (b) the failure to comply
therewith, either individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.

 

5.17                      Intellectual Property; Licenses, Etc.  Each Note Party
owns, or holds licenses in, all Intellectual Property, trade names, patent
rights and other authorizations that are necessary to the conduct of its
business as currently conducted and as proposed to be conducted, and attached
hereto

 

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as Schedule 5.17 is a true, correct, and complete listing of all material
patents, patent applications, trademarks, trademark applications, copyrights,
and copyright registrations as to which a Note Party is the owner or is an
exclusive licensee.  To the best knowledge of the Issuer after reasonable
inquiry, (i) there is no action, proceeding, claim or complaint pending or,
threatened in writing to be brought against any Note Party which might
jeopardize any of such Person’s interest in any of the foregoing licenses,
patents, copyrights, trademarks, trade names, designs or applications, except
those which are not, in the aggregate, material to the Note Parties’ financial
condition, results of operations or business and (ii) no slogan or other
advertising device, product, process, method, substance, part or other material
now employed, or now contemplated to be employed, by any Note Party or any
Subsidiary infringes upon any rights held by any other Person.

 

5.18                      Labor Matters.  There are no strikes, lockouts,
slowdowns or other material labor disputes against any Note Party or any
Subsidiary thereof pending or, to the knowledge of any Note Party, threatened
which, either individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect. Except as set forth on Schedule 5.18(1), the
hours worked by and payments made to employees of the Note Parties comply with
the Fair Labor Standards Act and any other applicable federal, state, local or
foreign Law dealing with such matters, except for any noncompliance which,
either individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.  Except as set forth on Schedule 5.18(2), no Note Party
or any of its Subsidiaries has incurred any liability or obligation under the
Worker Adjustment and Retraining Notification Act or similar state Law.  All
payments due from any Note Party and its Subsidiaries, or for which any claim
may be made against any Note Party, on account of wages and employee health and
welfare insurance and other benefits, have been paid or properly accrued in
accordance with GAAP as a liability on the books of such Note Party. Except as
set forth on Schedule 5.18(3), no Note Party or any Subsidiary is a party to or
bound by (i) any collective bargaining agreement, or (ii) management agreement,
employment agreement, bonus, restricted stock, stock option, or stock
appreciation plan or agreement or any similar plan, agreement or arrangement, in
each case in this clause (ii), imposing commitments on such Note Party or
Subsidiary under such agreement in excess of $3,000,000 per year. There are no
representation proceedings pending or, to any Note Party’s knowledge, threatened
to be filed with the National Labor Relations Board, and no labor organization
or group of employees of any Note Party or any Subsidiary has made a pending
demand for recognition. There are no complaints, unfair labor practice charges,
grievances, arbitrations, unfair employment practices charges or any other
claims or complaints against any Note Party or any Subsidiary pending or, to the
knowledge of any Note Party, threatened to be filed with any Governmental
Authority or arbitrator based on, arising out of, in connection with, or
otherwise relating to the employment or termination of employment of any
employee of any Note Party or any of its Subsidiaries which, either individually
or in the aggregate, could reasonably be expected to have a Material Adverse
Effect.  The consummation of the transactions contemplated by the Note Documents
will not give rise to any right of termination or right of renegotiation on the
part of any union under any collective bargaining agreement to which any Note
Party or any of its Subsidiaries is bound.  Each Note Party and its Subsidiaries
are in material compliance with all requirements pursuant to employment
standards, labor relations, health and safety, workers compensation and human
rights laws, immigration laws and other applicable employment legislation.  To
the knowledge of the Note Parties, no officer or director of any Note Party who
is party to an employment agreement with such Note Party is in violation of any
term of any employment contract or proprietary information agreement with such
Note Party; and to the knowledge of the Note Parties, the execution of the
employment agreements and the continued employment by the Note Parties of the
such persons, will not result in any such violation.

 

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Schedule 5.18(4) sets forth the names and titles of each officer and director of
each Note Party who is party to an employment agreement.

 

5.19         Collateral Documents.  The Collateral Documents are effective to
create in favor of the Collateral Agent for the benefit of the Note Purchasers a
legal, valid and enforceable security interest in the Collateral, and the
Collateral Documents constitute, or will upon the filing of financing statements
and/or the obtaining of “control”, in each case with respect to the relevant
Collateral as required under the applicable Uniform Commercial Code, the
creation of a fully perfected Lien on, and security interest in, all right,
title and interest of the Note Parties thereunder in such Collateral, in each
case prior and superior in right to any other Person, except for (a) with
respect to the Revolving Lenders Priority Collateral (as defined in the
Intercreditor Agreement) only, Liens securing the obligations of the Issuer with
respect to the Revolving Loan Documents, and (b) other Permitted Encumbrances
having priority under applicable Law.

 

5.20         Solvency.  After giving effect to the transactions contemplated by
this Agreement, each Note Party on a Consolidated basis are Solvent. No transfer
of property has been or will be made by any Note Party and no obligation has
been or will be incurred by any Note Party in connection with the transactions
contemplated by this Agreement or the other Note Documents with the intent to
hinder, delay, or defraud either present or future creditors of any Note Party.

 

5.21         Deposit Accounts; Credit Card Arrangements.

 

5.21.1.             Annexed hereto as Schedule 5.21.1 is a list of all DDAs
maintained by the Note Parties as of the Closing Date, which Schedule includes,
with respect to each DDA (i) the name and address of the depository; (ii) the
account number(s) maintained with such depository; (iii) a contact person at
such depository, and (iv) the identification of each blocked account bank.

 

5.21.2.             Annexed hereto as Schedule 5.21.2 is a list describing all
arrangements as of the Closing Date to which any Note Party is a party with
respect to the processing and/or payment to such Note Party of the proceeds of
any credit card charges for sales made by such Note Party.

 

5.22         Brokers.  Other than those set forth on Schedule 5.22, no broker or
finder brought about the obtaining, making or closing of the Notes or
transactions contemplated by the Note Documents, and no Note Party or Affiliate
thereof has any obligation to any Person in respect of any finder’s or brokerage
fees in connection therewith.  Each Note Party hereby jointly and severally
indemnifies each Credit Party against, and agrees that such Person will hold
each such Credit Party harmless from, any claim, demand or liability, including
reasonable attorneys’ fees, for any broker’s, finder’s or placement fee or
commission incurred by such indemnifying party or the Issuer or its Affiliates
or a representative of such Person.

 

5.23         Customer and Trade Relations.  There exists no actual or, to the
knowledge of any Note Party, threatened, termination or cancellation of, or any
material adverse modification or change in the business relationship of any Note
Party with any customer or supplier which represents over 5% of annual purchase
or supply commitments of the Note Parties.

 

5.24         Material Contracts.  No Note Party is in default under any
contract, lease or commitment to which such Person is a party or by which such
Person is bound,  under contracts, leases or commitments which are not,
individually or in the aggregate, material to such Person’s financial condition,
results of operations or business.  Set forth on Schedule 5.24 is a description
of

 

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all Material Contracts of the Note Parties, showing the parties and principal
subject matter thereof and amendments and modifications thereto; provided,
however, that the Issuer may amend Schedule 5.24 to add additional Material
Contracts so long as such amendment occurs by written notice to the Collateral
Agent not less than 5 days after the date on which such Note Party enters into
such Material Contract after the Closing Date.  Except for matters which, either
individually or in the aggregate, could not reasonably be expected to either
result in a Material Adverse Effect or expose the Note Parties to liabilities
greater than $5,000,000, each Material Contract (other than those that have
expired at the end of their normal terms) (a) is in full force and effect and is
binding upon and enforceable against the applicable Note Party or its
Subsidiaries and, to the best of the Issuer’s knowledge, each other Person that
is a party thereto in accordance with its terms, (b)  is not in default due to
the action or inaction of any Note Party or its Subsidiaries and (c) the
consummation of the financing arrangements contemplated hereunder, will not
constitute or create a default or create a right of termination under any
Material Contract.

 

5.25         Casualty.  Neither the businesses nor the properties of any Note
Party or any of its Subsidiaries are affected by any fire, explosion, accident,
strike, lockout or other labor dispute, drought, storm, hail, earthquake,
embargo, act of God or of the public enemy or other casualty (whether or not
covered by insurance) that, either individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.

 

5.26         Anti-Terrorism Laws.

 

5.26.1.             General Anti-Terrorism Laws.  To the knowledge of the Note
Parties, after reasonable inquiry, none of the Note Parties nor any direct or
indirect investor in any Note Party (other than the Note Purchasers or any
direct or indirect investors in the Note Purchasers), is in violation of any
Anti-Terrorism Law or engages in or conspires to engage in any transaction that
evades or avoids, or has the purpose of evading or avoiding, or attempts to
violate, any of the prohibitions set forth in any Anti-Terrorism Law.

 

5.26.2.             Blocked Persons.  To the knowledge of the Note Parties,
after reasonable inquiry, none of the Note Parties nor any direct or indirect
investor in any Note Party (other than the Note Purchasers or any direct or
indirect investors in the Note Purchasers), or their respective agents acting or
benefiting in any capacity in connection with the transactions hereunder, is any
of the following (each a “Blocked Person”):

 

5.26.2.1.          a Person that is listed in the annex to, or is otherwise
subject to the provisions of, the Executive Order No. 13224;

 

5.26.2.2.          a Person owned or controlled  by, or acting for or on behalf
of, any Person that is listed in the annex to, or is otherwise subject to the
provisions of, the Executive Order No. 13224;

 

5.26.2.3.          a Person or entity with which any Note Purchaser is
prohibited from dealing or otherwise engaging in any transaction by any
Anti-Terrorism Law;

 

5.26.2.4.          a Person or entity that commits, threatens or conspires to
commit or supports “terrorism” as defined in the Executive Order No. 13224;

 

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5.26.2.5.          a Person or entity that is named as a “specially designated
national” on the most current list published by the U.S. Treasury Department
Office of Foreign Asset Control at its official website or any replacement
website or other replacement official publication of such list; or

 

5.26.2.6.          a person or entity who is affiliated or associated with a
person or entity listed above.

 

5.26.3.             Executive Order No. 13224.  To the best knowledge of the
Note Parties, after reasonable inquiry, none of the Note Parties nor, to the
knowledge of the Note Parties, any of its or their agents acting in any capacity
in connection with the transactions hereunder (i) conducts any business or
engages in making or receiving any contribution of funds, goods or services to
or for the benefit of any Blocked Person, or (ii) deals in, or otherwise engages
in any transaction relating to, any property or interests in property blocked
pursuant to the Executive Order No. 13224.

 

5.27         Valid Issuance of the Notes.  The Notes, when issued, sold and
delivered in accordance with the terms hereof for the consideration expressed
herein, will be duly and validly authorized and issued and free of restrictions
on transfer, other than restrictions imposed under this Agreement and applicable
securities laws.  Based in part upon the representations of the Note Purchasers
in Section 4, the Notes will be issued in compliance with all United States
securities laws.

 

5.28         Private Placement.  Assuming the truth and accuracy of the Note
Purchasers’ representations set forth in Section 4.3 of this Agreement, the
initial offer, sale and issuance of the Notes to the Note Purchasers as
contemplated by this Agreement is exempt from the prospectus and registration
requirements of the Securities Act.  Neither the Issuer nor any authorized agent
acting on its behalf of it will take any action hereafter that would cause the
loss of such exemption.

 

5.29         Transition Services Agreement.  No changes have been made to the
Transition Services Agreement or the Asset Purchase Agreement.

 

5.30         New Headquarters.  All liabilities relating to the New Headquarters
have been fully disclosed to the Note Purchasers and it is reasonably expected
that future liability will not exceed $2,000,000.  For the avoidance of doubt,
Capital Expenditures incurred after the Closing Date shall not be considered
liabilities for purposes of this Section 5.30.

 

5.31         Stock Options. All liabilities relating to the Stock Options have
been fully disclosed to the Note Purchasers.

 

5.32         License Agreements.  The Note Parties (as applicable) are in
compliance with the terms and conditions of the License Agreements and there is
no current litigation, threatened litigation or material disputes in respect of
any of the License Agreements.

 

5.33         Hoop Expenses.  Schedule 5.33 correctly sets forth the cash costs
actually incurred by the Note Parties and an estimate of reasonable projected
cash costs of the Note Parties relating to the Hoop bankruptcy proceedings and
the Hoop Sale.

 

5.34         Product Recall.  There has been no material product recall of any
of the products of the Note Parties.

 

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SECTION 6.  CLOSING CONDITIONS.

 

The obligation of each Note Purchaser to purchase and pay for the Notes provided
for hereunder is subject to the satisfaction or waiver by the Note Purchasers of
the following conditions, each as of the Closing Date:

 

6.1           Representations and Warranties; No Default.  All representations
and warranties of the Note Parties contained in this Agreement shall be true and
correct in all material respects, and there shall exist no Default or Event of
Default under any of the Note Documents or any other material agreement to which
any Note Party is a party as of the Closing Date, after giving effect to the
transactions contemplated hereby.

 

6.2           Use of Proceeds.  The proceeds from the issuance of the Notes
shall be used for the purposes set forth in Section 2.4.

 

6.3           Delivery of Documents.  The Note Purchasers shall have received
the following items, each of which shall be in form and substance reasonably
satisfactory to the Note Purchasers and, unless otherwise noted, dated the
Closing Date:

 

6.3.1.               Duly executed copies of this Agreement, the other Note
Documents to which any Note Party is a party, and the Notes issued in the names
of the respective Note Purchasers as set forth on Schedule I.

 

6.3.2.               Duly executed copies of the release agreement, settlement
agreement, settlement order and other documents related to the termination of
the Issuer’s agreements with the Disney Store, including any modifications or
amendments thereof (the “Disney Store Termination Agreements”), which shall each
be in a form acceptable to the Note Purchasers in their sole discretion.

 

6.3.3.               Duly executed copies of the Revolving Loan Documents.

 

6.3.4.               Resolutions of the board of directors or other equivalent
governing body of each Note Party, approving the transactions contemplated by
this Agreement and each other Note Document to which such Note Party is a party,
and approving and authorizing the execution, delivery and performance of this
Agreement and each of the other Note Documents to which it is a party and
approving and authorizing, as applicable, the issuance and sale of the Notes,
the execution, delivery and payment of the Notes, in each case, certified as of
the Closing Date by such party’s Secretary or an Assistant Secretary or other
equivalent officer as being in full force and effect without modification or
amendment.

 

6.3.5.               A certificate of the Secretary or an Assistant Secretary or
other equivalent officer of each Note Party, dated the Closing Date, as to the
incumbency and signature of the officers of each Note Party executing this
Agreement, any certificate or other documents to be delivered by it pursuant
hereto, together with evidence of the incumbency of such Secretary or Assistant
Secretary or other equivalent officer;

 

6.3.6.               A copy of a certificate of the Secretary of State,
Registrar or similar Governmental Authority of the jurisdiction of organization
of each Note Party, dated as of a recent

 

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date prior to the Closing Date, and certifying that (i) if applicable, each Note
Party has paid all franchise taxes due as of the date of such certificate, and
(ii) each Note Party is duly organized and (to the extent applicable in its
jurisdiction of organization) in good standing under the laws of the
jurisdiction of its organization.

 

6.3.7.               A certificate of each Note Party signed on its behalf by an
officer or manager duly authorized, dated the Closing Date (the statements made
in which certificate shall be true on and as of such date) listing all Governing
Documents of such Persons, including any amendments thereto, certifying that
(i) such copies are true and correct copies of the (A) Governing Documents and
all amendments thereto, (B) its bylaws as in effect on the Closing Date (which
shall be reasonably satisfactory to the Note Purchasers in all respects), (C) a
good standing certificate with respect to such Person issued by the Secretary of
State of the jurisdiction of its organization, (ii) there has not been any
proceeding for the dissolution or liquidation of such Person, (iii) the
representations and warranties of the Note Parties contained in this Agreement
are true in all respects as of the Closing Date (except to the extent that such
representation or warranty expressly relates to an earlier date and except for
representations and warranties that are not qualified by materiality, which are
true in all material respects), (iv) no event has occurred and is continuing or
would result from the transactions contemplated under this Agreements, that
constitutes a Default or an Event of Default, (v) the Note Parties on a
consolidated basis are Solvent, (vi) such Person is in compliance with all terms
of this Agreement as of the Closing Date (except for representations and
warranties in Section 5 that are not qualified by materiality, which are true in
all material respects), (vii) the conditions specified in Section 6 have been
fulfilled in all respects (except as expressly waived in writing by the
Collateral Agent) and (viii) such Person is duly qualified and in good standing
as a foreign corporation in each state or other jurisdiction and has filed all
annual reports required to be filed to the date of such certificate, except to
the extent such failure to be duly qualified and in good standing as a foreign
corporation could not reasonably, individually or in the aggregate, be expected
to have a Material Adverse Effect.

 

6.3.8.               [Reserved]

 

6.3.9.               A favorable opinion of Gibson, Dunn & Crutcher LLP, special
counsel to the Note Parties, addressed to the Note Purchasers covering such
matters as are typical to financings and such other matters as the Note
Purchasers shall reasonably request, and in form and substance satisfactory to
the Note Purchasers.

 

6.3.10.             A favorable opinion of Stroock & Stroock & Lavan LLP,
special counsel to the Note Parties, addressed to the Note Purchasers covering
such matters as are typical to financings and such other matters as the Note
Purchasers shall reasonably request, and in form and substance satisfactory to
the Note Purchasers.

 

6.3.11.             [Reserved]

 

6.3.12.             A favorable opinion of McGuireWoods LLP, Virginia counsel to
the Note Parties, addressed to the Note Purchasers covering such matters as the
Note Purchasers shall reasonably request, and in form and substance satisfactory
to the Note Purchasers.

 

6.3.13.             The Note Purchasers shall have received a copy of the
Projections, and such are in form and substance satisfactory to the Note
Purchasers.

 

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6.3.14.             The Note Purchasers shall have received written instructions
from the Issuer directing the application of proceeds of the Notes made pursuant
to this Agreement.

 

6.3.15.             All corporate and other proceedings, and all documents,
instruments and other legal matters in connection with the Transactions shall be
reasonably satisfactory in form and substance to the Note Purchasers and their
counsel.

 

6.3.16.             A letter from the Note Parties to their independent auditors
authorizing the independent certified public accountants of the Note Parties to
communicate with the Collateral Agent.

 

6.3.17.             Certificate of insurance for each Note Party, copies of the
property, casualty, liability and business interruption insurance policies for
each Note Party (if any) and copies of  liability insurance policies for each
Note Party (if any) as required pursuant to Section 7.9.

 

6.3.18.             Each applicable Note Party shall have duly authorized,
executed and delivered such other certificates, instruments, agreements and
other documents and papers reasonably requested by the Note Purchasers in
connection with the transactions contemplated hereby in form and substance
satisfactory to such Note Purchasers.

 

6.3.19.         A duly executed intellectual property security agreement dated
the Closing Date and signed by each Note Party which owns licenses, trademarks,
or copyrights, in form and substance reasonably satisfactory to the Purchasers,
together with all instruments, documents and agreements executed pursuant
thereto.

 

6.3.20.         As soon as practicable and not later than 30 days after the
closing date, the Issuer shall make commercially reasonable efforts to obtain a
duly executed landlord consent from each landlord that executed such a consent
in favor of the Revolving Agent permitting the Collateral Agent to remove the
personal property of the Note Parties from each relevant location owned by such
landlord, reasonably satisfactory in form and substance to the Collateral Agent,
in its sole discretion.

 

6.4           Corporate/Capital Structure.  The Note Purchasers shall be
satisfied with the ownership, corporate and legal structure and capitalization
of the Note Parties, including, without limitation, the terms and conditions of
any Capital Stock, options, warrants or other securities issued by the Note
Parties and any agreements related thereto.

 

6.5           Authorizations, Consents and Approvals.  Each Note Party shall
have received any and all necessary authorizations, consents and approvals and
shall have made any and all filings and shall have satisfied all applicable
waiting periods necessary in connection with the consummation of the
Transactions and the other transactions contemplated by this Agreement and the
other Note Documents.

 

6.6           No Material Adverse Effect.  Nothing shall have occurred (and the
Note Purchasers shall not be aware of any facts or conditions not previously
known) which the Note Purchasers shall, in their sole discretion, determine has
or could be reasonably expected to have, a Material Adverse Effect.  There shall
not have occurred any fact, circumstance, change, effect or occurrence or event
of default that has a Material Adverse Effect.

 

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6.7           Litigation.  There shall exist no action, suit, investigation,
litigation or proceeding affecting the Note Parties or any of its properties
pending or, to any Note Parties’ knowledge threatened, before any court,
governmental agency or arbitrator that, in the determination of the Note
Purchasers, (i) purports to affect the legality, validity or enforceability of
this Agreement, the Notes, or any other Note Document or the transactions
contemplated hereby and thereby or (ii) purports to restrain, enjoin or
otherwise prohibit or impose material adverse limitations on the consummation of
the Transactions.  No order, judgment or decree of any court, arbitrator or
governmental body shall enjoin or restrain the Note Purchasers from acquiring
the Notes or from making the loans evidenced by the Notes.

 

6.8           Disclosure.  All factual information furnished by or on behalf of
the Note Parties and their parent companies in writing to the Note Purchasers or
the Collateral Agent (including this Agreement and any exhibits, schedules or
certificates made or delivered in connection herewith (other than any proposed
budgets and projections)), taken as a whole, are true and correct in all
material respects as of the date on which they were dated or certified and do
not omit to state a material fact necessary to make the statements herein or
therein, when taken as a whole, not misleading in any material respect, in light
of the circumstances under which they were made, which has not been corrected or
amended prior to the execution of this Agreement.

 

6.9           Due Diligence.  The Note Purchasers shall have completed their
business, legal, and collateral due diligence, including but not limited to
(a) a review of any Material Contracts, (b) a review of an appraisal of the
Issuer’s intellectual property reflecting a net orderly liquidation value of
$40,000,000, in each case, the results of which, shall be satisfactory to Note
Purchasers in their sole discretion;

 

6.10         Hoop Bankruptcy.  The Note Purchasers shall be satisfied with the
terms and implementation of the bankruptcy proceeding of Hoop and, in
particular, with any amounts to be funded by the Issuer and with any retained
liability of the Issuer;

 

6.11         Transition Services Agreement and HOOP Sale.  The Note Purchasers
shall, in their sole discretion, be satisfied with the terms of the Transition
Services Agreement and the Hoop Sale;

 

6.12         New Headquarters.  The Note Parties shall have fully disclosed to
the Note Purchasers all liabilities relating to the New Headquarters and the
Note Purchasers shall be satisfied, in their sole discretion, that no other
liabilities exist or are expected to arise in respect of same;

 

6.13         Stock Options.  The Note Parties shall have fully disclosed to the
Note Purchasers all liabilities relating to the Stock Options and all such
liabilities could not reasonably be expected to have a Material Adverse Effect;

 

6.14         Other Fees and Expenses.  On the Closing Date, all reasonable
expenses of the Note Purchasers (including, without limitation, reasonable legal
fees and expenses) incurred in connection with the negotiation and execution of
this Agreement and the other Note Documents shall have been paid by the Issuer.

 

6.15         Ancillary Documents.  Each applicable Note Party shall have
delivered to the Collateral Agent any side letters or agreements relating to the
Transactions not previously disclosed to the Collateral Agent between the Note
Parties or their Affiliates and any of the Revolving

 

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Lenders, any Affiliates of the foregoing or any other third party (other than
any fee letters relating to the fees payable under the Revolving Loan Debt).

 

6.16         Senior Credit.  All of the closing conditions set forth in the
Revolving Loan Agreement shall have been satisfied (other than the consummation
of the purchase and sale of the Notes) and the transactions contemplated thereby
have been consummated concurrently with the consummation of the purchase of the
Notes.  The terms, commitment amount and availability at closing of the
Revolving Loan Debt shall be in form and substance satisfactory to the Note
Purchasers.

 

6.17         Closing Date Total Leverage Ratio.  The Note Parties and their
Subsidiaries shall have a Closing Date Total Leverage Ratio (as defined in
Schedule 7.16(b)) that is not greater than 2.5 to 1.00.

 

6.18         Existing Indebtedness.  After giving effect to the transactions
contemplated by this Agreement, none of the Note Parties shall have outstanding
any Indebtedness, other than the Note Obligations, the Indebtedness set forth on
Schedule 5.8.5 and Permitted Indebtedness.

 

6.19         Perfection of Security.  Each Note Party shall have duly
authorized, executed, acknowledged and delivered such security agreements,
notices, memoranda of intellectual property security interests and other
instruments as the Note Purchasers may have reasonably requested, and shall have
authorized the filing of financing statements, all in order to perfect the Liens
purported or required pursuant to this Agreement, the Security Agreement or any
other Note Document to be created in the Collateral and hereby agrees to pay or
shall have paid all filing or recording fees or taxes required to be paid in
connection with the filing, registration or recordation thereof, including any
recording, mortgage, documentary, transfer or intangible taxes.

 

6.20         Monitoring Fee.  The Collateral Agent shall have received the
Monitoring Fee payable on the Closing Date.

 

SECTION 7.  AFFIRMATIVE COVENANTS

 

Until payment in full of the Note Obligations, the Note Parties shall, and
(except in the case of the covenants set forth in Sections 7.2, 7.3, and 7.5)
cause each Subsidiary to:

 

7.1           Payment of Note Obligations.  Subject to the terms and conditions
of the Intercreditor Agreement, duly and punctually pay the principal, interest
and any other amounts owing under this Agreement and the Notes when due under
the terms of this Agreement, and each Note Party will observe and comply with
all other requirements applicable to it pursuant to this Agreement and the other
Note Documents.

 

7.2           Financial Statements.  Deliver to the Collateral Agent, in form
and detail satisfactory to the Collateral Agent:

 

7.2.1.               as soon as available, but in any event within ninety (90)
days after the end of each Fiscal Year of the Issuer (commencing with the Fiscal
Year ending in January 2009), a Consolidated and consolidating balance sheet of
the Issuer and its Subsidiaries as at the end of such Fiscal Year, the related
Consolidated and consolidating statements of income or operations and
Shareholders’ Equity and the related Consolidated statement of cash flows (with
consolidating

 

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reconciliation of cash from the balance sheet to the statement of cash flows
that is reasonably acceptable to the Collateral Agent) for such Fiscal Year,
setting forth in each case in, but only with respect to the Consolidated
statements, comparative form the figures for (i) the previous Fiscal Year and
(ii) such period set forth in the projections delivered pursuant to
Section 7.2.3, all in reasonable detail and prepared in accordance with GAAP,
such Consolidated, and where relevant consolidating statements to be audited and
accompanied by (a) a report and unqualified opinion of BDO Seidman, LLP or
another public accounting firm of nationally recognized standing reasonably
acceptable to the Collateral Agent, which report and opinion shall be prepared
in accordance with generally accepted auditing standards and shall not be
subject to any “going concern” or like qualification or exception or any
qualification or exception as to the scope of such audit or any qualification
which relates to the treatment or classification of any item and which, as a
condition to the removal of such qualification, would require an adjustment to
such item, the effect of which would cause any noncompliance with the provisions
of Section 7.16; (b) an opinion of such public accounting firm independently
assessing the Note Parties’ internal controls over financial reporting in
accordance with Item 308 of SEC Regulation S-K, PCAOB Auditing Standard No. 2,
and Section 404 of Sarbanes-Oxley expressing a conclusion that contains no
statement that there is a material weakness in such internal controls, except
for such material weaknesses as to which the Collateral Agent does not object
and (c) as to statements not covered by an audit, certification by a Responsible
Officer of the Issuer to the effect that such statements are fairly stated in
all material respects when considered in relation to the Consolidated and
consolidating financial statements of the Issuer and its Subsidiaries;

 

7.2.2.               as soon as available, but in any event within thirty (30)
days after the end of each Fiscal Month of each Fiscal Year of the Issuer
(except with respect to the last Fiscal Month of each Fiscal Quarter, with
respect to which the applicable period for delivery shall be forty-five (45)
days rather than thirty (30) days), a Consolidated and consolidating balance
sheet of the Issuer and its Subsidiaries as at the end of such Fiscal Month, the
related Consolidated and consolidating statements of income or operations (and
with respect to the last Fiscal Month of each Fiscal Quarter, Shareholders’
Equity) and the related Consolidated statement of cash flows (with consolidating
reconciliation of cash from the balance sheet to the statement of cash flows
that is reasonably acceptable to the Collateral Agent) for such Fiscal Month,
and for the portion of the Fiscal Year then ended, setting forth in each case
in, but only with respect to the Consolidated statements, comparative form the
figures for (i) such period set forth in the projections delivered pursuant to
Section 7.2.3 hereof, (ii) the corresponding Fiscal Month of the previous Fiscal
Year, and (iii) the corresponding portion of the previous Fiscal Year, all in
reasonable detail, such Consolidated, and where relevant consolidating
statements to be certified by a Responsible Officer of the Issuer as fairly
presenting the financial condition, results of operations and cash flows of the
Issuer and its Subsidiaries as of the end of such Fiscal Month in accordance
with GAAP, subject only to normal year-end audit adjustments and the absence of
footnotes;

 

7.2.3.               as soon as available, but in any event (i) on or before
January 31st of each Fiscal Year of the Issuer, a preliminary month-by-month
business plan for the following Fiscal Year prepared by management of the Issuer
and reviewed by the board of directors of the Issuer, and (ii) on or before
March 1st of each Fiscal Year of the Issuer, a final month-by-month business
plan for such Fiscal Year prepared by management of the Issuer (which final
business plan shall be approved by the board of directors of the Issuer by
March 31st of such Fiscal Year), in each case the form of which shall be
substantially similar to the business plan for the Fiscal Year ended on or about
January 31, 2009 and the substance of which shall be reasonably satisfactory to
the Collateral Agent, for such Fiscal Year; provided that, if the Issuer
delivers a business plan that is not reasonably

 

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satisfactory to the Collateral Agent, but that otherwise complies with this
Section 7.2.3, this Section 7.2.3 shall be deemed to be satisfied to the extent
that the Issuer delivers a business plan reasonably satisfactory to the
Collateral Agent on or before March 31 of such Fiscal Year.

 

7.3           Certificates; Other Information.  Deliver to the Collateral Agent,
in form and detail satisfactory to the Collateral Agent:

 

7.3.1.               concurrently with the delivery of the financial statements
referred to in Section 7.2.1, a certificate of its public accounting firm, to
the extent permitted by its internal policies, certifying such financial
statements and stating that, in making the examination necessary for their
certification of such financial statements, such public accounting firm has not
obtained any knowledge of the existence of any Event of Default under Section 9
or, if any such Event of Default shall exist, stating the nature and status of
such event;

 

7.3.2.               concurrently with the delivery of the financial statements
referred to in Section 7.2.2, (i) a duly completed Compliance Certificate signed
by a Responsible Officer of the Issuer, which shall include a certification as
to the amount, if any, of rent under any Leases and any Taxes that have not been
timely paid, and (ii) a copy of management’s analysis with respect to such
financial statements, which analysis shall be consistent with the analysis
previously provided by the Issuer under the Existing Credit Agreement.  In the
event of any change in generally accepted accounting principles used in the
preparation of such financial statements, the Issuer shall also provide a
statement of reconciliation conforming such financial statements to GAAP;

 

7.3.3.               concurrently with the filing thereof (or upon the request
of the Collateral Agent or its auditors, appraisers, accountants, consultants or
other representatives), copies of each of the Issuer’s federal income tax
returns, and any amendments thereto;

 

7.3.4.               promptly upon receipt, copies of any detailed audit
reports, management letters or recommendations submitted to the board of
directors (or the audit committee of the board of directors) of any Note Party
by its public accounting firm in connection with the accounts or books of the
Note Parties or any Subsidiary, or any audit of any of them, in each case to the
extent permitted by the policies of its public accounting firm at such time;

 

7.3.5.               promptly after the same are available, copies of each
annual report, proxy or financial statement, or other document, report or
communication sent to the stockholders of the Note Parties, and copies of all
annual, regular, periodic and special reports and registration statements which
any Note Party may file or be required to file with the SEC under Section 13 or
15(d) of the Securities Exchange Act of 1934 or with any national securities
exchange, and in any case not otherwise required to be delivered to the
Collateral Agent pursuant hereto;

 

7.3.6.               the financial and collateral reports described on Schedule
7.3 hereto, at the times set forth in such Schedule;

 

7.3.7.               promptly after the furnishing thereof, (i) copies of any
statement or report furnished to any holder of debt securities of any Note Party
or any Subsidiary thereof pursuant to the terms of any indenture, loan or credit
or similar agreement and (ii) copies of all notices and other communications
received or delivered by a Note Party with respect to the Revolving Loan
Documents (i) which indicate a breach or default of any such document, or
(ii) which constitute a notice under Section 6.03 (Notices) of the Revolving
Loan Agreement (to the extent not otherwise

 

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already provided to the Collateral Agent), in each case not otherwise required
to be furnished to the Note Purchasers pursuant to Section 7.2 or any other
clause of this Section 7.3;

 

7.3.8.               as soon as available, but in any event within 30 days after
the end of each Fiscal Year of the Note Parties (or upon the request of the
Collateral Agent or its auditors, appraisers, accountants, consultants or other
representatives), (i) a certificate executed by an authorized officer of the
Issuer certifying the existence and adequacy of the property and casualty
insurance program carried by the Note Parties and their Subsidiaries, and (ii) a
written summary of said program identifying the name of each insurer, the number
of each policy and expiration date of each policy, the amounts and types of each
coverage, and a list of exclusions and deductibles for each policy;

 

7.3.9.               promptly, and in any event within five Business Days after
receipt thereof by any Note Party or any Subsidiary thereof, copies of each
notice or other correspondence received from any Governmental Authority
(including, without limitation, the SEC (or comparable agency in any applicable
non-U.S. jurisdiction)) concerning any proceeding with, or investigation or
possible investigation or other inquiry by such Governmental Authority regarding
financial or other operational results of any Note Party or any Subsidiary
thereof or any other matter which, if adversely determined, could reasonably be
expected to have a Material Adverse Effect;

 

7.3.10.             as soon as available and in any event within 90 days after
the end of each Fiscal Year,  computations by the Note Parties demonstrating, as
of the end of such Fiscal Year, compliance with Sections 7.16, inclusive, and
setting forth the amount of the available basket under Section 3.2.4.1 and
computations supporting adjustments to or use of the same during such period;

 

7.3.11.             (i) as soon as available and in any event within 45 days
after the end of each Fiscal Quarter, computations by the Issuer demonstrating,
as of the end of such quarter, compliance with Section 7.16 (such computation
including, during such time period, any asset sales under Section 8.5 or the
application Net Cash Proceeds), and setting forth the amount of the available
basket under Section 3.2.4.1 and computations supporting any adjustments to or
use of the same during such period and (ii) as soon as available and in any
event with 30 days after the end of each of the Fiscal Months ending November 30
and December 31, computations by the Issuer demonstrating, as of the end of such
Fiscal Month, compliance with Section 3.1 of Schedule 7.16;

 

7.3.12.             on the first Wednesday of each Fiscal Month (or, if such day
is not a Business Day, on the next succeeding Business Day), a copy of the most
recently prepared borrowing base certificate in the form delivered pursuant to
Section 6.02(c) of the Revolving Loan Agreement;

 

7.3.13.             within 30 days after the end of each Fiscal Month, a report
setting forth the monthly sales figures on a store-by-store basis for such
Fiscal Month and, as to each store, a year-over-year comparison percentage with
respect to the relevant portion of the previous Fiscal Year, and (y) within 45
days after the end of each Fiscal Quarter, a report setting forth the quarterly
contributions analysis broken down on a store-by-store basis;

 

7.3.14.             upon request by any Note Purchaser, a report of revenue
derived from the Licensing Agreements;

 

7.3.15.             copies of any physical inventories conducted under
Section 6.15 of the Revolving Loan Agreement;

 

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7.3.16.             upon request by any Note Purchaser, copies of any reports
delivered to the Revolving Lenders pursuant to the Revolving Loan Agreement; and

 

7.3.17.             promptly, such additional information regarding the business
affairs, financial condition or operations of any Note Party or any Subsidiary,
or compliance with the terms of the Note Documents, as the Collateral Agent or
any Note Purchaser may from time to time reasonably request.

 

Financial statements required to be delivered pursuant to Section 7.3.5 (to the
extent any such documents are included in materials otherwise filed with the
SEC) may be delivered electronically and if so delivered, shall be deemed to
have been delivered on the date (i) on which the Issuer posts such documents, or
provides a link thereto on the Issuer’s website on the Internet at the website
address listed in Section 13.7; or (ii) on which such documents are posted on
the Issuer’s behalf on EDGAR or another Internet or intranet website, if any, to
which each Note Purchaser and the Collateral Agent have access (whether a
commercial, third-party website or whether sponsored by the Collateral Agent);
provided that: (i) the Issuer shall deliver paper copies of such documents to
the Collateral Agent or any Note Purchaser that requests the Issuer to deliver
such paper copies until a written request to cease delivering paper copies is
given by the Collateral Agent or such Note Purchaser and (ii) the Issuer shall
notify the Collateral Agent and each Note Purchaser (by facsimile or electronic
mail) of the posting of any such documents and provide to the Collateral Agent
by electronic mail electronic versions (i.e., soft copies) of such documents. 
Notwithstanding anything contained herein, in every instance, the Issuer shall
be required to provide paper copies of the Compliance Certificates required by
Section 7.3.2 to the Collateral Agent.  The Collateral Agent shall have no
obligation to request the delivery or to maintain copies of the documents
referred to above, and in any event shall have no responsibility to monitor
compliance by the Note Parties with any such request for delivery, and each Note
Purchaser shall be solely responsible for requesting delivery to it or
maintaining its copies of such documents.

 

7.4           Other Information; Audit.  From time to time at reasonable
intervals upon request of the Collateral Agent, furnish to the Collateral Agent
and such Note Purchaser such other information regarding the business, assets,
financial condition, or income of the Note Parties (i) as the Collateral Agent
may reasonably request, including copies of all tax returns, licenses,
agreements, leases and instruments to which any of the Note Parties is party,
and (ii) copies of any information delivered to the Revolving Agent as furnished
to under Section 6.14 (Information Regarding the Collateral) of the Revolving
Loan Agreement.

 

7.5           Notices.  Promptly notify the Collateral Agent:

 

7.5.1.               of the occurrence of any Default or Event of Default;

 

7.5.2.               of (x) any litigation or any administrative or arbitration
proceeding which creates a material risk of resulting, after giving effect to
any applicable insurance, in the payment by the Note Parties and their
Subsidiaries of more than $1,000,000, (y) any undischarged or unpaid judgments
or decrees in excess of $2,500,000, singly or in the aggregate, or (z) of any
matter that has resulted or could reasonably be expected to result in a Material
Adverse Effect, including (i) breach or non-performance of, any default under,
or termination of, a Material Contract or with respect to Material Indebtedness
of any Note Party or any Subsidiary thereof; (ii) any dispute, litigation,
investigation, proceeding or suspension between any Note Party or any Subsidiary
thereof and any Governmental Authority; or (iii) the commencement of, or any
material development in, any

 

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litigation or any administrative or arbitration proceeding affecting any Note
Party or any Subsidiary thereof, including pursuant to any applicable
Environmental Laws;

 

7.5.3.               of any undischarged or unpaid judgments or decrees in
excess of $3,000,000, individually or in the aggregate;

 

7.5.4.               of the occurrence of any ERISA Event;

 

7.5.5.               of any material change in accounting policies or financial
reporting practices by any Note Party or any Subsidiary thereof;

 

7.5.6.               of any change in any Note Party’s senior executive
officers;

 

7.5.7.               of the discharge by any Note Party of its present public
accounting firm or any withdrawal or resignation by such public accounting firm;

 

7.5.8.               of any collective bargaining agreement or other labor
contract to which a Note Party becomes a party, the application for the
certification of a collective bargaining agent, or any labor negotiations or
strikes;

 

7.5.9.               of the filing of any Lien for unpaid Taxes against any Note
Party;

 

7.5.10.             of any casualty or other insured damage to any material
portion of the Collateral or the commencement of any action or proceeding for
the taking of any interest in a material portion of the Collateral under power
of eminent domain or by condemnation or similar proceeding or if any material
portion of the Collateral is damaged or destroyed; and

 

7.5.11.             of any failure by any Note Party to pay rent at (i) ten
percent (10%) or more of such Note Party’s locations or (ii) any of such Note
Party’s locations if such failure continues for more than ten (10) days
following the day on which such rent first came due and such failure would be
reasonably likely to result in a Material Adverse Effect.

 

Each notice pursuant to this Section 7.5 shall be accompanied by a statement of
a Responsible Officer of the Issuer setting forth details of the occurrence
referred to therein and stating what action the Issuer has taken and proposes to
take with respect thereto.  Each notice pursuant to Section 7.5.1 shall describe
with particularity any and all provisions of this Agreement and any other Note
Document that have been breached.

 

7.6           Payment of Liabilities.  Pay and discharge in full as the same
shall become due and payable, all its obligations and liabilities, including
(i) all tax liabilities, assessments and governmental charges or levies upon it
or its properties or assets, (ii) all lawful claims (including, without
limitation, claims for labor, materials and supplies and claims of landlords,
warehousemen, customs brokers, and carriers) which, if unpaid, would by law
become a Lien upon its property (other than a Permitted Encumbrance), and
(iii) all Indebtedness, as and when due and payable, but subject to any
subordination provisions contained in any instrument or agreement evidencing
such Indebtedness, except, in each case, where (a) the validity or amount
thereof (other than payroll taxes or taxes that are the subject of a United
States federal tax lien) is being contested in good faith by appropriate
proceedings diligently conducted, (b) such Note Party has set aside on its books
adequate reserves with respect thereto in accordance with GAAP, (c) such contest
effectively suspends collection of the contested obligation and enforcement of
any Lien securing such

 

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obligation, and (d) the failure to make payment pending such contest could not
reasonably be expected to result in a Material Adverse Effect.  The Issuer will,
upon request, furnish the Collateral Agent with proof satisfactory to the
Collateral Agent indicating that the applicable Person has made the payments or
deposits described in clause (i), (ii) and (iii) above.  Each Note Party shall,
and shall cause each of its Subsidiaries to, pay in conformity with its
customary practice all accounts payable incident to the operations of such
Person not referred to in this Section 7.6, above.

 

7.7           Preservation of Existence, Etc.  Preserve, renew and maintain in
full force and effect its legal existence and good standing under the Laws of
the jurisdiction of its organization or formation except in a transaction
permitted by Section 8.4 or 8.5.

 

7.8           Maintenance of Properties.

 

7.8.1.               Keep its properties in such repair, working order and
condition, and shall from time to time make such repairs, replacements,
additions and improvements thereto, as are reasonably necessary for the
efficient operation of its business and shall comply at all times in all
material respects with all material franchises, licenses and leases to which it
is party so as to prevent any loss or forfeiture thereof or thereunder, except
where (i) compliance is at the time being contested in good faith by appropriate
proceedings and (ii) failure to comply with the provisions being contested has
not resulted, and which, in the aggregate, could not reasonably be expected to
have a Material Adverse Effect.

 

7.8.2.               Take all reasonable actions to possess and maintain all
Intellectual Property material to the conduct of their respective businesses and
own all right, title and interest in and to, or have a valid license for, all
such Intellectual Property.  No Note Party nor any of its Subsidiaries shall
take any action, or fail to take any action, that could reasonably be expected
to (i) result in the invalidity, abandonment, misuse, lapse, or unenforceability
of Intellectual Property which is material to the conduct of the business of the
Note Parties or (ii) knowingly infringe upon or misappropriate any rights of
other Persons.

 

7.8.3.               Do all things reasonably necessary in order to comply with
all Environmental Laws at any Real Property or otherwise in connection with
their operations noncompliance with which could reasonably be expected to cause
a Material Adverse Effect, and obtain all permits and other governmental
authorizations for their operations under applicable Environmental Laws other
than such permits and other authorizations the failure of which to obtain could
not, individually or in the aggregate, reasonably be expected to cause a
Material Adverse Effect.

 

7.9           Maintenance of Insurance.

 

7.9.1.               Maintain with financially sound and reputable insurance
companies reasonably acceptable to the Collateral Agent and not Affiliates of
the Note Parties, insurance with respect to its properties and business against
loss or damage of the kinds customarily insured against by Persons engaged in
the same or similar business and operating in the same or similar locations or
as is required by applicable Law, of such types and in such amounts as are
customarily carried under similar circumstances by such other Persons and as are
reasonably acceptable to the Collateral Agent.  None of the Note Purchasers, or
their agents or employees shall be liable for any loss or damage insured by the
insurance policies required to be maintained under this Section 7.9.  Each Note
Party shall look solely to its insurance companies or any other parties other
than the Note Purchasers for

 

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the recovery of such loss or damage and such insurance companies shall have no
rights of subrogation against the Note Purchasers or its agents or employees. 
If, however, the insurance policies do not provide waiver of subrogation rights
against such parties, as required above, then the Note Parties hereby agree, to
the extent permitted by law, to waive their right of recovery, if any, against
the Note Purchasers and their agents and employees.  The designation of any
form, type or amount of insurance coverage by any Note Purchaser under this
Section 7.9 shall in no event be deemed a representation, warranty or advice by
such Note Purchaser that such insurance is adequate for the purposes of the
business of the Note Parties or the protection of their properties.

 

7.9.2.               Fire and extended coverage policies maintained with respect
to any Collateral shall be endorsed or otherwise amended to include (i) a
non-contributing mortgage clause (regarding improvements to real property) and
lenders’ loss payable clause (regarding personal property), in form and
substance satisfactory to the Collateral Agent, which endorsements or amendments
shall provide that the insurer shall pay all proceeds otherwise payable to the
Note Parties under the policies directly to the Collateral Agent, (ii) a
provision to the effect that none of the Note Parties, Credit Parties or any
other Person shall be a co-insurer and (iii) such other provisions as the
Collateral Agent may reasonably require from time to time to protect the
interests of the Credit Parties. Commercial general liability policies shall be
endorsed to name the Collateral Agent as an additional insured. Business
interruption policies shall name the Collateral Agent as a loss payee and shall
be endorsed or amended to include (i) a provision that, from and after the
Closing Date, the insurer shall pay all proceeds otherwise payable to the Note
Parties under the policies directly to the Collateral Agent, (ii) a provision to
the effect that none of the Note Parties, the Collateral Agent or any other
party shall be a co-insurer and (iii) such other provisions as the Collateral
Agent may reasonably require from time to time to protect the interests of the
Credit Parties. Each such policy referred to in this Section 7.9.2 shall also
provide that it shall not be canceled, modified or not renewed (i) by reason of
nonpayment of premium, except upon not less than ten (10) days’ prior written
notice thereof by the insurer to the Collateral Agent (giving the Collateral
Agent the right to cure defaults in the payment of premiums) or (ii) for any
other reason, except upon not less than thirty (30) days’ prior written notice
thereof by the insurer to the Collateral Agent. The Issuer shall deliver to the
Collateral Agent, prior to the cancellation, modification or non-renewal of any
such policy of insurance, a copy of a renewal or replacement policy (or other
evidence of renewal of a policy previously delivered to the Collateral Agent,
including an insurance binder) together with evidence satisfactory to the
Collateral Agent of payment of the premium therefor.

 

7.9.3.               Permit any representatives that are designated by the
Collateral Agent to inspect the insurance policies maintained by or on behalf of
the Note Parties and to inspect books and records related thereto and any
properties covered thereby.  The Note Purchasers shall pay the reasonable fees
and expenses of any representatives retained by the Collateral Agent to conduct
any such inspection.

 

7.10         Compliance with Laws.  Comply in all material respects with the
requirements of all Laws and all orders, writs, injunctions and decrees
applicable to it or to its business or property, except in such instances in
which (a) such requirement of Law or order, writ, injunction or decree is being
contested in good faith by appropriate proceedings diligently conducted and with
respect to which adequate reserves have been set aside and maintained by the
Note Parties in accordance with GAAP; (b) such contest effectively suspends
enforcement of the contested Laws, and (c) the failure to comply therewith could
not reasonably be expected to have a Material Adverse Effect.

 

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7.11         Books and Records; Accountants.

 

7.11.1.             (i) Maintain proper books of record and account, in which
full, true and correct entries in conformity with GAAP consistently applied
shall be made of all financial transactions and matters involving the assets and
business of the Note Parties or such Subsidiary, as the case may be; and
(ii) maintain such books of record and account in material conformity with all
applicable requirements of any Governmental Authority having regulatory
jurisdiction over the Note Parties or such Subsidiary, as the case may be.

 

7.11.2.             At all times retain BDO Seidman, LLP or another public
accounting firm which is reasonably satisfactory to the Collateral Agent and
instruct such public accounting firm in writing to cooperate with, and be
available to, the Collateral Agent or its representatives to discuss the Note
Parties’ financial performance, financial condition, operating results,
controls, and such other matters, within the scope of the retention of such
public accounting firm, as may be raised by the Collateral Agent; provided that
the Issuer shall be entitled to participate in any such meetings or
discussions.  The Issuer hereby irrevocably authorizes and directs all auditors,
accountants, or other third parties to deliver to the Collateral Agent, at the
Issuer’s expense, copies of the Issuer’s financial statements, papers related
thereto, and other accounting records of any nature in their possession, and to
disclose to the Collateral Agent any information they may have regarding the
Collateral or the financial condition of the Issuer, in each case to the extent
permitted by the policies of its public accounting firm or other third party at
such time; provided that the Issuer shall be entitled to be provided with copies
of any such financial statements, papers, accounting records or disclosures
contemporaneously therewith.

 

7.12         Inspection Rights; Appraisal Rights.

 

7.12.1.             Permit representatives and independent contractors of the
Collateral Agent to visit and inspect any of its properties, to examine its
corporate, financial and operating records, and make copies thereof or abstracts
therefrom, and to discuss its affairs, finances and accounts with its directors,
officers, and public accounting firm, all at the expense of the Note Parties and
at such reasonable times during normal business hours and as often as may be
reasonably desired, upon reasonable advance notice to the Issuer; provided,
however, that when an Event of Default has occurred and is continuing, the
Collateral Agent (or any of its representatives or independent contractors) may
do any of the foregoing at the expense of the Note Parties at any time during
normal business hours and without advance notice.

 

7.12.2.             Upon the request of the Collateral Agent, provide copies of
any appraisals, commercial finance examinations and other evaluations conducted
by the Revolving Agent to the Collateral Agent.  The Collateral Agent may, in
its discretion, at the expense of the Note Parties undertake up to one
Intellectual Property appraisal per Fiscal Year and an additional two
Intellectual Property appraisals over the term of the Note Obligations.
Notwithstanding anything to the contrary contained herein, the Collateral Agent
may cause additional inventory appraisals, commercial finance examinations, and
Intellectual Property appraisals to be undertaken (i) as it in its reasonable
discretion deems necessary or appropriate, at its own expense, or (ii) if
required by applicable Law or if a Default or Event of Default shall have
occurred and be continuing, at the expense of the Note Parties.

 

7.13         Use of Proceeds.  Use the proceeds of the Notes only for the
purposes set forth in Section 2.4.

 

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7.14         Formation of Subsidiaries.

 

7.14.1.             At the time that any Note Party forms any direct or indirect
Subsidiary or acquires any direct or indirect Subsidiary after the Closing Date
in accordance with Section 8.2, (a) cause such new Subsidiary (other than a
Subsidiary that is a CFC) to provide to the Collateral Agent a joinder to this
Agreement as a Guarantor and to the Security Agreement, in form and substance
satisfactory to the Collateral Agent, (b) cause the direct parent of each such
Subsidiary (if not the Issuer, as applicable) to pledge all of its equity
interests in such Subsidiary pursuant to the Security Agreement and to cause
each such Subsidiary to pledge its assets pursuant to the Security Agreement;
and (c) provide to the Collateral Agent all other documentation, including one
or more opinions of counsel satisfactory to the Collateral Agent, which in its
opinion is appropriate with respect to the execution and delivery of the
applicable documentation referred to above; provided, that, with respect to
clauses (a), (b) and (c), any newly acquired or formed Subsidiary that is a CFC
shall only pledge up to 65% of its voting Equity Interests and 100% of its
non-voting Equity Interests.  Any document, agreement, or instrument executed or
issued pursuant to this Section 7.14 shall be a Note Document.

 

7.14.2.             From and after the Closing, take such action as is
reasonably required by the Collateral Agent to grant or perfect a Security
Interest in any assets of such Note Party.  Such Lien in favor of the Collateral
Agent shall be senior and prior in right to all other Persons, except as
otherwise provided in Section 8.3 or the Intercreditor Agreement.

 

7.15         Information Regarding the Collateral.

 

7.15.1.             Furnish to the Collateral Agent at least thirty (30) days
prior written notice of any change in: (i) any Note Party’s name or in any trade
name used to identify it in the conduct of its business or in the ownership of
its properties; (ii) the location of any Note Party’s chief executive office,
its principal place of business, any office in which it maintains books or
records relating to Collateral owned by it or any office or facility at which
Collateral owned by it is located (including the establishment of any such new
office or facility); (iii) any Note Party’s organizational structure or
jurisdiction of incorporation or formation; or (iv) any Note Party’s Federal
Taxpayer Identification Number or organizational identification number assigned
to it by its state of organization. The Note Parties agree not to effect or
permit any change referred to in the preceding sentence unless all filings have
been made under the UCC or otherwise that are required in order for the
Collateral Agent to continue at all times following such change to have a valid,
legal and perfected first priority security interest in all the Collateral for
its own benefit and the benefit of the other Credit Parties.

 

7.15.2.             From time to time as may be reasonably requested by the
Collateral Agent, and not less than one time per Fiscal Year, the Issuer shall
supplement each Schedule hereto, or any representation herein or in any other
Note Document, with respect to any matter arising after the Closing Date that,
if existing or occurring on the Closing Date, would have been required to be set
forth or described in such Schedule or as an exception to such representation or
that is necessary to correct any information in such Schedule or representation
which has been rendered inaccurate thereby (and, in the case of any supplements
to any Schedule, such Schedule shall be appropriately marked to show the changes
made therein).  Notwithstanding the foregoing, no supplement or revision to any
Schedule or representation shall be deemed the Credit Parties’ consent to the
matters reflected in such updated Schedules or revised representations nor
permit the Note Parties to undertake any actions otherwise prohibited hereunder
or fail to undertake any action required

 

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hereunder from the restrictions and requirements in existence prior to the
delivery of such updated Schedules or such revision of a representation; nor
shall any such supplement or revision to any Schedule or representation be
deemed the Credit Parties’ waiver of any Default resulting from the matters
disclosed therein.

 

7.16         Financial Covenants.  The Note Parties will comply with the
covenants set forth on Schedule 7.16.

 

7.17         Physical Inventories.  Cause the Collateral Agent to receive copies
of the results of any physical inventory required or requested by the Revolving
Agent along with any related additional information provided to the Revolving
Agent in connection with the physical inventories.

 

7.18         Environmental Laws.  (a)  Conduct its operations and keep and
maintain its Real Estate in material compliance with all Environmental Laws;
(b) obtain and renew all environmental permits appropriate or necessary for its
operations and properties; and (c) implement any and all investigation,
remediation, removal and response actions that are necessary to maintain the
value and marketability of the Real Estate or to otherwise comply with
Environmental Laws pertaining to the presence, generation, treatment, storage,
use, disposal, transportation or release of any Hazardous Materials on, at, in,
under, above, to, from or about any of its Real Estate, provided, however, that
neither a Note Party nor any of its Subsidiaries shall be required to undertake
any such cleanup, removal, remedial or other action to the extent that its
obligation to do so is being contested in good faith and by proper proceedings
and adequate reserves have been set aside and are being maintained by the Note
Parties with respect to such circumstances in accordance with GAAP.

 

7.19         Further Assurances.

 

7.19.1.             Execute any and all further documents, financing statements,
agreements and instruments, and take all such further actions (including the
filing and recording of financing statements and other documents), that may be
required under any applicable Law, or which any Agent may request, to effectuate
the transactions contemplated by the Note Documents or to grant, preserve,
protect or perfect the Liens created or intended to be created by the Collateral
Documents or the validity or priority of any such Lien, all at the expense of
the Note Parties. The Note Parties also agree to provide to the Collateral
Agent, from time to time upon request, evidence satisfactory to the Collateral
Agent as to the perfection and priority of the Liens created or intended to be
created by the Collateral Documents.

 

7.19.2.             If any material assets are acquired by any Note Party after
the Closing Date (other than assets constituting Collateral under the Security
Agreement that become subject to the Lien of the Security Agreement upon
acquisition thereof), notify the Collateral Agent, and the Note Parties will
cause such assets to be subjected to a Lien securing the Note Obligations and
will take such actions as shall be necessary or shall be requested by any Agent
to grant and perfect such Liens, including actions described in Section 7.19.1,
all at the expense of the Note Parties. In no event shall compliance with this
Section 7.19 waive or be deemed a waiver or Consent to any transaction giving
rise to the need to comply with this Section 7.19 if such transaction was not
otherwise expressly permitted by this Agreement.

 

7.20         Compliance with Terms of Leaseholds.  Except as otherwise expressly
permitted hereunder (including, without limitation, in connection with Store
closings permitted pursuant to clause (b) of the definition of Permitted
Dispositions), make all payments and otherwise perform all

 

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obligations in respect of all Leases of real property to which any Note Party or
any of its Subsidiaries is a party, keep such Leases in full force and effect
and not allow such Leases to lapse or be terminated or any rights to renew such
leases to be forfeited or cancelled, notify the Collateral Agent of any default
by any party with respect to such Leases and cooperate with the Collateral Agent
in all respects to cure any such default, and cause each of its Subsidiaries to
do so, except, in any case, where the failure to do so, either individually or
in the aggregate, could not reasonably be expected to have a Material Adverse
Effect.

 

7.21         Material Contracts.  Perform and observe all the terms and
provisions of each Material Contract to be performed or observed by it, maintain
each such Material Contract in full force and effect, enforce each such Material
Contract in accordance with its terms, take all such action to such end as may
be from time to time requested by the Collateral Agent and, upon request of the
Collateral Agent, make to each other party to each such Material Contract such
demands and requests for information and reports or for action as any Note Party
or any of its Subsidiaries is entitled to make under such Material Contract, and
cause each of its Subsidiaries to do so, except, in any case, where the failure
to do so, either individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.

 

7.22         ERISA.

 

7.22.1.             Comply in all material respects with the applicable
provisions of ERISA or any other applicable federal, state, provincial, local or
foreign law dealing with such matters, except where the failure to comply could
reasonably be expected to result in a claim or liability against any Note Party
or its Affiliates of $3,000,000 or more.

 

7.22.2.             Pay and discharge promptly any liability imposed upon it
pursuant to the provisions of Title IV of ERISA; provided, however, that neither
any Note Party nor any ERISA Affiliate or any other Subsidiary of the Note
Parties shall be required to pay any such liability if (i) the amount,
applicability or validity thereof shall be diligently contested in good faith by
appropriate proceedings, and (ii) such Person shall have set aside on its books
reserves, in the opinion of the independent certified public accountants of such
Person, adequate with respect thereto.

 

7.22.3.             Deliver to the Collateral Agent, promptly, and in any event
within 20 days, after (i) the occurrence of any Reportable Event in respect of a
Plan, a copy of the materials that are filed with the PBGC, (ii) any Note Party
or any  ERISA Affiliate or an administrator of any Plan files with participants,
beneficiaries or the PBGC a notice of intent to terminate any such Plan, a copy
of any such notice, (iii) the receipt of notice by any Note Party or any ERISA
Affiliate or an administrator of any Plan from the PBGC of the PBGC’s intention
to terminate any Plan or to appoint a trustee to administer any such Plan, a
copy of such notice, (iv) the request by any Note Purchaser of copies of each
annual report that is filed on Treasury Form 5500 with respect to any Plan,
together with certified financial statements (if any) for the Plan and any
actuarial statements on Schedule B to such Form 5500, (v) any Note Party or any
ERISA Affiliate knows or has reason to know of any event or condition which
could reasonably be expected to constitute grounds under the provisions of
Section 4042 of ERISA for the termination of (or the appointment of a trustee to
administer) any Plan, an explanation of such event or condition, (vi) the
receipt by any Note Party or any ERISA Affiliate of an assessment of withdrawal
liability under Section 4201 of ERISA from a Multiemployer Plan, a copy of such
assessment, (vii) any Note Party or any ERISA Affiliate knows or has reason to
know of any event or condition which would reasonably be expected to cause any
one of them to incur a liability under Section 4062, 4063, 4064 or 4069 of ERISA
or Section 412(n)

 

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or 4971 of the Code, an explanation of such event or condition, or (viii) any
Note Party or any ERISA Affiliate knows or has reason to know that an
application is to be, or has been, made to the Secretary of the Treasury for a
waiver of the minimum funding standard under the provisions of Section 412 of
the Code, a copy of such application, and in each case described in clauses
(i) through (iii) and (v) through (vii) together with a statement signed by an
officer setting forth details as to such Reportable Event, notice, event or
condition and the action which such Note Party and any ERISA Affiliate proposes
to take with respect thereto.

 

7.23         Monitoring Fee.  Pay to the Collateral Agent the Monitoring Fee
when it is due and payable.

 

7.24         Senior Debt Document Terms.  To the extent that the Revolving Loan
Documents are amended, enter into an amendment to amend this Agreement to the
extent expressly permitted by the Intercreditor Agreement.

 

7.25         Post-Closing Matters.

 

7.25.1.             Concurrently with delivery to the Revolving Agent, the
Issuer shall deliver to the Collateral Agent: (i) a copy of the American Land
Title Association/American Congress on Surveying and Mapping form survey
provided to the Revolving Agent; (ii) an endorsement to the mortgage title
policy deleting the survey exception; (iii) evidence that all other actions that
the Collateral Agent may deem necessary or desirable in order to create valid
and subsisting Liens on the Alabama Property described in the mortgage prior in
right to all other Liens except the Lien in favor of the Revolving Agent and
Permitted Encumbrances having priority by operation of law has been taken and
(iv) a fully paid (or, as to which, evidence of the payment of the applicable
premium has been provided to the Collateral Agent) American Land Title
Association Lender’s Extended Coverage title insurance policy or marked-up title
commitment having the effect of a policy of title insurance in form and
substance, with endorsements and in an amount acceptable to the Collateral
Agent, issued by Stewart Title Guaranty Company, insuring the mortgage to be a
valid and subsisting Lien on the property described therein, free and clear of
all defects (including, but not limited to, mechanics’ and materialmen’s Liens)
and encumbrances, excepting only Permitted Encumbrances and other Liens
permitted under the Note Documents, and providing for such other affirmative
insurance (including endorsements for future advances under the Note Documents
and for zoning of the applicable property) and such coinsurance and direct
access reinsurance as the Collateral Agent may deem necessary or desirable.

 

SECTION 8.  NEGATIVE COVENANTS

 

Until payment in full of the Note Obligations, no Note Party shall, nor shall it
permit any Subsidiary to, directly or indirectly:

 

8.1           Liens.  Create, incur, assume or suffer to exist any Lien upon any
of its property, assets or revenues, whether now owned or hereafter acquired or
sign or file or suffer to exist under the UCC or any similar Law or statute of
any jurisdiction a financing statement that names any Note Party or any
Subsidiary thereof as debtor; sign or suffer to exist any security agreement
authorizing any Person thereunder to file such financing statement; sell any of
its property or assets subject to an understanding or agreement (contingent or
otherwise) to repurchase such property or assets with recourse to it or any of
its Subsidiaries; or assign or otherwise transfer any accounts or other rights
to receive income, other than, as to all of the above, Permitted Encumbrances.

 

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8.2           Investments.  Have outstanding, acquire or hold any Investment (or
become contractually committed to do so), directly or indirectly, or incur any
liabilities (including contingent obligations) for or in connection with any
Investment, except Permitted Investments.

 

8.3           Indebtedness.  Create, incur, assume, guarantee, suffer to exist
or otherwise become or remain liable with respect to, any Indebtedness, except
Permitted Indebtedness.

 

8.4           Fundamental Changes.  (a) Merge, amalgamate, dissolve, liquidate,
wind up, consolidate with or into another Person, reorganize, enter into a plan
of reorganization, recapitalization or reclassify its Equity Interests (or agree
to do any of the foregoing) or (b) suspend or go out of a substantial portion of
its or their business or any material line of business, except that, so long as
no Default shall have occurred and be continuing prior to or immediately after
giving effect to any action described below or would result therefrom:

 

8.4.1.               any Subsidiary may merge, consolidate or amalgamate with
(i) a Note Party, provided that the Note Party shall be the continuing or
surviving Person, or (ii) any one or more other Subsidiaries, provided further
that when any wholly-owned Subsidiary is merging with another Subsidiary, the
wholly-owned Subsidiary shall be the continuing or surviving Person;

 

8.4.2.               the Issuer may merge, consolidate or amalgamate with
another Note Party, provided that the Issuer shall be the surviving entity of
any such merger, consolidation or amalgamation;

 

8.4.3.               any CFC that is not a Note Party may merge into any CFC
that is not a Note Party; and

 

8.4.4.               the Issuer shall be permitted to liquidate or dissolve Twin
Brook at any time upon prior written notice to the Collateral Agent, provided
that before, or within three (3) Business Days after, the liquidation or
dissolution of Twin Brook, Twin Brook shall have contributed all of its assets
to the Issuer and the Issuer shall have caused the former assets of Twin Brook,
including, without limitation, the equity interests in Services Company, to be
pledged to the Collateral Agent for the benefit of the Note Purchasers.  In the
event of any liquidation or dissolution of Twin Brook in accordance with the
preceding sentence, Twin Brook will automatically cease to be a Guarantor
hereunder.

 

8.5           Dispositions.  Make any Disposition or enter into any agreement to
make any Disposition, except Permitted Dispositions.

 

8.6           Restricted Payments.  Declare or make, directly or indirectly, any
Restricted Payment, or incur any obligation (contingent or otherwise) to do so,
except that, so long as no Default shall have occurred and be continuing prior
to or immediately after giving effect to any action described below or would
result therefrom:

 

8.6.1.               each Subsidiary of a Note Party may make Restricted
Payments to any Note Party, provided, that, during the occurrence and
continuation of an Event of Default under this Agreement or the Revolving Loan
Agreement, any dividend payments made by any Subsidiary of a Note Party whose
Equity Interests are the Note Purchasers Priority Collateral shall be paid
directly to the Collateral Agent;

 

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8.6.2.               the Note Parties and each Subsidiary may declare and make
dividend payments or other distributions payable solely in the common stock or
other common Equity Interests of such Person;

 

8.6.3.               the Issuer may repurchase up to $10,000,000 of its Capital
Stock in any Fiscal Year and $40,000,000 in the aggregate so long as (i) the
Leverage Ratio, both immediately before and after giving effect to such
repurchase, is less than 1.75:1.00, (ii) no Event of Default or Default shall
have occurred and be continuing or would arise therefrom and (iii) there has
been at least $50,000,000 of Excess Availability as of the end of each of the
three months preceding such repurchase, and on such date, after taking into
account the repurchase of such stock; provided, that, the Issuer may not
repurchase any of its Capital Stock for six months following the Closing Date;
and

 

8.6.4.               the Note Parties may issue and sell Equity Interests
provided that (i) (A) with respect to any Equity Interests, all dividends in
respect of which are to be paid (and all other payments in respect of which are
to be made) shall be in additional shares of such Equity Interests, in lieu of
cash, (B) such Equity Interests shall not be subject to redemption other than
redemption at the option of the Note Party issuing such Equity Interests, and
(C) all payments in respect of such Equity Interests are expressly subordinated
to the Note Obligations, and (ii) no Note Party shall issue any additional
Equity Interests in a Subsidiary.

 

8.7           Payments and Prepayments of Indebtedness.  Prepay, redeem,
purchase, defease or otherwise satisfy prior to the scheduled maturity thereof
in any manner any Indebtedness (other than the Revolving Obligations and the
Note Obligations), or make any payment in violation of any subordination terms
of any Subordinated Indebtedness, except (i) as long as no Event of Default
shall have occurred and be continuing or would arise therefrom, regularly
scheduled or mandatory repayments or redemptions of Permitted Indebtedness
(other than the Revolving Obligations and the Note Obligations), (ii) Permitted
Refinancing Indebtedness and (iii) as long as the Payment Conditions are
satisfied, other repayments or prepayments of Permitted Indebtedness in an
aggregate amount not to exceed $10,000,000 in any Fiscal Year.

 

8.8           Change in Nature of Business.  Engage in (a) any line of business
substantially different from the business conducted by the Note Parties and
their Subsidiaries on the date hereof, or (b) any type of activity reasonably
likely to devalue the Issuer’s business or brand name, except as could not
reasonably be expected to have a Material Adverse Effect.

 

8.9           Transactions with Affiliates.  Enter into, renew, extend or be a
party to any transaction of any kind with any Affiliate of any Note Party,
except for: (a) transactions that are in the ordinary course of business, upon
fair and reasonable terms, that are fully disclosed to the Collateral Agent, and
that are no less favorable to the Note Parties than would be obtainable by the
Note Parties at the time in a comparable arm’s length transaction with a Person
other than an Affiliate; (b) payment of insurance premiums to Twin Brook in an
aggregate amount not to exceed $750,000 in any Fiscal Year; (c) transactions
between the Issuer and Services Company in the ordinary course of business;
(d) intercompany loans and advances or other intercompany Indebtedness permitted
pursuant to clauses (b), (c), (e) and (j) of the definition of Permitted
Indebtedness; and (e) intercompany Investments permitted pursuant to clauses
(g), (h), (i) and (m) of the definition of Permitted Investments.

 

8.10         Burdensome Agreements.  Enter into or permit to exist any
Contractual Obligation (other than the Revolving Loan Documents, this Agreement
or any other Note Document) that

 

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(a) limits the ability (i) of any Subsidiary to make Restricted Payments or
other distributions to any Note Party or to otherwise transfer property to or
invest in a Note Party, (ii) of any Subsidiary to Guarantee the Note
Obligations, (iii) of any Subsidiary to make or repay loans to a Note Party, or
(iv) of the Note Parties or any Subsidiary to create, incur, assume or suffer to
exist Liens on property of such Person in favor of the Collateral Agent;
provided, however, that this clause (iv) shall not prohibit any negative pledge
incurred or provided in favor of any holder of Indebtedness permitted under
Section 8.3 solely to the extent any such negative pledge relates to the
property financed by or the subject of such Indebtedness; or (b) requires the
grant of a Lien to secure an obligation of such Person if a Lien is granted to
secure another obligation of such Person.

 

8.11         Use of Proceeds.  Use the proceeds from the sale of the Notes,
whether directly or indirectly, and whether immediately, incidentally or
ultimately, to purchase or carry margin stock (within the meaning of Regulation
U of the FRB) or to extend credit to others for the purpose of purchasing or
carrying margin stock or to refund Indebtedness originally incurred for such
purpose.

 

8.12         Amendment of Material Documents.  Amend, modify or waive any of a
Note Party’s rights under (a) its Governing Documents or (b) any Material
Contract or Material Indebtedness (other than on account of any refinancing
thereof otherwise permitted hereunder), in each case to the extent that such
amendment, modification or waiver would be reasonably likely to have a Material
Adverse Effect.

 

8.13         Corporate Name; Fiscal Year.

 

8.13.1.             Change the Fiscal Year of any Note Party, or the accounting
policies or reporting practices of the Note Parties, except as required by GAAP.

 

8.13.2.             Change its name as it appears in official filings in the
state of its incorporation or other organization (b) change its chief executive
office, principal place of business, corporate offices or warehouses or
locations at which any material portion of the Collateral is held or stored, or
the location of its records concerning the Collateral, (c) change the type of
entity that it is, (d) change its organization identification number, if any,
issued by its state of incorporation or other organization, or (e) change its
state of incorporation or organization, in each case without at least thirty
(30) days prior written notice to the Collateral Agent and after the Collateral
Agent’s written acknowledgment, which acknowledgment shall not be unreasonably
withheld or delayed, that any reasonable action requested by the Collateral
Agent in connection therewith, including to continue the perfection of any Liens
in favor of the Collateral Agent, in any Collateral, has been completed or
taken, and provided that any such new location of any Note Party or Domestic
Subsidiary shall be in the continental United States.

 

8.14         Consignments.  Consign any Inventory or sell any Inventory on bill
and hold, sale or return, sale on approval, or other conditional terms of sale.

 

8.15         Antilayering.  Other than the Note Obligations, the Note Parties
will not, and will not permit any of their Subsidiaries to, incur or in any
fashion become or remain liable with respect to any Indebtedness of the Note
Parties or any Subsidiary which, by its terms, is subordinated to any other
Indebtedness of such Note Party or such Subsidiary and which is not expressly
subordinated to the Note Obligations on terms satisfactory to the Required
Purchasers.

 

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8.16         Capital Expenditures.  Make Capital Expenditures in the Fiscal Year
(i) ending on or about January 31, 2009 in excess of $86,200,000.00, and (ii) in
excess of the Capital Expenditure grid, as follows:

 

Fiscal Year ending
January 31

 

EBITDA Target

 

Maximum Capital
Expenditures if
EBITDA is less than
the EBITDA Target

 

Maximum Capital
Expenditures if
EBITDA exceeds the
EBITDA Target

 

 

 

 

 

 

 

 

 

2010

 

$

172,800,000

 

$

75,000,000

 

$

85,000,000

 

2011

 

$

194,400,000

 

$

102,000,000

 

$

122,000,000

 

2012

 

$

239,490,000

 

$

112,000,000

 

$

134,000,000

 

2013

 

$

239,200,000

 

$

111,000,000

 

$

133,000,000

 

 

provided, however, that the Required Purchasers may, in the exercise of their
reasonable business judgment, increase any of the amounts set forth in the
foregoing grid.  When making any determination whether to increase the foregoing
amounts, the Required Purchasers may consider, among other things, the actual
financial results of the Note Parties.

 

8.17         Change of Control.  Cause, permit, or suffer any Change of Control.

 

8.18         No Amendment To Transition Services Agreement.  Make any material
amendments to the Transition Services Agreement (other than the extension of
such agreement) unless any such amendments are reasonably satisfactory to the
Required Purchasers.

 

8.19         New Headquarters.  Incur any liability in respect of the New
Headquarters is excess of $2,000,000, excluding liability disclosed to the Note
Purchasers prior to the Closing Date.

 

8.20         Stock Options.  Incur any liabilities in respect of the Stock
Options which would cause a Material Adverse Effect.

 

8.21         Licensing.   Without the consent of the Required Purchasers,
license more than $5,000,000 of the Intellectual Property of the Note Parties at
less than fair market value to other parties.

 

8.22         Leases.  Be in material default under more than 5% of the Leases.

 

8.23         Hoop Expenses. Permit the costs actually incurred by the Note
Parties and the projected costs of the Note Parties relating to the Hoop
bankruptcy proceedings and the Hoop Sale to exceed the amounts scheduled on
Schedule 5.33.

 

8.24         Foreign Transfers.  Permit the Note Parties located within the
United States to (A) (i) make intercompany transfers outside the ordinary course
of more than $10,000,000 per Fiscal Year in the aggregate to their affiliates in
Canada, (ii) make intercompany transfers outside the ordinary course of business
of more than $10,000,000 per Fiscal Year to their affiliates in Asia, or
(iii) make

 

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intercompany transfers outside the ordinary course of business of more than
$5,000,000 per Fiscal Year to their affiliates in Puerto Rico or (B) (i) receive
as intercompany transfers outside the ordinary course from their affiliates in
Canada more than $5,000,000 per Fiscal Year, (ii) receive as intercompany
transfers from their affiliates in Asia more than $5,000,000 per Fiscal Year, or
(iii) receive as intercompany transfers from their affiliates in Puerto Rico
more than $5,000,000 per Fiscal Year.  An additional $5,000,000 may be
transferred under each of Sections 8.24(A)(i), 8.24 (A)(ii), 8.24 (A)(iii), 8.24
(B)(i), 8.24 (B)(ii) and 8.24 (B)(iii) so long as the amount transferred is used
to prepay the Note Obligations in accordance with Section 3.2.2.

 

SECTION 9.  EVENTS OF DEFAULT.

 

If one or more of the following events (herein referred to as “Events of
Default”) shall occur and be continuing:

 

9.1           Payment Default.  If the Issuer fails to pay when due and payable,
or when declared due and payable, (a) all or any portion of its Note Obligations
consisting of interest, fees, or charges due the Note Purchasers or the
Collateral Agent, reimbursement of, or other amounts (other than any portion
thereof constituting principal) constituting Note Obligations, and such failure
continues for a period of 3 Business Days, or (b) all or any portion of the
principal of its Note Obligations; or

 

9.2           Certain Covenants.

 

9.2.1.               Any Note Party shall default in the performance or
observance of any covenant contained in any of Sections 3.2.3, 3.2.4, 7.5, 7.7,
7.9, 7.11 through 7.15 and 8 hereof; or

 

9.2.2.               Any Note Party fails to perform or observe any covenant or
other agreement contained in any of Section 7 (other than Section 7.6 and those
specified in Section 9.2.1 above) of this Agreement and such failure continues
for a period of 10 days after the earlier of (i) the date on which such failure
shall first become known to any officer of any Note Party or (ii) written notice
thereof is given to the Issuer by the Collateral Agent.

 

9.3           Reporting Default.  Failure by any Note Party to (i) furnish
financial information within 15 days of when due or when requested, or
(ii) permit the inspection of its books or records, in each case, when required
pursuant to the terms of this Agreement; or

 

9.4           Other Defaults.  Any Note Party shall default in the performance
or observance of any covenant, agreement or condition of this Agreement (other
than those described or referred to in any other paragraph of this Section) or
any other Note Document and such default shall continue unremedied for more than
20 days after the first to occur of (i) a Note Party obtaining actual knowledge
of such default or (ii) receipt by a Note Party of written notice of such
default from the Required Purchasers.

 

9.5           Attachments.  If any material portion of any Note Party’s or any
of its Subsidiaries’ assets are attached, seized, subjected to a writ or
distress warrant, or are levied upon, or come into the possession of any third
Person and the same are not discharged before the earlier of 30 days after the
date it first arises or 5 days prior to the date on which such property or asset
is subject to forfeiture by such Note Party or its Subsidiary, as applicable; or

 

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9.6           Insolvency Proceeding, etc.

 

9.6.1.               If an Insolvency Proceeding is commenced by any Note Party
or any of their Subsidiaries; or

 

9.6.2.               If an Insolvency Proceeding is commenced against any Note
Party or any of its Subsidiaries, and any of the following events occur: 
(a) such Note Party or any of its Subsidiaries, as applicable, consents to the
institution of such Insolvency Proceeding against it, (b) the petition
commencing the Insolvency Proceeding is not timely controverted, (c) the
petition commencing the Insolvency Proceeding is not dismissed within 60
calendar days of the date of the filing thereof, (d) an interim trustee,
receiver, receiver-manager or other custodian or is appointed to take possession
of all or any substantial portion of the properties or assets of, or to operate
all or any substantial portion of the business of, any Note Party or any of its
Subsidiaries, as applicable, or (e) an order for relief shall have been issued
or entered therein; or

 

9.6.3.               If any Note Party or any of its Subsidiaries is enjoined,
restrained, or in any way prevented by court order from continuing to conduct
all or any material part of its business affairs; or

 

9.6.4.               Any Note Party or any of its Subsidiaries shall admit in
writing its inability, or be generally unable, to pay its debts as they become
due or cease operations of its present business; or

 

9.7           Judgments.  If one or more judgments, orders, or awards involving
an aggregate amount of $3,000,000 or more (except to the extent fully covered by
insurance pursuant to which the insurer has accepted liability therefor in
writing) shall be entered or filed against any Note Party or any of its
Subsidiaries with respect to any of their respective assets, and the same is not
released, discharged, bonded against, or stayed pending appeal before the
earlier of 30 days after the date it first arises or 5 days prior to the date on
which such asset is subject to being forfeited by the applicable Note Party or
its Subsidiary; or

 

9.8           Payment Default on Other Indebtedness.  If there is (i) any “Event
of Default” (or any similar term) as defined in the Revolving Loan Documents, or
(ii) a default or event of default in one or more agreements to which any Note
Party or any of its Subsidiaries is a party with one or more third Persons
relative to Indebtedness of any such Note Party or its Subsidiary (other than
the Revolving Loan Debt) involving an aggregate amount of $1,500,000 or more,
and with respect to this clause (ii) such default (x) occurs at or prior to the
final maturity of the obligations thereunder, or (y) results in a right by such
third Person(s), irrespective of whether exercised, to accelerate the maturity
of the obligations of the Note Party or its Subsidiary thereunder; or

 

9.9           Breach of Representations or Warranties.  If any warranty,
representation, statement, or Record made herein or in any other Note Document
or delivered to the Collateral Agent or any Note Purchaser in connection with
this Agreement or any other Note Document proves to be untrue in any material
respect (except that such materiality qualifier shall not be applicable to any
representations and warranties that already are qualified or modified by
materiality in the text thereof) as of the date of issuance or making or deemed
making thereof; or

 

9.10         Guaranty.  If the obligation of any Guarantor under the Note
Guarantee is limited or terminated by operation of law or by such Guarantor, or
any such Guarantor becomes the subject of an Insolvency Proceeding; or

 

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9.11         Enforceability of Note Documents.  Any provision of any Note
Document shall at any time for any reason be declared to be null and void, or
the validity or enforceability thereof shall be contested by any Note Party, or
a proceeding shall be commenced by any Note Party, or by any Governmental
Authority having jurisdiction over any Note Party, seeking to establish the
invalidity or unenforceability thereof, or any Note Party shall deny that it has
any liability or obligation purported to be created under any Note Document; or

 

9.12         Material Adverse Effect.  A Material Adverse Effect occurs and is
continuing; or

 

9.13         Governmental Action.  (i) Any Governmental Authority shall
(A) revoke, terminate, suspend or adversely modify any license, permit, patent,
trademark, tradename or design of any Note Parties or any of its Subsidiaries,
the continuation of which is material to the continuation the business of the
Note Parties and their Subsidiaries taken as a whole or (B) commence proceedings
to suspend, revoke, terminate or adversely modify any such license, permit,
trademark, tradename or patent and such proceedings shall not be dismissed or
discharged within 60 days, or (C) schedule or conduct a hearing on the renewal
of any license, permit, trademark, tradename or patent necessary for the
continuation of such Person’s business and the staff of such Governmental
Authority issues a report recommending the termination, revocation, suspension
or material, adverse modification of such license, permit, trademark, tradename
or patent; (ii) any agreement which is necessary or material to the operation of
the Issuer’s business shall be revoked or terminated and not replaced by a
substitute acceptable to the Required Purchasers within 30 days after the date
of such revocation or termination, and, with respect to both clauses (i) and
(ii), such revocation, proceedings or termination and non-replacement would
reasonably be expected to have a Material Adverse Effect; or

 

9.14         Employee Plans.  An event or condition specified in Sections 5.12
or 7.22 hereof shall occur or exist with respect to any Plan and, as a result of
such event or condition, together with all other such events or conditions, the
Issuer or any member of the Controlled Group shall incur, or in the reasonable
opinion of the Collateral Agent be reasonably likely to incur, a liability to a
Plan, or the PBGC (or both) which, in the reasonable judgment of the Collateral
Agent, would have a Material Adverse Effect; or

 

9.15         Business Interruption.  The operations of the Note Parties at any
material Real Property location are interrupted at any time for a period of 10
consecutive days, unless either (i) such business interruption is not reasonably
likely to have a Material Adverse Effect on any Note Party, or (ii) the Note
Parties shall (x) be entitled to receive for such period of interruption,
proceeds of business interruption insurance sufficient to assure that their per
diem cash needs during such period is at least equal to their average per diem
cash needs for the consecutive three month period immediately preceding the
initial date of interruption (or, at the Note Parties’ election, any other
consecutive three month period preceding the initial date of interruption and
commencing subsequent to the Closing Date as then designated by the Note
Parties) and (y) receive such proceeds in the amount described in clause
(x) preceding not later than 30 days (with an additional 30 days in the event
the proof of loss takes longer to obtain than the initial 30 days) following the
initial date of any such interruption; provided, however, that notwithstanding
the provisions of clauses (x) and (y) of this Section 9.15, an Event of Default
shall be deemed to have occurred if (A) any of the Note Parties shall have
ceased material operations for a period of 5 consecutive business days or
(B) the Note Parties have received more than $10,000,000 in proceeds of business
interruption insurance in the aggregate; or

 

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9.16         Restatements.  At any time after the Closing Date, the Notes
Parties materially and adversely restate any financial statement for any period
prior to the Closing Date other than as a result of a change in GAAP or its
application.

 

THEN, (i) upon the occurrence of any Bankruptcy Default, the unpaid principal
amount of all Notes, together with accrued interest thereon, and, as liquidated
damages and not as a penalty, an amount equal to the Applicable Premium then in
effect, shall automatically become immediately due and payable, without
presentment, demand, protest or other requirements of any kind, all of which are
hereby expressly waived by the Issuer and the other Note Parties, and (ii) upon
the occurrence of any other Event of Default, the Required Purchasers may, upon
written notice to the Issuer, declare the Notes to be due and payable, whereupon
the principal amount of all Notes, together with accrued interest thereon, and,
as liquidated damages and not as a penalty, an amount equal to the Applicable
Premium then in effect, shall automatically become immediately due and payable,
such without any other notice of any kind, and without presentment, demand,
protest or other requirements of any kind, all of which are hereby expressly
waived by the Issuer and the other Note Parties; provided, however, that if the
principal of, premium, if any, and interest on the Notes due otherwise than by
such declaration plus any expenses due and payable hereunder have been paid in
full, and any and all Defaults (other than the nonpayment of principal and
interest on the Notes that shall have become due by such declaration) shall have
been remedied or waived, the Required Purchasers may waive all Defaults and
rescind and annul any such declaration and consequences.

 

SECTION 10.  RESTRICTIONS ON TRANSFER; LEGENDS.

 

10.1         Assignments.

 

10.1.1.             Subject to Section 10.1.1.1, each Note Purchaser may at any
time sell, assign, transfer, pledge or negotiate all or any part of its Notes
without the consent of any Note Party; provided that such transfer of the Notes
is in compliance with applicable United States federal and state securities
laws.

 

10.1.1.1.          So long as no Event of Default shall have occurred and be
continuing, (a) assignments will be limited to persons engaged in lending or
purchasing and holding loans and securities in the ordinary course of business,
and (b) no Note Purchaser may sell, assign, transfer or negotiate all or any
part of its Notes without the Issuer’s consent, such consent not to be
unreasonably withheld, delayed or conditioned.  Notwithstanding the foregoing,
no consent shall be required to effect a sale, assignment, transfer or pledge of
a Note to (i) any Affiliate of such Note Purchaser, (ii) with respect to any
Note Purchaser which is a fund that invests in loans and/or investments, any
other such fund managed by the same investment advisor as such Note Purchaser or
by an Affiliate of such Note Purchaser or such advisor (a “Related Fund”),
(iii) any other Note Purchaser hereunder, or (iv) or any Person to whom a Note
Purchaser assigns its rights and obligations under this Agreement as part of an
assignment and transfer of such Note Purchaser’s rights in and to a material
portion of such Note Purchaser ‘s portfolio of asset based credit facilities.

 

10.1.2.             The Collateral Agent shall keep at its principal office, or
the principal office of its counsel, a register in which it shall provide for
the registration of the Notes and the transfer of the same shall be provided. 
Failure to make any recordation, or any error in such recordation, shall not
affect any of the Note Obligations.  Upon surrender for registration of transfer
of any Notes in accordance with Section 10.1 at the principal office of the
Issuer, the Issuer shall, at its expense, promptly execute and deliver one or
more new Notes, as applicable, of like tenor and of

 

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a like principal amount, registered in the name of such transferee or
transferees and, in the case of a transfer in part, a new Note in the
appropriate amount registered in the names of such transferor.  While the Notes
are “restricted securities” within the meaning of Rule 144(a)(3) under the
Securities Act, the Issuer shall provide the Note Purchasers with the
information specified in, and meeting the requirements of Rule 144A(d)(4) under
the Securities Act in connection with any proposed transfer.

 

10.2         Restrictive Legend.

 

10.2.1.             Each Note shall bear a legend in substantially the following
form:

 

“THIS NOTE WAS ISSUED IN A PRIVATE PLACEMENT, WITHOUT REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED OR ANY OTHER APPLICABLE SECURITIES LAWS
(COLLECTIVELY, THE “SECURITIES LAWS”), AND MAY NOT BE SOLD, ASSIGNED, PLEDGED OR
OTHERWISE TRANSFERRED (I) IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES LAWS COVERING THE TRANSFER OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION AND (II) EXCEPT IN COMPLIANCE WITH SECTION 10.1 OF THAT CERTAIN
NOTE PURCHASE AGREEMENT DATED AS OF JULY 31, 2008 AMONG THE ISSUER, THE NOTE
PURCHASERS (AS DEFINED THEREIN) AND THE GUARANTORS PARTY THERETO.”

 

10.3         Termination of Restrictions.  The restrictions imposed by
Section 10.2 hereof upon the transferability of the Notes shall cease and
terminate as to any particular Notes when, in the opinion of Ropes & Gray LLP,
or other counsel reasonably acceptable to the Issuer, such restrictions are no
longer required in order to assure compliance with applicable securities laws. 
Whenever such restrictions shall cease and terminate as to any Notes, the holder
thereof shall be entitled to receive from the Issuer, without expense,
replacement Notes not bearing the applicable legend set forth in Section 10.2
hereof.

 

SECTION 11.  GUARANTEE.

 

11.1         Guarantee of Note Obligations.

 

11.1.1.             Each Guarantor, jointly and severally, unconditionally and
irrevocably guarantees that the Note Obligations of the Issuer will be performed
and paid in full in cash when due and payable, whether at the stated or
accelerated maturity thereof or otherwise, this Note Guarantee being a guarantee
of payment and not of collectibility and being absolute and in no way
conditional or contingent (the “Guaranteed Obligation”).  In the event any part
of the Note Obligations shall not have been so paid in full when due and
payable, each Guarantor will, promptly upon notice by the Collateral Agent or,
without notice, promptly upon the occurrence of a Bankruptcy Default with
respect to any Note Party, pay or cause to be paid to the Collateral Agent for
the account of each Note Purchaser in accordance with the Note Purchasers’
proportionate share of such Note Obligations which are then due and payable and
unpaid.  The obligations of each Guarantor hereunder shall not be affected by
the invalidity, unenforceability or irrecoverability of any of the Note
Obligations as against the Issuer, any other Note Party, any other Guarantor
thereof or any other Person.  For purposes hereof, the Note Obligations shall be
due and payable when and as the same shall be due and payable under the terms of
this Agreement or any other Note Document

 

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notwithstanding the fact that the collection or enforcement thereof against the
Issuer may be stayed or enjoined under the Bankruptcy Code or other applicable
law.

 

11.1.2.             The liability of each Guarantor hereunder shall be absolute
and unconditional irrespective of:

 

11.1.2.1.          any lack of validity or enforceability of the Notes, this
Agreement or any other agreement between the Issuer and the Note Purchasers
relating to the advance of monies to the Issuer or any other agreement or
instrument relating thereto;

 

11.1.2.2.          any change in the time, manner or place of payment of, amount
of credit available to the Issuer under, or in any other term of, or any other
amendment or waiver of or any consent to departure from, any agreement between
the Issuer and the Note Purchasers relating to the advance of monies to the
Issuer;

 

11.1.2.3.          any change in the name, objects, partnership interest,
Capital Stock, partnership agreement, or certificate or articles of
incorporation or by-laws or any other constituent documents of the Issuer and
any of the Guarantors or the Issuer or any of the Guarantors being amalgamated
with another corporation (in which case this Note Guarantee shall apply to the
Guaranteed Obligations of the resulting corporation and, where the Issuer has
been amalgamated with another corporation, the term “Issuer” shall include such
resulting corporation);

 

11.1.2.4.          any equities between the Note Purchasers, the Guarantor or
the Issuer or any defense, opposition of any nature whatsoever or right of
set-off, compensation, abatement, combination of accounts or cross-claim that
the Guarantor or the Issuer may have;

 

11.1.2.5.          any act or omission on the part of the Note Purchasers that
would prevent subrogation operating in favor of the Guarantor; and

 

11.1.2.6.          to the extent permitted by applicable law, any other
circumstances which might otherwise constitute a defense available to, or a
discharge of, the Issuer in respect of the Note Obligations or of any Guarantor
in respect of its guarantee, it being the intent of each Guarantor that
liability to the Note Purchasers, under this Note Guarantee shall be absolute
and unconditional under any and all circumstances and shall not be discharged
except by payment in full of the Note Obligations and the Guaranteed
Obligations.

 

11.1.3.             The Note Purchasers shall not be concerned to see or enquire
into the powers of the Issuer or any of its respective directors, officers,
managers or other agents, acting or purporting to act on its behalf, and monies,
advances, renewals or credits in fact borrowed or obtained from the Note
Purchasers in professed exercise of such powers shall be deemed to form part of
the debts and liabilities hereby guaranteed, notwithstanding that such borrowing
or obtaining of monies, advances, renewals or credits shall be in excess of the
powers of the Issuer or of its directors, officers, managers or other agents
aforesaid, or be in any way irregular, defective or informal.  This Note
Guarantee shall continue to be effective or be reinstated, as the case may be,
if at any time any payment of any of the Note Obligations or Guaranteed
Obligations is rescinded or must otherwise be returned by the Note Purchasers
upon the insolvency, bankruptcy or reorganization of the Issuer or otherwise,
all as though such payment had not been made.

 

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11.1.4.                                       Without limiting the generality of
this Section 11.1.4, none of the Guaranteed Obligations shall be limited,
lessened or released, nor shall this Note Guarantee be discharged, by the
recovery of any judgment against the Issuer or any other Person, by any
voluntary or involuntary liquidation, dissolution, winding-up, merger or
amalgamation of the Issuer, a Guarantor or any other person, by any sale or
other disposition of all or substantially all of the assets of the Issuer, or by
any judicial or extra-judicial receivership, insolvency, bankruptcy, assignment
for the benefit of creditors, reorganization, moratorium, arrangement,
composition with creditors or other proceedings affecting the Issuer, a
Guarantor or any other Person.  If at any time the Note Purchasers have the
right to accelerate the payment of monies owed under the Notes, and such
acceleration is prevented by reason of the pendency against the Issuer of a case
or proceeding under the Bankruptcy Code, the Guarantors agree that, for purposes
of this Note Guarantee such payment shall be deemed to have been accelerated in
accordance with the terms hereof, and the Guarantors shall forthwith pay or
cause to be paid the full amount of principal of and interest so owing and any
other amounts guaranteed hereunder without further notice or demand.  This is a
guarantee of payment, not a deficiency guarantee. The guarantees provided for in
this Section 11 are subject to the terms and conditions of the Intercreditor
Agreement.

 

11.2                      Continuing Obligation.  Each Guarantor acknowledges
that the Note Purchasers have entered into this Agreement (and, to the extent
that the Note Purchasers or the Collateral Agent may enter into any future Note
Document, will have entered into such agreement) in reliance on this Note
Guarantee, the Note Guarantee being a continuing irrevocable agreement, and such
Guarantor agrees that its guarantee may not be revoked in whole or in part.  The
obligations of the Guarantors hereunder shall terminate when all of the Note
Obligations have been paid in full in cash and discharged; provided, however,
that:

 

11.2.1.                                       if a claim is made upon the Note
Purchasers at any time for repayment or recovery of any amounts or any property
received by the Note Purchasers from any source on account of any of the Note
Obligations and the Note Purchasers repay or return any amounts or property so
received (including interest thereon to the extent required to be paid by the
Note Purchasers), or

 

11.2.2.                                       if the Note Purchasers become
liable for any part of such claim by reason of (i) any judgment or order of any
court or administrative authority having competent jurisdiction, or (ii) any
settlement or compromise of any such claim, then the Guarantors shall remain
liable under this Agreement for the amounts so repaid or property so returned or
the amounts for which the Note Purchasers become liable (such amounts being
deemed part of the Guaranteed Obligations) to the same extent as if such amounts
or property had never been received by the Note Purchasers, notwithstanding any
termination hereof or the cancellation of any instrument or agreement evidencing
any of the Note Obligations.  Not later than five (5) days after receipt of
notice from the Collateral Agent, the Guarantors shall pay to the Collateral
Agent, for the benefit of the Note Purchasers, an amount equal to the amount of
such repayment or return for which the Note Purchasers have so become liable. 
Payments hereunder by a Guarantor may be required by the Collateral Agent on any
number of occasions.

 

11.2.3.                                       The obligations and liabilities of
the Guarantors hereunder shall not be released, discharged, limited or in any
way affected by anything done, suffered or permitted by the Note Purchasers in
connection with any monies advanced by the Note Purchasers to the Issuer or any
security therefor, including any loss of or in respect of any security received
by the Note Purchasers

 

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from the Issuer or others.  It is agreed that the Note Purchasers, without
releasing, discharging, limiting or otherwise affecting in whole or in part the
Guarantors’ obligations and liabilities hereunder, may, without limiting the
generality of the foregoing:

 

11.2.3.1.                               grant time, renewals, extensions,
indulgences, releases and discharges to the Issuer;

 

11.2.3.2.                               take or abstain from taking securities
or collateral from the Issuer or from perfecting securities or collateral of the
Issuer;

 

11.2.3.3.                               release, discharge, compromise or
otherwise deal with (with or without consideration) any and all collateral,
mortgages or other security given by the Issuer or any third party with respect
to the obligations or matters contemplated by this Agreement;

 

11.2.3.4.                               do, or omit to do, anything to enforce
the payment or performance of any of the Note Obligations or the Guaranteed
Obligations or take or abstain from taking security from the Issuer or any other
person or to perfect or abstain from perfecting any security interest;

 

11.2.3.5.                               vary, compromise, exchange, renew,
discharge, release, discharge, subordinate, postpone, abandon or otherwise deal
with any of the Note Obligations or the Guaranteed Obligations or any security
interest;

 

11.2.3.6.                               deal with or allow any creditor of the
Issuer or the Guarantors or any of them or any other Person to deal with goods
or property constituting collateral subject to any security interest;

 

11.2.3.7.                               accept compromises from the Issuer;

 

11.2.3.8.                               apply all monies at any time received
from the Issuer or from securities upon such part of the Note Obligations in
compliance with the Note Documents as the Note Purchasers may see fit or change
any such application in whole or in part from time to time as the Note
Purchasers may see fit; or

 

11.2.3.9.                               otherwise deal with the Issuer, each
other Guarantor and all other Persons and securities in compliance with the Note
Documents as the Note Purchasers may see fit.

 

11.2.4.                                       The Note Purchasers shall not be
bound or obliged to exhaust their recourse against the Issuer or any other
Guarantor or any other persons or any securities, mortgage or collateral they
may hold or take any other action (other than make demand) before being entitled
to payment from a Guarantor hereunder.

 

11.2.5.                                       Any account settled by or between
the Note Purchasers and the Issuer with respect to the Notes shall be accepted
by the Guarantors as conclusive evidence that the balance or amount thereby
appearing due to the Note Purchasers is so due.

 

11.3                      Waivers with Respect to Note Obligations.  Except to
the extent expressly required by this Agreement or any other Note Document, each
Guarantor waives, to the fullest extent permitted by the provisions of
applicable law, all of the following (including all defenses, counterclaims and
other rights of any nature based upon any of the following):

 

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11.3.1.                                       presentment, demand for payment
and protest of nonpayment of any of the Note Obligations, and notice of protest,
dishonor or nonperformance;

 

11.3.2.                                       notice of acceptance of this Note
Guarantee and notice that the Notes have been sold by the Issuer hereunder in
reliance on such Guarantor’s guarantee of the Note Obligations;

 

11.3.3.                                       notice of any Default or of any
inability to enforce performance of the obligations of the Issuer or any other
Person with respect to any Note Document or notice of any acceleration of
maturity of any Note Obligations;

 

11.3.4.                                       demand for performance or
observance of, and any enforcement of any provision of this Agreement, the Note
Obligations or any other Note Document or any pursuit or exhaustion of rights or
remedies with respect to any collateral or against the Issuer or any other
Person in respect of the Note Obligations or any requirement of diligence or
promptness on the part of Collateral Agent or any Note Purchaser in connection
with any of the foregoing;

 

11.3.5.                                       any act or omission on the part of
any Note Purchaser which may impair or prejudice the rights of such Guarantor,
including rights to obtain subrogation, exoneration, contribution,
indemnification or any other reimbursement from the Issuer or any other Person,
or otherwise operate as a deemed release or discharge;

 

11.3.6.                                       failure or delay to perfect or
continue the perfection of any Security Interest in any Collateral or any other
action which harms or impairs the value of, or any failure to preserve or
protect the value of, any Collateral;

 

11.3.7.                                       any statute of limitations or any
statute or rule of law which provides that the obligation of a surety must be
neither larger in amount nor in other respects more burdensome than the
obligation of the principal;

 

11.3.8.                                       any “single action” or
“antideficiency” law which would otherwise prevent any Note Purchaser from
bringing any action, including any claim for a deficiency, against such
Guarantor before or after the Collateral Agent or the Note Purchasers’
commencement or completion of any foreclosure action, whether judicially, by
exercise of power of sale or otherwise, or any other law which would otherwise
require any election of remedies by the Collateral Agent or any Note Purchaser;

 

11.3.9.                                       all demands and notices of every
kind with respect to the foregoing; and

 

11.3.10.                                 to the extent not referred to above,
all defenses (other than payment) which the Issuer may now or hereafter have to
the payment of the Note Obligations, together with all suretyship defenses,
which could otherwise be asserted by such Guarantor.

 

Each Guarantor represents that it has obtained the advice of counsel as to the
extent to which suretyship and other defenses may be available to it with
respect to its obligations hereunder in the absence of the waivers contained in
this Section 11.3.

 

No delay or omission on the part of any of the Collateral Agent or any of the
Note Purchasers in exercising any right under any Note Document or under any
other guarantee of the Note Obligations shall operate as a waiver or
relinquishment of such right.  No action which the Collateral Agent or

 

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the Note Purchasers or any Note Party or any of its Subsidiaries may take or
refrain from taking with respect to the Note Obligations shall affect the
provisions of this Agreement or the obligations of each Guarantor hereunder. 
None of the Note Purchasers’ or the Collateral Agent’s rights shall at any time
in any way be prejudiced or impaired by any act or failure to act on the part of
any of the Note Parties or any of their Subsidiaries, or by any noncompliance by
any Note Party or of its Subsidiaries with any Note Document, regardless of any
knowledge thereof which the Collateral Agent or any Note Purchaser may have or
otherwise be charged with.

 

11.4                      Note Purchasers’ Power to Waive, etc.  Notwithstanding
anything to the contrary herein, with respect to this Section 11, each Guarantor
grants to the Collateral Agent and each of the Note Purchasers full power in
their discretion, without notice to or consent of such Guarantor, such notice
and consent being expressly waived to the fullest extent permitted by applicable
law, and without in any way affecting the liability of such Guarantor under its
guarantee hereunder:

 

11.4.1.                                       To waive compliance with, and any
Default under, and to consent to any amendment to or modification or termination
of any provision of, or to give any waiver in respect of, this Agreement, any
other Note Document, the Collateral, the Note Obligations or any guarantee
thereof (each as from time to time in effect);

 

11.4.2.                                       To grant any renewals extensions
of the Note Obligations (for any duration), and any other indulgence with
respect thereto, and to effect any total or partial release (by operation of law
or otherwise), discharge, compromise or settlement with respect of the Note
Obligations, whether or not rights against such Guarantor under this Agreement
are reserved in connection therewith;

 

11.4.3.                                       To take security in any form for
the Note Obligations, and to consent to the addition to or the substitution,
exchange, release or other disposition of, or to deal in any other manner with,
any part of any property contained in the Collateral whether or not the
property, if any, received upon the exercise of such power shall be of a
character or value the same as or different from the character or value of any
property disposed of, and to obtain, modify or release any present or future
guarantees of the Note Obligations and to proceed against any of the Collateral
or such guarantees in any order;

 

11.4.4.                                       To collect or liquidate or realize
upon any of the Note Obligations or the Collateral in any manner or to refrain
from collecting or liquidating or realizing upon any of the Note Obligations;
and

 

11.4.5.                                       To extend additional credit, if
any, under this Agreement, any other Note Document or otherwise in such amount
as the Note Purchasers may determine, including increasing the amount of credit
and the interest rate and fees with respect thereto, even though the condition
of the Note Parties (financial or otherwise, on an individual or Consolidated
basis) may have deteriorated since the date hereof.

 

11.5                      Information Regarding the Issuer,  etc.  Each
Guarantor has made such investigation as it deems desirable of the risks
undertaken by it in entering into this Agreement and is fully satisfied that it
understands all such risks.  Each Guarantor waives any obligation which may now
or hereafter exist on the part of the Collateral Agent or any Note Purchaser to
inform it of the risks being undertaken by entering into this Agreement or of
any changes in such risks and, from and after the date hereof, each Guarantor
undertakes to keep itself informed of such risks and any

 

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changes therein.  Each Guarantor expressly waives any duty which may now or
hereafter exist on the part of the Collateral Agent or any Note Purchaser to
disclose to such Guarantor any matter related to the business of the Note
Parties and their Subsidiaries, operations, character, collateral, credit,
condition (financial or otherwise), income or prospects of the Issuer and its
Affiliates or its properties or management, whether now or hereafter known by
the Collateral Agent or any Note Purchaser.  Each Guarantor represents, warrants
and agrees that it assumes sole responsibility for obtaining from the Issuer all
information concerning this Agreement and all other Note Documents and all other
information as to the Issuer and its Affiliates or its properties or management
as such Guarantor deems necessary or desirable.

 

11.6                      Certain Guarantor Representations.  Each Guarantor
represents that:

 

11.6.1.                                       giving this Note Guarantee is in
its best corporate interest and commercial benefit and does not exceed its
financial means and capabilities;

 

11.6.2.                                       it is in its best interest and in
pursuit of the purposes for which it was organized as an integral part of the
business conducted and proposed to be conducted by the Note Parties and their
Subsidiaries, and reasonably necessary and convenient in connection with the
conduct of the business conducted and proposed to be conducted by them, to
induce the Note Purchasers to enter into this Agreement and to purchase the
Notes from the Issuer by making the Note Guarantee contemplated by this
Section 11;

 

11.6.3.                                       the proceeds from the sale of the
Notes will directly or indirectly inure to its benefit;

 

11.6.4.                                       by virtue of the foregoing it is
receiving directly or indirectly at least reasonably equivalent value from the
Note Purchasers for its Guaranteed Obligation;

 

11.6.5.                                       it will not be rendered insolvent
or left with unreasonably small assets with which to conduct its business as a
result of entering into this Agreement (considering, among other things, its
rights of contribution against other Note Parties);

 

11.6.6.                                       after giving effect to the
transactions contemplated by this Agreement and the other Note Documents and
considering, among other things, its rights of contribution against other Note
Parties, it will (directly or indirectly) have assets having a fair saleable
value in the ordinary course in excess of its total obligations to all Persons
(taking into account, as applicable, rights of contribution, subrogation and
indemnity with regard to obligations shared by others); and

 

11.6.7.                                       it has been advised by the
Collateral Agent that the Note Purchasers are unwilling to enter into this
Agreement unless the Note Guarantee provided for by this Section 11 is given by
it.

 

11.7                      Subrogation.  Each Guarantor agrees that, until the
Note Obligations are paid in full, it will not exercise any right of
reimbursement, subrogation, contribution, offset or other claims against any
Note Party or any of its Subsidiaries arising by contract or operation of law in
connection with any payment made or required to be made by such Guarantor under
this Agreement or any other Note Document; provided, that the Note Parties
hereby waive any such right of reimbursement, subrogation, contribution, offset
or other claim.  After the payment in full of the Note Obligations, each
Guarantor shall be entitled to exercise against any Note Party or any of their

 

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Subsidiaries all such rights of reimbursement, subrogation, contribution and
offset, and all such other claims, to the fullest extent permitted by law.

 

11.8                      Subordination.

 

11.8.1.                                       Each Note Party covenants and
agrees that the payment of any Indebtedness and all obligations and liabilities
owing by any Note Party in favor of any other Note Party, whether now existing
or hereafter incurred (collectively, the “Intercompany Obligations”) is
subordinated, to the extent and in the manner provided in this Section 11.8, to
the prior payment in full of all Note Obligations owed or hereafter owing to the
Note Purchasers by the Note Parties and is so subordinated as a claim against
such Person or any of its assets, whether such claim be in the ordinary course
of business or in the event of voluntary or involuntary liquidation,
dissolution, insolvency or bankruptcy, so that no payment with respect to any
such Indebtedness, claim or liability will be made or received while any Event
of Default exists and that such subordination is for the benefit of the Note
Purchasers.

 

11.8.2.                                       Each Note Party hereby
(i) authorizes the Note Purchasers to demand specific performance of the terms
of this Section 11.8 at any time when any Note Party shall have failed to comply
with any provisions of this Section 11.8 which are applicable to it and
(ii) irrevocably waives any defense based on the adequacy of a remedy at law,
which might be asserted as a bar to such remedy of specific performance.

 

11.8.3.                                       Upon any distribution of assets of
any Note Party in any dissolution, winding up, liquidation or reorganization
(whether in bankruptcy, insolvency or receivership proceedings or upon an
assignment for the benefit of creditors or otherwise):

 

11.8.3.1.                               The Note Purchasers shall first be
entitled to receive payment in full in cash of the Note Obligations before any
Note Party is entitled to receive any payment on account of the Intercompany
Obligations; provided that prior to the occurrence of an Event of Default, any
Note Party may make payments to any other Note Party on account of Intercompany
Indebtedness.

 

11.8.3.2.                               Any payment or distribution of assets of
any Note Party of any kind or character, whether in cash, property or
securities, to which any other Note Party would be entitled except for the
provisions of this Section 11.8, shall be paid by the liquidating trustee or
agent or other Person making such payment or distribution directly to the Note
Purchasers in the manner set forth herein, to the extent necessary to make
payment in full of all Note Obligations remaining unpaid after giving effect to
any concurrent payment or distribution or provisions therefor to the Note
Purchasers.

 

11.8.3.3.                               In the event that notwithstanding the
foregoing provisions of this Section 11.8 any payment or distribution of assets
of any Note Party of any kind or character, whether in cash, property or
securities, shall be received by any other Note Party on account of any
Intercompany Obligations before all Note Obligations are paid in full, such
payment or distribution shall be received and held in trust for and shall be
paid over to the Collateral Agent for itself and the Note Purchasers for
application to the payment of the Note Obligations until all of the Note
Obligations shall have been paid in full, after giving effect to any concurrent
payment or distribution or provision therefor to the Note Purchasers.

 

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11.8.3.4.                              No right of any Note Purchaser or any
other present or future holders of the Note Obligations to enforce subordination
as provided herein shall at any time in any way be prejudiced or impaired by any
act or failure to act on the part of any Note Party or by any act or failure to
act, in good faith, by any Note Party, or by any noncompliance by any Note Party
with the terms of the Intercompany Obligations, regardless of any knowledge
thereof which any Note Purchaser may have or be otherwise charged with.

 

11.9                      Limitation on Guaranty.

 

11.9.1.                                       In any action or proceeding with
respect to any Guarantor involving any state corporate law, the Bankruptcy Code
of the United States or any other Debtor Relief Law, if the obligations of such
Guarantor under this Note Guarantee would otherwise be held or determined to be
void, invalid or unenforceable, or subordinated to the claims of any other
creditors, on account of the amount of its liability under this Note Guarantee,
then, notwithstanding any other provision hereof to the contrary, the amount of
such liability shall, without any further action by such Guarantor, any Note
Party, the Collateral Agent or any other Person, be automatically limited and
reduced to the highest amount which is valid and enforceable and not
subordinated to the claims of other creditors as determined in such action or
proceeding.  Any term or provision of this Note Guarantee to the contrary
notwithstanding, the maximum aggregate amount of the obligations guaranteed or
incurred hereunder by any Guarantor shall not exceed (i) the maximum amount that
can be hereby guaranteed and incurred without rendering this Note Guarantee, as
it relates to such Guarantor, voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer or similar laws or (ii) the maximum
amount which can be guaranteed by such Guarantor under applicable law, including
applicable state and federal laws relating to insolvency of debtors.

 

SECTION 12.  COLLATERAL AGENT.

 

12.1                      Collateral Agent’s Authority to Act, etc.  Each of the
Note Purchasers appoints and authorizes Sankaty Advisors, LLC to act for the
Note Purchasers as the Collateral Agent in connection with and on the terms set
forth in the Note Documents.  If Note Purchasers affiliated with the Collateral
Agent hold less than 20% of the outstanding Note Obligations, then the Required
Purchasers may designate a successor Collateral Agent and the term “Collateral
Agent” shall for all purposes of this Agreement and the Note Documents
thereafter mean such successor.  All action in connection with the enforcement
of, or the exercise of any remedies under the Note Documents shall be taken in
the manner set forth therein.  Each of the Note Purchasers authorizes the
Collateral Agent to (i) execute and deliver the Note Documents on behalf of such
Note Purchaser and accept delivery thereof on its behalf from any Note Party,
(ii) take such action on its behalf and to exercise all rights, powers  and
remedies and perform the duties as are expressly delegated to the Agent under
such Note Documents and (iii) exercise such powers as are reasonably incidental
thereto.

 

12.2                      Collateral Agent’s Resignation.  The Collateral Agent
may resign at any time by giving at least 60 days’ prior written notice of its
intention to do so to each of the Note Purchasers and the Issuer and upon the
appointment by the Required Purchasers of a successor Collateral Agent
reasonably satisfactory to the Issuer.  If no successor Collateral Agent shall
have been so appointed and shall have accepted such appointment within 45 days
after the retiring Collateral Agent’s giving of such notice of resignation, then
the retiring Collateral Agent may appoint a successor Collateral Agent which
shall be a bank or a trust company organized under the laws of the United States
of America or any state thereof and having a combined capital, surplus and
undivided profit of at least $500,000,000 (so long as no Default exists) with
the consent of the Issuer, which shall not be

 

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unreasonably withheld; provided, however, that any successor Collateral Agent
appointed under this sentence may be removed upon the written request of the
Required Purchasers, which request shall also appoint a successor Collateral
Agent (so long as no Default exists) reasonably satisfactory to the Issuer. 
Upon the appointment of a new Collateral Agent hereunder, the term “Collateral
Agent” shall for all purposes of this Agreement and the Note Documents
thereafter mean such successor.  After any retiring Collateral Agent’s
resignation hereunder as Collateral Agent, or the removal hereunder of any
successor Collateral Agent, the provisions of this Agreement and the other Note
Documents shall continue to inure to the benefit of such retiring or removed
Collateral Agent as to any actions taken or omitted to be taken by it while it
was Collateral Agent under this Agreement and the other Note Documents.

 

12.3                      Concerning the Collateral Agent.

 

12.3.1.                                       Action in Good Faith, etc.  The
Collateral Agent and its officers, directors, employees and agents shall be
under no liability to any of the Note Purchasers or to any future holder of any
Notes for any action or failure to act taken or suffered in good faith, and any
action or failure to act in accordance with an opinion of its counsel shall
conclusively be deemed to be in good faith.  The Collateral Agent shall in all
cases be entitled to rely, and shall be fully protected in relying, on
instructions given to the Collateral Agent by the Required Purchasers.  The
Collateral Agent may execute releases and other collateral termination documents
with respect to assets disposed of by the Note Parties as permitted by this
Agreement.

 

12.3.2.                                       No Implied Duties, etc.  The
Collateral Agent shall have and may exercise such powers as are specifically
delegated to the Collateral Agent under this Agreement or any other Note
Document together with all other powers incidental thereto.  The Collateral
Agent shall have no implied duties to any Person or any obligation to take any
action under this Agreement or any other Note Document except for action
specifically provided for in this Agreement or any other Note Document to be
taken by the Collateral Agent.

 

12.3.3.                                       Validity, etc.  The Collateral
Agent shall not be responsible to any Note Purchaser or any future holder of any
Notes (a) for the legality, validity, enforceability or effectiveness of this
Agreement or any other Note Document, or (b) for any recitals, reports,
representations, warranties or statements contained in or made in connection
with this Agreement or any other Note Document.

 

12.3.4.                                       Compliance.  The Collateral Agent
shall not be obligated to ascertain or inquire as to the performance or
observance of any of the terms of this Agreement or any other Note Document.

 

12.3.5.                                       Employment of Collateral Agent and
Counsel.  The Collateral Agent may execute any of its duties as Collateral Agent
under this Agreement or any other Note Document by or through employees, agents
and attorneys in fact and shall not be responsible to any of the Note
Purchasers, the Issuer or any other Note Party for the default or misconduct of
any such agents or attorneys in fact selected by the Collateral Agent acting in
good faith.  The Collateral Agent shall be entitled to advice of counsel
concerning all matters pertaining to the agency hereby created and its duties
hereunder or under any other Note Document.

 

12.3.6.                                       Reliance on Documents and
Counsel.  The Collateral Agent shall be entitled to rely, and shall be fully
protected in relying, upon any affidavit, certificate, cablegram,

 

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consent, instrument, letter, notice, order, document, statement, facsimile,
telegram, telex or teletype message or writing reasonably believed in good faith
by the Collateral Agent to be genuine and correct and to have been signed, sent
or made by the Person in question, including any telephonic or oral statement
made by such Person, and, with respect to legal matters, upon an opinion or the
advice of counsel selected by the Collateral Agent.

 

12.3.7.                                       Collateral Agent’s Reimbursement. 
Each of the Note Purchasers severally agrees to reimburse the Collateral Agent,
pro rata in accordance with such Note Purchaser’s percentage interest
(determined based on the ratio of the aggregate principal amount of the Notes
held by such Note Purchaser to the aggregate amount of all outstanding Notes),
for any reasonable expenses not reimbursed by the Issuer (without limiting the
obligation of the Issuer to make such reimbursement):  (a) for which the
Collateral Agent is entitled to reimbursement by the Issuer under this Agreement
or any other Note Document, and (b) after the occurrence and during the
continuance of a Default, for any other reasonable expenses incurred by the
Collateral Agent on the Note Purchasers’ behalf in connection with the
enforcement of the Note Purchasers’ rights under this Agreement or any other
Note Document; provided, however, that the Collateral Agent shall not be
reimbursed for any such expenses arising as a result of its gross negligence or
willful misconduct.

 

12.4                      Indemnification.  The Note Purchasers shall severally
indemnify the Collateral Agent and its officers, directors, employees, agents,
attorneys, accountants, consultants and controlling Persons (to the extent not
reimbursed by the Note Parties and without limiting the obligation of the Note
Parties to do so), pro rata in accordance with their respective percentage
interests (as determined in accordance with Section 12.3.7), from and against
any and all liabilities, obligations, damages, penalties, actions, judgments,
suits, losses (including accrued and unpaid Collateral Agent’s fees), costs,
expenses or disbursements of any kind whatsoever which may at any time be
imposed on, incurred by or asserted against the Collateral Agent or such Persons
relating to or arising out of this Agreement, any Note Document, the
transactions contemplated hereby or thereby, or any action taken or omitted by
the Collateral Agent in connection with any of the foregoing; provided, however,
that the foregoing shall not extend to actions or omissions which are determined
in a final, nonappealable judgment by a court of competent jurisdiction to have
been taken by the Collateral Agent with gross negligence or willful misconduct.

 

12.5                      Assumption of Collateral Agent’s Rights. 
Notwithstanding anything herein or in any Note Document to the contrary, if at
any time no Person constitutes the Collateral Agent hereunder or the Collateral
Agent fails to act upon written directions from the Required Purchasers, the
Required Purchasers shall be entitled to exercise any power, right or privilege
granted to the Collateral Agent under this Agreement or any other Note Document
and in so acting the Note Purchasers shall have the same rights, privileges,
indemnities and protections provided to the Collateral Agent under this
Agreement or any other Note Document.

 

SECTION 13.  MISCELLANEOUS.

 

13.1                      Expenses.  Whether or not the transactions
contemplated hereby shall be consummated, the Issuer agrees to promptly pay
(i) all the actual and reasonable costs and expenses incurred by the Collateral
Agent and the Note Purchasers in the preparation of this Agreement and the other
Note Documents and (ii) all reasonable out-of-pocket costs and expenses of the
Collateral Agent and the Note Purchasers (including fees, expenses and
disbursements of their outside counsel, Ropes & Gray LLP) relating to the
negotiation, preparation and execution of the Note Documents, review of other
documents (including due diligence review) in connection with the transactions

 

55

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contemplated hereby, and any amendments and waivers hereto or thereto, and the
Closing.  In addition, the Issuer agrees to promptly pay in full after the
occurrence of an Event of Default, all costs and expenses (including, without
limitation, reasonable fees and disbursements of counsel) incurred by the
Collateral Agent or the Note Purchasers in enforcing any obligations of or in
collecting any payments due hereunder or under the Notes by reason of such Event
of Default or in connection with any refinancing or restructuring of the credit
arrangements provided under this Agreement in the nature of a workout, or any
insolvency or bankruptcy proceedings; provided that, in such event, the Note
Purchasers and the Collateral Agent shall be only entitled to payment of the
fees, expenses and disbursements of a single outside counsel and other
professionals, such to be designated by the Required Purchasers.

 

13.2                      Indemnity.  In addition to the payment of expenses
pursuant to Section 13.1, whether or not the transactions contemplated hereby
shall be consummated, each Note Party (as “Indemnitor”) agrees to indemnify, pay
and hold the Note Purchasers, the Collateral Agent and the officers, directors,
employees, agents, and Affiliates of the Note Purchasers and the Collateral
Agent (collectively called the “Indemnitees”) harmless from and against any and
all other liabilities, costs, expenses, obligations, losses, damages, penalties,
actions, judgments, suits, claims and disbursements of any kind or nature
whatsoever (including, without limitation, the reasonable fees and disbursements
of one counsel for such Indemnitees) in connection with any investigative,
administrative or judicial proceeding commenced or threatened (excluding claims
among Indemnitees and, with the exception of claims arising out of otherwise
indemnifiable matters (e.g., actions to enforce the indemnification rights
provided hereunder), and excluding claims between the Issuer and an Indemnitee),
whether or not such Indemnitee shall be designated a party thereto, which may be
imposed on, incurred by, or asserted against that Indemnitee, in any manner
relating to or arising out of this Agreement, the Notes, the Note Documents or
the other documents related to the transactions contemplated hereby (including,
without limitation, the existence or exercise of any security rights with
respect to the Collateral in accordance with the Collateral Documents), the Note
Purchasers’ agreement to purchase the Notes or the use or intended use of the
proceeds of any of the proceeds thereof to the Issuer (the “Indemnified
Liabilities”); provided, that the Indemnitor shall not have any obligation to an
Indemnitee hereunder with respect to an Indemnified Liability to the extent that
such Indemnified Liability arises from the gross negligence or willful
misconduct of that Indemnitee or its Related Parties as mutually agreed between
the Indemnitee and the Indemnitors or as determined by a final, non-appealable
judgment of a court of competent jurisdiction.  Each Indemnitee shall give the
Indemnitor prompt written notice of any claim that might give rise to
Indemnified Liabilities setting forth a description of those elements of such
claim of which such Indemnitee has knowledge; provided, that any failure to give
such notice shall not affect the obligations of the Indemnitor unless (and then
solely to the extent) such Indemnitor is prejudiced thereby.  The Indemnitor
shall have the right at any time during which such claim is pending to select
counsel to defend and control the defense thereof and settle any claims for
which it is responsible for indemnification hereunder (provided that the
Indemnitor will not settle any such claim without (i) the appropriate
Indemnitee’s prior written consent, which consent shall not be unreasonably
withheld or (ii) obtaining an unconditional release of the appropriate
Indemnitee from all claims arising out of or in any way relating to the
circumstances involving such claim) so long as in any such event the Indemnitor
shall have stated in writing delivered to the Indemnitee that, as between the
Indemnitor and the Indemnitee, the Indemnitor is responsible to the Indemnitee
with respect to such claim to the extent and subject to the limitations set
forth herein; provided, that the Indemnitor shall not be entitled to control the
defense of any claim in the event that in the reasonable opinion of counsel for
the Indemnitee, there are one or more material defenses available to the
Indemnitee which are not available to the Indemnitor; provided further, that
with respect to

 

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any claim as to which the Indemnitee is controlling the defense, the Indemnitor
will not be liable to any Indemnitee for any settlement of any claim pursuant to
this Section 13.2 that is effected without its prior written consent, which
consent shall not be unreasonably withheld.  To the extent that the undertaking
to indemnify, pay and hold harmless set forth in this Section 13.2 may be
unenforceable because it is violative of any law or public policy, the Issuer
shall contribute the maximum portion which it is permitted to pay and satisfy
under applicable law, to the payment and satisfaction of all Indemnified
Liabilities incurred by the Indemnitees or any of them.

 

13.3                      [INTENTIONALLY OMITTED]

 

13.4                      Intercreditor Agreement.  Each of the Note Purchasers
hereby agrees with the Collateral Agent to be bound by the terms and provisions
of the Intercreditor Agreement,  as if such Note Purchaser were a signatory
thereto and hereby instructs the Collateral Agent to enter into the
Intercreditor Agreement when such agreement is executed and delivered by all
parties thereto.  In the event of any conflict between this Agreement and the
Intercreditor Agreement, the parties hereto hereby agree that the Intercreditor
Agreement shall govern.

 

13.5                      Amendments and Waivers.  Subject to Section 7.24, no
amendment, modification, termination or waiver of any provision of the Note
Documents, shall in any event be effective without the written consent of the
Required Purchasers and the Issuer; provided, however, that no amendment,
modification, waiver or consent shall, unless in writing and signed by each Note
Purchaser affected thereby, do any of the following:  (a) extend the maturity or
time of, or right to receive, payment of principal of, or premium, if any, or
interest on, any Notes (other than as a result of waiving a prepayment required
under Sections 3.2.2 or 3.2.3 or 3.2.4 or a Default or Event of Default giving
rise to a right of acceleration, which shall each be by written consent of the
Required Purchasers); or (b) reduce the rate of interest or the principal amount
of any of the Notes or increase the relative amount of interest which the Issuer
may pay through capitalizing the same; or (c) impair or affect the right of any
Note Purchaser to institute suit for enforcement of any such payment to which
such Note Purchaser is entitled pursuant to this Agreement; or (d) alter the
percentage of Note Purchasers necessary to modify or take action under this
Agreement; (e) release any Collateral except as provided in the Collateral
Documents; (f) amend the definition of “Required Purchasers” hereunder or
(g) amend this Section 13.5.  Any waiver or consent shall be effective only in
the specific instance and for the specific purpose for which it was given.  No
notice to or demand on the Issuer in any case shall entitle such Person to any
further notice or demand in similar or other circumstances.  Any amendment,
modification, termination, waiver or consent effected in accordance with this
Section 13.5 shall be binding upon each holder of the Notes at the time
outstanding and each future holder thereof.

 

13.6                      Independence of Covenants.  All covenants hereunder
shall be given independent effect so that if a particular action or condition is
not permitted by any of such covenants, the fact that it would be permitted by
an exception to, or be otherwise within the limitation of, another covenant
shall not avoid the occurrence of an Event of Default or Default if such action
is taken or condition exists.

 

13.7                      Notices.  All notices, demands or other communications
to be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and delivered personally or sent via a nationally recognized
overnight courier.  Such notices, demands and other communications will be
delivered or sent to the address indicated below:

 

57

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If to the Issuer or any other Note Party:

 

 

Issuer:

 

 

 

The Children’s Place Retail Stores, Inc.

 

915 Secaucus Road

 

Secaucus, New Jersey 07094

 

Attn: Chief Financial Officer

 

Fax No.: (201) 558-2837

 

 

With a copy to:

 

 

Gibson, Dunn & Crutcher LLP

 

200 Park Avenue

 

New York, New York 10166

 

Attn: Aaron Adams

 

Fax No.: (212) 351-2494

 

 

 

Guarantors:

 

 

 

The Children’s Place Services Company, LLC

 

The Children’s Place (Virginia), LLC

 

The Children’s Place Canada Holdings, Inc.

 

thechildren’splace.com, inc.

 

Twin Brook Insurance Company, Inc.

 

915 Secaucus Road

 

Secaucus, New Jersey 07094

 

Attn: General Counsel

 

Fax No.: (201) 558-2840

 

 

With a copy to:

 

 

Gibson, Dunn & Crutcher LLP

 

200 Park Avenue

 

New York, New York 10166

 

Attn: Aaron Adams

 

Fax No.: (212) 351-2494

 

 

If to Note Purchasers or to the Collateral Agent:

 

 

c/o Sankaty Advisors, LLC

 

111 Huntington Avenue

 

Boston, Massachusetts 02199

 

Telephone: (617) 516-2000

 

Facsimile: (617) 516-2710

 

Attention: James Athanasoulas

 

 

 

 

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with a copy to:

 

 

Ropes & Gray LLP

 

One International Place

 

Boston, Massachusetts 02110

 

Telephone: (617) 951-7483

 

Facsimile: (617) 951-7050

 

Attention: Alyson Allen, Esq.

 

 

 

and

 

 

 

Ropes & Gray LLP

 

1211 Avenue of the Americas

 

New York, New York 10036

 

Telephone: (212) 841-0665

 

Facsimile: (646) 728-1598

 

Attention: Marc E. Hirschfield, Esq.

 

or such other address or to the attention of such other Person as the recipient
party shall have specified by prior written notice to the sending party;
provided that the failure to deliver copies of notice as indicated above shall
not affect the validity of such notice.  Any such communication shall be deemed
to have been received when actually delivered or refused.

 

13.8                      Survival of Warranties and Certain Agreements.

 

13.8.1.                                       Any liability of any Note Party
for any breach of, or inaccuracy in, the representations and warranties made by
it herein shall survive the execution and delivery of this Agreement, the sale
and delivery of the Notes hereunder and shall continue until the repayment of
the Notes and the Note Obligations in full; provided, that if all or any part of
such payment is set aside, such Note Party shall remain liable for any breach
of, or inaccuracy in, the representations and warranties made by it herein as if
no such payment had been made.

 

13.8.2.                                       Any liability of any Note Party
for any breach of or default in the performance of the agreements made by it
herein shall survive the execution and delivery of this Agreement, the sale and
delivery of the Notes hereunder and shall continue until the repayment of the
Notes and the Note Obligations; provided, that if all or part of such payment is
set aside, such Person shall remain liable for any breach of or default in the
performance of such agreements.

 

13.8.3.                                       Notwithstanding anything in this
Agreement or implied by law to the contrary, the agreements of the Note Parties
set forth in Sections 13.1 and 13.2 shall survive the payment of the Notes, and
the termination of this Agreement.

 

13.9                      Failure or Indulgence Not Waiver; Remedies
Cumulative.  No failure or delay on the part of any Note Purchaser in the
exercise of any power, right or privilege hereunder or under the Notes shall
impair such power, right or privilege or be construed to be a waiver of any
default or acquiescence therein, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege.  All rights and remedies existing under
this Agreement or the Notes are cumulative to and not exclusive of, any rights
or remedies otherwise available.

 

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13.10                Severability.  If and to the extent that any provision in
this Agreement or the Notes shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions of this Agreement, the Notes or of the other obligations of any Note
Party under any of such provisions, or of such provision or obligation in any
other jurisdiction, or of such provision to the extent not invalid, illegal or
unenforceable shall not in any way be affected or impaired thereby.

 

13.11                Heading.  Section and subsection headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose or be given any substantive effect.

 

13.12                Applicable Law.  This Agreement shall be governed by, and
shall be construed and enforced in accordance with, the laws of the State of New
York.

 

13.13                Successors and Assigns; Subsequent Holders.  This Agreement
shall be binding upon the parties hereto and their respective successors and
assigns and shall inure to the benefit of the parties hereto and the successors
and assigns of the Note Purchasers.  The terms and provisions of this Agreement
and all certificates delivered pursuant hereto shall inure to the benefit of any
assignee or transferee of the Notes, to the extent the assignment is permitted
hereunder, and in the event of such transfer or assignment, the rights and
privileges herein conferred upon the Note Purchasers shall automatically extend
to and be vested in such transferee or assignee, all subject to the terms and
conditions hereof.  The respective rights or any interest therein or hereunder
of a Note Party may not be assigned without the written consent of the Required
Purchasers.  Any assignee shall execute a joinder to this Agreement.

 

13.14                CONSENT TO JURISDICTION AND SERVICE OF PROCESS.  ALL
JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY NOTE PARTY WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER NOTE DOCUMENTS MAY BE BROUGHT IN ANY COURT OF COMPETENT
JURISDICTION IN THE STATE OF NEW YORK IN NEW YORK COUNTY, AND BY EXECUTION AND
DELIVERY OF THIS AGREEMENT, EACH NOTE PARTY ACCEPTS FOR ITSELF AND IN CONNECTION
WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE
AFORESAID COURTS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED
THEREBY IN CONNECTION WITH THIS AGREEMENT SUBJECT, HOWEVER, TO RIGHTS OF
APPEAL.  EACH NOTE PARTY HEREBY AGREES THAT SERVICE UPON IT IN THE MANNER
PROVIDED FOR THE GIVING OF NOTICES IN SECTION 13.7 SHALL CONSTITUTE SUFFICIENT
NOTICE.  NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF ANY NOTE PURCHASER TO BRING
PROCEEDINGS AGAINST THE ISSUER IN THE COURTS OF ANY OTHER JURISDICTION.

 

13.15                WAIVER OF JURY TRIAL.  THE PARTIES HERETO HEREBY WAIVE, TO
THE FULL EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY LITIGATION IN
ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT
OR ANY OTHER NOTE DOCUMENT OR THE VALIDITY, PROTECTION, INTERPRETATION,
COLLECTION OR ENFORCEMENT THEREOF.  NOTWITHSTANDING ANYTHING CONTAINED IN THIS
AGREEMENT TO THE CONTRARY, NO CLAIM MAY BE MADE BY ANY NOTE PARTY AGAINST

 

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ANY NOTE PURCHASER FOR ANY LOST PROFITS OR ANY SPECIAL, INDIRECT OR
CONSEQUENTIAL DAMAGES IN RESPECT OF ANY BREACH OR WRONGFUL CONDUCT (OTHER THAN
WILLFUL MISCONDUCT CONSTITUTING ACTUAL FRAUD) IN CONNECTION WITH, ARISING OUT OF
OR IN ANY WAY RELATED TO THE TRANSACTIONS CONTEMPLATED HEREUNDER OR UNDER THE
OTHER NOTE DOCUMENTS, OR ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION
THEREWITH.  EACH NOTE PARTY HEREBY WAIVES, RELEASES AND AGREES NOT TO SUE UPON
ANY SUCH CLAIM FOR ANY SUCH DAMAGES.  EACH NOTE PARTY AGREES THAT THIS
SECTION 13.15 IS A SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND
ACKNOWLEDGES THAT THE NOTE PURCHASERS WOULD NOT EXTEND TO THE ISSUER ANY MONIES
HEREUNDER IF THIS SECTION 13.15 WERE NOT PART OF THIS AGREEMENT.

 

13.16                Counterparts; Effectiveness.  This Agreement and any
amendments, waivers, consents or supplements may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument.  This
Agreement shall become effective upon the execution of a counterpart hereof by
each of the parties hereto, and when written or telephonic notification of such
execution and authorization of delivery thereof has been received by the Note
Parties and the Note Purchasers.

 

13.17                Confidentiality.  The Collateral Agent and each Note
Purchaser agrees to keep confidential (and to cause their respective officers,
directors, employees, agents and representatives to keep confidential) all
information, materials and documents concerning the business of the Note Parties
and their Subsidiaries furnished to such Note Purchaser by the Note Parties or
any of their Subsidiaries or on its behalf pursuant to this Agreement (the
“Information”).  Notwithstanding the foregoing, the Collateral Agent and any
Note Purchaser shall be permitted to disclose Information (i) to its officers,
managers, directors, employees, agents and representatives provided that such
Information shall remain confidential; (ii) to the extent required by applicable
laws and regulations or by any subpoena or similar legal process, or to the
extent requested by any governmental agency or authority; (iii) to the extent
such Information (A) becomes publicly available other than as a result of a
breach of this Agreement, (B) becomes available to such Note Purchaser on a
non-confidential basis from a source other than the Note Parties or any of their
Subsidiaries or (C) was available to the Note Purchaser on a non-confidential
basis prior to its disclosure to the Note Purchaser by the Note Parties or any
of their Subsidiaries; (iv) to the extent any Note Party or any of its
Subsidiaries shall have consented to such disclosure in writing; (v) in
connection with the assignment of any Notes, provided that the recipient of
Information agrees to maintain the confidentiality of the Information; or
(vi) to its respective investors or lenders in connection with any regular or
otherwise required reporting performed by such Note Purchaser to any such
Persons.  The Collateral Agent and any Note Purchaser may (and each employee,
representative or agent or advisors of the Collateral Agent or any Note
Purchaser), to the extent necessary to prevent the transaction from being
described as a “confidential transaction” under Treasury Regulation section
1.6011-4(b)(3), disclose the tax treatment and tax structure of the transaction
and any related tax strategies.

 

13.18                USA PATRIOT ACT.  Each Note Purchaser subject to the USA
PATRIOT ACT (Title III of Pub. L. 107-56 (signed into law October 26, 2001))
(the “Act”) hereby notifies the Note Parties that pursuant to the requirements
of the Act, it may be required to obtain, verify and record information that
identifies the Note Parties, which information includes the name and address of
the Note Parties and other information that will allow such Note Purchaser to
identify the Note Parties

 

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in accordance with the Act.  The Note Parties hereby agree to provide any such
information upon request, and to the disclosure of such information pursuant to
the requirements of the Act and notwithstanding any other provision hereof.

 

13.19                Entirety.  This Agreement and the other Note Documents
embody the entire agreement among the parties and supersede all prior agreements
and understandings, if any, relating to the subject matter hereof and thereof.

 

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

 

THE ISSUER:

THE CHILDREN’S PLACE RETAIL STORES,
INC.

 

 

 

 

 

 

 

By:

 

 

Name: Susan J. Riley

 

Title: Executive Vice President, Finance &

 

  Administration

 

 

[Signatures continue on following page]

 

Note Purchase Agreement

 

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GUARANTORS:

THE CHILDREN’S PLACE SERVICES
COMPANY, LLC

 

 

 

 

 

By:

 

 

 

Name:  Susan J. Riley

 

 

Title:  Executive Vice President, Finance &

 

 

   Administration

 

 

 

 

 

 

 

TWIN BROOK INSURANCE COMPANY,
INC.

 

By:

 

 

 

Name:  Susan J. Riley

 

 

Title:  Senior Vice President and Treasurer

 

 

 

 

THECHILDRENSPLACE.COM, INC.

 

 

 

By:

 

 

 

Name:  Adrienne Urban

 

 

Title:  Assistant Treasurer

 

 

 

 

 

 

 

THE CHILDREN’S PLACE CANADA
HOLDINGS, INC.

 

By:

 

 

 

Name:  Susan J. Riley

 

 

Title:  Senior Vice President and Treasurer

 

 

 

 

 

 

 

THE CHILDREN’S PLACE (VIRGINIA), LLC

 

 

 

By:

 

 

 

Name:  Susan J. Riley

 

 

Title:  Senior Vice President and Treasurer

 

 

[Signatures continue on following page]

 

Note Purchase Agreement

 

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NOTE PURCHASERS:

SANKATY CREDIT OPPORTUNITIES III,
L.P.

 

 

 

By:

 

 

 

Name:  Stuart E. Davies

 

 

Title:    Managing Director

 

 

 

 

 

 

 

SANKATY CREDIT OPPORTUNITIES IV,
L.P.

 

 

 

By:

 

 

 

Name:  Stuart E. Davies

 

 

Title:    Managing Director

 

 

 

 

 

 

 

RGIP, LLC

 

 

 

 

By:

 

 

 

Name:

 

 

Title:    Managing Member

 

 

 

 

CRYSTAL CAPITAL FUND, L.P.

 

 

 

 

By:  Crystal Capital GP, LLC, its General

 

Partner

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

 

 

CRYSTAL CAPITAL ONSHORE
WAREHOUSE LLC

 

 

 

 

As duly authorized:  Crystal Capital Fund
Management, L.P., as designated manager

 

 

 

 

 

 

 

 

By:

Crystal Capital Fund Management GP,

 

 

 

LLC, its General Partner

 

 

 

 

 

 

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

Note Purchase Agreement

 

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

 

 

1903 ONSHORE FUNDING, LLC

 

 

 

 

By:  GB Merchant Partners, LLC, its Investment
Manager

 

 

 

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

 

 

 

 

 

 

 

 

BANK OF AMERICA, N.A.

 

 

 

 

 

 

 

By:

 

 

 

Name:  Peter Sherman

 

 

Title:    Managing Director

 

 

 

COLLATERAL AGENT:

SANKATY ADVISORS, LLC

 

 

 

 

 

 

 

By:

 

 

 

Name:  Stuart E. Davies

 

 

Title:    Managing Director

 

 

 

 

 

 

SYNDICATION AGENT:

CRYSTAL CAPITAL FUND MANAGEMENT,
L.P.

 

 

 

By: Crystal Capital Fund Management GP, LLC,
its General Partner

 

 

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

Note Purchase Agreement

 

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SCHEDULE I

 

ALLOCATION OF THE NOTES AMONG THE NOTE PURCHASERS

 

Note Purchaser

 

Cash Fee

 

OID

 

Funded Amount of
Total Issuance ($)

 

Principal Amount of 
Total Issuance ($)

 

 

 

 

 

 

 

 

 

 

 

Sankaty Credit Opportunities III, L.P.

 

None

 

$

368,156.25

 

$

16,956,843.75

 

$

17,325,000.00

 

 

 

 

 

 

 

 

 

 

 

Sankaty Credit Opportunities IV, L.P.

 

None

 

$

368,156.25

 

$

16,956,843.75

 

$

17,325,000.00

 

 

 

 

 

 

 

 

 

 

 

RGIP, LLC

 

None

 

$

7,437.50

 

$

342,562.50

 

$

350,000.00

 

 

 

 

 

 

 

 

 

 

 

Crystal Capital Fund, L.P.

 

$

212,500.00

 

None

 

$

9,787,500.00

 

$

10,000,000

 

 

 

 

 

 

 

 

 

 

 

Crystal Capital Onshore Warehouse LLC

 

$

159,375.00

 

None

 

$

7,340,625.00

 

$

7,500,000

 

 

 

 

 

 

 

 

 

 

 

1903 Onshore Funding, LLC

 

$

308,125.00

 

None

 

$

14,191,875.00

 

$

14,500,00.00

 

 

 

 

 

 

 

 

 

 

 

Bank of America, N.A.

 

$

382,500.00

 

None

 

$

17,617,500.00

 

$

18,000,000.00

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

1,062,500.00

 

$

743,750.00

 

$

83,000,000.00

 

$

85,000,000

 

 

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ADDRESSES OF THE NOTE PURCHASERS

 

Sankaty Credit Opportunities III, L.P.

111 Huntington Avenue

Boston, MA 02199

Attention: James Athanasoulas

Fax (617) 516-2710

 

Sankaty Credit Opportunities IV, L.P.

111 Huntington Avenue

Boston, MA 02199

Attention: James Athanasoulas

Fax (617) 516-2710

 

RGIP, LLC

Ropes & Gray LLP

One International Place

Boston, MA 02110

Attention: Erik Johnston

Fax: (617) 951-7050

Email: erik.johnston@ropesgray.com

 

Crystal Capital Fund, L.P.

Two International Place

Boston, MA  02110

Attention:  Evren Ozargun

Telephone: (617) 428-8700

Fax: (617) 428-8701

E-mail: eozargun@crystalcapital.com

 

Crystal Capital Onshore Warehouse LLC

c/o Crystal Capital Fund Management, L.P.

Two International Place

Boston, MA  02110

Attention:  Evren Ozargun

Telephone:  (617) 428-8700

Fax:  (617) 428-8701

E-mail: eozargun@crystalcapital.com

 

1903 Onshore Funding, LLC

c/o GB Merchant Partners, LLP

101 Huntington Avenue, 10th Floor

Boston, MA 02199

Attention: Wendy Landon

Tel: (617) 422-6596

Email: wlandon@gordonbrothers.com

 

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Bank of America, N.A.

Independence Center

101 North Tryon Street, 15th Floor

NC1-001-15-01

Charlotte, North Carolina 28255

Attention: Servicing Team TLC004

Tel: (704) 386-4550

Fax: (704) 409-0154

E-mail address: cs-dailywork@bankofamerica.com

 

with, in each case, copies to:

 

Ropes & Gray LLP

One International Place

Boston, Massachusetts  02110

Phone:  (617) 951-7483

Fax:  (617) 951-7050

Attention:  Alyson Allen

 

and

 

Ropes & Gray LLP

1211 Avenue of the Americas

New York, New York  10036

Telephone:  (212) 841-0665

Facsimile:  (646) 728-1598

Attention:  Marc E. Hirschfield, Esq.

 

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SCHEDULE II

WIRE INSTRUCTIONS OF THE NOTE PURCHASERS

 

Sankaty Credit Opportunities III, L.P.

Bank: HSBC Bank USA, N.A.

ABA Number: 021001088

Account Name: Sankaty Credit Opportunities III LP Operating

Account Number: 090330170

SWIFT Code: MRMDUS33

 

Sankaty Credit Opportunities IV, L.P.

Bank: HSBC Bank USA, N.A.

ABA Number: 021001088

Account Name: Sankaty Credit Opportunities IV LP Operating

Account Number: 090 340 116

SWIFT Code: MRMDUS33

 

RGIP, LLC

Bank: Bank of America

ABA Number: 0260 0959 3

Account Name: RGIP, LLC

Account Number: 000051280897

Reference: Children’s Place

 

Crystal Capital Fund, L.P.

Bank: Citibank, N.A.

  666 Fifth Avenue

  New York, NY 10043

ABA Number: 021 000 089

Account Name:  Crystal Capital Fund, L.P.

Account Number:  9936788449

Reference:  Children’s Place

 

Crystal Capital Onshore Warehouse LLC

Bank: US Bank NA

  One Federal Street, Third Floor

  Boston, MA  02110

ABA Number: 091000022

Account Name: Crystal Capital Onshore Warehouse

Account Number:  104790063903

Reference:  Children’s Place

 

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1903 Onshore Funding, LLC

Bank: Bank of America

ABA Number: 026-009-593

Account Name: 1903 Onshore Funding, LLC

Account Number: 4602287049

Reference: The Children’s Place

 

Bank of America, N.A.

Bank: Bank of America, N.A.
ABA Number: 026-009-593
Account Name: Credit Services
Account Number: 1366210627300
Attention: Servicing Team TLC004
Reference: The Children’s Place

 

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ANNEX I

 

DEFINITIONS TO NOTE PURCHASE AGREEMENT

 

“Account” means an account (as that term is defined in the Uniform Commercial
Code).

 

“Accounting Change” has the meaning set forth in Section 1.2.

 

“Acquisition” means, with respect to any Person (a) an Investment in, or a
purchase of a Controlling interest in, the Equity Interests of any other Person,
(b) a purchase or other acquisition of all or substantially all of the assets or
properties of, another Person or of any business unit of another Person, (c) any
merger or consolidation of such Person with any other Person or other
transaction or series of transactions resulting in the acquisition of all or
substantially all of the assets, or a Controlling interest in the Equity
Interests, of any Person, or (d) any acquisition by such Person of any group of
Store locations comprising more than five percent (5%) of the number of Stores
operated by the acquiring Person as of the date of such acquisition, in each
case acquired in any transaction or group of transactions which are part of a
common plan.

 

“Affiliate” of any Person means (a) any Person which, directly or indirectly, is
in control of, is controlled by, or is under common control with such Person, or
(b) any Person who is a director or executive officer (i) of such Person,
(ii) of any Subsidiary of such Person or (iii) of any Person described in clause
(a) above.  For purposes of this definition, control of a Person means the
power, direct or indirect, (x) to vote 15% or more of the securities having
ordinary voting power for the election of directors of such Person, or (y) to
direct or cause the direction of the management and policies of such Person
whether by contract or otherwise. Any reference to the Affiliates of any Note
Party herein or in any Note Document shall not include Hoop, unless explicitly
stated otherwise.

 

“Agreement” has the meaning set forth in the preamble.

 

“Alabama Property” means the land, together with the buildings, structures,
parking areas, and other improvements thereon, owned by The Children’s Place
Services Company, LLC, a Delaware limited liability company and located at 1377
Airport Road, Fort Payne, Alabama.

 

“Anti-Terrorism Laws” means any laws relating to terrorism or money laundering,
including Executive Order No. 13224, the USA Patriot Act, the laws comprising or
implementing the Bank Secrecy Act, and the laws administered by the United
States Treasury Department’s Office of Foreign Asset Control (as any of the
foregoing laws may from time to time be amended, renewed, extended, or
replaced).

 

“Applicable Premium” means the premium to be due and payable in connection with
any acceleration or a prepayment of the Notes pursuant to this Agreement
(excluding any scheduled amortization payments and payments of Excess Cash Flows
under Section 3.2.4.4 and payments of Extraordinary Receipts under
Section 3.2.4.2).  With respect to the Notes, each such prepayment premium shall
be equal, with respect to any such acceleration or prepayment made or first
required to be made during any period set forth in the table below, to the
percentage set forth beside such period in such table of the aggregate principal
amount of the Notes then prepaid or required to be prepaid:

 

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Period

 

Applicable Premium

 

July 31, 2008 through July 30, 2009

 

2

%

July 31, 2009 through July 30, 2010

 

1.5

%

Subsequent to July 31, 2010

 

0

%

 

“Applicable Rate” means the rate of interest to be paid on the unpaid principal
amount of the Notes from and after the Closing Date.  For the period from and
after the Closing Date, the Applicable Rate shall be a rate equal to LIBOR plus
the applicable margin as set forth below (the “Applicable Margin”).  The
Applicable Margin shall be (i) for the period from the Closing Date until the
date the first calculations are required to be delivered pursuant to
Section 7.3.11, calculated on the following leverage based grid, where the
Closing Date Total Leverage Ratio equals “x”, and (ii) thereafter, calculated on
a leverage based grid as follows, where the Leverage Ratio as set forth in the
computations delivered pursuant to Section 7.3.11 for the most recent Trailing
Twelve Month Period equals “x” and is calculated as of the end of the most
recent Fiscal Month for which financial reports have been delivered pursuant to
the Agreement; provided, however, that in the event any financial reports have
not been timely delivered pursuant to the terms of the Agreement, the Leverage
Ratio for such Trailing Twelve Month Period shall be presumed to be > 2: 1.

 

Leverage Ratio

 

Applicable Margin

 

x > 2 : 1

 

9.75

%

2 : 1 > x > 1.5 : 1.0

 

9.0

%

x < 1.5 : 1.0

 

8.5

%

 

“Asset Purchase Agreement” means the Asset Purchase Agreement, dated as of
April 3, 2008, among T2 Acquisition, LLC, T1 WDC Inc., The Children’s Place
Services Company, LLC, Hoop Retail Stores, LLC and Hoop Canada, Inc.

 

“Bankruptcy Code” means Title 11 of the United States Code, as now or hereafter
in effect, or any successor thereto.

 

“Bankruptcy Default” means any Event of Default referred to in Section 9.6.

 

“Blocked Person” has the meaning set forth in Section 5.26.2.

 

“Borrowing Base” has the meaning ascribed to it in the Revolving Loan Agreement.

 

“Business Day” means any day that is not a Saturday, Sunday, or other day on
which banks are authorized or required to close in the state of New York.

 

“Capital Expenditures” means, with respect to any Person for any period, the
aggregate of all expenditures by such Person and its Subsidiaries during such
period that are capital expenditures as determined in accordance with GAAP,
whether such expenditures are paid in cash or financed.

 

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“Capital Stock” means all shares, interests, participations, rights to purchase,
options, warrants, general or limited partnership interests, or limited
liability company interests or other equivalents (regardless of how designated)
of or in a corporation, partnership, limited liability company or equivalent
entity, whether voting or nonvoting, including common stock, preferred stock or
any other “equity security” (as such term is defined in Rule 3a11-1 of the
Rules and Regulations promulgated by the Securities and Exchange Commission (17
C.F.R. § 240.3a11-1) under the Securities and Exchange Act of 1934, as the same
shall be from time to time be amended, renewed, extended or replaced).

 

“Capitalized Lease” means any lease which is required to be capitalized on the
balance sheet of the lessee in accordance with GAAP.

 

“Capitalized Lease Obligation” means that portion of the obligations under a
Capital Lease that is required to be capitalized in accordance with GAAP.

 

“Cash Equivalents” means (a) marketable direct obligations issued by, or
unconditionally guaranteed by the United States or issued by any agency thereof
and backed by the full faith and credit of the United States and maturing within
1 year from the date of acquisition thereof, (b) marketable direct obligations
issued by any state of the United States or any political subdivision of any
such state, or any public instrumentality thereof maturing within 1 year from
the date of acquisition thereof and, at the time of acquisition, having one of
the two highest ratings obtainable from either Standard & Poor’s Rating Group
(“S&P”) or Moody’s Investors Service, Inc. (“Moody’s”), (c) commercial paper
maturing no more than 270 days from the date of creation thereof and, at the
time of acquisition, having a rating of at least A-1 from S&P or at least P-1
from Moody’s, (d) certificates of deposit or bankers’ acceptances maturing
within 1 year from the date of acquisition thereof issued by any bank organized
under the laws of the United States or any state thereof, in each case, having
at the date of acquisition thereof combined capital and surplus of not less than
$250,000,000, (e) Deposit Accounts maintained with (i) any bank that satisfies
the criteria described in clause (d) above, or (ii) any other bank organized
under the laws of the United States so long as the amount maintained with any
such other bank is less than or equal to $100,000 and is insured by the Federal
Deposit Insurance Corporation, and (f) Investments in money market funds
substantially all of whose assets are invested in the types of assets described
in clauses (a) through (e) above.

 

“CFC” means a Person that is a controlled foreign corporation under Section 957
of the Code.

 

“Change of Control”, in respect of the Issuer, means any “person” or “group” (as
such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act
of 1934, but excluding any employee benefit plan of such person or its
subsidiaries, and any person or entity acting in its capacity as trustee, agent
or other fiduciary or administrator of any such plan), other than the existing
shareholders of the Issuer set forth on Schedule 1.02 or a “person” or “group”
Controlled by one of the existing shareholders of the Issuer set forth on
Schedule 1.02, becomes the “beneficial owner” (as defined in Rules 13d-3 and
13d-5 under the Securities Exchange Act of 1934, except that a person or group
shall be deemed to have “beneficial ownership” of all securities that such
“person” or “group” has the right to acquire, whether such right is exercisable
immediately or only after the passage of time (such right, an “option right”)),
directly or indirectly, of 25% or more of the Equity Interests of the Issuer
entitled to vote for members of the board of directors or equivalent governing
body of the Issuer on a fully-diluted basis (and taking into

 

A-3

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account all such Equity Interests that such “person” or “group” has the right to
acquire pursuant to any option right);

 

“Closing” has the meaning set forth in Section 2.2.

 

“Closing Date” means the date on which the Notes are issued and sold pursuant to
the Agreement.

 

“Closing Date EBITDA” has the meaning set forth in Schedule 7.16.

 

“Closing Date Total Leverage Ratio” has the meaning set forth in Schedule 7.16.

 

“Code” means the United States Internal Revenue Code of 1986, together with all
rules and regulations issued thereunder, as now and hereafter in effect, as
codified at 26 U.S.C. §1 et seq or any successor provision thereto.

 

“Collateral” means all collateral on which a lien is granted or purported to be
granted pursuant to any Collateral Document.

 

“Collateral Documents” means, collectively, the Security Agreement, the IP
Security Agreement and any other document pursuant to which any Note Party and
any Guarantor grants security for the Note Obligations.

 

“Collateral Agent” means Sankaty Advisors, LLC, in its capacity as Collateral
Agent under the Note Documents or any successor thereto.

 

“Consolidated”, when used with reference to any term, means that term as applied
to the accounts of the Issuer (or other specified Person) and all of its
Subsidiaries (or other specified group of Persons), or such of its Subsidiaries
as may be specified, consolidated (or combined), in accordance with GAAP and
with appropriate deductions for minority interests in Subsidiaries.

 

Contractual Obligation” means, as to any Person, any provision of any agreement,
instrument or other undertaking to which such Person is a party or by which it
or any of its property is bound.

 

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

 

“Controlled Group” means all members of a controlled group of corporations and
all trades or businesses (whether or not incorporated) under common control
which, together with any Note Party, are treated as a single employer under
Section 414 of the Code.

 

“DDA” means each checking or other demand deposit account maintained by any of
the Note Parties.  All funds in each DDA shall be conclusively presumed to be
Collateral and proceeds of Collateral and the Note Purchasers and the Collateral
Agent shall have no duty to inquire as to the source of the amounts on deposit
in any DDA.

 

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“Debtor Relief Law” means the Bankruptcy Code of the United States, and all
other liquidation, conservatorship, bankruptcy, assignment for the benefit of
creditors, moratorium, rearrangement, receivership, insolvency, reorganization,
or similar debtor relief laws of the United States or other applicable
jurisdictions from time to time in effect and affecting the rights of creditors
generally.

 

“Default” means any event, act, condition or default which with notice or lapse
of time, or both, would constitute an Event of Default.

 

“Disney Store Termination Agreements” has the meaning set forth in
Section 6.3.2.

 

“Disposition” or “Dispose” means the sale, transfer, license, lease or other
disposition (including any sale and leaseback transaction and any sale,
transfer, license or other disposition of (whether in one transaction or in a
series of transactions) all or substantially all of its assets to or in favor of
any Person) of any property (including, without limitation, any Equity
Interests) by any Person (or the granting of any option or other right to do any
of the foregoing), including any sale, assignment, transfer or other disposal,
with or without recourse, of any notes or accounts receivable or any rights and
claims associated therewith.

 

“Documents” means the Note Documents, the Revolving Loan Documents, the
Governing Documents, and all documents, certificates and agreements delivered
with respect thereto, in each case, together with any schedules, exhibits,
appendices or other attachments thereto.

 

“Domestic Subsidiary” means any Subsidiary that is organized under the laws of
any political subdivision of the United States.

 

“EBITDA” has the meaning set forth in Schedule 7.16.

 

“Environmental Laws” means any and all Federal, state, local, and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements or governmental
restrictions relating to pollution and the protection of the environment or the
release of any materials into the environment, including those related to
hazardous substances or wastes, air emissions and discharges to waste or public
systems.

 

“Environmental Liabilities” means any liability, contingent or otherwise
(including any liability for damages, costs of environmental remediation, fines,
penalties or indemnities) of any Borrower, any other Note Party or any of their
respective Subsidiaries directly or indirectly resulting from or based upon
(a) violation of any Environmental Law, (b) the generation, use, handling,
transportation, storage, treatment or disposal of any Hazardous Materials,
(c) exposure to any Hazardous Materials, (d) the release or threatened release
of any Hazardous Materials into the environment or (e) any contract, agreement
or other consensual arrangement pursuant to which liability is assumed or
imposed with respect to any of the foregoing.

 

 “Environmental Lien” means any Lien in favor of any Governmental Authority for
Environmental Liabilities.

 

“Equipment” means and includes all of the Issuer’s goods (other than Inventory)
whether now owned or hereafter acquired and wherever located including, without
limitation, all

 

A-5

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equipment, machinery, apparatus, motor vehicles, fittings, furniture,
furnishings, fixtures, parts, accessories and all replacements and substitutions
therefor or accessions thereto.

 

“Equity Interests” means, with respect to any Person, all of the shares of
capital stock of (or other ownership or profit interests in) such Person, all of
the warrants, options or other rights for the purchase or acquisition from such
Person of shares of capital stock of (or other ownership or profit interests in)
such Person, all of the securities convertible into or exchangeable for shares
of capital stock of (or other ownership or profit interests in) such Person or
warrants, rights or options for the purchase or acquisition from such Person of
such shares (or such other interests), and all of the other ownership or profit
interests in such Person (including partnership, member or trust interests
therein), whether voting or nonvoting, and whether or not such shares, warrants,
options, rights or other interests are outstanding on any date of determination.

 

“ERISA” means the Employee Retirement Income Security Act of 1974 as the same
may be amended from time to time.

 

“ERISA Affiliate” means any trade or business (whether or not incorporated)
under common control with the Issuer within the meaning of Section 414(b) or
(c) of the Code (and Sections 414(m) and (o) of the Code for purposes of
provisions relating to Section 412 of the Code).

 

“ERISA Event” means (a) a Reportable Event with respect to a Pension Plan; (b) a
withdrawal by the Issuer or any ERISA Affiliate from a Pension Plan subject to
Section 4063 of ERISA during a plan year in which it was a substantial employer
(as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is
treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or
partial withdrawal by the Issuer or any ERISA Affiliate from a Multiemployer
Plan or notification that a Multiemployer Plan is in reorganization; (d) the
filing of a notice of intent to terminate, the treatment of a Plan amendment as
a termination under Sections 4041 or 4041A of ERISA, or the commencement of
proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan;
(e) an event or condition which constitutes grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer, any
Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under
Title IV of ERISA, other than for PBGC premiums due but not delinquent under
Section 4007 of ERISA, upon the Issuer or any ERISA Affiliate.

 

“Events of Default” has the meaning set forth in Section 9.

 

“Excess Availability” has the meaning ascribed to it in the Revolving Loan
Agreement.

 

“Excess Cash Flow” means, with respect to a specified fiscal period and
determined with respect to the Note Parties on a consolidated basis in
accordance with GAAP and without duplication of any amounts constituting
Extraordinary Receipts used to prepay the Note Obligations, (a) EBITDA for the
fiscal year then ended, minus (b) the sum of (i) voluntary and mandatory
prepayments of the Notes in accordance with Section 3.2, (ii) the cash portion
of Interest Expense paid during such fiscal period (including cash payments of
future capitalized interest), (iii) the cash portion of taxes paid during such
period, (iv) the cash portion of Capital Expenditures during such period,
(v) cash payments made under Capitalized Leases, (vi) plus or minus changes in
working capital for such Fiscal Period with adjustments for the accounting of
outstanding checks as accounts payable, (vii) changes in Canadian and Asian cash
balances due to

 

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operations in the ordinary course, (viii) the cash portion of payments made
relating to Hoop to the extent excluded from EBITDA, (ix) the cash portion of
one time charges related to the Issuers restructuring announced on March 20,
2008 to the extent excluded from EBITDA, (x) the cash portion of non-reoccuring
charges related to the severance of certain senior management to the extent
excluded from EBITDA, (xi) legal and other professional advisory closing fees
associates with the Note Documents and the Revolving Loan Documents to the
extent excluded from EBITDA, (xii) legal and other professional advisory fees
incurred in the Fiscal Year ending January 31, 2009 associated with the
development of strategic alternatives to the extent excluded from EBITDA, and
(xiii) the cash portion of all other non-reoccurring charges/gains to the extent
excluded from EBITDA.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended (and any
successor statute).

 

“Existing Credit Agreement” means that certain Fifth Amended and Restated Loan
and Security Agreement, dated as of June 28, 2007, by and between, among others,
the Issuer, Services Company, the financial institutions party thereto from time
to time as lenders, and Wells Fargo Retail Finance, LLC, as Agent, as amended
and in effect as of the Closing Date.

 

“Extraordinary Receipts” means any cash received by the Note Parties with
respect to (a) tax refunds, (b) pension plan reversions, (c) proceeds of
insurance (including key man life insurance and, unless the Collateral Agent
provides its prior written consent otherwise, business interruption insurance,
but excluding any casualty insurance), (d) judgments, proceeds of settlements or
other consideration of any kind in connection with any cause of action,
(e) indemnity payments, (f) any purchase price adjustment received in connection
with any purchase agreement (other than relating to ordinary purchases of goods
and services in the ordinary course of business) and (g) at any time that an
Event of Default shall exist and be continuing and at the sole discretion of the
Collateral Agent, any other cash received by the Note Parties not in the
ordinary course of business; provided that with respect to the receipts
described in clauses (a) through (f) of this definition, only such receipts in
excess of $2,000,000 in the aggregate over the life of the Note Obligations
shall be deemed an “Extraordinary Receipt”; provided further that any individual
receipt described in clauses (a) through (f) of this definition that does not
exceed $100,000 shall not be deemed an “Extraordinary Receipt” and for the
avoidance of doubt, shall not be included in the aggregate amount received under
clauses (a) through (f) of this definition.

 

 “Fiscal Quarter” has the meaning set forth in Schedule 7.16.

 

“Fiscal Month” means any fiscal month of any Fiscal Year, which month shall
generally end on the Saturday closest to the last day of each calendar month in
accordance with the fiscal accounting calendar of the Note Parties.

 

“Fiscal Year” has the meaning set forth in Schedule 7.16.

 

“FRB” means the Board of Governors of the Federal Reserve System of the United
States.

 

“GAAP” means generally accepted accounting principles set forth from time to
time in the opinions and pronouncements of the Accounting Principles Board and
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting

 

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Standards Board (or agencies with similar functions of comparable stature and
authority within the accounting profession), which are applicable to the
circumstances as of the date of determination.

 

“Governing Documents” means, with respect to any Person, such Person’s articles
and by-laws of a corporation, operating agreement, if a limited liability
company or unlimited liability company, and limited partnership agreement and
certificate of limited partnership, of a limited partnership, and other similar
governing documents, with respect to any other entity.

 

“Governmental Authority” means any nation or government, any state or other
political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
and any corporation or other entity owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing.

 

“Guarantee” means as to any Person, any obligation of such Person guaranteeing,
providing comfort or otherwise supporting any Indebtedness, lease, dividend, or
other obligation (“primary obligation”) of any other Person (the “primary
obligor”) in any manner, including any obligation or arrangement of such Person
to (a) purchase or repurchase any such primary obligation, (b) advance or supply
funds (i) for the purchase or payment of any such primary obligation or (ii) to
maintain working capital or equity capital of the primary obligor or otherwise
to maintain the net worth or solvency or any balance sheet condition of the
primary obligor, (c) purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation, (d) protect the
beneficiary of such arrangement from loss (other than product warranties given
in the ordinary course of business) or (e) indemnify the owner of such primary
obligation against loss in respect thereof.  The amount of any Guarantee at any
time shall be deemed to be an amount equal to the lesser at such time of (x) the
stated or determinable amount of the primary obligation in respect of which such
Guarantee is incurred and (y) the maximum amount for which such Person may be
liable pursuant to the terms of the instrument embodying such Guarantee, or, if
not stated or determinable, the maximum reasonably anticipated liability
(assuming full performance) in respect thereof.

 

“Guaranteed Obligations” shall have the meaning assigned to such term in
Section 11.1.

 

“Guarantors” means each of the parties listed as Guarantors on the signature
pages to this Agreement and each Person that subsequently becomes a party to
this Agreement and is required to act as a Guarantor under this Agreement.

 

“Hazardous Materials” means (a) substances that are defined or listed in, or
otherwise classified pursuant to, any applicable laws or regulations (including
Environmental Laws) as “hazardous substances,” “hazardous materials,” “hazardous
wastes,” “toxic substances,” or any other formulation intended to define, list,
or classify substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or “EP
toxicity”, (b) oil, petroleum, or petroleum derived substances, natural gas,
natural gas liquids, synthetic gas, drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources, (c) any flammable substances or explosives
or any radioactive materials, and (d) asbestos in any form or electrical
equipment that contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of 50 parts per million.

 

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“Hedge Agreement” means any and all agreements, or documents now existing or
hereafter entered into by a Person that provide for an interest rate, credit,
commodity or equity swap, cap, floor, collar, forward foreign exchange
transaction, currency swap, cross currency rate swap, currency option, or any
combination of, or option with respect to, these or similar transactions, for
the purpose of hedging such Person’s exposure to fluctuations in interest or
exchange rates, loan, credit exchange, security, or currency valuations or
commodity prices.

 

“Hedge Termination Value” means, in respect of any one or more Hedge Agreements,
after taking into account the effect of any legally enforceable netting
agreement relating to such Hedge Agreements, (a) for any date on or after the
date such Hedge Agreements have been closed out and termination
value(s) determined in accordance therewith, such termination value(s), and
(b) for any date prior to the date referenced in clause (a), the
amount(s) determined as the mark-to-market value(s) for such Hedge Agreements,
as determined based upon one or more mid-market or other readily available
quotations provided by any recognized dealer in such Hedge Agreements (which may
include a Note Purchaser or any Affiliate of a Note Purchaser).

 

“Hoop” means each Subsidiary of the Issuer which comprises the Disney store
business previously conducted by the Issuer.

 

“Hoop Sale” means the sale of certain assets of Hoop and certain other assets
used in the Hoop business pursuant to the Asset Purchase Agreement.

 

“Indebtedness” means, as to any Person at a particular time, without
duplication, all of the following, whether or not included as indebtedness or
liabilities in accordance with GAAP;

 

(a)           all obligations of such Person for borrowed money and all
obligations of such Person evidenced by bonds, debentures, notes, loan
agreements or other similar instruments;

 

(b)           the maximum amount of all direct or contingent obligations of such
Person arising under letters of credit (including standby and commercial),
bankers’ acceptances, bank guaranties, surety bonds and similar instruments;

 

(c)           net obligations of such Person under any Hedge Agreement;

 

(d)           all obligations of such Person to pay the deferred purchase price
of property or services (other than trade accounts payable in the ordinary
course of business and, in each case, payable in accordance with customary trade
practices);

 

(e)           indebtedness (excluding prepaid interest thereon) secured by a
Lien on property owned or being purchased by such Person (including indebtedness
arising under conditional sales or other title retention agreements), whether or
not such indebtedness shall have been assumed by such Person or is limited in
recourse;

 

(f)            all obligations in respect of Capital Lease Obligations of such
Person, but excluding any obligations of such Person in respect of operating
leases;

 

(g)           all obligations of such Person to purchase, redeem, retire,
defease or otherwise make any payment in respect of any Equity Interest in such
Person or any

 

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other Person, or any warrant, right or option to acquire such Equity Interest,
valued, in the case of a redeemable preferred interest, at the greater of its
voluntary or involuntary liquidation preference plus accrued and unpaid
dividends; and

 

(h)           all Guarantees of such Person in respect of any of the foregoing.

 

For all purposes hereof, the Indebtedness of any Person shall include the
Indebtedness of any partnership or joint venture (other than a joint venture
that is itself a corporation or limited liability company) in which such Person
is a general partner or a joint venturer, unless such Indebtedness is expressly
made non-recourse to such Person.  The amount of any net obligation under any
Hedge Agreement on any date shall be deemed to be the Hedge Termination Value
thereof as of such date.

 

“Indemnified Liabilities” has the meaning set forth in Section 13.2.

 

“Indemnitees” has the meaning set forth in Section 13.2.

 

“Indemnitor” has the meaning set forth in Section 13.2.

 

“Information” has the meaning set forth in Section 13.17.

 

“Insolvency Proceeding” means any proceeding commenced by or against any Person
under any provision of the Bankruptcy Code or under any other bankruptcy or
insolvency law, assignment for the benefit of creditors, formal or informal
moratoria, composition, extension generally with creditors, or proceeding
seeking reorganization, arrangement, or other similar relief.

 

“Intellectual Property” means any and all licenses, patents, copyrights,
trademarks, designs and the goodwill associated with such trademarks.

 

“Intercompany Obligations” has the meaning set forth in Section 11.8.1.

 

“Intercreditor Agreement” has the meaning set forth in the Recitals.

 

“Interest Expense” has the meaning set forth in Schedule 7.16.

 

“Interest Payment Date” has the meaning set forth in Section 3.1.1.

 

“Interest Period” means the period from and including the Closing Date and
ending on the date one, two, three or six months thereafter, as selected by a
Issuer by written notice to the Collateral Agent, no less than three days prior
to the commencement of the Interest Period, and each succeeding period elected
by the Issuer in this manner; provided that:

 

(a)           if the Issuer fails to elect an Interest Period by written notice
to the Collateral Agent by the date that is three days prior to the commencement
of an Interest Period, such Interest Period will automatically end one month
after its commencement;

 

(b)           any Interest Period that would otherwise end on a day that is not
a Business Day shall be extended to the next succeeding Business Day unless such
Business Day falls in another calendar month, in which case such Interest Period
shall end on the next preceding Business Day;

 

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(c)           any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period) shall end on the last
Business Day of the calendar month at the end of such Interest Period; and

 

(d)           no Interest Period shall extend beyond the Maturity Date.

 

“Internal Revenue Service” means the Internal Revenue Service of the United
States government.

 

“Inventory” means and includes, as to any Person, all of such Person’s now owned
or hereafter acquired goods, merchandise and other personal property, wherever
located, to be furnished under any consignment arrangement, contract of service
or held for sale or lease, all raw materials, work in process, finished goods
and materials and supplies of any kind, nature or description which are or might
be used or consumed in such Person’s business or used in selling or furnishing
such goods, merchandise and other personal property, and all documents of title
or other documents representing them.

 

“Investment” means, as to any Person, any direct or indirect acquisition or
investment by such Person, whether by means of (a) the purchase or other
acquisition of Equity Interests of another Person, (b) a loan, advance or
capital contribution to, Guarantee or assumption of debt of, or purchase or
other acquisition of any other debt or interest in, another Person, or (c) any
Acquisition, or (d) any other investment of money or capital in order to obtain
a profitable return.  For purposes of covenant compliance, the amount of any
Investment shall be the amount actually invested, without adjustment for
subsequent increases or decreases in the value of such Investment..

 

“IP Security Agreement” means that certain Intellectual Property Agreement,
dated the date hereof, by and between the Note Parties and the Collateral Agent
for the benefit of the Note Purchasers, as amended, modified or supplemented
from time to time in accordance with the terms thereof.

 

“Issuer” has the meaning set forth in the preamble.

 

“Lease” means any agreement, whether written or oral, no matter how styled or
structured, pursuant to which a Note Party is entitled to the use or occupancy
of any space in a structure, land, improvements or premises for any period of
time.

 

“Letters of Credit” means each of the Letters of Credit set forth in Schedule
T-1.

 

“LIBOR” means for any Interest Period the greater of (x) 3.00% per annum or (y):

 

(a)  the rate per annum equal to the rate determined by the Note Purchasers to
be the offered rate that appears on the page of the Telerate screen (or any
successor thereto) that displays an average British Bankers Association Interest
Settlement Rate for deposits in Dollars (for delivery on the first day of such
Interest Period) with a term equivalent to such Interest Period, determined as
of approximately 11:00 a.m. (London time) two Business Days prior to the first
day of such Interest Period, or

 

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(b)  if the rate referenced in the preceding clause (a) does not appear on such
page or service or such page or service shall not be available, the rate per
annum equal to the rate determined by the Note Purchasers to be the offered rate
on such other page or other service that displays an average British Bankers
Association Interest Settlement Rate for deposits in Dollars (for delivery on
the first day of such Interest Period) with a term equivalent to such Interest
Period, determined as of approximately 11:00 a.m. (London time) two Business
Days prior to the first day of such Interest Period.

 

“License Agreements” means any licensing agreements entered into between any of
the  Note Parties or their Subsidiaries and any Person.

 

“Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment,
charge, deposit arrangement, encumbrance, easement, lien (statutory or other),
security interest, or other security arrangement and any other preference,
priority, or preferential arrangement of any kind or nature whatsoever,
including any conditional sale contract or other title retention agreement, the
interest of a lessor under a Capital Lease and any synthetic or other financing
lease having substantially the same economic effect as any of the foregoing, and
the filing of, or agreement to give, any financing statement under the Uniform
Commercial Code or any comparable law.

 

“Material Adverse Effect” means, excluding the filing for bankruptcy and the
implementation of the bankruptcy proceeding of Hoop, since any specified date or
from the circumstances existing immediately prior to the happening of any
specified event, a material adverse change in (a) the business, assets,
financial condition or properties of (i) the Issuer and its Subsidiaries taken
as a whole or (ii) all of the Note Parties taken as a whole, (b) the ability of
(i) the Issuer or (ii) all of the Note Parties taken as a whole, to perform
their obligations under this Agreement or the other Note Documents, or (c) the
ability of any Guarantor to perform any of its material obligations under any
guarantee of the Notes, or (d) the rights and remedies of the Note Purchasers
under the Agreement or the other Note Documents; provided, that where no date is
specified, the measurement date shall be from and after February 2, 2008.

 

“Material Contract” means, with respect to any Person, (i) each contract or
agreement to which such Person or any of its Subsidiaries is a party involving
aggregate consideration payable to or by such Person or such Subsidiary of
$5,000,000 or more (other than (A) purchase orders in the ordinary course of the
business of such Person or such Subsidiary, (B) contracts that by their terms
may be terminated by such Person or Subsidiary in the ordinary course of its
business upon less than 60 days notice without penalty or premium and
(C) employment contracts with aggregate consideration less than $1,000,000),
(ii) any material License Agreements, and (iii) each other contract or agreement
which if terminated prior to the term set forth therein, such termination could
reasonably be expected to have a Material Adverse Effect.

 

“Material Indebtedness” means Indebtedness of the Note Parties under the
Revolving Loan Agreement and other Indebtedness (other than the Note
Obligations) of the Note Parties in an aggregate principal amount exceeding
$1,500,000.  For purposes of determining the amount of Material Indebtedness at
any time, the amount of the obligations in respect of any Hedge Agreement at
such time shall be calculated at the Hedge Termination Value thereof.

 

“Maturity Date” means July 31, 2013.

 

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“Monitoring Fee” means a $50,000 fee payable to the Collateral Agent on the
Closing Date and on each anniversary of the Closing Date with such fee being
fully earned when paid.

 

“Moody’s” has the meaning specified therefor in the definition of Cash
Equivalents.

 

“Multiemployer Plan” means a multiemployer plan, as defined in
Section 4001(a)(3) of ERISA, to which Note Parties or any member of the
Controlled Group may have any liability.

 

“Net Cash Proceeds” means:

 

(a)           with respect to any sale or disposition by a Note Party, the
amount of cash proceeds received (directly or indirectly) from time to time
(whether as initial consideration or through the payment of deferred
consideration) by or on behalf of a Note Party in connection therewith after
deducting therefrom only (i) the amount of any Indebtedness secured by any
Permitted Encumbrance on any asset (other than (A) the Revolving Loan Debt and
(B) Indebtedness assumed by the purchaser of such asset) which is required to
be, and is, repaid in connection with such sale or disposition, (ii) all fees,
commissions, and expenses related thereto and required to be paid by a Note
Party in connection with such sale or disposition and (iii) taxes paid or
payable to any taxing authorities by a Note Party in connection with such sale
or disposition, in each case to the extent, but only to the extent, that the
amounts so deducted are, at the time of receipt of such cash, actually paid or
payable to a Person that is not an Affiliate of a Note Party and are properly
attributable to such transaction;

 

(b)           with respect to the issuance or incurrence of any Indebtedness by
a Note Party or any of its Subsidiaries, or the issuance by a Note Party or any
of its Subsidiaries of any shares of its Capital Stock, the aggregate amount of
cash received (directly or indirectly) from time to time (whether as initial
consideration or through the payment or disposition of deferred consideration)
by or on behalf of a Note Party or any of its Subsidiaries in connection with
such issuance or incurrence, after deducting therefrom only (i) all fees,
commissions, and expenses related thereto and required to be paid by a Note
Party or any of its Subsidiaries in connection with such issuance or incurrence
and (ii) taxes paid or payable to any taxing authorities by a Note Party or any
of its Subsidiaries in connection with such issuance or incurrence, in each case
to the extent, but only to the extent, that the amounts so deducted are, at the
time of receipt of such cash, actually paid or payable to a Person that is not
an Affiliate of a Note Party or any of its Subsidiaries, and are properly
attributable to such transaction; and

 

(c)           with respect to any Extraordinary Receipts received by a Note
Party, the amount of cash proceeds received (directly or indirectly) from time
to time (whether as initial consideration or through the payment of deferred
consideration) by or on behalf of a Note Party, in connection therewith after
deducting therefrom only (i)  all fees, commissions, and expenses related
thereto and required to be paid by a Note Party in connection with such
Extraordinary Receipts and (ii) taxes paid or payable to any taxing authorities
by a Note Party in connection with such Extraordinary Receipts, in each case to
the extent, but only to the extent, that the amounts so deducted are, at the
time of receipt of such cash, actually paid or payable to a Person that is not
an Affiliate of a Note Party, and are properly attributable to such
Extraordinary Receipts.

 

“New Headquarters” means the office located at Two Emerson Lane, Secaucus, NJ
07094.

 

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“Note” and “Notes” has the meaning set forth in the recitals to the Agreement
and shall mean and include any Notes issued pursuant to Section 10.1 of the
Agreement, and shall further mean any include any amendments, modifications or
refinancings thereof, including any such that increase the principal amount
thereof.

 

“Note Documents” means the Agreement, the Collateral Documents, the
Intercreditor Agreement, the Notes and each of the documents, instruments and
other agreements evidencing, guaranteeing or governing or otherwise relating to
the incurrence by the Issuer of, the Note Obligations, as in effect on the
Closing Date and as the same may be entered into, amended, restated, modified or
supplemented from time to time in accordance with the terms of the Intercreditor
Agreement.

 

“Note Guarantee” means the Guarantee issued pursuant to Section 11 by the
Guarantors.

 

“Note Obligations” means any and all obligations of the Issuer under this
Agreement with respect to the Notes and under the Notes, including, without
limitation, the obligation to pay principal, premium, if any, interest,
expenses, reasonable attorneys’ fees and disbursements, indemnities and other
amounts payable thereunder or in connection therewith or related thereto, in
each case to the extent provided for under this Agreement or the other Note
Documents.

 

“Note Parties” has the meaning set forth in the preamble.

 

“Note Purchasers” has the meaning set forth in the preamble to the Agreement,
and means and includes the Note Purchasers and any assignees of the Notes
pursuant to Section 10.1 of the Agreement.  “Note Purchaser” means any of the
Note Purchasers, individually.

 

“Note Purchasers Priority Collateral” has the meaning given that term in the
Intercreditor Agreement.

 

“Other Taxes” has the meaning set forth in Section 3.4.2.

 

“Payment Conditions” means, at the time of determination with respect to any
specified transaction or payment, that (a) no Default or Event of Default has
occurred and is continuing or would arise as a result of entering into such
transaction or making such payment, and (b) at least five (5) days prior to
entering into such transaction or making such payment, the Issuer shall have
provided to the Collateral Agent a certificate signed by a Responsible Officer
of the Issuer, in form and substance reasonably satisfactory to the Collateral
Agent, certifying that (i) prior to, and on a pro forma basis for the six months
immediately following, and after giving effect to (provided that if the
aggregate amount of such payment in any Fiscal Year is less than or equal to
$10,000,000, such pro forma test shall not be required), such transaction or
payment, Excess Availability will be greater than or equal to $50,000,000,
(ii) the Note Parties, on a Consolidated basis, are, and will continue to be,
Solvent after giving effect to such transaction or payment, and (iii) the
Leverage Ratio immediately before and after such transaction or payment is less
than 1.75:1:00.

 

“PBGC” means the Pension Benefit Guaranty Corporation or any successor entity.

 

“Pension Plan” means any “employee pension benefit plan” (as such term is
defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is
subject to Title IV of ERISA and is sponsored or maintained by the Issuer or any
ERISA Affiliate or to which the Issuer or

 

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any ERISA Affiliate contributes or has an obligation to contribute, or in the
case of a multiple employer or other plan described in Section 4064(a) of ERISA,
has made contributions at any time during the immediately preceding five plan
years.

 

“Permitted Acquisition” means an Acquisition in which all of the following
conditions are satisfied:

 

(a)           No Default or Event of Default has occurred and is continuing or
immediately following such Acquisition or after taking into account the pro
forma financials, would result from the consummation of such Acquisition;

 

(b)           Such Acquisition shall have been approved by the Board of
Directors of the Person (or similar governing body if such Person is not a
corporation) which is the subject of such Acquisition and such Person shall not
have announced that it will oppose such Acquisition or shall not have commenced
any action which alleges that such Acquisition shall violate applicable Law;

 

(c)           The Issuer shall have furnished the Note Purchasers with thirty
(30) days’ prior written notice of such intended Acquisition and shall have
furnished the Note Purchasers with a current draft of the acquisition documents
(and final copies thereof as and when executed), a summary of any due diligence
undertaken by the Note Parties in connection with such Acquisition, appropriate
financial statements of the Person which is the subject of such Acquisition, pro
forma projected financial statements for the twelve (12) month period following
such Acquisition after giving effect to such Acquisition (including balance
sheets, cash flows and income statements by month for the acquired Person,
individually, and on a Consolidated basis with all Note Parties), and such other
information as the Note Purchasers may reasonably require, all of which shall be
reasonably satisfactory to the Note Purchasers;

 

(d)           Either (i) the legal structure of the Acquisition shall be
acceptable to the Note Purchasers in their discretion, or (ii) the Note Parties
shall have provided the Note Purchasers with a solvency opinion from an
unaffiliated third party valuation firm reasonably satisfactory to the Note
Purchasers;

 

(e)           After giving effect to the Acquisition, if the Acquisition is an
Acquisition of the Equity Interests, a Note Party shall acquire and own,
directly or indirectly, a majority of the Equity Interests in the Person being
acquired and shall Control a majority of any voting interests or shall otherwise
Control the governance of the Person being acquired;

 

(g)           Any assets acquired shall be utilized in, and if the Acquisition
involves a merger, consolidation or stock acquisition, the Person which is the
subject of such Acquisition shall be engaged in, the same or substantially the
same line of business engaged in by the Issuer under this Agreement;

 

(h)           If the Person which is the subject of such Acquisition will be
maintained as a Subsidiary of a Note Party, or if the assets acquired in an
acquisition will be transferred to a Subsidiary which is not then a Note Party,
such Subsidiary (unless a CFC, in which case such Subsidiary will not be
required to be a Guarantor) shall have been joined as a Guarantor, and the
Collateral Agent shall have received a security interest in such

 

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Subsidiary’s Intellectual Property and/or mortgage interest in such Subsidiary’s
Equity Interests, Inventory, Accounts (subject only to Permitted Encumbrances
having priority by operation of law) and other property of the same nature as
constitutes collateral under the Collateral Documents; subject only to Permitted
Encumbrances having priority by operation of law and the Lien in favor of the
Revolving Lenders;

 

(i)            Prior to, and on a pro forma basis for the twelve months
immediately following, and after giving effect to, such Acquisition, Excess
Availability will be greater than or equal to $50,000,000;

 

(j)            The Leverage Ratio, both immediately before and after giving
effect to such Acquisition, is less than 2:00:1:00; otherwise the Required
Purchasers have provided their written consent to such merger, amalgamation,
consolidation, transfer, sale or acquisition; and

 

(k)           no Permitted Acquisitions shall exceed $100,000,000 in any Fiscal
Year.

 

“Permitted Disposition” means any of the following:

 

(a)           Dispositions of Inventory in the ordinary course of business,
including liquidations or other Dispositions of Inventory in connection with
Store closings in the ordinary course of business; provided, that, the aggregate
total of any Dispositions of Inventory in connection with Store closings under
this clause (a) shall not exceed $10,000,000 in any Fiscal Year;

 

(b)           bulk sales or other Dispositions of the Inventory of a Note Party
not in the ordinary course of business in connection with Store closings, at
arm’s length, provided, that such Store closures and related Inventory
Dispositions shall not exceed (i) in any Fiscal Year of the Issuer and its
Subsidiaries, five percent (5%) of the number of the Note Parties’ Stores as of
the beginning of such Fiscal Year (net of new Store openings) and (ii) in the
aggregate from and after the Closing Date, ten percent (10%) of the number of
the Note Parties’ Stores in existence as of the Closing Date (net of new Store
openings), provided further that all sales of Inventory in connection with Store
closings shall be in accordance with liquidation agreements and with
professional liquidators reasonably acceptable to the Collateral Agent; provided
further that all Net Cash Proceeds received in connection therewith are applied
to the Obligations if then required in accordance with Section 2.05 of the
Revolving Loan Agreement;

 

(c)           non-exclusive licenses of Intellectual Property of a Note Party or
any of its Subsidiaries in the ordinary course of business; provided, that, the
aggregate total over the life of the Note Obligations of any Dispositions under
this clause (c) shall not exceed $2,000,000;

 

(d)           licenses for the conduct of licensed departments within the Note
Parties’ Stores in the ordinary course of business; provided that, if requested
by the Collateral Agent, the Collateral Agent shall have entered into an
intercreditor agreement with the Person operating such licensed department on
terms and conditions reasonably satisfactory to the Required Purchasers;

 

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(e)           (i) Dispositions of Equipment in the ordinary course of business
that is substantially worn, damaged, obsolete or, in the judgment of a Note
Party, no longer useful or necessary in its business or that of any Subsidiary
and is not replaced with similar property having at least equivalent value and
(ii) other Dispositions of Equipment having a fair market value not to exceed
$500,000 in the aggregate in any Fiscal Year;

 

(f)            sales, transfers and Dispositions among the Note Parties or by
any Subsidiary to a Note Party, including, without limitation, distributions or
transfers of some or all of the assets of Twin Brook to the Issuer, provided
that before, or within three (3) Business Days after, any such distribution or
transfer, the Issuer shall have caused the former assets of Twin Brook so
distributed to be pledged to the Collateral Agent for the benefit of the Note
Purchasers;

 

(g)           sales, transfers and Dispositions of or by any Subsidiary which is
not a Note Party to another Subsidiary that is not a Note Party; and

 

(h)           as long as no Default or Event of Default shall have occurred and
be continuing or would arise therefrom, the Alabama Sale-Leaseback Transaction;
provided that (i) such sale is made for fair market value, (ii) the Net Cash
Proceeds paid in cash are in an amount at least equal to the greater of the
amounts advanced, or available to be advanced, against the Alabama Property
under the Borrowing Base, (iii) subject to the Intercreditor Agreement, all Net
Cash Proceeds received in connection with any such transaction are applied to
the Obligations, and (iv) the Collateral Agent shall have received a Collateral
Access Agreement from the purchaser of the Alabama Property;

 

provided, however, to the extent the Intercreditor Agreement restricts the
ability of the Note Parties to apply the Net Cash Proceeds from any foregoing
asset dispositions to the Note Obligations and the asset disposition is of
property not included in the Borrowing Base, other than to the extent the asset
disposition is a Replaced Asset Disposition, the amount of the Net Cash Proceeds
from such asset disposition shall at all times thereafter result in a permanent
reduction of the Borrowing Base in an amount equal to the amount of the Net Cash
Proceeds.  For purposes of this paragraph, “Replaced Asset Disposition” shall
mean a Disposition in which the Net Cash Proceeds are used to replace the
Disposed assets with similar assets having a fair market value at least as great
as the Disposed assets, provided that to the extent such Net Cash Proceeds from
such Dispositions exceed $5,000,000 in the aggregate, such Dispositions above
$5,000,000 may be approved as a “Replaced Asset Disposition” by the Required
Purchasers in their discretion.

 

“Permitted Encumbrances” means:

 

(a)           Liens imposed by law for Taxes that are not yet due or are being
contested in compliance with Section 7.6;

 

(b)           Carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s
and other like Liens imposed by applicable Law, arising in the ordinary course
of business and securing obligations that are not overdue by more than thirty
(30) days or are being contested in compliance with Section 7.6;

 

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(c)           Pledges and deposits made in the ordinary course of business in
compliance with workers’ compensation, unemployment insurance and other social
security laws or regulations, other than any Lien imposed by ERISA;

 

(d)           Liens or deposits to secure the performance of bids, trade
contracts and leases (other than obligations for borrowed money), statutory
obligations, surety and appeal bonds, performance bonds and other obligations of
a like nature incurred in the ordinary course of business;

 

(e)           Liens in respect of judgments that would not constitute an Event
of Default hereunder;

 

(f)            Easements, covenants, conditions, restrictions, building code
laws, zoning restrictions, rights-of-way and similar encumbrances on real
property imposed by law or arising in the ordinary course of business that do
not secure any monetary obligations and do not materially detract from the value
of the affected property or materially interfere with the ordinary conduct of
business of a Note Party and such other minor title defects or survey matters
that are disclosed by current surveys that, in each case, do not materially
interfere with the current use of the real property;

 

(g)           Liens existing on the date hereof and listed on Schedule 5.8.3 and
any renewals or extensions thereof, provided that (i) the property covered
thereby is not changed, (ii) the amount secured or benefited thereby is not
increased, (iii) the direct or any contingent obligor with respect thereto is
not changed, and (iv) any renewal or extension of the obligations secured or
benefited thereby is otherwise permitted hereunder;

 

(h)           Liens on fixed or capital assets acquired by any Note Party which
are permitted under clause (c) of the definition of Permitted Indebtedness so
long as (i) the Indebtedness secured thereby does not exceed the cost of
acquisition of such fixed or capital assets and (ii) such Liens shall not extend
to any other property or assets of the Note Parties;

 

(i)            Liens in favor the Collateral Agent;

 

(j)            Landlords’ and lessors’ Liens in respect of rent not in default;

 

(k)           Possessory Liens in favor of brokers and dealers arising in
connection with the acquisition or disposition of Investments owned as of the
date hereof and Permitted Investments, provided that such liens (a) attach only
to such Investments and (b) secure only obligations incurred in the ordinary
course and arising in connection with the acquisition or disposition of such
Investments and not any obligation in connection with margin financing;

 

(l)            Liens arising solely by virtue of any statutory or common law
provisions relating to banker’s liens, liens in favor of securities
intermediaries, rights of setoff or similar rights and remedies as to deposit
accounts or securities accounts or other funds maintained with depository
institutions or securities intermediaries;

 

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(m)          Liens arising from precautionary UCC filings regarding “true”
operating leases or, to the extent permitted under the Note Documents, the
consignment of goods to a Note Party;

 

(n)           Liens on the Collateral securing the Obligations having the
priority set forth in the Intercreditor Agreement; and

 

(o)           Liens in favor of customs and revenues authorities imposed by
applicable Law arising in the ordinary course of business in connection with the
importation of goods and securing obligations (i) that are not overdue by more
than thirty (30) days, or (ii)(A) that are being contested in good faith by
appropriate proceedings, (B) the applicable Note Party or Subsidiary has set
aside on its books adequate reserves with respect thereto in accordance with
GAAP and (C) such contest effectively suspends collection of the contested
obligation and enforcement of any Lien securing such obligation;

 

provided, however,  that, except as provided in any one or more of clauses
(a) through (o) above, the term “Permitted Encumbrances” shall not include any
Lien securing obligations for borrowed money.

 

“Permitted Indebtedness” means:

 

(A)           INDEBTEDNESS OUTSTANDING ON THE DATE HEREOF AND LISTED ON SCHEDULE
5.8.5 AND ANY PERMITTED REFINANCING INDEBTEDNESS IN RESPECT THEREOF;

 

(b)           Indebtedness of any Note Party to any other Note Party; provided
that such Indebtedness shall (i) be evidenced by such documentation as the
Required Purchasers may reasonably require, (ii) constitute “Collateral” under
this Agreement and the Security Documents, (iii) be on terms (including
subordination terms) reasonably acceptable to the Required Purchasers;

 

(c)           transfers permitted by Section 8.24 and intercompany Indebtedness
incurred in the ordinary course between the Note Parties located within the
United States on the one hand and their Affiliates in Puerto, Rico, Canada and
Asia on the other hand;

 

(d)           Without duplication of Indebtedness described in clause (f) of
this definition, Purchase Money Indebtedness of any Note Party to finance the
acquisition of any fixed or capital assets, including the Alabama Capital Lease
and other Capital Lease Obligations, and any Indebtedness assumed in connection
with the acquisition of any such assets or secured by a Lien on any such assets
prior to the acquisition thereof, and any Permitted Refinancing Indebtedness in
respect thereof; provided, however, that the aggregate principal amount of
Indebtedness permitted by this clause (d) and clause (g) shall not exceed
$5,000,000 at any time outstanding; provided that, if requested by the Required
Purchasers, the Note Parties shall cause the holders of such Indebtedness
incurred after the Closing Date to enter into a Collateral Access Agreement; for
the purposes of this clause (d), “Alabama Capital Lease” means a capital lease
for the inventory handling system of the Note Parties located at the Alabama
Property.

 

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(e)                                  any liability or obligation of the Issuer
to any Affiliate of the Issuer, and any liability or obligation of any Affiliate
of the Issuer to any other Affiliate of the Issuer, to reimburse or share the
costs of any services or third party expenses in accordance with the terms of
any intercompany cost-sharing agreement or arrangement, provided that no Default
or Event of Default shall have occurred and be continuing or would arise
therefrom;

 

(f)                                    Subordinated Indebtedness; provided,
that, (i) the terms of such Subordinated Indebtedness are satisfactory to the
Required Purchasers in its sole determination and (ii) an intercreditor
agreement is executed in connection with such Subordinated Indebtedness with the
Required Purchasers;

 

(g)                                 Indebtedness incurred in connection with the
Alabama Sale-Leaseback Transaction up to $2,500,000, provided that (i) such sale
is made for fair market value, (ii) the Net Cash Proceeds paid in cash are in an
amount at least equal to the greater of the amounts advanced or available to be
advanced against the Alabama Property under the Borrowing Base, (iii) all Net
Cash Proceeds received in connection with any such Indebtedness are applied to
the Obligations, and (iv) the Collateral Agent shall have received a Collateral
Access Agreement from the purchaser of the Alabama Property;

 

(h)                                 the Note Obligations;

 

(i)                                     Indebtedness under the Revolving Loan
Agreement (including Guarantees of the Issuer or any Guarantor in respect of
such Indebtedness), and any Permitted Refinancing Indebtedness in respect
thereof;

 

(j)                                     Indebtedness owed by any Canadian
Subsidiary to the Issuer;

 

(k)                                  Guarantees of the Issuer in respect of the
obligations of Hoop under those certain leases described on Schedule 5.33; and

 

(l)                                     [Reserved]

 

(m)                               Indebtedness permitted under the definition of
“Permitted Investments” Clauses (g), (h), (i), (k) and (m); and

 

(n)                                 other unsecured Indebtedness at any time
outstanding in an aggregate principal amount not to exceed $12,500,000 in the
aggregate and $3,000,000 to any one party.

 

“Permitted Investments” means:

 

(a)                                  readily marketable obligations issued or
directly and fully guaranteed or insured by the United States of America or any
agency or instrumentality thereof having maturities of not more than 360 days
from the date of acquisition thereof; provided that the full faith and credit of
the United States of America is pledged in support thereof;

 

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(b)                                 commercial paper issued by any Person
organized under the laws of any state of the United States of America and rated
at least “Prime-1” (or the then equivalent grade) by Moody’s or at least “A-1”
(or the then equivalent grade) by S&P, in each case with maturities of not more
than 180 days from the date of acquisition thereof;

 

(c)                                  time deposits with, or insured certificates
of deposit or bankers’ acceptances of, any commercial bank that (i) (A) is a
lender under the Revolving Loan Documents or (B) is organized under the laws of
the United States of America, any state thereof or the District of Columbia or
is the principal banking subsidiary of a bank holding company organized under
the laws of the United States of America, any state thereof or the District of
Columbia, and is a member of the Federal Reserve System, (ii) issues (or the
parent of which issues) commercial paper rated as described in clause (c) of
this definition and (iii) has combined capital and surplus of at least
$1,000,000,000, in each case with maturities of not more than 180 days from the
date of acquisition thereof;

 

(d)                                 fully collateralized repurchase agreements
with a term of not more than thirty (30) days for securities described in clause
(a) above (without regard to the limitation on maturity contained in such
clause) and entered into with a financial institution satisfying the criteria
described in clause (c) above or with any primary dealer and having a market
value at the time that such repurchase agreement is entered into of not less
than 100% of the repurchase obligation of such counterparty entity with whom
such repurchase agreement has been entered into;

 

(e)                                  Investments, classified in accordance with
GAAP as current assets of the Note Parties, in any money market fund, mutual
fund, or other investment companies that are registered under the Investment
Company Act of 1940, as amended, which are administered by financial
institutions that have the highest rating obtainable from either Moody’s or S&P,
and which invest solely in one or more of the types of securities described in
clauses (a) through (d) above;

 

(f)                                    Investments existing on the Closing Date,
and set forth on Schedule 5.8.4, but not any increase in the amount thereof or
any other modification of the terms thereof;

 

(g)                                 (i) Investments by any Note Party and its
Subsidiaries in their respective Subsidiaries outstanding on the date hereof,
(ii) additional Investments by any Note Party and its Subsidiaries in any other
Note Party (provided that the Issuer shall be permitted to make additional
Investments in Twin Brook in an aggregate amount not to exceed $750,000 in any
Fiscal Year), and (iii) additional Investments by any Note Party in Subsidiaries
that are not Note Parties not to exceed $1,000,000 in the aggregate in any
Fiscal Year;

 

(h)                                 so long as no Event of Default shall have
occurred and be continuing, or would result therefrom, the Issuer may make loans
and advances to its Subsidiaries in an aggregate amount not to exceed $5,000,000
at any time outstanding;

 

(i)                                     intercompany loans and advances or other
intercompany Indebtedness permitted pursuant to clauses (b), (c) and (e) of the
definition of Permitted Indebtedness;

 

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(j)                                     Investments consisting of extensions of
credit in the nature of accounts receivable or notes receivable arising from the
grant of trade credit in the ordinary course of business, and Investments
received in satisfaction or partial satisfaction thereof from financially
troubled account debtors to the extent reasonably necessary in order to prevent
or limit loss;

 

(k)                                  Guarantees constituting Permitted
Indebtedness;

 

(l)                                     Investments received in connection with
the bankruptcy or reorganization of, or settlement of delinquent accounts and
disputes with, customers and suppliers, in each case in the ordinary course of
business;

 

(m)                               so long as no Event of Default shall have
occurred and be continuing, or would result therefrom, (i) loans and advances to
officers, directors and employees of the Note Parties and Subsidiaries in the
ordinary course of business for travel, entertainment, relocation and analogous
business purposes, and (ii) other loans and advances to officers, directors and
employees of the Note Parties and Subsidiaries in an aggregate amount not to
exceed $6,000,000 at any time outstanding; and

 

(n)                                 Investments constituting Permitted
Acquisitions;

 

“Permitted Protest” means the right of any Note Party or its Subsidiaries to
protest any Lien, taxes (other than payroll taxes or taxes that are the subject
of a deemed trust, lien or other charge in favor of a Government Authority), or
rental payment, provided that (a) a reserve with respect to such obligation is
established on such Person’s books and records in such amount as is required
under GAAP, (b) any such protest is instituted promptly and prosecuted
diligently by such Person in good faith and (c) each Note Party shall, and shall
cause each of its Subsidiaries to, pay or bond, or cause to be paid or bonded,
all such taxes, assessments, charges or other governmental claims immediately
upon the commencement of proceedings to foreclose any Lien which may have
attached as security therefor (except to the extent such proceedings have been
dismissed or stayed).

 

“Permitted Purchase Money Indebtedness” means, as of any date of determination,
Purchase Money Indebtedness in an aggregate principal amount outstanding at any
one time not in excess of $5,000,000.

 

“Permitted Refinancing Indebtedness” means, with respect to any Person, any
refinancing, refunding, renewal or extension of any Indebtedness of such Person
(or any successor of such Person); provided that with respect to the Revolving
Loans or any other Indebtedness having an individual principal amount over
$1,000,000 (i) the amount of such Indebtedness is not increased at the time of
such refinancing, refunding, renewal or extension except by an amount equal to a
reasonable premium or other reasonable amount paid, and fees and expenses
reasonably incurred, in connection with such refinancing and by an amount equal
to any existing commitments unutilized thereunder, and the direct or contingent
obligor with respect thereto is not changed as a result of or in connection with
such refinancing, refunding, renewal or extension, (ii) the result of such
extension, renewal or replacement shall not be an earlier maturity date or
decreased weighted average life of such Indebtedness, (iii) the terms relating
to principal amount, amortization, maturity, and collateral (if any), and other
material terms taken as a whole, of any such refinancing, refunding, renewing or
extending Indebtedness, and of any agreement entered into and of any instrument
issued in connection therewith, are no less favorable in any material respect to
the Note

 

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Parties or the Note Purchasers than the terms of any agreement or instrument
governing the Indebtedness being refinanced, refunded, renewed or extended and
the interest rate applicable to any such refinancing, refunding, renewing or
extending Indebtedness is not increased, and (iv) if the Indebtedness being
refinanced, refunded, renewed or extended is Subordinated Indebtedness, such
refinancing, refunding, renewal or extension is subordinated in right of payment
to the Note Obligations on terms at least as favorable, taken as a whole, to the
Note Purchasers as those contained in the documentation governing the
Subordinated Indebtedness being refinanced, refunded, renewed or extended, and
(B) contains covenants and events of default that are not more restrictive taken
as a whole than the covenants and events of default contained in the
documentation governing the Indebtedness being refinanced.

 

“Person” means any entity, whether of natural or legal constitution, including
any individual, corporation, partnership, joint venture, limited liability
company, unlimited liability company, trust, estate, unincorporated
organization, government or any agency or political subdivision thereof.

 

“Plan” means any “employee benefit plan” (as such term is defined in
Section 3(3) of ERISA) established by the Issuer or, with respect to any such
plan that is subject to Section 412 of the Code or Title IV of ERISA, any ERISA
Affiliate.

 

“Projections” has the meaning set forth in Section 5.5.3.

 

“Proposed Prepayment Date” has the meaning set forth in Section 3.2.3.2.

 

“Purchase Money Indebtedness” means Indebtedness (other than the Revolving Loan
Debt but including Capitalized Lease Obligations), incurred at the time of, or
within 20 days after, the acquisition of any fixed assets for the purpose of
financing all or any part of the acquisition cost thereof.

 

“Real Property” means the right, title and interest in and to all owned and
leased premises of the Note Parties and each of their Subsidiaries.

 

“Record” means information that is inscribed on a tangible medium or that is
stored in an electronic or other medium and is retrievable in perceivable form.

 

“Related Party” means any of the current stockholders, directors, officers or
beneficial owners of any of the Note Parties or any of their Subsidiaries or
Affiliates, and their spouses, siblings and descendants and trusts for the
benefit of any of the current stockholders, directors, officers or beneficial
owners, their spouses, siblings and descendants.

 

“Reportable Event” has the meaning set forth in ERISA § 4043, other than events
for which the 30 day notice has been waived.

 

“Required Purchasers” means the Note Purchasers holding at least 51% of the
outstanding Note Obligations, which group must include at least two Note
Purchasers and which must include any Note Purchaser holding at least 25% of the
outstanding Note Obligations (it being understood and agreed that Note
Purchasers that are Affiliates or Related Fund shall constitute one Note
Purchaser for the purpose of this provision).

 

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“Responsible Officer” means the chief executive officer, president, chief
financial officer or treasurer of a Note Party or any of the other individuals
designated in writing to the Collateral Agent by an existing Responsible Officer
of a Note Party as an authorized signatory of any certificate or other document
to be delivered hereunder.  Any document delivered hereunder that is signed by a
Responsible Officer of a Note Party shall be conclusively presumed to have been
authorized by all necessary corporate, partnership and/or other action on the
part of such Note Party and such Responsible Officer shall be conclusively
presumed to have acted on behalf of such Note Party.

 

“Restricted Payment” means, any dividend or other distribution (whether in cash,
securities or other property) with respect to any capital stock or other Equity
Interest of any Person or any of its Subsidiaries, or any payment (whether in
cash, securities or other property), including any sinking fund or similar
deposit, on account of the purchase, redemption, retirement, defeasance,
acquisition, cancellation or termination of any such capital stock or other
Equity Interest, or on account of any return of capital to such Person’s
stockholders, partners or members (or the equivalent of any thereof), or any
option, warrant or other right to acquire any such dividend or other
distribution or payment.  Without limiting the foregoing, “Restricted Payments”
with respect to any Person shall also include all payments made by such Person
with any proceeds of a dissolution or liquidation of such Person.

 

“Revolving Agent” has the meaning set forth in the Intercreditor Agreement.

 

“Revolving Lender” has the meaning set forth in the Intercreditor Agreement.

 

“Revolving Loan Agreement” has the meaning set forth in the Intercreditor
Agreement.

 

“Revolving Loan Debt” means the “Revolving Loan Debt” as defined in the
Intercreditor Agreement.

 

“Revolving Loan Documents” has the meaning set forth in the Intercreditor
Agreement.

 

“Revolving Obligations” has the meaning ascribed to the defined term
“Obligations” in the Revolving Loan Agreement.

 

“S&P” has the meaning specified therefor in the definition of Cash Equivalents.

 

“Securities Act” means the United States Securities Act of 1933, as amended and
any successor statute.

 

“Security Agreement” means the Security Agreement, substantially in the form of
Exhibit C to the Agreement, between the Note Parties and the Collateral Agent,
for the benefit of the Note Purchasers, as amended, modified or supplemented
from time to time.

 

“Security Documents” has the meaning specified therefor in the Revolving Loan
Agreement.

 

“Security Interests” means the security interests in the Collateral granted
under the Collateral Documents to secure the Note Obligations.

 

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“Services Company” means The Children’s Place Services Company, LLC, a Delaware
limited liability company.

 

“Solvent” means, as to any Person at any time, that (a) the fair value of the
Property of such Person is greater than the amount of such Person’s liabilities
(including disputed, contingent and unliquidated liabilities) as such value is
established and liabilities evaluated for purposes of Section 101(32)(A) of the
Bankruptcy Code and, in the alternative, for purposes of the Uniform Fraudulent
Transfer Act; (b) the present fair saleable value (on a going concern basis) of
the Property of such Person is not less than the amount that will be required to
pay the probable liability of such Person on its debts as they become absolute
and matured; (c) such Person is able to realize upon its Property and generally
pay its debts and other liabilities (including disputed, contingent and
unliquidated liabilities) as they mature in the normal course of business;
(d) such Person does not intend to, and does not believe that it will, incur
debts or liabilities beyond such Person’s ability to generally pay as such debts
and liabilities mature; and (e) such Person is not engaged in business or a
transaction, and is not about to engage in business or a transaction, for which
such Person’s Property would constitute unreasonably small capital.

 

 “Stock Options” means (i) the stock option investigation, (ii) related material
weakness in internal controls over financial reporting related to stock option
grants, (iii) resolution of tax consequences and corrective action related to
discounted stock options, (iv) the related restatement to Issuer’s prior period
financial statements to reflect additional stock based compensation expenses
relating to stock option grants made in each year from the  Fiscal Year ended
January 31, 1998 through the first Fiscal Quarter of  Fiscal Year 2006, all of
which was disclosed in the Issuers’s Annual Report on Form 10-K for the
fifty-three weeks ended February 3, 2007.

 

“Store” means any retail store (which may include any real property, fixtures,
equipment, inventory and other property related thereto) operated, or to be
operated, by any Note Party.

 

“Subordinated Indebtedness” means Indebtedness which is expressly subordinated
in right of payment to the prior payment in full of the Revolving Obligations
and Note Obligations and which is in form and on terms approved in writing by
the Required Purchasers.

 

“Subsidiary” means, with respect to any Person, (a) any corporation of which an
aggregate of more than 50% of the outstanding Capital Stock having ordinary
voting power to elect a majority of the board of directors of such corporation
(irrespective of whether, at the time, Stock of any other class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time, directly or indirectly, owned
legally or beneficially by such Person or one or more Subsidiaries of such
Person, or with respect to which any such Person has the right to vote or
designate the vote of more than 50% or more of such Capital Stock whether by
proxy, agreement, operation of law or otherwise, and (b) any partnership or
limited liability company in which such Person and/or one or more Subsidiaries
of such Person shall have an interest (whether in the form of voting or
participation in profits or capital contribution) of more than 50% or of which
any such Person is a general partner or managing member or may exercise the
powers of a general partner whether directly or indirectly, and (c) any other
Person (other than a corporation, limited liability company or partnership) in
which such Person, a Subsidiary of such Person or such Person and one or more
Subsidiaries of such Person, directly or indirectly, at the date of
determination thereof, has (a) at least a majority ownership interest or (b) the
power to elect or direct the election of a majority of the directors or other

 

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governing body of such Person.  Any reference to the Subsidiaries of the Issuer
herein or in any Note Document shall not include Hoop, unless explicitly stated
otherwise.

 

“Syndication Agent” means Crystal Capital Fund Management, L.P., in its capacity
as Syndication Agent under the Note Documents or any successor thereto.

 

“Taxes” has the meaning set forth in Section 3.4.1.

 

“Transactions” means the transactions contemplated by the Revolving Loan
Documents and the Note Documents.

 

“Transition Services Agreement” means the agreement so entitled dated as of
April 30, 2008 among The Children’s Place Services Company, LLC, T2 Acquisition,
LLC and the other parties named therein.

 

“Twin Brook” means Twin Brook Insurance Company, Inc., a New York captive
insurance company.

 

“Unfunded Pension Liability” means the excess of a Pension Plan’s benefit
liabilities under Section 4001(a)(16) of ERISA, over the current value of that
Pension Plan’s assets, determined in accordance with the assumptions used for
funding the Pension Plan pursuant to Section 412 of the Code for the applicable
plan year.

 

“Uniform Commercial Code” means the Uniform Commercial Code of the State of
New York, or any successor statutes.

 

“USA Patriot Act” means the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001,
Public Law 107-56, as the same has been, or shall hereafter be, renewed,
extended, amended or replaced.

 

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SCHEDULE 7.16

 

FINANCIAL COVENANTS

 

Section 1.                                          Closing Date Total Leverage
Ratio.

 

1.1.                              For purposes of this Schedule 7.16 and the
Agreement:

 

“Closing Date EBITDA” means, trailing twelve month EBITDA as of May 31, 2008, as
set forth in Schedule 7.16(a).

 

“Closing Date Total Leverage Ratio” means the Leverage Ratio as of May 31, 2008,
as set forth in Schedule 7.16(b).

 

Section 2.

 

2.1.                              Minimum EBITDA.  The Note Parties and their
Subsidiaries shall maintain EBITDA, measured for each Trailing Twelve Month
Period, of not less than the following amount indicated below as of the end of
each Fiscal Quarter ending on:

 

Fiscal Quarters Ended

 

EBITDA

 

 

 

 

 

August 2, 2008

 

$

80,015,000

 

 

 

 

 

November 1, 2008

 

$

103,329,000

 

 

 

 

 

January 31, 2009

 

$

111,521,000

 

 

 

 

 

Thereafter

 

$

115,000,000

 

 

2.2.                              “EBITDA” has the meaning set forth in
Section 3.2 of this Schedule 7.16.

 

Section 3.                                          Maximum Total Leverage
Ratio.

 

3.1                                 The Note Parties and their Subsidiaries
shall maintain a Leverage Ratio, measured for each Trailing Twelve Month Period,
of not greater than the following amount indicated below as of November 30 and
December 31 of each Fiscal Year and as of the end of each Fiscal Quarter ending
on:

 

Fiscal Quarters Ended

 

Ratio

 

 

 

 

 

August 2, 2008

 

2.50:1.00

 

 

 

 

 

November 1, 2008

 

2.50:1.00

 

 

 

 

 

January 31, 2009

 

2.50:1.00

 

 

 

 

 

Thereafter

 

2.50:1.00

 

 

1

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3.2                                 For purposes of this Schedule 7.16 and the
Agreement:

 

(i)                                     “EBITDA” means, for any period, for the
Issuer and its Subsidiaries excluding Hoop, an amount determined on a
Consolidated basis, substantially in accordance with GAAP and the Issuer’s past
practices, equal to Issuer’s Consolidated net income, excluding Hoop, plus the
sum, without duplication and to the extent included in the calculation of
Consolidated net income, of the following amounts with respect to the Issuer and
its Subsidiaries excluding Hoop for such period:

 

(a)                                  Consolidated interest expense, net of
consolidated interest income, and other fees and charges associated with
Permitted Indebtedness, including (i) accrued interest on the Revolving Loan
Debt and accrued interest, adjusted to reflect the actual amount paid or
received by such Persons under any interest rate swaps in place with respect to
the Notes at such time, on the Notes; monthly re-occurring fees; fees and other
expenses that are capitalized or amortized;  fees associated with amending,
restating or terminating the Existing Credit Agreement (as defined in the
Revolving Loan Agreement) and the L/C Demand Facility;

 

(b)                                 income, franchise or similar taxes;

 

(c)                                  total depreciation expense;

 

(d)                                 total amortization expense, including
amortization of intangibles (including, but not limited to, goodwill);

 

(e)                                  non ordinary expenses, net of revenues
related to the divestiture of Hoop or otherwise received from Walt Disney
Corporation and its Affiliates in accordance with the Transition Services
Agreement to the extent such revenues are included in the Issuer’s Consolidated
net income, including but not limited to (i) legal, financial advisory, broker
and other professional fees associated with the divestiture of Hoop; (ii) any
impairment or other non reoccurring charges related specially to the valuation
of Hoop; (iii) to the extent not included in the Issuer’s Projections, non
allocated expenses associated with the operation of Hoop; (iv) other non
re-occurring charges associated with Hoop, including contributions made by the
Issuer to Hoop and payments owed but not paid to the Issuer by Hoop for services
provided by the Issuer; and (v) payments made by the Issuer on behalf of Hoop
which were not reimbursed by Hoop and would have normally been made by Hoop or
made by the Issuer and reimbursed by Hoop in the ordinary course; provided that
the cash charges added back to Consolidated net income under this clause
(e) over the term of this Agreement shall be limited to $35 million for the
Fiscal Year ending on or around January 31, 2009 and $5 million for the Fiscal
Year ending on or around January 31, 2010;

 

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(f)                                    one time charges such as severance and
other related costs associated with the Issuer’s downsizing and restructuring
announced on March 20, 2008 up to $3 million in the aggregate unless otherwise
approved by the Required Purchasers;

 

(g)                                 impairment and other non re-occurring
charges related to the exit of the Issuer’s New Headquarters as set forth on
Schedule 7.16(g) not to exceed $20.7 million;

 

(h)                                 non re-occurring charges related to the
Issuer’s stock option investigation as set forth on Schedule 7.16(h) not to
exceed $11.6 million to the extent such charges were included in the Issuer’s
Projections;

 

(i)                                     non re-occurring charges related to the
severance of certain senior management disclosed to the Note Purchasers to the
extent such charges were included in the Issuer’s Projections up to $3 million
in any Fiscal Year unless otherwise approved by the Required Purchasers
(including, for the avoidance of doubt, the $4.7 million for the Fiscal Year
ending January 2008 set forth on the Projections);

 

(j)                                     other non re-occurring cash charges not
to exceed $25 million over the term of this Agreement and $5 million in any
measurement period unless otherwise approved by the Required Purchasers;
provided, that, a corresponding decrease in cash gains shall be reflected for
any charge under this clause (j).

 

(k)                                  non cash, non re-occurring charges or
losses and extraordinary charges, as determined in accordance with GAAP up to $5
million in the aggregate unless otherwise approved by the Required Purchasers;
provided, that, a corresponding decrease in non-cash gains shall be reflected
for any change under this clause (k).

 

(l)                                     employee compensation paid in Equity
Interests issued by the Issuer or its Subsidiaries excluding Hoop;

 

(m)                               legal and other professional advisory and
closing fees associated with the Note Documents and the Revolving Loan Documents
up to $[5] million in the aggregate unless otherwise approved by the Required
Purchasers; and

 

(n)                                 legal and other professional advisory fees
incurred in 2007 and 2008 associated with the development of strategic
alternatives up to $5 million in the aggregate unless otherwise approved by the
Required Purchasers.

 

(ii)                                  “Leverage Ratio” means for the Issuer and
its Subsidiaries excluding Hoop the ratio of (x) the sum of (A) the outstanding
balance with respect to the Notes as of the measurement date, (B) for the Fiscal
Year ending January 2009, the trailing twelve month average of the (i) ending
monthly balance of outstanding revolving loans under the Existing Credit
Agreement and the Revolving Loan Agreement as of the measurement date, less
(ii) the outstanding amount under the Notes on the Closing Date for any months
occurring prior to the Closing Date that are included in any trailing twelve
month period, provided that to the extent the result of such calculation is less
than zero the amount will be deemed to be zero, (C) for the Fiscal Year ending
January 2009, the average monthly outstanding commercial letters of credit
issued under the Existing Credit Agreement, the L/C Demand Facility and the
Revolving Loan Agreement

 

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as of the measurement date, and (D) for the Fiscal Year ending January 2009, the
average monthly outstanding standby letters of credit issued under the Existing
Credit Agreement, the L/C Demand Facility and the Revolving Loan Agreement as of
the measurement date to (y) the trailing twelve month EBITDA as of the
measurement date.  Such year to date calculations will be trailing twelve month
calculations beginning with the end of February 2009.

 

(iii)                               “Fiscal Quarter” means the applicable fiscal
quarter of a Fiscal Year.

 

(iv)                              “Fiscal Year” means any Note Parties’ Fiscal
Year for financial accounting purposes, beginning on or about February 1st and
ending on or about January 31st.

 

(v)                                 “Trailing Twelve Month” means the twelve
(12) calendar month period immediately preceding the date of calculation.

 

Section 4.                                          Minimum Fixed Charge
Coverage Ratio.

 

4.1                                 The Note Parties shall maintain a Fixed
Charge Coverage Ratio, measured for each Trailing Twelve Month Period, of not
less than 1.50:1.00 as of the end of the Fiscal Quarter ending on November 1,
2008 and 2.00:1.00 as of the end of each Fiscal Quarter thereafter.

 

4.2                                 For purposes of this Schedule 7.16 and the
Agreement:

 

(i)                                     “Fixed Charge Coverage Ratio” means for
the Issuer and its Subsidiaries excluding Hoop for the trailing twelve month
period most recently ended the ratio of (x) EBITDA less the sum of (A) Capital
Expenditures, plus (B) the cash portion of state and federal income, franchise
and similar taxes, to (y) Consolidated cash interest expense, adjusted to
reflect the actual amount paid or received by such Persons under any interest
rate swaps in place with respect to the Notes at such time.

 

(ii)                                  “Income Tax Expense” means the cash
portion of expenditures for federal and state income taxes determined in
accordance with GAAP.

 

(iii)                               “Interest Expense” means (A) for the period
before the twelve (12) month anniversary of the Closing Date, expenditures for
interest determined in accordance with GAAP calculated on an annualized basis
based upon the time period from the Closing Date to the date of calculation, and
thereafter, (B) expenditures for interest determined in accordance with GAAP for
the twelve (12) calendar month period immediately preceding the date of
calculation.

 

Section 5.                                          Calculation of Financial
Covenants.

 

(i)                                     The Note Purchasers may calculate the
Note Parties’ EBITDA and the other specified amounts under this Schedule 7.16
(and under the other financial covenants contained in the Agreement) on the
basis of information then available to the Note Purchasers, which
calculation(s) will be binding on the Note Parties; however, the Note Purchasers
will give notice to the Note Parties of the Note Purchasers’ computations made
pursuant to this Section 6 and an

 

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opportunity to provide the Note Purchasers with any additional or contrary
information.  The Note Parties must provide any additional (or contrary)
information within 15 Business Days after the Note Purchasers gives notice to
the Note Parties of the Note Purchasers’ computations.

 

(ii)                                  The Financial Covenants will be based on
the Consolidated financial performance of the Note Parties and all their
Subsidiaries in accordance with the Agreement.

 

Section 6.                                          Definitions.  Capitalized
terms used, but not defined, in this Schedule 7.16 have the meanings given to
them in the Agreement.

 

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SCHEDULE 7.3

 

A monthly report of new Store openings (including an estimate of associated
costs) and closings.

 

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